Hydropower has been the main economic driver for Bhutan for the past few decades now. The story of Bhutan’s successful exploitation of its hydropower potential is also the story of its bilateral cooperation with its giant southern neighbor, India. The two countries have jointly been able to exploit Bhutan’s hydropower potential in a win-win situation in the spirit of friendship and mutual trust.

The tryst began with the 336MW Chukha hydropower project in 1974 while the project began generation only in 1987. The project was the beginning of an excellent bilateral agreement where both countries saw economic gains. It would not have been possible for Bhutan to bear the financial risks on its own to build the project. On top of it, India chipped in the money and the technology and also took on the risks associated to build the project.

As a result both countries gained from the project. A report says that Bhutan gained US$ 2,286.51mn and India gained 2,521.78mn till 2008 from the Chukha project. The net economic gain from the project was shared between Bhutan and India in the ratio 48:52. It shows that India got a slightly better deal. Bhutan received Nu 28,648mn in cumulative revenues after the project started till 2008. India, on the other hand, had recovered its capital investment by 2007.

Chukha was only the beginning. The next big intergovernmental project was the 1,020MW Tala project apart from the Kurichu Project. Then the two countries, in the same spirit of understanding and friendship, signed the agreement that Bhutan would export 10,000MW of electricity to India by 2020. It was a giant leap not only in the economic front but also in further consolidating the already strong ties between the two governments.

This agreement also means that Bhutan has to literally rush to come up with several mega projects some of which are already underway. For India, the agreement will go a long way to address its acute power shortage because of which it has been estimated that India will need an additional 100,000MW by 2012. The installed power generation capacity of all types in India stood at 140,302MW in 2008 and it has been estimated that India will need an installed power capacity of 778,000MW by 2032.

Bhutan’s model of exploiting its hydropower resource has been described to be a stable investment internationally including by agencies like the ADB and the World Bank. It is because of this that despite being a country heavily dependent on international aids, we can still afford to boast of having a stable balance sheet.

Our model of investing in hydropower has also received a modest level of scrutiny particularly from Nepal. Despite having a much higher hydropower potential of 84,000MW compared to our potential of 30,000MW, Nepal is still struggling to exploit its resources which lies dormant. It may also be an irony that while Bhutan pays one of the lowest electricity tariffs in the world, Nepal has one of the highest tariffs in the region. Nepali critics have always looked up to the Bhutan model of investing in hydropower but their geopolitical realities and a skeptical relationship with India has been a curse, at least in this case.

Back home, our pursuit of the hydropower dream received an unwelcome twist last week with the revelations of a set of new harsh demands by Indian Public Sector Undertaking (PSU) companies to build joint venture hydropower projects in the country.

The Indian PSUs will be building four hydropower projects as joint ventures. The projects are the 670MW Chamkarchu in Bumthang, 600MW Kholongchu in Yangtse, and 600MW Wangchu and 180 MW Bunakha Reservoir in Chukha. The four projects make up a total of 2,050MW which is more than one fifth of the 10,000MW by 2020 pact Bhutan has signed with India. The Indian PSUs placed the five new tough demands in July in New Delhi to a delegation of the Druk Green Power Corporation (DGPC).

The Indian PSUs have asked for the projects’ ownership to be given to them for 35 years and not 30 years as initially agreed. They have proposed that they will not hand over the projects after 35 years to Bhutan for free but have said that Bhutan will have to buy back the projects at the then market price. They want to restrict our right to use the power for domestic use. They have gone against the earlier agreement that they will take the loan for the projects and have proposed the loans should be taken in the name of the projects. They also don’t want to pay the royalty power to Bhutan. These are tough demands which Bhutan cannot afford even to discuss, forget about accepting it.

Here, we need to understand that the demands of the Indian PSUs should not be equated to mean that of the Indian government. The demands are purely commercial in nature and do not have the elements of magnanimity which have always characterized bilateral agreements between Bhutan and India. But it is important for Bhutan to impose strict regulations and have a priority mapping to ensure that we don’t lose out at the negotiating table.