Kuensel | Tenzing Lamsang | February 18, 2023
In a first for Bhutan, the Druk Green Power Corporation (DGPC) will fully fund and construct the 600 MW Kholongchu project on its own.
This is the first time that Bhutan will be financing and constructing a mega hydro project on its own as so far all mega projects like 336 MW Chukha, 1,020 MW Tala and the 720 MW Mangdechu have been built as bilateral projects with Indian grants and loans and joint management in the construction phase.
The same goes for the ongoing 1,200 MW Punatsangchu I and 1,020 MW Punatsangchu II projects.
Lyonpo Loknath Sharma said that the DGPC now fully owns 100% of the shares of the company after Satluj Jal Vidyut Nigam (SJVN) was paid nu 3.5 billion (bn) for its 50% shares which is its investment so far.
The minister said that as per the timeline the plan is to start construction on the project by June 2023.
The minister said that the main effort now for DGPC is to seek financing for the project.
In terms of who would buy the power he said the Government of India has agreed to buy any surplus power from the project.
The DGPC MD Dasho Chhewang Rinzin said the most important thing now is to reach financial closure or get funding so that they can take the project forward.
The MD said they are initially looking for debt financing as it makes no sense unless they have upfront commitment from banks and Financial Institutions for financial support.
“When we spoke to the GoI for taking over the shareholding of SJVNL we requested and they agreed to support Bhutan in terms of access to finance by banks and especially through their PSUs,” said Dasho.
India has the Power Finance Corporation (PFC) and the Rural Electrification Corporation (REC) which are both PSUs of India and are like public banks for power projects.
They are large in size and provide financing for large power projects.
The Kholongchu project was already in negotiation with PFC and REC earlier when it was a joint venture, and so the DGPC requested them if they can consider DGPC as a client now.
The MD said there has been some positive response and so they are following up with them on whether they are willing to support DGPC with the loan.
“If we cannot get support from them then we will have to approach other FIs, but we are hopeful that we can reach financial closure with the support of the GoI,” said the DGPC MD.
The project cost is estimated to be Nu 60 bn which means DGPC will have to raise Nu 42 to 45 bn in loans and also raise Nu 15 to Nu 18 bn in equity.
While the DGPC will seek debt financing for the loan part it is not yet decided how it will raise the equity part which it has to fully own.
The MD said when they bought the shares, apart from financing, they also asked for support to sell the surplus energy into the Indian energy market and for that too the GoI has agreed to support it.
“We will have to discuss the details of how the access will be provide with the GoI as there is no fixed conditions on how the power will be sold at the present juncture,” said the MD.
On the loan component the conditions are still to be negotiated.
“It is a commercial loan so you would expect interest rates and tenures to be similar to commercial loans. Because it is the PFC there may be some leeway but at the end of the day it will most probably look like a commercial loan,” said the MD.
As far as the works are concerned the Head Race Tunnel was already awarded to the Rigsar and Valecha joint venture at Nu 3.5 bn with 20% of the work for CDCL. The contract is still with them though the works have been put on hold for the present time.
“While no works are going on the contracts are still intact and we will have to decide when we take the project forward on how to take the contracts forward and we will have to negotiate too,” said the MD.
For the dam and power house the bid documents are with the project and they have not yet been awarded.
“As we look for financing and other issues in the next three to four months we will also have to discuss how to take the contracts forward,” said the MD.
He said that as a single shareholder the immediate advantage is that they will not have decision making problems as there is only one party which is DGPC and its board to take decisions. There will also only be one owner and that too will make it easier to take decisions.
The new project will also have a smaller and more compact management.
The DGPC has just taken over recently around two weeks ago.
The DGPC taking over the project will also give it full flexibility in terms of the management style and project implementation and also the technology to be used.
The aim is to finish the project within 5 to 6 years from the start of construction.
The DGPC and SJVN joint venture faced several issues from the start, but even as they were resolved some issues could not be resolved. One was the refusal to give 20% of the works on the dam to CDCL, another was over management control and the final issue was differences on raising financing.