Bhutan’s hydropower projects seem to have turned the proverbial white elephant.
According to the Royal Monetary Authority’s annual report 2017, the country’s hydropower debt has quadrupled to Nu 123.85bn from Nu 31.45bn in the last six years.
A World Bank report released the same year states that Bhutan is at high risk of external debt distress and at a moderate risk of debt distress due to the country’s hydropower debt.
It has been accepted now that the country’s ambitious vision of generating 20,000MW of energy by 2020 will remain unfulfilled. Currently, the Indian government is financing four major hydropower projects under development with a fifth being financed by the Asian Development Bank and loans from Indian banks.
When the projects are completed, Bhutan’s hydropower generation capacity will double from 1,600MW to more than 5,200MW in the next decade of which more than 80% would be exported to India.
However, there is an increasing air of concern from the general public in Bhutan on the hydropower debt sustainability. First, projects like the Punatsangchhu I and II have been delayed by five and two years respectively. For the former, costs has escalated from Nu 34bn to Nu 100bn so far. Further, Bhutan has already borrowed Nu 69bn from India to finance its ongoing hydro projects.
It remains to be seen if all the projects underway will be completed on estimated schedule without further delays and cost escalation because if this happens, India which has already turned into a power-surplus nation, stands to bargain for relatively low electricity tariff rate from Bhutan.
Environmentalists are already making noise about the perils of hydropower projects and so are opposition parties.
However, the World Bank / IMF Joint Debt Sustainability Analysis, June 2016 has forecast that since the Indian government covers both financial and construction risks of these projects and buys the surplus electricity at a price reflecting cost plus a 15% net return, as long as the 15% net return is secured, the delays though affecting economic growth, government revenues and repayment capacity of non-hydro debt, hydropower external debt is considered sustainable. “Hydro external debt is therefore unlikely to lead to a debt crisis,” it states.
Bhutan is already in the early stages of planning three more joint venture hydropower projects with the Indian public sector.
One would only wish that the authorities would tread with caution. A hydropower debt of this magnitude shows what rash estimates can result in. For now, it is hypothetical to say that we are debt sustainable.
Circumstances can change with governments, elections, bilateral ties, economy, geo-politics, market forces and so on. So many variables can impact the hydropower debt, its financing and returns. We understand that it is a form of investment. But if the investment comes at too high a price, especially one that cannot be easily met, a high degree of prudence should be displayed before one dives headlong into such projects.
After all, investment of thought is not a bad thing too.
