Transparency in hydropower projects

The escalating cost of the 10,000 MW projects has been a perennial issue that has featured in the media and public discussion. It has also been mentioned, many times, how majority of the national debt is hydropower debt.

The size and number of the projects coupled with escalating costs and limited budget resulted in the 60 loan and 40 grant formula for P I changing to 70 loan and 30 grant formula for all bilateral projects from P II onwards.

It was also partly due to fund limitations that Bhutan and India agreed on four joint venture projects where Indian companies would get 50 percent ownership of Bhutanese companies.

A key and regular component of hydropower discussions between members of the two governments also focuses on the issue of funding. Ever since the announcement of 10,000 MW by 2020, there have been some bureaucratic voices in India raising the issue of availability of funds for the projects. It has been an ongoing discussion.

From both technical reports, and the use of common sense, there is no doubt that cost escalations are a part and parcel of any mega projects, especially so for the long drawn out hydro projects vulnerable to geological surprises.

There is also no doubt that the 10,000 MW projects require huge funding, given the energy output and whatever the funding costs, both Bhutan and India stand to benefit in huge ways from the projects.

In the middle of all these truths, it is surprising and even discomforting to find that a monopoly supplier of electro mechanical equipment BHEL for Bhutan’s mega projects had in 2010 drawn up an agreement with a local private company and individual to pay a 1.5 percent commission for P I and Mangdechu electro mechanical tenders.

Though the percentage is small, the amount by no means is small, as 1.5 percent of Nu 16 bn comes to around Nu 240 mn.

The fact is that with around 70 percent of the project cost of P II and Mangdechu being financed by loans taken by Bhutan, such an arrangement has a direct bearing on the country’s exchequer and also the project cost.

The very fact that BHEL as mentioned, in the letter, to agree to pay 1.5 percent means that the cost of such a ‘commission’ or ‘fee’ will come from the bid value.

The real reason and motive of such an arrangement must also be questioned, especially when BHEL is a monopoly supplier with no other companies to compete with it. Questions must also be raised if more people are involved or if there are more such deals that we do not know of as yet.

Local agents and lobbyists are usually hired by private companies aggressively competing for a bid, and at least in Bhutan, there is no practice of paying a section of the bid amount for a hydro project.

The letter in truth or the ‘smoking gun’ as some would call it throws up as much questions as the answers and facts that it reveals.

The letter throws a big question on the issue and transparency and propriety in hydropower construction. This could be an isolated incident, but then, nobody really knows what other ‘deals’-if any, have been made on the backs of other huge multi-billion tenders.

On one hand, this letter and revelation could not have come at a worse time – with escalating projects costs, financing issues and others issues, but then again, it is s better to know about such ‘deals’ in the early phase of our 10,000 MW construction then to have to find out once everything is done.

Given that the majority of the financing costs – in the form of 70 percent loan lies with Bhutan, therefore, it is in our national interest to ensure that there are no unnecessary and avoidable leakages in our mega projects.

Though this ‘deal’ seems to have been made around four years ago, the government of the day must look into the issue and look at the various financial, legal and other implications on the nation and its economy, as hydro projects have been touted as the main hope and lifeline of the Bhutanese economy and our collective future.

“Sunlight is the best disinfectant.”
William O. Douglas

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