To offset the loss in revenue from the difference in proposed tariff for Mangdechhu hydropower project and the final tariff, which is about Chheltrum 15 a unit, the government of India has agreed to provide additional Nu 1B outside the tariff cycle with extension in loan period.
To determine electricity tariff, various parameters such as return on equity, operation and maintenance cost, cost of financing, royalty and regulations of the respective countries among others are considered. Based on this, the Bhutanese side has proposed Nu 4.27 a unit and the Indian counterparts have come up with Nu 3.9 per unit.
Finance secretary, Nim Dorji said electricity in India is traded at Nu 4.5 a unit. “The Indian counterparts told us that it will be not possible for them to sell electricity to various states at our expected tariff of Nu 4.27,” he said.
Indian sells electricity exported from Bhutan to various states in India and each state has its own tariff.
However, he said that the final tariff of Nu 4.12 is a mutually beneficial tariff and that a middle path consensus was arrived at because of the cordial Indo-Bhutan relations.
Prime Minister Dr Lotay Tshering said that the Indian counterparts tried their best to send the Bhutanese delegation back with the expectation fulfilled.
He added that in terms of monetary loss from the difference in expectations and final tariff, it was less than Nu 800M. The additional Nu 1B, he said has really matched up to our projections, he said.
“It was an excellent goodwill gesture to the new political group because even at 4.12 we were good,” Lyonchhen said.
The Mangdechhu tariff, Nim Dorji said has laid the course for tariff determination of future hydropower projects, as this is the highest tariff offered on Bhutanese electricity.
While the government of India has given two years extension on the loan repayment period, from 15 years to 17 years, it was also accommodative to consider the interest liability.
As per the bilateral agreement, the tariff is subject to 10 percent increase every 5 years during the loan repayment period and five percent increase every five years after the loan is serviced.
With the extension of the loan repayment period, the GoI also considered Bhutan’s request to increase the tariff by 10 percent on the 16th year, which will be applied until the 20th year. This is being done to offset the interest liability with the extended loan period.
The electricity export is for 35 years and from the 21st year, the tariff will increase by five percent every five years.
The finance secretary said that this arrangement would bring in additional revenue in future. The additional interest liability, when matched with the additional revenue from the 10 percent increase for one more term, Nim Dorji said, the country is to gain.
“In addition, the debt service obligation of the country also reduces by Nu 390M, ensuring adequate cash flow to finance other developmental activities,” the finance secretary said.
With the current tariff, Mangdechhu will contribute a minimum of Nu 5.5B annually, to the government coffer. This is excluding the debt repayment and operation and maintenance cost.
The MHPA will also help the country enhance its domestic revenue from Nu 143B in the 11th Plan to Nu 217B in the 12th Plan