1. Introduction
  2. Mention the challenges pointwise.
  3. Conclude with a sense of optimism.

India-Bhutan bilateral relationship has been based on trust and mutually beneficial cooperation since the establishment of diplomatic ties in 1968. Hydropower cooperation is an important feature of this relation. Since the 1st hydropower agreement (Jaldhaka project) in 1961, a series of agreements have been signed over the years to accelerate the pace of hydropower development. 1n 2014, the ‘Framework Inter-government Agreement’ on ‘Joint Venture Hydropower projects’ have been signed.

India has supported hydropower development in Bhutan through a mix of grants & loans, and technical support related to design and construction of projects. Although a win-win situation for both countries, however, several pressing issues have emerged from the accelerated hydropower developmental approach.

  • For Bhutan, hydropower is a ‘strategic renewable energy’ resource, that has stimulated high economic growth. In 2020, the hydropower sector contributed 74% to its GDP. However, the economic feasibility of implementing the projects remains a big concern. One of the major worries is the steep rise in Bhutan’s public debt. According to Royal Audit Authority report, the major portion of the debt relates to borrowings for hydropower loans, which is 73% of the total external debt for 2020-21.
  • India’s role in providing financial and technical support is much appreciated. But, it is seen that since 2007, the hydropower sector’s financial performance is deteriorating. Several reasons have contributed to the decline of economic benefits –
  • Change of financing system by India from 60:40 model to a 30:70 model (30% grants and 70% commercial loans).
  • Commissioning of projects has been delayed and consequently, massive escalations in the project costs has been incurred.
  • Another reason for cost escalation is the failure to take into account the inflation rate in the initial cost estimates.
  • Failure to undertake rigorous Environment Impact Assessments, whereby, projects got stalled due to natural calamities like landslides.
  • The guidelines issued by the Indian Cross Border Trade of Electricity has been unfavorable to Bhutan.
  • Development of hydropower projects is highly capital intensive but only a small employment opportunity is available for the local populace, creating discontentment. One of the main reasons for the jobless growth in this sector is the accessibility of cheap skilled & non-skilled workers from India.

Both India and Bhutan need to engage profoundly to consider the economic, social and environmental impact of the development of hydropower resources. The ‘Sustainable Hydropower development policy’ (SHDP) 2008 has led to rising debt from the hydropower sector with few employment opportunities for the local communities. Subsequently the SHDP 2021 was launched with the aim to guide the overall development of hydropower in consonance with national economic development goals. It is hoped that hydropower cooperation b/w India and Bhutan will not only achieve higher aspirations for peace, prosperity and happiness, but also further strengthen bilateral bonds.

Legacy Editor Changed status to publish June 1, 2022