The highly anticipated Punatsangchhu-II Hydroelectric Project, one of the largest infrastructure undertakings in the region, is nearing the finish line. With 97 percent of construction completed, the 1,020 megawatt (MW) plant is slated to begin operations by August 15, 2024.
Officials from the Ministry of Energy and Natural Resources have expressed optimism about the project’s imminent launch. “If all goes as planned, we expect to commission two of the project’s six units by August, with the remaining four units scheduled to be operational by the end of the year,” they announced. Each of the six units has a capacity of 170 MW, so the initial two units will provide 340 MW of power.
Once fully operational, the Punatsangchhu-II Hydroelectric Project is projected to generate approximately 4,357 million units of electricity annually. This milestone is particularly significant as the plant’s development has been fraught with challenges, including delays caused by a major landslide and the COVID-19 pandemic.
Construction of the project commenced in 2010 with an initial completion target set for 2017. However, a landslide in 2016 and the subsequent pandemic-related disruptions delayed progress by nearly two years. The easing of lockdown restrictions has since accelerated construction, with physical progress now standing at an impressive 97 percent.
The total cost for completing the Punatsangchhu-II Project is estimated at Nu 94.46 billion. Financing has been structured with 30 percent in grants and 70 percent in loans from the Government of India. As of March 2024, the hydro-debt associated with the project amounts to Nu 167.5 billion, which represents 64.1 percent of the country’s total external debt. Despite the substantial figures, the finance ministry considers the hydro-debt to be low-risk, given that debt servicing begins only a year after the project’s commissioning. This approach allows revenue from electricity sales to provide a buffer for debt payments.
Discussions regarding the electricity export tariff are currently underway with the Government of India. The tariff is expected to reflect the project’s total cost and projected debt servicing requirements, ensuring that revenue from electricity sales will adequately cover debt servicing obligations.
Additionally, the finance ministry has highlighted that all hydropower projects, including Punatsangchhu-II, are insured and reinsured against natural risks. Notably, 91.1 percent of the hydro-debt is denominated in Indian Rupees (INR), mitigating any exchange rate risks due to the currency peg.
The Punatsangchhu-II Hydroelectric Project represents a major step forward in the region’s energy infrastructure, promising significant economic and environmental benefits. As the project edges closer to completion, stakeholders and citizens alike are eagerly anticipating the positive impact of this substantial energy resource.