Bhutan must find a way to rationalize export earnings from hydropower compared to spending on new projects.
Any economist will tell you that a good investment is when you reap profits from a business. Investing say two rupees and getting a minus Rs.2 profit is a bad deal. It is worse if the negative balance is because there is too much spending on ‘support’ services to keep the primary investment going. This is not a very good idea, since it is not economically feasible.
A country like Bhutan that is tucked in the northeastern tip of India, has been making this mistake. With no large industry, Bhutan’s government doesn’t have many options to increase revenue, so it is naturally focusing on the options that are available.
Apart from agriculture and forestry, Bhutan relies on the production and export of hydropower to neighbours that need electricity. Hydropower provides the major chunk of government revenue - more than a quarter of the government’s revenue or 18 percent of the gross domestic product.
India is the main client for Bhutan’s hydropower and imports the largest share.
Producing hydropower and increasing output is not a problem for Bhutan as it has many great flowing rivers that are fed by snow and glaciers. And Bhutan plans to explore this untapped hydropower.
At present, Bhutan is only producing five percent of this potential, out of which 60% is exported, mainly to India. It would appear to be a good deal. But it is a
fact that the revenue generated from the export is obtained at the cost of the country’s own needs. A large portion of Bhutan’s population is deprived of electricity and is either without power or has to pay more for it.
It would be understandable that Bhutan is overlooking its internal demands to increase exports and revenue. However, the problem is that to cover this gap it is spending more than it should, causing imbalance in the flow of finances. More seems to be seeping out than flowing in.
Bhutan is looking at expanding the hydropower ‘industry’ and is spending a lot on this which is costing more than it is able to make. Bhutan would certainly make a large amount of money with the exports of hydropower to countries like India, but it has to pay even more to import costly diesel and fossil fuel to run the hydropower projects and to meet the domestic demand for electricity.
Even measures taken to decrease the use of vehicles to save on the precious imported diesel hasn’t helped to save money since the fuel is required during construction of hydropower projects.
To keep the books out of the red, Bhutan’s government may be counting on increasing its revenue in the future when it achieves its hydropower potential that is 30,000 MW which is largely unexplored. And to do so, it has made a deal with India which will not only import but also help in expanding the hydropower projects.
By 2020, Bhutan has promised to provide India 10, 000 MW. To meet this demand, Bhutan has committed to develop 10 more hydropower projects – of course with bilateral agreements with India – by 2020. India will be getting cheap electricity to meet its increasing demand and of course Bhutan will be profiting in terms of revenue and foreign currency reserves.
Bhutan may be able to improve the situation and generate revenues through these projects. But it should not ignore other aspects that need attention. Like overdependence of its economy on only one source, that is hydropower. By concentrating only on one aspect, the people of Bhutan are going to face a bleak future. There is also a danger of brain drain from the country, especially since there are almost no jobs outside the hydropower ‘industry’. At present, all the jobs being created cater to the needs of the hydropower sector.
With a lack of professionals in other fields, the country may be seeing itself hiring foreign professionals adding to the expenditures it is already incurring. And an economy with only one major export may not be able to bear the strain.
The imbalance caused by these macroeconomic challenges between growth rates and gainful employment for a fast growing skilled and educated labour force must be tackled now. And plans made to expand the industrial sector and focus on other areas that can generate revenue and create good jobs for the country.
The deficiency to fulfil the domestic demand of electricity is another issue that can become a big problem in the future for the country. At present those few who are getting electricity have to pay a lot of money for it. This is a burden that the government needs to take off its taxpayers’ shoulders.
If hydropower exports are generating good money, the government cannot be expected to ignore it. In the long run, expenditure on this particular sector is understandable. It must not be ignored that the country has to provide its domestic consumers with power as well. The best way to resolve the situation is to find alternate ways of generating energy that would cost the country less.
Cheaper ways to generate power are to find renewable sources to produce energy like microhydro, wind and solar energy. Wind and solar energy would be a great energy source , especially because of the country’s location. Local people can be encouraged to generate energy on a local level, which is cheaper and is accessible to a large number of consumers.
By using alternative energy like wind and solar, the country can save money by slowly decreasing imports of fossil fuel and even diesel, especially during the winter months, when the demand increases. Once there is a decrease in expensive imports, more money will be able available for spending in the public sector, thus creating more jobs and retaining and using the educated workforce.
As an aside, it has to be said that hydropower will remain Bhutan’s major export for many years to come, especially since every country is looking for an energy source to meet its growing demand. But this great revenue generating sector also has its side- effects.
Bhutan is a country that practises conservation of land and eco-systems but it may not be able to do this with its need to expand hydropower projects as demand for its energy exports increase.
With the expansion and improvement on hydropower projects, Bhutan also needs to see the adverse social and environmental impact that it is experiencing due to the construction of more and more hydropower projects. With work on every river to increase hydropower projects, the rivers’ eco-system will be under threat. There is a need to study this impact and devise a method to protect the aquatic eco-systems. The need to increase monetary benefits should not be at the cost of the natural habitat.
Specifics need must be identified by the government and conveyed to it partners, like India, who are working in helping Bhutan expand the hydropower projects that are beneficial to these eco-systems. Expansion and preservation both need to be considered before embarking on a project. Keeping the environment balanced is as important as keeping the books balanced. That is what Bhutan needs to do.
Bhutan is a country that practises conservation of land and eco-systems but it may not be able to do this with its need to expand hydropower projects.