The increase, though substantial, is still much lower than that of other hydropower projects 

Hydropower: Completing the 720MW Mangdechhu hydropower project will cost Nu 45 Billion (B), an amount equal to the government of India’s commitment for the 11th Plan.

The Trongsa-based project’s cost has already shot up by Nu 14B since the first detailed project cost projection was compiled based on the 2008 price level.  This means that the total cost, which was estimated at Nu 29B eight years ago has now increased to Nu 43B.

Project officials explained that the new estimates were based on an average five percent increase in prices of construction materials.  An additional 10 percent increase has been attributed to unforeseen expenditures.

The project period is nine years and expected to be complete by September 2017.

The latest project status report complied by the project authority this week estimates that the cost will shoot up by 55 percent when the project becomes fully operational.  In absolute terms, the project will cost Nu 16B more than the original estimate agreed upon by the governments of India and Bhutan.

The project’s managing director AK Mishra said the revised cost estimates have been submitted to the government of India (GoI) for approval.

“Henceforth, there won’t be further price escalation from the revised figures,” AK Mishra said. “We’ll complete the project at Nu 45B.”

However, the Mangdechhu project’s cost increase is much lower than that of some of the hydropower projects, like Punatshangchhu I and II.  For instance, the cost of the 1,200MW Punatshangchhu I, which is expected to be complete by 2016, had escalated by 185 percent a year ago.

“Mangdechhu is going to be a benchmark project, because it will be completed on an optimal cost,” he said. “We’ve also not compromised on quality and fulfilled all the parameters.”

AK Mishra said the cost would have shot up even higher, but that the project authority has been able to minimise it.

The project is funded by the GoI through 70 percent loan and 30 percent grant.  This means that any significant cost escalation would entail the government to avail more rupee loans for the project than what was estimated originally.

Bhutan would have taken Rs 31B as loans for the project by the time it is complete.  This is to be repaid in 30 instalments twice a year, with a 10 percent annual interest.

On the financial side, GoI released Rs 21B as of last month, out of which Rs 19B has been spent.

The managing director said the project did encounter some geological glitches, but they did not delay the project’s progress. “Overall, the project is going on very smoothly on track,” AK Mishra said.

Meanwhile, in the backdrop of environmental losses around the project site, the project authority last year signed an agreement with the Gross National Happiness Commission to provide Nu 200M.  The money will be spent on various social and environmental schemes to compensate the environmental and social damages inflicted by the project.

The project today employees 495 people, out of whom 40 are Indian nationals and 455 are Bhutanese.  AK Mishra claims the project has improved local transport system to transform Trongsa to a vibrant town from a “sleeping town”.

By MB Subba