New Delhi: State run Power Finance Corporation Ltd. (PFC) and REC Ltd. will loan Rs4,058 crore for the strategic 600-megawatt (MW) hydropower project being constructed at Trashi Yangtse in Bhutan.

Kholongchhu Hydro Energy Ltd (KHEL), a joint venture between India’ state run SJVN Ltd. and Bhutan government’ Druk Green Power Corporation Ltd is constructing the project.

Cross-border energy trade is a key part of Modi’s South Asia-focused, neighbourhood-first policy as India plans to build energy links to check China’s growing influence. Bhutan strategically located between India and China, has the potential to generate 30,000MW of hydropower, but has a capacity of just 1,490MW.

A Memorandum of Understanding with Kholongchhu Hydro Energy Ltd (KHEL) was inked on Thursday by PFC and REC, India’ largest power sector lenders.

“The hydropower sector is the flagship area of India-Bhutan bilateral cooperation and funding of this upcoming hydroelectric project by PFC will be beneficial in strengthening the relationship between India and Bhutan,” PFC said in a statement.

As part of India’s economic diplomacy, including efforts to exert strategic influence in its neighbourhood with infrastructure development, New Delhi is helping Bhutan build 10,000MW of hydropower with concessional finance, and an overall investment of about $10 billion.

“This is the first project being executed in the Joint Venture (JV) model in Bhutan. The project is expected to be commissioned in FY 2025-26 and will generate about 2569 million units of energy which will meet the future power requirement of India and Bhutan,” PFC said in a statement.

Hydropower exports provide more than 40% of Bhutan’s domestic revenues and constitute 25% of its gross domestic product (GDP). India has also been playing a key role in creating a new energy security architecture for its neighbours to counter China’s Belt and Road initiative aimed at connecting countries across Asia, Africa and Europe.

“The project is proposed to be funded in a debt-equity ratio of 70:30 and the Term loan of Rs.4058 Crore shall be shared by PFC and REC in equal proportion. Apart from PFC and REC, Rs. 400 crore is proposed to be arranged from Bank of Bhutan ( 200 Crore) and NPPF, Bhutan ( 200 crore),” the statement added.

While India has been procuring hydropower from Bhutan, it is also supplying electricity to Bangladesh and Nepal. The plan now is to include the option of building an overhead electricity link with Sri Lanka. India is trying to create a common pool for neighbouring countries and has an installed power generation capacity of 373.43 gigawatts.

India has set up a high-level group headed by former Union power secretary Ram Vinay Shahi and tasked it with helping build a South Asia-focused energy security architecture as reported by Mint earlier. India’s energy diplomacy ranges from cross-border electricity trade to supplying petroleum products and setting up liquefied natural gas terminals.

India has already notified cross-border trading regulations. The proposed market, which will include Myanmar, Sri Lanka, Nepal, Bhutan and Bangladesh, could aid regional peace and improve utilization of generation assets—including the stranded assets in India—and efficient price discovery.

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