india-bhutan-sign-pact-for-kholongchhu-hydropower-project-summary

Context: India and Bhutan took a major step forward for the construction of the 600 MW Kholongchhu project.

More on the news:

  • 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.
  • It is their first hydropower joint venture project in Bhutan’s less developed eastern region of Trashiyangtse.
  • Timelines:
    • According to the agreement finalized, the construction for the Kholongchhu HydroElectric Power (HEP) project will begin soon and be completed in the second half of 2025. 
  • Joint Venture model:
    • It has been signed between Sutlej Jal Vidyut Nigam (SJVN), a Himachal Pradesh PSU, and the Bhutanese Druk Green Power Corporation (DGPC).
    • Shareholding:
      • The Indian government will provide, as a grant, the equity share of the Bhutanese DGPC in the JV Company
      • SJVN and DGPC are proposed to have equal holding.
    • Concession Period:
      • 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.
    • Royalty energy:
      • The JV Company will provide 12% of the saleable energy to Bhutan free of cost as Royalty during the first 12 years of commercial operation and thereafter 18% till the end of the concession period.

Background of the Kholongchhu project

  • Four hydropower projects have been built under the India-Bhutan partnership in the last 30 years totalling a capacity of 2,100 MW, and another two are under construction.
    • Kholongchhu is a continuation of India-Bhutan bilateral cooperation, where Chukha, Kurichhu, Tala, and Mangdechhu [hydropower projects] all stand as proud examples behind this.
  • The Kholongchhu project is one of four additional projects agreed to in 2008, as a part of India’s commitment to help Bhutan create a total 10,000 MW of installed capacity by 2020.
  • However, 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 by Indian PM.
  • 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.

Issues associated

  • Preference to the commercial model
    • The risk of the JV-model for the project was resolved after the Indian government reassured Bhutanese officials who expressed misgivings over a greater financial risk due to project delays.
    • India 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.
  • Power tariffs
    • It will be negotiated closer to the completion of the project.

Source:https://www.thehindu.com/news/national/india-bhutan-sign-pact-for-first-joint-venture-hydropower-project/article31945878.ece

Image Source: TH