28 June, 2008 - The ‘Bhutan Sustainable Hydropower Development Policy, endorsed by the cabinet this week, will allow private sector and foreign investments to develop Bhutan’s hydropower resources.

Investments will be on a BOOT or build, own, operate, and transfer basis for 30 years. The hydro projects will be in the three main divisions of medium (25 to 150 MW), large (150 to 1000 MW) and mega (beyond 1000 MW).

Selected Projects Sunkosh – 4060 mw Kuri Gongri- 1800 mw Punatsangchu 1- 1170 mw Punatsangchu 2- 1000 mw Mangdechu- 720 mw Chamkarchu 1- 670mw Kholongchhu- 485mw Dagachu- 114mw

The medium projects will allow joint ventures between Bhutanese and foreign partners, with a minimum 26 percent equity by the Bhutanese partner. Full ownership will also be allowed for Bhutanese nationals. No foreign investor will be allowed to enter into joint venture beyond five projects.

The large projects allow for 100 percent ownership by foreign companies or even Bhutanese-foreign joint ventures. Here again, an investment by any company will be restricted to three projects with a total installed capacity of 2,000 MW.

Mega projects will generally be through the bilateral model, but if the project cannot be realized through the bilateral model, then private and foreign investment may be considered.

The bidding process for the projects will be on the basis of upfront premium and royalty for electricity. A minimum of 12 percent of electricity will be provided for free to the government for the first 12 years of the project and a minimum of 18 percent thereafter until the project period is over.

The project will be awarded to the bidder offering the highest royalty energy in which the government can choose either money or electricity. The bidder will then have to present a Detailed Project Report over a fixed timeline and later sign the Concession Agreement Document, that will be the main legal document between both parties.

A few carrots are also available for investors. The developer will be exempt from paying corporate tax for the first ten years of operations, all import duties and Bhutan sales tax on import of plant and equipment for the project. No sales tax or duty will be levied for export of electricity.

If the project is completed before deadline, a rebate of 1 percent reduction of royalty energy will be given for every year before which the project is completed. The rebate will be given for five years of operations. There will, however, be a 1 percent increase in royalty energy for every year of delay, again applicable for five years.

As per the Clean Development Mechanism, all benefits of Certified Emission Reduction will go to the project proponents which be taxed for income. A further extension of 15 years can be given beyond 30 years in the BOOT system, based on the performance of the operator.

The developer will have to hire as many Bhutanese as possible during construction and have at least 75 percent of the employees as Bhutanese during the operations phase and provide a job to each family affected by the project.

The project will have to be handed back to the government after 30 years free of cost. During the project period, the government can inspect the plant to make sure that project life or power generation is not compromised and to seek remedial measures if it is. The developer will be responsible for laying power lines to the closest grid sub station of the Bhutan power corporation limited (BPCL), which will provide the delivery services within Bhutan and up to the border.

Apart from the three broad models, the government will also allow other models of investment. Of interest to power hungry industries will be the ‘captive power plants’ model in which industries can develop their own hydro projects for their exclusive use.

The other models are public-private partnership and public-public partnership between government agencies. A list of final hydro projects to be developed for achieving 10,000 MW by 2020 has been finalized (see box), which in all will cost Nu 149.001 billion. A high-powered task force representing various ministries and departments will be created to fast-track the above projects. However, if any of these projects are found to be unviable, then the ministry will be allowed to change it. The ministry of economic affairs will now also get a separate energy secretariat in order to achieve the 10,000 MW project target.

The government will also be free to follow any other policies for accelerated development of hydropower and amend this policy when required.

The developer will have to provide an amount not exceeding 1 percent of the project cost for the rehabilitation and resettlement of displaced persons, which will be implemented by the government in consultation with the local development committee. There will also be environmental laws to be obeyed.

Source: http://www.kuenselonline.com