The draft policy is expected to iron out the conflicting objectives of the electricity Act 

Electricity: If the draft domestic electricity tariff is any indication of benefiting the domestic consumers, then rural domestic households are likely to enjoy additional subsidy on their free electricity.

The draft policy also assures all low voltage users, religious institutions and structures except dzongs with subsidy.

Within the low voltage users, there would be progressive block tariff structure, as it exists today. However, low voltage users for the purpose of street lightings, temporary and all connections for non-residential low voltage consumers would be slapped the highest block tariff. This, the draft states was to rationalize the subsidy.

The government subsidizes consumers with the royalty energy it receives from the hydropower plants. The High voltage industries are not eligible for subsidy as imposed by the economic development policy.

The intertwined objectives of the electricity Act to ensure reliable delivery, adequate supply of electricity and revenue generation while making electricity affordable, are however conflicting.

To be fair to customers and service providers, the economic affairs ministry drafted the domestic power tariff policy.

The generating power plants with cheaper cost of generation would be allocated for domestic supply, as per the draft policy, to ensure domestic tariff is given at the least generation cost and lower than the export tariff.

Import of energy would continue during lean season until adequate firm generation capacity is added. But the draft policy states that since bulk of domestic demand is for the industries, any net monthly import cost to meet the demand would be allocated to the high voltage industries.

However, the draft policy sticks to its old tariff determination model of cost plus methodology, with which the industrialists are not content.

Cost plus pricing is a cost-based method for setting the prices by adding together the direct and overhead costs, cost of debts and adding to it a mark-up percentage to create a profit margin.

In this approach the Bhutan Power Corporation (BPC), for instance considers its expenses on pay and allowances, cost of assets, debts among others, to derive the tariff.

Industrialists suggest that the model be changed to price cap regulation so that a cap on the price is set according to economic factors, savings and inflation.

But the draft policy, however has considered few principles and benchmarks to be applied by the service providers on the cost plus model to make domestic tariff affordable.

To determine the cost of debt, the draft states that the actual cost of debt for the tariff period be considered by the service providers. The operation and maintenance cost of the service providers should not exceed the benchmark set by the Bhutan Electricity Authority.

The draft also states that assets owned by utility companies but not in use or not used for generation, transmission and distribution of electricity shall not be considered for tariff determination.

A source said that the Druk Green Power Corporation (DGPC) accounts in its tariff determination, the infrastructure currently passed on to Gaedu College. Although Tala Hydropower project spent huge amount of money in the infrastructure, it is not used for power generation today. Such things would offset a drastic revision, if the draft policy takes effect.

Meanwhile, officials from Department of Hydropower and Power systems reserved their comments until the consultation meeting with the stakeholders.

Tshering Dorji