Strategy for gross national happiness (sgnh) Annexures to the Main Document

3. 
   During the period of eight years (2009-2016), the projected retained earnings of the government owned hydroelectric corporations would amount to only about Nu. 8 billion, out of which only 50% will be available for equity investment. Therefore, additional funds may be mobilized through domestic financial institutions and or International Financial Institutions such as Asian Development Bank (ADB), International Finance Corporation (IFC), Export Promotion Scheme (EPS), Japan Bank for International Cooperation (JBIC), etc. It should however, be noted that raising additional funds would pose debt burden to the government.
   
4. 
   ADB provides sovereign loans to member countries under Ordinary Capital Resources (OCR), with 20 years repayment period including 5 year grace period. The loans are provided in three major currencies, US$, Japanese Yen and EURO, carrying a floating lending rate consisting of 6 months LIBOR ($ & Yen) and 6 months EUROBAR incase of Euro, spread, front-end fess and commitment fees. ADB could also provide Rupee denominated loans. So far Bhutan has not accessed OCR loans but possibilities are being explored for financing of Dagachhu HEP.
   
5. 
   IFC provides loans to member countries for private sector projects, which are technically sound and meets IFC and host government’s environmental and social standards. IFC provides 25 % of the total project cost for new projects. While IFC’s lending is mainly for the private sector, IFC could consider lending to government owned corporations (DGPC) operating on commercial basis.
   
6. 
   JBIC could also be a potential IFI to finance hydroelectric projects. In the 10^th Plan, JBIC has been identified for Rural Electrification Program and this would be the first project to be taken up by JBIC in Bhutan. However, indications are that JBIC normally does not take up more than one project at a time. JBIC borrowing for development of hydroelectric projects would be available only in the 11^th Plan.
   
7. 
   Financing under EPS could be explored particularly for financing of electro-mechanical equipment, as in the case of Dagachhu HEP.
   
8. 
   The preparation of DPR for the Punatsangchhu II and Mangdechhu projects was initiated in November/December 2006 and is expected to be completed by end 2008 with financing from GoI. Since the DPR is being financed by GoI, it is expected that JV with Indian PSU would be facilitated by GoI should bilateral financing not be possible.
   

4. 
   Private Sector Financing (IPP)
   
   1. 
      The remaining seven projects (Table 7.10) are proposed to be financed by IPPs. The information on most of the projects is based on desktop studies and reconnaissance surveys as DPR is yet to be prepared. To attract IPPs for these projects, it is recommended that pre-feasibility studies be carried out by the RGoB within the 10^th Plan and depending on IPPs interest DPR could be carried out by them. While tentative implementation status is indicated in Table 7.10, the actual implementation would depend on the responses received from the IPPs. The details of IPP modalities are discussed in Chapter 8.
      

Table 7.10: IPP Projects

Sl. No.	Project Name	Cost (Nu. millions)	Capacity (MW)	Generation (MU)	Status
1	Kholongchhu	24,250	485	2,209	2010-2017
2	Rotpashong	20,050	401	1,883	2010-2017
3	Chamkharchhu I – Digala	33,500	670	3,207	2011-2018
4	Nikachhu (Tangsibji)	10,400	208	1,042	2012-2016
5	Khomachhu	16,300	326	1,507	2014-2021
6	Chamkharchhu II- Kheng Shingkhar	28,500	570	2,713	2017-2024
7	Amochhu I (Yangtsegang)	25,000	500	2,210	2020-2027
	Total	158,000	3,160	14,771

7. 
   Assumptions for Financial Analysis
   
   1. 
      For RGoB Financed Projects (Dagachhu)
      

1. 
   Effective life of hydroelectric project is taken as 30 years.
   
2. 
   Interest rate of 9% per annum and repayment period of 15 years.
   
3. 
   Five year construction period from 2007-2011.
   
4. 
   All the energy produced is exported.
   
5. 
   Export energy tariff is worked out at 10% discounted rate, 30 years levelised cost of generation with levelised annual cost divided by the sale at the border.
   
6. 
   Corporate Income Tax (CIT) of 30% from the date of commissioning.
   
7. 
   Retained earnings of 20% on profit after tax.
   
8. 
   Return on equity – 14%
   
9. 
   Operation & Maintenance at 1.5% in the first year of commissioning on the total cost and escalated at 4% per annum thereafter,
   
10. 
    10% interest on working capital,
    
11. 
    The transmission wheeling charge is taken as Nu. 0.125 per unit for export energy.
    

2. 
   For Bilateral Projects
   

1. 
   Effective life of hydroelectric projects is taken as 30 years.
   
2. 
   Interest rate of 9.5% per annum and repayment period of 12 years for Punatsangchhu I and 10 years for Sunkosh.
   
3. 
   Punatsangchhu I is 60% loan and 40% grant; and for Sunkosh while the proposed financing is 80% grant and 20% loan, the financial analysis are based on 60% grant and 40% loan to be on a conservative side.
   
4. 
   Construction period of Punatsangchhu I is taken to be eight years (2007-2014) and Sunkosh ten years (2009 to 2018).
   
5. 
   From the total energy generation in a year, 15% of the energy produced will be provided as Royalty to the Government at Nu. 0.30 per unit. However, for the additional energy, Punatsangchhu I will provide about 5% of annual generation till 2018 at Nu. 1.20. For Sunkosh no additional energy requirement is projected.
   
6. 
   Export energy tariff is assumed at 10% discounted rate, 30 years levelised annual cost divided by the levelised saleable energy rate at the border.
   
7. 
   Corporate Income Tax (CIT) of 30% is assumed from the date of commissioning.
   
8. 
   Retained earnings of 20% on profit after tax.
   
9. 
   Return on equity – 14% for Punatsangchhu I and 10% for Sunkosh.
   
10. 
    Operation & Maintenance at 1.5% in the first year of commissioning on the total cost and escalated at 4% per annum thereafter,
    
11. 
    10% interest on working capital,
    
12. 
    The transmission wheeling charge is taken as Nu. 0.125 per unit for export energy. No wheeling charge considered for Sunkosh as it is located near the border.
    

3. 
   For Joint Venture
   

1. 
   Effective life of hydroelectric projects is taken as 30 years.
   
2. 
   Interest rate of 9.5% per annum and repayment period of 10.
   
3. 
   Debt equity ratio of 70:30.
   
4. 
   Construction period of eight years each (2009-2016).
   
5. 
   From the total energy generation in a year, 15% of the energy produced will be provided as Royalty to the Government at Nu. 0.30 per unit. However, additional energy of 5% of annual generation to be provided at Nu. 1.20 per unit till 2018.
   
6. 
   Export energy tariff is assumed at 10% discounted rate, 30 years levelised cost of generation.
   
7. 
   Corporate Income Tax (CIT) of 30 % from the date of commissioning.
   
8. 
   Retained earnings of 10% on profit after tax.
   
9. 
   Return on equity – 14%
   
10. 
    Operation & Maintenance at 1.5% on the total cost in the first year of commissioning and escalated at 4% per annum thereafter,
    
11. 
    10% interest on working capital,
    
12. 
    The transmission wheeling charge is taken as Nu. 0.125 per unit for export energy.
    

4. 
   For IPPs
   

1. 
   All the projects are to be constructed, operated and handed over to the Government on the principle of build operate and transfer (BOT).
   
2. 
   The developer will run the project for 30 years.
   
3. 
   Debt equity ratio is 70:30.
   
4. 
   Interest rate of 9.5% per annum and repayment period of 10 years.
   
5. 
   All the projects to be constructed in eight years.
   
6. 
   From the total energy generation in a year, 15% of the energy produced will be provided as Royalty to the Government either in the form of energy or cash at export price.
   
7. 
   No distinction between domestic and export tariff – same rate.
   
8. 
   Export energy tariff is set at 10% discounted rate, 30 years levelised annual cost of generation divided by saleable energy at the border.
   
9. 
   Corporate Income Tax (CIT) of 30% from the date of commissioning.
   
10. 
    No retained earnings.
    
11. 
    Return on equity – 14%.
    
12. 
    Operation & Maintenance at 1.5% in the first year of commissioning and escalated at 4 % per annum thereafter,
    
13. 
    10 % interest on working capital.
    
14. 
    The transmission wheeling charge is taken as Nu. 0.125 per unit for export energy.
    

7. 
   Revenue Projections based on the above assumptions.
   
   1. 
      For Bilateral
      
      1. 
         Revenue: On the first year of commissioning (2015), Punatsangchhu I would contribute to the Government revenue an amount of Nu. 2.521 billion. The revenue increases to Nu. 5.164 billion by the year 2027 after the loan is liquidated. Sunkosh is expected to provide about Nu. 8.134 billion by the year 2019 and the revenue would remain more or less at around Nu. 7 billion till the loan is fully liquidated in 2028, thereafter the revenue is expected to increase to Nu. 11.8 billion.
         
      2. 
         NPV & IRR: With the DPR cost of Nu. 49,894 m for Punatsangchhu I and the construction period of eight years, at 9.5 % interest rate repayable in 12 years and the expected life of the project taken to be 30 years, the NPV is Nu. 7,859 and IRR is 11.46%. This indicates that the project is financially viable. With respect to Sunkosh, construction period of 10 years, 9.5% interest rate repayable in 10 years’ time, taking 30 years as the expected life, the NPV is Nu. 2,278 and IRR is 9.68%.
         
      3. 
         Power Tariff: The levelised annual cost divided by saleable energy at the border for 30 years discounted at 8%, 10% and 12% yields an electricity price of Nu.1.86, Nu. 1.90 and Nu. 1.94 respectively for Punatsangchhu I. However, the export price is taken to be Nu. 1.90 at 10 % discount rate. In the case of Sunkosh, the power price is taken as Nu. 3.41 which is obtained by taking the total annual cost divided by the sale price at the border but at the same discount rate of 10 %. Any price below Nu.3.41 is found to be financially not viable.
         

2. 
   For Joint Venture
   
   1. 
      Revenue: In the case of Mangdechhu, the revenue to the Government in the first year of commissioning (2017) would be around Nu. 317 million only. But the revenue would be around Nu. 3.289 billion by the year 2027 following the completion of loan repayment. For Punatsangchhu II, the project will contribute Nu. 204 million to the government revenue in the first year of commissioning. However, the revenue picks up to Nu. 4.872 billion (2027) after the completion of loan repayment.
      
   2. 
      NPV & IRR: With Mangdechhu cost of Nu.33.6 billion and the construction period of eight years, at 9.5% interest rate repayable in 10 years and the expected life of the project taken to be 30 years, the NPV is Nu. 8,827 and IRR is 12.61%. With respect to Punatsangchhu II, at a unit cost of Nu. 50 million per MW, construction period of 10 years, 9.5% interest rate repayable in 10 years time, taking 30 years as the expected life, the NPV is Nu. 13,281 and IRR is 12.66%.
      
   3. 
      Power Tariff: The levelised annual cost of generation for 30 years divided by the saleable electricity at the border discounted at 8%, 10% and 12% yields Nu.2.45, Nu. 2.54 and Nu. 3.06 respectively for Mangdechhu. The export price is taken as Nu. 2.54 at 10 % discount rate. In the case of Punatsangchhu II, the levelised annual cost of generation for 30 years divided by the saleable electricity at the border discounted at 8%, 10% and 12% yields Nu.2.26, Nu.2.33 and Nu. 2.83 respectively. The power export price is taken as Nu. 2.33.
      

3. 
   For IPPs
   
   1. 
      Revenue: During the 11^th Plan, the IPPs would be contributing about Nu. 1.712 billion to the Government revenue. Its contribution to the Government revenue increases substantially in the 12th and 13^th Five Year Plans to Nu. 13.875 billion and Nu. 22.733 billion respectively. In the year 2028, the IPPs will be contributing about Nu. 6.439 billion to the Government revenue.
      

Table 7.11: Summary of Findings for IPP Projects

Sl.	Project Name	NPV (Nu.)	IRR (%)	Levelised Sale Price
1	Kholongchhu	8,080	13.41	2.42
2	Rotpashong	6,592	13.36	2.33
3	Chamkharchhu I – Digala	11,095	13.39	2.29
4	Nikachhu (Tangsibji)	5,425	15.32	2.19
5	Khomachhu	5,398	13.39	2.38
6	Chamkharchhu II- Kheng Shingkhar	9,439	13.39	2.31
7	Amochhu I (Yangtsegang)	8,280	13.39	2.48

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