Bhutan Sustainable Hydropower Development Policy 2021

4.1 Department of Hydropower and Power Systems (DHPS) The DHPS shall be the Nodal Agency for implementation of this Policy. The Nodal Agency shall:

4.1.1 Formulate national policies, plans, programmes and guidelines related to sustainable development, efficient utilization and management of hydropower and power systems in the Kingdom;

4.1.2 Serve as the Central Coordination Agency and the Focal point of the RGoB on all matters related to hydropower and power systems;

4.1.3 Prepare plans for security of electricity supply, national transmission grid network and cross-border electricity trading;

4.1.4 Oversee, monitor and evaluate the implementation of plans, programmes and projects related to hydropower, transmission and cross-border electricity trading for which suitable Steering Committees may be formed, on need basis, to monitor the progress of projects under construction;

4.1.5 Provide techno-economic clearances for all major projects and programmes related to hydropower, transmission an9 cross-botder electricity trading before implementation; 4 • ' DIRECTOR DEPARTMENT OF HYDROPOVv'ER &POVv'ER SYSTEMS MINISTRY OF ECONOMIC AfFAIRS THIM?HU:gHIJTMI Sustainable Hydropower Development Policy, 2021

4.1.6 Enter into and monitor Concession Agreements (CA);

4.1.7 Develop adequate capacity and be responsible, on behalf of the RGoB, to carry out power market analysis, pricing, cross border negotiations over power trade and tariffs, and Power Purchase Agreements (PPA) for projects; and

4.1.8 Conduct research, development, demonstration and adoption of emerging technologies and innovative value addition initi~tives and energy storage/carrier activities.

4.2 Department ofRenewable Energy (DRE) The DRE shall be responsible for other alternative renewable energy resources in line with Alternative Renewable Energy Policy.

4.3 Bhutan Electricity Authority (BEA) The BEA shall be an autonomous regulator for the electricity sector and carry out its mandates as provided in the Electricity Act of Bhutan.

4.4 Druk Green Power Corporation (DGPC) The DGPC shall be responsible for developing and managing hydropower generating plants. It shall develop and manage new projects as may be directed by the RGoB. Projects that are funded through bilateral assistance or any project where the RGoB has a shareholding shall be managed· by DGPC through a Concession Agreement (CA). DGPC shall be the bulk trader for export of surplus power and shall manage the PPAs for such trade . .. 5 DIRECTOR ·~· • • .DEPARTMENT OF HYOROPO'MR &POWER SYSTEMS MINISTRY OF ECONOMIC AFFAIRS THIMPHU:BHUTAN Sustainable Hydropower Development Policy, 2021

4.5 Bhutan Power Corporation (BPC) The BPC shall be responsible for electricity transmission, distribution and supply functions and develop Associated Transmission System (ATS) for integration of domestic power system and providing transmission access for export of surplus power outside of the country.

4.6 Bhutan Power System Operator (BPSO) Bhutan Power System Operator (BPSO) shall be responsible for monitoring, control and operation of the National Grid and Power Systems including load dispatch procedures/ coordination both domestically as well as with external counterparts. 4. 7 National Centre for Hydrology and Meteorology (NCHM) NCHM shall be responsible for establishing state-of-art hydro- meteorological network and systems and provide hydrological data for hydropower resource assessment and forecasting of power generation from the hydropower plants.

4.8 Bhutan Power System Coordination Committee (BPSCC) For proper coordination between power sector agencies and facilitation of the smooth operation of the power systems, a Bhutan Power System Coordination Committee (BPSCC) shall be formed with members from the stakeholdt:r agencies. The Nodal Agency shall function as the Secretariat of the Committee.

4.9 Department of Geology and Mines (DGM) The Department of Geology and Mines will assist the Nodal Agency in carrying out geotechnical studies and vetting geo- 6 DIRECTOR ~ •• • DEPARTMENT OF HYDROP0llv£R &PO~R SYSTEMS MINISTRY OF ECONOMIC AfFAIRS THIM?HU:BHUT~J Sustainable Hydropower Development Policy, 2021 technical reports of the DPR for the hydropower projects.

4.10 Department of Forest and Park Services (DoFPS) The DoFPS is responsible for ensuring sustainable watershed management through catchment protection and other nature conservation works in order to support the availability of water for hydropower generation.

4.11 National Environment Commission Secretariat (NECS) The NEC is the apex body for overall coordination of matters relating to water resources. The NEC is also responsible for according environmental clearances of all projects as per the Environment Act and Regulations.

4.12 Ministry of Finance (MoF) The MoF is responsible to ensure that public debt is managed to meet the public sector's financing needs and debt service obligations are met in a timely manner at the lowest cost. The MoF is also responsible to prescribe hydropower debt threshold in keeping with the Public Debt Policy. 5. Ownership and Financing Modes of Hydropower Development The hydropower resources shall be developed with full ownership with the RGoB through the following implementation a!ld financing modes: a) RGoB initiatives The RGoB may undertake the development of hydropower projects on its own. Under this arrangement, financing may be sourced from multilateral agencies and/or financing 7 DIRECTOr< DEPARTMENT OF HYDROPOWER &POWERSYSTEM;: MINISTRY OF ECONOMIC AFFAIRS THIMPHU:BHUTAH Sustainable Hydropower Development Policy, 2021 institutions and/or may be financed on its own. b) Inter-Governmental (I G) The RGoB may undertake development of Hydropower Projects in collaboration with the government of development partner country(ies) wherein financing is provided by the partner country(ies). c) Sub-regional & Regional Arrangement The RGoB may take up projects as part of the regional/sub- regional/trilateral energy cooperation framework. Under this arrangement, the RGoB will pursue for financing by the partner country(ies) in the regional/ sub-regionaVtrilateral cooperation and/or multilateral/financing agencies/ institutes. 6. Concession Agreement

6.1 Irrespective of the implementation mode, a project entity to be entrusted the responsibility of developing and/or operating a hydropower project shall be first required to register as a company with the Registrar of Companies (RoC) in keeping with the Companies Act of Bhutan. The company shall be a Special Purpose Vehicle (SPV) for developing and/or operating the project.

6.2 The Concession Agreement (CA) shall comprise qf the rights and obligations of the SPV and all terms and conditions that will govern the construction, and the operation and maintenance (O&M) phases of the project.

6.3 The CA shall be signed between the Nodal Agency on behalf of the RGoB and the SPV. In case of projects, like the Inter- • Governmental projects, where an SPV will be handing over the 8 DIRECTOK ~·• .DEPARTMENT OF HYDROPO~R &POWER SYSTEM\; • MINISTRY OF ECONOMiC.AS:FAlRS '" TH!MPHU:BHUTP.N Sustainable Hydropower Development Policy, 2021 project after development to a separate Company for O&M, separate CAs shall be signed between the Nodal Agency and the respective SPV/Company for the project development phase and the project O&M phase.

6.4 The Project Developer/ Operator (the SPV assigned with the O&M of the project) shall not have any claim over any revenue from infirm power injection into the grid. 6. 5 During Construction Phase

6.5.1 In keeping with the provisions of the Companies Act of Bhutan, the SPV (or the Project Developer in this case of the construction phase) shall have a Board of Director(s) with a clear Terms ofReference and Delegation ofPowers. The Board shall, on behalf of the Shareholders, closely monitor and guide the project development. In the case of Inter-Governmental projects, the Project Authority shall assume the role of Shareholders, whose role shall be mainly to provide overall policy directives and ensure smooth fund flow for the Project.

6.5.2 The Project Developer shall be required to obtain necessary statutory clearances, which will be detailed in the Concession Agreement.

6.5.3 TheProjectDevelopershall accord priority for engagement of available local skills and expertise including allocation of main works to Bhutanese contractors/firms. during the construction of the project. The details of such mandatory requirements shall be stipulated in the CA . • 9 DIRECTOR DEPARTMENT OF HYOROPO'MR &POWER SYSTEMS MINISTRY OF ECONOMIC AFFAIRS TH!MPHU:g~UTA.N Sustainable Hydropower Development Policy, 2021

6.5.4 The Project Developer shall adopt, where possible, mechanization of construction works and deploy state-of- art technologies for efficient construction and performance of the plant.

6.5.5 The Nodal Agency or its designated agency shall, on behalf of the RGoB, from time to time inspect and monitor all projects under construction and exercise policy oversights over the projects. The Nodal Agency may also assign relevant sector specific entity to exercise technical oversights of the projects during construction.

6.6 During Operation and Maintenance (O&M) Phase

6.6.1 The Project upon achieving the unit-wise Commercial Operation Date (COD) will be deemed to enter into the O&M phase.

6.6.2 The Project Operator shall be required to obtain necessary licenses from the Electricity Regulator as per the Electricity Act of Bhutan.

6.6.3 The Nodal Agency or one of its appointed agencies will carry out mandatory inspections of the project during the concession period to ensure that the project assets are maintained to the required standard.

6.6.4 The Project Operator shall set aside a separate reserve fund sufficient to take up major replacements, renovation and modernization in consultation with the No~alAgency.

6.6.5 At the end of the concession period, which will be of 30 years from the Commercial Operation Date (COD), the entire project shall be transferred and vested in the RGoB at no cost and in good running condition. The project shall be considered to be in good running condition if it fulfils the following: 10 DIRECTOR ·0EPARTMENT OF HYDROP MINISTRY OF ECg=g~~:~SYSTEMS @. • ' · THIMPHU:BHUTAN Sustainable Hydropower Development Policy, 2021 6.6.5 .1 The Plant should have consistently over the last five years demonstrated capability under rated design discharges to generate minimum of 99% of rated capacity at rated head.

6.6.5.2 The power plant availability factor for the last year of the concession period should be at least the average of the last five years.

6.6.5.3 At the end of the concession period, the Plant shall be reverted along with the spares equivalent to value of 15% of the O&M cost for the year.

6.6.5.4 Any other technical factors to be decided during signing of the CA.

6.6.6 In addition to regular annual inspections, the Company and the Nodal Agency or its authorized representative will carry out joint inspection of the project facilities 5 years before the end of Concession period to ensure that the project assets are maintained in good running condition.

6.6.7 The Project Operator is responsible for securing the market and sale of electricity generated after complying with licensing regulations.

6.6.8 At the end of the CA covering the operation phase, the RGoB may extend the tenure of theCA to the same Project Operator or entrust the O&M of the project to another RGoB entity through a new CA. 7. Royalty Energy

7.1 Fifteen percent (15%) of electricity generated (net of auxiliary consumption) shall be provided free of cost to the RGoB as the Royalty Energy.

7.2 The RGoB shall have the option to avail the Royalty Energy 11 DIRECTOR ~•• .DEPARTMENT OF HYDROPO'v\£R &POWER SYSTEMS MINISTRY OF ECONOMIC AFFAIRS THIMPHU:BHUTAN Sustainable Hydropower Development Policy, 2021 either as energy or as cash in lieu thereof based on the highest off take tariff. 8. Project Preparatory Studies

8.1 The Nodal Agency shall review the Power System Master Plan (PSMP) and update the same on regular basis to have a list of hydropower projects inventory with ranking on the basis of techno economic viability and other relevant factors.

8.2 The Nodal Agency shall carry out project preparatory studies at reconnaissance level. For the preparation of pre-feasibility studies/Detailed Project Reports (DPR), the Nodal Agency shall outsource these to the relevant sector specific RGoB institutions as provided in this Policy. All pre-feasibility studies and DPR reports shall conform to international standards/best practices in addition to the Bhutan Hydropower Guidelines 2018 and amendments thereto.

8.3 Whenever preparatory, pre-feasibility and DPR studies are conducted through engagement of expatriate experts/ consultancies, it shall be mandatory for them to engage the relevant sector specific RGoB institutions as provided in this Policy to ensure transfer of knowhow and expertise, to build internal capacity, and to incorporate best practices relevant to Bhutan. The RGoB entities may engage other local counterparts for specialized services as may be required.

8.4 Design and Engineering of the hydropower and. associated infrastructure scheme shall adopt state-of-art-technologies for robust and modern automated power plants and systems.

8.5 The Nodal Agency shall assess and review and be the Authority to approve feasibility/DPR of hydropower projects and ATS. 12 DIRECTOR &-· DEPARTMENT OF HYDROPOIA£R &POWER SYSTEM • • MINISTRY OF ECONOMIC .AfFAIRS TH!M?HU:BHUTAN Sustainable Hydropower Development Policy, 2021 9. Selection of Hydropower Projects '

9.1 The identification and selection of hydropower projects for development shall be done in accordance with the Power System Master Plan (PSMP) and/or the Hydropower Development Strategy Report, as may be updated from time to time.

9.2 The installed capacity addition should be planned and determined based on long term national objectives, plans and policies; and take into consideration the evolving national priorities.

9.3 Priority shall be accorded to develop reservoir and pumped storage schemes, and hybrid technologies (e.g., integration of solar and wind to complement the lean season hydropower generation) to enhance domestic energy security. The establishment of cascaded water storage schemes/reservoirs both upstream and downstream of existing and planned hydropower projects shall be considered to address the water and energy security concerns.

9.4 The RGoB will encourage, where techno-economically feasible, an integrated development of hydropower projects with multipurpose use of water for drinking, irrigation, flood control and recreational purposes.

9.5 The RGoB may undertake review of the hydropower development plans for strategic interventions as and when required through formation of a Special Co~ittee . The Nodal Agency shall act as Secretariat to the Committee. 10. Hydropower Related "Water to Wire" Businesses

10.1 The RGoB shall encourage the private sector to venture into hydropower related ancillary businesses and services.

10.2 Generation· and transmission companies may, with the 13 DIRECiOR. - ~·• . OEPARTMENT OF HYDROPOWER &POWER SYSTEM MINISTRY OF ECONOMICAFFAIRS THIMPHU BHUTAN Sustainable Hydropower Development Policy. 2021 approval of their Shareholder, form subsidiaries to set up viable businesses that are strategic to the sector, and explore opportunities and expand its businesses beyond the borders of Bhutan.

10.3 The RGoB shall encourage development and integration of hydropower value chain by adopting emerging renewable energy technologies and innovations such as hybrid technologies, integrated energy management and smart grid systems. 11. Hydrogen Economy

11.1 The RGoB shall encourage development and integration of hydropower value chain by adopting emerging renewable energy technologies and innovations such as hydrogen fuel, green ammonia and other such energy storage schemes and emerging innovative technologies.

11.2 The RGoB shall facilitate and create enabling eco-systems for innovations, investment and development of hydrogen economy for both domestic and foreign markets.

11.3 The RGoB shall promote and develop green hydrogen as an alternate fuel source for the transport and other related sectors.

11.4 The RGoB shall prepare a Green Hydrogen Roadmap for development of hydrogen economy, adoption of suitable technologies and related infrastructure and ~ntroducing regulatory frameworks .

11.5 The RGoB shall add hydropower generation capacity, where required to augment existing capacity, to facilitate production of hydrogen fuel and other energy storage products.

11.6 The RGOB will establish National Green Hydrogen • Panel consisting of relevant experts in the field who shall 14 DIRECTOR DEPARTMENT OF HYOROPOVVER &POWER SYSTEMS r}/A. • • MINISTRY OF ECONOMIC AFFAIRS THIMPHU:BHUTAN Sustainable Hydropower Development Policy, 2021 provide technical, advisory and facilitate the promotion and development of green hydrogen fuel, green ammonia and other emerging technologies. The Nodal Agency shall provide secretarial service to the Panel. , 12. Cross Border Trade and Electricity Markets

12.1 The RGoB shall promote regional/sub-regional forums on regional/sub-regional electricity grid and market integration, and support initiatives towards market reforms and grid integration.

12.2 The RGoB may establish an Electricity Trading Company for consolidating energy export and cross border trading. The RGoB may also establish an Electricity Trading Company in a neighbouring country(ies) under the laws and regulations of the neighbouring country(ies).

12.3 The Nodal Agency shall track evolving regional/sub regional market trends and introduce suitable grid management practices and regulations. 13. Local Participation and Partnership

13.1 During construction, the Nodal Agency, in consultation with the Project Developer shall identify and determine the main works including the manufacture of electro-mechanical (E&M) equipment which shall be undertaken by Bhutanese firms/contractors, the details of which will be s~ipulated in the CA.

13.2 Mechanisms shall be built in the contract documents for projects to source locally available construction materials. Project Developers/Operators shall engage registered Bhutanese suppliers, transporters, contractors, manufacturers, and other service providers, provided they have the capacity 15 DIRECTOR .DEPARTMENT OF HYDROPOWER &POWER SYSTEM MINISTRY OF ECOf\1(' 'lC AFFAIRS THIMPHU:BHUTAN ----~- Sustainable Hydropower Development Policy, 2021 and meet quality requirements. Alternatively, Project Developers/Operators may be required to facilitate capacity building amongst such Bhutanese entities for providing the projects with the required goods and services.

13.3 Bhutanese firms or their consortium shall be encouraged to participate in the main contract works of hydropower construction by forming joint ventures with experienced firms from outside of Bhutan.

13.4 A firm nominated to undertake any work for the project shall not be allowed to appoint any intermediary agents for supply of goods and services which do not add economic value. 14. Expatriate Employment and Work Permits

14.1 Bhutanese shall be given preference for employment in projects to the extent possible, based on their skills and capability. The Nodal Agency shall issue a separate guideline to this effect.

14.2 Only after exhausting the provision 14.1, projects will be allowed to bring in expatriate personnel during the time of construction in accordance with prevailing laws of the country.

14.3 Whenever such expatriates of specialized skills are employed during the construction phase, it will be mandatory for the Project Developer to ensure skills transfer and capacity building of the local counterparts. 15. Domestic Power AUocation and Supply

15.1 Domestic electricity tariff shall be determined as per the Domestic Electricity Tariff Policy, 2016 and amendments thereof. Allocation of generation plants for domestic supply shall be in ascending order of generation cost, i.e., the plant 16 ~· • IJII'\I:vll.. ~ • .DEPARTMENT OF HYDROPO'NtR &PO~vtR ~YSTtMS MINISTRY OF ECONOMICAFFAIRS THIMPHU8HL'T,),~: Sustainable Hydropower Development Policy, 2021 with the lowest cost of generation shall be first booked for domestic supply followed by next lowest cost of generation and so on.

15.2 The Nodal Agency shall direct relevant RGoB agencies for energy banking/swapping or other appropriate arrangt;ments to meet the domestic baseload requirements.

15.3 The Nodal Agency shall carry out supply and demand forecasts and other relevant analysis on a periodic basis.

15.4 The Nodal Agency will assess and allocate power supply to an industry based on the recommendation of the relevant RGoB agencies on the type of industry to be promoted.

15.5 The following shall be the order of merit while prioritizing the supply of electricity: 1. Essential Public Institutions and Services u. Individual households 111. General Commercial establishments (including other Public Institutions and Services) 1v. Industries including construction power In the event of a power deficit scenario, requtnng load shedding, the order of load shedding shall be in the reverse order as that in 15.5. To this effect, the Nodal Agency will seek approval of the Ministry and issue the notification for operationalizing the above provision during exigencies. 16. Transmission and Load Dispatch

16.1 The transmission and associated system for hydropower projects must be in conformity with the National Transmission Grid Master Plan (NTGMP). The NTGMP will be reviewed and updated regularly by the Nodal Agency.

16.2 The Project Developer will be responsible for laying 17 DIRECTOr{ DEPARTMENT OF HYDROPOVIER &PO~R SYSTEMS M. • • MINISTRY OF ECONOII'ICAFFAIRS THIMPHU.BHUTAN Sustainable Hydropower Development Policy, 2021 transmission lines and connect to the nearest grid sub- station. Such transmission assets as constructed by the Project Developer shall be transferred to the transmission utility through appropriate arrangements.

16.3 The Project Developer shall be required to have a power evacuation agreement with the transmission utility at the time of CA signing to ensure provision of transmission facilities for wheeling the electricity within Bhutan and for export purposes, till the delivery point at the international border in coordination with the importing Country's transmission entity or at the delivery points as agreed to for regional/sub- regional/trilateral transactions.

16.4 The Project Operator shall pay transmission and wheeling charges as determined by the Electricity Regulator.

16.5 The RGoB shall provide necessary support for facilitating the transmission of power with the importing country's transmission entities.

16.6 Load dispatch procedures shall be as prescribed by the BPSO. 17. Social Considerations

17.1 The Project Developer shall locate project components (and other infrastructures) in the state reserve forest land to the extent possible. In the event where it is not possible, the RGoB shall acquire private land as per the La.q.d Act. All land required for the project shall be leased to the Project Developer. Where the Project Operator is different, the rights to the land shall be transferred to the Project Operator.

17.2 The RGoB shall provide free electricity of 10,000 kWh per annum.. for every acre (or prorated thereof) from the Royalty Energy to the private land owner from whom land is 18 ~· DIRECTOR • DEPARTMENT OF HYOROPOV\ER & PO~R SYSTEMS MINISTRY OF ECONOMICAFFAIRS THIMPHU:BHUTAN Sustainable Hydropower Development Policy, 2021 acquired with effect from the commencement of Commercial Operation Date till the end of initial concession period. Such benefits will continue for not more than 2 years beyond the initial concession period. All prior arrangements for such additional benefits should be regularized to conform to this n:wised provision.

17.3 The land owner referred in 17.2 may either avail free electricity or cash in lieu thereof at the rates determined by the Electricity Regulator on an annual basis. The RGoB may also consider upfront payment of compensation for the entire initial concession period based on the generation tariff determined by BEA after achieving commercial operation of the Project. Further, transfer and sale of such rights is not permitted except bequeath as an inheritance to the legal heirs determined by a competent Court of Justice.

17.4 The Project Developer shall provide the details and cost of rehabilitation and resettlement of the displaced persons from the project area and other local development activities as a part of scope ofDPR.

17.5 The Nodal Agency in collaboration with the National Land Commission Secretariat (NLCS) shall issue a separate Rehabilitation and Resettlement (R&R) guideline for hydropower and associated infrastructures. The Project Developer shall implement the Rehabilitation, Resettlement and Local Development Plan in consultation wit4 the RGoB and local authorities. 17. 6 The necessary infrastructure for the construction/development of the project and local area development will be part of the project and shall be developed by the Project Developer; the scope of which shall be indicated and elaborated in the DPR. • .L9 DIRECTOR ~• .DEPARTMENTOF HYDROPOWER &POWER SYS • MINISTRY OF ECO,.;or.•Ic AFFAIRS TEMS • THIMPHUBHUTAH Sustainable Hydropower Development Policy, 2021

17.7 The Project Developer/Operator shall provide employment to one legal member of each of the Adversely Affected Family(ies) as a result of acquisition of land for the project during the construction period of the project. The details shall be covered under R&R guideline.

17.8 The Project Developer shall_submit a Human Resources plan for the project implementation and Operation and Maintenance (O&M) phases to the Nodal Agency. The Nodal Agency in consultation with relevant RGoB agency(ies) will facilitate timely recruitment or development of skills in collaboration with the Project Developer.

17.9 The Project Developer shall also ensure that development of necessary skills (through programmes such as TVET) for the member of Adversely Affected Family(ies) and must be completed within the pre-construction period for recruitment during the construction phase. 17.10The Project Developer shall provide training to eligible persons based on their educational qualification so that they are in a position to get employment for various jobs in the project. The Project Developer shall implement a training program endorsed by the Nodal Agency/other authorized RGoB agencies for transfer of technology and enhancement of skills of Bhutanese workers.

17.11 All regular employees shall be Bhutanese nationals during Operation and Maintenance (O&M) phase. 18. Environmental Considerations

18.1 The RGoB shall ensure that hydropower development, generation and transmission are in line with the environmental legislations of the country. 20 DIRECTOR .DEPARTMENT OF HYDROPOWER &POWER SYSTEMS MINISTRY OF ECONOMICAFFAIRS ap.· • THIMPHU BHUTAN Sustainable Hydropower Develop ment Policy, 2021

18.2 The RGoB shall reserve one or two river stretches free of hydropower development, till development in the basins with existing projects are no longer techno-economically competitive.

18.3 The RGoB · shall facilitate in coordination with relevant agencies to secure blanket .. forestry and environmental clearances for projects.

18.4 The Project Developer shall be responsible for carrying out comprehensive ·Environment Impact Assessment (EIA) as part of the DPR as per the environmental legislat~ons of the country and the Bhutan Hydropower Guidelines 2018 and amendments thereto.

18.5 The Project Developer shall determine the minimum quantity of water to be released at all times from the dams based on holistic and site-specific scientific assessment of aquatic habitats, socio-economic aspects, water catchment eco- systems, maintaining hydrological regime and other relevant factors as part ofEIA at the DPR stage for new project(s).

18.6 The Project Developer shall make suitable provisions for mitigation of adverse impacts as per approved EIA Report. The implementation of Environment Management Plan (EMP) and other risk management measures will be the responsibility of the Project Developer. During the operation stage, the Project Operator shall continue to implement EMP relevant to the operation phase in keeping , with the Hydropower Guideline 2018 and other relevant laws of the land.

18.7 The RGoB shall endeavour to avail/seize the opportunities under the new market mechanism/international carbon trading mechanisms for renewable hydropower energy. .. 21 DIRtt,; I()K .DEP.A~TMENT QJ; !JVQQI"Of'IIA.CQ ~ DI"IMI=Q SVST::Mc MINrSTI<r uf t:Cvhv.w:,c AftAIRS THIMPHU:BHUTAN Sustainable Hydropower Development Policy, 2021

18.8 The RGoB shall allocate any benefits derived from the Paris Agreement or any other mechanisms in terms of reduction of emissions of greenhouse gases to the Project Developer/ Project Operator. Certified Emission Reduction (CER) or any other credits will be the property of the Project Developer/ Project Operator.

18.9 The RGoB shall levy tax on the sale of CERs or any other credits to the Project Developer/Project Operator. 19. Resource for Sustainable Development of Hydropower

19.1 The RGoB shall allocate adequate resource for new project development activities including preparation of project profiles and reports, site investigation and studies, processing of clearances, capacity building, promotion of projects, and facilitation for development of hydropower and other energy resources.

19.2 In order to ensure sustainable growth and expansion of the sector, research and development activities in energy related field shall be encouraged.

19.3 The RGoB shall allocate adequate funds through the budgetary system to promote research, development, innovative and demonstration activities with regard to value addition initiatives and energy storage/carrier activities. 20. Taxation

20.1 All plants, construction materials, equipment, machineries and services imported for direct use by the principal contractors in construction of hydropower projects including Associated Transmission Systems (ATS) maybe exempted from any levies, taxes and duties as per the law of the country.. • • 22 ui,ECTOR DEPARTMENT OF HYDROPOV\'ER &PO'NER SYSTEMS MINISTRY OF ECO~'OMICAFFAJRS THIMPHU:BHUTAtl Sustainable Hydropower Development Policy, 2021

20.2 A separate Tax guideline for hydropower projects will be issued by the Ministry of Finance. 21. Policy Review and Amendments This policy shalf be reviewed and revised as and when deemed necessary by the RGoB. 22. Interpretation of the Policy In the event of conflict of interpretation, the Ministry of Economic Affairs shall, on behalf of the RGoB, be the authority to interpret various provisions of this policy which shall be final and binding. 23. Definitions Unless specifically included in the list below, words or expressions are to be interpreted in good faith, in accordance with the ordinary meaning of its terms, in their context, and in light of the objective and purpose of this Policy. Whenever the following capitalised terms are used in the Policy, whether in the singular or with plural, in the future or past, they shall have the same meanings ascribed to each of them below, unless the context otherwise requires: i. Adversely Affected Family: Family(ies) losing more than twenty five percent (25%) of registered land holdings or families losing both homestead and portion of land. ii. Certified Emission Reductions (CER): A CER is the technical term for the output of Clean D~velopment Mechanism (CDM) projects, as defined by the Kyoto Protocol. One Certified Emission Reduction unit represents one tonne of carbon dioxide (C0 2) equivalent reduced. iii. Commercial Operation Date (COD): The commercial operation date shall be reckoned as the date on which each unit ·of generating plant and equipment is jointly 23 DIRECTOR ~: .QEPARTMENT OF HYDROPOMR &POVVER SYSTEMS MINISTRY OF ECONOMIC AFFAIRS THIMPHU:BHUTA'N Sustainable Hydropower Development Policy, 2021 declared as commissioned by the RGoB and the Project Developer. iv. Concession Agreement: A legal instrument through which the Royal Government of Bhutan grants concession rights and obligations to the project developer for the construction and operational period of JO years from the COD and terms and conditions for reversion of the project to the Royal Government of Bhutan at the end of the concession period. v. Construction Power: Power used for construction of hydropower and other infrastructures. vi. Electricity Regulator: Bhutan Electricity Authority (BEA) or its successor as per the Electricity Act of Bhutan. vii. Environment Impact Assessment (EIA): Is a study which provides a description of the potential environmental effects on the environment, a recording of those effects in a report, undertaking a public consultation, and taking into account of comments and the report when making the final decisions as to whether to go ahead with the project, and how best to go about it in an environmentally conscious manner. viii. Essential Public Institutions: Institutions such as Hospitals, Military establishments, Communication establishment and services, Dzongs, Schools, Religious institutions and Government offices. ix. General Commercial Establishment: Commercial establishments such as hotels, shopping malls, SUP.ermarkets, business complex, etc. x. Importing Country: Means the country that is final destination to which the electricity generated is being sent to. xi. Industries: All industrial establishment in the order as follows: 1. " Cottage and Small enterprises d ~· 24 DIRECTOR ,_ •• DEPARTMENT OF HYOROP0Vv£R & P0Vv£R SYSTEMS MINISTRY OF ECONO 11C AFFAIRS THIMPHU:BHUTAt-' Sustainable Hydropower Development Policy, 2021 .. 11. Medium industries from lMW up to lOMW 111. Large industries above 1OMW xii. Infirm Power: means any power injected into the grid prior to the COD of a unit of the generating plant. xiii. Local: For the purposes of this Policy a local is either: • A person who is a. citizen of Bhutan; or • An entity which is incorporated /registered within Bhutan xiv. Nodal Agency: Department of Hydropower and Power Systems (DHPS) or its successors. xv. Power Purchase Agreement (PPA): An agreement or contract between a buyer and producer to purchase electricity for a set price and period of time. xvi. Project Developer: A SPV established for design and engineering, construction and commissioning of a hydropower project. xvii. Project Operator: A SPV established for the O&M of a hydropower project. xviii. Public: Refers to an agency as well as corporations owned by the RGoB or/and sectors of the general government of foreign countries (e.g., central, state and local government units) as well as their state-owned enterprises. Any public partnership mentioned in this Policy shall in the first place mean the RGoB agency. xix. Public Sector Undertaking (PSU): A comp.any where majority of the shares are owned by the Government. xx. Royalty Power/Energy: The free Power/Energy that would be made available to the RGoB under a project during the concession period i.e., the period starting from the commercial operation date of the project. xxi. Special Purpose Vehicle (SPV): Is a body corporate 25 DIRECTOR DEPARTMENT OF HYDROPOVvER &POWER SYSTEMc MINISTRY OF ECONOMICAFFAIRS " THIMPHU:BHUTAN Sustainable Hydropower Development Policy, 2021 created to fulfil narrow, specific or temporary objectives, primarily to isolate financial risk. xxii. Transmission Utility: State Owned Enterprise responsible for the transmission of power. xxiii. Wheeling. charges: Means charges for transfer of power per unit of energy paya\)le to the owner of the transmission network. , Department of Hydropower & Power Systems • Ministry of Economic Affairs Post Box: 106 www.moea.gov.bt