Saturday 11 March 2023
Indo-Bhutan Hydropower Cooperation
Indo-Bhutan Hydropower Cooperation[1]
1. Introduction
High ranges of Himalayas and steep gradient of glacial rivers of Bhutan make it ideal for hydroelectric project. The basis of energy generation in hydroelectric power plants is the conversion of potential energy of water stored at a height into electrical energy. This happens by first having the water fall to convert the potential energy into kinetic, so that the turbine can capture and convert that energy into mechanical energy. The mechanical energy generated is finally converted into electrical energy by a generator.
Cooperation in the hydropower sector was envisaged to benefit both India and Bhutan. Both Governments came together and agreements for co-operations were signed after development of stand-alone projects in Chukha, Kiruchhu and Tala. Hydropower projects to generate 10000 MW was planned to be developed till 2020. The model followed for generating power was primarily based on the successful model of Tala hydroelectric Project which is called IG Model (Inter Government Model). As per this model, an authority is to be created for each project and Authority would execute the project based on agreement and protocol to be signed separately for each project. Accordingly, Punatsangchhu-I Hydroelectric Project Authority (PHPA-I), Punatsangchhu-II Hydroelectric Project Authority (PHPA-II) and Mangdechhu Hydroelectric Project Authority (MHPA) were started between 2008-2011.“Chhu” in local dialect is river and these projects are run of the river projects on the respective rivers. DPRs were prepared for these projects and a few more. In PHPA-I and PHPA-II, WAPCOS, a Government of India PSU was appointed as engineering design consultant whereas in MHPA, NHPC was given the consultancy assignment.
Both, PHPA-I and PHPA-II plansof capacity 1200MW and 1,020 MW respectively are built on one of the the prominent rivers of Bhutan namely, Punatsangchhu, which is known as Sankosh River in India, and it eventually draws into the mighty river Brahmaputra. They are both currently under construction. Powerhouse of PHPA-I and other infrastructure is almost complete but dam is currently not built due to geotechnical and other problems, while dam of PHPA–II is almost ready but power-house is currently under construction, after some setbacks, and is expected to be partly operational by the year 2024.
As per the agreements, entire cost of the project is to be provided by GoI as loan and grant. In PHPA-I grant amount is 40% whereas balance 60% is given at loan attracting interest of 10% with liberal repayment tenure. In PHPA-II and MHPA grant is 30%. This model is based on the cost-plus model where cost of the project is entirely funded by GoI and selling price of the power is determined as per the broad framework of Central Electricity Regulatory Commission (CERC) for selling price. Delay, if any in execution of the project, adds to cost. Similarly variations in design and material also add to cost to the project. Interests amount during construction is added to the cost of the project for calculation of tariff and repayment of loan purposes. If the project is executed intime then cost of the project is likely to be less and selling price of power will also be less. However, if there is delay or there are technical challenges adding to the cost of the project then the project cost would go up and so will the selling price.
Three mega-projects were started in Bhutan under bi-lateral. Project at MHPA could be completed and commissioned by 2019. It is generating power and almost entire power is sold to India by the project. Selling price has been negotiated to Rs.4.12 per unit (on cost plus basis) which is purchased by PTC, a PSU of GoI at the fixed rate for peak as well as non-peak demands. Difference in revenue due to committed price is paid to PTC by Ministry of External Affairs, GoI. Other projects of Bhutan sell their surplus power to India and as per the agreement between the countries, surplus power is determined by RGoB which carries different rates for different projects. Thus exported power is sold at different rates which is about Rs.2.50 per units for old projects like Tala, Kiruchhu and Chukha.
2. Evolution of Hydroelectric Sector in Bhutan
Initially Bhutan was fully dependent on India for the capital, machinery and manpower. As it went on commissioning the projects, it developed internal capacities, firstly by educating and training manpower in the technical disciplines. With young students getting trained and educated in Indian premier institutions, under technical co-operation, a pool of resource has been created whereby all completed projects are successfully managed by the Bhutanese. Now almost entire executive level is manned by Bhutanese and only a handful of Indians work at senior levels. Since Bhutan has planned really well, almost entire labor force handling blue collared jobs are imported from India whereas Bhutanese focus on white collared or supervisory jobs.
Bhutan is getting liberal capital support from India and untied grants in other sectors for development, which has contributed immensely in capacity and infrastructure development in Bhutan. Apart from the support extended by GoI in development of infrastructure, hydroelectric projects have also taken up road projects, hospitals and schools in and around the project area.
Many other social benefit projects and area development have been taken up by the projects, which has changed the demography of Bhutan. Bhutan still relies on machinery, capital and big contractors from India or other countries, it does not get encouraged to venture into many areas due to its resource constraints including population of just around 7 lacs.
With the commissioning of 720 MW MHPA in August 2019, Bhutan earned more than Rs. 3000 Crores during COVID-19 times through export of electricity to India. It was one economic powerhouse, which saved economy of Bhutan during tough times and Bhutan could manage to close its borders for almost two years with almost negligible movement of Indians for trade and tourists from anywhere and survive.
Bhutan is a negative carbon footprint country. With these hydroelectric projects, it is further contributing to increase its carbon credit. With culmination of carbon trading arrangements, economy of Bhutan would be immensely benefitted.
3. Challenges and Way Forward
Hydropower project have been developed or being taken up on the strength of DPR prepared by Indian agencies. It takes too much time to finalize the project execution methodology and actual execution takes further more time. Many of the factors conceived in DPR undergo change and there are significant variations noticed while the project is executed. DPR costs often go under revision by 2.5 to 3 times. In the case of PHPA-II, there were geological surprises which have delayed the project and cost has also gone up. The geological challenges could not be seen during the DPR which could have been done with more detailing. PHPA-I is more alarming as the location of the dam as per the initial DPR was changed midway causing huge loss time and cost overruns. Then to make things scarier the changed location of dam has been found to be facing geotechnical challenges. In these case, it clearly emerged that DPR, needs more detailing and project approval to be done quickly.
Once the project is approved and Authority is created in IG model projects, tender of major packages is done by the project authority as per the tender documents prepared at the strength of the old DPR. This leads to huge variations in quantity and even change in design or methodology of execution. At the time of tender, there is a need to review the DPR based on some more detailing to make the execution better.
Variations are too rampant and analyzed rates are the only option to arrive at the cost of varied items. These rates are invariably very high as rates in Bhutan is ordinarily high for individual inputs going to such big contracts. Contractors generally bid offering competitive prices whereas analyzed rates are rates prevalent in Bhutan which are high as in hilly areas. Contractual provisions pertaining to variations shall be revisited for the future projects to not allow variations on the market analyzed rates. Rather it may be linked to the Bill of Quantity (BoQ) rates only.
There are not many suppliers or contractors in Bhutan and with restrictions in imports and movement of manpower and material, project ends up paying more to intermediaries without any value addition. There are many entry and exit barriers causing hindrance in the development of hydropower sector. There are provisions of the equal opportunity to the contractors and employees from India in all bi-lateral projects, however it is diluted with time.
Entire project is funded by GoI. IG model is based on cost plus, means, more project cost would bring more money and in the end more tariff worked out on the basis of cost-plus method. A new financial model needs to be decided whereby loading of unproductive activities to the project shall not be allowed and cost allocation of land acquisition and cost of manpower shall be shared between project funds from GoI and some funding to be obtained from RGoB.
Cost of the project is the sole factor to decide the selling price of the electricity to be purchased by India. With the example of MHPA, it is clear that the selling price based on excessive project cost and worked out for uniform supply is not sustainable. This price is invariably not viable during non-peak time it is suggested that to bring in discipline in the project and right kind of risk allocation, funding of project need be shared. There is a need to select contractors and management in a professional manner. It is high time the model of funding and management needs to be reviewed to make it more cost effective and beneficial to both countries with proper sharing of risks.
[1]This article covers only the major hydroelectric projects funded by GoI in Bhutan. Views expressed by the author, Dr. Ajay S Singh, ICAS (1994) are personal.
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