Exploring the spillover benefits

The central bank will carry out a research to study the benefits

Hydropower: The indirect benefits of the hydropower sector are overlooked and many other economic opportunities circling the sector remain unexplored, which otherwise could enrich the country’s economic output.

Called ‘growth inputters,’ this could help in meeting the aggregate demand within the economy and consequently narrow down the current account deficit the country runs.

To explore this, the Royal Monetary Authority (RMA) will take up a research to assess the spillover benefits from hydropower projects that may add to the economic growth.

RMA Governor, Dasho Penjore announced this during a programme on “opportunities and challenges in doing business with India,” the Indian embassy organized on Tuesday.

While local contractors and private sector are benefitting from ancillary works from the hydropower projects, he said ways to add values must be explored.

The projects have led to establishment of many other small businesses, which are managed informally. “There are lot of other business opportunities,” he said.

Given the increasing income among the people, marginal propensity to consume (MPC) is bound to increase.

MPC is the additional income that individual consumes, as opposed to saving it. For example, if one earns 10 extra Ngultrum, that person is likely to save around Nu 3 and spend around Nu 7.  This additional consumption is called MPC.

This he said should translate into business opportunities that promote local products over imported.

Taking the example of Kholongchhu project, Dasho Penjore said around 6,000 people are estimated to be employed in the project.

“Now if these 6,000 people spend around Nu 10,000 a month in consumables, the locality in Trashiyangtse could earn Nu 720M a year,” he said. In other words, there is Nu 720M worth of spillover benefits and business opportunities. Add on this the actual project fund spent within the economy, he said the economic benefits of Kholongchhu  alone is huge.

It is roughly estimated that 30 percent of the total project cost of Nu 33B would be pumped into the economy because a major chunk of the money is spent on import of machineries and equipment.

The governor said it is worth studying to see how much local materials are used in the projects. Besides, he said Bhutanese could also take up business in transportation of heavy equipment.

“I don’t know how it is managed but private sector should be taking up these activities,” he said.

Although all projects are financed on debt and equity portions, Dasho Penjore asked how much of debt are financed by local financial institutions.

Are insurance companies in Bhutan rendering its services to the hydropower sector? How much of communication services to the power sector is Bhutan Telecom and T Cell providing? These are few questions he posed.

He said even farmers could have an agreement with project authorities and supply food to thousands of project workers. “Micro businesses like restaurant, laundry and bakery would help enhance local economy and counter imports.”

He said the project authorities and financial institutions could also come up with start up funds for such businesses that provides goods and services to hydropower sector.

“The spillover benefit currently is underestimated.”

Tshering Dorji

1 reply
  1. Development practitioner
    Development practitioner says:

    Isn’t there a detailed economic analysis as part of the project feasibility study? Capturing all benefits, including fringe benefits, while calculating the project’s economic internal rate of return (EIRR) is normal. Also negative impacts such as additional vehicle operation costs incurred by the people because of public road damaged by the projects are accounted. All costs and benefits would have been captured in EIRR, if it exists. So it is a question of micro-economist experienced in hydropower going through project economic analysis and updating it.

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