The 10,000 MW question

The proverbial cat is out of the bag in Bhutan’s 10,000 MW hydro projects sector, with news that we will most probably not be doing all the projects by 2020 due to financing issues.

Discussions are currently on at the bureaucratic level and the final confirmation will have to come from the political leadership of both the countries.

The 10,000 MW by 2020 was agreed on by both the Prime Ministers and governments of both countries from 2008 onwards, including constant reaffirmations in numerous statements made after that.

There is bound to be disappointment and questions on both sides, and especially so in Bhutan with the realization that the grand hydro vision will not live up to the full expectations of both countries.

What is happening now is only officials calling a spade a spade as financing issues were a problem even since 2009 when people actually sat down and started doing the math. India despite its size is a developing country of 1.2 bn people, and mostly poor people at that. The requirements of its own citizens will any day trump over foreign investments.

There are also other aspects to the issue that must also be considered and examined. One of the biggest causes behind the rupee and credit crisis that Bhutan faced in the recent years was the hydro project sector. Bhutan’s small and vulnerable economy was ill suited to handle the effects of such mega projects. This happened as rupee imports increased and as Bhutanese contractors rushed to take loans to complete jobs or buy construction equipment.

The scenario for the domestic economy would have become much worse if all the major mega-projects were also coming online at the same time in the near future.

The BCCI complained of the ‘all the air being taken out of the room’ to collate the impact of the projects on the financial sector and thereby on Bhutan’s private sector.

If the 10,000 MW projects all got completed by 2020 Bhutan was headed to become a very rich country, but at the same time Bhutan also had a strong probability of suffering from the ‘resource curse’ afflicting nations that depend solely on natural resources like for example Arab nations relying on oil.

This would mean with so much money coming in so easily the general population would have little or no incentive to achieve real economic self sufficiency and use or develop their skills. In such a case as in other countries the government would become a huge subsidizer and the economy would be entirely dependent on that resource until it runs out or is replaced. It is not a healthy scenario or place to be in for any country or society.

The new reality will also serve as another welcome call as it has now become abundantly clear especially with developments in the last few years that Bhutan cannot risk putting all its economic eggs in just the hydro basket.

Bhutan now has no choice but to diversify its economic base. Up until now the heavy lifting in the economy was primarily done by the government and advent of the hydro projects made that even more apparent. Now the government and private sector will truly have to work together to explore and diversify Bhutan’s economic base.

Bhutan’s economic future and also the employment of the tens of thousands of youth looking for jobs will have to be catered to by the private sector. The 10,000 MW projects even after being completed would not have generated more than 7,000 permanent jobs.

This hydro development should serve as a wakeup call to the government who has to now focus even more on economic development and self sufficiency.

As is evident from the ongoing projects hydro power development also has a lot of environmental impact. The non taking up of the other mega projects should also been seen as an opportunity to preserve Bhutan’s environment.

The rivers will always remain in Bhutan and projects can also always be taken up in the future. The important thing is to do the projects in a way in which Bhutan’s economy benefits and also in a way in which the projects make economic sense.

There may be those who are contemplating inviting in private international companies to take up mega projects in Bhutan. However, this will grossly undermine Bhutan’s economic interests. International companies will want a majority share of the projects and thereby project revenue. The projects in most part will not be owned by the government as is in the case of inter-governmental projects.

Even if there is no money Bhutan should wait for the current mega projects of up to 5,000 MW to be completed and see the situation. One these projects are completed Bhutan could have enough resources to take up the remaining projects on its own which would have a lot of inherent advantages from the ownership to construction timeline to tariff costs.

However, whatever the decision both the governments should reflect on it carefully. 10,000 MW by 2020 is not just an economic project for Bhutan but it has come to symbolize a lot for the people of both countries. Any major changes or a diversion in the agreed framework is bound to have an impact.

“It is folly for a man to pray to the gods for that which he has the power to obtain by himself.”
Epicurus