INR Debt Stood at (Rs) 152 Billion last year

MoF says hydropower projects account for most of the debt, which are self liquidating 

From the total INR debt of rupee (Rs) 152 billion (B) as of December last year (2023), Punatshangchu Hydropower Project Authority II (PHPA II), stands as the main project behind the staggering debt with the project alone accounting for Rs 58 billion (B). The story is the same, with other hydropower projects contributing in their own ways.

Right behind PHPA II stands, PHPA I accounting for about Rs 51B, followed by Mangdechu Hydropower Plant (MHP) accounting for Rs 38B. The next is Tangsibji Hydro Energy Limited, accounting for Rs 33B.

According to the Ministry of Finance (MoF), a significant portion of external debt is on account of hydropower projects. However, these are deemed commercially viable with a secured export market in India.

In total, 90.9% of the hydro debt is INR denominated. However, the Ministry stated that it does not pose any exchange rate risks due to currency pegged as the average time to re-fixing (ATR) is around 11.7 years. Thus, the interest rate risk is deemed low due to the long ATR and the low portion of the variable-interest-rate debt.

Similarly, the lending period of the hydropower debts to the government of India (GoI) ranges from 10-15 years with the grace period of 8-9 years and the interest rate ranges from 9% to 10.75%.

Further, the Ministry has stated that hydropower debt constitutes 66.3% of total external debt. But it is considered low risk as debt servicing for hydropower loans from India starts only a year after the commissioning of the projects, ensuring revenue inflow before debt servicing starts.

For instance, the export tariff for electricity is calculated based on the projects’ overall cost, including the projected debt servicing cost, ensuring that the revenue from the sale of electricity would provide adequate cushion for debt servicing.

The Ministry further stated that the debt related to hydropower projects including INR hydropower debts are insured and reinsured against natural risks. The only remaining uninsured risk is hydrological, that is, if there isn’t enough water to produce electricity, the Ministry stated.

Meanwhile, 95.42% of the project had been completed as of July 31 and at that time of reporting it was said that two units of the 1,020MW PHPA II is expected to be commissioned by October this year. Once commissioned, PHPA–II will generate 4,357 million units of electricity annually. The former Minister of the erstwhile Economic Affairs ministry and Chairman of the Punatsangchu Hydroelectric Project Authority, Lyonpo Loknath Sharma in 2022 had said that P II would be earning Nu 48 mn a day in revenue which comes to around Nu 17.520 bn a year.

The Bilateral Agreement between the Royal Government of Bhutan (RGoB) and GoI for implementation of the 990 MW latter on revised to 1,020 MW, PHPA II was signed on July 30, 2010 by Lyonpo Khandu Wangchuk, then minister of the former Ministry for Economic Affairs on behalf of the RGoB and H.E. Shri S.M. Krishna, Hon’ble Minister for External Affairs on behalf of the GoI.

Similarly, the Bilateral Agreement between the RGoB and GoI for implementation of the 1,095 MW latter revised to 1,200 MW, PHPA I was signed on July 28, 2007 by Lyonpo Khandu Wangchuk, and H.E. Shri S.M. Krishna, Hon’ble Minister for External Affairs on behalf of the GoI.

The project was sanctioned at a cost of about INR 35B and is funded by the GoI at 40% Grant and 60% Loan at 10% annual interest, repayable in 12 equated annual installments commencing one year after the mean date of operation.

Meanwhile, the MHP located in Trongsa is one of the power plants and the profit centres of Druk Green Power Corporation (DGPC). Since its commissioning, MHP was handed over to DGPC, a wholly-owned subsidiary of Druk Holding and Investments Limited, on December 27, 2022. MHP was jointly financed by the RGoB and the GoI.

The electricity generated by MHP is sold to Bhutan Power Corporation Limited (BPCL) for domestic consumption when the other power plants cannot meet the domestic demand. The surplus energy is exported to India through PTC India Limited. MHP provides 15% of the annual energy production as a royalty to RGoB. In 2023, the project released Nu 14bn to the Government of India as loan repayment between January 2021 and July 2023. The amount was repaid in six installments with more than Nu 2bn in each installment. The entire loan amounting to more than Nu 81bn is expected to be liquidated by July 2037.

In December 2023, it was reported that the 720 MW Mangdechhu hydropower plant generates average annual revenue of Nu 12 bn by generating close to three billion units of electricity. A unit of electricity is being sold at a little over Nu 4.

The project cost of the MHP was Nu 51.446B funded by the GoI with 30% grant and 70% loan with the equity ratio of 70:30.

Meanwhile, Tangsibji Hydro Energy Limited is a 100 % subsidiary company of DGPC incorporated on April 25, 2014 as a Special Purpose Vehicle (SPV) for the implementation of the 118MW Nikachhu Hydropower Project with the estimated project cost of Nu 11.96B.

Sherab Dorji from Thimphu