Paradox #62
The Dollar Bill the Peg Quietly Pays
→ Of every USD 4 that Bhutan should have received over the lifetime of its hydropower export contracts (had they been USD-indexed at COD), USD 1 has been silently lost to FX depreciation. The peg's 1:1 BTN-INR optics make this loss invisible in Nu accounting.
Referenced as sidebar in Chapter Two
Cumulative realised USD-equivalent loss across all operational Bhutanese hydropower plants since their respective CODs, from INR/USD depreciation alone
~USD 1.85 billion
range USD 1.65–2.05bn; mid-scenario
Cumulative INR receipts over the same period, converted to USD at each year's spot rate
~USD 6.3 billion
The full numbers
Every Power Purchase Agreement Bhutan has ever signed with India — Chhukha (1986–88), Kurichhu (2002), Tala (2006), Dagachhu (2014/2015), Mangdechhu (2019), Nikachhu (2024), Punatsangchhu-II (April 2026) — is denominated in INR with no USD-reference clause anywhere in the contract. Escalation clauses, where they exist, escalate the Nu tariff at rates well below the historical INR-vs-USD depreciation rate (Mangdechhu: +10% every 5 years ≈ 1.92% p.a.; historical INR depreciation 1986–2025: ~5.1% p.a.).
The arithmetic by project (cumulative through end-2025, mid-scenario):
| Project | Years operational | Cumulative INR revenue (Nu bn) | Cumulative actual USD revenue | Counterfactual USD-indexed at COD | FX loss (USD bn) |
|---|---|---|---|---|---|
| Chhukha | 38 | ~104 | ~USD 2.30bn | ~USD 3.16bn | ~0.75–0.90 |
| Kurichhu | 23 | ~12.8 | ~USD 0.22bn | ~USD 0.30bn | ~0.08 |
| Tala | 19 | ~190 | ~USD 3.00bn | ~USD 5.00bn | ~1.00–1.20 |
| Mangdechhu | 6.5 | ~43 | ~USD 0.56bn | ~USD 0.66bn | ~0.10 |
| Dagachhu | 11 | ~10 | ~USD 0.14bn | ~USD 0.20bn | ~0.06 |
| Nikachhu | 2 | ~3.2 | ~USD 0.038bn | ~USD 0.040bn | ~0.002 |
| Basochhu DAM | 2 | ~1 | ~USD 0.011bn | ~USD 0.012bn | ~0.001 |
| TOTAL | ~368 | ~USD 6.3bn | ~USD 9.4bn | ~1.65–2.05 |
The mid-scenario USD 1.85 billion realised loss equals roughly half of Bhutan’s 2025 GDP (USD ~3.2bn) — silently transferred to India over 38 years through a single design choice (INR denomination, no USD reference), invisible in Nu accounting because the BTN-INR 1:1 peg makes Nu-to-INR conversion frictionless and disguises the underlying USD-purchasing-power erosion.
Forward losses are larger. PV at 6% discount, mid-scenario (2.5%/yr INR depreciation), on operational plants + PHP-I to ~2060: another USD 3.0–3.7 billion. Total realised + forward: USD 4.85–5.55 billion, or ~1.5× current annual GDP. If the full 25 GW DGPC pipeline through 2040 is signed under the same INR-PPA framework, pipeline-inclusive PV loss reaches USD 12–20 billion by 2050 — 4–6× current GDP. Annual realised flow currently: USD 50–80 million per year, equal to 20–25% of annual hydropower export earnings in USD terms, ~15–25% of the annual GoI grant flow, and roughly the same order of magnitude as Bhutan’s annual current account deficit improvement target under the IMF Article IV 2025 framework.
Imagine this
A DGPC accountant in Thimphu opens the Chhukha export ledger for FY 2024/25. The plant generated 2,000 GWh; PTC India paid Rs 2.55/kWh; total revenue Nu 5.1 billion. The Nu figure is what shows up in DGPC’s audited accounts, in the budget tables, in the parliamentary debate, in the news coverage. “Chhukha contributed Nu 5.1 billion this year.”
What does not show up anywhere: had the tariff been USD-indexed at the original 1990 Chhukha COD rate (Rs 0.27/kWh ≈ USD 0.0154/kWh, indexed forward at US-CPI), the same 2,000 GWh would have earned roughly USD 78 million at 2024 prices. The actual USD-equivalent receipt: USD 58 million. The difference — USD 20 million per year, just on Chhukha alone — is the FX loss the peg makes invisible. The Nu number is honest. The USD-purchasing-power number, which never appears in any official document, is not.
Across all operational plants, the cumulative version of that quiet daily extraction reaches USD 1.85 billion. Almost no Bhutanese official, parliamentarian, or journalist has ever seen this number — because it does not exist in any document the bureaucracy produces.
Where this came from
Four structural reasons compound:
- Intergovernmental, not commercial origin. The Chhukha model (1980s) was a state-to-state aid programme. INR was the only currency that made sense for an INR-financed, INR-employed, INR-equipped project run by GoI-appointed staff.
- Capital provided in INR. When the entire project capex is funded by INR loans from GoI, denominating revenue in any other currency would create an artificial FX mismatch within the project entity. (This is also why dollarising the PPA without first restructuring the loan side would create new problems.)
- Both sides historically content. India captured the upside of declining USD-cost-per-kWh as INR depreciated. Bhutan captured a nominally-growing INR revenue stream that funded its budget without forcing FX conversion. The peg’s 1:1 BTN-INR optics made the FX loss invisible to Bhutanese policymakers — the loss is structurally hidden by the peg.
- Bargaining asymmetry. Bhutan’s pre-2020 strategic position was as a captive supplier with no alternative buyer. India’s pre-2020 strategic position was as the only buyer with infinite capacity. Asymmetric bargaining produces asymmetric contracts.
Why this matters now
The 13th FYP commits ~15 GW of new hydropower capacity (Sankosh 2,585 MW, Kuri-Gongri 2,800 MW, Wangchhu, Chamkharchhu-I, Dorjilung, Nyera Amari, Bunakha, Kholongchhu and others) to PPA-sign over 2025–2040. Each PPA signed under the existing INR-only framework locks in another 35 years of the same structural loss. The pre-COD pipeline is therefore the structural opportunity: mid-PPA renegotiation of existing contracts is essentially closed, but every new PPA is a fresh window.
A specific ask Bhutan could put to GoI in next-PPA negotiations: PPA tariff in INR with annual escalation = max(India CPI, INR-vs-USD depreciation × 0.5). This protects the buyer (India) from a one-way ratchet up but protects the seller (Bhutan) from compounding USD-equivalent erosion. International precedents exist — Indonesia LNG/PLN PPAs (USD-quoted, monthly Rupiah settlement), Mozambique LNG, Vietnam coal BOTs — all use USD reference in foreign-financed power contracts.
What it should be
- Partial USD indexation (25%+ proportion) in all post-2025 PPAs.
- USD- or SDR-denominated bilateral loans from GoI to create a natural hedge for foreign-equipment-import capex.
- Acceleration of overdue Chhukha (revision overdue since Jan 2021) and Tala (revision due Jan 2013, stalled) tariff revisions to embed partial USD indexation as a formula tweak.
- Public reporting of hydropower receipts in BOTH Nu and USD-purchasing-power-adjusted terms, so the FX loss stops being invisible.
How others do it
- Indonesia LNG / PLN PPAs (post-1997): USD-quoted tariffs, monthly Rupiah settlement at spot. Standard for foreign-financed IPPs.
- Mozambique gas-to-power and LNG-export (Coral South, Mozambique LNG): USD pricing throughout.
- Vietnam coal BOTs (pre-2020): USD-quoted tariffs with VND settlement; Mong Duong, Vinh Tan, Vung Ang.
- Latin American power markets (Chile, Peru, parts of Africa): partial USD indexation (40–60% of tariff escalates by USD/local-currency depreciation).
- Bhutan-India: zero USD reference in any operational PPA. The only major hydropower exporter globally that operates this way.
The question we should be sitting with
The peg’s 1:1 BTN-INR optics have made USD 1.85 billion disappear from our hydropower export ledger over 38 years, with another USD 3–4 billion of forward erosion already locked in. Why does no Bhutanese official report convert hydropower receipts into USD-purchasing-power-adjusted terms alongside the Nu figure? And why is the next round of PPAs being negotiated without anyone tabling a USD-reference clause as a baseline ask?