As part of the 50 years of formal diplomatic relations between the two countries, the government has been pursuing a substantial increase in the power tariff of the Chukha project, and it has also been pushing India to implement the 2,560 MW Sunkosh.
The Chukha tariff is supposed to be negotiated every four years. With the last hike in 2014 effective from 1st January 2013 the next effective hike date was on 1st January 2017.
The Indian government in 2014 agreed to a hike of 0.25 cheltrums per unit effective from January 2013 coming to a total of Nu 2.25 per unit and increasing the revenue by around Nu 450 mn. This pushed the annual Chukha revenue from around Nu 3.6 bn to around Nu 4 bn per year. Since there is no loan component the entire revenue comes to the government.
It has been learnt the government has requested the Indian government for a substantial hike this time around which would be effective from 1st January 2017 and help bring in additional revenue from the project.
Earlie, before the government was directly involved a negotiation team of Bhutanese officials met their counterparts in New Delhi on 22nd June 2017 asking for a 12.5% hike on the current tariff of nu 2.25 per unit which is a hike of around 0.28 cheltrums. If agreed to this would mean additional revenue of around Nu 500 mn a year from Chukha.
Bhutan at the time put forward this figure based on its own calculations, the historical trends of how Chukha tariff hikes were given, the revenue requirement of Bhutan and other factors.
However, at the time some delegation members from the Indian side said that Bhutan should not expect much this time around based on their calculations. Some even showed that taking certain calculations given the low tariff rates in India and the low cost of the Chukha project technically, there should be a downward revision of the Nu 2.25 per unit. Every indication was given that the hike would be well below Bhutan’s demand.
Subsequently the government got involved and it is understood that the Prime Minister asked the Indian government to consider a higher hike especially in light of the 50 years of friendship between the two countries.
An Indian official in the know said that given the friendly relations between the two governments the Indian government would take such a request positively but it is up to the two governments to come out with the details and the announcement.
The 1974 agreement on Chukha project outlines that the tariff will be revised ever four years based on factors like Operation and Maintenance costs, weighted average costs of hydro projects in the North East and Eastern region and other factors.
The first tariff hike was in 1990 when the earlier different rates of Nu 0.13 per unit for secondary energy and Nu 0.26 for firm energy fixed in 1986 was made uniform at Nu 0.26 per unit. The second hike in 1993 which made it Nu 0.37 per unit. The third increase in 1995 made it to Nu 0.50. The fourth hike in 1997 made it Nu 1. The fifth hike in 1999 made it Nu 1.50 and the sixth hike in 2005 made it Nu 2 a unit. The seventh hike in 2014 applicable from 2013 January increased it to Nu 2.25 per unit. The tariff hikes in the past usually coincided with the visits of His Majesty The Fourth King to India.
Given that Chukha has the highest tariff rate almost all of this power is exported as Bhutan uses power from other projects like Tala, Kurichu and Basochu.
In 2008 the then visiting Indian Prime Minister Manmohan Singh and the former Bhutanese Prime Minister Jigmi Y. Thinley announced 10,000 MW by 2020. At the time of the announcement the details were missing.
However, 10,000 MW by 2020 for all purposes started unwinding by 2009 itself when the then Indian Power secretary H.S Brahma made it clear through various Indian news articles on the issue, that India could not commit the kind of money required to meet the above objective due to budgetary constraints.
Over the years since then it was communicated to Bhutan through various channels that 10,000 MW by 2020 would not be possible due to financing concerns.
This became official in 2014 when the visiting Indian President Pranabh Mukherjee said only 6,476 MW of existing and new power projects would be possible by 2022. This meant that minus the existing 1020 MW Tala, 336 MW Chukha and 70 MW Kurichu only 5,050 MW of new projects would be possible in 2022.
A major project not in India’s updated list was the 2560 MW Sunkosh reservoir project. India over the years had cited the high cost of the mega project estimated to be close to Nu 300 bn, as the main barrier.
However, the government is actively pursuing the Sunkosh project for implementation and is trying to get it announced as the main flagship announcement to celebrate the 50 years of diplomatic ties between the two countries.
For Bhutan the project is important as Sunkosh would generate 5,900 million units a year which when calculated at a very conservative Nu 2 per unit will give Nu 10.8 bn in revenue, more than any other hydro project.
However, even more important than that is that given that Sunkosh is a reservoir project it can generate power in winter when Bhutan’s run of the river projects power production is low. This would mean that it would ensure energy security in winter and thus enable higher industrialization in Bhutan.
The other additional benefit is that power from the project can be used to generate ‘firm power’ at times of the day when power in India is in most demand and hence would attract higher tariff rates.
An Indian official said that the issue is at a preliminary stage and various options are being explored.