Bhutan’s Punatsangchhu-I Hydroelectric Project: A ₹12,000-Crore Lesson in Delays

The Punatsangchhu-I Hydroelectric Project, initially estimated at ₹4,000 crore in 2008, has seen its budget balloon to nearly ₹12,000 crore due to geological complications and structural redesigns. Even as work resumed on the dam in late 2025, the project faces glaring questions about its feasibility and timeline. This development exemplifies both the promise and perils of India-Bhutan cooperation in hydropower—a cornerstone of their bilateral relationship since 1961.

Why Punatsangchhu-I Disrupts the Pattern

Until the Punatsangchhu-I fiasco, India-Bhutan hydropower collaboration had followed predictable success stories, from the groundbreaking Chukha Hydropower Project (336 MW) in 1987 to the giant Tala Hydropower Project (1,020 MW) commissioned in 2006. Funded in a 60% grant and 40% loan format by India, these projects elevated Bhutan’s position as a high-value exporter of renewable energy, with hydropower accounting for over 30% of its GDP. However, delays in Punatsangchhu-I, compounded by geological miscalculations, signal a troubling shift in project execution.

The irony here is stark. While smaller projects under the Joint Venture Model—such as the 600 MW Kholongchhu—struggle due to bureaucratic bottlenecks, Bhutan's largest projects are mired in escalating budgets and unanticipated technical challenges. This breaks from Bhutan’s traditional narrative of leveraging its hydrological strengths with minimal risk.

The Institutional Machinery Behind the Effort

The institutional backbone of Indo-Bhutan hydropower cooperation lies in three frameworks:

• July 2006 Agreement on Cooperation in Hydroelectric Power: This treaty formalized bilateral collaboration mechanisms, setting up joint technical and financial protocols.
• April 2014 Framework Inter-Governmental Agreement: It pushed for Joint Venture hydropower projects between public-sector utilities like India’s NHPC and Bhutan’s Druk Green Power Corporation (DGPC).
• Project-specific agreements: For large-scale projects like Punatsangchhu-I, financing and oversight are directly managed between the Indian government and Bhutan’s Ministry of Economic Affairs.

However, these agreements hinge on stable financing models and technical predictability—both of which are fraying. As Punatsangchhu-I exemplifies, geological underassessments at dam sites can derail timelines, while the absence of environmental safeguards risks broader reputational damage to both nations.

Official Claims vs Ground Reality

The Government of Bhutan touts its hydrological advantage: rivers fed by glaciers and monsoons, steep gradients ideal for energy generation, and an export potential that promises foreign currency revenue. Yet these claims mask critical vulnerabilities:

• Bhutan’s debt related to hydropower reached a staggering 118% of GDP by 2024—raising the specter of debt distress.
• Climate data from the United Nations Development Programme (UNDP) warns that changing rainfall trends and frequent Glacial Lake Outburst Floods (GLOFs) could destabilize hydrological predictability in Himalayan basins.
• The Punatsangchhu projects alone have accounted for nearly ₹35,000 crore in costs combined, yet neither is operational even after over a decade of construction.

India, in turn, faces its own paradox: while imported Bhutanese hydropower contributes towards reducing thermal dependence and meeting renewable energy targets, the delays in capacity addition hinder effective planning under domestic energy policies like the National Electricity Plan 2023–2032.

Uncomfortable Questions for Policymakers

The real discussion lies beneath surface-level optimism. First, can Bhutan sustain the debt implied by ambitious hydropower expansion? Multi-billion-dollar loans backed by India risk saddling Bhutan with payments that might not be offset by energy exports.

Second, India’s financing arrangement—where grants offset project costs—raises concerns about whether this model incentivizes lax environmental governance. GLOFs triggered by poorly planned dam infrastructure could impose catastrophic human and ecological damages.

Third, geopolitical tensions are sharpening in the Himalayas. Even as India deepens its influence via energy imports, China’s niche hydropower projects in Nepal and upstream river enclosures in Tibet complicate transboundary river management in the region. India-Bhutan’s hydropower dependence is hardly immune to these shifting dynamics.

An International Comparison: South Korea’s Hydropower Model

South Korea faced a comparable scenario in the late 1990s when geological setbacks delayed the Andong Dam project by nearly seven years, inflating original budgets by over 200%. Unlike Punatsangchhu-I, however, Korean public institutions invested heavily in geotechnical research and adaptive civil engineering mid-project—ultimately halving the adjusted timeline. Bhutan could learn from this proactive pivot, leveraging technical partnerships with Indian and global hydrology labs to preempt such delays.

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