India and Bhutan sign Punatsangchhu-II tariff protocol

A bilateral tariff protocol for a flagship Bhutan hydropower project, signed during the Indian Power Minister's visit to Thimphu.

What happened

• The Union Minister of Power and Housing & Urban Affairs, Shri Manohar Lal, arrived in Bhutan for a four-day visit, calling on Prime Minister Shri Tshering Tobgay and meeting the Minister for Energy & Natural Resources, Lyonpo Gem Tshering.
• The two governments signed the Tariff Protocol of the 1020 MW Punatsangchhu-II Hydroelectric Project, fixing the export tariff at which Bhutan sells surplus power from the project to India.
• A second technical instrument was signed: the Methodology for Reactive Energy Accounting of the reactive-power exchange — a framework to enhance grid stability and streamline cross-border power trade.
• India and Bhutan set up an enhanced bilateral institutional framework mechanism for power-sector cooperation, covering non-hydro energy, cross-border transmission, project financing, capacity building and institutional partnerships.
• Punatsangchhu-II was jointly inaugurated by Prime Minister Shri Narendra Modi and His Majesty King Jigme Khesar Namgyel Wangchuck on 11 November 2025 and began exporting surplus power to India from 19 September 2025 at a mutually agreed starting tariff.
• During the visit the Minister also confirmed he would attend the first concrete-pour ceremony at the 1200 MW Punatsangchhu-I dam on 10 April 2026, marking the resumption of stalled dam works.

Background & context

Hydropower is the spine of the India–Bhutan economic relationship. Bhutan is a small, landlocked Himalayan kingdom whose fast-falling rivers give it a very large run-of-river hydropower potential, while its domestic demand is modest. India, by contrast, is a large, power-hungry neighbour able to absorb Bhutan's surplus and willing to finance, build and buy. Out of this complementarity grew a model under which India funds and constructs hydroelectric projects in Bhutan and then purchases the surplus electricity — a relationship that supplies a large share of Bhutan's national revenue and export earnings, and gives India clean, firm power and strategic depth in its eastern Himalayan neighbourhood.

This cooperation is decades old. The earliest landmark was the 336 MW Chukha project, commissioned in the 1980s and long treated as the template for the funding-and-buy-back model. It was followed by the 60 MW Kurichhu project and the larger 1020 MW Tala project, both commissioned in the 2000s. The most recent major addition before the Punatsangchhu schemes was the 720 MW Mangdechhu project, inaugurated in 2019, which won a Brunel Medal for engineering. Together these projects made Bhutan a net electricity exporter and India its near-exclusive market, with power sold under long-term tariff arrangements negotiated between the two governments.

The two Punatsangchhu projects — Punatsangchhu-I (1200 MW) and Punatsangchhu-II (1020 MW) — are built on the Punatsangchhu river (the Sankosh in its lower Indian reaches) in western Bhutan. Both are India-assisted intergovernmental projects. Punatsangchhu-II, the smaller of the pair, was completed first; Punatsangchhu-I was delayed for years by serious geological problems on the dam-site slope, which is why the 10 April 2026 "first concrete pour" for its dam is treated as a milestone in the release. The tariff protocol signed on this visit is the commercial instrument that converts Punatsangchhu-II's physical commissioning into a settled price for the power it exports — the step that makes a completed project commercially live.

Understanding who sits on each side of these agreements helps decode the news. On the Indian side, the lead is the Ministry of Power, working through public-sector hydropower developers; large Bhutan projects have historically been executed with Indian central public-sector expertise and concessional Indian funding, typically structured as a mix of grant and loan between the two governments. On the Bhutanese side, the projects are operated under the umbrella of the country's national power utility, with generation feeding Bhutan's grid and the surplus wheeled across the border into India's eastern regional grid. The tariff is not a market price but a negotiated, government-to-government figure — which is exactly why a discrete instrument like the Punatsangchhu-II protocol has to be signed at the political level rather than settled by a power exchange.

It is useful to compare this with how India runs energy and connectivity links elsewhere in the neighbourhood. With Nepal, India has moved toward a more market-based arrangement, allowing approved Nepali hydropower to be sold into India's day-ahead power exchange and even re-exported onward to Bangladesh through the Indian grid — a trilateral, exchange-mediated model. The Bhutan model is older and more bilateral: India builds the asset, owns a financing stake, and buys the output under a negotiated tariff. Both models pursue the same goal — turning Himalayan hydropower into regional electricity trade — but the Bhutan template is closer to a development-partnership than to a competitive market, which is its strength (deep, dependable ties) and its vulnerability (concentration on a single buyer and on large, delay-prone dams).

For Prelims

• The two projects: Punatsangchhu-I = 1200 MW; Punatsangchhu-II = 1020 MW — both on the Punatsangchhu river in western Bhutan, both built with Indian assistance.
• What was signed (two instruments): (i) the Tariff Protocol for Punatsangchhu-II's power export; (ii) the Methodology for Reactive Energy Accounting for the reactive-power exchange.
• Inauguration: Punatsangchhu-II jointly inaugurated by PM Modi and King Jigme Khesar Namgyel Wangchuck on 11 November 2025; surplus-power export to India began 19 September 2025.
• Punatsangchhu-I milestone: first concrete pour for the dam scheduled 10 April 2026 — the project had long been delayed by geological/slope-stability problems at the dam site.
• Bhutanese leaders named: PM Tshering Tobgay; King Jigme Khesar Namgyel Wangchuck; Energy & Natural Resources Minister Lyonpo Gem Tshering. Indian side: Power Minister Shri Manohar Lal.
• Cooperation areas listed: non-hydro (renewable) energy, cross-border transmission, project financing, capacity building, institutional partnerships, and regional power trade.
• The hydropower family (India-assisted projects in Bhutan): Chukha (336 MW) · Kurichhu (60 MW) · Tala (1020 MW) · Mangdechhu (720 MW) · Punatsangchhu-I (1200 MW) · Punatsangchhu-II (1020 MW).
• River fact: the Punatsangchhu rises in Bhutan and flows south into India, where its lower course is known as the Sankosh, a tributary of the Brahmaputra system.
• What "reactive energy accounting" is: reactive power is the component of AC power needed to maintain voltage and grid stability; the new methodology sets how the two grids measure and settle that exchange — it is a technical grid instrument, not a new dam or a new tariff for active energy.

Why it matters

For Bhutan, hydropower exports to India are the single largest source of national revenue and the engine of its development financing, so a settled export tariff for a 1020 MW project directly lifts public earnings. For India, the project adds clean, dispatchable Himalayan power to the eastern grid and deepens an asymmetric but mutually dependent relationship with a neighbour that sits between India and China. The reactive-energy accounting methodology and the new institutional framework address a practical problem the relationship has outgrown: as more Bhutanese generation feeds the Indian grid, the two systems need shared rules not just for the energy sold but for the technical services — like voltage support — that keep an interconnected grid stable. Broadening cooperation explicitly into non-hydro energy, transmission and regional power trade also signals a hedge against hydropower's vulnerabilities — seasonal flow, climate-driven variability, and the long construction delays that dogged Punatsangchhu-I — by diversifying the energy partnership beyond large dams toward a fuller regional power-market relationship.

For Mains