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Bhutan-India Hydropower Relations

The traditionally unique bilateral relations between India and Bhutan is characterized by trust and understanding which have matured over the years. Cutting across political parties on both sides, India and Bhutan have enjoyed an all-weather relationship. Mutually beneficial economic linkages between India and Bhutan have been an important element of the bilateral relations. India continues to be the largest trade and development partner of Bhutan. Planned development in Bhutan began in the early 1960s. The First Five Year Plan (FYP) of Bhutan was launched in 1961. Since then, India has been extending generous financial assistance to Bhutan’s FYPs.

Cooperation in the hydropower sector between India and Bhutan is a true example of mutually beneficial cooperation, providing clean electricity to India, generating export revenue for Bhutan, and further strengthening the bilateral economic linkages. The two countries have successfully concluded several power project agreements.

Indo-Bhutan hydropower cooperation began in 1961 with the signing of the Jaldhaka agreement. The Jaldhaka project is situated on the Indian side of Indo-Bhutan border in West Bengal. The major part of power produced at Jaldhaka hydropower plant was exported to southern Bhutan.

A landmark development in the history of Indo-Bhutan hydro-relations took place in 1987 with the commissioning of the 336 MW Chukha Hydropower Project (CHP). Bhutan’s first mega power project, CHP was fully funded by the Government of India with 60 percent grant and 40 percent loan at the interest rate of 5 percent payable over a period of 15 years after commissioning. The then Indian President R.Venketaraman inaugurated the project.

The success of one project has made way for other projects based on confidence, economic viability and shared benefits. The resounding success and economic benefits brought by CHP made way for other projects. The 1,020 MW Tala Hydroelectric Project, one of the biggest joint projects between India and Bhutan, was also financed by the Government of India, with 60 per cent grant and 40 per cent loan.

The two countries have signed the Agreement on Cooperation in the Field of Hydroelectric Power (HEP) in July 2006, which outlines the framework for cooperation in the field of Hydropower. In May 2008, during the visit of the then Prime Minister Dr. Manmohan Singh to Bhutan, the two sides signed the Protocol to the 2006 Agreement concerning Cooperation in the Field of Hydroelectric Power and agreed to increase the scale of power projects from 5,000 MW to 10,000 MW by the year 2020. Of these, two projects totalling 2220 MW (1200 MW Punatsangchu-I, 1020 MW Punatsangchu-II) are under construction. Out of the remaining 7 HEPs, 4 totalling 2120 MW (600 MW Kholongchhu, 180 MW Bunakha, 570 MW Wangchu and 770 MW Chamkarchu) were to constructed under a Joint Venture (JV) model. Under the May 2008 Protocol, the two governments also established the Empowered Joint Group to expedite the development of hydropower projects in Bhutan.

In April 2014, the two countries also signed the “Framework Inter-Governmental Agreement” concerning development of Joint Venture Hydropower Projects through the Public Sector Undertakings of the two countries. This Inter-Governmental agreement provides the framework for implementing the four HEPs of Kholongchhu, Bunakha, Wangchu and Chamkharchu totalling 2120 MW, subject to completion of the due process of appraisal of their Detailed Project Reports (DPRs) including techno-economic viability, on a Joint Venture-model between Public Sector Undertakings of the two countries. This Inter-Governmental Agreement would also facilitate the commencement of these four projects and further strengthen hydropower cooperation between the two countries.

During his visit to Bhutan in 2014, Prime Minister Narendra Modi laid the foundation stone of the 600 MW Kholongchu hydro-electric project, a joint venture, represented by SJVNL from India and Druk Green Power Corporation from Bhutan.  The Concession Agreement for the 600MW Kholongchu hydro-electric project was signed virtually on 29 June 2020.

The 720 MW Mangdechhu hydroelectric project was jointly inaugurated in August 2019 by the Hon’ble Prime Ministers of India and Bhutan.

The sale of hydropower accounted for the largest share of the country’s GDP. It is also the most important export item contributing about 63% percent of Bhutan’s total exports. Druk Green Power Corporation, which controls all electricity generation plants of the country, is the highest tax payer of the country.

Bhutan is endowed with abundant water and hydropower forms an important sector of the Bhutanese economy. Construction of two major hydroelectric power projects are underway in Bhutan. The 1200MW Punatsangchu I is expected to be completed by 2024/2025 and the 1020MW Punatsangchu II is expected to be commissioned by 2022.

India’s support in the development of the hydropower sector in Bhutan is the centrepiece of Bhutan-India economic cooperation and is one of the main pillars of bilateral cooperation. The cooperation in the hydropower sector is full of opportunities and has been recognized by both Bhutan and India as being mutually beneficial. India finds her interests fulfilled in alleviating their power deficiency by supporting Bhutan and Bhutan in turn finds an opportunity to optimize its national income through power exports to India. This sustainable win-win situation for both sides makes the relationship between the two nations even stronger and long lasting.