The bold commitment taken by Bhutan to export 10,000MW of power to India by 2020 has stretched the external debt situation despite claims that the debt is self financing in nature.
As of June end last year, Bhutan’s outstanding debt to India taken for hydropower projects in the country was Nu 17.32b, which accounted to a massive 32% of the gross domestic product (GDP). The figure is much higher than the total internal revenue for the 2007-08 fiscal which was Nu 12.35b constituting about 23% of the GDP despite recording an economic growth of 13.8%.
Over the years, the hydropower contribution and the liability (in the form of external debts) have hardly changed. But painting a grim picture will not be correct as Bhutan has always stood to gain from its reliance on hydropower. The government’s stand has also remained the same.
“Hydropower debt is self financing in nature,” the finance secretary, Lam Dorji, had earlier told Business Bhutan “and there is nothing to worry about it.”
The secretary went on to say that while the hydropower debt finances itself, all other external loans are taken very cautiously and added, “Bhutan is in a comfortable debt situation.”
At present, Bhutan does not have a formal debt policy in place. But the government has always pursued a policy of caution regarding external borrowing which includes raising loans from concessional windows and encouraging non-debt capital flows.
To monitor external borrowings, a Macro-economic Framework Co-ordination Committee (MFCC) has also been established. One of the policies is to borrow only for investment with the potential to generate its own revenue.
The total outstanding debt of Bhutan as of June 30, 2008 was about Nu 33.07b which is 61% of the GDP. The external debt other than India which includes loans from other countries and financial institutions was Nu 14.35b.
The total hydropower debt stock amounted to Nu 20.94b in 2008-09 fiscal. It is projected to increase this fiscal due to an US$ 200m loan expected from ADB loan for the Dagachu hydropower project. The Austrian government has also given a loan of Nu 3,552m for the project.
The hydropower projects comprise 61.45% of bilateral loans of the total external debt and the non-hydropower loans comprise 21% which are borrowed from Multilateral Financial Institutions.
The ADB’s loans carry interest rates of 1% per annum during the grace period of eight years and 1.5 % per annum during the repayment period of 24 years. The IDA and IFAD offer a grace period of 10 years with a 30-year repayment period.
Denmark has given interest free loan with a repayment period of 15 years. Interest rates from Austria range from zero to three percent with a payback period of 15 to 20 years.
The existing concessionary term offered by the multilateral lending agencies is expected to be hardened with improving debt situation and increased GDP per capita of Bhutan.
Three latest hydropower ventures financed by India are in a mix of grants and loans in the ratio 30:70 with interest rates between 5 and 10% with a payback period of 12-15 years.
As of June 2009, the Tala hydropower project had an outstanding loan of Nu 15. 35b, Kurichhu project had Nu 1.49b and Punatshangchu project –I had Nu 480m.
The Bhutan-India partnership in hydropower started in 1978 when India extended US$ 200 million for construction of the 336MW hydroelectric plant at Chukha. It was entirely funded by India in the ratio 60:40 of grant and loan. The project was commissioned in 1988 and handed over to the Bhutanese Government in 1991. About 70% of the power generated is exported to India.
The 1,020MW Tala project, with an investment of about US$ 1b, is one of the biggest cross-border power projects in South Asia.
Bhutan has 26 hydropower stations of which the major three are Chukha, Kurichhu and Tala. Experts have projected bhutan to have a hydropower capacity to exceed 30,000 MW. A master plan in 1993 identified over 91 hydropower sites that would yield a capacity.
Bhutan got electricity for the first time in 1966 when a 256KW diesel generator was installed in Phuentsholing. The first 360 KW hydropower plant was installed in Thimphu the following year.
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