In Last-Minute Talks, India, Bhutan Finalise Export Tariff for Hydropower Project
The Wire 29 Dec 2018
Till just a few hours before the prime ministers of Bhutan and India were to meet for the first time on Friday, officials from both countries were still parleying to finalise the tariff for the Mangdechhu power project. Speaking to The Wire on Friday evening, Bhutan foreign minister Tandi Dorji said that talks had gone on till the last minute on the export tariff for electricity generation from Mangdechhu. “We continued to negotiate till this morning,” he said.
Dorji is part of the high-level delegation accompanying Bhutan Prime Minister Lotay Tshering on his first foreign visit to India – a traditional destination choice for Bhutanese premiers. Tshering became the third democratically elected prime minister of Bhutan after his party, Druk Nyamrup Tshogpa (DNT), got the majority in the October parliamentary elections. Tshering’s first appointment on Friday was with Indian external affairs minister Sushma Swaraj, followed by the main event – delegation-level talks with Prime Minister Narendra Modi. With the morning discussions between the technical officials still to bridge the gap on the tariff, the final push had to be political.
A ‘mutually beneficial’ decision
For Tshering, getting a final nod on the tariff was a top priority since the export of electricity from the soon-to-be-commissioned 720-megawatt hydropower project would largely finance his government’s promises under the 12th five-year plan.
“After meetings with the external affairs minister and prime minister, they agreed to resolve the tariff negotiation,” said Dorji.
At the press appearance after the formal discussions, Modi announced, “We now have agreement also on the tariff of this project.”
Tshering concurred. “We are very happy that we heard this morning that GOI is fully committed to support whatever negotiations that is going for Mangdechhu tariff and to make Sunkosh project happen as soon as possible,” he said.
The joint press statement said that a “mutually beneficial understanding” had been reached on the export of surplus power from the Mangdechhu project. “There are one or two options to complete the modalities, which will be done in the next one or two days. India is okay with both of them,” said Dorji.
Describing himself as “quite happy” with the outcome, he said that towards the end, India was asking for 4.1 ngultrum per unit, while Bhutan’s proposal was for 4.27 ngultrum (1 ngultram = 1 rupee).
“So, there was not much difference actually… Whatever difference is there can be reached with increase in rates periodically over the new few years. This will be decided technically in a day or two,” Dorji told The Wire.
About 70% of the outlay for Bhutan’s 12th five-year plan of 310 billion ngultrum (Rs 31,000 crore) will be based on domestic revenue. This is the highest proportion for domestic financing in Bhutan’s five-year plans since the first one was launched in 1961.
The 11th five-year plan, which ended on June 31, had estimated 10% GDP growth. But delays in commissioning hydropower projects led to a slowdown, with average growth in the last five years at around 6%.
That’s why the stakes are especially high for Bhutan to get a good price from the export of power from the new project. “Our projections for the 12th five-year plan are based on the Mangdechhu tariff,” said Dorji.
The tariff for Mangdechhu will be higher than the rates for power from five operational hydropower projects. This has been predicated on the financing structure of the Rs 5,000 crore Mangdechhu project. Unlike previous projects, the loan to grant ratio is 70 to 30, which means that more revenue will be diverted to service debt in the initial years.
To a question on if there was any discussion on Bhutan’s ballooning external debt, most of it owed to India, Dorji replied in the negative.
“We are not very concerned as the debt will self-liquidate with the generation of revenue from hydropower,” he added.
Asked whether Bhutan was satisfied with the current 70:30 ratio of financing of hydropower projects by India, he stated, “We will be happy to receive more grant component, but we understand the economic realities.”
With the power tariff finalised, Mangdechhu power project’s commissioning in January could see the presence of the Indian prime minister. Tshering has extended a public invitation to Modi.
Next month, the new Bhutan parliament will also endorse the 12th five-year plan, bringing an end to a six-month period of limbo when no developmental activities took place.
Modi announced that India will contribute Rs 4,500 crore as budgetary support for the next five-year plan.
Indian assistance will account for 15% of the outlay for the five-year-plan, which is the lowest proportion ever. India also contributed Rs 4,500 core for the 11th five-year plan, but it accounted for 23% of the smaller outlay.
Dorji said that the lower relative proportion of Indian aid for the five-year plan was a “testament to Bhutan’s progress”.
He reminded the audience that in time for the 13th five-year plan, Bhutan would have formally graduated from the Least Developed Country category into the bracket of a lower middle income country. “In the next five-year plan in 2023, we will have to meet our requirement even more from domestic revenues.”
In his press statement, the Bhutan prime minister specifically mentioned the Indian prime minister’s support for starting the Sunkosh project, which has received special focus from Thimpu as it will be the first reservoir hydropower project. Bhutan has been pushing for the Sunkosh project as it would allow for hydropower generation even during the winter months.
Revisiting the Kholongchu project
The Bhutanese foreign minister revealed that there were discussions on one more stalled hydropower project.
“(The) Kholongchu (power project) was also discussed. It had been paused due to India’s cross-border guidelines,” said Dorji.
The foundation stone was laid by Modi in 2014, but Bhutan had refused the sign the concession agreement for the 600 megawatt project, which was to be a joint venture between the Druk Green Power Corporation (DGPC) and India’s SJVN Limited.
The point of contention was the 2016 Cross Border Trade in Electricity guidelines issued by the Indian power ministry, which Bhutan felt restricted access to Indian power exchange and also ability to execute tripartite projects.
Ten days ago, the Indian power ministry issued a revised set of rules – 2018 Guidelines for Import/Export (Cross Border) of Electricity – which purported to address some of these concerns.
“We have not been handed over the guidelines. We have seen it on the website and looked at it carefully. At first glance, it seems conducive,” said Dorji.
He added that the government is ready to resume the project. “Now that the amendment of the guidelines has been done, we will start work on the Kholonghchu in the next few months.”
Other regional mechanisms
Dorji also confirmed that there was no discussions on Bhutan re-joining the regional motor vehicles agreement with India, Bangladesh and Nepal, under the BBIN framework. The new government had promised to review Bhutan’s withdrawal, but there was no guarantee that it would be positive.
Meanwhile, the Bhutan foreign minister said that the languishing SAARC still has some life.
“Although SAARC summit has not been held, many subsidiary bodies like SAARC Development Fund continue to function. There is relevance to it,” he told The Wire.
Dorji said that the regional body is non-functional at the leadership level. He noted that all countries need to reach an agreement to resolve the issues which have stalled the regional association. “There is a critical need to resolve the issues,” he added.
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