Bhutan is reviewing its hydropower policy to bring in more investments and India is fast formulating its approach to the anticipated changes in the bilateral equations. India has been the biggest market for Bhutan power and in this regard, it has so far enjoyed the leverage to render any project viable through concluding the power purchase agreements. However, with the change in Bhutan's power policy, India is apprehensive that any agreement concluded by private players with Bhutan without consultation with the Indian government might vitiate this leverage.
India's foreign secretary is scheduled to convene an inter-ministerial meeting shortly. The ministry of external affairs has circulated a background note to set the agenda for the meeting. India is keen to retain its stronghold in Bhutan's future projects—in terms of partnership position, financing and execution. India's relations with Bhutan's hydropower sector date back to 1986.
The infrastructure-starved hilly country that has huge untapped hydropower potential has proposed to liberalise the sector and make it part of the country's foreign direct investment policy. Bhutan's hydropower potential is an estimated 30,000-mw about which around 20,000-mw is technically feasible. To being with, Bhutan has formed an apex holding and investment company—Druk Greek Power Corporation—for all its hydropower development. For India that has identified Bhutan as one of its power partner countries, it means more investment opportunities.
In an independent development, the sixth Project Monitoring Committee meeting between Bhutan and India took place recently to review the progress of India-assisted projects in Bhutan's ninth five-year plan. Both the countries expressed satisfaction at the overall progress. The Indian government has so far released $1,721 million to Bhutan, representing 81 per cent of outlay of Bhutan's ninth plan that ends later this year.
According to Bhutan's inchoate plans, all existing projects including the 1,020-mw Tala hydropower project will be brought under the DGCP that will be its investor and partner for all future projects in hydropower. Bhutan is also formulating a draft independent power producer policy developed with technical assistance from Asian Development Bank.
Bhutan's power demand is far lesser than its huge hydropower potential. For this fundamental reason and its proximity, India has identified Bhutan as one of its power partner countries that also includes Nepal. Typically, the arrangement is that India sets up a hydropower project in Bhutan and buys power from the project. Bhutan therefore gets significant revenue through its hydropower potential. The first project under such a bilateral partnership was the 336-mw Chuka hydropower project commissioned in 1986.
Nearly 80 per cent of the power generated by Chuka is purchased by India. The bilateral partnership was later extended to the 60-mw Kurichu project commissioned in 2001 and more recently the 1,020-mw Tala hydropower project commissioned last year. India has been buying power from these power projects at Rs 1.80-2.00 per kwh.
In July last year, Indian approved the inter-government agreement with Bhutan for setting up the 1,095-mw Punatsanghchhu-I hydropower project that is estimated to cost Rs 3,514 crore. The bilateral cooperation will be extended to projects like Punatsanghchhu-II (around 1,000 mw), Mangdhechu (600 mw), Manas (2,800 mw), Wangchu (900 mw), Bunakha (180 mw), among others.
Under a bilateral agreement signed in July 2006, India has agreed to purchase as much as 5,000 mw of power from Bhutan by 2020.