THIMPHU, Bhutan -- In June, Narendra Modi chose tiny Bhutan as his first foreign destination as India's prime minister. An old and trusted ally of India, the Himalayan kingdom laid out the red carpet for the visitors.
Bhutan may be small, with just 700,000 people, but its location is of strategic interest to its northern neighbor. China, which shares a 490km border with Bhutan, has been wooing it of late. That is something India does not welcome.
Timed to occur just weeks ahead of a new round of bilateral talks between Beijing and Thimphu, Prime Minister Modi's two-day visit through June 16 is seen as a calculated move to reinforce India's political influence in Bhutan, and to block any Chinese diplomatic advances.
Relations between India and Bhutan are anchored by the Friendship Treaty of 1949. Since the 1960s, India has played a huge role in its neighbor's development through grants and technical assistance. It remains the kingdom's biggest foreign donor and allocated 45 billion rupees ($750 million) toward projects set for launch under Bhutan's 2013-2018 five-year plan.
Backlog
But there is one aspect of Indian investment that has lost momentum in recent years: construction of hydroelectric plants, which supply power to both countries.
In 2008, the two countries reached an agreement to increase Bhutan's generating capacity by 10,000 megawatts by 2020 through joint projects, but actual investment has been rather slow.
So far, three hydroelectric plants are operational. Together, the Chukha, Kurichu and Tala plants are producing just 14% of the 2020 target. Three more plants are under construction: Two in Punatshangchu and another in Mangdechu, which will have a combined capacity of 2,040MW. Work on another four projects, with total capacity of 2,120MW, has been delayed because of funding problems.
Druk Green Power Corporation, a state-owned enterprise in Bhutan, is working with India on the Kholongchu, Bunakha, Wangchu, and Chamkharchu joint ventures.
Chhewang Rinzin, managing director of DGPC, said construction of the first plant, the 600MW Kholongchu hydropower project, was meant to begin in 2013. But he said work would probably start in 2015 because it had taken the two countries a long time to sort out the financing. "For the other joint-venture projects, the clearance for financing is yet to be agreed between the two governments. Till the clearance comes through from the two governments, nothing can start," he said.
In addition, decisions are pending on three related reservoir projects -- located on the Amochu, Kurigongri, and Sunkosh rivers -- which the Indian government is supposed to pick up the tab for.
"So when you look at the size of these projects, it will probably take a little longer to construct them, and definitely achieving the accelerated target of 10,000MW by 2020 is not possible," said Rinzin, although he expects the target to be met -- if a few years late.
Modi-vation
Modi's visit may inject new momentum into the delayed projects. During his call on Bhutan, Modi laid the cornerstone for the Kholongchu project and reiterated India's commitment to Bhutan's development, including completion of the rest of the 10,000MW initiative.
Rinzin Dorji, Bhutan's foreign minister, told local journalists that Modi expressed concern over delays in the hydropower projects and wanted to "move things quickly."
Construction is underway at the Punatshangchu hydropower project.
India's ruling National Democratic Alliance, led by Modi's Bharatiya Janata Party, enjoys a clear majority in parliament and will have a far easier time pushing through the necessary budgets than the previous government. Modi also seems determined to brush aside concerns expressed by environmental activists in India's Assam State, just across the border from Bhutan, who are worried about the downstream impact of Kholongchu.
Coming up short
Having more electricity from Bhutan would help Modi fulfill his election pledge to ease India's long-running power shortages. At the moment, Bhutan produces close to 1,500MW of electricity from its three operating hydroelectric plants during the monsoon peak. Of that, only 300MW is consumed domestically, while the rest is sold to India. During the drier winter months, however, these plants can only meet domestic demand for electricity.
"The development of 10,000MW will exceed domestic demand, and with the power transmission infrastructure in place between the two countries, most of the electricity generated will be exported," said Norbu Wangchuk, Bhutan's economic affairs minister.
According to official statistics, India experienced an overall energy deficit of 8.7% in 2013.
But the Bhutanese have a realistic view of the importance of their hydropower resources to India. "India needs power, but whatever we provide is a drop in the ocean. The 10,000MW is nothing to India but it's a huge thing for us. So whatever investments India makes in Bhutan is a small sum for them, but the geopolitical benefits India could derive from this could be huge," said Rinzin.
The energy sector today accounts for 11.7% of Bhutan's gross domestic product and 30% of the government's income. According to Wangchuk, Bhutan could produce as much as 100 billion ngultrum ($1.7 billion) worth of electricity when all the planned hydropower projects are up and running. Given that Bhutan's GDP is just under $2 billion, the extra income could help the landlocked kingdom raise its per capita income from the current $2,585 and emerge from the ranks of lower middle-income countries.
But beyond the economics of its hydropower investments, India has a geopolitical interest in raising its profile and influence in Bhutan.
China has no official diplomatic ties with Bhutan and relations have been chilly since China annexed Tibet in 1951. The two also have a long-running border dispute, which they will address in a new round of bilateral talks scheduled for July or August. These off-and-on talks have run since 1972, to no result, mainly because of India's insistence that Bhutan not yield to China. But a meeting between former Chinese Premier Wen Jiabao and his Bhutanese counterpart, Jigme Thinley, in 2012 was seen as a step toward rapprochement.
Modi has been clear about his desire to see India reclaim its stature as a regional power. His visit to Bhutan is another strong signal of intent.
Additional reporting by Kinley Tshering
