Green tax, which the government introduced recently, will eventually lead to significant cost increases in the hydropower sector, which would run into millions. Given their size, hydropower projects use tremendous amount of fuel, which has heavy machinery and trucks working round the clock.
Ultimately when these hydropower projects are commissioned and they start selling electricity, tariff rates will be based on the cost of construction besides other indicators like depreciation, return on equity, interest payment and working capital.
The costs of construction of hydropower projects are already increasing as a result of inflation, which averages between 10 to 12 percent every year. Green tax will further increase the extent by which cost escalates every year. Green tax, in essence is thus artificial inflation.
Since electricity tariffs are determined by the cost of construction of a project, an increase in the cost of construction ultimately means an increase in the per unit cost of electricity which consumers both in Bhutan and India will have to bear.
So basically, average consumers like us today pay an additional Nu 3 a liter for fuel and consumers will also have to pay an additional price for electricity later, which has resulted because of green tax and its consequent impact on the cost of construction.
In short, consumers today are paying more for fuel creating a situation in which they will also have to pay more for electricity tomorrow.