Project Resumes After Long Pause

Dam construction resumed on Bhutan's 1,200 MW Punatsangchhu-I hydropower project on April 10, 2026, following a seven-year halt. The restart followed extensive studies and an agreement between the Indian and Bhutanese governments on slope stabilization. This project aims to add about 1,200 MW, boosting Bhutan's total power generation capacity by nearly 30% to around 4,700 MW. Once finished, it's expected to produce an estimated 5,670 million units of electricity annually, with surplus power to be exported to India. The project's revival supports India's goal for regional energy security and clean energy targets by utilizing Bhutan's hydropower potential.

Costs Surge Amid Long Delays

The Punatsangchhu-I project, which began in November 2008, was originally set to be completed in 2016. However, ongoing geological issues, including landslides and right bank slope destabilization, caused several suspensions and missed deadlines, with work halted since 2019. These delays have driven the project's estimated cost up significantly, from an initial Nu 35 billion to around Nu 100 billion. As of February 2026, financial progress was at 93.7% of the approved cost (approximately ₹8,785 crore), with physical progress at 87.75%.

Key Partnership for Energy

India is the main financier, providing 40% as a grant and 60% as a loan at a 10% annual interest rate. The Punatsangchhu-I project is central to the energy cooperation between the two countries. This collaboration helps develop Bhutan's hydropower resources, a key contributor to its GDP and export earnings. India gains access to reliable, clean energy imports needed for its own rising energy demands and renewable energy objectives. Punatsangchhu-I is one of several major hydropower projects between India and Bhutan, following facilities like Chukha, Tala, and the recently completed Punatsangchhu-II, which began exporting power to India in November 2025.

Regional Energy Goals

The restart of Punatsangchhu-I fits into a wider trend of greater energy integration across South Asia, especially in the Bangladesh, Bhutan, India, and Nepal (BBIN) region. Countries are increasingly engaging in cross-border electricity trade, with Bhutan and Nepal exporting hydropower to India. India has set an ambitious goal of reaching 900 GW of non-fossil fuel capacity by 2035-36, making energy imports crucial. While hydropower is Bhutan's primary energy source, the country is also looking into solar and wind power to mitigate seasonal generation issues and meet rising domestic needs.

Lingering Concerns

Geological Hurdles Remain

Even with assurances and new studies, the fundamental geological issues that caused the seven-year delay are still a major concern. The right bank slope has seen sliding incidents in 2013, 2016, and 2019, requiring ongoing stabilization. Past reviews indicated that significant project changes, such as relocating the dam site, may not have fully incorporated expert advice, contributing to delays and cost overruns. The project's revised expected completion date of 2029-2030 is far beyond its original 2016 target, showing the persistent risk of more delays.

Bhutan's Debt Burden

The project's cost surge to an estimated Nu 100 billion places a significant financial strain on Bhutan. Hydropower debt already makes up nearly 70% of Bhutan's external debt and exceeds 80% of its GDP. These ongoing delays worsen this pressure on the nation's finances. The loan from India, at a 10% annual interest rate, adds to the financing costs. While project officials state that the cost per megawatt remains competitive, the substantial accumulated debt and uncertain completion date require careful consideration.

Revenue Outlook Unclear

A key factor for future profitability is how the price for surplus power exported to India will be set. The agreement states this price will be "mutually determined" when the project starts operating. This means Bhutan's revenue from electricity exports depends on future negotiations, creating uncertainty for the project's economic viability and expected returns.

Looking Ahead

The Punatsangchhu-I project is tentatively expected to be completed within five years of its April 2026 restart, aiming for operation by 2029 or 2030. Success depends on completing the remaining dam construction and slope stabilization, alongside favorable geological conditions and a timely agreement on power export prices. Officials remain optimistic but acknowledge that the timeline is still vulnerable to unforeseen natural events.