Punatsangchhu Hydroelectric Project

The Punatsangchhu Hydroelectric Project is a collective term for two large run-of-river hydropower plants under construction on the Punatsangchhu (known as the Sunkosh River in India) in Wangdue Phodrang District, western Bhutan. Punatsangchhu-I has a designed capacity of 1,200 MW and Punatsangchhu-II a capacity of 1,020 MW, for a combined total of 2,220 MW — more than doubling Bhutan's entire existing generation capacity when completed. However, both projects have experienced severe delays and massive cost overruns that have made them the most troubled chapter in Bhutan's hydropower history and a cautionary tale about the risks of large infrastructure projects in the Himalayas.^[1]

The two projects were agreed under the 2008 India-Bhutan hydropower framework during Prime Minister Manmohan Singh's visit to Bhutan, alongside the Mangdechhu project. They were originally scheduled for completion by 2016-2017 but suffered repeated delays. Punatsangchhu-II was commissioned in phases between December 2024 and August 2025 and jointly inaugurated by Indian Prime Minister Narendra Modi and King Jigme Khesar Namgyel Wangchuck on 11 November 2025. Punatsangchhu-I remains under construction, with dam work halted since 2019 due to geological issues. The cost of Punatsangchhu-I alone has escalated from an initial estimate of approximately 35 billion Indian rupees to over 93 billion rupees, nearly tripling.^[2]

Punatsangchhu-I

Punatsangchhu-I is designed as a 1,200 MW run-of-river scheme with a 136-metre-high concrete gravity dam — by far the tallest dam structure attempted in Bhutan. The plant will house eight generating units of 150 MW each. Construction began in 2008 and initially proceeded on schedule, but the project was struck by a series of geological disasters starting in 2012.^[3]

The most serious problem has been massive slope instability on the right bank of the dam site. In 2012-2013, a large landslide on the right abutment forced a fundamental redesign of the dam. The geological conditions at the site proved to be far more complex and unfavourable than the original investigations had indicated. The rock mass was heavily fractured and prone to movement, making it extremely difficult to establish a stable foundation for the dam structure.

The landslide and subsequent geological complications required extensive remedial works including the construction of massive retaining structures, drainage systems, and slope stabilisation measures. These works added years to the construction timeline and billions of rupees to the cost. Additional geological problems were encountered in the tunnel systems, compounding the delays. The revised completion date has been pushed back multiple times; as of recent reports, the project is not expected to be fully commissioned before the late 2020s.^[4]

Punatsangchhu-II

Punatsangchhu-II is located downstream of Punatsangchhu-I on the same river and is designed as a 1,020 MW run-of-river scheme. The project includes a diversion dam and an underground powerhouse with six generating units of 170 MW each, similar in concept to the Tala plant. Construction began in 2010.^[5]

While Punatsangchhu-II experienced delays and cost escalation due to tunnelling difficulties, labour shortages, and the logistical challenges of running two massive construction projects in the same narrow river valley, it was ultimately commissioned ahead of Punatsangchhu-I. The six units were commissioned in phases: Units 1 and 2 in December 2024, Unit 3 in March 2025, Unit 4 in May 2025, Unit 5 in July 2025, and Unit 6 (the final unit) synchronised to the grid on 27 August 2025. The total project cost was approximately Rs 7,500 crore (75 billion rupees), funded by India under the standard 30% grant and 70% concessional loan framework. By the time of its inauguration on 11 November 2025, the six units had collectively supplied more than 1.3 billion units of electricity to Bhutan's national grid, generating approximately Nu 4.9 billion in revenue and increasing Bhutan's total power generation capacity by roughly 40%.^[6]

Financing and Debt Implications

Both Punatsangchhu projects were financed under the post-2008 framework of 30 percent grants and 70 percent loans from India, the same terms that applied to Mangdechhu. However, because of the massive cost overruns, the loan amounts have ballooned far beyond original projections. The cost escalation at Punatsangchhu-I alone has added tens of billions of rupees in additional debt that Bhutan will need to service.

This debt accumulation is a central element of Bhutan's broader hydropower debt crisis. The plants are not yet generating revenue, but the debt service obligations are already accruing. Bhutan's debt-to-GDP ratio has risen sharply, driven primarily by the hydropower loans, placing the country in a difficult fiscal position. The situation has raised fundamental questions about the sustainability of the hydropower-led development model that Bhutan has pursued since the 1980s.

Root Causes of Delays

Several factors have contributed to the troubles at the Punatsangchhu projects. The most fundamental was inadequate geological investigation prior to the start of construction. The Himalayan geology of the Punatsangchhu valley proved to be far more complex and adverse than the pre-construction surveys indicated. Critics have argued that the feasibility studies were rushed and that insufficient attention was paid to geological risk assessment — a failure that cost billions of rupees and many years of delay.

The sheer scale of the projects in a remote and logistically challenging location has also been a factor. Transporting heavy equipment, materials, and labour to the construction sites in the narrow Punatsangchhu valley requires long hauls over winding mountain roads. Seasonal constraints, including the monsoon rains that make construction difficult for several months each year, further slow progress.

Institutional and contractual factors have played a role as well. The projects involve multiple Indian and Bhutanese agencies, and coordination among these entities has sometimes been challenging. Contractual disputes, labour issues, and the complexity of managing redesigned works have all contributed to the delays.

Political and Economic Fallout

The delays at the Punatsangchhu projects have had significant political consequences in both Bhutan and India. In Bhutan, the projects have become a subject of public debate and concern, with questions raised about the wisdom of relying so heavily on large hydropower projects for economic development. The opposition in Bhutan's parliament has cited the cost overruns as evidence of governance failures, and the issue has featured in national elections.

In India, the projects have drawn scrutiny from parliamentary committees and the national auditor, who have questioned the cost management and oversight of Indian-funded hydropower projects in Bhutan. The difficulties have also cooled enthusiasm for the ambitious 10,000 MW target set in 2008, with several other proposed projects in Bhutan either shelved or moving slowly.

For the bilateral relationship, the Punatsangchhu troubles have been a strain. While both governments have publicly reaffirmed their commitment to hydropower cooperation, the practical effect of the delays has been to slow the pipeline of new projects and introduce greater caution into the planning of future ventures.

Current Status

Punatsangchhu-II was fully commissioned in August 2025 and jointly inaugurated by Indian Prime Minister Narendra Modi and Bhutanese King Jigme Khesar Namgyel Wangchuck on 11 November 2025. The project is now operational and contributing significantly to Bhutan's power generation and export revenue.

Punatsangchhu-I remains under construction. Dam work has been halted since 2019 due to unresolved geological issues on the right bank. According to the Ministry of Energy and Natural Resources, dam construction will resume only after a final authority-level review meeting, with the sequencing dependent on the completion of Punatsangchhu-II. As of early 2026, no firm revised completion date has been announced. When eventually completed, Punatsangchhu-I's 1,200 MW capacity will further strengthen the India-Bhutan electricity grid, though the economic returns will be diminished by the vastly increased costs and the years of debt service paid during the prolonged construction period.