The project is financed on a 65:35 debt to equity ratio with ADB financing USD 120M

Hydropower: With the signing of 12 agreements, a financial deal of INR 3.53B for the 118 MW Nikachhu Hydropower project was struck between the Tangsibji Hydro Energy Limited (THyE) in Trongsa, a special purpose vehicle to implement the project, and a consortium of Indian Banks last evening.

THyE is a 100 percent subsidiary company of Druk Green Power Corporation (DGPC) and such a mechanism to implement a hydropower project is first of its kind, where DGPC as a public sector unit is the sole owner and implementer of the 118 MW project.

While the total project cost is expected to be Nu 11.89B, the debt to equity ratio is 65:35, which means that about Nu 7.73B would be raised from loans and the remaining Nu 4.16B as DGPC’s equity.

However, the Asian Development Bank (ADB) would be funding the equity portion of USD 50.50M (Nu 3.03B), of which 50 percent is provided as a grant and the remaining as loan. The remaining Nu 1.12B would be funded by DGPC.

As for the loan of Nu 7.73B, ADB is providing USD 70M and the remaining loan of INR 3.53B will now be met from the Indian commercial banks.

The State Bank of India (SBI) will be lending INR 2.5B while EXIM bank will lend INR 1.03B.

Since the financing modality is complex and the model first of its kind, the Managing Director of the THyE, Karma Chhophel said 12 different financial agreements had to be signed yesterday.

The agreements become even more complex when the Bank of Bhutan limited (BoBL) is given a role as a trustee for the lenders, in which the BoBL has to manage the loan account.

“We take this as an experience for such projects in future,” he said.

DGPC’s Managing Director and Chairman of THyE, Dasho Chhewang Rinzin said the Nikachhu project has considered all contingencies, including the price variation to minimize the risk of cost escalation unlike other projects.

“It should not be a project where cost escalation is two to three times of the initial estimates,” he said.

Further, he said that the project specification is such that contracts are awarded based on engineering, procurement and construction (EPC) practice.

Under this practice, the contractors will carry out the detailed engineering design of the project, procure all equipment and materials, construct and deliver a functioning facility or asset to their clients subject to final approval of the awarding entity.

For instance, the project authority would give a specification of dam size and the time frame. The contractor has to then propose the design, technicalities and then bid for the work.

With this, the project’s managing director reiterated that an expected cost escalation is least. “Even the geological risks would be taken care by the contractors,” Karma Chhophel said.

Such construction methodology was adopted for the 126MW Dagachhu project.

“We will deliver much better than the bureaucrats as we all are in business,” the DHI Chairman, Dasho Sangay Khandu said regarding the project funding modalities in hydropower sector that is shifting from an inter-government to joint venture to public private partnership.

To finalize the deal, the first and the main agreement signed yesterday was the INR 3.53 B common loan agreement, which was signed between THyE, as borrower, SBI and EXIM bank as rupee lenders, BoBL as security trustee and SBI as the lenders’ agent.

The rest of the agreements were on mortgage, power of attorney, guarantees, undertakings, pledge of share and inter-creditors agreement, among others.

Meanwhile, the project’s managing director said that roads and colonies have been completed.

The bids on two packages of civil and mechanical works have been evaluated for the ADB’s endorsement. Once this is done, Karma Chhophel said the negotiation process with the lowest bidder would begin. “By end of this month, the project should take off,” he said.

The project duration is 48 months, and between June and July 2019, the Nikachhu project should be completed and running.

Tshering Dorji