Financial hurdles exacerbated the project’s scheduled completion on time since 2016
Construction of the 600MW Kholongchhu Hydropower Project (KHP) has resumed after being halted in 2022 due to disagreements between the joint venture (JV) companies overseeing the project. The joint venture model, initially adopted for the project, was abandoned after seven years of unsuccessful negotiations.
Druk Green Power Corporation (DGPC) has directed contractors responsible for the main civil works—including the construction of the dam, powerhouse, and headrace tunnel—to begin preparatory work. These initial activities encompass the construction of the diversion tunnel at the dam, tunnel adits for the headrace tunnel, and access tunnels to the powerhouse and pressure shaft.
Jaiprakash Associates Limited (JAL) and Construction Development Corporation Limited (CDCL), the two primary JV partners, have been formally notified to commence mobilization for initial contract works starting mid-July. A small team of workers has already arrived on site to begin these preliminary tasks.
The full-scale construction of the dam, powerhouse, and headrace tunnel will only commence once the strategic partnership with Tata Power is finalized and financial closure for debt financing is achieved. According to project officials, the preparatory works are designed to expedite the overall construction timeline once the main works begin.
The estimated cost for the preparatory works is around Nu 1.5 billion (B), which will be pre-financed by DGPC. Interim contract works are expected to commence within 30 days from the issuance of the notice. The total cost of the contract works is projected to be approximately Nu 20B, with Nu 15.9B allocated to JAL and Nu 991 million (M) to CDCL.
According to DGPC, the resumption of construction marks a significant step forward for the KHP, which is critical to Bhutan’s energy infrastructure development. The revival of the project not only signifies a strategic leap forward in Bhutan’s energy independence but also emphasizes the government’s steadfast commitment to harnessing natural resources for socio-economic growth.
Highlighting the project’s historical challenges, Energy and Natural Resources Minister Gem Tshering acknowledged the prolonged hiatus since 2016 due to financing hurdles. However, with DGPC assuming full ownership of Kholongchhu Hydro Energy Limited post-joint venture closure, renewed optimism surrounds the project’s prospects.
The current financing strategy involves a debt-equity ratio of 70:30, with 70% secured from the Power Finance Corporation (PFC) and Rural Electrification Corporation (REC), Indian institutions specialized in energy sector investments. The remaining 30% equity will be sourced from capital markets, ensuring a robust financial foundation for the project’s resumption.
Originally, the project was planned to be financed through a debt-equity ratio of 70:30, with equal equity holdings between DGPC and Satluj Jal Vidyut Nigam Limited (SJVNL). The initial agreement proposed that CDCL would handle 20 percent of the capital work on the dam and powerhouse, while JAL would manage the remaining 80 percent.
Although CDCL and JAL agreed to this arrangement, SJVNL opposed it, preferring to directly award the 20 percent work to an Indian contractor and then subcontract to CDCL. DGPC rejected this approach, citing concerns over its impact on Bhutan’s capacity development.
The delays had an impact on Bhutan’s growth, as well as its exports and revenues. For example, the World Bank (WB) has attributed the decline in the country’s growth rate directly to delays in hydropower construction and the dip in electricity generation. The delay has also led to cost escalation and missed opportunities in terms of immediate benefits to the community.
Meanwhile, KHP is a run-of-river project in Trashiyangtse dzongkhag with a stream diversion arrangement at about 4 km downstream of the dam to utilize the Jablangchhu stream. Kholongchhu project is one of four additional projects agreed in 2008, as a part of India’s commitment to help Bhutan to create a total 10,000 MW of installed capacity by 2020.
By Tashi Namgyal, Thimphu
