The project cost has increased by 93 percent 

Hydropower: The Indian government has endorsed the revised cost estimate of Rs 72.9 billion (B) for the 1,020 megawatt (MW) Punatsangchhu-II hydroelectric project, according to a press release from the Press Information Bureau, Government of India (GoI).

The project cost has increased by about 93 percent of the original estimation of Rs 37.77B at the March 2009 price level. In absolute terms, the total cost escalation for the project, at this stage, is Rs 35B.

Any significant cost escalation will increase the loan burden on the government as the project is funded by GoI with 70 percent loan. Thirty percent of the project cost is grant.

The loan is to be paid back in 30 equated semi-annual installments at 10 percent annual interest.

The press release, which was made available for media on July 13, states the revised cost was approved by the Union Cabinet chaired by Prime Minister Narendra Modi.

“The project will provide surplus power to India and thus augment power availability in the country and would enable project works to proceed smoothly without interruption,” it stated.

Inflation from March 2009 to March 2015 and change in the surface powerhouse to the underground powerhouse have been cited as some of the factors behind the cost escalation. The other reasons were the increase in capacity from 990MW to 1,020MW, additional requirements due to Bhutan’s National Transmission Grid Master Plan and adverse geological conditions encountered during the project.

While the economic affairs minister was not available for comment, education minister and former economic affairs minister Norbu Wangchuk said the main reasons for the cost escalation is the natural rise in prices of goods.

“Of course, there are other factors such as design change,” he said, adding that the government is mindful of cost escalation. “It’s the revision of the cost that was estimated when the detailed project report was completed,” he said.

Punatsangchhu-II is the second project of the 10,000MW initiative taken by Bhutan and the GoI in May 2008, for development by 2020.

The bilateral agreement to execute the project was signed between India and Bhutan in April 2010.

The project is located on the right bank of the Punatsangchhu along the Wangdue-Tsirang highway between 22km and 35km downstream of the Wangdue bridge.

The project authority, an autonomous body, was set-up for implementation of the project in June 2010. The project implementation started on December 17, 2010.

MB Subba