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India, Bhutan sign pact for first joint venture hydropower project

REPORT-4-ENG-30-06-2020-Bhutan
The 600 MW Kholongchhu project

India and Bhutan took a major step forward for the construction of the 600 MW Kholongchhu project, their first hydropower joint venture project in Bhutan’s less developed eastern region of Trashiyangtse. The project’s “Concession agreement,” which was signed in the presence via video-conference of External Affairs Minister S. Jaishankar in Delhi, and Bhutan’s Foreign Minister Tandi Dorji and Economic Affairs Minister Loknath Sharma in Thimphu, marks a shift as it is the first time an India-Bhutan hydropower project will be constructed as a 50:50 joint venture, not as a government-to-government agreement.

Speaking at the ceremony, both Foreign Ministers called the agreement a “milestone” in the India-Bhutan partnership, under which four hydropower projects have been built in the last 30 years totalling a capacity of 2,100 MW, and another two are under construction. The Kholongchhu project is one of four additional projects agreed to in 2008, as a part of India’s commitment to helping Bhutan create a total 10,000 MW of installed capacity by 2020.

‘Mutually beneficial’

“[The] hydropower sector has been the most visible symbol of the mutually beneficial bilateral cooperation between our two countries,” said Mr. Jaishankar at the signing ceremony between the JV Partners Sutlej Jal Vidyut Nigam (SJVN), a Himachal Pradesh PSU, and the Bhutanese Druk Green Power Corporation (DGPC). “I congratulate both the JV partners for this remarkable feat and hope that they will leave no stone unturned in expeditiously completing the project,” he said.

The inter-governmental agreement for the Kholongchhu project was signed after prolonged negotiations on the structure of the joint venture, in April 2014, and the foundation stone was laid when Prime Minister Narendra Modi travelled to Thimphu a few months later. However, progress on preparing the site ground to a halt in December 2016 over India’s new power tariff guidelines (on Cross Border Trade of Electricity - CBTE), until the government amended its guidelines after negotiations with the Bhutan government. During Monday’s ceremony, the Bhutanese Foreign Minister said the delay had “some benefits” as many issues on the ground were ironed out during the period.

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“Some may feel that years of delay in the implementation of the project has led to cost escalation and missed opportunities in terms of immediate benefits to the community. My view is that it is only natural that all the details of a project of such a magnitude should be thoroughly worked out before construction commences,” Mr. Dorji said.

GoI grant

According to the agreement finalised, the construction for the Kholongchhu Hydro Electric Power (HEP) project will begin soon, and be completed in the second half of 2025. The Government of India will provide, as a grant, the equity share of the Bhutanese DGPC in the JV Company. Once the project is commissioned, the JV partners will run it for 30 years, called the concession period, after which the full ownership will transfer to the Bhutan government, which will receive power from the project as a “royalty” in the interim. Power tariffs, a sticky issue, will be negotiated closer to the completion of the project.

Another issue over the risk of the JV-model for the project was resolved after the government reassured Bhutanese officials who expressed misgivings over a greater financial risk due to project delays, sources told The Hindu. New Delhi prefers the more commercial model as it not only shares the risk, but also makes Indian PSUs show greater accountability on time and cost, as they become “investors rather than contractors.”

“Kholongchhu is a continuation of our bilateral cooperation, where Chukha, Kurichhu, Tala and Mangdechhu [hydropower projects] all stand as proud examples behind this, epitomising the core of this friendship: partnership for a greater good,” Indian Ambassador Ruchira Khamboj, who attended the ceremony along with Bhutan’s Ambassador in Delhi V. Namgyal, said.