Hydropower projects, a major player in the country’s economy, continue to face serious financial and management problems. Hydropower projects accounted for over Nu 8.2bn in audit irregularities classified as “errors” in the last financial year. According to the Royal Audit Authority, Punatsangchhu-II Hydroelectric Project alone was responsible for more than three-quarters of all such findings nationwide.
According to the audit, Punatsangchhu-II reported errors worth Nu 7.79bn, which is around 78 per cent of all audit irregularities across government and non-government agencies.
One of the main causes was the use of the wrong steel price indices to calculate escalation costs. This led to excess payments of over Nu 125 M to two contractors.
The audit noted that such pricing errors directly inflated project costs.
Punatsangchhu-I also faced several issues, with errors amounting to over Nu 378 M. The audit noted that the project made avoidable payments of over Nu 45 M after awarding contracts without ensuring that work sites were ready. This resulted in extended insurance and contract renewal payments.
Further, construction delays also caused materials to expire, leading to additional spending.
Another major concern raised by the audit was the slow recovery of excess payments. At Punatsangchhu-I, the delayed recovery of over Nu 506 M from a contractor caused an avoidable financial burden of approximately Nu 185 M.
The report pointed out weaknesses in accounting and record-keeping at the Mangdechhu Hydropower Project. Mangdechhu Hydropower Project recorded outstanding liabilities of more than Nu 445 M, mainly due to failures to update accounting records on time.
To address these problems, the RAA has recommended including interest clauses in future hydropower contracts, as delays in recovering excess payments without charging interest increase project costs and add to the loan burden.