Expert Speak Raisina Debates
Published on Jul 07, 2022
Despite the strong bilateral ties between Bhutan and India, unfavourable opinions about India’s involvement in the hydropower sector are emerging.
India-Bhutan hydropower cooperation: Assessing the present scenario The special bilateral relationship between India and Bhutan has been overarching in almost all the sectors of cooperation, including the very pertinent hydroelectric power generation. Right from the inception of the Himalayan Kingdom’s First Five Year Plan, in the early 1960s, its southern neighbour has been generously contributing to successfully accomplishing power project agreements, beginning with the Jaldhaka Agreement of 1961. This liaison also led to landmark initiatives like the commissioning of the 336 Mega Watts (MW) Chukha Hydropower Project in 1987—the landlocked country’s first mega project which was fully funded by the Government of India (GOI) with 60 percent grant and 40 percent loan at the interest rate of 5 percent payable over a period of 15 years after commissioning. Since then, the two countries strengthened confidence in each other, with the Agreement on Cooperation in the field of Hydroelectric Power (July 2006) outlining the framework for other projects. However, with time, the prototype yardstick of collaboration in this field has started fizzling away. One of the most common reasons has been the delay in completing the projects that are already under construction and are way beyond the stipulated period and also reiterating unwarrantable cost escalations, as argued by the National Council of Bhutan. The most recent instance has been that of the Pnatsangchu I Hydroelectric Project and Kholongchu Hydroelectric Project—the first joint venture between Druk Green Power Corporation and the Satluj Jal Vidyut Nigam Limited of India—which have not been able to meet their respective deadlines. While the former was supposed to be completed within 2016, with the initial cost of Nu 35.148 billion, the overhead cost has now been more than Nu 93.756 billion. Again, the latter was scheduled to be functional within 2020 with the initial financial framework worth Nu 33.05 billion, finally shooting up to Nu 54.818 billion.

One of the most common reasons has been the delay in completing the projects that are already under construction and are way beyond the stipulated period and also reiterating unwarrantable cost escalations, as argued by the National Council of Bhutan.

What came across from the re-deliberation of the Budget Appropriation Bill for the financial year 2022-23 at the National Assembly of Bhutan as the reason behind the bottleneck is the lack of consensus between the two neighbours. For the first initiative, while the GOI had not responded regarding the feasibility of the construction of a barrage, the other one is more on the front of a dispute over the manifestation of the construction work and capital work and proper division of responsibilities between the stakeholders, requiring solution and implementation on an immediate basis. Thus, the apparently favourable Indo-Bhutan hydropower dynamics are not only threatened in the present day but also challenged by similar hydropower investments by China, supported by pro-Chinese Bhutanese businessmen for accelerated economic progress.

The trigger

Bhutan has always identified its rich water resource as a very crucial area of investment, as has also been magnified in ‘Bhutan 2020: A Vision for Peace, Prosperity and Happiness’. However, despite the theoretical potential of 30,000 MW for hydroelectric power, the techno-economic feasibility has stood at around 23,765 MW, thereby, requiring assistance in unleashing its total capacity. In this scenario, Bhutan had always envisioned India as a win-win partner for itself until a few years ago, when the country realised that it was not only about the delays but also the substantial amount of debt that is accumulating over time, in addition to the cheap power that is being bought by India. First, the two neighbours have not been able to fairly negotiate the power tariff, with low average for the power imports from Bhutan. The market price of electricity bought by India, as often pointed out by Bhutan, is cheaper than the hydropower domestically available within India. Secondly, in 2017, Bhutan’s debt to India revolving around the Mangdechhu, Pnatsangchu 1 and 2 projects stood at approximately INR 12,300 crores, amounting to 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 as 99 percent, thus, counting it as one of the ten most indebted countries amongst 73 low- and middle-income countries in the world. So, if India does not tread carefully, it might be targeted as levying debt traps, as is often critiqued against China, through its Belt and Road Initiative. To be more specific, the financial burden that Bhutan is facing since the last decade is obvious, because its partner India has moved away from the initial 60:40 model (60 percent grant and 40 percent loan) to a 30:70 model (30 percent grant and 70 percent loan), encompassing all the projects that were supposed to be completed by 2020, except the Pnatsangchu 1, which has retained the previous model. With interest rates exorbitantly high and the net profit per unit of electricity sold falling down, commercial profitability of the hydropower sector has come under the radar of critical questions With this, India has also claimed up to 51 percent ownership in the upcoming projects as well, raising eyebrows amongst the Bhutanese regarding the true Indian intentions. Such a rise is mainly attributed to India’s incoherent and disintegrated strategy towards the recipient countries, as a part of its development assistance programme.

With interest rates exorbitantly high and the net profit per unit of electricity sold falling down, commercial profitability of the hydropower sector has come under the radar of critical questions.

Furthermore, there have been increasing negative sentiments emanating from a major section of the Bhutanese against the Indian involvement in the hydropower section because they often feel treated like second-class participants with the engagement of Indian private companies. This is because in comparison to the big Indian stakeholders, they are often reduced to smaller sub-contractors, as had also been raised by the Chamber of Commerce for the greater role and decision-making position for the local Bhutanese companies. Again, even though the projects are situated in Bhutan, there are way more Indians working, taking away employment generation opportunities from the indigenous communities. In 2015, the number of Indian nationals living in Bhutan to work primarily in the hydropower sector was 60,000, with around 8,000 to 10,000 additional of them who travelled across the open border daily.


Many scholars have argued that the deadline of finishing the projects in 2020 was unrealistic, given the COVID-19 pandemic, geological gridlocks and also the other environmental complexities associated with the development of a hydropower project. The reason solely lies in the deteriorating faith in each other’s commitments towards mutually beneficial partnership, despite past success. However, the ray of hope lies in the politically strong connection between the two countries which are aware of each other’s special bond since 1947. One such instance is the Mangdecchu Project, which entitles Bhutan with better leverage over India, where the loan share is 70 percent funding, therefore, deciding the export price of electricity. Such an understanding is primarily based on the fact that India has indeed contributed to Bhutan’s economic boost, often levelled as a partner that has facilitated 10,000 units of free electricity per year per acre of land lost, ultimately received by households or can be also taken as cash at the project’s export rate. This has helped up set local small-scale industries, thereby directly assisting Bhutanese economy. Even after the pandemic and material supply disruptions from across the border, revenue from the hydropower projects in Bhutan increased by 10 percent in 2020 in comparison to 2019. This was made possible because of the better hydrology inflows in the rivers and timely maintenance of the power plants. Therefore, not all is grim and if the present delays and bilateral misunderstandings are worked out, favours shall pour in, finally benefitting the people who form the crux of the relationship. At the same time, the time is ripe for Bhutan to explore other opportunities within its vicinity countries like Bangladesh, which also has an electricity deficit with the demand tripling from 11.404 MW in 2016 to 33708 MW in 2030. The trilateral arrangement between India, Bangladesh, and Bhutan to develop the 1,125 MW Dorjilung project to export some power to Bangladesh could actually help Bhutan in opening up further with “a market-based tariff regime denominated in foreign exchange”. Thus, India also must take note of the fact that much delay may result in a missed opportunity for a better bilateral and thriving multilateral platform of hydropower collaboration.
The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.


Sohini Nayak

Sohini Nayak

Sohini Nayak was a Junior Fellow at Observer Research Foundation. Presently she is working on Nepal-India and Bhutan-India bilateral relations along with sub regionalism and ...

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