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Visiting Business Peopleo |
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“Bhutan is learning from Nepal’s mistakes”
Chhewang Rinzin , the Managing Director of Bhutan Power Corporation Ltd. was in Nepal to attend the 6 th international conference on development of hydropower held here during 7-9 June 2005. On the sidelines of the conference, Rinzin talked to Nubiz sharing some of Bhutan’s experience about how it is going in fast developing its hydropower. Excerpts from a brief interview:
Would you briefly describe how Bhutan is developing its hydropower potential?
Hydropower in Bhutan is being developed mainly through partnership between Royal Government of Bhutan and the Government of India. We went for this method because Bhutan has no other significant resource except hydropower and we don’t need all the hydropower that can be generated in Bhutan. So far we have developed only about 485 MW out of the estimated potential of 30,000 MW. Though the capacity developed so far is meager from the standards of many other countries, we are exporting about 70% of it to India. This accounts for about 40% revenue of the Royal Government of Bhutan. Presently, we are in the process of developing another 1020 MW capacity. It will be commissioned early 2006. Besides that we also have projects in the pipeline to develop additional 3000 MW over the next 20 years.
How is the financing and ownership mechanism?
Bhutan has developed a very good financing arrangement with India wherein they have provided us grants as well as loan – 60% grant, 40% loan. All the projects come under the ownership of our government at the completion.
How is Bhutan utilizing the hydropower within the country?
We have come to realize that roads and electricity are two essential components for socio-economic development of the country. So we are giving a high priority to provide electricity to the villages. So far we have achieved 960 kWh as the per capita electricity consumption.
How about private sector investment in hydropower?
So far all the projects are fully owned by the government. But our government understands that as we go on increasing our capacity, we will have to look for other financing mechanisms. In this connection we looked to other countries as well and Japan and Austria have come up with some of the financing. We have also approached Asian Development Bank. And finally we are also considering private sector financing. But private sector involvement in hydropower has a number of difficulties. First, there is a lot of uncertainty involved about hydropower development. You may not be sure of what exactly would be the investment volume till the project is finally completed because of the uncertainty about the geological conditions. Secondly, hydropower projects need a lot of money – they are capital intensive. Third, the gestation period is very long. However, we do hope that the private sector will come up gradually.
But they may come in smaller projects initially.
We have gone more for bigger projects because they are cheaper per MW of generation capacity. That way we could keep the tariff low. We are developing small projects only when there is a grant available to finance such projects.
How is the tax rate applicable in hydropower projects?
The power projects developed with the help of Indian and Austrian governments are tax free. They don’t have to pay any tax on import of machinery and on sales of the power. They have to pay only the corporate income tax if there is profit from operation.
Your corporation recently placed orders to buy transformers from a Nepali company - Nepal Ekarat Engineering. How satisfied are you with the quality?
We have not yet received these transformers – there is still time for their delivery. Our teams that inspected the transformers being manufactured for us have found them in excellent quality and we expect the delivery by June end. One of the important factors that led to our decision to place order to this company was a very good recommendation from Nepal Electricity Authority about the quality. Of course, the company has a very good technical support from reputed Thai party in making such product and finally the price quoted was good.
How can Nepal and Bhutan learn from each other in hydropower development?
Both of us share the same Himalayan geology and similar eco-systems. So both can learn a lot from each other. We look at Nepal as a country that started the development process well ahead of us. So we can learn from Nepal’s experience – where they did wrong and where they did right. As a late starter, we are in advantage. I think, the Nepal-India issues on hydropower are a bit complicated because you are talking more in terms of water sharing rights and submergence of land. But we have avoided these complicacies. For example, all our projects are run-off-the-river type. So there is no problem of submergence.
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