Hydropower loans, which account for 94 percent of rupee debt and almost 70 percent of the total outstanding external debt of Nu 172B as of March this year, is bloating the country’s debt.

The 12th Plan targets to lower the debt to GDP ratio to 61 percent from 115. One of the key result areas is maintaining the non-hydro debt at 15 percent of the GDP, well below the threshold of 35 percent prescribed in the public debt policy.

In doing so, however, there is no mention of the implementation of new hydropower projects apart from the 2,585MW Sankosh Reservoir Scheme scheduled to be implemented by 2019-20. Under the key result area “Hydropower investment and installed capacity enhanced,” completion of DPR for Kuri-Gongri and one more project are on the cards in the 12th Plan.

Besides, the key result area of the draft 12th Plan states that commissioning of Mangdechhu, Punatshangchhu I and II would take the country’s installed power capacity to 4,664MW from 1,606MW.

However, the new government has pledged to enhance the generating capacity to more than 5,200MW by implementing both Sankosh and Kuri-Gongri. 

To add impetus to the economic diversification programme, the 12th Plan aims to approve about 76 FDIs, which is aimed at bringing the equity inflow of non- hydro FDIs to Nu 10B. The RNR and CSI sectors are identified as the vehicles for enhancing non-hydro export and investment in the 12th Plan. Supplementing this effort, improving the ease of doing business and enhancing access to finance are also identified as key result areas of the economic diversification.

While the 12th Plan is yet to be endorsed, many of the activities and financial targets are contingent on the commissioning of the three-mega hydropower projects.

As of March this year, Tala hydropower project has an outstanding loan of Rs 1.3B, which is expected to be cleared by the end of this year. The Nikachhu project also accumulated a loan of Rs 738M as of March this year.

The Mangdechhu project, which is due for commissioning by the end of the year has an outstanding loan of Rs 32B. Punatshangchhu I has a pending loan of Rs 46B and Punatshangchhu II Rs 39B. Both Punatshangchhu projects have seen huge cost escalation and faced a series of issues in ground.

According to a World Bank publication “Bhutan Development Update” the size of hydropower projects relative to the size of the economy could negatively affect the country’s revenue and export should there be any further delays in hydropower construction. It is estimated that a delay of one year could reduce the GDP growth by 3-4 percentage points.

Loans from World Bank and Asian Development Bank alone constitute USD 511M of the convertible currency debt.

Of the total debt, Nu 126B is rupee denominated debt and convertible currency debt constitute USD 693M (about Nu 4.5B). Hydro debt forms more than Nu 119B of the total rupee debt.

Tshering Dorji