Asian Development Bank financing of tangsibji hydro energy ltd

1. ADB Financing of Tangsibji Hydro Energy Ltd – A Model of Future Development Financing
Tangsibji Hydro Energy Ltd (THyE) is in the process of implementing a 118-MW run-of-the-
river hydropower plant on Nikachu river in in the central Trongsa District in central Bhutan
though a public-private partnership. Druk Green Power Corporation, which is a government
of Bhutan owned entity, owns 100% equity stake in THyE. ThyE shall also be managing the
hydro-power plant. The Project is expected to achieve commercial operation date in 2020.
The project will generate mean annual generation of 491.52 GWh from Nikachhu Power
House and 323.77 GWh additional generation by Mangdechhu Power House
Asian Development Bank had given a long term loan facility of USD 120.5 million in a mix of
loans and grants for the project. Strategic Objectives for ADB lending included
 Bhutan can generate additional income that helps finance social services at home
such as health, education and rural development. In Bhutan, domestic power supplies
are subsidized by hydropower exports.
 Using clean energy from Bhutan, India will eliminate around 460,000 tons of carbon
dioxide emissions every year that it would otherwise have generated through fossil
fuels.
 The power produced from the project shall be sold to PTC India Limited (a power
trading entity) through a long term power purchase agreement. The project will help
India fulfilling its burgeoning energy requirements in a clean and sustainable
manner, and shall be a source of major revenue for Government of Bhutan. Thus,
the project will also go a long way in enhancing regional integration between South
Asian countries.
 Employment and capacity building for local people, engineers and contractors
Owing to the above mentioned reasons, the project is of strategic importance to the
Government of Bhutan.
The involvement of Asian Development Bank will also help in catalysing and unlocking
private sector investment including foreign Investments

2.  THyE borrowed INR 2.5 billion from State Bank of India and INR 1.03 billion from
EXIM Bank (denominated in Indian Rupee). This was first of its kind project finance
lending by Indian lenders in Bhutan and will set as a precedent for future lending by
Indian lenders in the country.
 The co-financing from the Indian banks will be the first foreign commercial
borrowing without government credit support in Bhutan’s power sector, indicating
increasing confidence among banks to lend for energy projects in the hydropower-
rich nation.
 The rupee-denominated loan also reduces the foreign exchange risk for the plant,
whose energy exports will be also paid in the Indian currency. Thus the project shall
be a major foreign exchange earner for the Government of Bhutan.
 The project was the first infrastructure public-private partnership in Bhutan.
 Druk Green Power also plans to raise investments through divesting part stake in the
THyE.
 The project will also have demonstration effect for attracting overseas investment in
other infrastructure projects in Bhutan.
ADB also helped the government formulate the Sustainable Hydropower Development
Policy (2008), which enables private participation and foreign direct investment in
hydropower development.
Mode of Investment
ADB finance will comprise
 $50.5 million equivalent in various resources from Asian Development Fund (ADF),
including a loan and a grant of $25.25 million each, and
 (ii) $70 million from ADB’s ordinary capital resources (OCR).
Of the $120.5 million, $70 million (OCR) will be used for the debt portion of the project, and
$50.5 million (ADF) for the equity portion.
Considering the present economic background of Bhutan, The grant has been sanctioned to
support development projects in Bhutan through low cost funding.
ADB also sanctioned a technical Assistance for development of hydropower trading in the
country.
The involvement of Asian Development Bank and Indian lenders will ensure that the project
follows international best practices including but not limited to:
 The construction contract was awarded through an international competitive
bidding.

3.  THyE has a power trader, which has been selected upfront through competitive
bidding process.
 The project follows stringent environmental and social safeguard measures which
were finalised after extensive discussion with local affected communities.
There are provisions allowing maximum benefit to the local contractors, local service
providers and manufacturers and suppliers of construction materials and that allow
maximum employment to the Bhutanese. Further the project will also help in capacity
building in executing complex projects for Bhutanese contractors and engineers. The project
is also expected to generate significant jobs in the construction sector.