Bal­anc­ing Act

Bhutan must find a way to ra­tio­nal­ize ex­port earn­ings from hy­dropower com­pared to spend­ing on new projects.

Southasia - - REGION BHUTAN - By Lubna Jerar Naqvi

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.

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