Bhutan’s Bad Bet: How hydropower became a ruinous investment for Bhutan

Bhutan—a small, independent Buddhist kingdom the size of Switzerland—is located in the eastern Himalayas. Boxed in from the north by China and on all other sides by India, it is endowed with natural and environmental riches that few other countries in the world can match. The country boasts close to 750 bird species, some 500 orchid species, and upwards of 5,600 species of vascular plants, 200 species of mammals, and 800 butterfly species.

Bhutan’s altitudinal range is phenomenal, rising from 97 meters in the south to the highest point of 7,570 meters at the tip of Mt. Gangkhar Puensum, the world’s highest unclimbed peak. This extraordinary topographical scope has created climate multiplicity so vast that Bhutan is listed among the ten global biodiversity hotspots of the world. Its ecosystem diversity is unmatched in all of Asia.

Blessed with extraordinary natural wealth, the Bhutanese were traditionally an agrarian society, engaged wholly in agriculture farming, horticulture, and animal husbandry. The country was food self-sufficient, with the import of food items virtually unheard-of a few decades back. Sadly, with the advent of modernity beginning early 1960’s, that self-reliance has diminished because of a gradual but steady move away from farming and agriculture production to non-traditional economic activities. Accelerated economic and developmental activities saw the proliferation of imported labor to drive developmental activities such as road-building and the creation of infrastructure. As a result, Bhutan has needed to import a wide variety of foods from outside to feed its burgeoning population. Today, the country is firmly set on the road to modernization, at a speed that many citizens believe may be too fast-paced for our own good.

The journey toward hydro-electricity 

As these structural changes were taking place in Bhutan, neighboring India decided to hasten its pace of industrial production. As a result, India’s demand for electric energy shot up. 

Responding to India’s new hunger for energy, Bhutan declared itself a potential source for hydro-electricity, with an estimated potential generation of 30,000 megawatts. Geography alone seemed to be in its favor. Located in the Third Pole region—the Hindu Kush-Himalayan area that stores more snow and ice than anywhere else in the world outside of the north and south poles—Bhutan has a number of river basins that could be tapped for hydro-electricity generation. Thus Bhutan began to take baby steps towards hydro-electricity generation, both as a means of earning revenue to finance its many critical developmental goals and spurred by India’s newfound demand for electricity.

Bhutan’s energy-generating journey began in 1974, with the country’s first hydropower project: the Chhukha Hydropower Project. Subsequent hydropower projects—Kurichhu in 1995, Basochhu in 1996, and Tala in 1999—were all launched before the advent of democracy. Their construction was evenly paced, with each new project completed before the next commenced. All these early facilities were built with care, sound planning, and thoughtful implementation. The size of the projects was kept at manageable levels. In the end, each of these early projects benefited the country as a whole, with minimal or no environmental impact to the ecosystem.

A love story gone wrong

With the arrival of democracy in Bhutan in 2008, however, everything went haywire. Lawmakers felt an unprecedented urgency to accelerate hydropower project development. Groundbreaking for Punasangchhu-I in 2008 was quickly followed by Dagachhu in 2009, Punasangchhu-II in 2010, Mangdechhu in 2012, and Kholongchhu in 2015.

Today, other than the Dagachhu Hydropower Project, all of these massive structures remain incomplete. And all have become financial traps, churning out debt by the hundred of billions of ngultrums (the Bhutanese currency pegged to the Indian rupee).

Put simply, the story of hydropower generation in Bhutan has been a story of economic bondage, environmental destruction, and human displacement. Hydropower promoters have stuck with their story that these facilities are “run-of-the-river” projects (in which little or no water storage is involved), with minimal or no human displacement. Yet after two decades, some displaced families in the project areas have yet to receive substitute land for their property lost to the projects. Dam construction in unstable topography has triggered entire mountainsides to slide into nearby valleys, causing environmental denudation never seen before. Irreparable damage has struck the habitats of some of the world’s most endangered bird and wildlife species. And incessant and uncontrolled use of powerful explosives, such as dynamite to blast away rock formations, has destabilized the already-fragile geological formation of the young Himalayan range where these hydropower projects are located.

Among the hydropower projects dubiously claimed to be run-of-the-river projects—PHPA-I and PHPA-II—diversion dams reaching 86 meters and 130 meters respectively will be built. The water bodies that these giant dams will create could alter weather patterns and trigger earthquakes in an area where the land is already destabilized through blasting. Indeed, the whole of Gaselo village, in the Wangduephodrang district of western Bhutan, could end up in the belly of the Punatsangchhu.

Failed stewardship 

Bhutan’s two largest hydropower projects—PHPA-I and PHPA-II—have also seen what project authorities cynically call “geographical surprises”. In one incident at the PHPA-II, the roof of the main access tunnel caved in, killing an unspecified number of people. Both PHPA-I and PHPA-II projects have seen their cofferdams being flooded repeatedly year after year, causing costly delays in dam construction. It is frightening to realize that if project authorities have not even been able to assure fullproof design of simple and temporary cofferdams, what major design failures will emerge in the future?

Last year, Tala Hydroelectric Project’s inlet valve burst, killing two people on the spot and injuring two others. More recently, a flaw was detected at the Mangdechhu Hydro Power Project—a leak in one of the facility’s tunnel gates—causing a delay in the project’s scheduled May 2019 commissioning. The new date of commissioning has now been pushed to July, 2019. 

Meanwhile, the right side of the hill where the PHPA-I dam is being built has seen a number of slides. The result has been not only costly delays but charges that the site is unsuitable for dam construction. Originally planned for completion in 2016, PHPA-I is now scheduled to go into operation in 2024—a far-away target that is still a pipe dream. The truth is that the project will almost certainly never go online.

Unbridled costs and incompetent management

From an initial cost estimate of Nu.35.14 billion, the PHPA-I project by 2016 devoured Nu.93.75 billion. According to a conservative estimate, the last three years have pushed the cost past Nu.110.00 billion. At this rate, the total cost of construction will most likely cross the Nu.200.00 billion mark by the time the project is done—should that miracle come to pass. 

Incompetent project consultants have selected inappropriate project sites. To the horror of many engineers and residents, it became clear too late that Bhutan’s biggest hydropower projects, PHPA-I and II, are located in a seismically active zone. Had a proper pre-feasibility study been conducted by technically qualified professionals, the projects would have never been located in these vulnerable areas.

PHPA-I and II have also seen cost overruns in the region of 400% of their initial estimates. At 70% ownership, Bhutan is the majority shareholder of the projects—yet the Bhutanese have no say in the management of the projects, whether administrative or financial. Even simple decisions such as the choice of cement and aggregate used in the project’s construction fall outside the authority of the Bhutanese managers. The Indian project managers make all the decisions.

No benefits to local communities 

The Bhutanese government and project authorities have claimed for decades that hydropower projects will greatly benefit local communities. They continue to make this claim. But there is not one iota of proof on the ground. Bongo Gewog sits bang in the middle of two of Bhutan’s earliest and largest hydropower projects to date: Chhukha and Tala. As the National Statistics Bureau has revealed, the country’s poorest villages are located in the shadows of these massive projects. Indeed, road access to these villages is so poor that they are often completely cut off during monsoons.

It is not only the Bongo community that has yet to see tangible benefits. The same is true in every other community where a hydropower project has been launched. Worse, serious social ills have sprung up in the communities close to the project sites.

Debt traps and divine intervention

Most alarmingly, perhaps, the Bhutanese nation as a whole has not benefited, as the World Bank’s Economic Policy and Debt Department made clear:

Bhutan’s hydro-power projects have largely been perceived risk-free, and thus rapid hydro-power investment through heavy borrowing has not caused much concern until recently. Yet available information suggests that the sector’s financial performance has been deteriorating since 2007. The net profit (before tax) per unit of electricity sold has fallen sharply since 2007, driven by rising costs and declining revenue. The sector’s regular contribution to the budget has also declined for the past 10 years, from 6-8 percent of GDP during the early 2000s to 2.7 percent in 2011/12, notwithstanding the significantly increased electricity generation capacity. All this indicates that the sector’s “high commercial profitability” cannot be taken for granted. Should the hydropower sector’s financial performance continue to deteriorate, Bhutan’s solvency could be threatened. Although debt service costs are being borne by DGPC at present, after all, the hydropower debt is the government’s liabilities. The source of the performance deterioration has to be identified, and, remedial actions taken soon to avoid debt service difficulties.

A 2015 report titled “The New Debt Trap”—released by the Jubilee Debt Campaign, a UK-based company—listed Bhutan among 14 nations that are fast heading toward a government debt crisis.

Is India a boundless market?

As of 30th April, 2019, India has a total installed capacity of 356.100 gigawatts of electricity, generated from a variety of energy sources. This makes India the third-largest producer of electricity in the world.

State Power Minister Sobhandeb Chattopadhyay, of the West Bengal state of India, had declared as far back as 2016 that his state was set to export 1,000 megawatts of electricity to Bhutan and Nepal. The fact is, India achieved electricity surplus more than half a decade ago. Their problem is not energy generation, but poor transmission and distribution to the point of consumption in a manner that is efficient and cost-effective.

The “game-changer” myth 

In some sections of the Bhutanese society, people believe that India is dependent on Bhutan—that our small, proud nation is critical for India’s electricity needs. This is a terrifying misconception. Anyone can see that Bhutan’s mad rush for hydro-electricity generation may cause our nation long-term and terminal injury—not only to its economic health, but to its very sovereignty. The mindless rush toward hydropower generation in every one of the country’s pristine rivers runs the risk of shackling all of our river systems to eternal bondage.

In 2016, India Power Minister Piyush Goyal reported in the Upper House of the Indian Parliament that India imported 5.24 billion units of electricity from Bhutan during fiscal year 2015. Translated as a percentage of India’s total power generation in that year, Bhutan’s export of 5.24 billion units of electricity worked out to a mere 0.47% of that country’s total output. In terms of its energy relationship to India, Bhutan must wake up to its own utter triviality.

Hydro-electricity: Bhutan’s failed investment

India, which is landlocked Bhutan’s only market for hydro-electricity, has moved on to achieve an impressive energy surplus. Moreover, India can generate electricity from solar and coal at 4.6 cents per unit—far below Bhutan’s cost of generating hydroelectricity: 6 cents per unit. Given this scenario, it is suicidal for Bhutan to continue to chase its elusive hydropower dream. 

Compounding the problem, the cost of capital is punishingly high for Bhutan. We have borrowed money to build these hydropower projects at a preposterous interest rate of 10% per annum. Meanwhile, for the last three years, India’s hydropower generation amounted to less than 10% of their total electricity generation. The reason: they now consider hydropower generation unviable, compared with other power sources. Recently, thethirdpole.net ran an article titled “Who will buy Nepal’s hydropower?” That question is even more relevant to Bhutan.

https://www.thethirdpole.net/en/2019/04/09/opinion-who-will-buy-nepals-hydropower/

Finally, global warming brought on by climate change will directly affect Bhutan’s hydropower potential. The rate of snow and ice melt in the Himalayan region is greater than in other parts of the globe. With a receding snowline and loss of ice in our mountain peaks, Bhutan’s hydropower potential may be far less than the stated 30,000 megawatts.

In the end, Bhutan must face the fact that its vaunted hydropower industry makes no sense: economically or ecologically.

A glimmer of hope?

Will our country face up to the truth or foolishly try to save face? So desperate are the principals in the PHPA-I endeavor that on February 28, 2019, they resorted to conducting a rimdro—a religious ceremony—for divine intervention. Their hope was that this unorthodox measure would appease the angry gods and local deities and help them progress with the project’s construction. They forget that such gods and deities are figments of the ingenuity and inventiveness of the human mind. Before the gods can come to their rescue, the hydropower authorities need to reorient their professionally-trained minds.

Fortunately, Bhutan’s moment of awakening may be at hand. Late last year, the Hydropower Committee recommended an encouraging shift in thinking, suggesting that Bhutan go slow and smart on new hydropower projects. The committee recommended that Bhutan complete all projects now in the pipeline before starting new ones. Additionally, it recommended that atleast two of our river basins—the Chamkharchhu and Amochhu basins—remain free of hydropower projects.

As a passionate blogger, environmentalist, and a citizen who dearly loves his country, I had called for the closure of the PHPA-I as far back as February of 2016. Regardless, the project still stands. However, recent developments indicate that the project’s managers are becoming increasingly frustrated by their inability to complete their mission. The realization is dawning on them that their technological, scientific, and engineering inventiveness is poor match against the forces of nature.

Is Bhutan finally waking up to the rude reality that tying our future to hydropower is to invite doom? Is Bhutan’s ill-starred romance with hydropower finally over? For the good of the Bhutanese nation and the Bhutanese people, I dearly hope so.