Fund Crisis May Hit Bhutan Hydro-electric plants

Bank of Bhutan
With inadequate flow of money likely to slow down construction of three major hydro-electric plants India is building in Bhutan, New Delhi is exploring possibilities of raising funds from the capital market for the projects to fulfil its commitment to buy 10,000 MW of power from the Himalayan nation by 2020.

The Ministry of External Affairs is worried over the fate of the Punatsangchhu-I and Punatsangchhu-II and Mangedechhu hydro-electric projects. The Ministry of Finance allocated only Rs 978 crore for the first two plants in the 2012-13 Budget, as against the MEA’s demand for Rs 1,969.67 crore.

The MEA used up 40.9 per cent and 32.5 per cent of the allocated fund for the Punatsangchhu-I and Punatsangchhu-II by June 15 last. It also spent 68.7 per cent of Rs 160 crore allocated for the Mangdechu HEP, even before the first quarter of the 2012-13 financial year ended.

Keeping in view Bhutan’s strategic importance to India’s security and its enormous hydro-electric potential, New Delhi in 2006 signed an agreement with Thimphu, committing itself to develop plants with total generation capacity of 5,000 MW in the Himalayan kingdom and as well as to import the entire quantum of power by 2020.

A protocol to raise the target to 10,000 MW was added to the agreement during Prime Minister Manmohan Singh’s visit to Thimphu in March 2009. The two governments identified 10 projects with an estimated capacity of 11,576 MW. New Delhi has been providing funds for the HEPs in Bhutan through the MEA.

In a note to the Parliamentary Standing Committee on External Affairs, the MEA pointed out that the HEPs in Bhutan had suffered due to paucity of fund during 2011-12 also as over 70 per cent of the total allocation had been exhausted in the first and second quarters of the financial year.

Though the ministry of finance had provided additional fund of Rs 350 crore in January this year, it had come too late to ensure adherence to the schedule, it added.

External Affairs Minister S M Krishna wrote to the then Finance Minister Pranab Mukherjee on March 15 this year, pointing out that the three ongoing HEPs in Bhutan would be affected if the fund allocation was not raised. He had earlier taken up the issue with Planning Commission vice-chairman Montek Singh Ahluwalia in October 2011.

The Parliamentary Standing Committee on External Affairs in its May 2012 report had noted that inadequate flow of funds might lead to time and cost overrun for the three HEPs.

To lessen the financial burden on the government, New Delhi decided to execute the remaining HEPs in Bhutan in the joint venture mode. MEA officials already had a meeting with the representatives of the EXIM Bank and some public sector banks to explore the possibility of raising funds from the Indian capital market for the HEPs proposed in the JV mode.

New Delhi and Thimphu are likely to ink a Memorandum of Understanding (MoU) to cover all the JV projects.

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From The Deccan Herald

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This story from Sonam Pem

Sonam Pem has the distinction of being our very first author on Bhutanomics.

Comments

  1. LearnedLama says:

    Notice how the article says “Fund” crisis, and not “Financial” crisis. You have to ask why there is a fund crisis especially against the backdrop of a robust Indian economy. Also, historically, ever since we started our ties with India, this has never happened.

    This fund crisis is nothing but India’s reaction to JYT’s pro China stance.

    How else would India express her displeasure to Bhutan’s new foreign policy?

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