India-Bhutan Hydropower Cooperation - Current Situation

Although India and Bhutan are good friends, there are many views on India's participation in the hydropower sector.

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Special bilateral relations between India and Bhutan are very close and continue to grow in many or almost all areas of cooperation including hydropower generation. Since the beginning of first five-year plan in the Himalayan state's, in the early 1960s, the nations south of Bhutan have first made significant contributions to power generation projects since the 'Jaldhaka' agreement in 1961. This cooperation will also lead to many important activities. Chukha Hydroelectric Project of 336 Mega Watt (MG) capacity in 1978 was the first mega project in Bhutan to be fully financed by the Government of India (GOI) with 60 percent grant and 40 percent loan at 5 percent interest rate for a period of 15 years. Since then, the hydropower generation agreement (July 2006) has further strengthened the mutual trust between the two countries, setting the stage for other projects.  

Over time, however, parameters of cooperation in this area have started to disappear. As the National Council of Bhutan argues, delays in completing projects that are already under construction and beyond the stipulated period and increasing unrealistic costs are one of the most common reasons. A very recent example is the Pnatsangchu I Hydropower Project and the Kholongchu Hydropower Project - the first joint venture between Druk Green Power Corporation and Sutlej Jal Vidyut Nigam Limited of India - which failed to meet their respective deadlines. While the former is expected to be completed in 2016, with an initial expenditure of 35.148 billion Nu 35.148 billion, overhead expenditure has now exceeded Nu 93.756 billion. Again it was to be operational by 2022 with an initial financial cost of Rs 33.05 billion, which was finally increased to Rs 54.818 billion. 

As the National Council of Bhutan argues, delays in completing projects that are already under construction and beyond the stipulated period and increasing unrealistic costs are one of the most common reasons.

The reason behind the impasse is the lack of consensus between the two neighboring countries, which emerged from the reconsideration of the Budget Appropriation Bill for the fiscal year 2022-23 in Bhutan's National Assembly. For the first initiative, the GOI had not responded about the feasibility of the construction of the barrage, while the second project is at the forefront of the debate over construction work and capital work and the proper division of responsibilities among stakeholders. , requires solutions and implementation on an urgent basis. Thus, the apparently favorable Indo-Bhutan hydropower dynamic is not only threatened at present but also challenged by China's similar hydropower investments by pro-China Bhutanese businessmen for accelerated economic development. 


Bhutan has always recognized its rich water resources as a very important area for investment, such as in 'Bhutan 2020: A Vision for Peace, Prosperity and Happiness'. However, despite the theoretical capacity of 30,000 MW for hydropower, the technical-economic feasibility is about 23,765 MW, which requires assistance to extract its total capacity. 

Under these circumstances, Bhutan had envisioned India as a win-win partner for itself until a few years ago, when the country realized that this was not only a delay but also a huge amount of debt accumulated over time. Cheap electricity purchased by India. First, the two neighbors could not negotiate a fair price for electricity imports from Bhutan with a low average. The market price of electricity purchased by India, as Bhutan has often pointed out, is cheaper than the hydropower available locally in India. Secondly, in 2017, Bhutan's debt to India revolved around the Mangdechu, Panatsangchu 1 and 2 projects, estimated at INR 12,300 crore, accounting for 77 per cent of the country's total debt and 87 per cent of its GDP. Synonymously, the World Bank had identified Bhutan's external debt to GDP ratio of 99 percent, thus, It is counted as one of the ten most indebted countries among the 73 low and middle-income countries in the world. Therefore, if India does not act cautiously, its Belt and Road Initiative, as often criticized by China, could be targeted for setting a debt trap.

More specifically, the financial burden that Bhutan has had to shoulder since the last decade is obvious, as India's partner India has moved from the initial 60:40 model (60 percent grants and 40 percent loans) to a 30:70 model (30). percent grant and 70 percent loan), covering all projects to be completed by 2020, except for Pnatsangchu 1, which has retained the previous model. With interest rates skyrocketing and net profit per unit of electricity sold falling, the commercial profitability of the hydropower sector has come under the radar of serious questions, with India claiming 51 percent ownership in upcoming projects as well, raising Bhutan's eyebrows about true Indian intentions. This rise is largely attributed to India's inconsistent and fragmented policy towards recipient countries, as part of its development assistance programme.

The commercial profitability of the hydropower sector has come under the radar of serious questions due to steep rise in interest rates and decline in net profit per unit of electricity sold.

Moreover, negative sentiments are being generated by a large section of Bhutanese against Indian participation in the hydropower sector as they are treated as secondary participants in the investments of Indian private companies. This is because, compared to large Indian stakeholders, they are often reduced to smaller sub-contractors, as the Chamber of Commerce also raised for more role and decision-making positions for local Bhutanese companies. Again, even though the projects are located in Bhutan, a large number of Indians are working there and taking away job creation opportunities from local communities. In 2015, the number of Indian nationals living in Bhutan to work mainly in the hydropower sector was 60,000. 


Many subject matter experts (SME) and consultant have argued that the deadline to complete the project in 2020 was unrealistic, given the Covid-19 epidemic, geological barriers and other environmental complications associated with the development of the hydropower project. Despite earlier successes, this is the result of the declining trust in each other's commitment to mutually beneficial partnerships. 

However, the ray of hope lies in the politically strong relationship between the two countries, which have been aware of each other's special bond since 1947. One such example is the Mangdechu project, which gives Bhutan a much better advantage than India, where debt accounts for 70 per cent of the funds, hence, determines the export price of electricity. The perception is mainly based on the fact that India has really contributed to Bhutan's economic growth, often as a partner that has lost 10,000 units of free electricity per year per acre, for home can eventually be acquired or even taken as such. Cash on the export rate of the project. This has helped to set up local micro-enterprises, which has directly helped the Bhutanese economy. 

Despite the epidemic and the disruption of supplies from across the border, revenue from hydropower projects in Bhutan has increased by 10 per cent in 2020 compared to 2019. This was made possible by the good flow of hydrology in rivers and timely maintenance of power projects. So, not everything is serious and if the current delays and bilateral misunderstandings are removed, there will be a shower of adaptation and ultimately benefit the people who formed the basis of the relationship. At the same time, Bhutan is looking for other opportunities in its neighboring countries like Bangladesh, which also has a power deficit and demand has tripled from 11.404 MW in 2016 to 33708 MW in 2030. 

An agreement should be made with such countries. A tripartite arrangement between India, Bangladesh and Bhutan to develop a 1,125 MW project to export some power to Bangladesh could help Bhutan further open up with a “market-based tariff regime denominated in foreign exchange”. Thus, India should also take note of the fact that further delay may lead to loss of opportunity for a bilateral and a flourishing multilateral platform for hydropower cooperation.

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