Govt. to rationalise power subsidy
July 13 | Kuensel
By Tshering Dorji
With the three-year tariff cycle ending last month, the government has instructed the Bhutan Power Corporation (BPC) and Druk Green Power Corporation (DGPC) to maintain status quo on the existing domestic power tariff.
Both the power utility companies, DGPC and BPC have proposed for a domestic electricity tariff revision for the next three years beginning July 1 this year.
The Bhutan Electricity Authority (BEA) has also conducted public hearings and reviewed the proposals submitted by the two companies.
Economic affairs minister, Loknath Sharma said the ministry is in the process of working out a fair tariff for the benefit of all stakeholders.
Power tariff is usually determined using the cost plus model, which is a cost-based pricing strategy for selling products.In cost plus model, all costs related to materials, labour and overhead are added on top of a markup percentage or profit to determine the selling price.
However, in terms of electricity pricing in the country, the domestic power tariff policy and tariff determination rules and regulation were put in place to ensure fairness and transparency. It ensures that unnecessary and unreasonable costs incurred by the power utility companies are not passed down to the consumers.
Since DGPC is taking care of the operational hydropower plants, it is bearing the cost of generating electricity. Subsequently, it sells electricity to BPC, a utility company responsible for transmission.
This means that the DGPC would determine a generating cost in accordance with the tariff determination rules and regulations. This is the rate that is passed down to the BPC, who will charge the consumers.
DGPC, in its tariff revision proposal has proposed for a generation cost of Nu 1.70 per unit (KWh) of electricity. This is determined based on the total cost of the existing hydropower plants of Basochhu, Kurichhu, Chukha and Tala and the average annual generation. This cost also takes into account the cost of debt financing the DGPC caters to, its cost of equity and returns.
While the BPC formulates its tariff based on similar methodology, it categorises its consumers based on electricity consumption such as the light voltage (LV), medium voltage (MV) and high voltage (HV).
The current tariff for LV block I is Nu 1.28, Nu 2.68 for block II and Nu 3.53 for block III. The actual cost of supply to the LV consumers is Nu 5.81 per unit of electricity, which is the unsubsidised cost. Since the government gets a royalty energy of 15 percent from the whatever the hydropower plants generate, the government uses this amount to subsidise the cost.
Often labeled as ‘free electricity,’ the power is not free because the government bears the generation cost from its royalty energy, in the form of subsidy.
For instance, the BPC actually charges LV consumers Nu 5.81 per unit of electricity but because of the subsidy, the consumers in LV block are charged less than Nu 3.5. For the free 100 units of electricity for the rural Block I consumers, BPC charges the government the actual cost of supply (Nu 5.81 a unit).
Lyonpo Loknath Sharma said the ministry is yet to work out the allocation of subsidy. “Until then we have asked the power companies to maintain status quo,” he said.
After the ministry finalises different options, he said it would be submitted to the government.
He said he is optimistic that the government would not lift the existing subsidies. “But we have definitely rationalised the subsidy component,” he said.
The government, he said is already looking at electric appliances, bio fuel and improved wood stove as alternative to Liquid Petroleum Gas (LPG), which is unsustainable.
While the ministry will keep all the options open, he said the tariff determination should be looked at from both sides. He explained that the local power intensive industries should benefit given the country’s power generation potential since it is the only comparative advantage for Bhutanese industries in the export market.
However, Lyonpo also reminded that the country has to import power from India during lean winter months, the cost of which is often high.
Lyonpo also added that the ministry would look into the grievances of the Association of Bhutanese Industries.
“As much as the government wants to provide affordable electricity to its local consumers, we must understand that even with the commissioning of Mangdechhu, we still have to import power,” he said.
By next month, Lyonpo said that the government would be able finalise the power tariff for the next three years.