Collaborative Strategy between Stakeholders of Hydropower and Power Intensive Industry in Bhutan

Before 1960, handicrafts, wood products, bamboo products, agricultural products were manufactured in small scale. The number of industries continued to expand steadily after the implementation of first five year plan in 1961. Today most of produce includes cement, wood products, processed fruits, alcoholic beverages, calcium carbide and other minerals. (Bhutan, 2008). Due to high transportation cost, small domestic markets and under developed infrastructure, industrial development has experienced slow pace. Nevertheless as Bhutan continued cordial relation with India, growing demand for minerals and other products has made inevitable to exploit the available resources.

Industrial growth has increased to 5.8% in 2007 from 3.8 % in 2006. (Royal Monetary Authority, 2009). In spite of unprecedented industrial growth, RGOB has to slacken its development owing to power intensive. The demand of minerals and other products continues to grow but industrial development has to stand still until new hydropower plant is installed which can cater the power to these power intensive Industries.

As per the electricity demand scenario, with considerable increase in domestic demand and based on the existing demand forecast, there will be no power available for export by 2012 during the lean season. Due to increased coverage and industrial demand, 12 MW on average of power has to be added per annum to avoid reduction in export. 1 MW reduction of export of electricity will result in about Nu. 14.89 million losses in cash to the Government. (Department of Energy, 2005). The power intensive industries will be affected as the domestic tariff will make par with the export tariff.

The RGOB is in dilemma as to focus on industrial development which is backbone of socio-economic development or continue to earn enough revenue through the export of electricity. In order to encourage power intensive industries keeping in view the affordable domestic tariff and increased level of revenue through export of electricity, is it possible to have collaborative situation- i.e. “domestic tariff remains affordable while at the same time export earnings continue to grow” (Department of Energy,2005) so as to achieve the national goals of meeting the internal demand of the country at affordable tariff and at the same time increased sufficient revenues from the export of hydroelectricity for investment in socio-economic development sectors to achieve economic self-reliance and Gross National Happiness.

Mr. Karma Gyamtsho made a study which objectives were to: i) explore in-depth into the field of industrialization, hydropower generation and the policies of the Government and identify the key collaborative issues of different stakeholders and their behavioral approaches towards collaborative strategy between hydropower generation and power intensive industries in Bhutan; and ii) develop a collaborative framework between hydropower generation and power intensive industries of Bhutan keeping in view the unique development philosophy & strategy of Gross National Happiness and provide suggestions & recommendations.

Conclusion:

Economic growth in Bhutan through export of electricity and industrial development have become like two sides of coins, both cannot be seen at same time. If Bhutan strives to achieve economic development through export of electricity and industrial development, a complementary strategy of hydropower development by industrialist for its own consumptive uses should be permitted.

The network of interrelationships of the different stakeholders is illustrated in figure below.

The collaborative issues of the different stakeholders surfaced are lack of technical & managerial expertise, high logistic cost, import of foreign workers, land ownership, water user right, equitable regional development, under performance of the machines, excise duty, logistic cost, absence of policy, wheeling charges, feed- in tariff, opportunity cost, high lending rate, high insurance premium, absence of FDI in hydropower sector, environmental clearance, rational power tariff, scarcity of raw materials, excise duty, high lending rate, high insurance premium, equity in investment, access to external source of fund and sustainability. The collaborative approaches to the collaborative issues are human resource development, strategic infrastructural development, more foreign workers, full land ownership, full water user right, balanced development, excise duty refund, policy development, affordable wheeling charges, rights to feed in power, external borrowing, foreign insurance, accelerated environmental clearance, maximum equity in investment and affordable tariff. Based on the study, a collaborative strategy is developed.

The collaborative issues that are desired by the maximum stakeholders are policy development, strategic infrastructural development and human resource development. The collaborative issues such as wheeling charges and feed-in tariff are considered the most significant as it determines the tariff of electricity for the industries.

Recommendations

The following recommendations are made based on the collaborative strategy developed:

1. Policy Development: It is inferred that there is intense need for the policy development by Hydropower plant, Department of Industry, Bhutan Electric Authority, Investor, power intensive industries and department of Industry. The collaborative issues of these stakeholders include the absence of policy which inhibits them to develop such hydropower plant for industrial uses and there is considerable loss of opportunity for the nation. The rational power tariff between industries and hydropower plant can only be determined if the policy is in place and the inclusion of hydropower in foreign direct investment policy can greatly steer the investors. One window clearance system can reduce the lengthy procedures of approvals.

The following recommendations are done with regard to policy development:
The captive power policy formulation should be expedited meanwhile the permit to conduct survey and investigation for hydropower project should be issued to the interested industrialist.

Foreign Direct Investment should be allowed in hydropower sector.
One window clearance system should be established for speedy approvals for projects.

2.Strategic Infrastructural Development: There is also need for the strategic infrastructural development by contracting agencies, machinery supplier, raw material supplier, hydropower and power intensive industries where the collaborative issues is high logistic cost.

Following recommendations are done with regard to strategic infrastructural development:
- Enhanced quality and reliable road network should connect hydropower site and industrial estate.
- Alternate mode of transport such as ropeways and railways should be developed.
- The private sectors should be entrusted with the infrastructural development.

3. Human Resource Development: It also necessitate to have human resource development by the contracting agencies, machinery supplier, hydropower plant and power intensive industries where the collaborative issues includes lack of technical & managerial expertise and underperformance of machines.

The following recommendations are made with regard to human resource development:
- Mandate Indian contracting agencies executing the projects to induct Bhutanese contractors as joint venture.
- Establish more vocational training institutes which provide skill enhancement in Hydro Power and industrial sectors.
- Conduct short term courses and training in hydropower and industrial sectors.
- Financially support private and corporate sector for Human Resources Development.
- There should be involvement of Bhutanese with the reputed firm for the design of machineries and also in the operation & maintenance.

4. Environmental Clearances: An accelerated environmental clearance is also a priority for hydropower plant and power intensive industries where environmental clearance and the scarcity of raw materials are the collaborative issues. It is recommended to have one window clearance system for environmental clearance in the policy and more exploration for mines to meet the inadequate supply of raw materials for the industries.

5. External Borrowing: The permit to external borrowing is also necessary for hydropower plant and power intensive industries where high lending rate is the collaborative issues. It is recommended that the external borrowing should be permitted and the lending should be based on cash flow projection rather than the collateral based.

6. Refund of Excise Duty: The refund and exemption of excise duty is also emphasized by the machinery supplier, raw material supplier, hydropower plant and power intensive industries. It is recommended that there should be exemption of excise duty on import of machineries and refund of excise on the import of raw material.

7. Land Ownership: The land ownership is also area of concern for hydropower plant and power intensive industries. It is recommended that lease period specified in existing relevant policies and regulations should be increased and the lease rate to be made transparent in the relevant policies.

8. Import of foreign workers: It is desirable to allow more foreign workers for hydropower plant, power intensive industries and contracting agencies. It is recommended that entitlement of number of foreign workers should be based on actual requirement.

9. Balanced Development: Equitable regional development is desired by RGOB and is a collaborative issue for hydropower plant and power intensive industries. It is recommended that transmission grid should be extended connecting eastern and western grid. The industrial estate development should be diversified across the country.

10. High Insurance Premium: There is need to access the foreign insurance where high insurance premium is a collaborative issue of hydropower plant and power intensive industries. It is recommended that foreign insurance should be permitted and private insurance company established in the country.

11. Water User Right: The water user right need to assured to the hydro power plant. It is recommended that the full water user right should be assured through the license wherein the quantity and time frame of the use of water is specified.

12. Wheeling Charge: The affordable wheeling charge can be assured to the hydropower plant by BPC through the construction of sub-station and incorporating the cost of sub- station in the wheeling charge thereby reflecting in the contract agreement. It is recommended that wheeling charge be allowed and the necessary infrastructures developed by Bhutan Power Corporation.

13. Feed in Power: Feed in power in the BPC transmission grid is the issue of hydropower plant where the right can be assured through provision of energy banking facilities and willingness of the BPC to take the surplus energy at appropriate tariff. It is recommended that banking of energy be allowed and sale of surplus power to Bhutan Power Corporation at appropriate tariff be made available.

14. Equity of Investment: The investors can be attracted through the equity of investment. It is recommended that 100% equity in investment should be allowed.

15. Sustainability: The core of competency through cost leadership for the power intensive industries can be achieved through the affordable tariff that will be determined by the performance of hydropower plant. It is recommended that electricity duty should be exempted and subsidy on interest should be provided.

His thesis abstract is copied and pasted below.

Abstract

Bhutan still has the incidence to the poverty and unemployment which poses a challenge to industrial and hydropower sectors to create quality employment for the Bhutanese. The rapid industrial growth has increased the domestic power demand affecting the export quantity considerably. The power intensive industries will be affected if domestic tariff becomes par with export tariff. Therefore economic growth in Bhutan through export of electricity and industrial development have become like two sides of coins, both cannot be seen at same time.

It will be prudent if industrialists are permitted to develop hydropower plant for their own consumptive uses and Royal Government of Bhutan continue to focus on revenue generation through export of electricity. As Bhutan has always chosen middle path of sustainable development guided by central development policy of Gross National Happiness, it is necessary to explore the collaborative issues and the approaches of the stakeholders involved in hydropower development for industrial uses before realigning country’s development plan and policies to address these opportunities and challenges. A framework of collaborative strategy between hydropower generation and power intensive industries has to be sensibly derived based on collaborative issues and approaches of stakeholders for effective implementation without deterring the philosophy and strategy of Gross National Happiness.