Prime Minister Narendra Modi’s upcoming Bhutan visit offers a much-needed chance to reboot the bilateral relationship, especially the crucial power sector engagement. The power diplomacy with Bhutan, India’s first such engagement with a neighbour and evidently its biggest success story that is now being used a template for similar partnerships with Nepal and Bangladesh, has come a long way. In 1986, the biggest challenge in the commissioning of the first 84 MW unit of the maiden joint project in Bhutan — the 336 MW Chukha hydro station — was to be able to test the machine on full load, given the lack of demand in both Bhutan and the eastern region of India (the east was not interconnected to any other region then).
The challenges today are entirely different. Out of 10,000 MW of hydroelectric capacity identified for joint development in Bhutan by 2020, work has not even started for 7,000 MW. The financial model based on 100 per cent bilateral aid by India to Bhutan in the form of grant and equity is proving to be a strain on the financial resources of India, considering that to develop 10,000 MW in the current context, funds to the tune of $15 billion would be needed.
The way forward could be to open up generation sector in Bhutan to joint ventures, public sector undertakings and the private sector, something that the Indian Ministry of External Affairs (MEA) has been traditionally averse to. What is apparent is that the MEA’s aversion notwithstanding, the government-to-government bilateral model of developing hydro power projects has hit a financing roadblock.
Plus, alongside the adoption of a commercial model for project development, it becomes necessary to have a transparent mechanism of fixing the tariffs. Hitherto, between India and Bhutan, the tariff of bilaterally developed power plants has been mutually decided and reviewed by the officials of the two countries. While this has worked well in the past, the issue of increasing the price of the electricity generated from the Chukha station has now emerged as a bone of contention between the two sides. A practical and expeditious approach would be to empower the country’s electricity regulator — the CERC — to determine and adjudicate on tariff and commercial disputes. As far as merchant plants are concerned, they must be free to discover prices in the electricity market, but could be allowed to approach the same regulator for commercial disputes. The objective should be to not tie down government officials in tariff negotiations and dispute resolution.
Anil is a senior editor based in New Delhi.