Kuensel | Thukten Zangpo | June 3, 2023
600 MW Kholongchu potential funders finish project visit and will give answer soon
The much talked about 1,125 MW Dorjilung project has finally gotten a lease of life as the government has written a formal letter to the World Bank asking them to look for the funding of Dorjilung project through consortium financing.
Consortium Financing means involving other international banks as the project would be too big for the World Bank (WB) to finance alone.
It is understood that the WB is already in talks with the European Investment Bank (EIB) so far.
The Prime Minister Dasho Dr Lotay Tshering had traveled to Europe to meet among others EIB heads to seek loans for projects in Bhutan.
The last estimated cost of the project was put at Nu 74 bn, but the latest estimate could be USD 1.2 to USD 1.3 billion.
The WB will work on mobilizing the funds and there will be discussions also on the loan interest rates and payment module.
This latest move by the government means that the earlier and original plan to make Dorjilung a trilateral project built in Bhutan with funds from Bangladesh to sell power via India to Bangladesh has been dropped.
Bhutan and Bangladesh signed an MoU on the project in February 2016, but the third partner India while voicing verbal support for the project never came on board.
The old DPR of the project is being updated to meet with international best practices to get international financing for taking the project forward.
The WB being a bank is not expected to give any grant component and there is no clarity yet at what rate they will give the money.
Even if the loan interest rate is lower than the usual 10 percent loan interest rate in bilateral projects between Bhutan and India one thing Bhutan will have to factor in is foreign exchange losses when the Ngultrum depreciates against the dollar in the future.
This may bring the financial loan cost similar to or nearby those charged in bilateral projects.
For different types of loans the WB and other international lenders have different interest rates so at the end they will come up with something for Bhutan.
Till date Bhutan has never failed to pay back project loans to India in time. The effort from Bhutan will be to ensure that the WB led loans are structured in such a way that it can be paid back comfortably.
Right now there is no talks on selling power to Bangladesh via India from this project but in the future an effort could be made.
This is especially after the recent announcement that Delhi and Kathmandu have agreed to let Nepal sell power to Bangladesh via India. This opens up hope that Bhutan can do so too in the future.
In terms of the 600 MW Kholongchu Project everything is ready and the government is following up strongly to get funding for the project.
Around 10 days ago the technical team of the two potential funding agencies Power Finance Corporation Ltd (PFC) and Rural Electrification Corporation Limited which are both Indian public sector power project funding companies, came here to do due diligence.
A source said, “We are very positive we might get funding. They came here did due diligence and went. Our idea is that by this month end if they can give us the conclusion that they are ready to fund us or not.”
Both of the above projects seeking international financing one from the World Bank and another from Indian government companies show an evolution in Bhutan’s hydropower journey which was previously mainly reliant on Inter-Governmental models.
The source said, “One thing is for sure which is that we won’t be able to construct like in the past using the IG model. The IG model is time tested but a little outdated now as GoI itself is not in a position to give all money in the same manner like in the past.”
While Bhutan may suffer on the front of assured funding, the building of projects through commercial loans will allow Bhutan full management control, choice of companies and technologies and also full control over the execution of the project.
On the 1,200 mw Punatsangchu I project the meeting of the eight member inter governmental committee with 4 from Bhutan and 4 from India is still not concluded. They have been given the final time extension as technical and financial issues are taking time.
They are expected to submit a report by mid of June or within this month as their Terms of Reference says so.
Earlier the Bhutanese side was in favour of the barrage while Indian officials were not very comfortable with the barrage and wanted to do some safety measures to build a dam. Stucky the consultant hired by DGPC to do the DPR of the barrage was called by the committee to answer questions.
So far both sides are only presenting things but have not gone down to discussions as such. A source said the aim is not to try to stick to positions but to find a solution as the project is too important to stick to earlier positions.
The team is trying to find some things out on its own. The presentations are done and now they will go for the discussions.