STRATEGY FOR GROSS NATIONAL HAPPINESS (SGNH) Annexures to the Main Document (Sub Committee Reports) (Edited and compiled) Annexures to the Strategy for Gross National Happiness (SGNH) Table of Contents Part I. Innovation, Creativity and Enterprise (ICE 2008) ..................................................... 3 Track 1: High Value Manufacturing and Service Industries ....................................... 3 Organic food and beverages/ products .......................................................................................... 3 Floriculture industry ......................................................................................................................... 11 Water based industry ....................................................................................................................... 19 Non-Timber Forest Products ......................................................................................................... 23 Arts and Crafts Industries ............................................................................................................... 30 ICT and Media .................................................................................................................................... 34 Track 2: Revitalization of Agriculture, Forestry and Construction Industries60 Governance framework for optimizing agricultural land use .................................................. 60 Enhancing national food security ................................................................................................... 67 Revitalization of field crop enterprises ......................................................................................... 75 Revitalization of horticultural enterprises ................................................................................... 83 Revitalization of livestock enterprises .......................................................................................... 95 Revitalizing RNR Research and Extension Services .................................................................104 Revitalization of Agro Based Industries ......................................................................................113 Revitalization of Wood-Based Industries ...................................................................................117 Revitalization of the Construction Industry ..............................................................................123 Track 3: Hydropower ...............................................................................................................145 Part II. National Spatial Policy (NSP 2008) ............................................................................ 204 Part III. Strategic Infrastructure (SI 2008) ............................................................................. 222 Surface Transport............................................................................................................................222 Air Transport ...................................................................................................................................241 Part IV. Care and Relief for Everyone (CARE 2008) ......................................................... 254 Health.................................................................................................................................................254 Part V. Enabling Environment (EE 2008) ................................................................................ 265 Civil Service Reforms .....................................................................................................................265 Security, Immigration and Labour................................................................................................273 2 Annexures to the Strategy for Gross National Happiness (SGNH) Part I. Innovation, Creativity and Enterprise (ICE 2008) Track 1: High Value Manufacturing and Service Industries Organic food and beverages/products Background There is an increased awareness globally of health and environmental issues, and the sustainability of general agricultural practices adopted worldwide. These issues are of high importance especially in developing countries where there is huge potential of either having well balanced development plans based on sustainable farming and healthy economic growth, or of trading the natural resources for hastened economic growth. The global trend of increasing organic farming is a result of international communities becoming more conscious of these issues, and many government policies being formulated to support the growth of the organic sector and sustainable agriculture. More importantly, organic agriculture offers trade opportunities for farmers in the developing countries. Market Analysis Globally, the markets for organic products are growing rapidly and it is estimated at US$ 25 billion - US$ 30 billion annually. The biggest markets are the USA, followed by Germany, UK, France, Japan and Italy. In developed countries, the share of the organic products in total food sales exceeds 4% and in many of the bigger markets, the organic foods sales share is about 23%. In developing countries, this share is small but growing rapidly. The US and EU make up 95% of the world’s retail sales of organic food products. The growth in some market segments were as follows: Natural products Organic food Organic fresh meat and seafood Organic nutrition bars, beers, wines, and food service Organic pet food 9.1% 15.7% 67.4% 30% 37.4% Scope for organic farming in Bhutan Bhutan has a large rural population still practicing traditional farming due to the lack of access to facilities and technology. Farmers have been producing food crops simply using forest litter and farmyard manure (FYM). There is potential to increase productivity of these traditional farming systems by adopting organic farming, which include: development of farming systems applicable to the local soil, agro-climatic conditions and local crop species; crop rotation and intercropping; efficient production of vermi-compost and FYM from farm wastes and organic farming plant materials; and pest management with improved farming systems and the use of botanical and other natural formulations. Such practices could change farming from subsistence to sustainable, providing safe and quality nutrition and ensuring food security. Value could be added to surplus production to meet market requirements. India, which is the closest market for Bhutan, has huge potential for organic production as well as a decent domestic market. The upper-middle and upper class Indians with disposable income will be the main consumers to be targeted. The Indian organic market segment to watch out by importance would be as below1: 1 Garibay and Jyoti, 2003 3 Annexures to the Strategy for Gross National Happiness (SGNH) Products Vegetables Fruits Spices Rice Pulses Tea Wheat Baby food Herbal extracts Edible oil Importance 70% 52% 27% 24% 16% 11% 8% 8% 2% 2% There is good potential to develop the organic fresh fruit and vegetable market as the market segment seems wider with 400 tons traded in 2002, but by premium indication, tea is the most important product for which Bhutan has no comparative advantage over India currently. However, the development of organic specialty teas could have potential. Pulses and minor cereals may be the other option. With the volumes Bhutan will be producing initially and the poor logistic organizations, regional markets like India, Bangladesh, Thailand and Singapore may be the potential markets to start. The Singapore and Thailand markets demand closer study as Singapore has an import based food industry with a population with high disposable incomes and a strong food culture with diversity in menu. Singapore is also a trade centre where many products are imported to be re-exported. The Japanese market is very lucrative and is the biggest Asian organic market with high demand and strong purchasing power combined with low domestic supply, reflecting a growth rate of 20% annually. The most commonly imported organic products are soy bean, frozen vegetables, herbal teas and bananas. Japanese organic food and beverage retail sales were estimated at US$ 2.5-3 billion in 2001 with US$ 360 million worth being imported in 2000. The Japanese Integrated Market Institute predicts that imports of organic products will grow by 40%. Future of Bhutanese organic farming Bhutan’s less than 7.8% arable land, low technology and skill levels and inadequate human resources make farming to optimum capacity of the land unlikely. Further, with rural - urban migration taking place, the farming population will continue to reduce thus making farming a greater challenge. With Bhutan soon to become a member of WTO, farming may no longer be economical and the flooding of markets with cheap imports will further discourage farming. Besides, the high labour costs in Bhutan constrain us from competing with our neighbours. The only way Bhutan can continue to farm economically then will be to distinguish Bhutanese products from others and market the uniqueness of the production systems and market high value low volume products where Bhutan has an advantage. There may be concerns that converting to organic farming results in reduced yields and quality. From research in the west which has optimized inputs and yields, there are reports of up to 40% reduction. However, in countries like Bhutan, where there is little or no external inputs such as agrochemicals, there is little difference in yield in most crops except for a few cash crops like apple, citrus and potato. Assuming that there is 20% yield reduction during the conversion period from conventional to organic practices, the benefits from organic farming, 4 Annexures to the Strategy for Gross National Happiness (SGNH) if export markets can be linked to producers, will offset any yield reduction and increased production costs due to intensive management. Organic markets and products for Bhutan Based on a prescribed set of criteria (current husbandry practices, logistics, post harvest preservation need, and price and premium), the following crops have been selected for organic development: Some vegetables Culinary herbs Medicinal, aromatic and dye plants Honey Buckwheat Red rice Enabling environment for the growth of organic industry For any industry to start, grow and take root, the basic infrastructure to support that industry needs to be in place supported by enabling policies that promote that industry. For the organic industry, one can look at it from two angles: firstly, from the health, environment and sustainability angle; and secondly, from the market angle to achieve economic growth and revenue earnings for the country. While both are important, the approach to achieve the goal and the path one chooses will be different if an overarching priority is not clear. With Bhutan’s natural potential and the growing global demand for organic food, it is a great opportunity to invest in the development of organics in the country in a phase-wise manner starting from easily produced products that have high market value and eventually convert all possible areas by proactively linking production to market. While a market led development is very important to kick-start the export oriented industry for organic food and beverages, one should not underestimate the need for a government-led holistic integrated development of the industry as the nature of farming system in Bhutan is such that crops, animals, forests, etc. cannot be separated. Private sector involvement Private sector should be involved from the start to build a network of operators who can immediately pick up the trading between the producer groups and the markets. They should have the opportunity to avail of required exposure and participation through trade fairs, expos, study tours and also training in business management. The government should facilitate the operation of innovative businesses that venture into organic production, processing and trading through technical and policy support. Organic standards and certification If export markets are to be targeted and production initiated based on market linkages, certification will be a requirement. Bhutan should develop a National Organic Standard based on the Codex Alimentarius minimum requirements and institute a system of regulation that covers certification issues including the operation of external certifiers in Bhutan. The standards could be voluntary to start with and made mandatory when the time and industry is mature. As it can take anywhere from one year (for wild collected) to five years (conventional soil) with an average of three years to get a certificate, it is recommended that as soon as a market lead is found and it has indications for organic certification requirements, conversion 5 Annexures to the Strategy for Gross National Happiness (SGNH) to such certification should be started. In the meantime, Bhutan should sell the clean green image and build a brand for organic produce from Bhutan based on the origin of the material. This should be backed by the government not only through legislation but also in its marketing and promotion. In the short term, to cut certification costs, a team of inspectors from BAFRA should be trained as qualified organic inspectors for foreign certifying agencies. Limitations to production The overarching issue is the loss of crops to wild life. If the issue of wild life crop depredation is not addressed, all efforts to assist farming will be in vain and resources might as well be diverted elsewhere. Licensed gaming might be an option here. Any industry should have the backing and support with strong research and development programmes institutionalized in the system. Organic farming will also require it, more so as the technical skills, knowledge and information relevant to Bhutan is almost nonexistent. There is need for a well-structured, well equipped and adequate number of well trained staff to carry out the research and develop technology in production, processing, packaging, etc. Technical experts should be brought in immediately to train and build capacity within the Bhutanese. The extension staffs currently posted around the country are all trained to deliver services according to conventional farming. They will need to be retrained to offer organic advisory as well and to guide farmers in a positive manner. The small, fragmented and unproductive holdings are a challenge for economic production in most areas in Bhutan. This condition coupled with low availability of working population in the far-flung rural regions poses an up hill task for any market-oriented production. Poor road network and transport facilities add to the hardship of bringing produce to the market. If less than 8% of the land has to provide employment to 70% of the population and feed the nation, there is the need to reassess current land classification and capacity and to consider reallocation of productive land to farmers considering the need to conserve the agricultural landscape which is very important for tourism as well. Keeping in mind that organic farming will be competing for the same area of arable land as that for the conventional production of food, only selected niche crops that have low volume and high market value will have potential for export. Marketing in any form in Bhutan is very weak and especially for agricultural produce. Organic produce needs active and aggressive promotion along with quality and reliable marketing system. Market research and marketing efforts in MoA targeted to promote organic production needs to be stepped up. Policy issues that need to be addressed in regard to land for any farming Lack of legal framework on land The revised Land Act will have to be reinforced through a national policy on land that provides broad guidelines along which Acts, rules and regulation are made. Usually Acts legalize guidelines but in this case there is no framework on land to be legalized so the Act may cause more confusion and uncoordinated development in the country, which the proposed National Spatial Act will hopefully address. 6 Annexures to the Strategy for Gross National Happiness (SGNH) Excess horticultural land With most households in Bhutan owning less than 2 acres, there is the issue of equitable land distribution which enables the people to engage in some productive income generation of food producing work. While a small minority own land in huge excess of the land ceiling through innovative management, there is a large number of population who have land especially in horticultural production which are in excess of their ownership but by marginal areas. In such cases, the farmers should be allowed to buy excess land to be used productively but with a ceiling on the total land owned. Land with overgrown trees Many people have lost land to the forest due to overgrown trees. A survey by DoA found that a total of around 11,000 acres of agricultural land is lost as forest land according to the Forest Rules. There are cases where paddy fields are included in the forest land under this rule and reverted back to national forest. The farmers are being penalized under this legislation instead of being rewarded for their conservation efforts. Illegal orchards in national forests, cardamom and citrus There is considerable area of land under citrus and cardamom cultivation in national forest land in the warm temperate and sub-tropical areas of Bhutan. Due to legal land title issues, many orchards are abandoned or not managed and are acting as sources of disease and pests. These are very important cash crops that earn the first and third position by value from exports. There is immense potential to improve and manage the production, and in the case of cardamom, expand production in other possible areas as this is a high value niche crop that Bhutan has potential to develop without too much competition. Since cardamom is mostly grown organically, this is a very important crop that needs immediate attention. A study needs to be conducted to validate the situation of cardamom. Policy specific to organic agriculture MoA has decided that organic farming will be the way all farming systems should be adopted and has developed and endorsed a National Framework for Organic Farming in Bhutan. Such a move was taken considering the potential of the country, the nature of farming practices and farming population, the growing global market for organic food and environmental benefits that can result from agrochemical free farming. The vision stated in the document now needs to be adopted at the national level in order to reach the goal and realize the end result. After adoption at the national level, all of MoA’s plans should be developed in order to achieve the common goal of moving towards making the country organic. Strategy “To be an internationally recognized producer of organic foods by 2028”. Becoming a net exporter of quality organic products Ensuring sustainable domestic market Given below is an extract from the document, National Framework for Organic Farming in Bhutan by DoA, stating the vision and broad strategies. To start development of the organic production for this project which needs an economically lucrative angle, focus could be given to the strategies numbers 2 and 3 which are market and profit driven and which also roughly matches with the economic hubs and growth centers where most market opportunities will grow. 7 Annexures to the Strategy for Gross National Happiness (SGNH) Vision In the long term Bhutan strives to develop and promote organic farming as a way of life among Bhutanese farmers and trade in organic food items, to enhance nutrition, health and farm household income, and to become a net exporter of organic agricultural products. Bhutan envisions to become ‘Organic’ before 2020. Mission To develop and promote Organic Farming and environmentally friendly farming systems and programmes that will enable Bhutanese farmers and traders to provide safe, quality food, produce and products for Bhutanese consumers and other markets. Broad Strategy A three pronged strategic approach will be adopted to cover potential development areas. 1. Subsistence farming for sustainable poverty alleviation strategy in rural areas which are untouched by agrochemicals to be self sufficient for their needs. Market and price will not be a priority and conditions for this group. Food security Nutrition Food diversity Income generation Improving productivity 2. Land use & existing farming practices for development which have need for environmental protection, and appropriate farming systems supporting conservation. Market and prices will be important. Harness the natural potential Attention given to environmental conditions and resource management Improve and develop production for requirement and potential market- possibility of branding and marketing the locality Specific selected areas which have natural potential 3. Commodity approach for niche products mainly targeted for local and international market. This section will be open to any selected potential production areas where market prices can economically cover related costs. Foreign investments and contract growing for assured markets. Market and prices will lead this section. Production of high value low volume crops Contract growing with requirement of certification in selected suitable areas What to grow If selected niche products are picked with assured market linkage such as contract growing, the potential is huge to kick start the organic industry. This would be best taken up by the private sector but assisted by the government with technical backstopping and necessary market information. The organic production should start with easy-to-grow crops that are grown with natural traditional practices or with very little agrochemicals. The short list of potential crops is given according to its cost of production following organic and non-organic practices where possible. While there may be potential to produce all products, one has to bear in mind that limitations to production be they technical, financial, 8 Annexures to the Strategy for Gross National Happiness (SGNH) organizational and above all, market information for an established or assured market will be key to the growth of organic production in the country. As much as possible, it is desirable to allow FDI in this sector as the interest, responsibility and accountability of success is shared and the risk factor to farmers involved is reduced. If this is not permitted, then the possibility of using contract production, whereby the importer pays for the certification if required, should be explored. A suggestion of how production clusters could start based on production capacity of the Dzongkhags and how infrastructure developments could be prioritized is given below. Organic Crop Cluster S/ N Regional Cluster Centre Dzongkhags 1 Paro Ha Paro (Lingzhi) 2 Paro Gasa Wangdue Punakha 3 Sarpang (Gelephu) 4 Mongar 5 Sarpang (Gelephu) Tsirang Dagana Zhemgang Bumthang Trongsa Sarpang Mongar Lhuentse Trashigang Trashiyangtse Samdrupjongkhar Pema Gatshel Chhukha Samtse Potential Organic Crops Asparagus Beans Buckwheat Barley Vegetables Medicinal plants Asparagus Carrots Garlic Onion Vegetables Cardamom Ginger Buckwheat Barley Citrus Produce/products for export 10th Plan Subsequent period FYP period Asparagus Vegetables; Beans Value added products. Buckwheat Barley; Medicinal plants. Asparagus Carrots, Garlic. Onion; Vegetables; Value added products. Ginger Cardamom; Citrus; Value added products. Buckwheat; Barley Vegetables; Garlic; Onion; Value added products. Maize; Oats Citrus; Value added products. Wheat; Millets Maize Garlic Onion Oats Vegetables Ginger Cardamom Wheat Millets Citrus Processing/ value addition Ginger; Cardamo m Supply chain management Major players in the supply chain management include producers, processors, traders, and the government. The farmers will be the primary producers of organic foods with each Dzongkhag specializing in specific crop production. Considering the small landholdings of the farmers, farmer cooperatives will be formed to make up the volume and to maximize economic returns of the crop growers. To facilitate farmers to market their products, three Regional Cluster Centres (RCCs) supported by 19 Dzongkhag Cluster Centres (DCCs) will be established for collection/distribution of organic produce from the nearby areas. The 9 Annexures to the Strategy for Gross National Happiness (SGNH) proposed locations of the RCC are Paro for the western region, Sarpang (Gelephu) for the central region, and Mongar for the eastern region. As far as possible, the locations of the RCC and DCC are being proposed based either on their close proximity to already earmarked urban hubs or on the ongoing programme on integrated food processing plant (IFPP) of the MoA. In addition to providing essential services required by farmers for organic farming, each cluster centre is expected to serve as a commercial hub for the organic food industry at both Dzongkhag and regional levels. A range of micro and small scale businesses including ICT kiosk, retailing shops, agro processing, packaging, transportation, and other service related centres will be housed in each centre generating ample employment opportunities in the community. The DCC will be the collection point for all organic produce from various gewogs at the Dzongkhag level, which will be transported to the RCC. Each DCC must have the following facilities: General storage/cold storage for farmers to store their produce; Grading and packing facilities; Refrigerated vans Transport coordinator; Dealer/cooperative office, Post office; Banking facilities where farmers and traders can easily transact their money Information centre with internet, fax, and telephone facilities where farmers can have access to essential information such as market situation, prices of their products, weather information, etc. Extension of regional technical advisory service centre for soil and plant analysis, certification of produce, etc; Retail shop. Basic facilities to be established at each Regional Cluster Centre include: Cold storage/general storage facilities for farmers to store perishable organic goods. Refrigerated vans. Information centre with internet, fax, and telephone facilities where farmers can have access to essential information such as market situation, prices of their products, weather information, etc. Banking facilities where farmers and traders can easily transact their money. Logistical service centre that arranges supplies of organic farm inputs, hiring of farm tools/equipment, transport coordination, etc. Technical advisory service centre for soil and plant analysis, certification of produce, etc. Post offices, fuel station, parking space, dealer’s office. Processing/value addition industries. Place for farmers to sell their products and buy households essentials. The bulk of the produce collected at the regional level will be transported to the nearest airport for export to the designated countries. Till the second airport is built, goods from all three regions will have to be routed through the Paro Airport. The RCCs and the DCCs will also serve as central agents for supplying organic foods to the hotels, hospitals, schools, and training institutes within the respective regions and the Dzongkhags. 10 Annexures to the Strategy for Gross National Happiness (SGNH) Floriculture industry Background The mountainous ecosystem of Bhutan has bestowed it with great diversity in ecological conditions which have led to the great diversity in both flora and fauna that Bhutan is known for. In terms of floricultural production, it means an ideal opportunity for harnessing the unique environmental production potentials for specialized floricultural crops under specific ecological conditions. This will mean sourcing, through research and development, appropriate floricultural crops (in terms of market opportunities of the floriculture crop under development and production potential of the crop in terms of altitudinal range that the crop can be cultivated without compromising the total yield and quality) for specific ecological zones and also looking into the potential and possibilities of developing our native floriculture crop for specific markets. Thus far, the floriculture potential in Bhutan is untapped and under developed. However, the market for floricultural crops outside Bhutan is insatiable. Global and regional demand for specialized flowers like cut flowers and ornamental plants is ever growing. This implies that market penetration, both in international and regional markets, through strategic planning will be imperative. For instance, promoting Foreign Direct Investment (FDI) and commercial floriculture combined with small-scale production will enhance the market penetration. The domestic market for many flowers is growing and this trend could be expected to grow as our economy progresses and as multinational companies begin to invest in Bhutan. Besides the economic benefit, promotion of floriculture industry in Bhutan will contribute immensely to our goals of environmental conservation and providing employment. The Buddhist values of conservation and protection must be embedded into the program of floriculture industry promotion so as to promote the culture of respect for our environment. The proper promotion and establishment of floriculture in the country will not only contribute to the aesthetic value of the country but will also support, in terms of species conservation and diversification, employment generation and earnings through export. Situation Analysis Increasing productivity of agriculture through diversification and increased market access to raise the living standards of the rural people is a growing concern in Bhutan. Encouraging floriculture could be one of the ways to diversify agriculture as floriculture in most parts of the world is a thriving and dynamic part of production agriculture. It can be characterized as a sector experiencing rapid changes. In Bhutan, the idea of floriculture as an industry has just begun and a few nurseries have sprung up in Thimphu and Phuentsholing. Floriculture, as an industry, is yet to take off but considering the favourable climate and the abundance of native and rare flowers, it can be assumed without doubt that floriculture in Bhutan can be viewed as a high growth industry. Commercial floriculture can become important from the export angle. However, the government intervention in this area thus far has been gray and neither strategies nor developmental plans have been drawn up to initiate floriculture as an industry. There exist also no specific regulations or Acts covering this industry, though certain regulations do apply to imports. No quarantine requirements have been developed for export. With regards to research and development of the industry, no priority has been accorded to the industry though one researcher has been stationed at RNR-RC Yusipang. Annual planning workshops on horticulture are held every year, but floriculture, as a subject, is yet to gain any attention. 11 Annexures to the Strategy for Gross National Happiness (SGNH) Market perspectives All over the world, the floricultural sector is experiencing rapid changes. With globalization (WTO) and its effect on income development in the different regions of the world, there is a growing per capita consumption in most countries. At the same time competition is increasing. a. World market The world export market for flowers is valued at US$10 billion per annum and is growing at 6% - 9% each year. The Netherlands is the world’s largest exporter of flowers, accounting for 60% of international trade. The most important flower traded in the international market is still the Rose. However, other flowers like Chrysanthemum, Carnation, Gerbera, Dahlia, Poinsettia, Orchids, Lily, etc. are also marketed in large quantities in the major markets of the world. b. Regional market In the region, India is the largest flower market. The domestic market value for cut flowers in India stands at about Rs. 300 crore and its export value is about Rs. 100 crore. Cut flowers still dominate the world as well as regional markets and rose is the most traded flower. c. Local market The coming up of few nurseries clearly indicates that there does exist a domestic market for floriculture in Bhutan. More and more people are getting interested in setting up gardens and decorating the interiors of their houses to give a green touch. Besides the local nurseries, consumers often bring in ornamental plants from the neighbouring town of Jaigaon and there are also instances of people importing flowers all the way from Bangkok. The use of cut flowers and ornamental plants has also gained a place in landscaping and interior decorations during government functions, weddings and promotions. Though the value of flowers in the domestic market is not known, it can be assumed that there is a growing demand for flowers in the country. Floriculture potential of Bhutan The diverse agro-ecological conditions in Bhutan make the country suitable for the cultivation of a wide variety of flowers, which have market potential. Some of the flowers that can be promoted and cultivated for export are listed in the following table. Flower Types Bulb/Seed Cut flower Ornamental/ Pot Ornamental/ Foliage Dried Orchids Gladioli Chrysanthemum Carnations Gerbera Roses (long stemmed) Dahlia Dracaena Lilium Tulips Rhododendron The prospects for some of the important group of floriculture products in the order of market potentials and importance are as mentioned below: 12 Annexures to the Strategy for Gross National Happiness (SGNH) Flower seeds: Seasonal flowers are in demand all over the world and the climatic conditions do favour seed production in Bhutan. Micro-propagation could be a useful technique in largescale production of flower seeds/seedlings and as we do not have expertise in micropropagation, collaboration with international renowned institutes/ companies should be encouraged. Some of the promising planting materials for export would be gladioli, liliums, tulips, liatris, etc. and even blue poppy. Dried flowers and plants: The most promising area in floriculture is in dried flowers. Dried flower technology is still an unknown art. In the world flower industry, cut flower business, dried flower technology and rare pot plants are the driving force, and it is growing each day. The export value of dried flowers from India is about Rs 100 crore per year. Dried flower and plants are popular due to the non-perishability of the produce and are in high demand in the US and UK markets. All kinds of flowers and plants can be dried and preserved in various forms. This is one area that Bhutan should focus on as wild flowers are bountiful and materials can be collected from the natural forests, dried and marketed. Higher income can be generated through value added products like potpourris, collages, cards, decorations, etc. There may not be domestic market for dried flowers and plants but there definitely is market for such produce in Japan, Germany, USA, Netherlands, UK and Italy. Floral extracts: There is a growing demand for natural extracts in the world market. Though a wide range of synthetic aroma chemicals and reconstituted essential oils are available in the market, the demand is more for the expensive natural products. Floral extracts could also pave its way in the domestic market with bigger hotels and spas catering to tourists. Bhutan could be made known for the use of natural extracts in the spas that are to come up in the future. Another area for floral extracts is the cultivation of saffron which is widely used as a food colouring agent and aromatic plant in India and most countries in Asia. This is a low volume high value flower. Other floriculture related services: With the Bhutanese society already developing a taste for flowers, as is evident from the imports from Thailand and India, there could be a new dimension to the use of ornamental plants in Bhutan. Hiring out and rental for interior decoration of homes and offices especially during promotions, weddings, banquets and other governmental functions could create a good domestic market. Ornamental trees: Christmas celebration is becoming an important festival even in nonChristian countries and the demand for Christmas trees is on the increase. There should be a large population of high and middle income Christians in Kolkata and it would be worth investing in Christmas trees as such tree species are fast growing. Ornamental plants: refer mostly to potted plants used for a “touch of green” in places where they have little or no open space for gardening. The plants used as ornaments are foliage plants or green plants where the leaves provide the decorative value. Cultivars of ficus, dracaena, dieffenbachia, aglanomea, philodendron, monstera, calathea, cordyline, aralia, etc. are the popular ornamental plants. Cut flowers: The modern day cut flowers refer to the stem used for decoration purposes in arrangements, bouquets, etc. Bhutan, at the present moment, may not be able to compete with other countries but can make a small beginning. With increasing incomes, one has noticed a definite change in consumer behaviour in the country. The small florists in Thimphu say that there is a growing demand for flowers and definitely a scope for a thriving domestic 13 Annexures to the Strategy for Gross National Happiness (SGNH) market. Laying of khadar as a wreath is an age old tradition in Bhutan and there can definitely be a paradigm shift from the “khadar” culture to a flower culture. Enabling conditions The regional market is enormous and Bhutan is well connected to these markets through Druk Air and can deliver flowers there in the shortest possible time. Tissue culture forms an important part in floriculture and for that, the country already has tissue culture laboratories at Druk Seed Corporation (DSC) in Paro and at RNR-RC Yusipang. These facilities can be used for research and micro propagation of certain flowers and orchids. However, the lab at Yusipang would require up-gradation. Owing to the vast flora that the country is endowed with, there are opportunities for the development of native flora for domestic and export markets. Good road linkage exists between Phuentsholing and Kolkata for surface transportation and flowers can still be delivered in their fresh form provided refrigerated vans are made available. Free trade between Bhutan and India. Interest of foreign companies to invest in the field of floriculture in Bhutan. Challenges Despite a bright future in floriculture, there are a number of challenges which, if not addressed, can hinder the promotion of a floriculture industry in the country. Some of the challenges that the country faces are: Institutional strength – HRD, Infrastructure facilities and linkages Underdeveloped certification system Underdeveloped domestic market High labour cost and unavailability High interest rate of loans Need for development of transportation and storage system to cater to floriculture industry Competition (Bhutan will face high competition from West Bengal where about 58,000 tonnes of flowers are grown in about 10,000 hectares of land). Increasing national coordination in the industry to maximize the effectiveness of marketing promotion in export markets. Ensuring the availability of skilled labour during harvesting. Processing is labour intensive and vital for product quality. Strategies for the establishment of a Floriculture Industry Floriculture can be expected to thrive in Bhutan and be one of the major important export commodities. Besides the international and regional markets, there is also a growing demand for flowers and other decorative plants in the domestic market with increase in income and change in taste. Bhutan too can take active part as a supplier of flowers through active participation in the world market. The cost benefit analysis for a small-scale floriculture with one green house shows positive cash benefits from the second year onwards and with increasing net profit cash ratio from the second year onwards. This is, however, based on the assumption that our growers have the required skills and technology. In order to generate such profits and overcome the constraints in the setting up and smooth functioning of floriculture industry, the following strategies would have to be followed to begin with: 14 Annexures to the Strategy for Gross National Happiness (SGNH) Floriculture promotion Floriculture can be promoted as a business enterprise and not necessarily connected to agriculture. When it comes to the actual promotion of floriculture, small, medium and commercial growers should be encouraged in parallel. Large scale or commercial growers should be encouraged amongst the business corporations, as it can be capital intensive. FDI must be invited to invest and work in collaboration with the large-scale growers. Encouraging FDI would assist in keeping up with the need for modern technologies, the skills required, post harvest technologies, infrastructure requirement and a ready market. However, the minimum investment required for FDI under the current FDI Policy is US$1 million and if FDI is to be invited for floriculture then this needs to be reviewed. The small and medium scale growers can serve as satellite farms for the large-scale growers to ease marketing, through a strong legal contract to ensure the smooth flow of business. a. Institutional development and policy support As floriculture is a new industry in the country, there would initially be plenty of hurdles especially in the form of technical skill and investment. The first and the foremost requirement would be developing an institutional set up that would be responsible for research, development and technological backstopping. Floriculture and landscaping can be instituted as a division under the DoA to carry out the research and developmental activities related to floriculture. Human Resource Development would be a key component. A subject matter specialist has to be put in place to coordinate the floriculture activities at the national level followed by lead researchers in each of the growing zones. Floriculture should be included in the curriculum and taught as a core subject in the Natural Resources College at Lobesa and should also be featured as an alternative course in the Rural Development Training Institute (RDTI) where school dropouts are trained in the field of agriculture and livestock. The existing School Agriculture Programme (SAP) should also incorporate floriculture as one of the sub-programmes to inculcate and develop a culture for flowers in the country. Government support would be needed for the establishment of modern floriculture demonstration plots at the existing RNR-RCs and Sub-centres. These plots can serve as the focal units for regional development of floriculture. This means that a floriculture programme should be established in each of the research centres and their mandate should be the transfer of technologies through on farm/on-station demonstration and training. b. Institutional support for infrastructure development Floriculture can only be started with heavy investment in production infrastructure including green houses, net houses, good irrigation and drainage, post harvest infrastructure including pre-cooling and cold storage, and refrigerated vans. Upon investment on these, the turnover is not immediate as there is a gestation period and the risks involved are high. The government could consider some subsidy for investment in floriculture development. The existing tissue culture laboratories with DSC and RNR-RC Yusipang should be upgraded to support the floriculture industry. This would help in seedling production required by the growers while at the same time promote the efficient use of the laboratories. Another area for infrastructure development is the establishment of flower gardens showcasing both endemic and exotic flower and ornamental tree species. Such a venture would create a flower consumption culture and thereby lead to a domestic market in the country. With the country promoting tourism, these gardens could also be a tourist attraction. The gardens should have controlled atmosphere growing conditions such as glass 15 Annexures to the Strategy for Gross National Happiness (SGNH) and poly houses to have flowers and foliage throughout the year. Such activities should be taken up by the Department of Tourism (DoT) in collaboration with City Corporation and Ministry of Agriculture. c. Market development The Post Harvest Unit and the Agricultural Marketing Section (AMS) of the MoA must play an important role in the floriculture industry of Bhutan. The basic requirement for market includes sustainable and regular product availability with consistent quality and adequate quantity. To improve market conduct and performance we should assure the provision of improved information to participants on market prices and other market information through newspapers, radio or television. The second is the regulatory function of setting and enforcing quality standards, weights and measures, and hygiene regulations. The third is the provision of marketing facilities such as collection centres equipped with cold storage, cooling room, certification, etc. Besides the collection centers, the other marketing environment to be created are: Cold storage facilities at the airport Facilities for custom check, cold storage and phyto-sanitary checks Providing access for local growers to outside markets where they can get suitable returns on the flowers/planting materials etc. Co-operatives should be encouraged amongst the small and medium growers to enhance volume and economies of scale. This would also ensure group pressure on the quality and quantity of produce. The Co-operatives Act is already in place and is favourable for the establishment of small co-operatives. Only the rules and regulations of the Act have not been drawn up as yet and should be done immediately. The AMS of MoA needs to include, in its mandates, support to farmer group organizations/associations/co-operatives. The Department of Trade, MEA, also has export marketing section under their Trade Development Office. Greater coordination between these two organizations is required so as to avoid duplication of work and waste of resources. Delhi is the largest flower market in Asia and the major supply comes from Kolkata. Therefore, prior to the establishment of the floriculture industry, AMS must study the regional market demand for cut flowers, ornamental plants, seeds and bulbs, dry flowers, quality and the standard required. At the same time the Marketing Liaison Officer based in Dhaka should also explore the possibilities of expanding our flower markets in Bangladesh. The information then should be disseminated to the interested growers for proper planning of production. d. Inventory of potential flower and ornamental tree species It would be necessary to identify exotic flower species as well as native (endemic) species that are suitable for commercial production in the country. An inventory of the different flower species available in the country that can be domesticated as well as exotic flowers that can be grown for export in the country needs to be carried out. The floriculture researchers in RC Yusipang should start this activity immediately as it would facilitate the starting up of the industry. Native or wild flowers is another area that has potential in the world market. Native wild flowers can be included in many planting schemes as a way of increasing biodiversity. Considering the vast flora available in the country, possibilities of domesticating wild flowers 16 Annexures to the Strategy for Gross National Happiness (SGNH) for export must be looked into. Domestication involving genetic improvement and intensive cultural practices can improve efficiency in production. It has been the experience in many parts of the world that once a product achieves commercial importance, its supply from wild sources tends to be replaced by cultivated sources with a view to bringing production, quality and costs under control. Blue poppy, the national flower of Bhutan, though conserved in Bhutan, is available in the world market. Therefore, possibilities of collecting blue poppy seeds from the wild and domesticating for export must be looked into. The Forestry Rules may not allow plants to be removed from the wild but obtaining of seeds and bulbs from the wild should be allowed in a sustainable manner. When domesticating, the selection of species should provide site-specific solutions or advantages, e.g. the plant should be able to produce high unit value product. e. Zoning of production areas for sustainable economic development The natural conditions vary significantly across the country and various flower production types and ecosystems can be developed in different regions. The zone of flower production agro-ecosystem is a multiple component complex that consists of the environment, flora and fauna, social and economic systems in a geographical area and functions as an ordered and structured integration. The growing areas would have to be concentrated in and around the growth center/economic hubs and for each hub, the flower crops suitable for that particular area must be identified. Zoning of production areas Best locations Size of Potential For Investments High altitude -Suitable climate for seed (Haa, Bumthang) and bulb production Paro Thimphu Southern belt - Suitable climate for commercial seasonal flower, seed and bulb production. - Has great potential for the establishment of commercial farms - Ideal climate for the domestication of wild flowers Suitable climate for commercial seasonal flower production Ideal climate for the domestication of wild flowers The climate of southern belt provide ideal conditions for sub-tropical commercial flower production 17 Available Infrastructure The distance from airports would not make a big difference as seed and bulb have longer shelf life. Certification can be done in the production areas as all Dzongkhags have BAFRA officials posted. Easy access to export routes by air through the Paro International Airport. Existing infrastructure for post harvest in Paro. Support from Druk Seed Corporation. Only 1.5 hours drive to Paro International Airport. Has potential for both fresh and dry flower production Large arable lands suitable for sub- tropical and tropical flower production. Will have easy access to routes by Air once the International Airport at Gelephu comes through. Closer to markets in Siliguri and Kolkata. Annexures to the Strategy for Gross National Happiness (SGNH) f. Quality control and certification Setting up quality standards is very important to position products in the market. The produce should be able to satisfy the conditions of the market for which it is destined. This implies the necessity to establish, as a matter of policy, the grade and quality from the onset. Strict compliance to grading standards is in the mutual interest of the industry and to individual growers. Reliability and consistency in quality standards are essential to a good reputation and ability to secure premium prices. Therefore, right from the outset, growers must be conscious about the quality of the produce so that we can set a good image of our flowers in the market and thus create a demand for our flowers in the international market. Some of the requirements for export of floriculture are: Phyto-sanitary certificate CITES convention documents for orchids and wild plants BAFRA should be the lead agency in setting the standards and certification procedures. 18 Annexures to the Strategy for Gross National Happiness (SGNH) Water based industry Background Water sources The snow capped mountains in the north and sub surface water flow collected from seasonal rainfall are two major sources of water for the river systems in Bhutan. There are four major river basins that drain their water into the Indian plains: the Amo Chhu that drains out as the Toorsa river originates in the southern part of the Tibetan Plateau while the Haa Chhu, the Pa Chhu and the Thim Chhu originate in the high glacial mountains of the western region and drains into the Wang Chhu providing water for the Chhukha and Tala Hydropower plants. The Wang Chhu basin lies between Tego La range in the west and Dochu La range in the east. Between Dochu La and Pele La ranges lies the Punatsangchhu Chhu basin. This river has the highest probability of increasing its volume through the outburst of glacial lakes like the Lugi Tsho, Thorthomi Tsho and Rapten Tsho in the higher reaches of Lunana. The Mangde Chhu, Chamkhar Chhu, Kuri and Drangmeri all drain into the Manas and are separated by Yotong La, Thrumshing La and Kori La respectively. Kuri and Drangmeri have their origins in the Tibetan plateau. Current utilization The volume of water in these rivers fluctuates with the peak flow being during the monsoon season from July through September. Most of these rivers flow through deep and narrow valleys making it difficult to tap them for uses other than hydropower. It is only in the Wang Chhu and the Punatsang Chhu basins where a small portion of the water is being tapped for agricultural purposes, before reaching the major knick points. Irrigation for rice is the main need that competes with water requirement of hydropower generation. This is not a big problem in Bhutan since maximum water requirement for paddy coincides with the peak monsoon season. A small fraction of fresh water is bottled by the Bhutan Agro Industries in Thimphu2. An initiative has been also taken to bottle the clean spring water at Thinleygang under Thimphu Dzongkhag. Aside from this minor utilization in agriculture and hydropower generation, the value of the fresh water for social recreation, hydrotherapy, and big industrial uses are not tapped as yet for economic gains. Potential Numerous springs, streams and rivers provide water for irrigation, human consumption, hydropower generation and in some areas, for industrial use before it drains out into the Indian plains. The country is also known for its hot springs (tshachhus), hot stone baths (menchhus) and clean spring water (drupchhus) for consumption. The local residents use these hot springs as part of their traditional treatment for diseases and physical ailments. The well known hot springs in high demand are found in Gasa, Punakha, Lunana, Bumthang, Gelephu, Zhemgang and Trongsa (not functional) Dzongkhags. There are also a number of hot stone baths using spring water in various places that are popularly used by the locals for healing purposes including rest and restoration. This brief information suggests that the utilization of these water sites is only known to local residents and no government initiatives have been taken to maximize its use for commercial purposes thus far. Priority areas of investment in the Water Industry A number of economic investment areas can be suggested ranging from social recreation (white water rafting/kayaking), hydrotherapy (developing Tshachhus and Menchhus), bottling spring water to exploration of geothermal energy from hot springs and hydrogen fuel from 2 Production increased from 846,724 in 2004 to 1,466,676 liters in 2006 19 Annexures to the Strategy for Gross National Happiness (SGNH) water molecules. The immediate area of investment is focused on bottling of clean spring water that is available in abundance across the country although there is a potential of developing rivers/lakes for social recreation and the local tshachhus and menchhus for hydrotherapy. The local people believe these clean spring waters have medicinal values. The chemical analysis of this water from selected sites indicates that the mineral compositions are comparable to the bottled water sold in developed countries. Global market trends Bottled water has been one of the most dynamic beverage categories over the last five to ten years. Global bottled water consumption is estimated to have approached 41.1 billion gallons in 20043. The global rate of consumption is estimated to have grown by 6.5% in 2004. Per capita consumption was 6.4 gallons, up three-tenths of a gallon from 2003’s 6.1 gallons. Several Western European countries have per capita consumption levels of well over 25 gallons, but much of the developing world, where the bulk of the world’s population lies, finds its per capita consumption figures still in the low single-digit range. The sales for bottled water are estimated to be between US$ 50 and US$ 100 billion and increasing 7 to 10 percent annually. In 2004, total sales were approximately 154 billion liters. Fastest growing industry In developed countries, bottled water has become the fastest growing and most dynamic major beverage category due to growing health and well-being consciousness among consumers. This increased health awareness has helped position bottled water as an alternative not only to tap water but as an alternative to carbonated soft drinks and juice drinks, in the multiple beverage marketplace. In developing countries, demand is driven by factors including the lack of potable groundwater in many areas, the lack of reliable or safe municipal water in urban areas, chemical and organic pollution of ground and well water, and convenience relative to boiling or otherwise treating accessible but potentially contaminated water. Market trends in India India’s consumption figure for 2004 is estimated at 5.1 billion liters (2004). The Indian bottled water market is said to be growing at 55% annually fuelled by factors like growing population, rapid urbanization, income growth, increased health consciousness, deteriorating water quality, pollution, etc. A large number of players including Coke, Pepsi and Evian are already in the market. Recent controversy over pesticide content in some of the beverages has hit Coke and Pepsi hard, in some manner opening up opportunities for water from non-polluted sources. Spring water or mineral water bottled from the Kingdom of Bhutan. A wide variety of different bottled water types are developed with different methods and levels of treatment. Bhutan has to choose what type of bottled water to produce, and where to produce it, given its clean environment, difficult terrain and immense opportunity offered by the local and regional markets. The most widely accepted definitions of different bottled water types and the standards of bottled quality are provided by the US Food and Drug Administration (FDA) in the Final Rule on a standard of identity for bottled water. The list includes Artesian (water tapped from confined aquifer), Mineral Water (TDS less than or equal to 250 mg/l and no minerals are added), Spring Water (tapping from naturally flowing water from under ground to surface) Sparkling Water (carbonated), and Purified 3 Source: Global Bottled Water Report 20 Annexures to the Strategy for Gross National Happiness (SGNH) Water (water produced by distillation) bottled. Although there are a number of clean water bodies like high altitude lakes in high mountains of Bhutan, it would be an advantage to tap spring water for technical, economic and social reasons. A proposed course of strategic actions is discussed below that includes enabling policy environment, physical environment of water sources (identification sites, analysis of water samples from sites, management of water sources), production environment (identification of equipment for processing and packaging) and marketing strategies. Enabling policy environment Bhutan Water Policy adopted in 2006 lays out a favorable environment for the development of water industries in Bhutan. The best available water sources for clean and safe drinking water, like mountain spring water, would be allocated for the production of environmentally clean products for human consumption. The hot springs that have medicinal, cultural as well as recreational values are identified as an area for private investments such as by tourism industries. The requirements such as adoption of the principles of payment for environmental services (to encourage plough back mechanism) and integrated watershed conservation and management approach are also clearly defined. What is missing at this stage is a Water Act that makes these policy provisions legally binding. Another missing element in this policy document is an institution that would be the custodian of water resources in the country. Physical environment Identification of sites: There is a need to undertake an inventory of all spring water and groundwater sources in Bhutan. This would be done firstly, by seeking the support of local residents and secondly, by physical visits to each site to take the GPS readings, water samples and study catchments/watershed. This information would allow the assessment of local values, quality of water and map the sites using the GPS readings. A step has been taken by the Department of Industry to identify sites and assess the quality of these waters sources. This effort may not be adequate to identify all sites across the country. The well known clean sources of spring water are in Paro, Chhukha, Thimphu, Trongsa, Bumthang, and Trashigang. The output of this activity would be a map showing the location of spring water across the country. Analysis of water sample: The mineral composition of spring water and groundwater would vary from one location to another. The type of rocks, soils, vegetation covers and recharge sources will influence these properties. Water samples collected in clean bottles sealed with no air spaces remaining in the bottle could be sent to reputed laboratories (like the Delhi Test House Laboratory used by the Agro-Industry) for standard analysis. This would include characterization of the physio-chemical and microbiological characteristics of water. A comprehensive database of clean water sources including these said properties would be built. Water source management: A natural mineral water source must provide a steady supply of pure water of constant composition. As the naturally flowing spring water cannot be increased, it is important to measure the natural flows accurately to determine the maximum yield available and its variability through out the year. As indicated in the water policy document, identified water sources will be protected from any possible source of pollution through adoption of best-integrated watershed management practices. Conventional agriculture practices, acid rain generated from industrial areas and leakages from sewage system are widely known polluters of sub-surface water. A feasibility study would provide more detailed information on this activity. 21 Annexures to the Strategy for Gross National Happiness (SGNH) Production environment Processing plant: It is proposed that a plant with a capacity of 16,000 to 20,000 liters of bottled water per day at an estimated cost of Nu. 10 million be established. The water would be bottled in Polyethylene Terephthalate (PET) material that is very light, re-sealable, unbreakable and recyclable. Quality management: The regular monitoring of water composition at various points of processing is crucial to maintain constant composition supply of the bottled water. Having the laboratory facilities at the site would be ideal in the long run to monitor the composition and quality of bottled water that is marketed. Until such facilities are established, the laboratories within the region would be requested to provide the needed information. Marketing Strategies Bhutan has a number of clean spring and groundwater sources for bottling. What is required is to create an enabling environment to produce bottled water and compete in this fast growing industry. A local firm may not be adequate to set a landmark in this industry, particularly when there is no proper legal protection against cheap backyard manufacturers and counterfeits in the regional markets. A possible solution is to tie up with well-known international and regional investors like TATA, Nestle, etc. to tap these clean water sources for regional and global bottled water market. This would necessitate a shift in the current FDI policy (reduce minimum investment limits, allow investment in Indian rupees, etc.). Environment/social cost Unlike other industries, this plant would generate limited waste products that would have a negative impact on the local environment. PET will be used as a material for bottling water. This material is reusable, and recyclable. A strategy will be developed to collect these used bottles either for reuse or for recycling. An attempt will be made to establish the processing plant where minimum disturbance is caused to the local community and the environment. A concern may rise when it comes to the transportation of bottled water, carbon emission in particular. 22 Annexures to the Strategy for Gross National Happiness (SGNH) Non-Timber Forest Products Introduction Around the globe, Non Timber Forest Products (NTFPs) play a significant role in the economy by sustaining livelihoods and contributing significantly to income generation. Current estimates put the value of total global trade in NTFPs at US$ 10 – 12 billion per year. Despite the significance of this trade, NTFPs as a driver of major economic development have been impeded for various reasons ranging from lack of proper institutions to deficiencies in technology and knowledge at both producer and user ends. However, there is still continued interest in NTFPs. It is argued and supported by many case studies that NTFPs have the potential to improve subsistence for rural farmers and also contribute significantly to the economy by promoting commercialization, tapping niche markets and ensuring quality. In Bhutan, NTFPs have always played an important role in the rural areas. To a limited extent, NTFPs have been commercialized. Similar to developments around the world, the use of NTFPs in Bhutan is rapidly evolving from one of subsistence consumption to being increasingly commercialized. As elsewhere, the dominant factors impeding commercialization in Bhutan appear to be: inadequate legislation; poor understanding of resources and associated value-chains; lack of access to markets and information; and limited technology in terms of harvesting and post harvesting practices. The government has tried to facilitate development of NTFP resource use and markets. However, progress has been limited. Non Timber Forest Products and Significance in Bhutan NTFPs are considered as those products derived from the forests other than timber and firewood. Within this purview, products range from herbs to exudates from trees. Classification of NTFPs and provision of adequate legislation have been confounded by the diverse range of products. Phylogenetic groupings and classification based on functional groupings have helped organize ecological understanding, but these are not adequate enough for understanding development implications. List of Non-Timber Forest Product Groups Sl. Potential Non Timber Forest Product Groups No. 1 Bamboo and cane 2 High value and wild mushrooms (Cordycep sinensis, Tricholoma matsutake, Morchella esculenta, Cantharellus cibarius, etc) 3 Essential oil species (e.g. Lemon grass) 4 Medicinal herbs and plant species with nutraceutical value (e.g. barks and leaves of taxus bacatta) 5 Aromatic species (e.g. Agarwood) 6 Resin and its derivates 7 Wild edible fruits, nuts, potatoes – with possible nutraceutical value 8 Wild spices (e.g. Illicium griffithi) While significantly contributing to rural dietary requirements, cash incomes from sale of NTFPs have been viewed as crucial in supporting better livelihoods. As of today, the most high profile NTFPs to have been commercialized in Bhutan are the matsutake mushroom and cordyceps. Matsutakes have been traded for the last 10 years while cordyceps have only been allowed for commercial harvesting 2 years ago. Commercialization of these two NTFPs has significantly contributed to raising income levels of NTFP collectors. What has become evident during the experience of commercialization is the weakness of existing institutions to 23 Annexures to the Strategy for Gross National Happiness (SGNH) regulate marketing and development of these products. Most NTFPs in Bhutan have not been explored in terms of their potential for commercialization. Constraints Lack of Information For almost all NTFPs, there is very little economic and ecological information. In terms of economics, basic information on yield per given area, total production and amount traded are not available. Such lack of information deprives formulation of effective production and marketing strategies. Information on habitat correlates/site requirements, interdependence on coexisting species and rates of turnover are also not available. Such information is sine-qua-non for determination of sustainable harvesting rates, anticipating ecological challenges and thereby ensuring sustainability. Lack of such basic information has also contributed to the formulation of inappropriate legislation. Lack of technology and know-how Lack of technology for proper harvesting, processing and packaging hampers development of NTFPs. Such lack of technology and know-how has also resulted in no new and innovative products being developed. Left unattended, such shortcomings will impinge on the success of NTFP commercialization. Inadequate policies, laws and institutions Current policies and laws consider NTFPs under the overall framework of forests. This has led to less attention and consideration being provided to NTFPs. As such, this has resulted in inadequate management of NTFPs and stymied growth within the NTFP sector. An example of how the lack of adequate policies hampers effective management is the inability of the government to determine how much fees should be charged for the collection of different NTFPs. Current legislation also fails to provide adequately for the commercial harvesting of NTFPs. Nor does it provide mechanisms whereby communities/user groups can harvest outside the framework of collection of permits being issued by the government. At the moment, the Department of Forests (DoF) is the sole custodian of all forests and resources within it including NTFPs. However, the responsibility of guiding the development of NTFPs is shouldered by one Section within the Forest Resources Development Division (FRDD). As of now, it is manned by a single staff. Such an arrangement – given the diverse nature of NTFPs – does not result in proper understanding of the resource, associated markets needs and anticipating future challenges. Opportunities Existing Institutions, Capacities and Synergies Therein The DoF and the RNRRCs have the capacity to conduct resource assessment for a few selected NTFPs. There are also clear linkages – wherein RNRRCs provide the scientific information and the DoF translates those into management principles and provides relevant guidelines. But this is happening only for cordyceps at the moment. This existing linkage should be strengthened and capacity to carry out research and exchange information improved. 24 Annexures to the Strategy for Gross National Happiness (SGNH) The National Mushroom Center (NMC) is responsible for the development of mushroom resources. However, arranging suitable management regimes requires the consensus of the DoF. At the moment, there are no clear linkages between these agencies. The National Institute for Traditional Medicine (NITM) and the Institute for Traditional Medicine Services (ITMS) deal with collection of herbs with medicinal properties. There are no linkages between the DoF and the NITM and ITMS. Capacity to test for bio-active chemicals is available with the NITM. Establishment of proper linkages can lead to facilities at NITM being used for testing other potential NTFPs. The following table provides a synopsis of existing government related institutions which deal with NTFPs and their respective roles. Situation Analysis of Existing Institutions dealing with NTFPs Institution Current Role and Efforts Situation FRDD, DoF Resource Inventory Limited in on availability and use. scope due to shortage Draft management of man-power. guidelines on selected NTFPs. Survey conducted in almost 12 Dzongkhags. Studies and on-going inventory on resin tapping. RNRRC Studies on cordyceps Research has and Medicinal plants led to determination of programme at Yusipang. appropriate times for Efforts at collection of domestication of medicinal cordyceps. The results plants. are implemented and Studies on cane and monitored by the DoF. bamboo propagation, lemon Limited human grass and chirata at and technical resources Wengkhar. NMC Inventory of Weak linkages mushrooms. with DoF. Ecological studies on Limited in matsutake. scope due Harvesting, centralization of processing, storage and activities. packaging of mushrooms. NITM MEA Collection of medicinal herbs and other plants with medicinal value. Testing for bio-active molecules. Marketing of herbal products such as Tsheringma tea. Testing for other marketable products (herbal baths, soaps, nutraceuticals etc). Lemon grass oil distillation and marketing. Dissemination of knowledge on different plants is poor. Marketing of products is limited to Bhutan. Being a government institution also hampers rigorous marketing. Dissemination of knowledge on 25 Next Steps Tackle policy and legal issues within the NTFP sector. Foster linkages between various actors and provide a comprehensive overview of the NTFP sector. Improve human resources and capacity for research and dissemination of results. Make finance available for research. Improve linkages with DoF. While overall programming can be handled by NMC, field activities could be decentralized to regional MoA offices. Improve information dissemination and linkages with other stakeholders. Lab testing for potential NTFPs could be taken up on contract from clients (DoF, RNRRCs, private). Upgrade facilities and develop human resources. Focus on encouraging Annexures to the Strategy for Gross National Happiness (SGNH) experience so far to other stakeholders has been limited. entrepreneurs. Facilitate NTFP sector development by promoting tax breaks, easy access to finance and trade licenses. Help in brand building. Entrepreneurs Examples of a few successful entrepreneurs suggest that commercialization of NTFPs can indeed contribute to both the rural as well as the national economy. Firms such as Bio-Bhutan and Nado Poi Zokhang are examples. What is relevant to note is the fact that with better policies and supportive government institutions, there is ample room for more such firms to develop given the immense range of NTFP products. Support from the MEA Entrepreneurship development programmes within the MEA have proved instrumental in promoting opportunities for start ups. There is commitment from the government and support for entrepreneurs and development of potential firms in Bhutan. Strategy Policies, Laws and Institutions A separate Division for NTFPs could be created within the DoF with the mandate to look into development of NTFPs in collaboration with existing – NITM/ITMS, RNRRCs, IHDP, NMC, MEA, Private Sector – and upcoming agencies. A thorough assessment and revision of the Forest Policy should be carried out. While upholding the visionary goal of His Majesty the Fourth King enshrined as the maintenance of 60% forest cover for all times to come, sustainable harvesting, development and management of NTFPs should be accorded priority. The policy should outline priorities in terms of strengthening basic and applied research to inform use and positive development of NTFPs. The Forest and Nature Conservation Rules (FNCR) should be revised to make it supportive of enterprises while at the same time ensuring that stringent regulatory mechanisms for ensuring sustainability are put in place. Issues related to resource extraction and tenurial rights should be addressed carefully. The rules should encourage ‘community based resource management schemes’ wherever appropriate. Information generation and research Inventory and Ethno-botanical Surveys A thorough assessment of NTFPs in terms of product types, availability, production levels and use should be conducted. Areas of production should be mapped. Economic parameters, such as households involved in collection, amount traded, and income generated should be collected. Ethno-botanical surveys should be given priority to list important NTFPs in terms of their diverse uses. Ecological studies to determine sustainable harvest levels would be paramount to ensure sustainability where collection takes place from the wild. Potential for domestication should be explored. This could be undertaken for selected and prioritized species. 26 Annexures to the Strategy for Gross National Happiness (SGNH) Automated mass screening techniques to check for bio-active molecules with potential medicinal value should be initiated. Existing capacity at the NITM for laboratory testing and related certification procedures should be strengthened. This should start immediately. Additionally, liaising with institutes possessing state-of-the-art technology for carrying out such work should be tried. In the longer run, technology must be acquired from countries where they are available and human resources developed to enable usage of available technology. Ecological Research Capacity for ecological research should be built to enable proper identification of potential NTFPs and derive sound data to ensure calculation of sustainable harvest rates and related threats. Human resources in terms of strength as well as ability must be strengthened. Adequate financing for such research must be made available. Market Identification: Local, Regional and Global Most studies dealing with success of NTFP commercialization highlight lack of market awareness as a major constraint. In the initial years (2008 – 2013), the Royal Government should pursue market identification for potential NTFPs. Research on markets and consumer demand at the local, regional and global level must be carried out. At the outset, such research might have to carried out by the Government or be contracted out to consultants to inform decision making of actors in the value chain of a certain NTFP. Once the product chain and the market is established and the main actor along the value chain (e.g. the exporter) has gained experience and built enough capital, such research may be left up to the main actor. Ensuring Equitable Distribution of Benefits After product identification and development of appropriate protocols, a thorough valuechain analysis for each product should be undertaken. Within the value-chain, profit margins and levels of success must be computed at each stage. This will enable identification of how benefits are spread across the value-chain. Where necessary, this will enable the government to intervene in an informed manner. For instance, in cases where it is found that one actor along the chain is appropriating a disproportionate size of the benefits, the government will possess necessary information and appropriate regulatory tools to ensure equity. Link and Synergy with Other Parallel Development Locations of primary producers must be linked with proper transportation facilities. In cases where products identified are perishable, proper storage facilities should be built in the nearest urban center where facilities of storage are available. Reducing the gap between producer, processor, trader and the final consumer should be given priority – more so where goods are perishable (e.g. matsutake mushrooms). This entails identification of nearest export port from the point of production. Value Addition, Labeling and Brand Building Value addition must be encouraged at every stage in the value chain. Wherever possible, value addition should be promoted at the producer’s level so that most returns flow to them. Product development must be accorded high priority. Wherever possible, research should be undertaken to develop innovative products (e.g. nutraceutical herbal supplements, herbal soaps, etc). 27 Annexures to the Strategy for Gross National Happiness (SGNH) Brand building must be pursued ruthlessly. Media and all available outlets must be used to promote and advertise products from Bhutan. Words which associate with positive cultural and environmental – pristine, pure, etc. – values must be used. For products which are known to have health benefits, their characteristic and nature of benefit must be propounded. Labeling products as ‘eco-friendly’ and ‘organically-produced’ can help capture niche and high value markets. Certification of products will be essential in ensuring quality and creating credibility thereby gaining market acceptance and trust. This will also help in establishing brand name and sustaining it. BAFRA which is mandated to certify all agricultural and food products could certify NTFP products as well – since they are natural products. In order to gain international acceptance, BAFRA might have to tie up with an international standardization and quality control organization. Support to Primary Producers Education of primary producers in terms of sustainable harvest rates, group formation and legal issues should be accorded priority. Information on international sanitary and phytosanitary standards and requirement should also be provided. Existing extension capacity should be upgraded to cater to this. The government should encourage and help in the formation of co-operatives where appropriate in collaboration with relevant stakeholders. This will enable primary producers to take advantage of economies of scale and improve bargaining power with buyers. Information on markets, prices and trends must be made available to primary producers so that they can bargain with entrepreneurs for adequate payment. Entrepreneurial Support The current support rendered to entrepreneurs by the MEA should be upscaled. Besides training, it should provide services such as assistance with faster provision. Education and information on markets should be provided. Information on international sanitary and phytosanitary standards should also be provided where export conditions demand so. Access to Technology Access to technology is considered under the framework of having knowledge of options, necessary skills and ability to source equipment and financing. Harvesting and post harvesting technologies for the most promising NTFPs should be explored and standards developed. This can be led by the DoF with technical and collaborative support from the post harvesting unit of the MoA. This information should be made available to producers and entrepreneurs through information portals. Processing and packaging facilities should be developed within the country. Standards and protocols should be monitored by BAFRA. Initially, most facilities may be on the small scale. FDI must be encouraged to facilitate development within this sector. As such, the ceiling on FDI should be revised to enable smaller scale entrepreneurs to avail this facility. Stakeholder Identification and Definition of Roles A clear understanding of the roles of different stakeholders – government, entrepreneurs, primary producers and other interest groups – will be vital in ensuring proper communication and delivery of services. An exercise should be carried out to define what the roles of different stakeholders in NTFP development should be. Additionally, an assessment of how 28 Annexures to the Strategy for Gross National Happiness (SGNH) they should change over time will be beneficial in defining future strategies in an adaptive manner. There is the need for a form of single desk selling. This can take the form of either outright government action, a governmental organization such as a corporation, a consortium of government and the private sector, or a company of which the government is a shareholder. Such a single desk seller would have the prime task to presenting a single face for the new supplier. Aspects that it would cover include the need for quality control and the prevention of fraudulent behaviour. A single desk seller would be able to provide the minimum size parcels needed for successful marketing as well as providing enough volume to allow it to practice market segmentation rather than the buyer. This is particularly pertinent with regard to being able to find a dedicated outlet for the low quality product rather than accepting a salvage price from a general buyer. A policy of a spread of markets should be employed. Cordyceps should be sold on a graded price approach and not as a bulk single price that allows the buyer to exercise grade-market segmentation. Two periods for marketing should be considered. One is in July and the other December. The 80:20 rule could be employed where 80 percent of the marketing effort concentrates on the existing markets of Singapore and Hong Kong and the other 20 percent goes to new markets. Development of Human Resources Human resources in areas such as ethnobotany, resource ecology, bio-chemistry, marketing and economics should be developed on a priority basis. 29 Annexures to the Strategy for Gross National Happiness (SGNH) Arts and Crafts Industries A. Introduction The founding fathers of Bhutan have always been great patrons of our arts and crafts. Right from Zhabdrung’s time, our leaders and rulers have preserved and promoted these arts and crafts. As a result, a strong artisan foundation was laid in the country. To this day, in rural communities where about 70% of Bhutanese population live, artisan activities permeate into all areas of life – woven baskets as storage facilities, wooden bowls for dining usage, etc. Further, the usage of our national dress and other traditional utility products by all Bhutanese citizens has sustained this sector up to now. Against this backdrop, it would be only rational to incorporate artisan activity into all national strategies for sustainable and equitable growth and poverty reduction in rural areas which in turn contributes towards the achievement of at least two of the four pillars of Gross National Happiness: namely, promotion of culture and equitable socio-economic development. Bhutan has a long established tradition of handicraft manufacture, which historically was produced to satisfy local needs. Handicrafts evolved locally over many centuries and may be considered an integral part of Bhutanese material culture. However, the handicraft industry in Bhutan still remains largely untapped in terms of its full potential. In order to tap this potential and become a niche market, further revitalization or refinement of traditional techniques and translation of Bhutanese cultural knowledge into the contemporary market needs are necessary. B. Constraints 1. Lack of coordinating/focal agency on the promotion & development of handicrafts In the past, various initiatives were taken by the government and donors to promote handicrafts in Bhutan. Although such initiatives have had a positive impact on the development of arts and crafts in Bhutan, sustainability has always been an issue due to the lack of ownership. There are a number of organizations which are involved with the handicrafts sector such as the National Institute of Zorig Chusum (NIZC), the National Women’s Association of Bhutan (NWAB), certain NGOs, and the Handicrafts Emporium, among others. These organizations work in isolation and are at times more competitors than collaborators. Having a multitude of agencies also leads to duplication of work and waste of resources. There is a need to identify one single agency to play the lead role to organize, coordinate and develop this sector. 2. Availability of data Although trade in handicrafts constitutes one of the important sources of income for the rural communities, there is a paucity of accurate data on the number of artisans, products and product range as well as the places of production, use and availability of raw materials, skills level, etc. While numerous studies have been conducted through various projects under many organizations, several of these studies have not seen the light of day nor have they been implemented. Organizations dealing with the subject matter, in this case the Handicrafts Emporium, should have had access to those studies. 3. Product design Artisan products are expressions of Bhutanese tradition and culture. Currently, most artisan products are designed for traditional usage. However, in order to go beyond this current 30 Annexures to the Strategy for Gross National Happiness (SGNH) realm and to tap market potential, it is important to translate traditional designs and products into usage that is complementary to contemporary markets. Currently, such exercises are already in practice. Walking along handicraft shops in Thimphu, one can see traditional woven fabrics made into cushion covers, bags, etc. However, much of these translations have not been very successful because they have not been adapted to suit the contemporary markets. For example, colours, sizes and details are currently not suited for non-Bhutanese customers. Concentrated efforts will be needed to facilitate this area of product design incorporating traditional designs with that of contemporary designs. 4. Quality Quality is an important aspect, especially when producing for new markets beyond its current confines. The present quality of workmanship is not appropriate for such expansion. Much training will be needed to bring the quality of products to the appropriate level for institutional up-scale trading. 5. Costing In order to make a product competitive, one of the important aspects of the product is the element of costing. Generally the handicrafts products are priced very high vis-à-vis the quality of the product. There is no system for pricing/costing and this is yet another area that needs to be addressed. 6. Production system Existing production systems are mostly informal and the means of production are primary and domestic based. Although these machines are suitable for its current needs, it is not totally appropriate for a larger scale of production. For example, the sewing machines used here are mainly domestic sewing machines, which are not appropriate to sew new types of products where different types of fabrics are combined in one product. 7. Marketing There is great marketing potential for artisan goods and services. For example, besides the tourist markets, artisan products can also penetrate into the largely untapped institutional hospitality markets. Producers can supply in-room amenities where designs and materials are uniquely Bhutanese. This will further enhance the experience of tourists, where local cultural materials are used instead of imported products. Recommendations 1. Handicrafts Emporium as facilitator and its organizational reform The Handicrafts Emporium in Thimphu is currently mainly a retailer and does not play a major role in the development of this sector. While it is a retailer, it cannot conduct its business as would a fully private enterprise as it is a government owned corporation which entails its own inherent problems. (To cite an example, it has been subsidizing the NWAB since 1995 @ Nu. 50,000 per month). Its role needs to be changed from a retailer to a developer and investor in arts and crafts, engaging in capacity building, developing SMEs in arts and crafts, business incubation and providing start-up funds and organizing unified marketing strategy. To this end, it should be upgraded and restructured to enable it to perform these functions of development and investment. 2. Nationwide Survey As a first step, the Handicrafts Emporium should compile all the studies conducted thus far on the handicrafts sector from various organizations. Thereafter, it can conduct a nationwide 31 Annexures to the Strategy for Gross National Happiness (SGNH) survey to update and fill in the gaps, if any, especially with regards to the number of artisans, their concentration, the product/product range, use and availability of raw materials, technology, production capacity, etc. 3. Resource inventory on raw materials Artisans in all sectors suffer from lack of access to high quality raw materials at reasonable prices. The materials and problems for each sector differ, but it is critically important to address these problems. In many cases, inferior and even gaudy raw materials are totally ruining refined traditional skills. It is expected that the national survey will indicate the type of raw materials, availability and sources, sustainability of raw materials, recommendations for scientific harvesting, and alternative sources for the raw materials. 4. Cooperative societies for handicrafts The formation of artisans’ groups (cooperative societies) based on the survey would be the next logical step. The formation of such societies will enhance economies of scale be they in terms of purchasing raw materials, access to markets, supply or collective bargaining strength. It will also be much easier and cost effective to provide any required institutional intervention such as for skills development trainings and workshops. Cooperative societies could be formed in places such as Radi (for Bura fabrics), Lhuentse and Khaling (Silk and cotton fabrics, such as Kishu Thara), Zhemgang, Mongar and Kangpara (for bamboo products), Pema Gatshel (for metal crafts of religious objects such as Dung and Jaling), Trashi Yangtse (for wooden products such as Dapa, Gophor, etc.), Thimphu (for Chaka Timi and other metal products), Bumthang (Yathra products). In this connection, the Cooperative Act would have to be reviewed. 5. Product design and standardization / Product quality Based on the survey on the skills of the artisans, various trainings will then have to be initiated in the areas of product diversification, product adaptation, creative weaving, designing etc. Specifically pertaining to tourism, the souvenir industry can also be developed. Souvenirs, though based on traditional art forms, are often miniaturized to suit the needs of long distance, especially airborne, travellers. Sometimes a similar purpose is served by substituting lightweight materials for heavier traditional ones. Production methods may remain largely unchanged while the products themselves are subjected to extensive modification. 6. Assistance for technological up-gradation One of the commonly cited problems is the inability of our handicraft producers to meet bulk orders due to its time consuming nature. The introduction of simple machines such as spinning wheels, broad looms, dyeing machines, wood lathe machines, tool kit for cane and bamboo will greatly alleviate this problem. Some of the options worth exploring here include the provision of tool kits at subsidized rates to the artisans, the institution of a Raw Material Bank for various raw materials to save cost. 7. Product branding and certification/ Packaging and labeling There are a lot of handicrafts of Indian and Nepalese origin being sold as Bhutanese ones. On the one hand, such practices tantamount to willful misrepresentation (in other words cheating) of tourists, who are the main buyers which in turn does nothing for the reputation of Bhutan and on the other hand, they have a negative impact for our own handicrafts development prospects. Branding and certification is required for all products produced in 32 Annexures to the Strategy for Gross National Happiness (SGNH) Bhutan and hence it would seem logical that a National Institute for this purpose be established. The same institute could do the certification for handicraft products as well. If however, the establishment of such an institution is not feasible, the restructured Handicrafts Emporium should be given the mandate to certify and brand all handicrafts as “Made in Bhutan”. Thereafter, brochures educating all consumers/tourists of the existence and significance of the brand would be imperative. A common problem with the use of handicrafts in tourism and international trade is product recognition. The interpretation of crafts that are not likely to be well understood by visitors should also include videos, well-trained guides and informative guidebooks. Many aesthetically satisfying traditional goods are simply too plain to arouse the interest of tourists. Surface decoration may be applied to please the customer and add provenance, as well as raise the value added. This kind of transformation is reported in Peru where the producers of pots for tourists sign (like Western artists) up-market vessels, but leave cheaper versions unsigned. People remote from markets may also produce a product that is given a finish by another group that has greater access to the needs of customers and sometimes these “finishers” are members of the urban majority population. Similarly, packaging and labeling of handicrafts form an integral part of its attractivity and marketability. This activity could be undertaken by yet another group or private sector (not by the artisans themselves) which will then lead to specialization. The use of indigenous raw materials for packaging should be encouraged. 8. Marketing & product promotion Artisans in all sectors suffer from a lack of direct access to markets, ad hoc and sporadic distribution systems, and dependence on middlemen. Transportation problems also prevent artisans in remote areas from communicating directly with their buyers. Marketing is a new field for artisan products and hence it requires aggressive plan. Various methods such as advertisement, exhibitions, fashion shows, certification of products, development of product brochures and catalogues will have to be initiated to enhance the marketability of the artisan products from Bhutan. The Handicrafts Emporium can play a major role in drawing up and implementing the marketing strategy for the sector. This strategy should, among others: Take advantage of the events in 2008 by launching new products commemorating the special occasion. Develop brochures and catalogues on the artisan products with a brief on the product, the artisan and the place. Utilize various forms of the media such as internet, news papers for marketing Take advantage of prominent places such as airports, museums, etc. Introduce SEAL of EXCELLENCE to encourage creativity of the artisans Establish international linkages with associations and NGOs for market penetration. Organize trade fairs/exhibitions such as declaring a particular day/week as the day/week of the Artisans. 33 Annexures to the Strategy for Gross National Happiness (SGNH) ICT and Media Introduction Information and Communications Technology (ICT) is recognized as a key leveraging factor in national development, from wealth creation to improving the quality of life for all sections of the society. Numerous factors influence the extent and speed of social and economic development – not least political stability, physical infrastructure, basic literacy and health care. There is no suggestion that ICT can eliminate the need for these or offer a panacea for all development problems. But experiences around the world reveal ample evidence that intelligent deployment of ICT can have a dramatic impact on achieving social and economic development goals. The real benefits lie not in the provision of technology per se, but rather in its application to create powerful social and economic networks by dramatically improving communication and the exchange of information. We are now at a critical juncture of unprecedented opportunities. The global flows in information, products, people, capital and ideas offer great potential for radical improvements in Bhutan’s development from improving governance and services to employment creation and accelerating economic growth. Left unexploited, the country may fall behind the other countries which are already making rapid strides in deploying and using ICT. This is why decisions about the use of ICT will be critical in determining the trajectory of national growth, to wider development or greater inequality within and with the world outside. The old debate, about choosing between ICT and other development imperatives, has shifted from one of trade-offs to one of complementarities. Countries have pursued diverse strategies: some have focused on developing ICT as an economic sector – either to boost exports or to build domestic capacity – while others are pursuing strategies which seek to use ICT as an enabler of a wider socio-economic development process. Countries which use ICT as an enabler may be further sub-divided into those which have focused primarily on repositioning the country’s economy to secure competitive advantage in the global economy and those which explicitly focus on ICT in pursuit of development goals such as those set forth in the UN Millennium Summit. These varied experiences have revealed some important lessons about the role of ICT in development4: 4 An export focus can produce significant economic benefits, such as growth and foreign investment, but these gains do not automatically translate into progress on broader development goals. Building domestic ICT production capacity may address local needs and help strengthen domestic economic linkages, but it can significantly restrict countries’ ability to adopt new technologies and to gain competitive advantage in the global economy. It is imperative to use ICT to improve the competitive position of a developing country in the global economy, but this may fail to meet some development goals if it diverts attention from fostering local markets and businesses. Source: Creating a Development Dynamic – Final Report of the Digital Opportunity Initiative (July 2001). 34 Annexures to the Strategy for Gross National Happiness (SGNH) An explicit focus on using ICT in pursuit of development goals allows countries to achieve a wide diffusion of benefits from ICT and contributes to both broad-based economic growth and specific development goals. A number of interrelated factors should be addressed to maximize the benefits of ICT for development. These include building human capacity, creating incentives for enterprise, developing appropriate content and increasing competition, especially among telecommunications and Internet-related businesses. Finally, the success of national ICT strategies is dependent upon the coordination and alignment of efforts undertaken by all actors involved, at global, local and national levels. The role of ICT, both as an enabler and as an industry in itself, is identified in the 2004 Bhutan ICT Policy and Strategies (BIPS). Because of the rapid development of the technology, it is difficult to make any realistic detailed long-term plans for this sector. The long term objective is to establish a robust ICT infrastructure, develop a flourishing ICT industry and deploy ICT and media to leverage good governance, as elaborated below: ICT infrastructure – to establish a ubiquitous network which will enable everyone to be connected anytime from anywhere within Bhutan. In the short and medium term, the objective is to build a reliable IP backbone and distribution network. ICT industry – to establish a flourishing ICT industry which will employ a majority of the youth and generate revenue not less than the tourism industry. In the short term, an enabling environment with the required human resource base shall be created to support the establishment of firms that can employ over 3,000 high school leavers and graduates. Good governance –to make government services available online 24/7. This includes clearances, approvals and other government transactions. It will also include deploying ICT to improve the outreach and quality of essential services such as education, health, agriculture, etc. A free and vibrant media industry will also be created to contribute to the national development and democracy. In the short term, the government will provide 50% of its services online and create the conditions for the growth of the media industry. Strategies ICT Infrastructure While Bhutan Telecom Ltd (BTL) as the incumbent telecommunication operator has an extensive network, the strategy recognizes the value of other players in the market, both current and in the near future. It is pragmatic to involve BTL as well as new entrants to expand and improve ICT network coverage of the country. The plan recommends laying of Optical Power Ground Wire (OPGW) over the main power transmission lines. The plan also looks at how the existing ICT services charges, particularly internet services, can be made more competitive. This entails exploring alternative gateways through India and other countries in the region. Overall, the ICT infrastructure development is based on a study of the existing network, identification of gaps and building a coherent network. Specifically, the following strategic choices are available for ICT infrastructure development: i) Filling in the gaps in the existing network to ensure a fully redundant network providing broadband connectivity. 35 Annexures to the Strategy for Gross National Happiness (SGNH) ii) iii) iv) v) Upgrading of the national network to support triple play services (voice, data and video). Enhancing the international gateway and providing access to submarine cable landing stations in neighboring countries. Improving and establishing more community access centers. Instituting policies towards a healthy ICT and media market based on competition and sustained development The strategy is to improve the backbone network (both national and international) and national ICT distribution system within the following timeframes: i) ii) iii) iv) Immediate (2007-2008) Short-Term (2008-2013) Medium-Term (2013-2018) Long-Term (2018-2028) Immediate (2007-2008) The immediate term covers the projects which are ongoing and prioritized for implementation during 2007-2008: a. b. c. d. Wangdue-Punakha aerial fiber link Thimphu-Wangdue link East-West/North-South OPGW network Broadband internet service Short-Term (2008-2013) The next stage of network expansion will concentrate on laying fiber to the Dzongkhag headquarters not covered under the above plan. This will improve the network, enhance its reliability and also meet the demands for bandwidth in the growth centers and economic hubs and other Dzongkhag headquarters. BPC transmission network will be utilized, where feasible. The short-term plan will include the following: a. Tsirang-Sarpang-Gelephu OPGW BPC will implement high voltage transmission line to evacuate power from Basochhu to Tsirang-Sarpang-Gelephu and also to form the national power grid. This will remove the bandwidth bottleneck on the Tsirang-Gelephu microwave radio link and will also increase the reliability of the backbone network. Laying of OPGW can be simultaneously done by BPC while building the power transmission lines. b. Mongar-Tangmachhu-Lhuentse OPGW/ADSS This will provide the required bandwidth to Lhuentse Dzongkhag with a drop at Tangmachhu and will be able to meet the demands for the Dzongkhag headquarters and surrounding areas. Further it will provide redundancy to the existing 34Mbps PDH radio. c. Kanglung-Trashigang-Trashiyangtse OPGW/ADSS This will increase the reliability of the ICT backbone and also meet the objectives of a more robust network in these areas. 36 Annexures to the Strategy for Gross National Happiness (SGNH) d. Phuentsholing-Gomtu-Samtse OPGW/ADSS This link will increase the bandwidth capacity for the Phuentsholing-Samtse link which currently is 34Mbps. Further, it will meet the requirements of Samtse and Gomtu industrial zones. e. Paro-Haa OPGW and ADSS This will augment the existing BTL microwave radio, meet the demand for Paro and Haa, and also increase the reliability of the ICT backbone network. f. Punakha-Gasa ADSS This will replace the existing DRMASS between Thimphu and Gasa. g. Wangdue-Trongsa, Bumthang-Gyalpoizhing, Kanglung-Dewathang connectivity The proposed optical fiber on these routes will result in a nationwide IP-backbone network. This will also augment the BTL SDH radio links. However, the installations have to be carried out on aerial optical fiber cable as there are no plans in the short-term to build power transmission lines on these routes. h. Last mile solution The last mile access (network to the homes and offices) could be expanded using fiber and/or wireless technologies. The present distribution systems consist of underground and aerial copper cables and some wireless. In order to enhance network reliability and efficiency, it will be necessary to take fiber to the nearest locality and further distribution done using copper cables or wireless technologies. i. Expansion and up-gradation of mobile services Mobile network operators/service providers need to expand and upgrade their networks to cover the growth centers, economic hubs and interconnecting highways. j. Broadband services Broadband services capable of triple play services (voice, data and video) will be made available to all growth centers, economic hubs and Dzongkhag headquarters. k. Utility Ducts It is proposed that integrated utility ducts be built along all primary and secondary national highways for carrying power transmission lines, water, sewage, gas, fiber optic cables, etc. Medium-Term (2013-2018) Fiber optic cables shall be laid along the following highways to augment the national ICT backbone infrastructure: Samtse-Phuentsholing-Lhamoizingkha-Gelephu-Nganlam-Samdrupjongkhar Ura-Gomphu-Panbang This will provide additional redundancy and also meet the demand in the proposed hydro power plant sites. Communications to the proposed hydro power projects Feasibility will largely depend on the completion of proposed primary and secondary national highways. 37 Annexures to the Strategy for Gross National Happiness (SGNH) a. Punatsangchhu I and II ICT services can be provided as it is very close to Basochhu Generation Unit, which is approximately 2 km from BPCL 66KV tower LB-77 and Rurichhu 220/66/11 sub-station. b. Chamkharchhu I and II ICT services can be provided to the project sites subject to completion of the Ura-GomphuPanbang highway. Chamkharchhu-I is about 2.5 km from Langdurbi village, Zhemgang. Chamkharchhu-II is about 14 km from Dakpai-Buli road and 1 km from Shingkhar village, Zhemgang. c. Mangdechhu The project site is about 25 meters from the Trongsa-Zhemgang highway and about 5 km from BPC 6.6 kV pole Q20H32. Mangdechhu can be easily covered by the planned OPGW project. d. Wangchhu The site is about 1 km from Lammi and Lhamoizingkha villages. It is about 5 km from Monitar, on the Kejarey-Kalikhola road. The communications to the project site will be available on completion of the Samtse-Samdrupjongkhar highway. e. Bunakha The proposed site is about 1 km from the BPC 11kV transmission pole and Chanachen village under Geling geog. f. Kholongchhu The site will be covered by the proposed Kanglung-Trashigang-Trashiyangtse OPGW project. Long-Term (2018-2028) a. Fiber to all villages By 2020, BPC envisions full rural electrification. The possibility of using the existing BPC feeder lines to provide ICT services using ADSS fiber needs to be explored. The project can be undertaken in phases. This will provide the platform for delivering all kinds of ICT services to the homes. b. Bhutan’s own satellite By this time, Bhutan should be in a position to own a satellite of its own, which will cater to the ICT backbone infrastructure needs of the ICT and ICT-enabled services industries as well as for remote sensing facility for geological, ecological, land use-planning, weather and other services. Additional bandwidth can be sold to the neighboring countries for similar uses. In addition, the following strategic options need to be pursued side by side the above plans and programmes: Development of local content At present, there is virtually no local electronic content available. The major use of internet is e-mail service. Users download contents offered by the Internet mainly from USA and Europe. This has a direct impact on the services tariff provided by the ISPs. Without enough local traffic, there is neither a case for competition in the domestic market, nor can Bhutan bargain with the regional telecom operators. This underscores the need for developing local content. 38 Annexures to the Strategy for Gross National Happiness (SGNH) Therefore, content related projects and programmes such as online banking, e-governance applications, e-education, e-health, video conferencing, IPTV, gaming, etc. must be promoted. Other projects that will boost local content development include the Dzongkha localization and National Digital Library of Bhutan projects being undertaken by the DIT. Human Resource Development The overall objective of the ICT human capital strategy will be to build a critical mass of IT personnel required to support the growth of this sector. This will include IT university graduates, engineering and B.Sc graduates and IT diploma, as well as high school leavers with requisite ICT skills. Training employees of ICT business operations The immediate and short-term HRD strategy should be to meet the human resource requirements for the various ICT service industries identified for the 10th FYP. The following industries have the potential to be established using the current human resource base: a. b. c. d. e. f. g. Call centers Medical transcription Software development Data processing & capturing Data networking services Web design/development Animation/graphic designing The number and capacity of potential private business ventures desiring to establish the identified industries cannot be fully foreseen. However, each recruit may require additional training to take up the positions in the business units. Currently, the Ministry of Labour and Human Resources (MoLHR) provides support for these trainings and this could be continued during the 10th FYP. But eventually, as the industry becomes more mature, all the trainings should be borne by the private investors and by the employees themselves. Additional Training ICT professionals need to continually update their skills and knowledge. There are various relevant packages being offered by reputed institutes in India. However, the costs of providing such trainings are high. An alternative cost-saving strategy would be to invite resource persons and provide trainings locally at RIM and private institutes which have the requisite logistics. Certification (Professional Branding) Professional branding may be especially important to market Bhutan as a quality BPO destination. The cost of professional branding courses is high and therefore, the strategy would be to conduct the courses in Bhutan by hiring resource persons from outside. In addition to generic training, certification courses will be required to provide professional branding. Scholarships and related HRD support a) The government could negotiate with renowned Universities such as MIT and Harvard or their equivalence and secure scholarship for few top Class XII Science graduates every year. 39 Annexures to the Strategy for Gross National Happiness (SGNH) b) c) d) In addition, the government should continue to send 10-15 students to Indian Universities for undergraduate and post-graduate courses. This should also cater to the professional development of the current ICT staff in the government and the private sectors. Management of ICT Business Courses – This scheme will provide recipients with subsidy/scholarships towards the cost of short management courses to enhance skills and competencies of private sector managers. This should be aimed towards providing managerial skills as well as opportunities to network with prospective business partners. Young ICT Professionals Awards Scheme – Promising young ICT professionals with the potential to make a substantial contribution to the industry should be given due recognition. This award scheme could be in the form of scholarships for short-term trainings in related fields. In-country programme in the private institutes The private ICT training institutes in Bhutan do not have the capacity to provide good quality ICT education. Most of them provide basic courses for the high school students and organize tailor-made courses for government agencies and corporations. It is proposed that the government introduce a system of accrediting ICT training providers. The aim is to better regulate the ICT training provider industry, specifically to provide incentives to well resourced and well performing training providers and to gradually upgrade or to close down training providers which are not providing quality training. In addition, local training institutes shall form strategic alliances with reputed, international or regional IT institutes. Many of the courses that were detailed above could be undertaken by the private training institutes if they built themselves up to the required standards. In-country education programme at the University and schools In the long term, Bhutan needs to ensure that there is a programme of education and training in the existing institutes to cater to the demand of the ICT industry. This will require constant upgrading of existing courses in line with the growth of the ICT and ICT-enabled industry. Rationalizing backbone and international connectivity charges Over the past decade, the introduction of competition in the ICT sector, particularly in mobile cellular and broadband markets, has been one of the key factors in increasing teledensities. The level of competition that is authorized by countries (based on the number of competitive players) as well as the kinds of services open to competition is critical to sustaining this ICT sector development strategy. Competition in international services, in particular, the international gateway, and leased lines, is vital to ensuring low-cost Internet access. It is one thing for countries to authorize competition in the provision of ICT services and another to ensure that new market entrants are actually licensed or otherwise authorized to provide services, and are able to compete in the market on a level playing field. One of the key issues in ensuring a level playing field is a fair and transparent interconnection regulatory framework. Opening up access to the local loop for competing operators is also gaining ground as a means to fostering competition. Local loop unbundling is increasingly recognized as being important not only for competition in traditional telephone services but also to prevent 40 Annexures to the Strategy for Gross National Happiness (SGNH) incumbent’s monopoly from spilling over into the domain of broadband Internet. Therefore, the goal of unbundling has often been to make network components available to new market entrants with greater commitment, expertise and incentives to improve services. Internet Exchange Points (IXPs), also known as Network Access Points (NAPs), are a way to maximize the existing infrastructural base for Internet service provision in developing countries and foster competitive provision of Internet services. They allow Internet Service Providers (ISPs) to exchange traffic between their networks through mutual peering agreements at minimal cost, with better efficiency (in terms of bandwidth and latency) and increased speed. Networks can interconnect directly via the exchange, rather than through third party networks, and the cost of delivering traffic to upstream providers or to faraway places is minimized by keeping it within and between adjacent ISPs. For many developing countries, IXPs keep traffic local or regional, instead of routing Internet traffic to hubs like New York or London – just to reach an e-mail account on a different ISP in the same country or to exchange Internet traffic with a neighboring country. Regulatory procedures should be clear, transparent and predictable. Regulators, in enforcing these procedures, should be accountable, and should have sufficient credibility and authority to enforce the relevant laws and regulations. International bandwidth providers that offer global connectivity through submarine cable is a critical input for provision of broadband and Internet services, international long-distance voice telephony and for a number of key IT and ITES (IT-enabled services) industries such as software exporters, Business Process Outsourcing (BPO) and Knowledge Process Outsourcing (KPO) units, banks and other financial services companies. Much of existing cross-border infrastructure is fiber while some are digital microwave, which need upgradation to cater to the growing regional voice and data traffic. Cross-border connectivity, in terms of quality, accessibility and data capability, is weak at present. Backbone and international connectivity issues The following are the pertinent issues: (a) Existing international and Internet connectivity is very expensive compared to other locations, such as India, due to the huge costs involved in installing, operating and maintaining satellite-based international gateway and also Bhutan’s limited market which does not generate much international traffic. Besides, satellite-based international connectivity has high latency. The international bandwidth available is inadequate to meet the capacity requirements of BPO operations and the proposed ICT Park in Wangchhutaba, Thimphu. (b) No fiber optic connectivity for international and Internet connectivity except to India via the Phuentsholing-Hasimara OFC which is not as reliable. Existing cross-border connectivity among SASEC countries is weak. (c) No IXP to maximize the existing infrastructural base for internet service provision and foster competitive provision of Internet services. (d) Lack of competition in submarine cable access, at the regional level – there are only five international (submarine) bandwidth providers in the SASEC region, i.e. four in 41 Annexures to the Strategy for Gross National Happiness (SGNH) India and one in Bangladesh. This impacts Bhutan’s access to submarine cable landing stations. (e) Underweight national ICT backbone infrastructure (mostly owned by BTL). Policy and Regulatory Options For Bhutan to fully reap the benefits of ICT for development and economic growth, with the objective of creating a knowledge-based society, the following two time-based options are recommended: Short-Term (2008-2010) Connecting the Phuentsholing-Thimphu OPGW (owned by BTL and BPC) to the Tala-Delhi OPGW – For realization of this option, the matter should be taken up with the Indian Government, involving key stakeholders on both sides. MoIC has requested the MoFA to pursue the matter with the appropriate authorities in India. Overhead OPGW offers advantages over underground OFC in terms of robustness, vandal proof, rodent and termite proof, etc. thus offering high reliability. Mid-to Long-Term (2010-2015) Access to Submarine Cable Landing Stations in India and Bangladesh – For redundancy and low latency of the international link: (a) Access to submarine cable landing station in Mumbai or Cochin, India, via an appropriate Indo-Bhutan fiber link; and (b) Access to submarine cable landing station in Chittagong, Bangladesh via either establishing an SDH microwave radio link or a fiber network from Bhutan to Bangladesh border. High Capacity, Low Cost Integrated Data Infrastructure – Adopted in the SASEC ICT Development Master Plan developed by the ADB and comprises of three components: (i) Establishment of Siliguri Exchange Hub – which will integrate networks from member countries and provide a peering hub; (ii) Establishment of Country Gateways – to efficiently link to the Siliguri Exchange (For Bhutan, this must be the IXP); and (iii) Improving Cross-border Backhaul links among SASEC countries, including establishing redundancy, to submarine cables for Nepal and Bhutan. ICT Industry For this part, the paper examines the potential of developing a viable Bhutanese ICT industry in the short, medium and long term. There are three aspects of ICT industry requiring different strategic interventions and plans. These are in the areas of ICT hardware, ICT software and ICT-enabled services (ICTES). Because of the fledgling ICT industry, everything will have to almost start from scratch. This requires developing the human resource base, the enabling environment such as financing and FDI policies, institution of technology parks and other supporting institutions, including R&D. The strategy recognizes the crucial role of the private sector and FDI for the development of this segment of the industry. A clearer definition of the responsibilities between the 42 Annexures to the Strategy for Gross National Happiness (SGNH) government as the enabler and the private sector as the investor needs to be established. Governance issues related to speedy clearances is also an important feature of this plan. Overall, the government’s role shall be to enable, facilitate and support the start up of these industries, and investment decisions should be left to the market. Creating Enabling Policies The ICT industry in Bhutan is dominated by hardware vendors. There are 49 ICT firms providing such services. Out of these 36 are located in Thimphu, 8 in Phuentsholing, 2 in Paro and one each in Wangdue, Gelephu and Mongar. The vendors have dealership in computers and related hardware and mostly serve the needs of the government offices. There are also 7 firms registered to provide ICT related education and training. Out of these 4 are located in Thimphu, and the rest are in Phuentsholing, Paro and Mongar. Most of these provide basic training and none offer branded certificates such as CISCO, Microsoft, etc. Some of them also provide hardware vendor services. However, there are only 6 firms dealing with software development and solutions. None of them possess any internationally benchmarked competencies. As a result, even for simple application development these ICT firms have to recruit and rely on Indian firms and personnel. Another factor that has impeded the establishment of some of the recent private sector led initiatives on medical transcriptions and call centers is the cumbersome government clearances. In many countries, there is a system established whereby there is a time limit given to the government institutions to provide such clearances. In Bhutan, while there are extensive documentation and penalty clauses for the applicants of new industries, there are no counter deadlines and responsibilities established for the clearing agencies. This needs to be addressed. Licensing of ICT Facilities and Services Licensing is one of the most important instruments regulators employ in the context of ICT sector reform. Regulators use the licensing process to exercise control over many variables such as market structure, the number and types of network operators or service providers, the extent of competition, the pace of infrastructure expansion and the affordability and range of ICT services available to consumers. With the enactment of the converged Bhutan Information, Communications and Media Act 2006, the licensing provisions have changed. Section 36 of the Act provides for categorization of licenses as facilities-based or services-based licenses. An ICT Facility License authorizes the owning or operation or provision of an ICT facility. As defined in the Act, an “ICT Facility” means any facility, apparatus or other thing that is used or is capable of being used principally for, or in connection with, the provision of ICT services, and includes a transmission facility as well as any or all of the following facilities: fixed links and cables, computer facilities, payphone/communication facilities, radio communication transmitters, receivers and links, satellite earth stations, towers, poles, and ducts and pits used in conjunction with other facilities. This term does not include customer equipment, but includes such other services as may be prescribed by Rules; unless otherwise stated, ICT facility relates to public ICT facility. Thus, BICMA must urgently establish the ICT Licensing Rules, particularly spelling out the transitional licensing measures. 43 Annexures to the Strategy for Gross National Happiness (SGNH) The fast technological advancement and constant market evolution imply that ICT licensing must also evolve to ensure that it remains relevant and beneficial. Left unchanged, the licensing process can be an obstacle to the development of the ICT market in several ways. Preserving unnecessary, onerous and complicated licensing requirements can act as a barrier to market entry and hinder competition. Maintaining outdated and irrelevant licensing classifications can also hinder technological advancement and service development. Licensing classifications based on specific types of technologies can act as artificial barriers to the introduction of alternative new technologies, which could be used to provide similar or even identical services. Recommendations for adoption of a new licensing approach to cope with the trends of liberalization and convergence in markets and technologies are as follows: (1) An individual (or operator-specific) license is useful where a scarce resource or right is to be licensed (e.g. spectrum) and/or the regulator has a significant interest in ensuring that the service is provided in a particular manner (e.g. where the operator has significant market power). An individual license, often containing detailed conditions, is issued to a single named service provider, through some form of competitive selection process. Examples include provision of basic ICT services, mobile wireless services, and any service requiring spectrum. (2) A general authorization or a class license is adequate where individual licenses are not justified, but where there are significant regulatory objectives which can be achieved by establishing general conditions. A general authorization normally sets out the basic rights and obligations and regulatory provisions of general application to the class of services licensed, and often issued without a competitive selection process, i.e. all qualified entities are authorized to provide services or operate facilities. Examples include data transmission services, resale services, private networks, international services, VSATs, etc. (3) Allow open entry, without any licensing process or qualification requirements, for certain services that can be governed within rules and regulations generally applicable to the ICT sector such as consumer protection which often come under general business regulation that applies to all commercial entities. Thus, registration requirements or other rules of general application sometimes apply. Examples include ISPs, value-added services, WLAN hotspots, etc. E-Waste Management Electronic waste includes computers, entertainment electronics, mobile phones and other items that have been discarded by their original users. Disposed electronics are a considerable category of secondary resource due to their significant suitability for direct reuse (for example, many fully functional computers and components are discarded during upgrades), refurbishing, and material recycling of its constituent raw materials. Definition of electronic waste according to the WEEE 2002/96/EC (European Union): Large household appliances (ovens, refrigerators etc.) Small household appliances (toasters, vacuum cleaners etc.) Office & communication (PCs, printers, phones, faxes etc.) Entertainment electronics (TVs, HiFis, portable CD players etc.) Lighting equipment (mainly fluorescent tubes) E-tools (drilling machines, electric lawnmowers etc.) 44 Annexures to the Strategy for Gross National Happiness (SGNH) Sports & leisure equipment (electronic toys, training machines etc.) Medical appliances and instruments Surveillance equipment Automatic issuing systems (ticket issuing machines etc.) Electronic waste is of concern largely due to the toxicity of some of the substances such as lead, mercury, cadmium and a number of other substances. To minimize e-waste, some countries make the sellers and manufacturers of electronics responsible for recycling about 75% of products. Although Bhutan is yet to face the problem of e-waste, the country has to be prepared to deal with this before it becomes an issue. This is especially important considering that Bhutan has always prided itself for its pristine environment. The country’s environment will continue to be a selling point when it markets itself as a special tourist destination. For the 10th Plan, it is recommended that a study be undertaken to determine the magnitude of the problem and suggest a course of action to be implemented during the plan period. The scope of actions could be a combination of new regulations, public education and recycling process. This could also be developed as a business unit for the local entrepreneurs. ICT Growth and Enabling Centres ICT Parks An enabling institution for ICT industries provided in other countries is that of the ICT Park which provides ready made spaces for ICT firms to set up shop quickly and without harassment. The service provided includes connectivity and special concessions in the form of tax breaks, fast track clearances, relaxed labour policies, etc. The ICT Park helps in providing small miniscule islands of efficiency and opportunities to connect to the global ICT markets. These Parks then can provide a catalytic impact in improving the ICT industry beyond these islands and to other industries within the country. The proposal for Bhutan is enumerated below: In the long-term, Bhutan should set up 3-4 ICT Parks, to be called the ICT Parks of Bhutan (ICTPB). The first one can be established in Thimphu, with facilities to catalyze the small, dynamic and largely public sector-driven ICT market to enable job creation and innovation, recognizing the potential of Thimphu to become a national hub of ICT action in government, education and businesses. The ICTP-Thimphu will serve as the model/pilot project for feasibility of replicating similar facilities/services in other strategic areas such as Samtse, Samdrupjongkhar, and Kanglung/Trashigang in the mid- to long-term. Expected Benefits Addresses Bhutan’s needs for ICT first; Builds ICT skills for the new economy; Facilitates ICT industry clustering behavior, hence cluster-based ICT markets and FDI promotion; Establishes RUB-public-private sector links; Promotes entrepreneurship and businesses as “incubators” (e.g. call centers, data centers, medical transcription services, networking, etc.); Deploys ICT to employ people, create demand and generate exports; Connects Bhutan with the world’s development and industry partners; Improves enterprise competitiveness using ICT (such as through efficiently enabling economic access to Bhutan’s tourism, hydro power, cultural heritage, ecology and governance by the international market); 45 Annexures to the Strategy for Gross National Happiness (SGNH) Links Bhutan with the global economy and Bhutanese entrepreneurs with international businesses. Bhutan’s small market size and skills base do not justify the conventional approach to developing an ICT Park and marketing it to tenants. It is thus recommended that the proposed ICT Park integrate other functionalities with incubation facilities and operations that seek to link to regional and international markets through (limited) public expenditure support. Other risks/constraints include challenging terrain, shortage of trained manpower to sustain the industry, lack of availability of high-quality connectivity at reasonable cost, lack of a one-stop cross-ministerial clearance mechanism, etc. In view of the forgoing, the Government should locate ICTPs in the industrial parks or with other initiatives identified in the SGNH, particularly in considering replication of the ICTPThimphu. Community Information Centers One of the windows through which communities can access information services is through Community Information Centers (CICs). Within the immediate and medium-term, ICT services including internet and e-governance applications in particular will not reach the homes in the rural areas. Therefore, CICs are a logical means to provide the rural population this opportunity. CICs will be located in population centers such as near geog headquarters and other establishments where there is regular congregation of people. The services to be provided in these centers include media services such as TV and print materials, internet access, e-governance services, e-post, e-banking and electronic fund transfer services. Most of these will be located where there is commercial power supply. But in special circumstances, a scaled down CIC model can also be established using solar power and laptops. The Centre can also provide training in the use of specific applications to students and communities. Eventually the CICs should try to aim to be self sustaining. Therefore, while the initial investment and the operating costs for the first three years shall be met by the Government, each community has to come up with a strategy to make the centre self sustaining through levying nominal fees for some of its services such as training, photocopying, printing and the use of the internet. The CIC pilot projects being implemented by DIT demonstrates that a case can be made for many of these centers to be run on a viable business model. Nevertheless it is foreseen that this may not be the case for some centers for which, government’s continued support may be required. Additional benefits of CICs are in the opportunities for local entrepreneurship and to the democratization process. CICs should be established in all the geogs and other places where there is a demonstrated demand. ICT Business Ideas Because of the limited domestic market, the growth of the industry will have to depend on catering to the regional and international markets considering both outsourcing and offshoring possibilities. In principle, outsourcing/off-shoring work will flow to where the labor/talent is the cheapest. India produces 100,000 MBAs a year and 3 million graduates, while Bhutan produces less than 1,000 graduates every year. This is expected to double by end of the Tenth Plan. Therefore, it is unlikely that Bhutan can aspire to be a destination for outsourcing/off-shoring in the way that India or China can. The availability of a large talent pool that is willing to work at minimum wages seems to be the defining characteristics of these countries. The situation in Bhutan is quite different. The small number of its graduates that the Bhutanese education 46 Annexures to the Strategy for Gross National Happiness (SGNH) produces target themselves for jobs that provide greater security and higher earnings than that normally associated with call centers. And yet, Bhutan does provide certain characteristics that nurtured well could poise it to help its people find gainful employment in the plug and play world. A good telecommunication network is being developed that will provide broadband facilities in all major population centers including the capital city and the Dzongkhags. We have a growing body of school leavers educated though an English medium of schools. Bhutan is relatively secure and does not suffer from the political and labor unrests associated with many of the countries in the region. In the medium-term, there are just not enough jobs in the other core sectors such as tourism and service industry for our people. Therefore, this will have to be taken up as a matter of imperative. The industry will have to be nurtured and conditions created to help attract business in niche areas. It seems that we should be focusing on areas where intellect and high-end development tasks are involved and not the sweat shops. However, in order to get there, we need to develop our human resources, build up the capacity of the private sector and create the right policy environment. Two-pronged strategy We can start now with call centre type operations and move up the value chain. Or we can wait till we have adequate human resources skilled to take us into higher skilled BPOs. In reality the strategy will have to be a mixture of both. The market for outsourcing is there already, and companies in India despite the large pool of human resources are concerned by the high turnover of their staff and looking for alternative destinations to set up their centers. This is an opportunity which we can exploit and set up centers employing the hundreds of Class XII and general graduates. This will enable our private sector to get the necessary experience and open the window of opportunities that prevail in the outsourcing world. While doing so, it will be necessary for the government to play a key role in ensuring the enabling environment in terms of recruitment policies, connectivity, tax policies, etc. to make them viable and competitive. We need to work with the early starters to build up the image of Bhutan as a possible outsourcing destination. At the same time, we need to leverage this platform to get the expertise and input from the outsourcing firms to help us develop our human capacity. We need to build up the right alliances now so that we create a win-win situation for both the parties. The following have been identified as possible industries that the government could look into. ICT Hardware Plant We could establish an ICT Hardware Plant, with adequate facilities to support and develop the capabilities of ICT companies/firms to gradually upgrade from a modest low-end assembly of computers to high-end manufacture of parts and assembly equipment of basic electronic products for local distribution as well as for export. The Hardware Plant will initially start its operations by focusing on assembled computers, both branded and non-branded, for local consumption. The strategy is to move gradually into manufacture of computer-related products, such as notebook computers, motherboards, monitors, optical scanners, keyboards and power supplies. Production of consumer electronics and manufacture of high-end consumables (such as printer cartridges) will also be explored. Expected Benefits Strengthening the existing weak links of local firms and global players for expanding the market for assembled computers beyond our borders; 47 Annexures to the Strategy for Gross National Happiness (SGNH) Manufacture and mass production of consumer electronics to meet domestic needs as well as for export; Facilitates collaboration and innovation; Opportunity to market “Made in Bhutan” ICT products and services; Capacity development; Employment and income generation; Space sharing with other industrial establishments; One national ICT manufacturing cluster. Risks and constraints arise from issues related to raw materials, technology and marketing. Also fierce regional and global competition in this sector could stifle its growth. Data Disaster Recovery Center Today most service providers like banks, BTL, BPC, government have their own system for their services. They also have the backup of the system in the same premises. The disadvantage of this is that if there is a disaster like fire, earthquake or a major problem in the network, the system goes down and customer services are affected. Further, while the services can be restored the data will be lost during the disaster. Therefore, it is very critical to have a Data Disaster Recovery Center (DDRC) in the country to assist the service providers. Once set up, we can also market this facility to regional and global firms requiring such services. In the immediate term, the DDRC could be incubated at the proposed Thimphu-ICTPB and at an appropriate time established in some other location. Call Centre A Call Centre combines the use of highly effective and empowered company representatives with a service framework that relies heavily on state-of-the-art communications and information technologies. Call Centers are sometimes defined as telephone-based shared service centers for specific customer activities and are used for number of customer related functions like marketing, selling, information dispensing, advice, technical support, etc. Thus, a Call Centre is a service centre which has adequate telecommunication facilities, trained consultants, and access to wide database, internet and other on-line information support infrastructure to provide information and support to customers. It operates to provide round the clock and year round service i.e. 24 x 365 services. Besides foreign markets, government organizations, autonomous agencies, corporations, etc. in the country can outsource some of their non-core services to the Call Centers and other BPOs. These, amongst others, include customer services such as utilities billing, operation & maintenance of web portals, financial transactions, data processing, GIS, mapping & data capture, tax filling, networking administration, etc. Medical Transcription Medical transcribers listen to dictated recordings made by physicians and other healthcare professionals and transcribe them into documents such as operating room notes, autopsy reports, discharge summaries and other documents which then become part of a patient’s medical record. Medical Transcription is a permanent, legal document that formally states the result of a medical investigation. It facilitates communication and supports insurance claims. Medical transcription business by its very nature involves transcribing medical advice of various types. Therefore, its user base is largely confined to individual doctors, hospitals, special test/examination clinics, state-owned medical centers, medical databases, etc. 48 Annexures to the Strategy for Gross National Happiness (SGNH) Software Development Unit The explosive impact of computers and ICT on our everyday lives has generated a need to design and develop new computer software systems and to incorporate new technologies into a rapidly growing range of applications. Computer software engineers apply the principles and techniques of computer science, engineering, and mathematical analysis to the design, development, testing, and evaluation of the software and systems that enable computers to perform their many applications. Web Designing/Development and Multimedia Web design combines traditional arts with technical skills. A web designer is not just a web coder; he or she is an artist able to understand the value of image and other visual elements, and knows what impact these might have on the viewers. The web designer works with images and words to create the perfect web layout. To create unique websites, the kind of websites that really add value to the World Wide Web, skilled web designers use various tools. They might retouch pictures and graphics or create astonishing images using programs such as Photoshop, Illustrator, Basic Paint, Photo Impact and so on. They might use 3D software or Flash to design dramatic layouts that will transport the visitors into another world. A web developer can also be a web designer, but a web developer typically has more database, CGI, and engineering experience. The designer develops the interface between the front and back end of a website. The same team can progress into animation and graphics designing. This will require more advanced skills and greater creativity amongst the team as well as additional equipment. Data Capturing and Processing Data processing is a category of ICTES pertaining to capture, digitization and processing of data emanating from various sources. Traditional data processing services comprise of punching data from manually filled forms, images or publications; preparing databases and integrating them. However, with the advent of multimedia and internet, sources have widened to include manually printed documents, images, sounds and video. Equally diverse are the new output media which include databases on servers, hard copy publications, CD-ROM authoring and managing records emanating from internet based queries. Data processing has acquired significance in the last decade as information has become a critical resource for most enterprises dependent on timely, effective and judicious use of ICT. These industries may have to make internal decisions, swiftly respond to a customer query, present reports, or for any other use driven by information availability. Importantly, there is an increasing comfort level with outsourcing such services and as Management Information System (MIS) staff are deployed in more tasks requiring high skills. The clients for data processing services are companies/organizations receiving or generating large quantities of forms that are handwritten or typed and time sensitive. These forms can be sent either physically or can be scanned and transmitted to vendor’s facility. The processing may be done using high speed, automated systems reading hand print, checkboxes, mark sense, reader response, bar codes, and most of data slots that is variable on a form. Forms can be processed from hard copy, fax or scanned version. 49 Annexures to the Strategy for Gross National Happiness (SGNH) Investments and logistics for establishing a Data Processing services are a function of the intended services portfolio, scale of operations and size of customers’ operations. Therefore, initially the data processing centre could carry out data punching, editing and compilation for an international publication. Up in the value chain the centre may process data for a large overseas customer, offering services ranging from data entry to database maintenance to back office operation. Data Networking Services Computer networks (including the internet, the biggest network of them all) are now firmly established as the information backbone of many organizations. Networks can vary greatly in size and scope, from a few computers on a local network to a vast international set-up. Network engineering has evolved to address the many aspects of designing, developing, installing, and maintaining data networks such as LAN, MAN and WAN. Typical network engineering services can include any aspects of networking (testing and maintenance). These might include computer terminals, networked servers and printers, and data and voice communications. Data networking services also include recommending a particular hardware configuration or selecting, writing, or customizing software code to make the network function. Location of the ICT Business Units ICT service industry could be located anywhere in the growth centers and economic hubs. These business units should be clustered together or within close proximity so as to provide the following advantages: Sharing of internet connection Sharing of physical resources Sharing of utilities Ease of interaction among firms/companies The clustering of ICT business units will also support collaborative skills development, lobbying, collective selling, and collective product development. Proximity and close linkage with academic institutions could also be an important criterion for placement of the ICT service industry clusters. ICT and Media for Good Governance Some initiatives have already been made in deploying ICT and media to support different aspects of government administration. Future projects need to address a holistic framework of Good Governance principles and objectives. This entails not just computerization of existing systems but re-engineering the government processes to transform governance and make it efficient and people-friendly. Another strategic approach is to ensure the interoperability of application systems across the different agencies to capitalize on a common database and minimize duplication of resources. The costs of systems development for egovernance applications are usually high but can be recovered from associated efficiency gains. But this may not necessarily be true for Bhutan where because of the small population the transaction volume is far less. Therefore, cheaper solutions need to be explored. E-Governance deploys ICT to promote efficiency, accountability, transparency and professionalism in governance. The programme of activities for e-governance for Bhutan shall be guided by the principles of making governance citizen centric, integrating related services and enabling greater citizen participation. There are 115 websites including government, 50 Annexures to the Strategy for Gross National Happiness (SGNH) private sector and NGOs. Many of them are static and updates rarely done. Of these, 83 are hosted with DrukNet. The rest are hosted either with the respective organizations or outside the country. The E-Governance Strategy recognizes the challenges and the opportunities that prevail within this sector. It seeks to further capitalize on the investment that has already been made by different agencies and aims for integration amongst existing systems and development of new applications that can improve service delivery of agencies to make government efficient, responsive and citizen-centric. It also builds on the expressed needs of sectors. Government agencies are involved in wide ranging activities, and for application development purpose, it is helpful to categorize them under two broad heads. The first category of services relates to the internal processes that impact the overall coordination and efficiency of governance and the second consists of services provided directly to the public. The EGovernance Strategy seeks to improve the system in both these categories. Category 1: Government processes (G-G) This includes the management and administration dealing with internal clearance and procedures, financial and human resource management, and documentation. Use of ICT in this area will impact in standardizing procedures, automation and speed up decisions and communications within the organizations. This will include the following features: Personnel Mail Management System – This will provide a common platform for government employees to communicate with each other, including directories of the contacts, common calendar for scheduling meetings, etc. Human Resource Management System – This will include the management of recruitment, promotion, transfer, training and education, leave and personnel emolument. The basic platform for this is already available within the Zhiyog (Personnel Information for Civil Servants) system. Additional features need to be incorporated to enable agencies to submit online requests and forms and receive online approvals. The system should also be directly connected to security and audit clearance systems as certain decisions are contingent on such clearances. Financial Management System – This requires the enhancement of Budgeting and Accounting System (BAS) and new modules to enable online requests and approvals. BAS has to be also realigned to take into consideration the three-year rolling budget system. As a further step, this system should also facilitate the online transfer of funds to the relevant accounts in the bank. Stores Management System – A lot of staff time is spent in maintaining stock and issue registers of equipment and stationery within the agencies. This could be fully automated through a system which will include an inventory and issue system. While reducing staff time, this would also help curb the misuses of such items. Documentation System – As the government moves towards more e-based management and correspondences, there is a need to establish record systems wherein relevant electronic files will be archived. Amongst others, this includes correspondences, policy documents, circulars, regulations, etc. Like the paper-based files, these should be available for access by authorized personnel in the different agencies. This system will also include a system of document 51 Annexures to the Strategy for Gross National Happiness (SGNH) tracking for the active cases. This will include receipt and dispatch and records of file locations etc. GIS System – Many government agencies require spatial data to plan and monitor their sectoral activities. A number of GIS systems have already been developed by individual sectors to fulfill their requirement. However, this has limited capability and use. The single GIS system will incorporate the needs of all sectors and the government. Border Management System – Some work has already gone into this. Coordinated by the MoHCA, this involves the integration of systems within the Department of Revenue and Customs, Tourism Department, Ministry of Foreign Affairs (Visa), Ministry of Labour and Human Resources (Labour Net), Ministry of Agriculture and the Royal Bhutan Police. The system enables the sharing of information, human resources, infrastructure amongst these agencies. The above list is not exhaustive and there could be more applications that would need to be developed to contribute to efficient government machinery. Category 2: Government to Citizen Services (G-C) All government services for the general public including those doing business with the government will be provided through the Bhutan portal which has already been created and functional. Apart from the existing information already available in the portal the following will be added. Employment – All that is required is to provide a link to the Labour.net and the Job Portal of the MoLHR. Land Record – This is one of the basic information required to access rural credit schemes. The land record system should be upgraded to enable online access from the Dzongkhags and geogs and at a later date enable online transactions and approvals. Rural Information and Services – The Bhutan Portal shall address the specific needs of the rural population and will include the following: Agriculture Management Information System. This is already under development by the RNR sector. It will include all information about crops and animals and marketing of the rural products. Basic health and nutrition information and services. Basic education information and services which will include exam results, placements, curriculum, reading materials for formal and NFE students, question banks, online help on curriculum etc. Rural-based services: The following services could be facilitated online for the rural population - (i) Timber and firewood permits, (ii) Loan schemes (iii) Marriage certificates (iv) Death and birth registration (v) Other modules could be added as and when required. Trade licensing and handling system. This should facilitate the online processing and approval of licenses. One Window Utility Billing and Payment System – Water and sewage, electricity and telephone bills can all be paid through a one window system. The billing for all these utilities have already been computerized and at present, electricity and telephone bills can be paid in either 52 Annexures to the Strategy for Gross National Happiness (SGNH) in BTL or BPC customer offices. Further integration of the billing systems may be required to enable all bills to be paid in one counter. The next level of development should be to facilitate online view of the bills and payment system. Personal Income Tax Payment – The PIT system can be upgraded to enable online submission of tax returns and payments. Security Clearance System – This is one of the most important documents required for obtaining other government services. The issuance is carried out manually through the submission of paper-based forms which are validated and checked by two different organizations – RBP and the MoHCA. Using ICT, it is possible to make the system much more efficient and reliable. Applicants could obtain the clearance certificate from the nearest RBP branch office. E-Procurement System – Some agencies have already started providing tender notices online, while others provide facility to download tender documents. However, e-procurement in its real sense requires much more features including on-line tracking of the status of the evaluation process, features to help shortlist the applications and automating the sorting of specific bid items to help the evaluation processes. An essential supporting application for full deployment of this system will be e-signature to facilitate authentication of online submission of tender documents. A step-by-step approach would be adopted. For example, once online payment is available, the features would also be incorporated in the system. Health Management Information System – Some of the features of this system could include patient record and history, tele-medicine and consultations, online booking of beds in the wards and online appointment systems with specialists. Education Net – Some of the features of this system will include, online curriculum and teaching materials, audio visual aids for teaching concepts, online courses for students and teachers, information related to career, value education, extra-curricular programs. Online Polling on Policies – The government portal will provide features for citizens to provide feedback on the current government policies as well polling on specific issues or policies under consideration. Guiding Operational Policy for Applications Development To speed up the process of developing and deployment of e-governance applications, wherever possible, the existing applications will form the base for future development. Where new systems need to be deployed, possibility should be explored for off-the shelf systems and customization. In addition, most of the tasks should be outsourced to the private sector. Enabling Conditions for E-Governance Applications Development Optimizing the ICT Staff in the Government There are less than 100 ICT professionals employed in the central Ministries and agencies, most of them are diploma and certificate holders. Because of the less than optimal utilization of the existing staff, and the fact that development functions would now be undertaken by a single agency under MoIC, their deployment needs to be rationalized. The government agencies should retain staff that are only critical to the maintenance of their systems. General maintenance and network administration functions should be outsourced and the staff reassigned to where they can be more productively employed. 53 Annexures to the Strategy for Gross National Happiness (SGNH) E-Governance Standards and Guidelines DIT is already engaged in developing Software Development Guidelines. In addition, it should develop and adopt open standards for interoperability of e-governance applications. It is learnt that the National Informatics Centre (NIC) of the Department of Information Technology in India already has developed these standards. This could be adapted for our requirements and environment. In addition, training of personnel to implement such standards would be vital. Quality Management System Central to quality software development is the establishment of quality management system and their enforcement while developing systems. Bhutan can also adapt the systems in vogue elsewhere, particularly that developed by NIC, India. Training is also another important element in meeting this objective. The Media Industry The principle of Bhutan’s media is best manifested in the 1992 Royal Decree de-linking Kuensel Corporation and Bhutan Broadcasting Service (BBS) from the Government giving them the independence on what and how to report. This independence has been further augmented through the BICMA Act 2006 which sets out the principles and the legal recourses to enable Bhutan’s media to report and provide to the public domain any materials that does not undermine the sovereignty, security, unity and integrity of the country. Freedom of press is also enshrined under the Fundamental Rights of the Draft Constitution. Issues on Print Media The first issue facing the Bhutanese private media is its financial survival. And this is inextricably linked to the revenue stream from advertisements and government notifications. A level playing field needs to be created to enable the private newspapers to get their share of the business from the government in form of advertisement and printing works. The second issue relates to the professional growth of the newspapers. While Kuensel and to some extent Bhutan Times have a head start in having qualified editors and professional graphic and layout artists, Bhutan Observer has less qualified staff. All the papers, however, need infusion of greater professionalism and training, particularly in the light of the role that they are expected to play in the post-2008 constitutional democratic system. The existence of the private newspapers may not in itself be a true reflection of an unbiased democratic voice, but the quality of the editors and the journalists can be crucial contributing factors to this. The third issue relates to the Dzongkha edition of the papers. Since the Dzongkha edition helps serve the development and promotion of the national language, some support is required from the government. Recommendations Government needs to treat all media firms equally in terms of awarding ads and printing works. a) While the MoIC has circulated a letter to all government agencies to this effect, this is not being followed. Therefore, a government-wide system needs to be established which will ensure that the private print media gets a fair share of the government 54 Annexures to the Strategy for Gross National Happiness (SGNH) advertisements and announcements, as an interim solution to sustaining them. The choice of the newspapers should be determined by the quality of service and price and the standing government rule requiring its agencies to procure services from the most competitive suppliers should be fully adhered to. b) Government printing works must be based on quotations, and should not be given directly to one printing house (e.g. Kuensel) as is the practice adopted by many Government agencies. Although this is not directly linked to media per se, this is highly relevant as the sustenance of the print media depends on the income generated from their printing operations. c) BBS should not be allowed to play an anti-competitive/dominant operator role with respect to airing of government notifications and advertisements. Currently, BBS charges a fraction of the costs to air government announcements. BBS should charge the government agencies the actual costs for airing these contents. d) BICMA should enforce the prevailing rule not to allow cable operators to air advertisements on their local channel. This could be allowed, however, if they are also licensed to provide content as recommended elsewhere in this document, in which case the charges for the advertisements need to be regulated as recommended for BBS. Financial support The print media should also be allowed to access financing support under a basket media fund (e.g. National ICT and Media Development Fund) which can be funded by donors supporting the media sector or governance programmes. These funds can be used to provide special credits or grants for purchase of equipment, training and related projects within the media sector. HRD support The government should continue to provide support for long-term education, training and workshops for the print media personnel. Issues on Broadcasting Media Undoubtedly the key player for nationwide broadcasting is BBS and therefore it is crucial that BBS be built up to meet the envisaged role as a Public Service Broadcaster (PSB). Currently, the content of broadcasts especially for TV is limited both in scope and depth. The information is very government-centric and is characterized by the coverage of national workshops and events. There is very little debate, and does not take the stories beyond its surface. BBS does very little in-depth reporting of the core issues contributing to deeper understanding of national events; it has not contributed to exposing people, policies or social malaise that impact the general lives of the population. The cultural programme is dominated by the airing of popular songs and dance sequences of RAPA and clips from school variety shows and occasional religious discourses. There is no drama, no creative programme to excite the intellect of the Bhutanese. There is little evidence that this will change under its current business Master Plan (2005-2010), which is focused too much on network expansion and revenue generation through advertisements and not enough on the content development. The second issue is BBS’s inability to take advantage of the ICT and the telecom network. While there is now potential for broadband connectivity to every Dzongkhag, the TV broadcasts beyond Thimphu and Phuentsholing use satellite. The GoI is providing the 55 Annexures to the Strategy for Gross National Happiness (SGNH) transponders on its satellite for free till 2009. There is no certainty whether this will continue after that. If not, BBS will have to bear the charge for the transponders of US$ 120,000 every year. The third issue is related to the lack of qualified staff in BBS. BBS employs well over 160 staff members out of which only 34 are in the Program and Production Department. 21 are in the News and Current Affairs Department, 46 are engineers and technicians and the rest are in the HR and Administration Department and Finance/Commercial Department. It is also reported that there is a rather high rate of staff turnover in the BBS. Recommendations BBS to focus on content development and improvement For the next 5 years, BBS has to focus on developing and airing quality programmes to “educate, inform and entertain the Bhutanese public”. Some of the suggested materials are as follows: a) In-depth coverage of current issues based on well researched materials. There is a wealth of subject matter that one can pick from Kuensel online or public debates in the Dzongkhags and the National Assembly. BBS has to contribute to these dialogues through professionally crafted programmes which excite and help the audience to get a deeper understanding of the issues. b) Bhutanese Drama on themes that reflect the lives and tribulations of its viewers. These original productions should strive to be standard bearers for Bhutanese Films and Arts industry. c) Children and Youth programmes. Considering that over 50% of our population is under the age of 24, BBS has to focus on capturing this audience through programmes that appeal to this group. This is not an easy task especially when it has to compete with Cartoon Network, Star TV and the like. But this is necessary if BBS is to justify its existence as a PSB. Staff development of BBS BBS is already implementing its HRD Master Plan drawn up for 2005-2010. This needs to be reviewed in the light of the above recommendation. Greater focus needs to be placed on recruiting and retaining talent in the Programme and Production Department. BBS also needs to build and nurture relationships with other broadcasters in the region as well as BBC and other PSBs. Amongst others, this could be an avenue for receiving professional and training support for the BBS staff. License another commercial TV service The government should consider licensing another TV company to be run on a commercial basis. This should provide the necessary competition to BBS while at the same time spurring greater local content development. License cable operators to provide content on their channels This is already being done by some of the operators. This will ensure greater variety of programmes and bring in greater competition to this sector. The fees from the license could be used to build up the media fund mentioned earlier, which can be deployed for the development of media sector. 56 Annexures to the Strategy for Gross National Happiness (SGNH) Audio Visual and Films Bhutan has a rich tapestry of unique performing arts. Its oral story telling culture, lozey, ole and tsangmo are some of the finer depictions that have survived the test of times. The annual tshechus held in different districts, towns and villages are also live venues of performing arts. Besides the religious rituals and dances, tshechus are tantalizing platforms to showcase the cultural heritage of the country wherein the best of the community’s artists perform. A study conducted by the DoT in 2004 established that 34.4% of tourists were attracted to Bhutan because of its “unique culture”. With the advent of modern education, large immigrant population and the onslaught of Hindi cinema in the country in the 1970s and 80s, Bhutan witnessed a distressing phase during which our songs and dances were passed over in favor of more hip rhythms and alien forms of sensual entertainment. However during the last decade or so, the country is seeing some reversal of trend with new Bhutanese creativity energy not seen before. This is particularly true in the audio-visual and film industry. The content of these production may not all reflect the Bhutanese culture in its pure form, but nevertheless the subject and the context are Bhutanese. More important, the productions appeal to the majority of the indigenous Bhutanese population. Two factors may have contributed to this. First, was the considered decision of the Royal Government to promote the national language and culture and its expressive elements in the schools and educational institutes. This led to an upsurge of creative experiments within the educational institutes which has spilled to the general society. Second, was the development of technology and the availability of low cost recording equipment, from cassette recorders to synthesizers and video cameras. What is rather remarkable about the development of the industry was the near absence of any strategic government initiative or investments for development of the audio visual and film industry per se. And yet the Bhutanese audio-video industry pioneered by a few private companies has now reached a status where their productions are pirated and sold in bordering towns of India and autonomous region of Tibet, China. The same holds true of the Bhutanese films as well. Issues There are some factors that impede the growth of the audio visual and film industry. Because of its higher investment, the issues are particularly more significant for the film industry. The significant ones are detailed below. The opportunities for truly creative film making are limited. The very taste and style of cinema that stimulated the Bhutanese film industry is now beginning to limit the development of the industry. This is primarily because the more educated section of Bhutanese society is yet to be converted to Bhutanese cinema. They are easily put off by the amateurism, long and frequent song-and-dance sequences and not so original story line. On the other hand, Bhutanese filmmakers who invest relatively huge sums in films would not “risk” deviating from the Bollywood formula for fear of losing their money. It is here that the Government could intervene with resources, technical assistance and facilitative roles. 2006 saw the largest number of films (22) being released. However the main screening outlet for Bhutanese cinema currently is Thimphu which unfortunately has only one hall built in the early 1970s. Consequently it is not able to meet the demand from the industry. It is reported that the queue for screening these productions extends to the end of 2008. This has created 57 Annexures to the Strategy for Gross National Happiness (SGNH) a bottleneck in the industry, blocking up future investments and productions for the young startup companies. Film Industry The film industry has come thus far with very limited support from the government. But it needs a helping hand if it is to progress to new level of artistic creativity and sophistication necessary to cater to the more discerning tastes of the growing educated mass. Government support is required in two core areas. These are in the area of access to credit and insurance schemes as well as in human resource development. Specifically, the following need to be undertaken: a) A Films Development Board should be established. The Board should comprise of prominent artists and academicians and provided with an annual budget to enable them to co-finance 3 short film projects and documentaries and two feature films selected through an annual competition of the scripts. These films must depict faithfully Bhutanese culture and social issues in its best. b) Financial institutes should develop a loan package for Bhutanese film projects. Access to micro financing should be extended for small-scale initiatives like DVD duplication units, flexi printing units, cranes and tracks etc. RICB should also extend its insurance coverage to expensive audio-visual equipment. c) Training and education Bhutanese films today do not lack in creative decisions and story ideas. But technically there is much to be desired. Training can be provided for three broad categories. Script writing – This could be undertaken through scholarships provided to attend any one of the institutes in the region through the HRD programme implemented by MoLHR. Acting – A school of Drama and Acting can be set up in Bhutan. This could be undertaken on a public-private partnership model. The institute could offer diplomas or short workshops on acting. At the same time, school curriculum should also offer opportunities for young talents to develop their innate abilities in this field. Technicians – Currently not one of the cameramen has a light meter. Neither is there any lighting technician in the country. As of now all lighting equipment and technicians are hired from India. This needs to be included in the MoLHR’s HRD Plan. d) Movie halls Future development of urban centers should include a movie theatre in their plan. This should be undertaken by the private sector where there are such interests; otherwise, it should be undertaken through public financing. In any case, the capital city requires a second movie hall and license should be provided to the promoter. Music Industry As of now, the industry’s musicians are dominated by amateurs who are more skilled in the creative use of technology such as the electronic synthesizers than true artistic mastery of real instruments. This needs to change with the evolution of population’s taste and discerning power. To help support the qualitative development of the music industry, the government should lend a hand in the establishment of music schools in its more populated urban centers. Children can be taught Music Theory and to play both modern and Bhutanese traditional 58 Annexures to the Strategy for Gross National Happiness (SGNH) instruments. These students, trained to read and write music and perform a variety of instruments will in future fuel this industry to develop to greater level of creativity and sophistication. Institutional Arrangements The growth of the ICT and media sector will depend upon the political will and in most countries the success stories in this sector have been always associated with the level of patronship it receives from key political figures. The realization of the plans and programmes is also dependent on the institutions that are mandated and inspired to develop the sector. For Bhutan, a key agency is the Bhutan InfoComm and Media Authority. This body needs to be strengthened to create the enabling framework for the development of this sector. BICMA must encourage competition in the ICT market and at the same time provide a level playing field for all service providers. BICMA’s autonomy must be ascertained so that it can independently implement regulations and policies without intervention from other parties. It is also vital to establish BICMA’s role and status relative to major stakeholders such as MoIC, BTL, BBS, etc. Besides, the Government must demarcate boundaries between BICMA’s responsibilities and those of other Government bodies, whether those are similar expert agencies or offices charged with particular tasks, such as competition or consumer protection. It may be impossible to eliminate all areas of overlapping jurisdiction. Indeed, it may be desirable to have agencies working together, lending various types of specialized expertise to joint task forces and inter-agency committees. Establishment of a Computer Emergency Response Team (CERT) Computer and system breakdown are regular features in the government offices. Virus, uncontrolled use of pirated software and lack of adequate maintenance infrastructure and systems all contribute to this problem. While this is considered as a way of life at present, it will be unacceptable in the future as the country begins to depend more and more on computer systems for core government and business services. Keeping organizational information assets secure in today's interconnected computing environment is a true challenge that becomes more difficult with each new ICT product and each new intruder tools. How secured the country’s network is and the mechanism set in place when an emergency occurs will also be a consideration that business firms will factor in while assessing whether to invest in Bhutan. CERT will act as a coordination centre readily available to respond to and tackle any emergency computer (e.g. computer virus) and network security incidents. Usually the organization handles computer security incidents and vulnerabilities, publish security alerts, and develop information and training on information security. CERT composes a team of people responsible for coordinating responses to viral incidents within an organization. A CERT can be a formalized team or an ad hoc team. A formalized team performs incident response work as its major job function. An ad hoc team is called together during an ongoing computer security incident or to respond to an incident when the need arises. 59 Annexures to the Strategy for Gross National Happiness (SGNH) Track 2: Revitalization of Agriculture, Forestry and Construction Industries Governance framework for optimizing agricultural land use The discussion below deals with the prospects of optimizing the agricultural land use in Bhutan through the overall governance framework i.e. policies, legislation, land administration, land reforms, and strategic land use planning. They are initiatives that should be adopted early in the twenty-year plan as they form a fundamental framework for the more practical land management options discussed later in the strategy paper. They are also initiatives that are related to other sectors and types of land use such as urban development, industry, mining, hydropower generation, tourism and local development, and therefore partly need to be planned and implemented in a multi-stakeholder context. Background Good governance and management of Bhutan’s land resources are arguably the most important precondition for sustainable economic development and poverty alleviation. Rural poverty is largely a result of inadequate land holdings and of the lack of road and market access that have constrained the opportunities for land use intensification, and thus retained many farming families at a marginal near-subsistence level of production. The serious rural poverty situation is highlighted by the 2003 poverty assessment, which showed that 38% of the rural population lives on less than Nu 741 per month (compared to only 4% among the urban population). Although sparsely populated, access to agricultural land is limited by the steep topography, the lack of infrastructure and the high priority given to conservation. Agricultural land is confined to only 7.8% of the land but is the basis for the livelihood of the majority of the population. Inadequate size and quality of land holdings are obviously an important – maybe the most important – cause of rural poverty in Bhutan. Among the households owning land, as many as 69.4% have less than 5 acres of land, which is generally considered the minimum average holding size for economically viable farming in Bhutan. Furthermore, 34% of land holding households have less than 3 acres, of which 14% have less than 1 acre of land 5. The percentage of landlessness among agricultural households was, according to recalculation of data from the RNR Census 2000, as much as 8%, although this figure may have decreased with the ongoing resettlement schemes. Agricultural and forest land are under considerable pressure from urban development, housing, industry and infrastructure. The legislation and policies have sought to diminish the incursion of such usages to safeguard agricultural production and forest conservation, but this has on the other hand constrained the economic utilization and optimization of the land resources. In the larger towns, particularly Thimphu, the confined space and rapid population increase have led to spiraling land prices beyond the means of most people and rampant land speculation that has accentuated the gap between rich and poor. This has also increased the pressure on the existing legislation that has sought to protect the agricultural land in and around urban areas and made the official compensation for expropriation inadequate. A fundamental development issue is striking an appropriate balance between conservation and production. While Bhutan is one of the leading countries in conservation, the socioeconomic conditions of Bhutanese farmers are less favourable. Although this is largely due 5 PPD, Ministry of Agriculture, 2002 60 Annexures to the Strategy for Gross National Happiness (SGNH) to the low productivity and limited access to land, roads and markets, it is probably fair to say that Bhutanese farmers have been paying the costs of much of the conservation efforts through restrictions on expanding land holdings and widespread wildlife damage to crops and livestock. The importance of road access to agricultural intensification is recognized in the Government’s considerable investment in the national road network. However, the construction and maintenance costs are high, and with the decentralization of planning to local level the demands for further investments are set to increase. It is therefore important that infrastructure planning is based on sound criteria and suitable structural plans that can optimize the socio-economic benefits of the investments, including the use of land zoning and strategic land use planning. Resolving land governance issues is constrained by their complexity and by the multiple stakeholders with widely varying interest and priorities. While the national policies prioritize a balanced development philosophy aimed at maximizing the well-being of the citizens these policies are at the more practical level pursued within sector-specific interest, which does not always ensure the desired balance. Hence, many of the land related conflicts and problems occur between different departments, sectors and land users and may have remained unresolved because of a lack of communication, authority or even interest in coordinating the legal, policy and administrative framework. It is therefore proposed that these problems be solved by: Developing a comprehensive, multi-sectoral land policy. Revising the legislation pertaining to land governance and management. Strengthening the administration of, and information systems on, land resources. Continuation of the land reform processes to ensure that landless and marginal farming families have sufficient land to make a viable living. Improving the strategic management of land resources through land use planning at national and local level. Supporting farmers in adopting sustainable land management technologies. These initiatives would be able to clear some of the basic constraints on optimizing agricultural and other land usages in Bhutan on which more practical land use development initiatives could be based. Strengthening the land policy framework Bhutan has a comprehensive system of policies, legislation and administrative tools to govern the land resources. However, it has not been fully able to solve conflicts or to balance different development priorities such as agriculture, urban development, industry, mining, hydropower generation, recreation and tourism. It is therefore proposed that the land policy framework be strengthened through the development of a formal, multi-sectoral Land Policy that should provide an overall framework for a balanced socio economic development and environmental conservation. A formalized land policy should stipulate the goals and priorities for managing the national land resources, overall strategies and procedures for attaining these goals and priorities across different sectors and stakeholder interests; clarify the relationship to and between relevant legislation, policies and strategies; clarify the institutional responsibilities and 61 Annexures to the Strategy for Gross National Happiness (SGNH) authority; and outline how the policy goals are to be attained through the land administration, land use planning, and practical land resources management. The land policy should be appropriately linked to the overriding national policies, goals and legislation. In this context, the GNH concept may provide a suitable inspiration as it seeks to facilitate a balance between complex and sometimes conflicting issues. Hence, a vision for the governance of land in Bhutan could be as follows: The land resources of Bhutan are utilized and governed productively and equitably while preserving the environmental and cultural heritage by: Aligning the governance of land resources with overall land capability and with the national policy, legislative and strategy framework. Clarifying the institutional responsibilities and authorities in the governance of land resources. Enabling effective poverty reduction through socially balanced and pro-poor land governance and management. Enabling economic excellence by optimizing the use of the limited land resources. Facilitating an appropriate balance between economic development, environmental conservation, cultural preservation and national security. Ensuring that the tenure rights are secure and that the obligations and rights of land users are upheld according to the law and the overall development goals of the country. Ensuring that land administration at central and local level is rational, efficient, equitable and transparent. Providing an overall framework for development of specific legislation related to land resources use and management. Formulating a land policy to improve the governance and management of land resources in Bhutan would entail information and comprehensive analyses of the status of land management, the current governance system, and the problems and development opportunities that the land policy ought to address. From the comprehensive analysis of the land use and governance, a number of critical issues are likely to emerge that would have to be dealt with through policy resolution, e.g. related to: The means of balancing the economic utilisation and conservation of land resources, for instance related to wild life damage to crops and livestock, the access to nontimber forest products, and the utilisation of forest for livestock development, tourism, commercial and rural timber production, etc. The principles for a land zoning and allocation system that would clarify the applicable management regimes, taxation, compensation, the administrative authority, and legal framework. The principles for strategic land use planning as a tool to optimise the utilisation of land and the investment in land development, infrastructure construction, etc. The strategy for increasing the land holdings of marginal and land-less farming families. The institutional responsibilities and authority over land governance and management among sector institutions, central and local governments. 62 Annexures to the Strategy for Gross National Happiness (SGNH) The principles for tenure over land resources including traditional rights and management systems. The GNH Commission Secretariat, as a neutral agency without any sector interest should take the lead in formulating this policy through compilation of land use constraints and conflicts related to each sector. Legislation The current legislation on land and land utilization is composed of numerous Acts and byelaws under the authority of several Ministries. This legislation contains various gaps, contradictions or uncertainties, which needs to be sorted out e.g. related to the authority vested with local governments and central government bodies. Such shortcomings would become even starker if major land policy changes are being made. It is therefore recommended that a comprehensive review and possibly amendment of relevant acts and their interrelationships be made once the comprehensive land policy is formalized. This would probably include the Land Act, Forest and Nature Conservation Act, the draft Water Act, the Municipality Act, the Mining and Mineral Exploitation Act, the Inheritance Act, and the DYT and GYT Chathrims. Strengthening land administration Land administration pertains to the government systems at central and local level that deal with: Cadastral and land deed records Land tax and royalty system Land reforms, redistribution and resettlement schemes Land inheritance, sale and leasing regulations Land acquisition, expropriation, and swapping rules Problems relating to the tenure, ownership, taxation, acquisition and expropriation of land have long been a major constraint for farmers who have been subject to administrative decisions. In recent years the issues of excess land and land overgrown by trees have triggered much public debate, as they are seen by many as unfair impositions on poor farmers and by others as effective means to safeguard forest and other natural resources. Another often criticized aspect of land administration is the perceived inefficiency or bureaucracy involved in even simple transactions, permits, etc. With decentralization and further democratization it is vital that the land administration at central and local level is guided by strong but simple rules and procedures, and is conducted in a transparent manner. It is therefore proposed that an overall strengthening of the land administration at central and local level be made to ensure that the administration can effectively and efficiently: Safeguard ownership and security of tenure Support land and property taxation Facilitate access to credit through information on security in land Reduce land disputes through formalized and transparent land registration Facilitate land use planning and infrastructure development 63 Annexures to the Strategy for Gross National Happiness (SGNH) Produce statistical data and information for administration and for practical and strategic decision-making The strengthening of land administration procedures and systems should be in line with the revised Land Act. Land reform The insufficient landholding for most farmers is a major cause of poverty, rural-urban migration, and low agricultural output. Land allocation aimed at landless and marginal farmers has been practised for many years in Bhutan. This includes the major land reforms in the 1950s, the resettlement programmes that have now included 4,071 households through 8 phases, and the granting of Kidu by His Majesty the King. It is therefore proposed that the land reform process be stepped up through the allocation of suitable agricultural land to needy households whose primary livelihood is farming. It could involve conversion of some (albeit very limited) forest in order to identify land with suitable slopes, soil properties and proximity to infrastructure. At present conversion of Chhuzhing to other land use is restricted and is permitted for conversion only if a land is technically found to be unfit for further paddy cultivation. At the strategic level, the protection of Chhuzhing has been maintained for national food security. The definition of food security in the past has been limited to achieving national food self sufficiency, particularly in food grains. Since rice is the most preferred staple, protection of Chhuzhing has been identified as one of the main policy instruments to ensure food security. However, paddy cultivation provides comparatively lower economic returns than other land uses due to high labour inputs in the face of labour shortage among rural farms. The situation is exacerbated by the scattered nature of land holdings which demand even more farm labour time. It takes 205 labour days to grow one hectare of rice in Bhutan against an Asian average of 75-100 labour days. FAO (1994) reviewed the Accelerated Food Production Program (AFPP) and pointed out that based on the economic analysis carried out by AFPP, the production of the import substitution crops of rice, wheat and oilseeds is not economically viable compared to the production of horticultural crops for export. They concluded that the promotion of cereals and oilseed crops, which compete for the same resources as export crops, would result in lower farm incomes, lower export revenues and less economic growth. The restriction on conversion of Chhuzhing to other categories of land use thus constrains the economic use of such lands. Furthermore, food security is increasingly understood as a function of physical availability of food, accessibility to food by the population and proper utilization of food to enhance nutritional intake by the population. The policy instrument of protecting Chhuzhing is expected to contribute to food availability by increasing domestic production of rice. Availability of food refers to the physical presence of food which need not be based on domestic production alone. It can also be enabled through importation. Therefore, the restriction on land use such as on land conversion should be lifted and land use should be left free for the land owners to decide based on land capability and suitability assessment so that limited agriculture land is used for the best economic agriculture option. In fact the use of land for the most economic agriculture land use such as for horticulture would provide better incomes to farmers which would contribute to enhancing accessibility to food through enhanced purchasing capacity of the population. 64 Annexures to the Strategy for Gross National Happiness (SGNH) However, given that protection of land has a bearing on national food availability through domestic production, the lifting of restriction on land use should be viewed cautiously. Even the most developed nations like the US, Europe and Japan maintain strong positions on agriculture protection. Ensuring availability of food through imports has its own limitations and risks such as possible disruption in geo political conditions, risks of trans-boundary diseases such as avian flu, limited access to markets other than that of India etc. It is furthermore proposed that the potentials for swapping marginal agricultural land in remote areas with more suitable land closer to roads, markets and facilities be explored. This would obviously benefit the involved households, but could also reduce the costs of providing social services to very remote communities, and could serve forest and biodiversity protection by reducing human impact in priority areas. Land use planning There is considerable scope for improving the land management in Bhutan by adopting a more systematic approach to land use planning as a tool to: Optimise land use so it contributes to poverty alleviation and socio-economic development. Ensure the use of land resources comply with national and regional strategies, master plans, plans for socio economic development and national security needs. Prevent or reduce land degradation caused by unsustainable use of the land. Ensure that important habitats and biodiversity resources are duly protected. Ensure a suitable balance between land utilisation and land resource protection. Support rational investments planning in roads, irrigation, market development, and social services. Land use planning is choosing land use objectives and methods suitable to the environment, the socio-economic conditions, the infrastructure and markets opportunities, the development priorities, and to the needs, interests and capability of the land users. Farmers have carried out land use planning since agriculture was first adopted, choosing land and management technologies that suited their objectives and the prevailing production condition. The absence of catastrophic degradation and the continuation of agriculture in a fragile environment are testimonies to the Bhutanese farmers’ capabilities as land use planner. Nevertheless, it is believed that overall land use planning initiatives are necessary to improve the returns from and sustainability of agriculture, to conserve the natural resources, and to ensure that infrastructure and social services can be provided in a rational and cost efficient manner. Also, certain traditional practices that have helped maintain fertility are no longer considered suitable, such as shifting cultivation, extensive cattle grazing in forest areas, which would necessitate the introduction of alternative land use plans. It is therefore recommended that principles for strategic land use planning be developed. Such plans may be based partly on watershed management planning principles, but it is recommended that the existing administrative entities (Geog and Dzongkhag) be the basic planning units, as political decision making, budgets and administration are bestowed to them. 65 Annexures to the Strategy for Gross National Happiness (SGNH) It is recommended that different land use regulations and development strategies be applied in areas with favourable road access and in area with difficult road access. This may even mean the temporary continuation of traditional management methods in remote areas although the same methods are discouraged in other areas. Meanwhile a land capability assessment based on actual Bhutan soil reconnaissance survey data is proposed to be carried out by the National Soil Service Center in Semtokha in collaboration with the Departments of Survey and Land Records & Geology and Mines. It is important for Bhutan to use the limited land available for the best option that it is capable. The land capability assessment for the present exercise is done based on small scale soil data from FAO which shows only an indication of the land capability. By the 11th FYP, land use plans can be based on the actual land capability data of the country. For specific land uses, land suitability assessment can then be used as a tool for specific planning and management of land resources in the country. Sustainable land use Most of the agricultural land in Bhutan is subject to various kinds of land degradation such as erosion, landslides, chemical and physical soil degradation, flooding etc. Without proper remedies, these processes are likely to accelerate with the planned agricultural intensification and the gradual abandonment of traditional practices such as shifting cultivation, Sokshing and extensive cattle rearing. Suitable land management practices must therefore be promoted according to the specific needs and potentials of the land, including measures that safeguard soil fertility and prevent erosion and other land degradation. Such work is already underway through the MoA’s land management campaigns and the Sustainable Land Management Project, although the extension and implementation support must quickly be offered to all Bhutanese farmers. The land management campaigns carried out so far have shown very good progress in terms of reclamation of degraded land, particularly in the eastern part of the country. The remaining Dzongkhags should be covered during the 10th FYP. 66 Annexures to the Strategy for Gross National Happiness (SGNH) Enhancing national food security 1. Background and dimensions of food security 1.1 Background Bhutan does not face abject hunger and starvation. However, food insecurity, in terms of deficit in cereals is a problem faced by a majority of rural Bhutanese households. The RNR Census 2000 has estimated that only about 44% of the rural households were able to produce enough food grains for their year round requirement. The rest of the households could produce enough to last for on an average 10 months. The food insecure households generally cope up with this situation through purchase or borrowing from neighbours, barter with livestock products or sell labour in exchange for food. Chronically hungry and/or malnourished people can seriously constrain building the necessary human, physical and social capital, necessary to facilitate their exit from poverty or for national economic advancement. Therefore, food security has consistently been an important part of Bhutan’s development agenda since the 5th FYP and should continue to remain so. 1.2 Dimensions of Food Security The World Food Summit in 1996, recognized that “food security exists when all people at all times, have physical and economic access to sufficient, safe and nutritious food to meet their dietary needs and food preferences for an active and healthy life” 6 . This definition integrates availability of nutritionally adequate food, access to food, stability, and the biological utilization of food. This definition implies that addressing food security requires ensuring availability of food, access to food, ensuring proper biological utilization of food and facilitating a stable environment for progress in all these dimensions. 2. Situation analysis The main focus of Bhutan’s food security agenda has however, been limited to achieving national food self sufficiency, particularly in food grains, rice being one of the most prioritized cereals. The consumption patterns are changing. Although rice is considered as the most important cereal, other food items are also becoming important part of Bhutanese food basket with the changing consumption pattern (refer Table 1). Table 1: Structure of consumption expenditure by area (%)7 Items Bhutan Urban Rice 7.10 4.51 Cereals, cereal preparation and 3.51 2.65 pulses Dairy products 6.91 5.75 Fish 0.96 0.87 Meat 3.62 3.11 Fruits 0.99 1.19 Vegetables 3.37 2.65 Tea and coffee 0.84 0.64 Cooking oil 1.96 1.53 Spices and seasonings 2.49 1.71 Alcoholic beverages 2.19 0.99 Non-alcoholic beverages 0.45 0.79 Food taken away from home 1.54 1.70 6 7 FAO, 1996 Bhutan Living Standard Survey 2004, National Statistical Bureau 67 Rural 8.47 3.97 7.52 1.01 3.90 0.89 3.75 0.94 2.18 2.89 2.82 0.27 1.45 Annexures to the Strategy for Gross National Happiness (SGNH) Tobacco and doma Sub-total: (Food) Clothing & footwear Transport and communication Recreation Furnishing and equipments Miscellaneous Educational expenses Health Expenses Rental/energy/household operation Sub-total: (Non-food) Grand Total: (Food + non-food) 0.84 36.77 0.85 28.93 0.83 40.90 9.43 4.48 1.05 4.97 11.38 1.33 2.92 27.67 63.23 100.00 11.17 9.04 2.47 6.93 8.29 2.84 2.39 27.94 71.07 100.00 8.51 2.08 0.30 3.94 13.00 0.54 3.20 27.52 59.10 100.00 Therefore, a comprehensive approach that considers all other food items as well as non food items that relates to enhancing food security was missing all along. Availability of food a. Food availability has been addressed through both domestic production and imports. On the production side, maintenance of a minimum of 70% self-sufficiency in food grain production has been a policy objective. At present domestic production is not adequate to provide for the total domestic requirement. The RNR Census 2000 estimated a cereal self-sufficiency level at 65% only. Domestic production meets only about 25% of the requirement for edible oil and vegetable items, fruits and diary products which are imported heavily. With virtually no imports recorded, the country is self-sufficient in maize, barley, millet and buckwheat. However, import of rice increased from 31,200 tons in 1995 to 54,910 tons in 2003. The import of wheat, although not very significant, increased from 5 tons in 1997 to 12.40 tons in 2003. b. It has been seen through scientific studies that Bhutan does not have potential for export of cereals8 due to high inputs requirements, labour shortages and harsh agroecological conditions compared to such conditions in India and Bangladesh. The main constraints in enhancing agriculture production from farmers’ perspective include depredation of crops by wild life (reported by 41.9% of farming households), lack of irrigation (reported by 20.6%), labour shortage (reported by 9.6%), land shortage (reported by 8.1%) and access to markets (5.2%)9. c. Wild-life damage to crops and livestock continues to be the single greatest risk to crop and livestock production. 11% of maize, 8% of wheat, 7% of paddy and 6% of potato crops are damaged by wild animals every year. Legislative restrictions on killing wildlife (including non-endangered species) mean that farmers are unable to prevent this damage to their crops and livestock. In monetary terms, wild-boar damage to crops alone has been estimated to reach US$ 1.95 million per year. There is no provision for compensation of crops depredation by wild animals. d. The farm mechanization initiative has focused on provision of machines and tools for individual farmers. The steep terrain and small landholding of individual farmers do not provide for optimum use of machines. Individual allocation of farm machines also 8 9 Dorjee, 1995; Deb, 2004 RNR Census 2000 68 Annexures to the Strategy for Gross National Happiness (SGNH) poses difficulty in supplying adequate farm machines to all farmers. Moreover, the supply of farm machineries has been skewed towards the western region. Accessibility to food a. There are significant differences in road access across the country. Headquarters of all the Dzongkhags except Gasa are connected by road. However, at the Geog level, disparity in road access is pronounced. One-third of the Geogs do not have feeder roads while another one third has only some parts connected by feeder roads signifying inadequate road connectivity in terms of road kilometer density. 49 Geogs are still more than 8 hours away from the nearest highway and for 57 other Geogs, the nearest highway is 3 to 8 hours away. Some of the more remote places are found in northern Thimphu, Gasa, Lhuentse, Trashigang, Samdrupjongkhar, Pema Gatshel, Mongar, Zhemgang, Trongsa, parts of Wangdue, Chhukha and Haa. In these remote areas, people face difficulties in accessing markets and basic services. In Gasa and Zhemgang, for instance, 58% and 56% of farm households are at over eight hour’s walking distance from services such as a phone, hospital, bank and bus station. The transport difficulties also constrain the food distribution system. b. Available data shows that markets play an important role in providing people with access to food, in both urban and rural areas. In rural areas, an average of 60% of the food consumed is accessed through the market. This includes rice (50% purchased) and dairy products (57% purchased) – which constitute the bulk of calorie consumption - as well as fish, meat, fruits and vegetables10. Increasing incomes and access to markets, therefore, has an important role to play in increasing people’s access to food in both urban and rural Bhutan. However, interventions for increasing income generation are not equally relevant in all parts of the country. Utilization of food a. Iron deficiency in diets has been identified as the most common and controllable factor for anemia in the country. Anemia, measured on the basis of haemoglobin levels in blood, is especially prevalent among children (81%) and women (55 %), with little difference between different parts of the country 11 . 60% of anemic children experience moderate to high severity of anemia, indicating that there is a large magnitude as well as high severity of anemia among children. Anemia is highest among children between 6 and 23 months, with no difference between females and males and negligible differences between urban and rural areas. Among children between 6 and 23 months of age, anemia can lead to permanent brain damage, leaving anemic children about 10 IQ points behind their counter parts with adequate haemoglobin values. In addition, malnutrition during pregnancy leads to inadequate foetal nutrition, which compromises the child’s healthy growth and development. b. 10 11 The availability of nutrient-rich traditional crops, including barley and buckwheat, that until recently were a staple part of diets is declining. The production of barley and buckwheat has respectively plummeted from 4,672 MT and 3,016 MT in 1999 to 2,190 MT and 1,015 MT in 2003. This decline can be largely explained by the increased availability of cheap rice imports from India which acts as a disincentive to the production of other cereal crops. In addition, the policy context of 70% cereal self-sufficiency has been interpreted as increasing rice production. RNRRC staff and National Statistical Bureau 2003- Bhutan Living Standards Measurement Survey Ministry of Health 2004 - Annual Health Bulletin 2003. 69 Annexures to the Strategy for Gross National Happiness (SGNH) extension workers have been encouraging farmers to cultivate high-yielding rice varieties. Relative to buckwheat and barley, rice is poor in proteins. Stability of food supply a. Accessing food by communities during extreme climatic conditions like floods, landslides and drought increases poverty incidences and emergency food needs. FCB outlets in all Dzongkhags and 12 depots store and distribute essential food items. With global warming, extreme monsoon and drought conditions could be more severe and therefore emergency food requirement can be a serious issue. Transport difficulties, especially during the monsoon months, threaten the food distribution system and can lead to food shortages in parts of the country. To counter these negative fluctuations, strategic grain reserves need to be held in areas that are susceptible to seasonal shortfalls of food availability. b. Availability of cheap and poor quality rice through FCB acts as a disincentive and across the border competition make field crops production not economically feasible. c. The need to ensure environmental sustainability and the limited availability of agricultural land calls for the increased adoption of improved and sustainable land management practices. The 2004 landslides in the east of Bhutan testify to the importance of these. 3. Strategy: Way forward Availability of food a) Laws restricting culling of non endangered species of wild animals, specifically wild boars, should be relaxed so that farmers can prevent crop and livestock losses caused by wild animals. Culling could be regulated with the intention of preventing distortions in the food-chain or predator-prey relationships. If these laws are relaxed, an additional option could be for rural communities to sell game-hunting rights, based on sustainable management plans, to tourists. This problem of wild boar depredation of crops should be converted into an economic opportunity through: b) Game hunting as a source of revenue with the wild boars so that revenue can be generated through hunting fees as well as through savings on crop losses. Rearing trapped wild boar piglets in farms specializing in producing wild boar meat which can be supplied to hotels as a delicacy. Encourage use of farm dogs to guard the crops. The availability of food at the national level need not be based on domestic production alone. It can also be enhanced through importation. Therefore, it is proposed that land use within agriculture land should not be subjected to any form of restriction. For addressing food security in rural areas, the present level of efforts in enhancing production should continue since imported food products will continue to be too costly for these areas due to high transportation costs. Full commercialization and specialization in the remote areas should be triggered only after the transportation facilities are well established and connectivity to not only Indian roads but also to South Asian highways is secured. This will enhance national food security even if geo political conditions, particularly with immediate neighboring countries, change. 70 Annexures to the Strategy for Gross National Happiness (SGNH) c) Farm mechanization should be intensified not only to reduce farm drudgery but also to increase productivity of land and labour both of which are in limited supply. Mechanization should not be limited for specialized farm operations such as ploughing, rice transplanting, harvesting, threshing, but also for value addition of farm products such as ‘ara’ distillery units, meat dryers, fruit processors, etc. Therefore use of improved technology for value addition should receive attention. Machineries should be made available not only at regional centers of AMC but service centers should also be opened up in strategic townships and Dzongkhag Headquarters eventually. At the Geog level, machinery-sharing arrangements between groups of farmers should be developed. Private entrepreneurs and agents responsible for renting out machinery could take up specialized services in agriculture such as seedling production, pest management, harvesting, etc. Incentives, such as tax exemptions, could be introduced to encourage private entrepreneurs to provide such services. The machinery that is made available must be suitable for farming systems (e.g. paddy transplanters in Paro and Wangdue, corn-flake makers in East) that the poor are involved in. Traditional practices of labour sharing among households will be promoted through farmer groups and associations. People hired on public works schemes should receive adequate financial compensation and these should be timed with periods of underemployment or outside peak agriculture activities in rural areas. Accessibility to food a. So as to ensure that roads are constructed where they are most needed, road construction should be based on assessments of access to markets and basic services. In order to optimize the provision of such services, provision of roads should also be based on the size of settlement. Where there are only few households, such settlements should be resettled to areas with bigger settlement or get more households to settle there, depending on feasibility, to create critical mass for optimum use of road connectivity. b. Some indications on the likely relevance of different types of interventions, depending on the agricultural potential and extent of market access of the area being targeted, are provided below: Areas with high agricultural potential and good market access In these areas, income-generating interventions focusing on private-sector development in on-farm and off-farm activities will be most relevant. Areas with high agricultural potential and poor market access Road development is likely to have the highest returns by enabling marketing of highvalue commodities and inputs for producing these. Areas with low agricultural potential and good market access Extensive livestock production with marketing of livestock products is likely to be more successful. 71 Annexures to the Strategy for Gross National Happiness (SGNH) Areas with low agricultural potential and poor market access Interventions should focus more on ensuring that households meet a minimum food consumption threshold through subsistence production and safety nets and on supporting long-term human capital investments in children. The purpose of these human capital investment interventions is not to keep people on farms or in rural areas but to promote the opportunities and mobility in geographic and economic terms for future generations. c. By creating on-farm and off-farm employment opportunities in rural areas with high concentrations of poverty, the incomes of the poor and their access to food can be increased. Off-farm activities also diversify livelihood portfolios, thereby making people less vulnerable to risks affecting farm production, on condition that these offfarm activities are not vulnerable to the same risks as on-farm activities. Developing on-farm and off-farm employment opportunities requires interventions at different levels. d. Since cereal production has lower scope of income generation, horticulture enterprises niche production should be promoted to generate income to the farmers so that their food purchasing power is enhanced. These enterprises should be based on highly skilled manpower and modern technology. Therefore improvements in services infrastructure and institutions required for high value and low volume exports should be put in place. Given the small population and limited land resources, technology intensive and skilled production is the only option for increasing human and land productivity in future. e. In addition, access to input and output markets and the food distribution system should be developed. The food distribution system needs to be linked with domestic and international suppliers. Because of the logistical constraints to distributing food across the country (from east to west) and the fact that more developed trading systems run from north to south, the focus should be on developing distribution channels within regions from surplus to deficit areas, rather than across the whole country. Utilization of food a. Bhutan’s success in eradicating iodine deficiency shows that the country is capable of addressing micro-nutrient deficiencies. A nation-wide anemia control programme in both rural and urban areas for poor and non-poor is required for all age groups with priority to be given to pregnant and lactating women and children of 6-23 months. Options for anemia eradication include iron fortification of selected food vehicles and iron supplementation. Previous experiences with food fortification suggest that salt is an appropriate food vehicle to be fortified with iron. A recent ironsupplementation programme targeted at pregnant women had limited success. Although 90% of women had received IFA tablets, the prevalence of anemia was not reduced. Once there is an understanding of why IFA tablets failed to reduce anemia an improved approach to iron supplementation can be developed. b. A significant percentage of children less than 5 years of age are stunted. This is an outcome of insufficient micro-nutrient contents of diets and inadequate caring practices. As a short-term measure, until access to nutritionally adequate foods and feeding practices are improved, children under two and their mothers should be 72 Annexures to the Strategy for Gross National Happiness (SGNH) provided with micro-nutrient fortified foods, together with education for improving feeding practices. c. Nutritionally adequate foods – including cereals, pulses, roots and tubers could be identified and their availability increased. Farmers should be encouraged to grow the traditional nutrient-rich crops that they have a comparative advantage in producing. This could involve developing and disseminating technologies for increasing yields of these crops. The purchase of nutrient-rich traditional foods by school feeding programmes could also be used for stimulating the cultivation of these crops. Alternatively, and particularly for foods that the country does not have a comparative advantage in producing, tariffs on imports of nutrient-rich foods, including staple foods, vegetables and fruits could be reduced or lifted in order to increase the availability and reduce the prices of these foods. d. Processing of and value-addition to nutritionally rich crops should also be increased. Stability of the food security dimensions a. In Geogs where the food distribution system is poorly developed, community and/or household level food storage capacities will be more effective in stabilizing food availability since households in these areas will not be able to rely on the food distribution system. b. A disaster management strategy should be in place, which includes a food security component. Transport difficulties, especially during the monsoon months, threaten the food distribution system and can lead to food shortages in parts of the country. To counter these negative fluctuations, strategic grain reserves need to be held in areas that are susceptible to seasonal shortfalls of food availability. c. A food import policy, strategy, legislation and monitoring mechanism needs to be put in place to aim at increasing competition between food traders. It will also have to specify FCB’s role in food import, market stabilization and ways to deal with the import of subsidized rice, which can act as a disincentive to private sector food traders and to the cultivation of rice by farmers in Bhutan. In formulating the policy, the impacts of Bhutan’s accession to WTO on food imports and on local producers should be considered. General coordination issues in food security The different dimensions of food security are inter-dependent. For instance, one cannot be food secure if he/she has sufficient income to purchase food but there is no food in the market. Likewise, if one is able to access sufficient food but is too ill to absorb it, he/she will not be food secure. Therefore, food security is a multi-dimensional and multi-sector issue. It has to be addressed through multi-sector coordination. a. To facilitate engagement and collaboration of a wide range of actors operating in different sectors and at different levels, a National Food Security Co-ordination Committee should be established, under the aegis of the GNH Commission. Members of the National Food Security Co-ordination Committee would include Ministries of Agriculture, Economic Affairs, Health, Education and Home and Cultural Affairs. 73 Annexures to the Strategy for Gross National Happiness (SGNH) b. A similar cross-sector institution needs to be made responsible for food security planning and monitoring at the Dzongkhag level. An option could be to create a food security task force with membership of sector heads and headed by the Dzongkhag Planning Officer. Alternatively, the existing multi-sectoral Dzongkhag level HIV/AIDS Task Forces could be given responsibilities for food security co-ordination and monitoring. 74 Annexures to the Strategy for Gross National Happiness (SGNH) Revitalization of field crop enterprises 1 Situation Analysis Background The qualitative assessment of agriculture development in the past four decades reveals a distinct path – barter system to subsistence farming and then moving into a semicommercial economy. While following this path, the overriding policy of the MoA has been to achieve certain level of self-sufficiency in cereals 12 and buy the rest from the revenue generated by export of cash crops to achieve national food security. Closer examination shows that while the food crops production remained largely subsistence in nature, there was a steady drive on the promotion of cash crops given their comparative advantages. As a result, the export of cash crops and the revenue thereof have been growing over the years. The export value of the four main cash crops - oranges, potatoes, apples and cardamom was Nu. 522.065 million in 200513. In food crops, rice production has seen increases in production through yield improvements of adopting improved varieties. About 35% of the area is under improved varieties with an estimated annual increment in production of 5,000-10,000 MT, which is equivalent to Nu. 60 -121 million. The present rice production in the country is estimated at 55,762 MT against the national requirement of 94,808 MT (CCARB). In 2005, we imported 45,230 MT of rice (rice in husk or paddy, husked brown rice, semi-milled or wholly milled, and broken rice). The total import value for rice, edible oil (both crude and refined) and maize (as raw material) was Nu. 539.51 million 14 . The projected trend would be widening the gap between domestic production and import. The reason would be simply because of our poor delivery of services to attract farmers to increase their production and productivity. The declining area for rice sends a serious signal of stiff competition from other sectors and the inherent system deficiencies within. The farmers have no choice but to adopt an approach of growing just enough to feed their families and look for other cash earning opportunities. With the gradual diversification of the Bhutanese economy, the contribution of the agriculture sector to GDP has declined over the years. It has declined from 53% in 1985 to 26.7% in 200515. While the declining trend is normal and healthy since it indicates higher economic growth in other competing sectors, agriculture will still play a significant role in the future economic development of the country. In the past, in terms of approach, the agriculture sector was engaged in general development of agriculture in the whole country. This approach was needed to uplift the general living condition of the people and to provide basic services. In recent years, the need to focus more on potential areas vis-à-vis general approach has received attention in the form of exchange of ideas, debates and certain activities. However, the idea could not be developed into programs (except farm roads) since the fund implication was high and its allocation to the sector has been decreasing over the plan periods. Thus, the sector was faced with the dilemma of whether to continue with the same approach or move to potential areas. It was realized that adopting the new approach had to be at the expense of general services since additional fund was not forthcoming. Faced with this quandary, the Ministry’s strategic 12 70% in the 9th FYP Bhutan Trade Statistics 2006 14 Ibid. 15 Comparative Socio-Economic Indicators for Bhutan, NSB 2005 13 75 Annexures to the Strategy for Gross National Happiness (SGNH) decision to open farm roads as a forerunner of development to potential areas is a move towards the new direction. In addition, a proposal for economic feasibility study to develop the southern belt for rice production was prepared and submitted to GoI in May 2006. With the basic infrastructure in place, the stage is set for a paradigm shift from a general approach to a potential-driven one for commercialization of selected commodities. The main focus of this new drive should be providing better services to the potential areas. Besides services, the external factors (policy, across border competition, wild life damage, competing land uses, markets, etc) that affect food production must be addressed. Better services can be provided if all the stakeholders work closely together bound by common objectives. The main stakeholders who need to work closely together are research, extension, infrastructure developers, farmers, private sector, marketing, cooperatives and even the consumers. The foundation of this new partnership must be built on research innovations in relevant fields, aggressive extension in prompt delivery of extension support and services, development of high quality farm infrastructures, timely delivery of demand and price forecasts and active involvement of the private sector and cooperatives for value addition and marketing. The major challenges in achieving the goal of commercial production of selected commodities lie in providing efficient services, which in turn would depend on fund and capacity. For fund, the RGoB should explore long-term soft loans since FDI may not be possible due to low return on investment. Capacity development at this juncture is more urgently required for infrastructure developers since high quality infrastructure development must precede production of commodities. As a short term measure, existing people with background knowledge and experience must be pooled to start the work. After a careful needs assessment, covering all disciplines, a capacity development plan must be drawn for implementation. Capacity development will be required by the commercialization program as we move from a general approach to a specialized one and we need more specialists in different disciplines to lead the program. Importance of field crops Field crops form the main staple food. Food being the basic nourishment for a healthy and productive life, it is the ultimate source of energy for all productive human activities. Generally, only after the basic needs for food is fulfilled, people explore other money making opportunities to further enhance their well being. Therefore, those crops which constitute staple food of majority of the population are important as the basic source of energy and they invariably carry cultural and social significance. In addition they also have national food security and other considerations of strategic nature. However, with the emergence of free trade driven world economy, these characteristics of food crops are becoming less obvious. It is generally believed that Bhutan is self-sufficient in food crops if we produce what we consume. But, the reality is, with increase in purchasing power given by the general development of the country, our food habits have changed. The traditional food crops like maize, wheat, buck wheat and millets are not consumed while rice has emerged as the most important preferred staple food. It is estimated that we produce 58% of our rice requirement while the other 42% is imported, mainly from India. While the policy has been to buy food from the revenue generated by export of cash crops, this policy objective has not been achieved as the balance of trade is negative (Nu. 539.51 – 522.065 = Nu. 17.445 million). Therefore, the importance of field crops lies in saving on the 76 Annexures to the Strategy for Gross National Happiness (SGNH) import of rice, edible oils and maize. Plugging this drain will significantly improve the balance of agriculture trade and make our economy more vibrant. Besides the monetary gain to the national exchequer, field crops offer income generation, livelihood and employment opportunities directly to our farmers and indirectly to other people who are engaged in agri-businesses. Commercialization of field crops: Constraints and opportunities The SGNH sets strict criteria to identify field crops and products thereof (after product development) that have potential and competitive edge in the market (local and outside) for production on commercial scale. If we consider these criteria only from commercial production and market angles, field crops have limited scope given the narrow production base and the low economies of scale. In addition, across the border competition is perceived as a serious obstacle to field crops production beyond subsistence scale. However, giving due weight to other equally important parameters such as import substitution, income generation, livelihood and employment opportunities, national food security, agriculture trade balance and as staple diets, rice, oil seed crops and maize have production potential in certain pockets in the country provided factors that affect production efficiencies are addressed. Constraints There are common and specific constraints that restrict field crops production beyond subsistence nature. The common constraints are: Narrow land resource base with only 7.8% of the country under arable agriculture; Narrow land resource base does not generate the economies of scale; Lack of high quality farm infrastructures; Main production resource – water is scarce when and where it is needed; Field crops production is more labour intensive than other forms of farming; Farm labour shortage and the difficulty of mechanization make growing field crops beyond self-feeding the last option; Damage of crops by wild life acts as the proverbial last straw on the farmers’ backs; Stiff competition from across the border for markets acts as deterrents; Absence of road access for free movements of inputs and produces restrict production initiatives; and There are production management deficiencies for field crops. Bhutan being a mountainous country with only small strips of flat areas in certain parts of the southern foothills, arable land is a premium. Our present rice growing areas are mainly located in river valleys of mid and high altitude areas. This is because significant land areas in the southern belt remain mostly uncultivated while about 50% may be under a single crop in a year. Such a small and scattered land resource with major chunk of potential area not being utilized has resulted in shortage of food crops, especially rice and edible oils. Bhutan is seen as a country endowed with rich water resources. This is only true at the national level, where the amount of water resources is calculated based on the flows in rivers generated by precipitation. But the irony is, there is water shortage when and where it is needed. It is because the rainy season lasts for three months and the rest of the year is mostly dry. The rivers flow along the valley bottoms while land is situated up the slopes. Therefore, irrigation infrastructure assumes great importance. The southern belt has no irrigation facilities to take advantage of the potential area for rice and oil seed crops. The main reason is that southern belt falls in the fragile foothill zones and irrigation development 77 Annexures to the Strategy for Gross National Happiness (SGNH) is capital intensive and there is not enough resources for investment. There have been efforts to provide irrigation services in the mid and high altitude regions. But the quality of irrigation system developed has been poor and characterized by frequent break downs. The main reason is attributed to fund-strapped patch-work irrigation development rather than quality infrastructure development. In addition, the water users’ associations who look after the facilities have not been effective. The labour intensive nature of cultivating field crops, farm labour shortage and difficulty in farm mechanization have forced the farmers to cling to subsistence farming. To worsen the situation, the costs related to crop guarding comes to as high as 30% of the total production cost. Absence of road access, stiff across the border competition, deficiencies in crop production management and poor marketing support have forced the farmers to remain subsistence in their efforts rather than produce for the markets. Coming to specific constraints, the rice production in the southern belt did not take place since there was no infrastructure development due to security reasons. During the seventies and eighties, Taklai Irrigation Project, the only big irrigation project in the country was implemented. Right after the project was commissioned in 1988-89, the southern problem did not allow reaping benefits from the investment. In addition, development of infrastructure in the southern belt is investment intensive and to make the situation worse, the heavy monsoon wreaks havoc to the developed infrastructures. In terms of suitable rice varieties, only a few rice varieties are available for the southern belt and research needs to develop varieties (in terms of quality and yield) along with management packages. Rice production in the altitude of 1,600-2,600 m faces constraints related to water and temperature. The latest transplanting must be done by mid July as there is drastic yield decrease after this date. On the other hand, water shortage due to the existing rainfall pattern pushes the date of transplanting. Therefore, screening and identifying varieties for August transplant with a respectable yield potential may solve the problem of water shortage due to delayed rainfall. With imminent climate change, change in rainfall pattern is expected which may throw our farming system out of gear. Maize production in Eastern Bhutan needs to be looked at from product development and value addition point of view. Value addition and marketing have not received adequate attention though there have been reports of surpluses. Surpluses have been scattered and it has been difficult to collect them for value addition or marketing. Oil seed crops have been cultivated only at subsistence level. It is due to the absence of assured irrigation. Without assured irrigation and suitable varieties, yield has been low at the national average of less than 400 Kg per acre. Opportunities The southern belt has a projected command area of 15,090 ha, 40% of the total area under rice in the country. With assured irrigation, double cropping of rice is technically feasible. With 100% of the area under two crops of rice at a modest yield level of 2 MT/ha, the estimated production is more than 60,000 MT. With assured water and good production management, experts comfortably put the yield level at 3 MT/ha. Therefore, there is potential to grow rice and reduce the imports to a minimum level and subsequently go for total import substitution. 78 Annexures to the Strategy for Gross National Happiness (SGNH) Mid and high altitude areas spreading into five Dzongkhags (Paro, Punakha, Wangdue, Tsirang and Dagana) have 8,230 ha of land under rice cultivation. By creating conducive environment, there is potential for production increase through increase in yields. Experts believe that yield have not reached the optimum level. The yield increase would come from adopting high yielding varieties, through better water, nutrient and pest management practices. Creating efficient marketing channels would lure the farmers to increase their production for the markets. In addition, these prime rice producing areas have potential to produce natural red rice for the western markets fetching premium prices. The oil seed crops fit well with the rice-based system, both in the southern belt and in higher rice growing areas. Right mix of rice and oil seed crops would enhance the economic feasibility of each other. In terms of production potential, with assured irrigation and the readily available technology (varieties and management package with ICAR) yield of rapeseed-mustard can be increased from the present national average of less than 400 MT/ acre to 800-1,000 MT acre. Depending on the acreage we devote to oil seed crops, there is potential to decrease import of edible oils at least by half. Maize production in Eastern Dzongkhags is more than 90,000 MT. There is potential to increase further through adoption of improved varieties and management packages and most importantly by creating a sustained demand. The demand has to be created by innovations in product development and value addition. There is substantial import of maize from India mostly as a raw material for the animal feed industries. With efforts on value addition and creating the markets for the products, total import substitution of maize as a raw material can be achieved. Way forward: Policies and strategies Policy changes/implications In order to bring efficiencies in the overall system, land uses must be determined by land capabilities and the competing economic benefits. The best way to rationalize the land use will be to separate 60% as forest for all times. Since the main function of this land use category is for environmental services, steep areas (above 51 degrees), core protected areas and biological corridors, scattered and small settlements with steep agriculture land should fall under this category. In addition, good forest for timber production through dynamic management may be included under this category. After keeping aside the 60%, the remaining areas must come as a common kitty to be divided among different land use categories based on land capabilities and competing economic benefits. Water is another productive asset that needs rational sharing among competing uses. The Bhutan Water Policy (draft Dec 2006) sets general guidelines on water resources management. However, legislation to support the policy is not in place. There are traditional water sharing and management practices which need to change in order to do away with the inherent inefficiencies. A national Water Act needs to be enacted to regulate water uses among the different sectors to bring efficiencies. Related to the Water Act is the legislation on Water Users Associations to give legal framework to the associations to play an important role in sharing and managing water at on-farm level. The water users’ associations have not been effective at solving conflicts and disputes on water since these organizations are not recognized as legal entities. As water will become an important resource for crop production, water storage to bridge the seasonal gaps may need to be explored. Tying this up with storages for hydropower will give multi-purpose dimension and may add value to each other. 79 Annexures to the Strategy for Gross National Happiness (SGNH) Crop damage by wild life has acted as the proverbial straw on farmers’ back. Though there has been much discussions and studies, nothing concrete has come out. Therefore, the issue of crop damage by wild life must be addressed if we want our farmers to produce for themselves and for the markets. In area of subsidies, food crops have received minimum subsidy. The present scale of subsidy16 to the agriculture sector is spread too thinly across a wide range of basic services. Subsidy on food crops is limited to transportation of inputs like fertilizers, weedicides, and plant protection chemicals to the road head. Agriculture development, especially the food crops sector, needs support and the government must rationalize application of subsidies across sectors. Power/energy and natural resources subsidies to industries raise the whole question of equity in subsidy application. The government must come out with a policy on subsidy to provide a level playing ground across sectors so that subsidies are given where absolutely necessary. In the agriculture sector, providing services (irrigation, farm road, research, extension, marketing) to the farmers must be seen as a subsidy package. The change in approach must be that we provide these services in an effective manner so that farmers are able to capitalize on them. On top of providing these services, a dynamic minimum price support for their produces will go a long way in attracting farmers to produce surpluses. Implementation Strategies The main strategies must revolve around providing effective services and creating the conducive environment required to increase production and productivity. The areas that need focus are: (i) Infrastructure The southern belt needs assured irrigation water as the first priority for production of rice and oil seed crops. Therefore, investment is needed to develop high quality infrastructure. In order to make good investment, feasibility study for rice and oil seed crops production with the development of high quality irrigation and allied infrastructures needs to be done. As the belt falls under a fragile foot hill zone, irrigation development with buried hume pipes as the main conveyance structure seems to be more appropriate and therefore will be explored. Experience indicates that such a system will be more economical in the long term though the cost of construction will be higher in the short term. Since the command areas are bigger, the volume of construction will be higher and must be mechanized to speed up the progress of the work. To aid mechanization, hume pipe spinning units will be set up to reduce the cost of construction and to bring standardized quality of construction. In mid and high altitude regions, the quality of irrigation canals will be improved by using prefabricated canal sections. Prefabricated canal sections of portable sizes will be produced by batching plants set up at strategic locations. A project approach to develop the farm infrastructure and area based program or commodity approach to intensify food production will be adopted. In order to do this, pooling of existing manpower may be necessary. Such an approach in the short term will gain time in terms of starting the work such as, survey, feasibility study and design which take a lot of time. It is proposed that intensification of rice and oil seed crops production activity be started in the command area of the Taklai Irrigation Project, where there is assured water. 16 Nu.12 million p.a. which is 0.15% of Agri. GDP - Agri-Horti Policy review 80 Annexures to the Strategy for Gross National Happiness (SGNH) (ii) Research There is need to conduct need-based research related to field crops production. For the southern belt, suitable rice varieties (quality and yield) is limited, though work is going on for about fifteen lines to screen them for suitable varieties. Research will focus more on this area. In addition, there is a need to develop production management packages for rice, covering soil/nutrient, pest and water management. In high altitude areas, cold tolerant short duration rice varieties to fit into the rainfall pattern needs to be developed. (iii) Extension An aggressive extension approach will be adopted. Extension is mainly involved in communication of information on available technologies. There is a need to go beyond dissemination through proactive mobilization of farmers to achieve targets in production. For this to happen, there is need to change the extension deployment system. Therefore, in potential areas more extension personnel will be deployed and will be backed up by subject matter specialists to plan and work together in a result oriented manner. In the present system, extension lack supervision and guidance from Dzongkhag, regional and the central agencies. Also there is conflict or mis-match between the objectives of different agencies who push work to the extension. The extension will focus more on issues of production management. Their skills will be developed through training on the commodity he/she is responsible to promote. Private sector and cooperatives must be encouraged to deal with supply of production inputs, while the government may take regulatory roles. (iv) Marketing Full marketing support will be provided to the producers. Besides creating marketing facilities, market information on prices and demand of produces will be given to the farmers on timely manner. In order to plan production by farmers, price forecasts generated through market intelligence will be made for important commodities. The marketing agency will assume facilitating role while the actual market transactions will be encouraged to be done by the private sector and cooperatives. (v) Product development and value addition Product development and value addition are needed. Maize as a raw material to animal feed industry and conversion of maize to kharang to capture the school feeding program of WFP will be explored. Other areas of product development from maize like breakfast cereals, sip, high quality ara and singchang need to be studied in terms of quality of the products vis-à-vis markets. For rice, one-stop units in rice growing areas that deal in collection, milling, grading, bagging, branding and marketing will result in economy of scale and create confidence both in growers and consumers and should be encouraged to be done by cooperatives or the private sector. The oilseed crops will be extracted into edible oils of various qualities. The technology and the equipment of various performance levels are available. (vi) Capacity development A need-based capacity development plan will address capacity requirements for enhanced services delivery to commercial scale production. Capacity development is expected to be required in special areas like building high quality irrigation systems, research into product development or value addition etc. (vii) Farm mechanization, land pooling and lease farming In order to offset the impact of labour shortage, farm mechanization in the southern belt will be encouraged. To bring the economies of scale, land pooling will also be encouraged. If 81 Annexures to the Strategy for Gross National Happiness (SGNH) a large tract of forest land is converted to agriculture, lease farming by private firms will be allowed and encouraged. As farm mechanization is capital intensive, hiring of farm equipment is seen as a better option to start with. Farm machineries like tractor, transplanter, harvester, winnower, rotary weeder will be made available to the farmers on hiring basis. Private sector involvement to provide the hiring services will be encouraged. (viii) Other approaches The above strategies are to support production and productivity increase through the efforts of individual farmers. If effective services are provided coupled with sustained demand, farmers will grow for the market. As a safety net, ensuring minimum price support for their produces in the initial years will be very helpful. Going beyond individual farmers as a production unit, cooperative farming comes to mind. This can happen at two levels. In level one, farmers from nearby areas can form part of a cooperative (private enterprise) to produce for it. In this arrangement, the cooperative will provide all the necessary inputs to production, like hiring of farm machineries, seeds, fertilizers and plant protection chemicals. The farmers will focus on production without hassles on production inputs. The produce will be sold to the cooperative. In level two, cooperatives or private sector will lease contiguous land from farmers or government on long term basis. The cooperatives will produce on commercial scale on their own. The above production models will definitely bring efficiencies in the production system. However, there are certain risks involved when we shift the production system from individual farmers to cooperative farming. The skill levels of farmers may not be adequate to get jobs in other trades. In addition, being driven solely by commercial nature of the enterprise, the cost to the environment may be significant. Pollution of land and water from high use of fertilizers and plant protection chemicals cannot be ruled out. This may have implication on the quality of life of the Bhutanese people. 82 Annexures to the Strategy for Gross National Happiness (SGNH) Revitalization of horticultural enterprises 1. Situation analysis 1.1 Background Among various horticultural crops grown in the country, some like apple, mandarin, cardamom and potato have gained considerable commercial importance. There is a growing trend to cultivate more vegetables adopting systematic crop rotations and as inter-crops in the orchards. However, production is seasonal thus domestic demand is met by imports particularly in the winter. Among temperate fruit crops, apple is an important cash crop in Thimphu, Paro, Haa, Bumthang and Chhukha Dzongkhags that have assured climatic and commercial viability. The production area plateau in the case of apple production is likely to have been reached as per the current land use status. The productivity per unit area will need to be the focus of attention as far as apple is concerned. Other temperate fruits constituting a wide assortment of stone-fruits, walnuts, pears, apricots, peaches, plums, etc. are grown on a limited scale, and most of these have not gained commercial significance. With improved market infrastructure and the development of reliable transportation system, more perishable crops like apricots and peaches may have the potential to be cultivated on commercial scale. Mandarin orange is the most important fruit in terms of the area under cultivation and total tonnage of export. Grown extensively in the humid sub-tropical regions, it has contributed greatly to the cash income of the people in these regions. However, there is much room for improvement, both quantitatively and qualitatively. Under the present management conditions, the yields are very low; production increase through the improvement of orchard management practices will need to receive attention. Improvement in the quality of planting material and introduction of exotic varieties suitable in the target markets need to be focused. Other produces like ginger, cardamom and areca nut are also popular in the southern regions where the environment is favourable for their cultivation. During the past, mango production picked up in the eastern Dzongkhags, particularly in Mongar. Proper management guides will need to be issued until the growers are confident in the techniques. Processing and value addition of mangoes that cannot find an export market could be tried. The main export horticulture commodities continue to be apple, potato, orange, cardamom, and ginger. This list can be expanded to include substantial volume of asparagus, mushroom, strawberry, cabbage, cauliflower, carrots, peas and other vegetables. Value added products from the processing industries are other important items of export, generating substantial foreign earnings. India and Bangladesh are the current export markets for the horticultural products. 1.2 Comparative advantage and choice of commodities The choice to grow a particular cash crop is dependent on many factors. Topping the list is the market and the market price for the produce. So long as there is market, production to suit the market will be possible by the farmers now that they have been exposed to market oriented growing of produce. The comparative advantages have to be exploited if the horticulture industry is to pick up. As far as apple production is concerned, special focus will be given to rectifying the orchard management practices in the existing orchards. The market requirements on the type of varieties, shape, size, colour, taste, etc. need to be assessed to plan top working and plant replacement in the existing orchards. The 83 Annexures to the Strategy for Gross National Happiness (SGNH) production of quality apples will need to be given top priority in the apple growing areas, while screening of new, better varieties will have to be continued at the research stations to catch up with trends in the markets. The environment is congenial for other temperate fruits and nuts as well. Sub-tropical horticultural commodities will be grown in the humid valleys of the interior region and in the southern Dzongkhags. Vegetable crops exhibit comparatively less disparity in land cover between different regions; however, commercial production is primarily dictated by the existence and prospects of market outlets. The choice of commodities can be influenced by various factors, the most important being market and transport cost considerations. Thus, the process of horticulture development on regional basis involve horticulture ingenuity and market information before matching crop to land in the most appropriate manner. 1.3 Market situation analysis Small volumes of produce, seasonality and inconsistent supply are the characteristics of the horticulture industry of Bhutan. Large-scale mechanization is not possible to relieve the labour constraints faced in the production of horticulture commodities. Further, the relatively poor road network and the difficulties posed by the mountainous terrain presents communication constraints. In addition Bhutan lacks market infrastructure and market information system. Labour costs are higher than those of the neighbouring countries, technologies like protected and controlled environment cultivation, storage concepts and techniques, and preservation process for prolonged utility is not easily adopted by the farmers in most cases. Domestic markets The domestic market can be divided into 2 categories such as rural markets, offering few opportunities and urban markets which are small, fast growing and open to cheaper food imports. The internal market is mainly urban and likely to see continuous growth over the next decades. The major domestic markets for fruits and vegetables include weekend markets in the urban centres, wholesale auctions, direct sales especially to institutions, e.g. schools, hospitals, hydro-schemes, hotels, shops, etc. A study conducted in 2006 revealed that in most urban markets, less than 80% of all traders interviewed said they buy mostly locally produced asparagus, beans, cabbage, carrots, chilli, potatoes, radish and sag. Approximately 45-50% of all cauliflower, mushroom, green peas and tomatoes traders said their stocks were also locally produced. Nearly 100% of all lady finger and onions are imported. In boarding institutions, almost all the fruits served are sought from local markets, while majority of the vegetables are imported from India. In the hotels, most of the fruits and vegetables are locally purchased. Small quantities are imported from India, mostly during the tourist season. The concern is that the Bhutanese market is small, easily prone to oversupply and price falls. This will disappoint existing suppliers and especially those producers bought into market access by the new farm road construction. Export markets The main export markets for Bhutanese agricultural products are India and Bangladesh, apart from specialized markets in third countries like USA, Europe and Japan. Exports, in terms of volume, have grown slowly (1.5% p.a.), with potatoes fastest at 4.5% p.a. 84 Annexures to the Strategy for Gross National Happiness (SGNH) Export values have increased at 4.6% p.a., with fastest growth in potatoes (14.5% p.a.), mandarins have grown (3%) while apples have declined (-8.5%). The total value is US$ 13 million. Export Market can be divided into 3 categories. The characteristics of these export markets are as follows: Indian market Indian market: mainly for potatoes, cardamom & small volumes of vegetables such as ginger and beans, mainly supplied through FCB auctions; BAFRA inspection is not required. The Indian market is worth about US$ 4.2 million. Bangladesh market Bangladesh market: mainly mandarin oranges & apples, sold C&F at Bangladesh border through Bhutanese exporters; BAFRA inspection is required. The Bangladeshi market is worth about US$ 7.3 million. Extra regional markets Extra regional markets: tiny volumes of extremely high value products e.g. Cordyceps, Matsutake & red rice – these markets are small total impact, small volumes, highly demanding. Auction sales of Cordyceps is a significant issue. The extra regional markets comprising of third countries like Singapore, Japan, USA, etc. are worth approximately US$ 0.5 million. 2. Way forward: Development strategies In order for the Bhutanese horticulture industry to function as a commercial enterprise, aim must be to work with the market to develop profitable opportunities for our farmers to increase their cash income. If the industry is not profitable for all stakeholders involved, it will not be sustainable. This can be achieved through three strategies – lower costs, higher prices & larger volumes. In Bhutan the focus needs to be on lowering costs, especially transport & increasing volumes. Larger volumes provide greater opportunity for a larger numbers of growers, especially those with road access. 2.1 Northern Areas The areas above 3,000 masl where minimum mainstream development is to take place (as per the NSP) also has a high horticultural potential in terms of wild harvesting of natural and medicinal plants. Most of the naturally grown medicinal plants like the Cordyceps are used in traditional medicines and recently exported to third countries. Strategies for development of horticulture (high altitude medicinal plants) in this area will be: Formation of collectors groups amongst the communities in different villages and development of sustainable harvesting procedures and regulations Constitute a quality standard system for cordyceps as per the requirements of the export markets Improvement of the current marketing/auctioning system (invitation of international buyers to the auctioning may increase sales and rural incomes) Provision of market information on prices, quality requirements, standards to the collectors Training of the communities on group dynamics, sustainable harvesting techniques, proper sorting/ grading and marketing of cordyceps 85 Annexures to the Strategy for Gross National Happiness (SGNH) The products from here will be collected, sorted and packed in Thimphu, Bumthang and exported via Paro International Airport. The export reject products could be utilized in the Institute of Traditional Medicines for formulation, as is already being done. 2.2 Hinterland A multi-pronged strategy that combines improved pre and post-harvest technologies with a marketing strategy in the long run will help transform Bhutan’s subsistence horticultural subsector into a highly competitive market oriented sub-sector. MoA is currently concentrating on efforts to deliver effective extension services. What would be required for extension workers and for MoA employees in general is to start viewing horticultural production as a resultant of market forces. Demand-led production instead of production-led production is the shift needed within rural areas. The strategies proposed herein are therefore market oriented, mostly based on the commodities that have already gained commercial importance as well as market demand. 2.3 Spatial suitability of land for agriculture/ orchards According to the land suitability mapping done based on soil and slope capability, about 19.6% of country is potentially suitable to produce any arable crop, 21.6 % is potentially suitable for perennials (orchards, etc.) and 16.8% for improved pasture under rain fed conditions with the application of appropriate management techniques like erosion control, terracing, drainage, soil amelioration, fertilization, etc. We have utilized only about 15% of the actual and potential resources of the land for agriculture development. There is an enormous scope for further expansion and intensification to produce more food for consumption, more cash crops for export earning, and raise more livestock to reduce import of animal products. Most of the horticulture crops are financially viable. The internal rate of returns is positive. Table: Dzongkhag wise suitability of fruits and vegetables (based on current production) Potential Crops Dzongkhag Tree Crops Vegetables Bumthang Potato, Cauliflower Chhukha Mandarin Citrus Potato, Cabbage, Carrot, Chili & Pea Dagana Mandarin Citrus, Banana, Guava Radish, Beans, Broccoli & GLV Gasa Organic red rice, potato, beans, asparagus Potato, Radish, Turnip, Pea & Cole Haa Crops Lhuentse Peach, Pear, Plum & Walnut Broccoli & Chili Mongar Walnut, Mango & Persimmon Potato, Beans, Cauliflower & Chili Paro Apple & Apricot Turnip, Cabbage, Pea, Carrot & Chili Pema Gatshel Mandarin Citrus Potato, Radish & Chili Persimmon, Guava & Punakha Pomegranate Chili, Pea & Beans Mandarin Citrus, Guava, Banana & S/Jongkhar Mango Ginger Mandarin Citrus, Areca nut & Samtse Banana Ginger & GLV Mandarin Citrus, Banana, Areca Sarpang nut & Mango Ginger Thimphu Apple, Peaches, Plum Turnip, Carrot & Cole crops 86 Annexures to the Strategy for Gross National Happiness (SGNH) Potential Crops Dzongkhag Trashi Yangtse Trashigang Trongsa Tsirang Wangdue Zhemgang Tree Crops Vegetables Walnut Peach, Pear, Plum & Walnut Pear, Citrus & Banana Pomegranate, Persimmon & Guava Guava & Mango, Mandarin Citrus Potato & Chili Potato, Radish, Beans, Chili & Cole crops Chili & Cole crops Bean, Ginger & GLV Potato, Turnip, Beans, Carrot & Cole Crops Cole Crops 2.4 Strategies for horticulture development for the domestic markets The aim must be to supply all major urban towns, schools & institutions, hotels and mega hydro project sites with “Bhutan grown” fruits and vegetables. This market may not be as big as the export markets but is quite substantial to improve the cash income of farmers. The quality standard requirements need not be as high as the requirements for export and can be easily complied with. The major crops that can be focused for the domestic markets like urban towns, hydro project sites, schools & institutions and hotels are apples, peaches, pears, banana, mandarin, potato, chilli, cabbage, brinjal, asparagus and beans. Detailed market requirements (monthly requirements per product) need to be established per market/institution, hydro project site, hotel to plan the production. The emphasis should be on organizing the producers into groups, getting contract agreement between institutions and the producers, agreeing on the products and prices and delivery mechanisms. The production areas around the urban development centres of Thimphu, Phuentsholing, Paro, Bumthang, Mongar and Kanglung need to be assessed and production capacity determined. Collection centres / depots need to be set up in Thimphu, Bumthang and Mongar, from where the produce will be sorted, graded and packed and transported to the different locations. Winter vegetable production for domestic market: o Production of vegetables in the warmer regions of Punakha, Wangdue, Tsirang, and Sarpang for supply to urban towns like Thimphu, Paro, and Bumthang and as an import substitution strategy. o Vegetables like cauliflower, cabbage, broccoli and saag can be produced during this season. 2.5 Strategies for horticulture development for the Indian market The major focus for this segment of the market will be Potatoes (Table, Seed and Processing), off season vegetables (summer), Cardamom and Ginger. Potato Potato is the most important cash crop for mid to high altitude Bhutanese farmers covering about 22% of the population. Because of the high yield potential, its affordability, high nutritional qualities and high consumer preferences, potato is expected to have far higher growth rates than cereals. 87 Annexures to the Strategy for Gross National Happiness (SGNH) Although potato produced in Bhutan may be rather production of comparatively cheap seed that the contribute towards the production of high quantities of neighbouring Indian states of West Bengal and Assam. production are: expensive, it will be through the Bhutanese potato producers will cheap yet high quality potato in the The main opportunities for potato Expansion of potato production area and yield: High altitude with temperate climatic condition offers favourable environment to produce potato. There is substantial scope for increasing the potato area in Bumthang (all geogs), Wangdue (Sephu), Mongar, Chhukha and Dagana. As such, there is high potential to increase the quantity of production through expansion of production area and increase yield through effective professional interventions. Production of quality seed potato for domestic and export market: There is a big opportunity for the production of high quality seeds. The higher elevations of Bhutan provide excellent environment for potato seed production with almost complete absence of virus problems. Replicated studies evaluating seed maintained by farmers over periods of up to 20 years showed no sign of degeneration. Seed demand projected for West Bengal & Assam is 700,000 MT (just meeting 1% of this demand 7,000 MT per year would entail a lot of effort for Bhutan. 1,200 acres of land are required to produce 7,000 MT). The domestic seed requirement projection is about 4,000 MT if farmers follow the seed replacement recommendation (about 700 acres are required to produce this amount). Introduction of contract farming: There is great opportunity to build farmers and private sector partnership through contract farming, which will also assist in effective technology transfer. Formation of Potato Producers Groups and Associations: Farmers’ bargaining power in the procurement of inputs and marketing their produce could be enhanced through collective action. In so doing, the unit cost of production could be reduced through procurement of inputs on time and at a cheaper price. The Nu. share of the farmers could be increased through group marketing. Market Diversification: Develop niche markets in the larger Indian cities like Kolkata and Gauhati for fresh potato. Potatoes sold in these markets during the months of August – September are mostly cold stored potatoes, thus we have an advantage of freshness. Promote household level potato processing units: There is a good opportunity for setting up household level potato processing units that will produce potato chips, potato strips, potato flakes and other potato snacks. Improved Infrastructure: Possibility of increasing product recovery or minimizing losses through better or more investment in market infrastructure (transportation, storage, communication) and organization of training for farmers in product handling. Further, post harvest losses could be reduced through cleaning and curing before storage. Possibility of introducing potato varieties for processing is currently being studied and by five years time varieties could be released in Bhutan for commercial production to supply the demand for processing potatoes in the Indian market. Off season vegetables (summer) Emphasis on production of off-season vegetables both by utilization of regional variability & use of greenhouse techniques. Summer vegetable production for export market 88 Annexures to the Strategy for Gross National Happiness (SGNH) Production of summer vegetables in Paro, Haa, Thimphu, Chhukha, Punakha, and Wangdue for supply/export to India (mainly Kolkata) and Bangladesh (supply to begin from May till August). Main summer vegetables to be produced need to be assessed after working out requirements in these markets, with complete details of type, size, quality, etc. of the requirements from the markets. (French beans, carrots, chili, tomatoes, radish, brinjal, etc. can be produced) The AMS needs to play a proactive role in making contacts with the importers, negotiating prices, getting the right quality standards and quantity requirements. These can then determine the area required for production, crops to be produced and the interested growers can be contracted for production for the specific market. Bhutanese fresh produce exporters need to be involved and take a lead in preparing the exporting logistics and procedures. All the post harvest requirements and handling techniques for each crop from the time the vegetables are ready for harvesting till they reach the market need to be determined by the National Post Harvest Centre and proper training to the growers should be provided during the growing season. Cardamom (large cardamom) Samtse, Chhukha, Dagana and lower Haa are the potential areas for cardamom which is the 3rd most valuable agricultural export commodity. It is currently being grown in about 4,000 acres in the humid sub-tropical areas of the country, with 68% of the area being in Samtse Dzongkhag alone. The increase in acreage under cardamom and improvement of production practices to capitalize on the economic gains hinges on clear-cut directive from the government on the implementation of the various land use policies and conservation acts in place. Studies conducted in Nepal and Sikkim have shown that leasing of forest area for the cultivation of cardamom to communities has improved the forest cover. The problem with cardamom production is the general decline in production due to the viral diseases and non availability of improved planting materials to replace the diseased plantations. The post harvest aspects of drying/curing the pods also need improvement for product quality. Therefore, cardamom production intensification strategies should be: The identified areas suitable for cardamom production need to be physically verified and if in forest land, long term leasing mechanisms needs to be worked out for immediate plantations. Assessment of number of seedling required for re-planting of the diseased plantations in the current area of 4,000 acres. Source improved seedlings from neighbouring areas of Sikkim, W. Bengal and import for re-planting. Encourage the establishment of at least 2 large cardamom seedling nurseries in Samtse and Chhukha by interested private operators. The National Post Harvest Centre in collaboration with RNR Research centre, work on the improvement of the drying / curing system using the gasifier-based drier to improve the product quality (appearance as well as volatile oil content)and the efficiency of drying. Cardamom Marketing groups need to be formed in Samtse and Dagana to organize marketing 89 Annexures to the Strategy for Gross National Happiness (SGNH) Ginger Ginger is one of the crops gaining substantial export potential. It is currently being grown in Samdrup Jongkhar, Samtse, Sarpang and Tsirang in large quantities (the total production from these Dzongkhags in 2004 was 5,574 MT, out of which 474 MT was exported with a value of US$ 117,000). Ginger production needs to be up scaled in the more suitable areas. The areas needed for focus to develop ginger as a commercial product are: Introduction of improved varieties (fiber less) and multiplication of planting materials (possibly by private nursery operators in S/Jongkhar and Tsirang) Research external world markets for processed ginger (organic ginger, sliced and dried, powdered ginger etc) and the quality requirements Undertake trials by National Post Harvest Centre on processing the ginger into forms (powdered, sliced and dried) other than fresh to reduce volume and expand market share Contact interested buyers and establish production/ processing arrangements and organize growers into groups to produce, process and market the produce 2.6 Strategies for horticulture development for the Bangladesh market The Bangladeshi market is worth about US$ 7.3 million, with major part of the market being for apples, mandarin and a small opportunity for the off season vegetables. Apples The value of apple export has not increased since 1997. In 2004, the value of apple export was US$ 989,000. Although efforts to improve the production management and quality of apples have been one of the major focuses of the MoA, the export earnings have not improved. A market study by the MoA indicates that, despite its proximity to the Bangladeshi market, Bhutan is losing its apple market share. The period of supply for Bhutanese apples in the Dhaka market is August – October when it is competing against cold-storage southern hemisphere supplies from New Zealand, Australia and South Africa. This should favour Bhutanese products. Against this is the fact that it is competing with fresh Chinese products. Bhutan is less competitive for reasons related to the likes of pricing, variety, packaging, entry point into the marketing chain, etc. The strategy to revitalize the apple industry should therefore be: Apple industry needs an overhaul. The current system of managing apple orchards, choice of varieties, etc. is outdated. The current yield of 2.5-4.5 MT/ acre is far below the international yield of 20-25 MT/acre. This has to be achieved by following high intensive production techniques maximizing the returns per acre. Utilization of dwarfing/ semi dwarfing root stocks on new varieties of demand in the market need to be planted in high density orchards. Current production technique recommends about 109-120 trees per acre, whereas major apple production areas in Australia and New Zealand are even growing 3,000-5,000 trees in one hectare. Replanting and rejuvenation of old unproductive apple trees (trees older than 35 years) with new popular varieties in demand in the markets Undertake mass campaigns in all major production areas to improve current production practices Improvement in the grading, packing and quality standards to improve the presentation in the target markets (use of fiber board boxes with fillers) Remedial actions recommended to improve the Bhutanese apples in the Bangladeshi market include: 90 Annexures to the Strategy for Gross National Happiness (SGNH) a) b) c) d) e) f) g) Reducing the marketing chain so as to protect the product against undue perishability and thus remain competitive against the cold stored products. Being price competitive. Improving packaging and final product presentation through the likes of waxing and socks. Making more frequent smaller loads so as to assist the final seller with lower storage costs. Working higher up the marketing chain, this is more directly with end retailers. Adjusting varieties, especially towards the red elongated types related to the Red Delicious. Internal efforts within Bhutan to boost production by addressing local production problems. Mandarin Mandarin is among the top ten export commodities till date and generates about Nu. 200 million annually. Total annual production is declining due to citrus greening disease, and other pests and diseases, and poor orchard management practices. The industry is exportoriented as more than 62% of the total production is exported. However, this scenario could be different if all the citrus production areas are easily accessible by road and transportation. On an average, about 18,000 MT is exported annually with 85% of the export going to Bangladesh. The cases of abandoned orchards and absentee orchard owners pose a constraint to instituting improved orchard management procedures. Access to mandarin production provides best opportunities for lifting Bhutanese farmers’ incomes – if the road access to major production areas are improved, post harvest losses are reduced, and marketing channels are organized. The strategy to revitalize the mandarin industry should therefore be: Improved orchard management practices need to be advocated in all the major mandarin growing areas by mass campaigns Establishment of large demonstration orchards to showcase the improved management techniques like proper training methods, irrigation (S/Jongkhar, Chhukha, Sarpang & Tsirang) The citrus industry is currently functioning on one single variety (local mandarin). This has a lot of disadvantage in terms of susceptibility to pests and diseases. Therefore, new varieties depending on the demand from the market need to be introduced and grown in large scale. Setting up of collection depots and packing areas besides the border towns need to be identified and established Redistribute the abandoned orchards to the landless or poor farmers under the resettlement programme Institute legislative or regulatory measures for the absentee orchard owners to comply with the Ministry of Agriculture’s recommendations on land management practices Utilize mechanized sorting and packing facilities established at FCB P/ling for all exported produce to improve efficiency and presentation of the produce. Growers group marketing efforts like the ones initiated in Panbang and Dagapela for Mandarin export should be encouraged in other major production areas to increase benefits and reduce costs. These will not only improve the bargaining capacity of the 91 Annexures to the Strategy for Gross National Happiness (SGNH) growers but also be used to impart other production management skills and input delivery mechanisms. Off-season vegetables In July 2004 and 2005, AMS undertook trial shipments of summer vegetables and fruits from Bhutan to Dhaka in Bangladesh. Taking all the costs and factors into account, in the opinion of the Ministry and Embassy specialists, the identified Bhutanese vegetables and fruits can be successfully marketed in Dhaka from the end of May to the end of August each year. The vegetables for which the demand is the highest are asparagus, French beans, broccoli, the Bhutanese chilli, cauliflower, ginger, and tomato. The fruits that are in demand at time of the year are peaches and plums. These products are not readily available during the hot summer months in Bangladesh. However, Bangladesh is increasing the range of products that it imports and these products are well known in the market. Bhutanese farmers must be made aware that in order to compete with these off-season imports and some local products, they must supply products of the highest quality that have been harvested at the correct degree of maturity, have the most careful attention paid to post harvest preservation, are properly graded, very carefully packed, and then transported to the market in a refrigerated vehicle or container. Bangladesh is a huge market with strong middle and upper income groups that are willing to pay good money for their products but demand very high quality. Therefore, the strategy to supply the Bangladesh market with summer vegetables must focus on: Detailed price profiles to be developed as a basis for negotiation with the importers in Dhaka FCB may be made the export agent and commence the preparation of the appropriate paperwork. A detailed production availability profile to be established for the crops targeted for export. ( this information is available) National Post Harvest Centre must advise the growers on: o Optimum maturity for harvest o On-farm methods of reducing field heat. o Preferred temperature and humidity storage conditions. Grading standards must be established for the vegetables (mostly quality and grading requirements be provided by the importer). Appropriate transport / preferably cool chain are arranged for the movement of the vegetables. The Bangladeshi Ministry of Finance to be requested duty-free entrance status for the vegetables. 2.7 Strategies for horticulture development for the extra regional market These markets characterizes tiny volumes of extremely high value products e.g. Cordyceps, Matsutake & red rice. Matsutake Mushrooms Bhutan has exported matsutake since 1991. Destinations for Bhutanese matsutake are Thailand, Singapore, India, Nepal, Korea, and Malaysia. It is high priced - low volume and thus well equipped to sustain the high costs associated with air transport. This recognizes that for Bhutan as well as a large number of less developed countries, logistics are a major issue. Road transport may be cheaper compared with air but for the cool chain critical for products such as fresh matsutake, road transport presents a number of critical areas where 92 Annexures to the Strategy for Gross National Happiness (SGNH) the cool chain can be stretched to the point of breaking. Collection occurs in the rural sector, which is the focus of the Government’s rural enterprise development program. Of all the mushrooms, matsutake is the only one that parasitizes off a living substrate and not an artificial one. Thus its production cannot be manipulated. As a naturally occurring product, matsutake must be collected with extreme awareness of the dangers of overexploitation. Even well intentioned but enthusiastic harvesting can result in damage to the resource. It is for this reason that matsutake lends itself to community based natural resource management. A detailed analysis of the import and wholesale market data for matsutake showed that Bhutan’s market share had declined dramatically over the thirteen years that it has been exporting matsutake to Japan. Concern is expressed about the image of Bhutan’s matsutake in Japan. There has been a number of reported near-fraudulent behaviour by Bhutanese exporters. Based on trade interviews, it is clear that this has seriously harmed the country’s image. The Bhutan Fresh concept should be introduced as a voluntary scheme that has precise grades and packaging standards. Products that meet these standards are entitled to affix the Bhutan Fresh logo. The government then assists the promotion of the Bhutan Fresh logo as a quality marquee. Exporters who choose not to enter the fee-paying scheme are still entitled to export but the Government does not support them, and, critically, makes no statement regarding quality assurance. Another area where improvements could be made relate to the physical conditions surrounding the actual process of exporting. If exporters could be more precise in their timing of exports it would facilitate the definite allocation of freight space on the country’s only airline – Druk Air. At the same time, precise advanced advice as to the timing of exports would enable prior inspection by the appropriate quarantine and associated authorities. Possible problems could be identified and remedial action instituted without the need for outright rejection. 2.8 Strategies for development of new crops into new markets Fruit crops like passion fruits, guava, peaches, pears, persimmon, and vegetable crops like chilli, tomato, cabbages, cauliflowers, broccoli, peas & beans, asparagus, etc. have also been promoted to a large extent by the MoA, mostly as a crop diversification measure to enhance the income and nutritional intake of the Bhutanese people. Therefore, efforts to continue developing these crops in terms of improved varieties, production management techniques, post harvest and processing capacities and collection of market information will be required to have commercial impact in the long term. Initiation of development of new crops like culinary herbs (Basil, oregano, sage, dill, lettuce, rosemary, thyme, lavender, etc.) also needs to be undertaken. These speciality crops have great potential of being value added (dried, or distillation of essential oils). High end resorts and speciality restaurants serving exotic dishes like pasta and pizzas generally need these as ingredients and spas and aromatherapy joints need specialised oils. 2.9 Strategies for enabling environment The horticulture research and extension efforts need to be streamlined and given more impetus with the setting up of commodity development groups for the major commodities like citrus, potato, apple, vegetables, medicinal & aromatic plants, herbs 93 Annexures to the Strategy for Gross National Happiness (SGNH) 2.10 & spices ( to cover crops like ginger and cardamoms, herbs, etc.), consisting of crop specialists, economists, marketing experts, etc. Horticulture research should be demand driven and therefore should form a part of the development and marketing initiatives. Marketing efforts need to be streamlined within the commodity development groups. The marketing division has the overall mandate of development of the agricultural marketing efforts, however, due to the organizational differences, there is no coherent approach to the marketing requirements of the commodities pursued by the different departments. Excess land under horticulture – people who have already invested in orchards and have been found to have excess land should be allowed to buy these lands within a prescribed ceiling, instead of eliminating the already invested orchards. Provide funding assistance to growers to expand areas, improve productivity, utilize high tech methods of commercializing horticulture like use of large green houses, net houses, drip/ sprinkler irrigation, production of new crops, construction of post harvest and packaging facilities on farm, improved transportation and marketing systems, etc. (e.g. subsidize investments on alternative irrigation systems for horticulture : Govt. provides 40% of the investment cost per acre of horticultural land under improved irrigation). Reforms recommended in the delivery of horticulture services Ensure availability of inputs like seeds, fertilizers, plant protection chemicals, etc. at the right time by setting up groups/ associations for input delivery at the production sites at least one in each Dzongkhag. Encourage private entrepreneurs to take up specialized services in horticulture like seed & seedling production, pest management, pruning, training, harvesting, packing, grading, transportation etc. by providing incentives like tax exemptions. Strengthen the capacity of the Dzongkhags through appointment of horticulture specialists (subject matter specialists) and plant protection supervisors at the Dzongkhag and Geog levels NRTI should introduce diploma in horticulture, or undergraduate programme in specialized horticulture skills development subjects rather than focusing on general agriculture extension methods, etc. 94 Annexures to the Strategy for Gross National Happiness (SGNH) Revitalization of livestock enterprises 1. Situation analysis 1.1 Background As Bhutan enters the next two decades the livestock sub-sector has the challenge to enhance livestock production capacities to meet the increasing demand of quality and safe livestock products and to enhance income of the small scale farmers. It therefore becomes essential that livestock development in Bhutan undergoes a metamorphosis to meet these challenges. It is estimated that 90% of the rural households own livestock in one form or the other. Livestock therefore forms a vital component of the RNR sector for the enhancement of the rural economy and in alleviating poverty. The 2003 national statistics indicate that livestock contribution is about 8.1% of the total GDP 17; however, the intangible benefits derived from livestock which is not accounted are manifold and very significant. Organized livestock development began in late 1960’s within the broad frame work of the programmes like breed improvement, dairy development, animal health coverage, fodder development, sheep & fisheries development, establishment of animal husbandry cum farmers training centers, research & extension, human resource development. These programmes have been pursued in successive development plans. There is now a need to be more responsive to increasing demand of livestock products in a sustainable manner which is coherent with the concept of GNH. In order to combat the problems of possible environmental degradation, more effective strategies are required to increase animal feed resources and a more strategic genetic upgrading exercise, to improve animal productivity. Contrary to the species-specific development programmes of the past, the Livestock subsector now envisages the need to transform the subsistence type of farming to market and impact-oriented activities which will actually bring about a difference in the life of our farmers. 1.2 Livestock dynamics: population and production The number of cattle per rural household in 2005 was 4.2 and poultry 1.9. The other categories of animals per rural household ranged from 0.2 to 0.5. Cattle is by far the most important livestock in Bhutan. While there has been a 15% increase in the number of cattle over the last five years, crossbred cattle increased by about 50%. Similarly crossbred pig and poultry population increased by about 3 times and 2.5 times respectively. These indicate the impact of crossbreeding interventions in Bhutan which will be catalytic for sustainable intensification of livestock in the country. For livestock products, the quantity of liquid milk increased by about 70%, while the amount of cheese doubled in 2005 compared to 2000. The increase in crossbred pig and poultry population resulted in increase in pork production by 69%, chicken meat and eggs by about 3 times in 2005 compared to 2000. There were small increases in beef and yak meat production by 23% and 18% respectively in 2005. In spite of these increases in local livestock product production there was increases in imports as well with the exception of eggs. 2. Why a need for livestock revolution…2008 to 2028 2.1 Increasing demand for livestock products The need for a livestock revolution is straightforward. Bhutan’s rapid population growth, income rise and urbanization are fuelling an increase in demand for food of animal origin. Between 2000 and 2005, there was increase in per capita consumption of all livestock 17 NSB 2004 95 Annexures to the Strategy for Gross National Happiness (SGNH) products. Milk consumption doubled, cheese and fresh fish consumption increased by about 2.5 times. The highest increase was seen in pork (about 3.5 times) and chicken (about 3 times). Eggs consumption increased by about 33% in 2005 compared to 2000. The per capita consumption is projected to grow even faster through 2028. Such changes can create new opportunities for livestock producers in Bhutan to enhance local production in a competitive manner and gradually reduce imports. 2.2 Need for integrating smallholders with commercial processing & marketing As livestock products demand increases it is important to have mechanisms on how the poor farmers can retain their market share of livestock production. Addressing the increased demand for livestock products provides an avenue for sustainable intensification of smallholder livestock production systems. 3. Broad policy pillars for livestock development The inherent complexity of livestock production imposes constraints that have to be addressed and which pose particular challenges not normally faced by the agricultural planner. Yet it is the very complexity of animal production systems that also offers some of the greatest opportunities for development. Livestock, because of their linkages with the overall farming system, make valuable entry points for wider agricultural development programmes. To exploit these opportunities, an integrated approach that combines both technical and institutional interventions is required. Rather than emphasizing only on output maximization, polices are required for a dynamic livestock sub-sector to improve food security and alleviate poverty and at the same time minimize adverse effects on public health and the environment. Some of the broad policy pillars proposed for livestock development in the future are: Enhancing the production in areas where there is sufficient demand and resources can be utilized at reasonable cost to the environment Building and strengthening participatory approaches for collective action of small scale farmers which will enable them to vertically integrate with livestock processors and marketing institutions Creating an enabling environment (e.g. access to capital, land and support services) in which farmers will increase investment in a way to improve productivity in the livestock sector Enhancing promotional livestock programmes by providing some free inputs (pullets, piglets) in the remote and vulnerable areas to alleviate poverty Instituting effective regulatory mechanism to deal with threats of environmental and health crises stemming from livestock 4. Prescription/Strategy: Way forward The strategies are based on a result of the situational analysis and the broad policies of the livestock sub-sector for the next 20 years, which of course must be revisited from time to time. 4.1 General livestock development strategies The livestock revolution could provide an engine for sustainable intensification of small-scale farming and marketing. A development strategy needs to anticipate and identify those forces that drive a particular livestock production system and the sub-sector as a whole. These can include population growth, market development (urbanization and income growth), technological change and a changing resource base. An understanding of the direction and speed with which these factors may change, both at the sectoral and farm levels, is 96 Annexures to the Strategy for Gross National Happiness (SGNH) necessary so that future programmes can respond accordingly. Some of the general livestock development strategies are included under the following broad classifications: On-farm interventions All farm interventions should be adapted to specific agro-ecological conditions and production systems. The availability or utilization of local feeds can be increased through establishment of feed mills at strategic locations in the identified potential areas of livestock development. Feed resources Feed and fodder development will continue to be an important element in livestock development programmes. These interventions should aim at increasing the availability or utilization of local feeds through establishment of feed mills at strategic locations in the identified potential areas of livestock development. Animal feeding needs special attention and the need to make better use of traditional feed resources is a must to raise ruminant livestock productivity. Feeding of cereal straws alone result in perpetual poor productivity. The majority of farm households rely on grazing in the forests, and crop residues, which are low in nutrient contents. Feed shortages occur especially during winter. Improving poor quality feeds such as straw with urea has been tried in the past, but has had low adoption rates18. Promoting crossbreeding requires improved feeding practices, and supply of higher quality feed such as concentrates and leguminous tree leaves. Growing legume fodder trees, oats, fodder conservation, diet supplementation with balanced high energy feeds (urea/molasses blocks) are interventions that farmers are gradually taking up to address these constraints in Bhutan. Enhancing cash output from the mixed farm is therefore essential to enable farmers invest in good quality feed for their animals. Stall feeding Stall feeding of cattle must be promoted. It is essential that farmers gradually consider stall feeding, in order to use the available feed resources effectively and maximize manure production. Wastage of valuable manure can be reduced by stall feeding and utilized by improving drainage and constructing a simple pit at the animal shed. Losses of manure due to rain and sun cold can be minimized by providing simple roofing over the compost heaps or pits. However, socio-economic constraints need to be evaluated before recommending these changes to farmers on a wide scale, especially because of the extra labour and costs involved. Genetic improvement programmes aimed at improving the livestock resource base Options include within-breed selection of adapted indigenous breeds, substitution with exotic breeds or cross-breeding. Such choice should depend on the production system, its objectives and the resources at its disposal. Experience has shown serious misjudgment with policies aimed at importing exotic breeds with a corresponding neglect of indigenous breeds in many developing countries. Dissemination concerns the institutional aspects as well as the choice of biotechnology such as artificial insemination, embryo transfer and progeny testing programmes. The artificial insemination programmes must be strengthened and mobile AI programmes promoted. The current practice of supplying a breeding bull to a community and managed by a community should be changed, since community owned breeding bulls have not received appropriate attention and care. Such breeding bulls should be given to contract bull breeder who will take care of the bulls and charge some amounts for services performed by the breeding bulls. 18 DALSS, 2002 97 Annexures to the Strategy for Gross National Happiness (SGNH) Conservation of local genetic resources Dairy intensification is measured as the shift from “low-producing” animals to “highproducing” animals. Crossbreeding does provide short term economic benefits; however, it is being debated, because if it is often done haphazardly it contributes to the genetic erosion of well-adapted local breeds. Exotic crossbreds are also more susceptible to diseases and high mortality rates which require better feeds, more veterinary care and better management. The potential to increase production by introduction of high genetic level animals with high production potential is a promising method to alleviate poverty and therefore subject of many developing projects. Yet in the context of sustainability, to meet the requirements of future production systems, efforts must be made to conserve genes of locally adapted animals, since genetic biodiversity is the base for every breeding programme and an invaluable resource. Conservation of local genetic resources is vital due to the ability to respond to changing production systems. Adapted animals are more resistant to diseases and environmental challenges. Strengthening the conservation of local animal genetic diversity through ex-situ conservation and promoting selection within the local breeds in the government farms (located at Trashiyangphu, east Bhutan) and in areas where farmers prefer the local breeds should be promoted because of their specific characteristics, such as disease resistance and adaptability to harsh environmental conditions. Cryo-preservation of the Siri semen is an ongoing activity in Bhutan and this could be one way of preserving the local genetic resources for use in the future. Addressing animal health constraints In the animal health scenario, some of the strategies to be advocated are: the strategic animal health delivery approach, expansion of cost participation mechanism for curative veterinary services in the urban areas, the promotion of village/community participation in the animal health programmes and strengthening the livestock sub-sectors efforts alleviating zoonotic diseases. Catering to the needs of the farmers through an effective delivery of the extension service, strengthening and advocating an effective monitoring and evaluation of the livestock services and bringing about a horizontal integration of the technical programmes are areas of priority. Strategic animal health delivery based on epidemiological findings should be continued. Control of economically important production diseases (internal and external parasites) and zoonotic diseases will be emphasized upon. Finding a balance between livestock and the environment In the smallholder mixed farming systems of Bhutan, the most important interaction between livestock and the environment is cattle grazing in the forests. Farmers have user rights for grazing in many of the forest areas. The intensity of cattle grazing in the forests differs between regions. It must be emphasized that uncontrolled grazing with high animal densities is harmful to both forests and grassland eco-systems. At the same time judicious grazing is an effective management tool for reducing competition of tree seedlings by eliminating unwanted shrubs and grasses. For sustainable development of smallholder farming systems, it is vital that a symbiotic relationship occurs between cattle grazing in the forest and forest management. Forest grazing and silvopastoral systems are widely accepted as modern forest management tools. Silvopastoral systems can particularly be useful for mountainous environment and they perhaps offer the best economic and ecological option for many livestock farmers in Bhutan. An example of the synergy between forests, crops and livestock is the promotion of crossbred cattle to increase milk production especially in areas with taboos on culling and so that fewer animals are kept to conserve forests. There is also a need to maintain nutrient balance in nutrient deficit mixed farming and to enhance crop 98 Annexures to the Strategy for Gross National Happiness (SGNH) livestock integration. To reduce nutrient surpluses, regulations to control animal densities and waste discharge and incentive for waste reduction are required. Veterinary public health With livestock production becoming more intensive, stringent regulations should be in place for environmental sustainability and to safeguard public health concerns. Meat, milk and dairy products hygiene should be better enforced. This should be done through establishment of adequate standards for livestock products and hygienic standards for the entire production chain. Urban dairies and piggery should adequately dispose waste materials. Strict vigilance of livestock products for possible zoonosis should be done. Efficient and professional delivery of services Technical backstopping and professional advisory services to the farmers should be strengthened. Extension agents should take a more proactive role in the rural development activities for which appropriate facilities (two wheelers, basic office set up and up gradation of their skills) should also be provided to these people. 4.2 Focused livestock development strategies In the past, efforts to bring about livestock development have been made at various levels, wherein the inputs made were highly diversified resulting in a very small output across a wide arena. Latent development strategies were in vogue which cannot adequately address our current and future needs of livestock products. Bhutan’s development policies of poverty alleviation requires strategies that will help the rural poor and at the same time ensure that they have the opportunity to participate in the growth made possible by livestock revolution. For Bhutan livestock development patterns such as high cost and highly capitalized industrial milk, pig and poultry production can be inappropriate policies because these only promote large livestock industries (dominated by a few large producers), with few opportunities for poor farmers. The small scale poor farmers should not be driven out by industrial livestock producers. Instead small scale farmers should be given the opportunity to integrate vertically with livestock food processors. Current focused strategies aim to reduce import of livestock products by enhancing local production. Exports of some niche products like exotic cheese (from cattle and yak) and also honey will be explored. Some of the alternatives to large industrial productions systems wherein small scale farmers can benefit could be developed through: Vertical coordination of specialized crop and livestock activities in high potential areas. Use of labour and quality control of many small farmers in production, but also benefit from the expertise, technologies and assets of larger scale companies that are under contract for input provision, processing and marketing. Strong emphasis in the area of technology development for production and processing of livestock products, potential benefits from new technologies, and at the same time have appropriate mechanism for environmental conservation and protection of public health. Assessment of potential products and potential areas The vision of the livestock sub-sector in the next 20 years should envisage contributing to achieving economical, social and environmental sustainability, which is coherent with Bhutan’s policy of self-reliance. To have a desirable impact on the rural economy and to 99 Annexures to the Strategy for Gross National Happiness (SGNH) cater to the increasing demand of livestock products, a focused programmed commodity approach in the potential areas of the country is essential. This would have a big economic impact for the rural and peri-urban farmers, generate employment opportunities, bring about a reduction in import of livestock products and also contribute to food self sufficiency and food security at the national level. Based on parameters such as livestock population, livestock production, agro-ecological zones, environmental conditions such as access to grazing areas, crop residues, market opportunities, prevailing social beliefs, a list of the various important livestock products which has potential to be pursued as a semicommercial or commercial enterprises in the next 20 years is given in the table below. 100 Annexures to the Strategy for Gross National Happiness (SGNH) Potential livestock products and potential areas Milk and products Dzongkhag Liq uid mil k Local Butter & Cheese Yo ghu rt Meat Enterprises Exotic cheese (cattle) Exoti c chees e (Yak) Pork Chi cke n Bumthang Chhukha Dagana Gasa Haa Lhuentse Mongar Paro Pema Gatshel Punakha Samdrup Jongkhar Samtse Sarpang Trashigang Thimphu Trongsa Tsirang Wangdue Yangtse Zhemgang 101 Eggs Others Fish Yak meat (Proces sed) Beef (Proces sed) Chev on Ho ney Horse & Yak (pack ) Annexures to the Strategy for Gross National Happiness Farmer groups Generally individual entrepreneurs or small companies make simple, informal production contract with farmers on a seasonal basis. Such contact with farmer groups enhances the volume of the product and a more reliable source of raw material. Such mechanism is usually an alternative to corporate approach in smallholder farming system. These informal initiatives depend on the efficiency of technical support services by the government. The concept of farmers working in groups is still in its infancy. Bhutanese by and large though individualistic in nature, such a concept is nonetheless slowly emerging. Farmers working in groups have the benefits of a large volume of production, lower cost of overhead expenditures and a stronger marketing edge. Some of the notable farmers groups which are operating currently include the Thimphu Peri-urban group (fresh milk), Sha Gogona group (exotic cheese), Shari Om Luethen Tshogpa at Paro (fresh milk), Choekhor Gonor Gongphel Tshogpa (butter & cheese), Deothang farmer group (fresh milk), Tangsibji farmer group at Trongsa (butter & cheese), Doban farmer group in Sarpang (butter & cheese), SoiYaksa farmers group (yak butter & cheese) and several poultry and pig farmers groups in Tsirang and Sarpang. The economic gains have been good from such enterprises, but production of the products in larger quantities has resulted in marketing problems. In the 10th Plan, all the existing farmers groups will be further strengthened in terms of functioning as a group, training on various aspects of product processing and marketing. In the potential areas more farmer groups will be formed. The peri-urban dairy/pig/poultry programmes will receive a major thrust in potential pockets of the country in the coming years. Farmer’s involvement on the development programmes, such as the formation of Contract Bull Breeder Programmes, Contract Pig Production Programmes will continue. By the end of the 10th Plan, efforts will be made to form farmers’ association (a conglomeration of several farmers groups) in the potential areas of Bhutan. Nucleus estate model of contract farming As the informal type of contract farming (farmers groups/ association) continues in the 10th plan, the concept of more organized type of contract farming will have to be initiated to facilitate sustainable and market oriented livestock production by small producers. Such organized contract farming will provide a proper linkage between the farm and the markets. Arrangements are required to be made to obtain commitment of the producer (farmers, farmer groups) to provide a certain type and quality of livestock product at a time and price and the quantity (minimum/maximum) agreed upon by a known and committed buyer. Efforts will therefore have to be made to induce private parties to establish moderate sized pig and poultry processing plants. In case there are no takers, then public intervention is required to establish a few processing plants in potential areas. In such a scheme the public sector will also maintain a production unit to guarantee throughput for the processing plant and may be used for breeding and research purposes, but farmers and farmer groups will be under contract to produce the inputs. The public sector will commence the processing plant on a trail basis. After a trial period the processing technology can then be introduced to the farmer groups and leased. Some examples include milk processing plants, vacuum packed yak meat, poultry and pig meat products. Gradual privatization of government cattle farms The government livestock farms need to be retained for the moment since they are still the most important source of genetic material (breeding bulls, horses and pigs). Until the farmers/farmers groups are in a position to take over these responsibilities completely, the government farms are still required. In the past, privatisation of some of the government 102 Annexures to the Strategy for Gross National Happiness livestock production units failed due to operational difficulties e.g. the Milk Processing Plant at Phuentsholing and the Pork Processing plant at Wangchutaba which is now closed. Major reasons for their failure were the lack of raw materials. Contract farming is therefore essential for the sustainability of such enterprises. In the future special emphasis should be made at enhancing the efficiency of the government farms, and bringing them to a stage of financial viability. Semi-commercialization, entrepreneurship development and attainment of some level of financial viability are required before embarking upon complete privatisation. During the 10th and 11th Plans, the Brown Swiss farm at Bumthang and National Jersey Breeding Centre at Samtse should focus on milk production and if required processing of milk products so that they reach a certain level of financial viability. These units will also continue to focus on production of breeding bulls and by the 12th Plan, these two farms may be leased to contracted farmer groups to take up the entire operation. The government pig and poultry farms should continue to increase the production of piglets and pullets, to assist the farmers/farmers groups or private entrepreneurs undertaking pig and poultry processing enterprises. When the government pig and poultry farms demonstrate financial viability, these also could be leased out to farmer groups or interested entrepreneurs. Cost sharing of animal health service delivery Animal health programmes are essentially aimed at limiting the impact of disease on animal production. Policy issues concern as to who will provide and pay for such services. Foremost is the need to control and protect (quarantine) the national livestock resource from major epizootic diseases, such as Rinderpest, Avian flu, etc. Disease monitoring, veterinary investigation and legislation (public health and meat inspection) also fall within the public domain. It is proposed that in the urban areas of Thimphu, Phuentsholing, Gelephu and Samdrup Jongkhar, the clients owning pet animals should pay animal service charge and the full costs of medicines prescribed. 103 Annexures to the Strategy for Gross National Happiness Revitalizing RNR Research and Extension Services 1. Introduction The dependency on the agricultural sector is expected to continue as long as a sizeable portion of the work force depends on it, a substantial part of consumers' expenditure is accounted for by food and other agricultural products and foreign exchange earnings are provided by agricultural exports. With almost 70% of the population living in the rural areas, economic growth or regression cannot be divorced from the performance of agricultural sector. That situation is unlikely to change for some time given the fact that growth engines such as physical infrastructure, human and institutional resources remain largely underdeveloped. These long-term constraints require long-term strategic investments. It is essential to immediately begin sorting out priorities and plan appropriate sequence of investment and policy interventions that can create conditions for sustainable economic growth. The carrying capacity of the land can be understood in terms of input use and technology adoption. Agricultural practices are still predominantly at low input level, while there are some areas that have moved to an intermediate level characterized by certain level of mechanization, use of synthetic fertilizers and chemicals and soil conservation technologies. With the policy objective of maintaining 60% forest cover at all times, access to these reserves will be limited. Of late, the proposed spatial development initiatives will further curtail the scope for areal expansion of agriculture. The viable options are then to develop and adopt local-specific technologies, and embark upon intensification of land-based production systems (greenhouse production), move to artificial medium (hydroponics), or venture into non-agriculture based rural enterprises (agro-tourism). A strong, sensitive and responsive public sector research and extension institution can offer technological options and expand opportunities to maximize economic benefits from our limited resources. 2. Situation Analysis The agriculture research and extension system requires immediate lease of new life if it is to sustain its role as the primary agent of positive changes in the RNR sector. The government will find no reason to continue with services that cannot deliver with measurable impact on improving the rural economy largely based on agrarian ventures. An entirely new perspective is emerging within the context of a proposed SGNH that is poised to chart out an era of new-age economic activism in Bhutan. The pathway to economic justice and common-sense approaches captured within its framework strategy encompasses spatial optimization, knowledge-intensive program of action and policies to create an enabling environment to fast-track economic aspirations. The manner in which agricultural research and extension interventions are currently formulated and organized does not fit the purpose of this new vision. Research into technology generation may have to shift its focus from perpetuating subsistence agriculture to being more responsive to money-making enterprises. Priorities have to be realigned to appreciate the total factor productivity in valuing farm outputs as the direct benefit of new or improved technologies, instead of simply evaluating the volumetric aspects of economic yield. The extension system too will have to adapt to the ideals and standards of SGNH to justify its relevance in the new economic order. The exclusions and inclusions, the entry points and areas of hegemony for rural progress vis-à-vis strategic hubs and growth centers need to be carefully analyzed to operate as effective and efficient agents of change. The ramifications for agricultural extension services are obvious. It may not be necessary to have full complements of extension outreaches in all the Dzongkhags, more so at the geog level where quite a number of them can actually do away with most of the extension 104 Annexures to the Strategy for Gross National Happiness representatives. The service placements amongst and within Dzongkhags can be rationalized based on the needs assessed as vital for the livelihood of resident communities and the agrarian enterprises with significant contribution to the local economy and employment. 3. The Way Forward The RNRRCs should continue not as some exclusive research centers for prolonging subsistence agriculture. There is no case for exclusive reliance on agricultural development to improve the quality of life in rural areas. It is necessary to locate research and extension support to agriculture in the wider context of rural development, and so adopt a more balanced set of roles and responsibilities. On the other hand, the promotion of rural nonagricultural employment and income cannot be made at the cost of shifting resources from the agricultural sector. The fact of the matter is, for some time to come, Bhutan cannot expect to grow mercantile centers without considering the growth in arable agriculture, livestock and forestry. Rural communities will continue to maintain agricultural assets whether their household income is reliant on it or not. The promotion of commercial, market-oriented agriculture production systems will increase the prospects of other associated enterprises becoming economically viable. A strong public sector research and extension establishment will set the context for a vibrant rural economy characterized by a diversity of highly productive farms, and serviced by full complements of input suppliers, processing and value-adding plants, credit and finance firms, marketing and transport services, knowledge and information centers. 3.1. Organizational Reform In the longer term, all RNR functionaries under the same jurisdiction/zone can be either merged or professionally affiliated to the RNRRCs. CoRRB, the current manager of RNRRCs can reorient its functions consistent with the general appreciation for what an agricultural research council is expected to perform. It should then maintain its apex status as the national instrument of overseeing the scientific and technical conduct of agricultural research system. It should relinquish its administrative accountability for RNRRCs and assume an independent position to be able to objectively monitor and evaluate the performances of the RNRRCs. Its position can be substantiated further by functioning as an interface between the national agricultural research system and others at the regional and international level advancing intergovernmental and multilateral exchanges, cooperation and joint initiatives. The RNR extension contraption seems to have overgrown its relevance if we submit to a layman’s perspective. The need for extension capacity must have been an overstatement, because a comprehensive network of extension service covering all twenty Dzongkhags and most of the 205 geogs does not equate well with 7-8% arable land where all the agricultural production activities are bound to be based. Looking at the land use map, there are few Dzongkhags and many geogs with hardly any arable land, and yet we have extensionists based in those areas. Road accessibility and communication facilities have redefined our perception of remoteness. For extension to be effective, physical proximity is no longer a plausible excuse for more agents and more travel time. Where communication has been enabled, it may be more costeffective to explore alternative extension packages. Further, it may no longer be necessary to have extensionists at the Dzongkhag HQs, but only in the prospective geogs. Nonetheless, a comprehensive review of the RNR extension services will be very useful, and the recommendations then will chart the course of action for reform. It may be noteworthy to bear in mind some of the changes that will affect public sector extension services: 105 Annexures to the Strategy for Gross National Happiness decreasing overall public investments increasing criticisms of poor performance emergence of other actors and service providers that can disseminate agricultural knowledge and information revolution in information and communication technologies which provides new vehicles for supplying information changes in agriculture and, therefore, in the information needs of farmers 3.2. Reforming institutional mandate and operational strategy Research and Extension services need to move toward fostering a culture of knowledgeintensive agriculture and agribusiness. The RNRRCs and the consortium of client enterprises may be viewed as the “Greenports” of GCs and EHs. Other important knowledge and innovation clusters targeting natural resources conservation and use can rally around the RNRRCs and broaden their area of interventions in technology generation and dissemination. The main strength in the concept of greenport is that functions and links are coordinated, for example including options for using each others’ waste products. It is also compatible with the schemes to concentrate capital-intensive and non-land-based agriculture in sustainably organized agricultural development areas that have been incorporated effectively into the landscape. The Dzongkhags and Geogs should designate such areas and define their boundaries in their development plans, at the same time limiting the development of these forms of agriculture outside these areas. The spatial policy is aimed at reinforcing the strength of the existing agricultural development areas and preserving the space they need. Rather than tinkering with RCs’ so called “national and regional mandates” that are vague and impractical, their full potential can be exploited with maximum impact by reconciling their visions and missions with the mainstream development pathway embraced by the stakeholding communities. Almost all instances of development trajectory are towards urbanization, following the “farmers should leave the earth but not the countryside” trend of pursuing economic betterment and prosperity. The higher economic return of nonagricultural over agricultural activities is a universal phenomenon, irrespective of whether the price system is distorted or not. Unless the RNRRCs lead the campaign of stimulating development of agriculture-based rural industrialization and SMEs in the countryside, nonagrarian domination of rural economy can become very costly and destructive to the sustainability of both rural economy and natural environment. Doing so will require a paradigm shift in strategic visioning and tactical conduct of stimulating agricultural growth within the scope of their respective mandates, geographically and operationally. Bearing in mind the prerogatives of SGNH, research and extension must collectively aspire for concrete domino effects in the following areas: a. Develop and propagate technologies for capital-intensive forms of agriculture, including horticultural production systems that are not land-based e.g. greenhouse horticulture, cultivation in pots and containers, in-vitro mass production, hydroponics, etc. With less than 8% of the country area under agriculture, land is a scarce resource. Maximizing the use of available land must be reinforced at all times. Stall-fed and shed-bound types of animal production as opposed to free-ranging will improve productivity per unit of space by several folds. By concentrating these intensive activities in “greenports”, it is possible to achieve economies of scale and promote efficiency in transport and logistics. 106 Annexures to the Strategy for Gross National Happiness b. Agri-tourism has increasingly been proposed as a means for economic diversification and landscape preservation in agricultural regions undergoing restructuring as well as a means to satisfy increased demand for amenity countryside uses. Locally adapted technologies and sufficient knowledge pool is required to facilitate informed decision-making in promoting alternative uses of farmland with minimal environmental and ecological disturbances. c. The potential for practicing “civic agriculture” within the limits of GCs and EHs must be assessed carefully. This approach will lend shape and legitimacy to a diverse and growing body of creative, socioeconomic relationships – farmer’s markets, producer and service associations, co-operatives, community parks and botanic gardens, etc. As a conceptual tool, civic agriculture has the power to focus public attention on the contradictions within our industrially-modeled and corporately controlled agriculture, as well as on the potential of “relocalized” food systems. Civic agriculture moves away from a strictly mechanistic focus on production and economic efficiency and toward food and farming systems responsive to particular ecological and socioeconomic contexts. It is not only an alternative strategy for food production, distribution, and consumption but also a tool and a venue for “grounding people in common purpose” – for nurturing a sense of belonging to a place and an organic sense of citizenship. d. Contract farming is advocated as one solution to small land holdings, land fragmentation, and sub-optimal land utilization by presenting small farmers with an opportunity to participate in the broader market economy. Contract farming is initiated by private agri-business entities to secure access to smallholder produce. They provide services to farmers and in return receive access to some or all of the farmers’ produce. Schemes typically involve the provision of inputs (seed, fertilizers, and pesticides) on credit, often with extension advice, but may also include a range of other services such as ploughing and crop spraying. Costs are recouped when the produce is sold. Some variations of contract farming are practiced, but the farmers’ equity position and the effect on the long term quality of working assets and sustainability of land have never been investigated scientifically and economically. The research and extension effort in this area will help to address constraints and issues. e. Farmer Associations, Farmer Groups, Farmers-Controlled Enterprises are other mechanisms to build up economy of scale, reduce transaction costs, access credit and finance, improve their negotiating power and accrue political muscle. Farmers’ enterprises can result from cooperation through formal cooperatives, farmer associations or groups, and reap benefits for members by achieving economies of scale for a range of activities, e.g. bulking up in output marketing or storage. This important aspect of agro-economics is largely overlooked by MoA’s R&D agencies. Policy research and good practices of group formations have never been a research and extension priority. Cooperatives, associations and contract farming can be effective ways of delivering agricultural services to smallholder farmers, enabling an intensification of production and diversification into more profitable cash crops. f. Precision farming is the most appropriate technology for organic agriculture. This meticulous and ICT-intensive mode of cultivation is justified for any high-value cash crops, accruing enormous benefits in input reduction, better quality and high yield, natural resource conservation and protection of environment. The basic principle is the exploitation of resource capability and enforcement of variable rate production 107 Annexures to the Strategy for Gross National Happiness management. Research and extension aptitude is completely lacking in this sphere, while it holds great promise for advancing organic agriculture in the country. g. With almost three decades of applied and adaptive research behind us, the stage for assimilation and ingestion of accumulated knowledge and information is long overdue. The system of agricultural technology transfer we follow diligently is outmoded and ineffectual. Farmers and practitioners alike are inclined to experimentation by doing things on their own and not by reading top-down packages of practices. The A to Z advisories in technology applications are intimidating and breed inferiority complexes that actually distances the end users. What is really expected of the experts is contextual help in the autonomous decision process; to clear off dead ends and open up the situation to move ahead. This is what is commonly referred to as decision support system that can be implemented quite easily on a normal office or farm PC using artificial intelligence, expert system shells or modeled using mechanistic, stochastic or empirical algorithms. Given the availability of free computing power, the accumulated knowledge from our research efforts now needs to be translated into decision tools. Most of the technology generation and transfer roles of research and extension agencies can also be replaced by computers thus saving costs and professional time for other works. The RNRRCs and the extension agent must assess the feasibility and evaluate the benefits of using these tools to shorten the development period and expedite adoption of agricultural technologies. 3.3 Funding Reform A fundamental problem is that Agriculture Research & Extension institutions are typically funded by block grants whose renewal is seldom linked to performance or impact. Without such a linkage, there tends to be: lack of client orientation; lack of prioritization in line with national policy objectives; failure to allocate scarce resources efficiently; political interference in governance and management; lack of transparency and professionalism in project selection, management and evaluation; bureaucracy and over-centralization. Elsewhere in the world, establishment of so-called competitive agricultural technology funds have found increasing favor with both donor agencies and some national governments. The Royal Government may like to introduce a funding modality along similar lines. The fund is a pool of money designed to support the development of agricultural technology. When it is established, a set of rules guiding its use, management and accountability arrangements are put in place in support of its objectives. The fund can cover research, technology delivery and uptake processes. There is advance identification of priority areas in which activities will be supported. The availability of funds in the agreed thematic areas is then widely advertised, and proposals are solicited. The key is open competition to work on sections of an agreed agenda for the development and delivery of agricultural technology. This funding logic will have the following characteristics: Autonomous or semi-autonomous status in relation to all stakeholders. Priority areas clearly derived from national policy priorities. Requirement of evidence that the proposed research is demand-driven. 108 Annexures to the Strategy for Gross National Happiness A set of rules that encourages the widest possible participation in the scheme. Wide advertisement of the program and of conditions for application. Peer review procedures that are clear, transparent, professional and anonymous. A financial and administrative review process that balances priority and quality with cost. Adequate financial provision. Integrity, independence, accountability and quality of management. Non-intrusive monitoring of progress by competent reviewers, and institutionalized evaluation and impact assessment. The potential benefits from such funding mechanism are: increased effectiveness by directing resources by merit; increased efficiency by reducing costs, eliminating duplication, increasing accountability of research resources, and increasing utilization of infrastructure by providing operating resources; closer alignment of Research & Extension with national research priorities; promotion of a demand-driven national system; strengthened links between research and extension organizations, agricultural production and agricultural policies; induced institutional change in the national innovation system; merit review and expert feedback. 3.4 Policy Reform Agriculture must become economically, environmentally and socially viable through appropriate policy support in encouraging resource-conserving technologies and practices, fostering local group and community action and reforming external institutions. These are the policies aimed at addressing some of the issues and constraints in the three areas of action to promote sustainable alternatives to conventional systems of agriculture production. The way we conduct economic activities for food and agriculture are not a set of practices fixed in time and space. The capacity to adapt and change as external and internal conditions change is fundamental to the process of introducing innovation and creativity in agriculture by creating the enabling conditions for locally generated and adapted technologies, locally available resources, and local skills and knowledge. Farmers too need supportive public policies that foster farming opportunities, remove obstacles to farm entry, and encourage farm development. Policy 1: Declare a National Policy for Sustainable Agriculture Declaring a national policy for sustainable agriculture helps to raise the profile of these processes and needs, as well as giving explicit value to alternative societal goals. It would also establish the necessary framework within which the specific actions listed below can fit and be supported. Policy 2: Prioritize Research into Sustainable Agriculture There is a need for increased research by the MoA departments and RUB RNR colleges into resource-conserving technologies. Current practices are heavily biased towards modern agricultural practices. Where possible, farmers should be involved closely in research design and implementation, as it is they who know their local conditions best. Indigenous knowledge and management systems form an important focus for such research. 109 Annexures to the Strategy for Gross National Happiness Policy 3: Grant Farmers Appropriate Property Rights Sustainable agriculture incorporates the notion of giving value to the future availability of resources. But where there is lack of secure tenure and clear property rights, this discriminates against the long-term investment necessary for sustainable agriculture. If tenant farmers are uncertain how long they will be permitted to farm a piece of land, then they will have few incentives to invest in practices that only pay off in the long term, such as soil and water conservation, agroforestry, planting hedgerows and building up soil fertility. In some places, tenants risk eviction if they improve the land they farm — if the land becomes too productive, landlords may claim it and farm it for themselves. The best option is to grant property and titling rights through national programs for land reform and resettlement. Policy 4: Direct Subsidies and Grants Towards Sustainable Technologies Offer direct financial support in return for the adoption by farmers of conservation-oriented practices and technologies. This conservation focus can be tied to existing support payments, rather than implying additional financial resources. Policy 5: Provide Better Information for Consumers and the Public The opportunity exists for policies to couple food markets to the environment. There are many options including new cosmetic standards and publicity campaigns to demonstrate to consumers that poor appearance does not necessarily mean poor quality. 'Eco-labeling' of foods can also help, so that consumers may exercise greater choice. Policy 6: Greening National Accounts Current methods for determining national and sectoral income are very misleading indicators of sustainable economic development. By convention, national income accounts ignore natural assets, assuming that the productivity of these resources is not relevant to national economic health. Conventional accounting effectively values natural capital at zero. When natural resource accounting is used, national income accounts are adjusted to reflect the depreciation of natural capital and the direct costs of environmental degradation. Policy 7: Encourage the Formation of Local Groups The first action is to encourage more coordinated local action through better linkages between farmers. Six types of local group or institutions are directly relevant to the needs for sustainable agriculture: community organizations; natural resource management groups; farmer research groups; farmer-to-farmer extension groups; credit management groups; and consumer groups. Policy 8: Foster Rural Partnerships There is a need for a coordinated national approach to rural development that puts community action and social cohesion as the primary goal. These should emphasize the need for local diversity, community involvement in decisions, local added value for agricultural produce, provision of services, and good networks and communications to achieve sustainable development. Policy 9: Permit Groups to Have Access to Credit Local credit groups directly help poorer families both to stay out of debt and reap productive returns on small investments on their farms. What is needed to support these efforts is for banks to change their rules about lending. The convention has been that they only lend to individuals with collateral. But where banks have been instructed or have chosen to lend to groups as an institution, with the groups taking collective responsibility for the loans, many more poor and needy people have access to credit. They are also better at paying back loans. 110 Annexures to the Strategy for Gross National Happiness Policy 10: Reform Teaching and Training Establishments Sustainable agriculture implies new thinking about teaching and learning. The central concept of sustainable agriculture is that it enshrines new ways of learning about the world. Professionals who are to work with local complexity, diversity and uncertainty need to engage in sensitive learning about the particular conditions of rapid change. Everyone involved in agriculture, including farmers, trainers, educators, researchers, extensionists and administrators becomes important, as do the relationships between them. Policy 11: Policies specific to poverty reduction Agricultural research, development, and extension services have clear geographical dimensions. The larger the Dzongkhag and the more varied its agro-climatic conditions, the larger the differences between the crops grown in different farming systems. As a result, commodity-based research programs affect mostly those regions in which these commodities are the main crops, and thematic research programs affect mostly the regions that have the specific (soil, climatic, etc.) conditions which are the subject of the research. Bhutan exhibits considerable geographic diversity in agricultural production due to significant differences in climate and soil texture and composition between regions. The large differences in the standard of living and the prevalence of poverty between different geographically distinct Dzongkhags on the one hand, and differences in the cropping patterns and farming systems between many of these areas on the other hand suggest that agricultural R&D programs, combined with well designed extension services, can be an important policy instrument to reduce poverty. By targeting agricultural R&D on commodities that are common in the farming systems of the poor, and targeting the extension services on areas where the poor concentrate, these measures can bring about an increase in output and/or reduction in production costs of the poor thereby raising their incomes and reducing the incidence and depth of poverty. Options relating to the scope and form of pro-poor agricultural extension cannot be viewed in isolation from wider policy options in agriculture and rural development. Many of these are specific to the economic, social and cultural context, in particular to market conditions (i.e. whether farming areas are weakly or strongly integrated into markets), to resource availability in the public sector, and to the extent to which government is oriented towards poverty reduction. Other policy options are more generic, including the need to: promote the privatization of extension in well integrated areas like GCs and EHs, switching public resources to more remote areas; de-emphasize the (land) productivity enhancement objectives which have dominated agricultural extension policy hitherto, giving increased emphasis to labor productivity, employment generation and vulnerability reduction, including reduction of the impact of seasonality on incomes; support the development of Dzongkhag HQs and other towns as nodal points at the interface between government, markets and rural people. Focusing on small-town development offers wider prospects of cross-sectoral integration in government strategies – especially between rural and urban strategies; strengthen people’s demands on the facilities newly created in Dzongkhag HQs and other towns. 111 Annexures to the Strategy for Gross National Happiness 3.5 Amendment of laws and land policy A full range of legal tools is needed to ensure the proper implementation of the National Spatial Policy. The planning process must be amended to realign with the new philosophy of governance. Other existing Acts must come under the purview of this single overarching policy framework. Various investment schemes needs to be in place to contribute to the realization of the objectives of the NSP. 112 Annexures to the Strategy for Gross National Happiness Revitalization of Agro Based Industries Situation Analysis The natural resource based manufacturing sector in Bhutan is limited to a few agroprocessing units that have been set up mainly to meet the growing demands for processed products and to serve as an outlet for surplus agricultural produce. However the informal sector is also on the increase which is mostly confined to the backyard of homes. The informal sector mainly caters to the domestic market and despite the competition from the imported products which are comparatively better in quality, the informal sector is growing. Agro-industrial development even at the small and cottage industry levels is deemed critically important to the expansion and diversification of the agriculture sector. It is a recognized fact that vibrant agro-industrial activities can expand the markets for primary agricultural products and add value by vertically integrating primary production and food processing systems. This will not only ensure the availability of the product throughout the season but would also reduce the marketing risks on the part of the farmers, increase their incomes and provide rural employment. However, the agro-industrial development in Bhutan is beset with the following problems and constraints: An inconsistent and insufficient supply of raw materials Seasonality of crops Inappropriate or obsolete processing equipment Sub-optimal use of processing facilities and equipment High packaging costs Lack of technical support Lack of incentives Lack of necessary resources Lack of access to Foreign Exchange Lack of mobility of labor Management problems There is potential for agro-zones to be set up for processing of: Agro Potato snacks Ara/Bangchang/Singchang Fruit Juices/Squash Pickles Canned vegetables/fruits Fried Tegma Putta Aezey/Chilly powder Tofu/Soya products Ginger Kharang/Flour Fruit Roll Livestock Cheese Butter Yoghurt 113 Annexures to the Strategy for Gross National Happiness Sha-Kam Yak Meat Fish-Dotsem Milk Ice cream Forestry Incense Cosmetics Herbal medicines Cordyceps Silajit Star anise 2. Need for Revitalization The key objective of any organization in the current context should be that of profit maximization without which the processing industries may not be able to meet the social responsibility. The growing consumerism in the world has spiked the demand for processed products and as such the processing industries will have to depend on the farmers for their supply of raw materials, a two way process of symbiotic relationship. Moreover, the growing competition in the domestic market from cheap imported products as well as in the global market necessitates the processing industries to redefine their goals and objectives, and structurally adjust themselves through various measures and means to reposition them in the market as a brand to be reckoned with. The growth of the informal sector is a positive trend in the development of the agriculture sector. Though they operate on a very small scale, their contribution to the economy cannot be underestimated. There is a need for the sector to formalize their set up so that necessary training could be imparted to enhance entrepreneurial and managerial skills. Necessary technical assistance could also be given especially on the quality and quality control aspects. Slowly this sector could be upgraded into a small scale industry depending on the size of its operations. The informal sector should be encouraged to get itself registered in order to avail of the training and R&D services offered by the Government. 3. Revitalization Strategy 3.1 Technology upgradation Up gradation of technology is seen necessary in the face of growing competition not only in the global market but in the domestic market as well. Appropriate household technologies should also be made available to the farmers not only for drying but for value addition of the products to enhance shelf life and to facilitate marketing. 3.2 Vertical Integration - contract farming The agro-processing sector should go into contract farming with the farmers. Such type of integration will ensure consistent supply of raw materials, provide extension services to the farmers and make available credit facilities and other support. The farmers would have an assured market and rural cash incomes would be enhanced while on the other hand, the agro-processing industries would have the required quality and quantity of raw materials. The agreement could also be to supply intermediate products like pulp and other products. Since the intermediate products would be processed at the production sites, it will be cheaper for the agro-processing firms than having to transport the fresh produce at the factory site and processing it into intermediate products. 114 Annexures to the Strategy for Gross National Happiness 3.3 Formation of farmers groups and IFPPs The formation of farmers groups should be mainly to engage in marketing activities collectively. Since most of the farmers operate on small scale, it is necessary for them to work in groups. As examples, there are currently two integrated fruit processing plants (IFPP) – one at Dagapela and the other at Goling, Zhemgang, which supply orange pulp during the season. More such units need to be set up across the country – such as in Nganglam and Panbang as well which are also major orange producing regions. The IFPPs should be set up in the rural areas near the production area. The farmers groups should manage the IFPPs given the fact that most of the farmers operate on small-scale and to enable distribution of the benefits more evenly. The farmers groups should also undertake marketing of the produce in order to fetch better prices than processing into pulp. Infrastructural facilities such as processing plants and permanent structures for grading and packaging need to be put in place. Other support facilities also need to be made available to attract services like shops, restaurants, etc. 3.4 Infrastructure Provision Speedy development of infrastructure and provision of facilities is seen necessary for the promotion of food processing sector especially in a developing country like Bhutan. Provision of such facilities will be critical for the informal sector and this is necessary to attract the informal sector, not only to get them formalized but also in further developing their capabilities. The Government should charge a certain fee for the facilities being rendered 3.5 Extension services The main problem with the farmers is their lack of knowledge on the management of orchards as well as on the cultivation aspects. As such, necessary extension services have to be provided on a regular basis. Such assistance can be extended by the processing units and this will ensure that the processing units get the right type and quality of raw materials. 3.6 Marketing Currently, processed products are exported only to India and Bangladesh. While Druk products have established their markets in India and Bangladesh, the inconsistent supply is an impeding factor which forces the consumer to look for substitutes. Druk fruit products are also produced in Kolkata that caters to other parts of India. For small food processing companies, a common brand may be used to market its products that can be possible only through the establishment of a common marketing agency. 3.7 Enabling environment 3.7.1 Labor Mobility The labor policy would have to be reviewed to allow movement of skilled labor on a contract basis so as to give hands-on-training to the employees. Technological transfer necessitates technological know-how which needs to be imported. If restrictions are imposed on the same, the processing industries will continue to use the current equipment/machines which may have become obsolete that would render the company uncompetitive in the domestic as well as international market. 3.7.2 Foreign Investment The FDI Policy stipulates investment of US$ 1 million in the agriculture sector. Considering the size of the economy and other aspects, no foreign firm will be willing to make investments 115 Annexures to the Strategy for Gross National Happiness of such scale. As such, the investment required to be made should be reduced to a reasonable scale to facilitate investments as most of the operations are small. 3.7.3 Foreign Exchange Access to forex is a major impediment that restricts the companies in importing essential raw materials. Therefore the government should support initially in making available the foreign exchange requirements till such time the company is well established. 116 Annexures to the Strategy for Gross National Happiness Revitalization of Wood-Based Industries Introduction Forests are a source of tangible economic and intangible ecological benefits. Out of the total forest area, 29% is earmarked as protected areas for environmental conservation. A preliminary assessment of forest resources in the country indicate that 54% of the total forest (excluding protected areas) is unsuitable for commercial forestry due to the steepness, 8% holds potential for commercial forests and 9% is being used by the rural communities. The most tangible economic use of forest is for timber. The timber is supplied from the Forest Management Units (FMUs) which are operated under a scientific plan. There are 15 FMUs in operation covering 4.4% of the total forest area. Most of the harvested timber from the FMUs is supplied to the urban consumers and part of it to rural consumers at subsidized rates. Economic activities related to forestry are undertaken collectively by private sector, corporations and rural communities, while the government regulates and provides support in terms of planning and implementing forest resource utilization plans and conservation management. Prior to July 1979, logging for commercial purposes was undertaken by private contractors. However, the 50th session of the National Assembly resolved that all logging will be done by the Government and logging in Southern Bhutan was banned. Accordingly, forest logging operations were allowed for commercial purposes (export and industries), internal Government needs and rural and urban timber requirements. The timber required to meet the urban demand are harvested by the Natural Resources Development Corporation (NRDC) according to the management plans prepared by the DoF and sold to the private sawmills. A Management Plan is prepared every 10 years and an Operation Plan every year. The NRDC is responsible for implementing the plans. Generally, timber for rural communities is also supplied by NRDC but where it cannot operate, the rural population is allowed to harvest their requirements with approval of the Government. As a new initiative, community groups have been formed to create community forests and manage them for their own sustainable use in accordance with the rules for community forests and the approved management plan. The wood-based manufacturing sector is dependent on processing primary products with low value addition. Most of the establishments are engaged in sawmills and furniture making in the wood based industry. Until 1998, there were four different price categories for logs (i.e. rural, urban, industrial and export). Both rural and urban timber were subsidized. Industrial timber had a fixed price that was based on the most recent export prices. Under the new Timber Marketing and Pricing Policy implemented in January 1999, only two prices remained: (i) a rural price for supplying rural timber for genuine uses; and (ii) the urban category, which includes all timber for commercial, construction and industrial purposes - wood prices under this category are determined by the market. Generally, there has been little development in the logging, saw milling and furniture producing sectors in relation to technology and the manufacturing process of cutting and storage of timber and the wastage during production has not lessened. The Wood Craft Center however, has played an important role in setting a standard for quality furniture and providing advice to private firms on modern techniques for storing wood, etc. Today, there 117 Annexures to the Strategy for Gross National Happiness are about 4 to 5 firms producing high quality furniture the demand for which is increasing especially in the urban areas. Currently, the establishment of economically viable wood-based industries still faces obstacles. Potential investors perceive the forest policy as volatile, they are not sure of the availability of raw materials, they do not have proper knowledge of national and export markets for valueadded products and lack access to sufficient skilled workers. Moreover, if NRDC continues the approach of auctioning less marketable species and low quality logs by mixing lots, it may further be a disincentive for the development of smaller scale wood-based industries. Issues and Constraints 1. Non-availability of preferred raw materials Firms do not have access to the right grade, size, quality and quantity of timber required. The firms buy the timber in lots of mixed species through open auctions out of which only about 1/3 can be used for the core business. This makes it necessary for the firms to start other processing units to process the unwanted timber into other subsidiary products, which takes the focus away from the core product line and prevents workers to specialize in one particular area. The hoarding of timber for long periods of time by NRDC renders most of the timber as not usable for the furniture production. Only upto 1/3 of the timber can be used and the firm has no choice but to add the cost of the unwanted timber to the cost of their core product thereby increasing the cost of the finished product. As a result, the firm loses competitive edge in the international market. Due to the high wastage while using local timber, some companies have resorted to importing timber boards from India and other third countries which have increased their profitability. Some firms have also started sawmilling to get the required quality and size of timber, thereby diverting the focus from the core business. 2. Lack of appropriate technology The technology used by the wood based firms is out-dated, resulting in low quality products and high wastage. Technology use is lacking in the areas of production, marketing, management and product design. Most of the firms lack innovativeness and incentives for technology promotion are largely absent. The sharing of information, technology and know-how amongst the firms is also rarely practiced. 3. Lack of skilled/affordable labor The availability of skilled and affordable labor is a critical factor for enhancing productivity and efficiency. However, most of the wood based firms cited the shortage of skilled Bhutanese laborers as a major constraint. Moreover, specialization and building of expertise is not possible since laborers have to undertake several tasks besides the core product line due to the unavailability of the required quality of timber. Firms find the workers trained and provided by the Wood Craft Center (WCC) too costly and in short supply, further, they are not available as and when the firms require them. Sometimes, there is also a mismatch between the skills possessed by the WCC trainees and the skills required by the industry where most of the firms use out-dated and obsolete machinery. Non-national day workers from across the border are found to be more affordable and flexible to employ particularly by the firms located in Phuentsholing and other southern towns. 118 Annexures to the Strategy for Gross National Happiness 4. Lack of incentive for quality The furniture industry’s focus is on the domestic market where government and the corporations are the main buyers. However, the policy of awarding of tenders to the lowest bidder provides no incentive for these firms to focus on quality. As such, firms are compelled to lower the quality of their products in order to compete. 5. High cost of transportation The cost of transporting timber from the harvesting site to the auction yard and again to the processing sites/locations proves higher than the cost of timber itself resulting in high cost of production. Recommendations for revitalization 1. Enhancing efficiency in the supply of raw materials a. Improving the existing institutional set up The sole reason for the under-performance of the wood-based industry is attributed to non-availability of the right grade, quality, size and quantity of timber. The policy of subsidy on rural timber needs to be reviewed to ensure that the rural communities avail of it for genuine reasons and such timber does not find its way to the urban markets. Timber should then be sorted and made available in lots of same species so that users get the required kind of timber at the right price. NRDC should not stock timber for long periods of time, which results in loss of utility especially for furniture producing firms. Such kind of timber is useful only for the construction sector. Timber demand in the wood-based industry needs to be assessed and considered by the NRDC so that the gap between timber demand and supply can be bridged. b. Decentralization of logging activities Wood-based industrial development should be private sector led. The Government’s intervention should be limited to creating the enabling environment and leaving productive investment to the private sector. NRDC should move out from direct logging activities (currently most of the logging is carried out by private contractors and auctioned to the wood-based firms by NRDC) and concentrate more on planning and monitoring the implementation of the forestry management plans. The DoF should spearhead the R&D, monitoring and regulatory roles and be responsible for the approval of management plans. The areas/zones for conservation, watershed protection, production forests and community/private forestry should be identified and allocated and the issue of conflicting land uses should be studied and reviewed with concerned agencies. The nature of soil, climatic conditions, etc. for growing different species of timber should be ascertained. Community Forestry should be encouraged. This would transfer the primary responsibility for management (protection, development, and utilization) of forests adjacent to communities to local management groups. The institutional and technical capacity of forest management groups should be strengthened to sustainably manage and equitably share the benefits from the forests handed over to them. The local management groups could pay royalty at specified percentage of the cuts to the NRDC. Community Forest Management Units (CFMUs) should be formed and local farmers trained and encouraged to take up plantations and logging activities at the community level on a commercial basis. 119 Annexures to the Strategy for Gross National Happiness 2. Creation of an enabling policy environment In order to create an enabling environment the following strategies should be pursued: Review the policy on the export of semi-finished products in order to have a clear technical definition and categorization of semi-finished products and finished products. Need to study the implications of the increase in the lease rent for the industrial estates and review accordingly. FDI limit for the Forest and Agro based industries should be reduced from US$ 1 million to US$ 0.5 million. Since most of the existing firms operate on small to medium scale, the incentive for huge FDI investment may not arise, discouraging investment in the industry. FDI can increase the firms’ competitive edge in terms of quality and price. There can also be technology and skill transfer from the investing company to the Bhutanese counterpart. Such technology/know-how transfer would over time reduce the dependence on imported cheap labor and cheap technology. 3. Technology Appropriate technologies should be acquired that conform to local needs and ensure a smooth transition from outdated technologies to more modern technologies. Technologies that are available from nearby regions and are compatible with the local culture, skills, raw materials and demand should be acquired. Financial assistance for technology upgrading and modernization could also be provided. Import of capital goods, especially advanced machineries for the wood based sector should be liberalized with a reduction in import duties. As allowed under the FDI policy, firms should be encouraged to enter into collaboration for technical know-how and technology upgradation with a view to enhance the marketability of their products or entering into buy-back arrangements for exports. Technology transfer will enable firms to come up with products, which can compete at least with the products of the countries in the region. E-commerce and development of information technology should be encouraged. 4. Training and skills development In order to address the shortage of skilled workers in the wood-based industry, the WCC should be converted into a training institute so that skilled people in this area are made readily available. However, the existing infrastructure at WCC is semi-permanent, as such requiring the construction of completely new infrastructure. This would include investment in infrastructure for a training unit and hostels for the trainees. Acquisition of land would not be necessary as the WCC has about 5 acres of land. The conversion into a training institute would also require an assessment of the skills demanded in the market, technology being used by the wood-based firms and diversifying of the training materials and skills to include the operation of advanced technology and the use of indigenous and simple tools, techniques and equipments. The recruitment of additional qualified trainers and technical assistance for transferring knowledge on designing and advanced production techniques and development/diversification of curriculum and resource materials would also be necessary. Training on traditional Bhutanese design should also be promoted and enhanced so as to be able to compete in the international market with product uniqueness and quality. In addition, the wood-based firms should be encouraged to initiate labor training programmes through cost-sharing training programmes, apprenticeship training, enforcing compulsory training budget and gradual skill transfer from foreign workers to national workers. 120 Annexures to the Strategy for Gross National Happiness 5. 6. Besides the 4-year course, short term courses based on the demand of the wood based industry should also be developed – enabling the center to earn additional income. Marketing/Brand Promotion Bhutanese traditional design furniture should be promoted for the purpose of export. Given the fact that it is difficult for Bhutanese firms to compete based on production efficiency in the international market, it has to compete on product uniqueness and quality. Trading houses/export houses like those in Japan should be set up to assist in the marketing of Bhutanese products. In the initial stage, the Government may be required to extend various facilities and incentives for the establishment of such agencies. The procedure for obtaining export clearances should be reviewed and made easier to encourage Bhutanese firms to export. The participation of Bhutanese firms in domestic and international trade fairs should be encouraged and promoted. Companies should be encouraged to come up with quality products, which can compete with the products in the region. Cluster Development Cluster development in the wood-based industry can offer several advantages. Clustering wood-based industries and relevant services in one area and providing infrastructure facilities will bring down the cost of infrastructure development and provide opportunities in sharing of common services, knowledge and technology. The management of pollution and waste and integration of environmental issues and enforcement will become more efficient. Potential wood-based clusters should be identified and located near the FMUs where logging is carried out (raw material source) or other considerations such as availability of labor, transportation, marketing facilities, etc. The programme would require the development of adequate infrastructure at strategic locations for the clusters and active involvement of the industry in the maintenance of their services. For the cluster formation, NRDC should take the role of planning, supervising and R&D. The private logging companies should take up the logging activities under the stringent supervision and monitoring by the NRDC - the private logging companies and the CFMUs should take over the plantation, harvesting, supply of timber as per the guidelines for the area, plantation/cut ratio, etc. A royalty amount fixed as a percentage of the cuts should be levied by the NRDC and paid by the private logging firms and the CFMU. The supply of timber to the industry should be based on market demand and supplied after sorting the timber according to the requirements of the firms in the cluster. Each firm in the cluster can specialize in the manufacture of block boards, plywood, joinery product, construction products, etc. and furniture. The packaging firms can take over the packaging of the products that are focused for export and the export companies can export those products under a common brand name or individual brands. The marketing firm can promote the products of the cluster to the domestic as well as the international market by organizing trade fairs, web advertising, tying up with agents abroad, etc. The firms in the cluster can pay a certain percentage of the sales to the marketing firm as commission. Transportation agencies in the cluster will be responsible for arranging the transportation of the products to the markets. 121 Annexures to the Strategy for Gross National Happiness Role of NRDC and DoF in the Cluster formation 1. NRDC should take up the preparation of forestry management plans and the monitoring of the logging activities of the private contractors. The cost of planning and monitoring could be met from the royalties paid by the private logging companies. 2. DoF should be responsible for approval of management plans, R&D and monitoring NRDC on the plan implementation. This would include identifying zones/areas suited to grow the identified species based on climatic conditions, altitude, soil type, etc. 3. DoF should carry out the mapping of tree species available in different parts of the country and its economic value and identify areas for forest conservation, commercial forest, etc. Areas that fall under forest conservation should not be fixed because old trees do not generate any benefits for the environment nor the community or government. In appropriate periods of time the conserved forest area should be rotated giving access to logging activities. 4. Rules and regulations should be framed pertaining to: a. Determination of royalty amount based on percentage of the timber harvested. b. Deforestation/afforestation ratio depending on the time taken for regeneration. c. Number of trees that need to be planted for every tree cut down. d. Proper spacing and distance required between trees for those identified to be cut down. 5. NRDC will be responsible for issuing licenses to the logging companies for a period of 3 years each and strictly monitor their cut/plantation ratio and the tree species planted. Renewal of license will be subject to proper adherence to the logging rules and regulations. 6. Provide training and skills for plantation, maintenance, harvesting, etc. 122 Annexures to the Strategy for Gross National Happiness Revitalization of the Construction Industry 0. Background The construction industry in Bhutan is one of the largest sectors both in terms of GDP share as well as in the number of agencies and personnel involved in the government and the private sector. Almost every other industry depends on man-made structures so that the construction industry has become the foundation of any economic development. Therefore, the productivity, efficiency and competitiveness of building and construction are of critical importance to the growth and success of the Bhutanese economy. The construction sector contributed 21% to the GDP in 2004 and recorded a growth rate of 19% in the same year. However, this growth is attributable solely to the government’s investments in infrastructure development such as the large power projects of Tala and Basochu and not due to any improvements in productivity of the industry itself. The industry is characterized by the following constraints and problems: a. Very low levels of productivity Due to reasons such as the use of conventional labour-intensive methods of construction and poor project management, productivity levels are very low resulting in long project gestation periods. For example, Planning Commission statistics reveal that during the 9th FYP, we were able to construct only 37.5 km of national highways roads and 155 km of feeder roads. At this rate, the construction of the Southern East-West Highway would take more than 10 Plan periods! Construction of buildings and other infrastructure are equally slow. This extremely slow rate of infrastructure development has an exponential negative impact on the development and growth of all other downstream activities that are dependent on infrastructure. b. Poor quality of construction The poor quality of construction is an area of major concern that has been debated and highlighted at various forums including the National Assembly. The MoWHS has submitted a report to the NA which details steps to be taken to improve the quality of construction. However, unless the two major causes of poor quality construction which are inferior/spurious building materials and inadequately skilled workers are addressed, improvements in quality will be insignificant. There is a need to adopt construction techniques that are less dependent on intensive non-national labour whose skills are questionable and whose training cannot be taken up by the government since they are not regular construction workers in the country. c. Lack of real competition among contractors While there are more than 1700 contractors of all levels operating in the country, the competition is not healthy. On the one hand, particularly for larger works where only a few contractors may be qualified, bid prices run extremely high due to inadequate competition. On the other extreme, due to intense competition and the inability of some contractors to get jobs, impractically low prices are quoted which leads to compromises in quality or the inability to complete the job. Neither of these two scenarios is good for the construction industry and there is the need to stimulate healthy competition that would promote quality services as well as contractors’ skills and professionalism. d. Poor skills at both professional and working levels At the professional level (engineers and architects), there is a lack of exposure to modern technology and international best practices. Construction techniques applied in the country today are not much different to those that were introduced in Bhutan with the 123 Annexures to the Strategy for Gross National Happiness start of its modern socio-economic development more than 40 years ago. During the same time, construction technology has advanced to such a degree that in some advanced countries, they are already experimenting with the idea of a house being constructed by robots in 24 hours! While we are nowhere near such advancement, it is necessary for professionals in the industry to be exposed to techniques and materials that are prevalent in international markets that can be adopted in the country. At the working level, the industry is totally dependent on non-national workers whose skills can neither be certified nor upgraded. Therefore, there is the need to adopt techniques and practices that minimize labour requirements or allow substitution of imported labour by Bhutanese workers who can be both trained and certified. e. Proliferation of undesirable practices such as fronting and collusion For reasons such as weak regulatory authority and lack of professional ethics, the practices of fronting and collusion have become very rampant. Collusion among contractors leads to very high bid prices that are a burden on the government and fronting, particularly through non-nationals, stifles the professional growth of contractors while also creating room for compromises in quality since now the profits have to be shared between two parties. Strong legal instruments and strict enforcement are required to curb such malpractices. f. Poor motivation and morale among government engineers All the ills of the construction industry have been rightfully or wrongly attributed to the engineers. While engineers cannot shirk from their duties and responsibilities, often, inspite of constant monitoring of projects, contractors are either unable or unwilling to provide the inputs that are required to complete the project to the specifications required. As the first tier in the construction process, the contractor is responsible to complete the project within the stipulated time and the given specifications. However, all accountability is placed on the government engineer causing loss of motivation and morale in the engineering community. Despite being the proverbial backbone of all socioeconomic development, the government has not seen the need to provide any additional incentives to the engineering profession and with the new PCS system curbing the career growth of diploma engineers, there will be further loss of motivation and morale which could be damaging to the construction industry and further to the whole socio-economic development of the country. g. Fragmentation of design and construction process It is standard procedure in the construction industry for the design to be done by the client, usually the government, and the implementation by a contractor. This creates a situation where any design defects detected during the construction process have to be referred to the designer who has to rectify the defect and then start a series of approval procedures that lead to delays and financial deviations. By implementing projects on a design and build basis, such problems would be minimized and project implementation would be smoother as the designing engineer/architect would be available with the constructor to supervise the construction and changes required could be made immediately. This would further have additional benefits in terms of contractors developing their professional capacities and the government being able to downsize their design units. Experience in other countries show that design and build projects usually promote “buildable” designs which means they are easier and faster to build. 124 Annexures to the Strategy for Gross National Happiness h. Lack of specialization Specialization is lacking in both the government and the private sector. In the government, engineers are required to be transferred every five years and usually, after five years of gaining experience in a certain field, an engineer can find himself starting afresh in a new field. In the private sector, a contractor, particularly in the lower categories, is usually also a retailer or a trader or a travel agent or maybe even a housewife! This does not lead to efficiency and professionalism but results in poor management and therefore, poor services. By default, big contractors are also owners of construction machinery so they also function as equipment hiring units which distracts from their primary responsibilities as contractors. Therefore, there is a need both in the government and the private sector to promote and encourage specialization. i. Primitive technology As mentioned earlier, construction technology has not made any significant advances over the last 9 Five Year Plan periods. Heavy investment costs have hindered the speed of the mechanization process and thereby, the continued reliance on techniques and practices that are highly labour-intensive and requiring almost total fabrication of components at site. Such practices invariably result in poor quality construction unless the skills of the craftsmen or the level of supervision by a skilled supervisor is very high, which are very rare. Therefore, there is the need to adopt technologies where most of the components are prefabricated requiring only assembly at site. The onus of quality achievement must be shifted from the worker at site to the factory where the components are manufactured, usually by machines whose ability to achieve consistency and quality is greater than that of humans. This will also have the added benefit of requiring simpler training programs for the workers at site. j. High Cost of Construction Construction costs in Bhutan are seen to be rather high compared to those within the region. Even within the country, costs can be almost double in places like Thimphu and Paro compared to costs in the border towns. It is evident, therefore, that costs are high because of higher transportation and labour costs. With the move towards more mechanization and prefabrication, it is expected that costs will rise further. However, the initial cost increase on these accounts should generally be offset by the gains in terms of improved quality, longer durability and the greater socio-economic impact of creating employment for Bhutanese youth replacing the imported work force. The other paradox that blights the construction industry in Bhutan is that while in other developing countries, locally available materials are encouraged primarily for their costeffectiveness, here the “locally available materials” such as timber, sand and stone are becoming increasingly unaffordable. It is ironic that in a country that boasts of its vast natural resource base, we are already looking for things like timber substitutes. One of the reasons for the high costs of local materials is the way the resources are managed and distributed. The other reason is that usually the supplier of local materials is a monopoly and even where there is an apparent competition due to the presence of a number of suppliers, through collusion, supply again becomes monopolistic. With the shift in technology towards prefabrication and premixed concrete, more monopolies will emerge as the size of the market will not allow more than one or two players. There is the need, therefore, to prohibit monopoly and collusion and declare such practices liable for prosecution. It is suggested that in order to revitalize the construction industry and address the issues listed above, there is the need to provide interventions in three broad areas as under: 125 Annexures to the Strategy for Gross National Happiness I. Technology development II. Contractors’ capacity/skills development as well as regulation III. Human Resources Development and Management I. Technology Development 1.1 Situation Analysis The construction industry in Bhutan is characterized by low productivity levels that are a result of primitive construction technology that rely heavily on conventional building materials and intensive labour requirements. On the whole, local construction continues to use extensive wet trades on site which are labour intensive. Quality of the finished product is extremely dependent on the skills of the craftsman as well as the intensive supervision of them for quality assurance. While the growth of the construction sector has been fast-paced due to the government’s huge investments in infrastructure, the technology itself has not kept up concurrently. The main building materials are bricks and concrete and the technology of brick-laying and concreting are largely manual – practices that have been introduced in Bhutan since the erstwhile PWD started modern building construction about 30 years ago. Mechanization has made certain headway in areas such as excavation of foundations in buildings and formation cutting in roads but beyond that, manual methods that rely heavily on cheap imported labour are still predominant. The slow pace of mechanization and therefore low productivity can be attributed to the following factors: - - - Traditional but labour intensive systems are economical Investments in construction machinery are huge vis-à-vis the size of projects executed by contractors and therefore, contractors are unwilling or unable to invest in heavy machinery Likewise, huge investment costs have inhibited the growth of equipment hiring agencies. This could also be attributed to the CDB requirements that mandate contractors to own their own equipment even though it would probably be more economical and efficient to hire equipment whenever required. Industry professionals such as architects and engineers are not familiar with buildable designs and standardization in the field of prefabrication. The productivity levels in Bhutanese construction is extremely low and while this can be accepted as normal features of the industry in a developing country, it is now envisaged to build up the industry into a sophisticated one, able to undertake large, and technologically and managerially complex projects including high-rise buildings, high technology industrial installations, and large civil engineering works including underground structures. Such a transformation can only be achieved through dedicated government efforts through which the industry has benefited from the government’s understanding of its strategic importance, and its commitment to nurture a strong and competitive local construction industry. 1.2 Objectives The objective of enhancing productivity in the construction industry will be primarily to improve the quality of construction and reduce the total number of workers (mainly unskilled imported workers) deployed on construction sites through mechanization of the construction process and the use of prefabricated building components. Concurrently, such a development in technology will also have the following benefits: 126 Annexures to the Strategy for Gross National Happiness - Reduction in project completion periods Reduction in construction waste Reduction in non-national workers Creation of job opportunities for semi-educated semi-skilled Bhutanese workers The move towards prefabrication will also open up opportunities in allied industries such as component manufacturers, batching plants, etc. The flip side is that mechanization and prefabrication usually tend to cost more and seen against the backdrop of existing concerns on the high costs of construction in Bhutan, this could pose a threat to technology advancement. 1.3 Areas of Productivity Improvement 1.3.1 Roads The roads sector is seen as having a high potential for mechanization. However, this potential needs to be exploited within the short term since most other developments are dependent on road infrastructure. This is particularly so given the huge developmental activities envisioned in both the SGNH and the 10th FYP. Unless the roads sector is mechanized to a high degree, road infrastructure development, or rather the lack of it, will render meaningless, or at the very least, significantly dilute what could be achieved by the SGNH. Fortunately, the two inhibiting factors of cost and design may not be as serious obstacles in the roads sector. Firstly, as almost 100% investment in roads is made by the government, while cost of mechanization may be a cause of concern, it would not be as big an issue as it would be for private individuals. In fact, initial additional construction costs could probably be offset by improved construction quality, reduced construction periods and improved geometrics and durability. Secondly, in terms of design, while buildings have to be designed differently based on the components and technology used during construction, the design of roads will remain the same regardless of the method of construction. Mechanization in the roads sector can be done in the following areas: Formation cutting – Bulldozers, Excavators, Crawler Drills Base Course – Quarries, Chips Spreader Bitumen Sealing - Bitumen Sprayer, Motor Grader 1.3.2 Building Construction In the building construction sector, productivity can be improved through a combination of mechanization and prefabrication. While studies in Bhutan have not yet been carried out, analysis of labour usage done in Singapore (1992) showed that 65% to 70% of construction labour are engaged in structural work and the “brick and mortar” finishing work such as external and internal brickwork, plastering and tiling. Largely, these figures would appear to hold good in Bhutanese conditions except that in our situation, we would need to factor in the timber works in roofing, flooring and joinery where labour usage is quite significant. There would, therefore, be considerable potential to raise productivity in these three areas and the major areas of focus are suggested as: - More prefabrication of structural components (concrete beams and columns) with the objective of reduction or elimination of on-site beam construction. Replacement of brick/hollow block and plaster external and internal walls with precast, prefinished walls and partition elements Standardization and promotion of modular timber components such as door/window frames and shutters, timber cornices and prefabricated flooring profiles 127 Annexures to the Strategy for Gross National Happiness - More use of light electric equipment for carpentry, masonry and plumbing. 1.3.3 Power Sector The construction of big power projects will require special attention since they are the biggest importers of non-national workers and also because the construction of power projects will have to be speeded up in order to make more significant impact on the Bhutanese economy. While the areas identified above will partially address the issue since the power projects involve heavy investments in buildings and roads, there are other specialized areas that will require more in-depth study such as: - Tunnels Dams Power House Transmission Towers 1.3.4 Other Areas Apart from the two major areas of road and building construction, opportunities to mechanize or prefabricate exist in other areas such as irrigation channels, roadside or building drains, footpath paving and edging, etc. Some work has already been initiated in some of these areas and now require further support through standardization and aggressive promotion. 1.4 Procurement Procedures (that promote buildability) Tenders are sought on Design and build basis where the procuring agency gives preliminary specifications and data and the contracting firm does both detailed design and construction. This has been found to facilitate designs that are easier to build and supervision will also become easier since the designer and constructor are the same. Much of the construction problems such as design defects and financial deviations can be controlled through this system of procurement. It will also promote accountability and encourage contractors to build a professional team of engineers and architects. Alternatively, consultancy firms can also be hired to perform the functions of both designer and supervisor with a contractor executing the job. Currently, when design jobs are outsourced to private consultancies, their accountability ends once the design process is complete and the job has been tendered for construction. Design defects observed during the construction period are hard to rectify due to this lack of accountability. Design and Build or Design and Supervise projects will enable full accountability as since only one party is involved, there is no one else at whom to point the finger. Only through increased accountability is it likely to improve the professionalism and ethical conduct of those in the construction industry. In the medium or longer term, contracts may also be procured on Lump-sum basis or where feasible on Build-Operate-Transfer (BOT) basis. The BOT model would probably be suitable only for power projects because it does not appear feasible for other typical areas such as road or bridge projects since charging of tolls for such facilities does not appear to be emergent within the planned period. Such infrastructure is seen as social investments that do not levy charges/tolls and looks likely to continue for the next 15-20 years. 1.5 Information Technology The use of IT in the Bhutanese construction industry is limited to partial use of design software such as AutoCAD and StaadPro and the use of spreadsheets to prepare estimates. While any number of software and IT aids are available for engineering design, planning and monitoring, IT use is still limited due, firstly, to the natural human reluctance to learn or try anything new and secondly, to the government’s restrictive approach to the purchase of software and sometimes even the basic hardware. With the move now to create a knowledge 128 Annexures to the Strategy for Gross National Happiness based economy, the government must seek to provide a Desktop on every desk top and the connectivity and the software required along with it. Appropriate engineering and architectural software must be selected and all industry professionals trained in their use. In the area of record keeping, site engineers are burdened with the Financial Manual’s requirement to maintain tedious records such as the Measurement Book, Muster Roll, any number of registers, etc. Since these are the records through which his accountability is checked, an engineer spends a disproportionate amount of time on these activities, prying him away from his more important duties of project monitoring. In the interest of accountability, records will have to be maintained but electronic records, which are more efficient and less prone to manipulation, should replace the current systems which are archaic and tedious. E-tendering must be promoted as it not only has the advantage of being efficient but more importantly, in our conditions where collusion is very prevalent, in e-tenders nobody, not even the client, knows who or how many bids are being offered. After the tender has been programmed to be opened on a certain date and time, until that date and time, each contractor has access to only his own bid which he can change as frequently as he likes, but not to any other bid. This concept could also be extended to government auctions where collusion is rampant such as in the auction of timber. 1.6 Strategies The construction industry has the potential to reach much higher productivity levels mainly because current productivity levels are very low and because the small size of the industry will be easier to regulate and promote. In order to achieve this, however, there is the need for a comprehensive strategy that addresses all issues of design, production, fabrication and skills requirements that include the following: Development and promotion of designs that use prefabricated components and standardized modules requiring only assembly at site and substitution of wet finishing methods with dry walls. ii. Aggressive promotion, through a mix of incentives and directives, of premixed concrete in the short and medium term and precast structural components in the long term iii. Adoption of fully mechanized construction techniques in the roads sector. iv. Adoption of construction techniques that make extensive use of light tools and equipment such as electric-powered drills, planes, saws, painting rollers, Sun blaster (for plastering), etc. v. Development of core of skilled Bhutanese workers. With the shift from manual to mechanized construction processes coupled with other incentives, there will be more Bhutanese youth opting for the construction trade but the training methods at the CTC’s and VTI’s will have to change accordingly. vi. Adoption of design, planning and monitoring software and training of professionals; substitution of manual records by electronic record-keeping; e-tendering. vii. Promotion of specialized equipment hiring units while also discouraging contractors to own their own equipment. viii. The Competition Act that is mentioned in EE 2008 is strongly endorsed and must be enacted urgently to curb monopolies and the practices of collusion and pricefixing/bid-rigging. i. 129 Annexures to the Strategy for Gross National Happiness II. Contractor’s Development and Regulation 2.1 Analysis of Current Situation The private construction sector today comprises of more than 1700 firms - Thimphu has the highest number of contractors at 478, followed by Chhukha with 134. Trashigang and Mongar have 112 and 108 respectively. As of 31st December 2006, the above 1700 construction firms reportedly hold some 6030 licenses under different categories of works as shown in the table below: Table-I Class/category A B C D Total W1 Roads and Bridges 35 31 262 1,378 1,706 W2 Traditional Paintings 1,370 W3 Building, water supply & drainage 44 28 273 1,375 1,720 W4 Power and Telecommunication 14 12 79 1,459 1,564 In terms of volume of works executed in 2006 by different classes of contractors, Class A contractors (44 nos.) have executed as much as 70% of the total volume of work while class B (31 nos.) has executed 8%, C (280 nos.) 18% and D (1,378 nos.) has executed only 4%. The above figure indicates that classes B, C and D together which make up to 97% of the total strength has executed only 30%. On the other hand, 44 Class A contractors have executed up to 70% comparatively far more than the rest of the classes put together. In terms of employment of engineers in construction firms, records maintained by CDB reveal 578 civil and electrical engineers (148 non-nationals) with the private sector against the minimum CDB mandatory requirement of 613 numbers (for re-registration). Although it appears that disparity is minimal, reality is that shortage is significant. Requirement of engineers during actual execution far surpass the minimum requirement. Table - II Field Civil Engineers Electrical Engineers Total Bhutanese Degree Diploma 58 260 18 94 76 354 Non Bhutanese Degree Diploma 57 67 9 15 66 82 Total 442 136 578 Notwithstanding the above, the current situation of the private construction sector however, as revealed during the qualitative survey involving series of interviews and consultations with stakeholders and reviews of reports including strategy for development of private construction sector in Bhutan undertaken by CAB, parts of which have been reproduced given its relevance, reveals that contractors, by and large, are still in an emerging phase with limited growth in terms of its capacity. 2.2 Present Drawbacks An indigenous Bhutanese private construction sector only started to emerge and develop in the late 80’s, when the Government decided to privatize construction operations. The Royal Government has since been in the process of redefining its role from that of “Provider” to “Enabler” of public services, confining its role to policy, planning and regulation. Despite many years of this initiative, the private construction sector is still relatively small and grappling with 130 Annexures to the Strategy for Gross National Happiness issues of shortage of manpower at all levels, plant and equipment, and limited capacity. Typically, Bhutanese construction firms are categorized by a highly personalized management structures. Most of these firms are owned and operated by a family (sole proprietorship) and often looked at as a means to supplement other businesses. The private construction sector to this day has nonetheless played its role in the physical realization of facilities of the Royal Government. The principal impediments to growth of contractors are attributable to: Lack of professionalism among contractors Lack of professionalism among contractors is identified as the primary problem confronted by the construction industry. Weak organizational set up, highly personalized management structures - owned and operated by family, briefcase contractors, poor quality, under-quoting of bids, unofficial sub-letting of works, absence of any qualified staff and collusion are some of the common features of the Bhutanese construction industry. Construction firms are generally weak in management with most managers being technically unqualified and inexperienced and therefore most do not have the capacity to effectively deal with contractual and site managerial issues. Instances of “Briefcase contractors” accessing to opportunities at the detriment of established and bona fide contractors are quite common. Efforts to build capacity by way of setting aside requisite funds to train and upgrade the capacity of their employees to enhance efficiency, productivity and quality of works and undertake works in a more professional way is hardly existent. Construction business, by some, is considered as a casual part time business and a stepping stone to other more lucrative business. Lack of sense of urgency to develop capacity among contractors One of the reasons that deter expansion of their business is the perceived notion of insecurity – lack of continuity of work. Consultations reveal that absence of a long range market perspective or absence of any kind of construction industry development policy/vision is attributable to this lack of initiative. A stable market would allow Contractors to plan their long term investments in the construction business in the absence of which most contractors have no long term plans to help organize and encourage staffing at appropriate levels to build their capacity and resources. The small size of contract packages has been another factor that reportedly inhibited the growth of larger firms’ capacity, in particular. The tendency of procuring agencies to fragment larger project into smaller packages to complete within the time frame, such as Road Projects, have not had significant impact to contractors in terms of building capacity and continuity of work. Larger projects, such as hydro-power, telecom and bridges, according to contractors, are beyond the reach of local contractors given their limited capacity. On the other hand, stiff competition, among smaller contractors, for work has forced bidding unreasonably low with hardly any profit to invest in building up capacity. Weak enforcement of contract terms by procuring agencies was another factor said to be responsible for the lack of growth. Fronting in construction industry Collusion and business fronting among contractors do not ensure fair competition and prejudice the growth of the private sector construction industry. Yet these are major challenges faced today in the Bhutanese construction industry. According to CDB, fronting has become a norm in the interior parts of the country and more so in the Southern Dzongkhags affecting the national contractors in their business. Given its seriousness, the matter was discussed on several occasions during CDB meetings, Annual Engineering Conference and during the 84th and 85th National Assembly as well. CDB, since March 2004, had initiated measures to curb fronting that included frequent inspections, verification of 131 Annexures to the Strategy for Gross National Happiness documents and creating awareness including strict action on defaulters. This is an ongoing effort. Fronting is unethical and unprofessional and impacts adversely on the growth of the contractors, vis-à-vis the construction industry. Common forms of fronting taking place are: (i) among national contractors of same or different classes where in the latter big contractors either down-plunge or small classes take up works beyond their capacity, (ii) with non-nationals, particularly in bordering Dzongkhags in the guise of employees where government’s resources are piped out. Poor growth of construction firms under protected environment CDB at present registers contractors under four classes and four categories based on their financial capacity, technical capability and past experience. Registration with CDB is a system of a formal pre-qualification and it is not limited to particular contract. Proof of enrolment on CDB’s Registration System constitutes a presumption of overall suitability of contractors, unless proved otherwise, and qualify contractors to participate in the biding within the range of their class and category of works. Only CDB registered contractors are eligible for obtaining contract license. The present system of procurement is a restrictive bidding as is evident from the Table-III. Table III - Bidding Limits for Different Classes Class of Financial Limit of Contractor Bidding - Nu. (Million) A 15 and above B 7.5 to 15 C 1 to 7.5 D Up to1.5 Remarks A maximum of five numbers of contracts at a time – based on bid capacity Only three contracts at a time subject to their total not exceeding 20 million and subject to verification of capabilities Only three contracts at a time subject to their total not exceeding 10 million and subject to verification of capabilities Work up to 1.5 million only one contract at a time Contractors are confined to bid only within their allowable range of contract and the prescribed number of contracts that can be taken up simultaneously. Bigger contractors are prohibited to participate in the smaller contracts falling below their prescribed limits and viceversa smaller contractor taking up larger works. Further, all new entrants to the industry are required to register initially in the Petty category and work their way up to ‘A’ after gaining experience in the smaller categories. This system does not allow entry of new companies directly into the ‘A’ class even though they might be well equipped in terms of technical and financial capacity and therefore capable of delivering quality services. Such a restrictive system which does not facilitate competition and allocates works for a particular class does not encourage economy and efficiency in public procurement and gives no sense of urgency to grow. For example, contracts valuing between Nu. 7.5 to 15 million are exclusively reserved for 32 “B” class contractors for bidding. It is quite likely that several of these are not active in the business currently. Thus, the broader competition is denied at the cost of the public resource. Technical competence of most contractors limited The private sector Development Strategy report of CAB recognizes the constraints of technical competence in the private construction sector. The capacity of most contractors in Bhutan to deal with both managerial and technical issues related to work execution, especially for larger and more sophisticated jobs, is limited, according to the report. Due to lack of 132 Annexures to the Strategy for Gross National Happiness skilled and experienced domestic personnel, engineers and site technical staff often have to be hired from outside on a project basis. This is a unique feature amongst Bhutanese contractors where firms, irrespective of its class, do not assimilate its past knowledge and experience for future usage. By the same token, there is no professional approach towards tender bidding, or perhaps even reading the tender documents, indicating casualness in their business approach which results in brain-drain and loss of valuable experience. Legal and regulatory framework not fully developed In keeping with the development and time it is felt necessary that appropriate Laws, Rules and Acts related to construction industry are put in place so as to realign and bring about a fundamental change in enforcing quality. Clear regulatory guidelines allow Contractors that focus on quality and value for money to remain in business weeding out incompetent competitors. Against this backdrop there is the need for Acts and laws in order to guide, nurture and develop the construction industry to attain the required quality. In its absence, the industry is challenged with decline in construction quality, acute shortage of skilled and unskilled labour, leading to an over-dependency on foreign labour. These policy reforms have been identified as instrumental in order to enhance construction quality. Poor management capacity of contractors Most construction firms are weak in management with most managers being technically unqualified and inexperienced. Due to lack of experience in operating in a competitive environment, most contractors do not have the capacity to effectively deal with contractual and site managerial issues. This leads to uneconomic operations, wastage in terms of material and labour inputs, wrong deployment and mishandling of equipment, time and quality losses. Ignorance of the kind of skills to support the business activities, value for worker training, best practices and appropriate technologies required for their line of operation create weak management. Training opportunities for contract and site management are basically not available in Bhutan. Lack of strong central agency for construction industry One of the main concerns raised is the absence of a strong regulatory body for the construction sector that has a clear authority, vision and mandate to give the desired directions towards a systematic growth. At present, efforts to develop the industry are fragmented and ambiguous and considered by many as decelerating factor to the growth of the industry. CDB’s efforts to promote and regulate is severely constrained due to its poor staffing. This is evident from the fact that despite its many years of establishment, CDB has even today a very lean establishment structure facing severe capacity constraint. This has forced it to limit its functions to registration aspects only compromising on other important mandates such as: (i) (ii) (iii) (iv) development and promotion of technical and managerial skill within the domestic construction industry; promotion of private participation in construction activities; administration of institutional capacity and performance of contractors; and development of policy guidelines for construction industry. There has been expressed desire by stakeholders that the current capacity is not in a position to carry out its mandate of regulatory and promotional activities of contractors effectively. Another factor that has impeded CDB in its effort to streamline the industry has been the absence of regulatory/legal frame works and appropriate enabling environment to support its actions. There has been increasing instances where the Board’s decisions in procurement 133 Annexures to the Strategy for Gross National Happiness related disputes were challenged by agencies or when it failed to take actions on contractors involved in fronting. There is no proper system in place as yet where recourse against agencies or fronters/bogus contractors can be taken given the difficulty to prove the existence of fronting in the absence of any regulatory framework. In order to ensure fair play, transparency, honesty and ethical conduct among contractors, it is necessary to have a strong central agency to enforce rules and regulations in the construction industry. For the Bhutanese construction industry to undergo transformation, there is need for contractor promotion to be given due impetus. This will require a central focal agency that is dedicated, capable and well equipped to execute the mandate. Poor bidding system Bidding practices by many Bhutanese construction firms are not yet professional. Therefore, bidding, especially by lower class contractors, is seldom based on detailed analysis and true facts but is guesswork in the best of instances. This leads, more often than not, to underbidding far below any reasonable market rates. There is a danger that this may lead to killing the domestic construction sector and constantly providing “compromised” quality products. Further, the present item rate system of contract is mainly a post qualification method. It has its own limitations and weaknesses. The modern concept of project delivery systems such as Build Operate and Transfer (BOT), Design and Build, Lump Sum contracts, etc. are some of the useful applications foreseen to be applied in the future constructions for which our contractors will take some time to develop its capacity. Joint Ventures and Consortium Because of the small size of our industry, foreign investors are almost non existent. This is also true because of the absence of a sound legal system. Few joint ventures and consortium initiated with the foreign contractors has failed to meet the desired objectives to tap the extensive resources and experience of the foreign contractors by way of technology transfer and capacity building measures which will immensely help to promote the national contractors. At this rate, it is felt that Bhutanese contractors will not get to build its capacity to participate in hydropower projects that are in the pipeline unless government intervenes to support the sector. 2.3 Development Strategy Strategy objective: To develop and promote the Bhutanese contractors to be able to take up the country’s infrastructure work, create employment opportunities and continuously upgrade their performance to achieve excellence and become regionally and internationally competitive. The major areas for development are identified and summarized below: 2.3.1 2.3.2 2.3.3 2.3.4 2.3.5 Strengthening of CDB/CDA Enabling policies and Legal frame work Introducing preferential treatment and penalties system in procurement of works Restructuring contractors’ classification to promote professionalism Broader competition in public procurement 2.3.1 Strengthening CDB to carry out its functions more effectively The need for a strong agency and clear leadership that has the capacity and authority in the construction sector to play a more proactive and dynamic role towards the overall development of construction industry is of paramount importance for an emerging and vibrant industry such as ours. It was in this light the CDB was established as an interagency of the Royal Government in 1987, consisting of members from both government and private 134 Annexures to the Strategy for Gross National Happiness agencies. Its role, among others, is to act as bridge between the private construction industry and public sector, provide essential services, promote, regulate and provide effective leadership of the construction industry. The overall mission being “promotion of an efficient and quality-based construction industry in Bhutan”, its role briefly is to: Act as overseer as well as promoter of the construction industry; Act as a bridge between the private and public sectors; Assist contractors in undertaking a more expansive part in the industry while also helping the Government to obtain an increased return on its investment. Ensure contractors fair and equal access to the award of contracts as well as fair treatment in the execution of contracts. Establish and maintain the list of Registered Contractors by classes and categories based on set criteria; To regulate, monitor and promote the construction industry; In light of the above, the CDB should be strengthened with the long term strategy of delinking it from the MoWHS and establishing it as an independent Construction Development Authority (CDA) for effective and unbiased pursuance of its important functions. The quality division presently under SQCA is proposed to be transferred under CDA. The advantage for all partners would be an unbiased link between the different entities, transparent procedures and relationships and improved efficiency. 2.3.2 Legal frame work Appropriate Laws, Rules and Acts related to the construction industry are required so as to realign and bring about a fundamental change in bringing professionalism and enforcing quality of construction. A clear regulatory framework viz. Contract Acts (which is being drafted), Arbitration Act, Procurement Acts, National Construction Industry Policy, and Construction Development Board Act would not only enable growth of construction industry vis-à-vis domestic contractors but also create an enabling environment to foreign contractors interested to invest in Bhutan. The following is proposed: Enact the Contract Act as early as possible (draft in progress) Development of Arbitration Act Development of Procurement Act Amend penal code of Bhutan not to make breach of contract a ‘Criminal Act’. Frame a CDB Act to enable CDB to carry out the Registration, Regulation and Promotion functions which will be binding on all the players in the construction industry Develop a comprehensive strategy or the National Construction Industry Policy (policies based on long term planning with the long term market perspective). 2.3.3 Preferential treatment to good contractors and penalties for poor performance To encourage contractors to develop and enhance their capacity it is proposed that preferential treatment system be introduced to good performing contractors. Such incentive would give a more compelling reason and sense of urgency for contractors to develop and build their capacity. In this regard the following recommendations are made: Develop appropriate and objective construction qualitative assessment system such as CONQUAS of Singapore; every completed project will be subjected to a Quality Audit, the results of which will be used to grade contractors for future tender evaluations. 135 Annexures to the Strategy for Gross National Happiness Develop evaluation system that recognizes scores produced by CONQUAS giving advantage to good-performing contractors during evaluation of bids; Study feasibility of ‘Repeat Order System’. An agency who is satisfied with the past performance with a construction firm could directly award work orders under very well defined and unambiguous conditions and transparency. Such a system would encourage contractors to consistently improve their performance and deliver quality works. Conversely, there is also the need to promote greater accountability in the contractors by changing the approach to construction supervision and incorporating penalties for poor work. As in any other industry or service, the government should set the specifications and refrain from day-to-day supervision which is the responsibility of the contractor. Government supervision must be limited to inspections of the quality of the finished work and ensuring that the project is progressing within the specified time and financial limits. In this regard, the following recommendations are made: The implementing agency must ensure that the completed work is within the specifications stipulated and sub-standard work must be rejected or adjusted through payments as may be specified in the Tender terms and conditions. Supervision of day-to-day works must be left to the contractor who must be trusted to complete the job in accordance with the terms and conditions of the contract and government supervision must be limited to milestone and financial monitoring. Guarantees must be built into the contract agreement and contractors must be liable for faulty workmanship for the period of the guarantee which can be anything from 1 to 5 years depending on the size and nature of the work. Failure to make good the rectifications during the guarantee period must be reported to the CDB which should formulate rules that will take into account such poor performance during tender evaluation or suspension of license for repeated breach of terms. 2.3.4 Restructuring contractors’ classification to promote professionalism In order to encourage professionalism among contractors and to generate a sense of urgency for growth among contractors it is proposed to restructure the present contractors ‘Classification’ system. The present practice of procurement based on pre-qualification by CDB, with due respect to its numerous merits, is a restrictive bidding system that is based on arbitrary criteria and does not encourage the growth of contractors. Classification system although widely followed elsewhere has not had significant impact in terms of competitiveness, growth, and professionalism among Bhutanese Contractors. Doing away with the ‘classification system’, as promulgated by WTO, WB, etc. can only inject competitiveness and end dormancy of private construction industry. In order to address the issues of stimulating greater competition and creating an environment for contractors to expand their capabilities and professionalism, while also taking into account the concerns of the smaller contractors, the following system of classification is proposed (refer diagram below): i. Contractors will be placed into two categories – Class I and Class II. Class II contractors will be allowed to take part in works upto Nu. 2.0 million. For this category, there will be minimal or no criteria for registration. Even in terms of tender evaluations, there will be very simple criteria with the work being generally awarded to the lowest bidder after determining the reasonability of the bid. 136 Annexures to the Strategy for Gross National Happiness Class I contractors can take up works greater in value than Nu. 2.0 million with no upper limits. Registration into this category will have some criteria based mainly on financial capacity and technical manpower with some considerations for equipment. ii. Under such a scenario, however, there are concerns that it may result in a free for all and create a situation conducive to the proliferation of briefcase contractors who will submit their bids based on “paper resources” and then run into a series of problems trying to complete the project. In order to prevent this, during registration, CDB will verify the technical personnel employed by the registering company based on which they will be allowed to take up works as under: Class I contractors who employ only diploma engineers will be allowed to take up works upto Nu. 20.0 million; Class I contractors who employ graduate engineers will be allowed to take up works with no upper ceiling. Those contractors who wish to take up larger projects (financial ceilings to be fixed) on Design and Build System will have to employ design teams in addition to the employees mentioned above OR affect collaboration with registered architectural/engineering design companies. iii. Similarly, the number of works that can be taken up simultaneously by a contractor needs to be rationalized. Currently, as given in Table III, this number has been arbitrarily fixed as 3 for smaller contractors and 5 in the case of Class A contractors which means that a Class A contractor can take up 5 works simultaneously even though he may be employing only 2 engineers. With his technical resources spread so thinly, it obviously leads to poor project execution and in many cases to ‘fronting’. Therefore, it is recommended that this number be fixed depending upon the number of technical personnel that is employed by that contractor so that if a contractor employs only 1 engineer, he will be allowed only 1 work regardless of his financial capacity while a contractor employing 10 engineers may be allowed 10 works (the exact number of engineers and thus the number of works will depend upon the specifications laid out by each project). However, a maximum of about 7 works may be considered as the upper ceiling since beyond this, there will be too much demand on the contractor’s managerial and financial resources and capabilities. Such a scenario will not only lead to professional execution of projects but also have the greatest impact on the capacity development of the contractors since now their intrinsic capacity will dictate the number of works they have access to unlike the present scenario where capabilities may differ from contractor to contractor but they are all treated alike with arbitrary limitations such as 5 works per contractor irrespective of their capacities. iv. There may be a third category of contractors called ‘Trade Specialists’ which would include Traditional Painting, HVAC Specialists, Lift & Escalator Specialists, Internal Electrification, etc. This category will have no threshold limits and they will work either through sub-contracts through the Class I and II Contractors or independently where the works are awarded through competitive bidding directly to them by the Procuring Agency. Trade Specialist: Bhutanese Painting, HVAC, Lift, Labour Contract etc. (No financial ceiling) Class - I Class - II 137 1. General Contractors: (above Nu. 2.0 million) 1. General Contractors: (upto 2.0 million) Annexures to the Strategy for Gross National Happiness Pre-conditions, however, to implementing the above are as listed below: Frame rules, procedures and criteria for regulation/registration of contractors based on above proposal. Effort must be made to ensure that the registration criteria are clear, detailed and unambiguous specifying items of assessment. (Class would be based on Turnover, Technical personnel, Financial Capacity, Experience, Equipment, Office establishment etc.) Review and revise Procurement Manual, Standard Bidding Documents, and Evaluation System, Create enabling environment for pooling of contractor’s resources by way of forming Companies, Joint Venture or Consortium – criteria/rules need to be developed. Develop rules for mandatory sub-contracting by main contractor based on trade and specialization. Rules should however have defined conditions so that fronting does not take place. Main Contractor HVAC Bhutanese Painting Labour Contract Etc. Review packaging of works; the present practice of fragmenting larger contracts to small packages does not justify overhead investments while deterring further growth. Enhance engineers’ capacity to carry out evaluation more objectively, CDB to maintain up-to-date information and track record of each firm Registration of foreign contractors desiring to work in Bhutan with CDB 2.3.5 Broader competition in public procurement Frequent instances of collusion and bid rigging by the contractors, particularly in the larger categories, indicate that there is a lack of true competition even though the number of contractors is quite large. Given this scenario, contractors are not willing to upgrade their capacities any further than what is already existent. Moreover, the government’s tendency to break up large projects into smaller components to fit the contractors’ perceived capacities gives rise to a Catch 22 situation. The government breaks up large projects into smaller components out of concerns that contractors will not be able to complete the large project on time and with the required quality. And since these downscaled projects are now within the contractors “capacities”, there is no incentive for contractors to develop any further. In fact, one contractor even claims that they are downsizing since having large resources, either in terms of professional manpower or in equipment, only adds to overheads with no corresponding access to larger projects. In order to stimulate greater competition and encourage contractors to upgrade, the following is proposed: i. All procuring agencies shall be encouraged to float tenders as single packages so that works values are enhanced and contractors will upgrade their capacities in order to execute these large projects19. 19 Existing data indicates that in 2006, only 2 projects were valued at more than Nu. 50 million, the rest were either small projects or were downsized into smaller packages. 138 Annexures to the Strategy for Gross National Happiness j. For projects valued at more than Nu. 50 million, international competitive bidding will be mandatory (or at the least bidding within the SAARC region).This is firstly to ensure wider competition since local competition, particularly for large projects, is limited and secondly, to expose local contractors to the kind of competition that will encourage and stimulate professional capacity development. It is likely that in the initial stages, international contractors will outbid local ones but in the long term, local contractors will be forced to consolidate and upgrade in order to compete, thereby resulting in improvements in the professional capacity of the contractors, eventually allowing them to also compete in regional markets. III. Human Resource Development and Management 3.1 Situation Analysis The Construction Sector is one of the fastest growing economies in the Country with an overall GDP contribution of around 20% and an average annual growth rate of 8.5%. However in terms of the development of the sector per se, it is observed that the overall professional capacity of the Industry has not developed to the potential that it could have. The Construction Industry today is increasingly stigmatized for its lack of professionalism, competition and quality outputs. Amongst others, one of the main reasons for such stagnation has been the lack of overall development vision and limited institutional capacities among those involved in the development of the Industry. As in the case of most developing countries, the recent development parameters required the public functionaries to be strengthened as the engine of growth and hence the limited available resources were spent towards the development of such institutions. However in recent times, the potential of the private sector has been recognized and accordingly conscious efforts were made by the Government to promote and develop the private sector as important development partners. Unfortunately, our recent direction towards private sector development has not been matched with commensurate plans and programs that would strengthen and professionalize human resources within this sector. If the Government’s objective of promoting a highly developed Construction Industry is to be achieved, the human resource capacity of not only the public sector but that of the private sector should also be developed on priority through the development and implementation of effective programs and timely transfer of the necessary resources. Hence, there is an urgent need to review/develop a comprehensive development plan for the Construction Industry involving amongst others, aspects of institutional development, human resource management and development etc. Where sector based plans and policies exist, these would warrant further review on the relevance of their overall objectives, resource capacities and the potential benefits of such plans and policies for the overall benefit of the Construction Industry. Within the areas of Institutional and Human Resource development, the following key issues have been observed to be fundamental to the development of professionalism and capacity within the Construction Industry. i. Lack of motivation and morale among the professionals and skilled workers The lack of motivation, morale and initiatives among the National professionals and workers within the Construction Industry is seen as one of the main threats that could seriously hinder the qualitative growth of the Industry. With the start of a number of important Government projects and in view of its important social and economic implications, the Construction Industry attracts regular media and public attentions. Unfortunately, such publicity has often drawn the negative aspects of the Industry only. Given the Industry’s current stage of development where professional capacities of both the private and the Government sectors have not matured, there are increased possibilities of inadequate performances by these sectors. Correspondingly, consistent and indiscriminate 139 Annexures to the Strategy for Gross National Happiness negative publicity in the construction field has given reasons for alarm and concern among the public and the authorities. This situation in turn has led to persistent and often stern public scrutiny over the activities carried out by these professionals causing professional disdain and apprehensions within and outside the Industry. Some of the repeated and rather prejudiced coverage of the Industry by the media and by the investigating agencies have raised serious and extended doubts on the credibility of the profession and the ethics of the professionals on the whole. Wide spread apprehension and the lack of incentives, investments and environment for these professionals and skilled workers to take risk and innovate has largely been responsible for the decline in motivation and morale among those with the capacity or interest to improve their profession and the Industry on the whole. It has even been reported that some of the training Institutions are finding it increasingly difficult to attract competent faculties and students in the profession. ii. Mismatch in the supply and demand of professionals and skilled workers Considering the demand for appropriate and adequate human resources within the Construction Industry, it is not too early if not too late, to review the long-term strategy concerning the overall supply and demand of professionals, skills and other manpower requirements of the Industry. The capacities of the premier institutions in the Country show that, during the 9th plan period, only a total number of 175 students at degree level, 350 at diploma level and about 500 at the certificate level can be produced. These figures in the current context are seen to be far too short of the demand. The available information also shows that the Government agencies currently employ close to a total of only about 800 construction Engineers of various categories. On the side of the private sector, the available 1,731 registered contractors employ about 578 Engineers (including 148 numbers of non-nationals) against the minimum required number of 613. In both the cases, acute shortages of professionals and skilled workers have been experienced given the limited supply of National Engineers and skilled workers from the institutions. The fact that Tala Hydro-Electric project alone has employed about 20,000 workers clearly indicates that the demand for professionals and workers for any project of equivalent size or bigger would demand corresponding size of manpower. The demand for human resources within the Industry will skyrocket once the proposed major infrastructure development projects are underway (e.g. Tala II, Sunkosh, Puna Tsangchhu, Southern East-West highway construction, widening of lateral East-West Highway etc.). Unless immediate measures to plan and prepare for the upcoming demand are initiated on priority, a major human resource problem in the Construction Industry will occur. Presently, it has been reported that higher institutions viz. the College of Science and Technology and the Royal Bhutan Polytechnic, both responsible for the primary development of Engineering professionals within the Country, are plagued with protracted problems of infrastructure adequacy and shortages of quality faculties. It has been reported that the institutions are increasingly unable to attract capable faculties or competent students in their strength. Such shortcomings are mainly the result of lack of investment priority and incentives required by the Institutions. The lack of adequate infrastructure and capable faculties in turn has affected the quality and the quantity of the students’ output. On the other hand, the MoLHR has made some attempts to review market demand for skilled workers and are currently expanding Vocational Training Institutes (VTI) and the Construction Training Center (CTC) for increased intake of students. However, the 140 Annexures to the Strategy for Gross National Happiness expansion program seems to require practical consultation with those involved in the Construction Industry to ascertain the quantity of intake and output of these institutions based on market demand including the assessment on the relevance of such skills development programs over time. iii. Issues related to the import of foreign workers and development of professionalism In the current situation, not only are the Engineers looked at with disdain, but blue collar jobs especially in the construction sector has never been considered as an attractive or a secure profession by the Bhutanese. While there are numerous reasons involving technological, environmental, social and economic factors leading to such a situation, this widespread attitude perhaps is one of the main reasons for the Industry not being able to harness adequate skilled and unskilled workers thereby leading to the import of large numbers of foreign professionals and workers. 3.2 Strategies for the Promotion of Institutional and Human Resource Development Capacity The following are some of the measures proposed towards resolving the issues noted above. The recommendations have been largely limited to critical policy and management issues of Institutional and Human Resource development aspects. 3.2.1 Increasing the capacity of private construction sector It should be mandatory for contracting firms to have professional institutional management and development plans including; specific plans for manpower recruitment & training, investment plans for institutional development, skills assurance procedures etc. The manpower development plan should include the training of managers and proprietors on basic management and contract management skills. Where possible, funds for generic training should be supported by the Government either in full or in part, as the situation would allow. Contractors awarded with projects should be mandated to deploy adequate and capable site supervisors through firm enforcement of contract procedures by the CDB and the implementing agencies. Contract procedures and agreement should include quality monitoring mechanisms like: milestone development schemes, essential periodic quality tests, built in quality certification procedures etc. Mechanisms and rules to hold the defaulting contractors and Engineers liable for poor quality work should be in place in the contract terms. The Government, on its part should provide clear regulatory guidelines and access to timely information on projects in pipeline, contract requirements, bid procedures, transparent information on contract award etc. It should also review and simplify contract procedures and requirements such as bidding documents, financial manuals etc. to promote efficiency, transparency and professionalism. The possibility for the promotion and use of internet services in tendering and bidding should be promoted including the use of proven computerized construction management software. Depending upon the prospects and proposals related to the contractors’ specialization program, the procedures and plans for manpower recruitment/specialization should be adopted accordingly i.e. whether to be developed in-house or recruited from the market on contract based employment. Correspondingly, the hiring of the equipment should also follow suit. 141 Annexures to the Strategy for Gross National Happiness 3.2.2 Building professionalism, motivation and initiatives among the professionals and skilled workers within the Construction Industry i. Promoting motivation and morale among professionals and skilled workers The development of a motivated and competent human resource is contingent to the development of a vibrant Construction Industry. However the dwindling image and diminishing motivation among the professionals and skilled workers has not been a move in the right direction especially when there is the growing need for highly motivated professionals and skilled workers in the Industry. Due to the overall shortage of professionals and skilled personnel in the market, the distribution of such resources among the sectors has been ineffective and inadequate in the process limiting the impact and benefit of their contributions. As an important move to promote the required collective recognition of the profession, standardization of Engineers’ professional value, effective dissemination of information and to increase the weightage of Engineers’ collective representation, the proposed body of Engineers’ Association should be immediately instituted on priority. Taking clue from the best practices of private and corporate management system, even within the Government sector, it is important to create an environment that would allow innovation, initiatives and effective sharing of information through improved procedural and management approaches that would promote the spirit of entrepreneurship among its employees. Hence unless some of the following procedures and policies are laid down and implemented diligently i.e. clear delineation of authority and accountability among the employees, organized forums for exchanges of ideas and innovations, competitive assessment procedures etc. the spirit of innovation, motivation and morale will not stand promoted. If the profession has to be given priority in the nation’s economic development, it is important to recognize the value of the profession and hence create opportunities to lure and retain individuals within the sector by providing appropriate incentives/allowances and career opportunities. Such incentives should also promote ethical output from these professionals. A case in point was the earlier pursuit for teachers in the country wherein, measures with improved career opportunities and incentives for profession had brought in large influx of aspirant teachers, although, the criteria for entry could have been more objectively set or assessed. Considering the fact that there will be increased and a sustained requirement of engineers and skilled workers for a long time to come, it will be necessary to devise strategies that will attract more workers and professionals into this field while also retaining the ones already in the field. Further, to motivate the intake of students and individuals in the field, it may be worthwhile to review the career advancement policy adopted by the Position Classification System (PCS) which primarily emphasizes the career path development for the profession on formal educational requirement while also proposing upper limits for career advancement within the levels of specialists, diploma and lower categories. While recognizing the fact that there should be some upper limits set based on qualification compatibility, considering the current requirements in the profession and the differences in the specialization intensity of the profession, it would appear important to at least increase the vertical mobility of these professionals/skills rather than horizontal movement to provide symbolic advantage of the profession which offers equivalent or better scope when compared to other professions. Ethics and attitudes cannot be developed overnight, hence topics on ethics in general should be introduced at all levels of the schools but most certainly, subject on engineering ethics should find their way in all engineering and skills training institutions including during the in- 142 Annexures to the Strategy for Gross National Happiness service courses. ii. Improving human resource capacity in construction design, planning and supervision One of the aspects which affect the quality and technological progress in the Construction Industry has been the lack of importance attached to the design and planning of most construction projects. Most projects are planned and designed under emergent circumstances and implemented based on the availability of yearly budget release although, the importance of some of these projects would warrant project planning to be carried out over a long period of time. The project design and planning does not only determine the quality and the buildability of any construction project but also the extent of innovation and skills required for such projects including determining the number of workers to be employed in the project. Since the quality of a project begins on the drawing table, it is important that adequate time is allocated to design and planning. The designers should not only be qualified but should dedicate adequate time to plan, discuss and design the projects effectively. This would mean that specialized and qualified design teams should be planned and promoted both within the public and private sectors. Within its given advantage of manpower and financial resources, the public sector should take the initiative in promoting innovative designs and skills and where possible, the concept of design and build should be encouraged within the private sector to promote innovation, buildable designs and capacity building. In context to our Construction projects, poor quality is not only the result of poor planning and design but also due to the apparent weaknesses in project implementation processes primarily due to the lack of competent and adequate site Engineers. Site Engineers both within the public and private sectors are often overburdened, inexperienced, underpaid or under-motivated to perform the required functions. Hence, as much as it is important for the project to have the required time to plan and design the projects effectively, it is equally important to plan and deploy adequate and motivated site supervisors with the required knowledge and skills to implement the projects successfully. Considering the importance of supervisory functions, the Site Engineers should be mandated/provided with periodic training on contract management and supervision techniques. Appropriate incentives and administrative support mechanisms should be provided to help motivate and monitor their activities. iii. Developing institutional capacity of the Training Institutions Under the current situation, the existing institutions responsible for the development of these professionals have neither the mandate nor the obligation to meet the current and projected demands of professionals and skills in the Construction Industry. Their production capacities are mostly guided by the existing Institutional facilities and the development policy framed by their authority. Least of all, our primary Engineering Institutions viz. College of Science and Technology and Royal Bhutan Polytechnic are currently faced with serious shortage of faculties and infrastructure necessary to conduct their normal courses. It has been mentioned that the current incentives received by the institutions for the payment of the faculties are found to be much too inadequate for them to recruit adequate or qualified faculties which in turn affect the quality of the students passing out from the institutions. As an immediate measure, the following actions would have to be taken on priority if the demands for professionals have to be catered to; a) Assess and provide immediate financial 143 Annexures to the Strategy for Gross National Happiness support required by these institutions to perform their ongoing functions. b) Assess and expand the capacities of these institutions to develop additional capacity. c) Explore opening up of other institutions on priority. The quantity of students’ intake at various levels of skills should be assessed and guided by the current and projected demand of human resources in the Country. Apart from the required expansion of the infrastructure and intake capacities of these institutions, it is also important that the courses offered are aligned to the requirements of the users. Training curriculums and programs in these institutions should be developed based on the ongoing and projected market demand upon thorough study and consultation with the stakeholders. Curriculum development especially at the levels of vocational training and to lesser extent at Diploma and Degree levels should be periodically reviewed based on market demands. In the Degree and Diploma levels, relevant skills specialization should be introduced with appropriate duration to promote skills proficiency in entering the job markets. It was also noted that practical courses and field attachments are much too inadequate in the courses offered by the Institutions. These requirements should be adequately mandated for the students in the final years of their training so that they are absorbed in the market with good effect. Important and relevant subjects like contract management, tendering/bidding processes, estimating & costing, familiarization to Financial Manual including computer aided software like Auto-cad design, Staad-pro, Construction manager etc. should be introduced or expanded in these institutions. It was also reported that the intake level of students at diploma level has been upgraded to class 12 passed from the earlier level of class 10 passed for the same or a slightly reduced course duration. While higher intake level would help the basic proficiency of these students, the main concerns are; a) whether class 12 passed students would be motivated to undergo a diploma course while opportunities to obtain degrees under similar duration exists, b) whether the proposed reduced duration of the course would not compromise on the level of technical skills proficiency required of a diploma student. Notwithstanding the issues mentioned above, if the policy to persist with class 12 passed as the entry level for diploma course is retained, it would be important to motivate the intake of such students without compromising on the quality of the skills required for a diploma course. One of the possibilities for such consideration would be to increase the entry level of the position in the Civil Service and re-designation of the post title. 144 Annexures to the Strategy for Gross National Happiness Track 3: Hydropower 1. 1.1. 1.2. 1.3. 1.4. 1.5. 1.6. Introduction Bhutan has long identified its hydropower potential estimated at 30,000 MW, as its main economic resource. Even with the current development of only 1,500 MW of the potential, the power sector is estimated to contribute 43% of the national revenues in 2006-07. However, this impressive figure indicates the relatively small contributions of the other sectors rather than the optimal harnessing of this huge renewable natural resource. Meanwhile, the development of other hydropower plants in the region is rapidly leaving behind the Bhutanese hydropower sector unless its development is taken up as a national priority. The SGNH has accordingly identified the accelerated development of the hydropower as one of the thrust areas to generate revenues that will support the long term strategic goals of the country. Realizing this urgency, an ambitious target of generating 10,000 MW of electricity by the year 2028 has been set as part of accelerated hydropower development strategy. With accelerated hydropower development strategy, the sector shall contribute Nu. 39 billion to the net annual revenue of the nation by the year 2028. Such contribution will substantially increase GDP over the next twenty years. Such a target, though lofty, shall be achieved through accelerated development strategies outlined in this report and by according the highest development priority. The accelerated hydropower development during the next twenty years will require an investment of about Nu. 500 billion; generate employment for about 100,000 workers during the peak construction stage and about 7,400 (6,000 skilled and 1,400 security personnel) employees during the operation and maintenance period thereafter. In addition, the sector will directly promote investments in important infrastructure like roads, bridges, construction of new schools and BHUs and upgradation of several other existing schools and health facilities. The sector will facilitate the growth of other sectors; power intensive manufacturing industries, service industries (recreational facilities around the reservoir schemes), navigation waterways (Sunkosh), and facilitate the growth of special economic zones in the country. This report presents the necessary strategy and the implementation plans to achieve the above target of accelerated hydropower development by the year 2028. The above target of 10,000 MW by 2028 is a two-fold increment of the Power System Master Plan’s (PSMP) target of 5,000 MW by 2022. This increment in target is based on the additional time till 2028 (6 years) for project development, changing power market scenario, and the proposal of major storage schemes like Sunkosh with 4,060 MW capacity. However, the main factor for achieving the above targets hinges on first of all the sector being able to mobilize all the resources through the various models proposed for project development and also the institutional capacity being strengthened and empowered with adequate manpower and the authority to take timely decisions and on the government creating the right enabling environment for the sector. The mobilization of the capital expenditure and its disbursement of almost Nu. 2050 billion per annum indicates an expenditure in the power sector equal to the current GDP (Nu. 46 billion for 2006-2007) or more than the current national debt of Nu. 26.00 billion (December 2006). Pending the mobilization of the required fund and the institutional strengthening, the above target might not be met unless the accelerated hydropower development is accorded the highest national development priority. This report presents the situational analysis of the sector with achievements till date, builds a case for accelerated hydropower development, and presents the strategies 145 Annexures to the Strategy for Gross National Happiness and the implementation schedules for translating these strategies into actions. It also establishes the linkages with the NSP-2008 and SKILLS-2008 with details on projection of manpower requirement in the sector. A section is also devoted to the discussion on the minimum threshold levels for hydropower pricing with India which is our main market, and the concept of Independent Power Producers (IPP) since private sector investment would be highly crucial to achieving the above targets. While the PSMP (March 2004) has provided the basis for the project listing and technical references, the focus of this report is on the changing power market scenario in the region and Bhutan’s strategic positioning of her competitive advantage in hydro development and her renewed confidence and ambition in accelerating economic development through export of power to India. 2. 2.1. 2.2. 2.3. 2.4. 2.5. Situation Analysis Today, Bhutan’s hydroelectricity sector contributes about 43% of the national revenue (2006-2007) which amounts to Nu. 6.902 billion 20 . However, the development of this existing capacity (1,488 MW) has taken over 20 years with multi-dimensional challenges faced by the sector. The draft energy policy highlights the complexities in the management of supply and demand for energy and difficulties in rural electrification as being some of the most daunting challenges faced by the power sector. Although Bhutan is a net power exporter, it experiences deficit of firm power in the lean season21 and has to resort to import of power from India. Bhutan has exported electricity worth almost Nu. 2.21 billion in 2005-06 but imported about Nu. 2 billion worth of other sources of energy in the form of fossil fuels and petroleum products. Although electricity is exported as surplus generation, half the population of Bhutan does not have access to electricity or other modern forms of energy services. Use of traditional bio-mass (fuel wood) still dominates as the main source of energy in Bhutan for the rural population. The sector’s vision of “Electricity for All” by 2020 thus requires investment of over US$ 100 million over the next 15 years. On the other hand, the real impact of rural electrification has not yet been assessed. While richer countries like US and Australia have refused being signatory to Kyoto Protocol, Bhutan has signed the Protocol and has steadfastly sacrificed developmental opportunities to maintain her commitment towards environmental conservation22. Although hydropower is being touted as the main revenue earner for the nation, recently it has fallen behind the trade sector23. Therefore, the current situation calls for a renewed urgency in providing extra impetus to the development of hydropower sector to achieve energy security, enhance revenue earnings and fulfill the needs of Bhutan’s integrated development as per the SGNH. The energy sector has achieved an installed capacity of 1,488 MW as of 2006-07 and has set a target to achieve a minimum export of 5,000 MW by 2020. The sector has prepared the following plans and studies and these studies provide for a solid foundation to embark on an accelerated development path: The Power System Master Plan (1993 with update in March 2004). The Integrated Energy Management Master Plan (IEMMP-2007) The Rural Electrification Master Plan (2005) 20 Department of Revenue and Customs, MOF, National Revenue Report, 2005-06 The firm power with commissioning of Tala is 283 MW against the projected demand of almost 400 MW from the recent industrial estate at Pasakha. 22 Bhutan has developed only the run-of-the river schemes and deferred the development of multi-purpose storage scheme till date. 23 Revenue data as presented in 2006 (Kuensel issue of November 26 th, 2006). 21 146 Annexures to the Strategy for Gross National Happiness 2.6. 2.6.1. 2.6.2. Urban Electrification Master Plan (BPC-2006) Transmission Network Plans (BPC-2006) The experiences of Chhukha and Tala Hydropower projects Agreement between the Royal Government of Bhutan and the Government of the Republic of India concerning cooperation in the field of Hydroelectric Power – signed on 28th July, 2006 (Annexure 2.2). The Electricity Act-2001 providing the legal basis for restructuring and regulating electricity industry, and enabling private sector participation. The Power System Master Plan The Power System Master Plan (PSMP) prepared by the Department of Energy (DoE) and updated in 2003-04 is a comprehensive document on the power system with details on the project rankings, implementation schedules and domestic market analysis. The document is still the most reliable reference for technical details on project profiles and most of the information in it is still relevant. The changed circumstances, market reforms and renewed and urgent current focus on accelerated development are discussed under topics like power pricing, enabling environment and integration with the development of other infrastructure works. The PSMP has identified the development of seven projects with a total investment of about US$ 4.00 billion by the year 2022. The revised target has been set at 10,000 MW since mobilizing resources for these projects would have required the same level of efforts. Details on the project transmission networks, domestic power demand scenario and environmental and social impact assessments have been adequately deliberated in the PSMP. However, the document does not address the main issues of development models, mobilization of resources, and IPP potential. There is also very little discussion on institutional strengthening that would be required for the sector in order to handle the volume of works associated with the accelerated hydro development. The following seven projects have already been included for formulation and development during 2003-2022 in the PSMP. Table 2.1: Projects Identified for Implementation by 2022 in the PSMP. Sl 1 2 3 4 5 6 7 2.7. 2.7.1. Name of Project Punatsangchhu-I HEP Mangdechhu HEP Punatsangchhu-II HEP Kholongchhu Chamkharchhu-I (Digala/Sangling) Chamkharchhu-II Amochhu (814 Yangtsegang) Total Firm power (MW) 168 92 165 61 113 95 82 776 Installed (MW) 1,002 670 992 486 671 568 499 4,888 Energy (GWh) 4,770 2,909 4,667 2,207 3,207 2,714 2,210 22,684 Umbrella Agreement with the Government of India The Cooperation Agreement signed between the RGoB and the GoI on July 28, 2006, is a landmark Agreement that lays the foundation for accelerating hydropower development in Bhutan. Amongst others, the Agreement allows Bhutan to export a minimum of 5,000 MW of electricity to India by 2020 and also has provision for private sector participation (Article 2) from both countries in the power sector. This not only provides the framework for export of energy and establishes a reliable long-term market but also identifies the private sector to participate as potential IPPs thereby opening up opportunities for alternative resources and skills. This 147 Annexures to the Strategy for Gross National Happiness Agreement was in fact pointed out as a highly successful Agreement to be even modeled and adapted in other neighbouring countries like Nepal. 3. 3.1. Basis for Adopting the Strategy for Accelerated Hydropower Development The situational analysis clearly points out the urgent need to accelerate hydropower development mainly to provide energy security and to realize hydro potential as the main source of national revenue. In addition, trends in the region indicate that Bhutan has already lost out on the opportunity to accelerate its hydropower development over the last decade. Now the sector will increasingly face competition in the market making it less and less viable because of emerging influence of other energy sources like nuclear and thermal plants 24 . Bhutan’s hydro sector cannot afford to wait any longer. 3.2. 3.2.1. Highly Favourable Political Situation. The ambitious target of 10,093 MW within the next twenty years has been set not only because of the urgency for Bhutan but also to capitalize on the highly favourable geopolitical situations. With the further strengthening of the ties between Bhutan and India, this is an opportune moment for Bhutan to push forward such ambitious plans. 3.3. 3.3.1. Market Opportunity The PSMP-2004 indicated that the justification for preparing a PSMP as a tool for planning the development of the projects is mainly based on the potential for exporting power to India. The study has quoted the demand of 170,000 MW in India by 2012 and also mentions the key constraints and challenges facing Bhutan’s power export to India. A review of the demand and the crucial factors and issues raised in the PSMP show that the conditions have now become more favourable for Bhutan’s export to India. India’s demand for energy to fuel its 8% annual economic growth is a big opportunity for Bhutan’s hydropower sector. In 2006, India’s power deficit was 14,041 MW against their installed capacity of 127,752 MW25. The projected demand by 2030 is as high as 800,000 MW 26 or at least 450,000 MW (CEA). More than 70% of the generation is from coal, gas fired and oil based thermal plants. To enhance their energy security, India has set a target of achieving 40% hydro generation in their energy mix. This opens up a huge export market opportunity for Bhutan’s hydropower. The PSMP has identified the poor financial conditions of the Indian State Electricity Boards (SEBs) and resulting problems of financing IPP projects, difficulties in making predictions about the pace of Indian economic and power sector reform, and the expectations that initially reforms will increase in efficiency in the use of energy rather than increase its demand as potential challenges for Bhutan’s power export to India. However, the adoption of the Electricity Act and the recent reforms of the SEBs present a different picture. “The legislation brought together structural and regulatory reforms designed to foster competition, encouraged private sector participation and transformed the role of the state from a service provider to a regulator. SEBs were unbundled, autonomous regulatory commissions were created, rules of open access 3.3.2. 3.3.3. 24 India is adding about 6000 MW of nuclear plant in the recently concluded deal with the US. CEA presentation to Bhutanese Hydropower Development Committee on 15.01.2007. 26 Talmiz Ahmed- Director General of Indian Council of World Affairs during an IPPAI seminar on 28 January, 2007. This figure is derived from the Integrated Energy Policy document of India that says that India will need 800,000 MW of power by 2021-32. Also quoted in Outlook Business of February 20, 2007. 25 148 Annexures to the Strategy for Gross National Happiness transmission were developed to encourage electricity trading as a separate business. Tariffs were rationalized to reflect the cost of subsidy, institute strong anti-theft provisions and protect consumer interests”27. 3.4. 3.4.1. Regional Investment Plans in the Energy Sector The changes in the sector has led to the lining up of investments worth over US$ 100 billion and addition of another 100,000 MW of generation capacity by 2012 in the Indian power sector. Table 3.1: Planned Investments by some Public and Private Sector in India by 2017. Firm NTPC NHPC Powergrid Tata Reliance Total Power Energy Investment (Rs. 1,600 410 510 250 600 3,370 Billion) Source: Outlook Business, February 20, 2007 & Times of India, January 26, 2007. 3.4.2. From the above investment plans, it is seen that the region will be mobilizing a huge amount of resources for various projects to be taken up both in the public and the private sectors. Strategically, if the projects in Bhutan can be taken up immediately, these planned investments could be attracted to Bhutan instead of the competing projects in the region. Therefore, the market is ripe and it is the opportune moment for Bhutan to accelerate its hydropower development. 3.5. 3.5.1. Competition to Bhutan’s Hydro Development The GoI has taken numerous steps to increase hydro capacity. Hydro power development in the country has now been recognized as national priority and initiatives like the introduction of Hydro Policy, Ranking Study of 50,000 MW potential has given boost to the sector28. In the last Plan period, India has installed 6,896 MW of hydropower capacity with additional 8,854 MW likely to be commissioned soon (CEA-2006). Public sector companies like the National Hydroelectric Power Corporation (NHPC) are actively expanding their activities throughout the country, with NHPC alone developing about 10,000 MW. Table 3.2: Status of NHPC hydro projects in various Indian States Sl Projects Capacity States (MW) 1 Tawang-I 750 Arunachal 2 Tawang-II 750 Arunachal 3 Dibang 3,000 Arunachal 4 Subansiri Lower 2,000 Arunachal 5 Teesta V 510 Sikkim 6 Teesta Stage III & Others 292 Sikkim 7 Parbati-II 800 Himachal 8 Parbati III 520 Himachal 9 Chamera 231 Himachal 10 Uri 240 J&K 11 Omkareshwar 520 MP Total 9,613 Status MOU MOU MOU Construction Construction Construction Construction Construction Construction Construction MOU (Garg, NHPC-Jan, 2007). 27 Already 20 states have unbundled their utilities, 24 have independent regulators, and 18 regulatory commissions have awarded tariff orders. Ashis Gupta & Ranjana Kaushal – Power Shift; Outlook Business, Feb 20, 2007. 28 S K Garg, CMD, National Hydroelectric Power Corporation in Times of India (January 26, 2007). 149 Annexures to the Strategy for Gross National Happiness 3.6. 3.6.1. Competition from Nepal Hydro Development Nepal is also aggressively pursuing investment in their hydropower sector 29 with projects like West Seti (800 MW), Karnali (10,800 MW), Pancheswar (5,800 MW) and Sapta Koshi (3,300 MW) under active consideration from their overall potential of over 80,000 MW. Table 3.3: Hydropower Potential in Nepal River Basin Major (MW) Koshi Gandak Karnali (Ghaghra) Mahakali Southern Rivers Total 18,750 17,950 28,840 3,840 3,070 72,450 Small (MW) 360 270 3,170 320 1,040 10,830 Total (MW) 22,530 20,650 32,010 4,160 4,110 83,280 Source: Pricewaterhouse Coopers (July 2006) 3.6.2. Till date, India has assisted Nepal in a limited way but now public sectors like NHPC are also considering projects like Upper Karnali (300 MW) as an IPP and WAPCOS is considering DPR of Burhi Gandaki (600 MW). Nepal had also executed PPA with SMEC of Australia for the development of its 750 MW West Seti Project. Recently, there has been indication that the following projects in Nepal has been outlined for possible development with Indian agencies: Table 3.4: Projects Outlined for Possible Development in Nepal by Indian Agencies Sl.No. Project Name Potential (MW) Status 1. West Seti 750 MOU signed 2. Budhi Gandaki 600 DPR considered by WAPCOS 3. Arun III 400 4. Marshyanngdi 121 5. Upper Karnali 300 Expression of Interest by NHPC Total 2,171 3.6.3. In the face of such competition, the strategy should be to accelerate our development and capture the market with the right pricing mechanism. 3.6.4. One of the ways to overcome the above competition is through acceleration of hydropower development. This can be done through the following strategies: Aggressively push for more bilateral funded projects by prioritizing those projects with multiple benefits especially for the importing country, India. Revisit the project lists of the PSMP and reprioritize them keeping in mind potential investors’ interests. Adopt the draft energy policy, hydropower policy and the IPP policy. Strengthen institutional capacity of the sector by recruiting additional manpower and skills and putting a proper institutional structure in place so that the sector can achieve the target of adding the capacity of 10,000 MW by 2028. Open up the sector for private sector participation with 100% FDI. Reprioritize Sunkosh multipurpose project keeping in mind that it has additional benefits both to Bhutan and India. Establish internal funding mechanism so that at least DPR studies of the potential project sites can be taken up without having to wait for donor financing. 29 Hydropower Pricing in Nepal, Developing a Perspective, Jalsrot Vikas Sanstha (JVS), Nepal. 150 Annexures to the Strategy for Gross National Happiness 3.6.5. Provide right enabling environment for attracting IPPs and expediting project implementations in Bhutan. Establish the Joint Group for Speedy Implementation as envisaged under Article 2 of the Umbrella Agreement to carry out the following activities: to facilitate identification of projects and preparation of DPRs; to select agencies for speedy implementation through Bilateral/JV models; consideration of IPP projects; and to advise the governments on implementation modalities. 4. 4.1. Hydropower Pricing for Export to the Indian Market Since hydropower projects in Bhutan face competition from the Indian and Nepalese hydropower projects, the first requirement for trade to occur between Bhutan and India is that the costs of Bhutanese hydropower projects are sufficiently below the costs of competing projects, to allow enough benefit for both parties to share (PSMP-2004). The next section explores some of the hydropower mechanisms for the Bhutanese export of power. 4.2. Generation cost for Existing Hydropower Plants The existing projects have been constructed under a highly favourable financing and implementation model. Chhukha, Tala and Kurichhu have been developed under GoI financing where the equity portion has been provided as grant by the GoI and the cost of debt especially for Chhukha has been very low (5%). Basochhu has been financed through soft financing with grace period of 5 years for loan repayment. Hence the generation costs for the earlier projects are very competitive. Table 4.1: Generation Cost of Existing Hydropower Plants in Bhutan Sl.No. Generation (MU) 1. CHPC 1,863 2. Tala (THPA) 4,865 3. Kurichu 400 4. Basochhu 311 Consolidated 7,439 Source BEA – Generation Tariff Model 4.3. 4.3.1. Project Name Generation Cost (Nu./unit) 0.27 1.57 2.26 1.25 1.21 Cost of Debt 5% 9% 10.75% 6% Cost of Equity 14% 14% 14% 14% Generation Cost for Accelerated Hydropower Plants Based on the total investment of Nu. 468 billion spread over the period 2007-2027 for construction of 10,000 MW installed capacity with 37 billion units of annual energy generation capacity and as per the discounted cash flow analysis for the 12 projects lined up for development in the next 20 years, long range marginal cost of generation works out to Nu. 2.20 per unit at 10% discount rate. 151 Annexures to the Strategy for Gross National Happiness Table 4.2: Estimated Cost of Generation for Accelerated Power Projects Firm Power Installed Energy Sl Name of Project (MW) (MW) (GWh) 1 Punatsangchhu-I HEP 182.50 1,095 5,377 2 Mangdechhu HEP 91.00 672 2,909 3 Punatsangchhu-II HEP 165.33 992 4,667 4 Kholongchhu 81.33 486 2,209 5 Sunkosh Multipurpose Project 647.40 4,060 8,961 6 Dagachhu CDM Project (800) 19.00 114 500 7 Nikachhu (Tangsibji) 35.00 208 1,042 Chamkharchhu-I 8 (Digala/Sangling) 111.67 670 3,207 Chamkharchhu-II 9 (Kheng/Khomsar) 10 Amochhu (814 Yangtsegang) 11 Khomachhu (1920) 12 Rotpashong (400) Total Cost of Generation (Nu) 1.90 2.54 2.33 2.42 3.41 2.89 2.19 2.29 2.31 95.00 570 2,713 83.33 500 2,210 54.33 66.67 1,632.56 326 400 10,093 1,507 1,883 37,185 2.48 2.38 2.33 4.4. 4.4.1. Minimum threshold level for Bhutan’s Hydropower Pricing. Hydropower pricing in Bhutan for export in the past has been more through political goodwill (Chhukha Nu. 2.00) or with negotiation on some form of cost plus basis (Kurichu Nu. 1.75 and Tala Nu. 1.80). The Central Electricity Regulatory Commission (CERC) in India allows cost plus model for the state owned power plants. However, this norm might not be sustainable as it does not provide any incentive for reducing costs and burdens the state utilities with costly PPAs. The trend now is to move towards tariff based IPPs where project developments are awarded to the developers offering the lowest tariffs. Whatever is the existing norm, the bottom line is to maintain a lower tariff than those of the competing projects in the region. A project developer would typically include his cost of equity (14 -16%)30 and commercial interests costs of 8-14%. Since we are looking at encouraging IPPs in the future, the tariff could also be determined through open bidding process or electricity spot market 31 for the project developers. Therefore, the minimum threshold level will vary depending on the corresponding development model. 4.5. 4.5.1. Threshold for Bilateral Projects In the case of bilateral projects, the equity is also a grant from GoI. Therefore, RGoB has no direct financial stake and hence we could argue that the minimum financial return threshold is anything that is over and above meeting the cost of the O&M and debt servicing of the project. We could consider these projects as 100% leveraged and do not factor in the cost of equity at all. On the other hand, we could monetize other associated costs like the environmental, social and opportunity cost of water 32 . Such subjective factors, however, are points of contention that might prove to be a strategic negotiation blunder. Negotiations are typically guided by our fall back positions on what is our “best alternative to a negotiated agreement” 30 Norms established by the Central Electricity Regulatory Authority (CERC) of India. IPPs in India are based on bidding process and spot trading is now being considered (CERC-July 2006). Developing a Common Platform for Electricity Trading, CERC, July 2006. 32 Nepal is trying to consider these and other induced and external costs that raises their threshold level. 31 152 Annexures to the Strategy for Gross National Happiness 4.5.2. (BATNA) 33 . In case of Bhutan, bilateral projects will always result in mutually negotiated arrangements as we cannot expect any better mechanisms. The unique model of current project implementation between the two countries further corroborates this argument. Tariff determination eventually becomes a function of many parameters including the location of the plant, peaking capacity, firm power and distance from the load centre. The important thing for us is to be aware of the various tariff ranges and find the one best suited to both parties. Following are some of the existing generation tariffs in India: Table 4.3: Cost per unit of Power in India (CERC-2006) 1 2 3 4 5 6 7 8 9 Cost per unit Power 35% of power traded in India in 2006 Rs.2.50 to Rs.3.00 33% of power traded in India in 2006 Rs.3.00 to Rs.3.50 Cost of old hydro generation (198 MW Baira Suil – 1984) Rs. 0.71 Tariff for Chamera-II (300 MW commissioned in 2004) Rs. 2.55 Tariff for Tehri storage plant (1000 MW -2006) Rs. 3.50 Bid tariff for ultra mega thermal projects, pit head – 4000 Rs. 1.19 MW at Sasan by Lanco (Madhya Pradesh – Jan 2008) Bid tariff for Mundhra (Gujarat) ultra mega project with Rs.2.26 imported coal (4000 MW) by Tata Power – January 2008 Tariff for Baspa II, IPP Plant (300 MW) Rs. 2.79 Tariff for Malana Power Plant (100 MW) Rs. 2.35 of 4.6. 4.6.1. Tariff and Royalty/Free Power for IPP through Bidding Process For the IPP plants, the trend in India for determining the tariff is through competitive bidding process especially for the thermal plants. Where State purchases power, bidding is based on the lowest tariff offered by the IPP to the State (e.g. tariff of Nu. 1.19 per unit offered by Lanco for the 4,000 MW thermal based Sasan Project)34. For Bhutan, since most of the energy would be exported by the IPP through their own PPA, the bidding could be based on the maximum royalty/free power that the developer(s) would offer to Bhutan. Or it can be a combination of royalty/free power as well as the minimum tariff for those plants from where both export and domestic demand is also met. The CERC (India) norm for free power is 12%. In individual states, they demand upto 18% free power from IPPs. This threshold again would be site specific. Sophisticated IPPs would in turn maximize their returns through a PPA tariff that is determined through a combination of all the above methods including that of “spot trading” in the electricity market. Whatever the method of determining the minimum threshold level, it is strategically crucial for us to be familiar with market developments in India and to make consistent efforts to reduce our project costs to make our pricing competitive. 4.7. 4.7.1. Key Issues that still remain as challenges to Bhutan’s power export Resource constraints, especially given the requirement of investments worth Nu. 468 billion would be a huge challenge. Since internal resources will not be adequate to fund even a single project the entire accelerated development model is built around the continuity of the existing GoI assistance in the power sector with opportunities for private sector participation. 33 34 Theory of negotiation - Getting to Say Yes (Harvard University) Sasan Project by Lanco Group; Powering UP by Balaji Chandramouli in Business Today (28 January, 2007). 153 Annexures to the Strategy for Gross National Happiness 4.7.2. Power from Bhutan is far from the load centers in Northern and Western region of India. Existing transmission corridor is through the “chicken neck corridor”, a narrow strip of land in West Bengal bordering Bangladesh. The cost of delivered power at these load centers increases substantially to be able to compete with other sources. However, in the future, there might be a possibility that GoI and regional countries could establish a regional grid for exchange of power35. This will eliminate the above bottleneck. Table 4.4: Cost of Delivered Electricity from Bhutan to India compared with the bid offer of some recent Thermal Ultra-mega Projects Source: (World Bank Report)36 CHPC Power Tala Power 4.7.3. 4.7.4. 4.8. 4.8.1. 4.8.2. 35 36 Export Tariff Nu.2.00 Cost at Orissa Nu.2.42 Nu.1.80 Nu.3.09 Pithead Thermal Generation in Rate India Recent IPP at Sasan with local coal Nu.1.19 (Sasan 4000 MW plant by Lanco) Mundhra IPP by Tata Power using Nu.2.26 imported coal The World Bank report claims that Bhutan’s delivery cost increases due to transmission costs, cost of GoI equity and subsidy in some cases. However, compared to some of the IPP projects carried out in India, the Bhutanese projects are still competitive. For instance, the generation cost of BASPA II and Malana I are Rs. 2.79 per unit and Rs. 2.35 per unit respectively. Competition as outlined above from North-Eastern region of India (Arunachal Pradesh with potential of 60,000 MW) and Nepal (80,000 MW) also poses a direct challenge and threat to Bhutan’s hydropower development. Reduction of Hydropower Costs in Bhutan To ensure cost competitiveness of Bhutanese hydro power in the Indian market, we need to focus on reduction of project costs. Bhutan’s strategy of accelerated hydropower development could achieve this objective through integration of activities, sharing of infrastructure resources, enhancement of manpower skills, achieving economy of scale and through other measures such as: Transmission corridors, roads and bridges; Expedited clearances and permit procedures through a special purpose vehicle (SPV); Lowering price through tax exemption and policy intervention; Long term vendor negotiations support by RGoB on the investors behalf given the huge demand for the equipment and supplies. Manufacturing scheduling to be influenced at the earliest before their orders gets backlogged. Earlier the signal, better their planning and supply time. Since Bhutan shares very similar topography and hydropower potential with the other competitors like Arunachal and Nepal, the only major advantage that Bhutanese hydro sector will have over the others is our experiences in executing projects on time. This has substantial implications on the project since any project delayed will not only lead to cost escalation but also result in potential revenue losses. This is mainly due to minimized bureaucracy, high priority accorded by the Government towards hydropower development and absence of pressure groups (Civil Society Organizations and environmental groups). Bhutan is signatory to the SAARC and BIMSTEC forums for establishing a regional power grid. Preliminary draft of World Bank Report for “Hydropower Sector Study: Opportunities and Strategic Options”. 154 Annexures to the Strategy for Gross National Happiness 4.8.3. Bhutan’s transparent society with minimal corruption will lead to further reduction in costs as developers will not be subject to additional costs due to extortion and bribery. Bhutanese society is also less litigious which normally leads to project delays in the other countries. 5. The Accelerated Projects (10,000 MW Target) 5.1. The addition of 10,000 MW of hydropower generation capacity by 2028 has been set for accelerated hydropower development. Even though the sector faces the most daunting challenge of mobilizing huge resources, this ambitious target nevertheless has the following rationale based on earlier plans. 5.2. The PSMP has suggested the development of seven projects with total installed capacity of about 5,000 MW and investment of about US$ 4.00 billion from 20032022. The revised target of 10,000 MW is an increment of another 5,000 MW over and above the power system master plan’s target. This increased target is based on increased time period till 2028 for project development, changing power market scenario (increased demand in India) and also given Bhutan’s urgency to move ahead before competing projects in the region leaves us behind. Moreover, the addition of a single reservoir scheme (Sunkosh) with a capacity of 4,060 MW makes the target highly achievable. The only additions to the earlier project lists are: Sunkosh, Dagachhu, Nikachhu, Amochhu and Rotpashong. 5.3. Also past experiences indicate that achievements in hydro sector even by India have been always lagging behind their targets due to time, cost over-runs and other challenges. For instance, GoI has been able to add a capacity of only 6,896 MW against their target of 15,750 MW for their 10th Plan. This indicates that unless we aim at a substantial target, the chances of achieving anything close would be impossible. Therefore, 10,000 MW for Bhutan has to be pursued vigorously to achieve the desired target. 5.4. With the target of 10,000 MW by 2028, the following projects are being selected from the master plan for implementation. While most projects are selected based on the PSMP ranking list, other projects like Sunkosh are selected for energy security and strategic reasons. The rest are selected for potential IPP investment given their development costs and other infrastructure facilities. 155 Annexures to the Strategy for Gross National Happiness Table 5.1 List of the Accelerated Projects Sl 1 2 3 4 5 6 7 Name of Project Punatsangchhu-I HEP Mangdechhu HEP Punatsangchhu-II HEP Kholongchhu Sunkosh Multipurpose Project Dagachhu CDM Project Nikachhu (Tangsibji) Chamkharchhu-I 8 (Digala/Sangling) Chamkharchhu-II 9 (Kheng/Khomsar) Amochhu (814 10 Yangtsegang) 11 Khomachhu (1920) 12 Rotpashong (400) Total Firm Power (MW) Installed (MW) Energy (GWh) Target as per PSMP 182.5 91.00 1,095 672 5,377 2,909 165.33 81.33 992 486 4,667 2,209 647.40 4,060 8,961 19.00 114 35.00 208 500 Accelerated Accelerated 1,042 111.67 670 3,207 PSMP 95.00 570 2,713 PSMP 83.33 500 2,210 PSMP 54.33 66.67 1,632.56 326 400 10,093 PSMP PSMP PSMP Accelerated 1,507 Accelerated 1,883 Accelerated 37,185 5.5. Project Profiles 5.5.1. Sunkosh Project 5.5.1.1. Sunkosh is the biggest storage scheme designed for multipurpose benefits. In the past it has not been prioritized as it was considered too massive (4,060 MW) and complex with submergence of 62 Km2 area within Bhutan. However, this is the right time to develop Sunkosh as it will be crucial for enhancing energy security for Bhutan and perhaps the most attractive project for GoI given its multipurpose benefits. The DPR of the project has already been completed in 1995. The project will also catalyse development of other infrastructure (Lhamoizingkha township) and recreational facilities around the reservoir lake. 5.5.1.2. There is also the possibility of optimizing the design capacity (from 4,060 to 2,060 MW), with the same generating capacity, increasing the project viability. The issues of concern are: environmental and resettlement issues (120 households at Deorali Geog) and transboundary water rights with Bangladesh as the project irrigation scheme plans to divert the water towards Teesta barrage with a 142 km canal (13 km within Bhutan). These aspects shall be reviewed during updating of the DPR cost estimates and environmental impact assessments (EIA) as part of the pre-construction survey report (PCR). 5.5.1.3. The DPR study of the Sunkosh Multi-purpose project was carried out by the Central Water Commission, Government of India, in 1995. The project envisages two stage development with main dam complex sited near Kerabari and the lift dam located near Lhamoizingkha. The powerhouse of the main dam is placed downstream on the left bank of Sunkosh, whereas the powerhouse of the lift dam is located at the toe of the lift dam on right bank. The project has the following salient features: 156 Annexures to the Strategy for Gross National Happiness 5.5.1.4. Main Dam Complex : The scheme envisages a 265 m high, 770 m long rockfill dam with gross storage capacity of the reservoir of 6,325 million m3, surface area at full reservoir level (FRL) of about 61.78 km2 and reservoir stretch of about 52 km; four numbers 12.5 m finished diameter head-race tunnel of length 560 m to 660 m will convey a total maximum discharge of 520 m3/s; a surface power house operating under a net rated head of about 194 m, and open tailrace channel of about 50 m long. An installed capacity of 4,000 MW (8 x 500 MW) has been proposed, with an annual 90% dependable energy generation of 6542 GWh. The cost of generation for firm energy and total 90% dependable energy is Nu. 1.62 per unit and Nu. 1.38 per unit respectively (1995 price level). 5.5.1.5. Lift Dam Complex: The scheme envisages a composite dam of rockfill and concrete gravity with height of 37.5 m and 62.5 m respectively. The length of the concrete dam is 343 m and rockfill is 1329 m. The gross storage volume at FRL is 144 million m3 and surface area of about 8.21 km2 with reservoir stretch of about 13 km. Three number penstock pipes of 4 m diameter and length of 99.50m length each conveying a total design discharge of 60 m3/s; a surface power house operating under a net rated head of about 36.5 m, and open tailrace channel of about 43 m long. An installed capacity of 60 MW (3 x 20 MW) has been proposed, with an annual 90% dependable year energy generation of 376.3 GWh. The cost of generation (90% dependable year) is Nu. 0.86 per unit (1995 price level). 5.5.1.6. The total estimated cost of the project excluding the irrigation system and transmission line cost is Nu. 65,346.51 million (1995 price level) of which Nu. 56,182 million is allocated for power component. The cost of generation for project as a whole for 90% dependable year energy is Nu. 1.36 per unit (1995 price level). A budget of Nu. 30.00 million has been proposed during the 10th five year plan for preconstruction survey and to update the EIA study report and the project cost. The updated project cost has been taken as Nu. 168.546 billion with escalation over the DPR cost and generation cost of Nu. 3.41 per unit. 5.5.2. Dagachhu Hydropower Project 5.5.2.1. Dagachhu hydropower project is being prioritized because of the CDM benefits and the unique model of development. The feasibility study is completed (June 2006) and the Government has already accorded the approval to develop the project under the CDM mechanism and commercial financing with domestic equity and soft loans. The CDM benefits to this 114 MW project shall be almost Euro 2.5 million annually at the current certified emission reduction rates (CERs). While the continuity of the Kyoto protocol is in question post 2012, it is expected that the value of the CERs will increase in the near future. This project can in fact be a project dedicated for the environment to further promote Bhutan’s environmental conservation and institute a mechanism of “payment for ecosystem services” within the context of the accelerated hydropower development. Domestic equity participation can be mobilized from environmental funds like the Bhutan Trust Fund (BTF) and the domestic capital markets (liquidity from NPF and Bank of Bhutan) and debt shall be arranged through soft financing from development partners like the Government of Austria (responsible for the feasibility study of the project) and/or Asian Development Bank (ADB), through ordinary capital resource (OCR). 5.5.2.2. The above implementation model will provide a new dimension to the hydropower project development. This new approach will provide the much needed capacity building for the local agencies and players to mobilize resources for hydropower development to carry through financial closures and make deals on cross border power trading and internal project financing. Such experiences will enable Bhutan to expedite its hydropower development and open up an investment opportunity to the 157 Annexures to the Strategy for Gross National Happiness Bhutanese capital market which is almost non-existent at present. Most important, such a bold move would reinforce Bhutan’s commitment to environmental conservation while accelerating hydropower development with local efforts and resources through innovative approach and means. 5.5.2.3. Dagachhu is a pure run-of-the-river scheme with no diurnal pondage facility along the course of Dagachhu, which is a tributary stream of Punatsangchhu. The project is located on left bank of Dagachhu with the power house located 10.5 km upstream of the Punatsangchhu confluence. As per the feasibility study report, the scheme envisages a 20.50 m (above river bed) high and 18.20m long diversion weir, 3 surface desilting basin, 7.79 km long head-race tunnel conveying a maximum design discharge of 50.0 m3/s, an underground power house operating under a gross head of about 304 m, and tail-race tunnel of about 679 m long. An installed capacity of 114 MW has been proposed, with an annual average energy generation of 500 GWh. The power shall be evacuated by 19 km 220 kV transmission line from the powerhouse switchyard to the 220 kV substation at Tsirang, which will be connected to the Western grid for onward evacuation to India via Malbase substation at Pasakha. Only 492 GWh mean annual energy is expected to be delivered at Indo-Bhutan border for export. 5.5.2.4. The total estimated cost of the project is US$ 182.40 million (2008 price level, excluding transmission line cost and interest during construction). The accumulated interest during construction would be US$ 37.27 million, thereby bringing the total capital cost of the project to US$ 219.67 million. As per the feasibility report, the generation cost of the project is about Nu. 2.58/kWh. However, as per the simulation done by the Department of Energy considering soft term loan financing and 40:60 debt equity financing mix, the long run levelised cost of delivery works out to Nu. 2.68/kWh. The net return on equity from electricity sales on annual basis varies from 7% in the first year to 10.21% in the 16th year. The IRR and NPV work out to 10.57% and Euro 3.4 million. Considering 10% as the opportunity cost of capital in the Bhutanese market and with the starting tariff of Nu. 2.25 per unit in 2011, the proposed financing option seems viable. The PTC (India), the buyer of the Dagachhu power has already indicated a starting tariff of Nu. 2.25 per unit. For signing of power purchase agreement (PPA) with PTC, the export tariff will be negotiated with indicated starting tariff of Nu. 2.25 per unit. 5.5.2.5. This project is being promoted as a CDM project using the Indian baseline. Through this mechanism, the Dagachhu power will reduce about 330,000 tons of CO2 equivalent in India and qualify for certified emission reduction (CER) certificate worth Euro 2.50 million per annum at the current CER rates of Euro 8.00/CER till 2012. The Kommunalkredit Public Consulting (KPC) of Austria has already indicated a price of Euro 8.00/CER. 5.5.2.6. The Austrian Government has committed Euro 300,000 for the preparation of tender documents and tendering aspects of Dagachhu project. The above tendering work is proposed to be contracted out to M/s Bernard Engineers to save time and expedite the project construction. The project development will be done through turnkey (EPC contract) model and is expected to start within 2007. 5.5.3. Punatsangchhu-I Hydroelectric Project 5.5.3.1. This is a run-of-the-river scheme on Punatsangchhu located 8.50 km downstream of Wangdue Bridge. The dam site is located at Lawakha and the powerhouse is sited just downstream of Rurichhu. 5.5.3.2. Consequent upon signing of Memorandum of Understanding (MoU) between the RGoB and the GoI for the preparation of DPR on 15th September 2003, WAPCOS (India) Ltd. has completed the DPR and submitted the draft DPR in August 2006. 158 Annexures to the Strategy for Gross National Happiness 5.5.3.3. As per the draft DPR, the project envisages installed capacity of 1,095 MW (6 x 182.50 MW) with annual average energy generation of 5,377.45 GWh. The project will have 137m high concrete dam, 4 intakes, 4 underground desilting chambers, 7.50 km long (10.3m diameter) headrace tunnel, 2 vertical pressure shaft and an underground powerhouse. The total estimated cost of the project as per the draft DPR is Nu. 49,894.60 million (2006 price level, without including interest during construction). 5.5.3.4. During the 4th Project Monitoring Committee (PMC) meeting held on 4-5 September 2006 in Thimphu, it was agreed that Nu. 150.0 million will be re-prioritized in the 9th plan on reimbursable basis for pre-construction activities such as roads and bridges in order to save time. The pre-construction activities will be undertaken by the DoE with WAPCOS as the Consultant. The agreement between DoE and WAPCOS is yet to be signed. 5.5.3.5. The two governments have also exchanged draft agreement with regard to the actual implementation of the project. DoE’s comments/views/suggestions on the draft agreement prepared by GoI for implementation of the project had been forwarded back to GoI. It is hoped that this agreement will be signed within the next few months so as to allow the construction of the project to begin by the end of 2007. The agreement is in partial modification of the Tala model with 60% loan and 40% grant. 5.5.4. Mangdechhu Hydroelectric Project 5.5.4.1. This is a run-of-the-river scheme along the course of the Mangdechhu river, downstream of Trongsa town. As per the feasibility study conducted in 1999 and the updated PSMP, the scheme envisages a 66 m high diversion dam, 12.167 km long headrace tunnel and an underground powerhouse. An installed capacity of about 672 MW has been proposed, with an annual average energy generation of 2,909 GWh. The total estimated cost of the project as per the updated PSMP is US$ 587.7 million (2003 price level). 5.5.4.2. The MoU between the RGoB and the GoI for the preparation of DPR of the project was signed on 25th January 2005. The implementation agreement has been signed between the DoE and NHPC of India on 29th September 2006 at a contract price of Nu. 75.90 million + 12.24% Service tax. The 20% mobilization advance for the DPR study has already being released to the Consultant in December 2006 from the RGoB pre-finance. A first release of Nu.27.960 million was received from the GoI for the DPR study on 4th January 2007. The DPR study will be completed by end of 2008. 5.5.4.3. As per the discussions between the two Governments, the GoI indicated that it would not be possible to undertake further projects on the same financing arrangement as that of Tala HEP. Except for Punatsangchhu I, which will be developed in similar pattern of Tala model (changes in loan and grant), the implementation of Mangdechhu and Punatsangchhu II projects would be taken up through the Joint Venture (JV) route in which the GoI agencies such as NHPC and the RGoB agencies could form the JV companies to develop these projects with debt equity structure of 70:30. In order to save time for construction of the projects, it was also discussed that NHPC would take up development of infrastructure for Mangdechhu. 5.5.5. Punatsangchhu-II Hydroelectric Project 5.5.5.1. This is a run-of-the-river project located downstream of Punatsangchhu-I. As per the pre-feasibility study conducted in 1993 and updated PSMP, the scheme envisages a 70 m high diversion dam, 11.5 km long head-race tunnel and an underground power house. An installed capacity of 992 MW has been proposed, with an annual average energy generation of 4,667 GWh. The total estimated cost of the project as per the updated PSMP is US$ 875.10 million (2003 price level). 159 Annexures to the Strategy for Gross National Happiness 5.5.5.2. The MoU for the preparation of DPR of the project was signed between the RGoB and the GoI on 25th January 2005. M/s WAPCOS has been selected for the DPR study of Punatsangchhu-II, so as to allow integrated development of the combined transmission network and other common infrastructures of both Punatsangchhu-I and II for economic reasons. The consultancy agreement for DPR study has been signed between the DoE and WAPCOS on 28th September 2006 at a contract sum of Nu. 92.507 million + 12.24% Service tax. The 20% mobilization advance for the DPR study has already being released to the Consultant in November 2006 from the RGoB prefinance. A first release of Nu. 26.596 million was received from the GoI for the DPR study on 4th January 2007. The DPR study will be completed by end of 2008. 5.5.6. Nikachhu (Tangsibji) Hydroelectric Project 5.5.6.1. This is a run-of-the-river scheme along the course of the Nikachhu river, tributary of Mangdechhu. The project is located between Chendebji (3km downstream of the Chunapchhu confluence) and the power house (located at Tangsibji near the Nikachhu/Mangdechhu). 5.5.6.2. As per the updated PSMP, the scheme envisages a 48 m high diversion dam (above foundation), 6.60 km long head-race tunnel conveying a design discharge of 29.30 m3/s, an underground power house operating under a gross head of about 837 m, and tailrace tunnel of about 1.50 km long. An installed capacity of 208 MW has been proposed, with an annual average energy generation of 1,042 GWh. 5.5.6.3. The updating of the 1980s DPR study report of the Tangsibji project (60 MW) is planned to be carried out in the 10th FYP. The above technical features of the project are based on desktop and reconnaissance level studies. 5.5.7. Kholongchhu Hydroelectric Project 5.5.7.1. This is a run-of-the-river scheme along the course of the Kholongchhu river, tributary of Gongri. The project is located on Kholongchhu from the outlet (in Gongrichhu) just downstream of Duksum to the dam site approximately 6 km along the river upstream from the confluence. The dam site is situated 2 km north of where the road to Khamdang takes-off from Trashigang-Trashi Yangtse road. 5.5.7.2. As per the updated PSMP, the scheme envisages a 51 m high diversion dam (above foundation), 5.90 km long head-race tunnel conveying a design discharge of 151 m3/s, an underground power house operating under a gross head of about 378 m, and tailrace tunnel of about 400 m long. An installed capacity of 486 MW has been proposed, with an annual average energy generation of 2,209 GWh. 5.5.7.3. The pre-feasibility study of the project was carried out by Norconsult of Norway in 1992-93. The preparation of DPR of the project is planned to be carried out in the 10th FYP. 5.5.8. Chamkharchhu-I (Digala) Hydroelectric Project 5.5.8.1. This is a run-of-the-river scheme along the course of the Chamkharchhu river. The project is located on Chamkharchhu between Khomshar and Digala (from 25km to 8km upstream of the Chamkharchhu/Mangdechhu confluence near Gongphu). The power house is located opposite to Digala village on the right bank of Chamkharchhu. 5.5.8.2. As per the updated PSMP, the scheme envisages a 65 m high diversion dam, 11.80 km long head-race tunnel conveying a design discharge of 148.80 m3/s, an underground power house operating under a gross head of about 527 m, and tail-race tunnel of about 550 m long. An installed capacity of 672 MW has been proposed, with an annual average energy generation of 3,208 GWh. 5.5.8.3. The above features of the project are based on the desktop and reconnaissance level survey and study. The preparation of DPR of the project is planned to be carried out 160 Annexures to the Strategy for Gross National Happiness in 10th FYP. As per the updated PSMP, the project is scheduled for development from 2014 to 2020. 5.5.9. Chamkharchhu-II (Kheng/Shingkhar) Hydroelectric Project 5.5.9.1. This is a run-of-the-river scheme along the course of the Chamkharchhu river, upstream of Chamkharchhu-I project. The project is located on Chamkharchhu from 8km upstream of Shingkhar to just below Shingkhar school near the suspension bridge across to Raidi village. 5.5.9.2. As per the updated PSMP, the scheme envisages a 50 m high diversion dam, 9.60 km long head-race tunnel conveying a design discharge of 136.20 m3/s, an underground power house operating under a gross head of about 487 m, and tail-race tunnel of about 500 m long. An installed capacity of 570 MW has been proposed, with an annual average energy generation of 2,713 GWh. 5.5.9.3. The above features of the project are based on the desktop and reconnaissance level survey and study. The preparation of DPR of the project is planned to be carried out in 10th FYP. As per the updated PSMP, the project is scheduled for development from 2018 to 2023. 5.5.10 Amochhu (El. 815 Yangtsegang) Hydroelectric Project 5.5.10.1 This is a run-of-the-river scheme along the course of the Amochhu river from 1 km upstream of the Ketha Khola confluence to 1 km downstream of the Chushe Khola Confluence. 5.5.10.2 As per the updated PSMP, the scheme envisages a 55 m high diversion dam, 6.60 km long twin head-race tunnel conveying a design discharge of 204 m3/s, an underground power house operating under a gross head of about 288 m, and two tailrace tunnel of about 150 m long each. An installed capacity of 500 MW has been proposed, with an annual average energy generation of 2,210 GWh. 5.5.10.3 The above features of the project are based on the desktop study and no reconnaissance survey and field verification has been carried out. The preparation of pre-feasibility study report of the project is planned to be carried out in 10th FYP. 5.5.11 Khomachhu Hydroelectric Project 5.5.11.1 This is a run-of-the-river scheme along the course of the Khomachhu, in Lhuentse Dzongkhag, which is the tributary stream of Kurichhu. The intake is located at about El. 1920 masl. 5.5.11.2 As per the desktop study, the scheme envisages a 40 m high diversion dam, 8 km long head-race tunnel conveying a design discharge of 57.3 m3/s, an underground power house operating under a gross head of about 667 m, and tail-race tunnel of about 700 m long. An installed capacity of 326 MW has been proposed, with an annual average energy generation of 1,507 GWh. 5.5.12 Rotpashong (El. 720) Hydroelectric Project 5.5.12.1 This is a run-of-the-river scheme along the course of the Kurichhu river, which is located upstream of the existing 60 MW Kurichhu hydroelectric project at Gyalpoizhing. 5.5.12.2 As per the desktop study, the scheme envisages a 55 m high diversion dam, 9.50 km long head-race tunnel conveying a design discharge of 401 m3/s, an underground power house operating under a gross head of about 117 m, and tail-race tunnel of about 450 m long. An installed capacity of 400 MW has been proposed, with an annual average energy generation of 1,883 GWh. 161 Annexures to the Strategy for Gross National Happiness 5.6 National Transmission Grid 5.6.1. For accelerated hydropower development, high voltage transmission lines are crucial for export of power to India and for internal distribution of electricity supply. Projectwise requirement was studied in detail to optimise cost and make the construction of lines environment friendly. Since the load centres are in northern & western India, power from the hydropower projects in the Eastern Bhutan have to be transferred to Siliguri. Considering this aspect, Gelephu is the potential link with India for export of above 3,000 MW from Central & Eastern Bhutan. The possible RoW problem from Tingtibi to Gelephu and with location of International Airport at Gelephu shall be integrated with the overall zoning plans. A minimum RoW requirement of 85 meters for two 400 kV double circuits (1,000 MW) and one 220 kV single circuit (200 MW) is required. In addition, an area of about 10 acres will be required for construction of substation at Gelephu. 5.6.2. At least a high voltage direct current (HVDC) substation and link is envisaged for export of power from mega projects such as the Sunkosh in future, for which land and RoW shall be provided in Lhamoizingkha Dungkhag. The issue of the ROW for the HVDC link may need to be coordinated with the Indian authorities in West Bengal. 5.6.3. One option of ensuring corresponding development of transmission network across the border in India commensurate with the accelerated hydropower development plan of Bhutan is to pursue Article 2 of the Umbrella Agreement between the two governments and initiate discussions on export capacity from minimum of 5,000 MW by 2020 to minimum of 10,000 MW by 2028. 5.6.4. We could also reciprocate the use of Indian transmission network by offering our own transmission network for evacuation of power from some of the sites in Arunachal Pradesh to the load centres in North India. The details of such arrangements are described in Chapter 8 for specific projects like Tawang I (750 MW) and Tawang II (750 MW). 5.6.5. Transmission networks in Bhutan can be developed by the BPC, the transmission licensee, who already has the institutional capacity to undertake the projects either through self-financing or joint venture with Indian public sector companies like PGCIL and PTC. BPC is currently the utility who owns the transmission network in the country and is also identified as the system coordinator. 5.6.6. Fair compensation for the RoW required for HV transmission lines is also considered for accelerated hydropower development. Under the draft regulations on RoW transmission line RoW is considered as Easement right and no compensations are being paid. 5.6.7. Since obtaining the ROW is increasingly becoming difficult 37 , it is proposed that a regulation on RoWs for power infrastructure be adopted under the proposed National Spatial Act. 6 Implementation Schedule, Resource Requirement & Revenue Projections 6.1. Implementation Schedule 6.1.1. The accelerated hydropower development would require the addition of 10,000 MW within the next 20 years (2028). This is an addition of 12 new projects or an average of about 1 project every 1.5 years. While this might seem a very ambitious implementation target, it is felt that the best way of accelerating the development would be to implement the projects simultaneously. Waiting for one project to finish to start the next one would take extremely long, given the long gestation period of hydropower projects. Moreover, if the IPP and the JV model takes off, then the 37 Refer Bhutan Times issue of February 11, 2007 - “Power Transmission Versus Property Rights” 162 Annexures to the Strategy for Gross National Happiness implementation of all these projects simultaneously would be possible given that the security issues and other enabling environment issues are met. Table 6.1: Implementation Schedule of Planned 10,093 MW Projects Planned Project Punatsangchhu-I (Bilateral) Sunkosh (Bilateral) Mangdechhu (JV) Punatsangchhu-II (JV) Dagachhu CDM (JV) Kholongchhu (IPP) Rotpashong/Kurichhu (IPP) Chamkhar-I (Digala) IPP Nikachhu (IPP) Khomachhu (IPP) Chamkhar-II (Shingkhar) IPP Amochhu-(Ngatse/Ygang) 10th Plan (2008-2013) Start 2007 Start 2009 Start 2009 Start 2009 Start 2007, Finish 2011 Start 2010 Start 2010 Start 2011 Start 2012 11th Plan (2013-2018) Finish 2014 Finish 2018 Finish 2016 Finish 2016 Finish 2017 Finish 2017 Finish 2018 Finish 2016 Start 2014 Start 2017 12th Plan (2018-2023) 13th Plan (2023-28) Finish 2021 Start 2020 Finish 2024 Finish 2027 Table 6.2: Standby Projects in case IPPS are interested for early implementation. Standby Projects 10th Plan 11th Plan 12th Plan 13th Plan (2008-2013) (2013-2018) (2018-2023) (2023-28) Gongri (485) /Kuri (450) Start 2011 Finish 2018 IPP Amochhu Reservoir IPP Start 2013 Finish 2020 Amochhu (Bend) IPP Start 2021 Finish 2028 6.2. Schedule for Implementation of Pre-conditions 6.2.1. As discussed in detail in the chapter on the enabling environment, the following precondition activities need to be implemented in order to facilitate the implementation of projects as per the above schedule. Most important are the adoption of the policies, legislations, rules and regulations enabling private sector investments in the power sector and the strengthening of the institutional structure of the power sector. Table 6.3: Schedule of Policy, Guidelines and Institutional Strengthening Activities 2007 2008 Hydropower Policy June IPP Policy April IPP Bidding Guidelines April IPP Tender July Establish Joint Group July Formation of DGPC December Autonomy of BEA July 6.3. Investment Projections 6.3.1. With the accelerated implementation schedule and the proposed model of financing, it is anticipated that the investment for most of the projects shall commence from the 10th FYP. The investment of Nu. 468 billion over the next twenty years would be required as follows. 163 Annexures to the Strategy for Gross National Happiness Table 6.4: Investment Projections (Nu. Billion) 10th Plan 179 11th Plan 227 12th Plan 40 13th Plan 18 6.3.2. This ambitious investment plan with front loading during the 10th and 11th FYP is proposed as a strategy to keep up with regional competition and market demand and to attract the available investment at the earliest before other projects in the region. Accordingly, 87% of the investments would be required during the next two plan periods. The capital amount required from various sources are as follows: Table 6.5: Financing Sources (Nu. Billion) Bilateral JV IPPs TOTAL 10th Plan 103 42 34 179 11th Plan 112 42 73 227 12th Plan * * 40 40 13th Plan * * 18 18 * There is no planned investment during this period to allow for buffer time in case of time over-runs. In addition, other projects can always be taken up during this period depending upon resource mobilization capacity. 6.3.3. The investment requirement for the 10th FYP is Nu. 103 billion from bilateral, Nu. 42 billion under JV and Nu. 34 billion under IPP. This requirement against the backdrop of plan investment of equivalent Nu. 4,400 billion in India during the next five years makes the investment layout achievable provided we promote our projects faster. The annual investments are expected to peak in 2014 and 2015 where the requirement would be close to Nu. 70 billion a year. Therefore, its impact on the overall economy needs to be assessed. 6.3.4. While the investment amount is substantial, the actual equity contribution under the proposed models (JV) is only Nu. 12.5 billion from RGoB which will need to be made available upfront during project construction. The IPP models will ensure that the projects will have no financial burden on the national exchequer. These projects are kept under the non-plan activities, as in the past. 6.4. Revenue Projections 6.4.1. Preliminary revenue projection indicates a net annual revenue contribution of Nu 4.889 billion by the end of the 9th FYP to Nu. 38.137 billion by 2028 after factoring interest and loan repayments. Table 6.6: Revenue Projections (Nu. Billion) 10th Plan 11th Plan 30 42 6.4.2 6.4.3 12th Plan 120 13th Plan 147 Revenue projections includes 30 % CIT and 100 % dividends from bilateral projects, 30 % CIT and 50 % dividends from JV projects and 30 % CIT and 15 % royalty (either in cash or energy) from IPPs. Revenue from the energy sales are both from domestic sales and export. The distribution of energy between domestic and export in million units is projected as follows. The revenue projections would change depending on energy distribution. 164 Annexures to the Strategy for Gross National Happiness Table 6.7: Energy Distribution Schedule (Million Units) 10th Plan 11th Plan 12th Plan Domestic 11,454 17,501 28,602 Export 30,125 60,022 156,295 Total 41,579 77,523 184,897 6.4.4 13th Plan 36,994 202,693 239,687 A provision of 20% retained earning on profit after tax is kept, out of which 10% would be generally retained by generating companies and 10% available for equity investments by DGPC/DHI. The projected retained earnings are as follows. Table 6.8: Retained Earning Schedule (Nu. Billion) 10th Plan 11th Plan 12th Plan 5.00 6.00 16.00 13th Plan 17.00 6.5 Financing Issues/Recommendations 6.5.1 Foreign Exchange Reserves – Since earnings from export of hydroelectricity would be in Rupee, any investments in foreign currency (other than rupee) would have to be assessed in light of its impact on foreign exchange reserves. The major source of our foreign exchange reserves is from project-tied external grants and borrowings. Therefore, investments that would require repatriation in foreign currency should be minimized. For projects requiring foreign exchange during the construction phase, PPA should include provision for partial power tariff payment in foreign currency. 6.5.2 National Debt Sustainability – To avoid excessive debt burdens on the government, private investments which will not form part of the government’s contingent liability should be considered through promotion of IPP projects and also JV projects financing. 6.5.3 Revision of FDI Policy 2002 – The present FDI policy excludes foreign investments in “hydroelectric sector”, investment in “rupee” and limits maximum investment at 70 %. To attract investments from IPPs/JVs, particularly from India, the FDI Policy 2002 needs to be revised to include the above. 7. Financing Options 7.1. Introduction 7.1.1. The financing options proposed under the various models will be key towards raising investment of Nu. 468 billion required for the accelerated hydropower development. Therefore the following sections are devoted to analysis of the various options. 7.1.2. Hydropower projects are capital intensive and have long gestation period. Their development requires huge financial resources. For accelerated hydropower development alternative financing modalities are proposed. Taking stock of the existing practices and to attract IPP and JV undertakings for hydropower development, certain assumptions are made and these assumptions are laid down separately under appropriate financing arrangements. 7.2. Financing of Hydroelectric Projects in the Past 7.2.1. Till date, 1,488 MW has been developed at a cost of Nu. 55 billion financed through a mixture of grants and loans from the governments of India and Austria. Chhukha, Kurichhu and Tala Hydro electric projects were financed with 60 % grant and 40 % loan from the Government of India. The Government of Austria financed Basochhu Hydroelectric Project I through grant assistance and concessionary loans and Phase II through soft loan under Official Export Promotion Scheme. 165 Annexures to the Strategy for Gross National Happiness Table 7.1: Project Profiles and Terms and Conditions of Existing Hydroelectricity Loans Project Capacit Const. Project Interest Rept Repayment Name/ y (MW) Period Cost** Rate (%) Period Start/End (Financed (in (Years) Date By) millions) Chhukha (GoI) 336 1975-1988 Nu. 2,459 5 15 1/1/1993 to (14 years) 1/1/2008 Kurichhu (GoI) 60 1994-2002 Nu. 5,600 10.75 12 1/7/2004 to (9 years) 1/7/2015 Tala (GoI) 1020 1997-2007 Nu. 43,270 9 12 Tentatively (10 years) 15/6/2008 to 15/6/2019 Basochhu I 24 1996-2000 Euro 0 20 31/12/2006 to (Austria) (4 years) 30.231 31/12/2025 Basochhu II 40 2002-2004 Euro 2.786* 15 30/6/2010 to (Austria) (2 years) 31.249 30/6/2024 * Commitment fee = 0.15; management fee = 0.25 ** Project costs are without IDC 7.2.2. The loans availed by RGoB for the existing hydroelectricity projects amount to Nu. 23 billion (US$ 516 million). The total national outstanding debt as of 31st December 2006 is Nu. 31 billion, out of which Nu. 21 billion is for hydroelectric projects (69% of the total loan outstanding). These loans are from GoI and Austria. The status of loans from GoI as of 31 December 2006 is as given in Table 7.2. Table 7.2: Status of GoI Loans (Rs. million) Loan Principal Project Disbursed Repayment Chhukha 852 984 467 Kurichhu 2,240 16,464 Tala* 19,688 1,319 Total Interest Paid 824 504 1,328 Outstanding Loan 131 1,773 16,464 18,368 * Without IDC 7.2.3. For Basochhu I, Austria provided EURO 13.081 m as grant and EURO 17.150 m as interest free loan. For Basochhu II, soft loan of EURO 31.249 m from Austrian Official Export Promotion Scheme was obtained. The status of Austrian loan as of 31st December 2006 is as presented in Table 7.3: Table 7.3: Status of Austrian Loans (EURO million) Loan Principal Project Committed Repayment Basochhu 48.395 0.857 Total 48.395 0.857 Interest Paid 3.212 Outstanding Loan 47.539 3.212 47.539 7.3. Electricity Contribution to Domestic Revenues 7.3.1. Electricity sector is the major contributor to the domestic revenue. In the financial year 2005-06, electricity sector contributed 32 % (Nu. 2.2 billion) to the total revenue, second only to the trade sector (Nu. 2.3 billion). Among the top ten revenue agencies, Chhukha was ranked number one and Basochhu seventh. With the commissioning of Tala, domestic revenues are expected to grow by about 43%. In financial year 2006-07, 166 Annexures to the Strategy for Gross National Happiness electricity sector is expected to contribute approximately Nu. 4.3 billion, about 23 % of the national budget and 43 % of the total revenue. 7.4. Cost Considerations for Accelerated Projects 7.4.1. To harness additional 10,000 MW by 2028, twelve hydroelectric projects have been identified. The construction of these projects over the next 20 years would increase the installed capacity by 10,000 MW and is projected to cost approximately Nu. 468 billion. 7.4.2. The costs for Dagachhu and Punatsangchhu I are based on the Detailed Feasibility and Project Reports (DPR). For Sunkosh, the cost is based on the 1995 DPR of Power component and inflated by 300% to account for cost escalations. For other projects for which DPR is yet to be prepared a thumb rule cost estimate figure of Nu. 50 million per MW is assumed. 7.4.3. The transmission cost is not included in projects where the costing is based on Nu. 50 million per MW. Hence a wheeling charge of Nu. 0.125 per unit is taken to account for transmission cost except for Sunkosh where the project is going to be located near the Bhutan-India border. 7.4.4. The costs are based on 2006 prices with annual cost escalation of 10-15 % (in the case of Tala, cost escalations were about 300% over a ten year period). The actual cost of completion of hydroelectric projects, however, will be largely site specific. Table 7.4: Cost of Accelerated Projects Sl. Cost (Nu. No Project Name millions) . 1 Dagachhu 8,208 2 Punatsangchhu I 49,894 3 Sunkosh HEP 168,546 4 Mangdechhu 33,600 5 Punatsangchhu II 49,600 6 Kholongchhu 24,250 7 Rotpashong 20,050 8 Chamkharchhu I - Digala 33,500 9 Nikachhu (Tangsibji) 10,400 10 Khomachhu 16,300 Chamkharchhu IIKheng 11 28,500 12 Shingkhar Amochhu I (Yangtsegang) 25,000 GRAND TOTAL 467,848 Installed Capacity (MW) 114 1,095 4,060 672 992 486 400 670 208 326 570 500 10,093 Mean Annual Generation (MU) 500 5,377 8,961 2,909 4,667 2,209 1,883 3,207 1,042 1,507 2,713 2,210 37,185 7.5. Proposed Financing Options 7.5.1. It is not possible for all the proposed projects to be financed under existing financing modalities particularly if development of hydroelectric is to be accelerated. GoI has reversed the ratio of grant and loan element to 40:60 for Punatsangchhu I and Austria has already indicated that financing along Basochhu modalities would not be possible in the future. 7.5.2. Further, preliminary estimates for harnessing additional 10,000 MW by 2028 at a cost of about Nu. 468 billion (covering four FYP periods) as per the planned investment schedule indicate huge requirement of Nu. 179 billion, Nu. 227 billion, Nu. 40 billion and Nu. 18 billion during 10th, 11th, 12th and 13th FYPs respectively. It is also to be noted that the average fund requirement for the next four FYPs would be more than Nu. 117 billion per plan period which is 60 % more than the whole national 9th FYP 167 Annexures to the Strategy for Gross National Happiness budget allocation. Therefore, we need to explore other financing options through bilateral, JV and IPP and other means (e.g. Carbon financing and CDM). 7.6. Justification for the different Financing Options 7.6.1. While RGoB’s financing preference for all the proposed projects would still be bilateral funding from GoI, alternate financing options are being proposed mainly in view of the following: 7.6.1.1. Past GoI trends of financing mega projects – Till date GoI has been financing one mega project per plan. It is likely that this trend would continue in spite of RGoB’s desire to accelerate hydropower development. Therefore, other financing options are being proposed, to avoid delays in achievement of RGoB’s vision for harnessing additional 10,000 MW by 2028. 7.6.1.2. RGoB’s National Debt Situation - The national debt outstanding as of December 2006 is Nu. 31 billion (US$ 679 million). Based on the preliminary 10th FYP debt assessment of DADM, by the end of the 10th FYP (FY 2012-2013) debt stock is projected to be around Nu. 104 billion or about 105% of GDP. Of the total debt, 66% would be Indian Rupee contracted for construction of hydro power projects and 34% in convertible currency contracted mainly for financing other development needs. Debt servicing during 10th FYP would average around Nu. 4 billion per annum. The debt service ratio is projected to average around 15%, with a high of 17.1% in FY 2008-09 and a low of 12.6% in FY 2012-13. Rupee debt servicing would constitute around 13% and 2% would be on account of convertible currency. Given the high level of public debt stock accumulated till date and also as Bhutan has been classified as “highly indebted country”, government’s capacity to borrow for hydroelectric projects would be limited. If the government continues to borrow for hydroelectric projects, it would deteriorate the government’s debt ratios and thereby limit access to borrowing for other sectors. In view of this, private investments and other options should be promoted. Table 7.5: Debt Situation (Nu. million) 2006-07 37,783 18,750 2,700 70.8 2.3 46,728 19,741 Total Debt Stock GoI (hydropower) Austria (hydropower) Debt to GDP (%) Debt Services (% of export G& S) Nominal GDP Exports of Goods & Services 2012-2013 104,372 68,222 5,324 105.3 12.6 99,109 40,120 7.7. Financing Options 7.7.1. RGoB Financing 7.7.1.1. Dagachhu is scheduled to be taken up by the RGoB in 2007 on debt equity ratio of 75:25. Possibilities of BTEFC financing are being explored and should this be considered, it is proposed that the project be dedicated for environmental conservation and management. Table 7.6: RGoB Financed Projects Sl. No Project Name Cost (Nu. millions) Capacit y (MW) 1 Dagachhu Total 8,208 8,208 114 114 168 Generat ion Financing (MU) 500 75:25 debt equity 500 Status 2007-2011 Annexures to the Strategy for Gross National Happiness 7.7.2. Bilateral Financing 7.7.2.1. Punatsangchhu I and Sunkosh are proposed as bilateral projects to be funded by GoI. Discussion on implementation modality for Punatsangchhu I on 40% grant and 60% loan is in advanced stage and draft agreement for construction of the project is being finalized with GoI. For Sunkosh, it is proposed that GoI be requested to finance the project on 80% grant and 20% loan since it is a multipurpose project with irrigation and other downstream benefits to India. However, the financial analysis is carried out on 60% grant and 40% loan basis to be on the conservative side. Table 7.7: Bilateral Financed Projects Cost Project Capacity Generation (Nu. Financing Name (MW) (MU) millions) Puna I 49,894 1,095 5,377 60% Loan 40% Grant Sunkosh 168,546 4,060 8,961 80% Grant 20% Loan Total 5,155 14,338 218,440 Status 2007-2014 2009-2018 7.7.2.2. Financing from other bilateral donors may be difficult for construction of hydropower projects, however grant assistance from other donors would be sought mainly for technical assistance and human resource development. 7.7.3. Joint Venture Financing 7.7.3.1. Punatsangchhu II and Mangdechhu are proposed under joint venture financing mechanism with Indian Public Sector Undertaking (PSU) on 70:30 debt equity ratio. Indian PSUs such as NPHC could form a JV undertaking with RGoB’s Druk Green Power Corporation (DGPC) on 50:50 equity ratio (this would however depend on negotiation with Indian PSU and RGoB’s capacity to raise its equity contribution). The JV with Indian PSU would facilitate raising capital financing from the Indian financial market. Therefore, Indian PSU should be encouraged to raise the debt portion along with fifty percent of the equity contribution. DGPC’s financial contribution will be limited to financing the other fifty percent of equity contribution. It is being noted that 50 % of equity contribution for Punatsangchhu II and Mangdechhu would be around Nu. 12 billion as shown in Table 7.8. Table 7.8: RGoB’s Equity Contribution Implications for Joint Venture Projects (Nu. Billion) Project Name Cost Debt Equity RGoB’s 50% on (70%) (30%) Equity Punatsangchhu II 50 35 15 7 Mangdechhu 34 24 10 5 Total 84 59 25 12 7.7.3.2. For the proposed two joint venture projects, RGoB equity contribution of 50% would amount to approximately Nu. 12 billion over eight year construction period if upfront equity is not available. As per the proposed investment schedule, the RGoB’s equity contribution could be as given in Table 7.9: Table 7.9: RGoB’s Equity Contribution Schedule for Joint Venture Projects (Nu. million) Project Name 2009 2010 2011 2012 2013 2014 2015 2016 Punatsangchhu II 372 595 744 893 1,116 1,860 1,488 372 Mangdechhu 252 403 505 605 756 260 1,008 252 Total 624 998 1,248 1,498 1,872 3,120 2,496 624 169 Annexures to the Strategy for Gross National Happiness 7.7.3.3. During the period of eight years (2009-2016), the projected retained earnings of the government owned hydroelectric corporations would amount to only about Nu. 8 billion, out of which only 50% will be available for equity investment. Therefore, additional funds may be mobilized through domestic financial institutions and or International Financial Institutions such as Asian Development Bank (ADB), International Finance Corporation (IFC), Export Promotion Scheme (EPS), Japan Bank for International Cooperation (JBIC), etc. It should however, be noted that raising additional funds would pose debt burden to the government. 7.7.3.4. ADB provides sovereign loans to member countries under Ordinary Capital Resources (OCR), with 20 years repayment period including 5 year grace period. The loans are provided in three major currencies, US$, Japanese Yen and EURO, carrying a floating lending rate consisting of 6 months LIBOR ($ & Yen) and 6 months EUROBAR incase of Euro, spread, front-end fess and commitment fees. ADB could also provide Rupee denominated loans. So far Bhutan has not accessed OCR loans but possibilities are being explored for financing of Dagachhu HEP. 7.7.3.5. IFC provides loans to member countries for private sector projects, which are technically sound and meets IFC and host government’s environmental and social standards. IFC provides 25 % of the total project cost for new projects. While IFC’s lending is mainly for the private sector, IFC could consider lending to government owned corporations (DGPC) operating on commercial basis. 7.7.3.6. JBIC could also be a potential IFI to finance hydroelectric projects. In the 10th Plan, JBIC has been identified for Rural Electrification Program and this would be the first project to be taken up by JBIC in Bhutan. However, indications are that JBIC normally does not take up more than one project at a time. JBIC borrowing for development of hydroelectric projects would be available only in the 11th Plan. 7.7.3.7. Financing under EPS could be explored particularly for financing of electro-mechanical equipment, as in the case of Dagachhu HEP. 7.7.3.8. The preparation of DPR for the Punatsangchhu II and Mangdechhu projects was initiated in November/December 2006 and is expected to be completed by end 2008 with financing from GoI. Since the DPR is being financed by GoI, it is expected that JV with Indian PSU would be facilitated by GoI should bilateral financing not be possible. 7.7.4. Private Sector Financing (IPP) 7.7.4.1. The remaining seven projects (Table 7.10) are proposed to be financed by IPPs. The information on most of the projects is based on desktop studies and reconnaissance surveys as DPR is yet to be prepared. To attract IPPs for these projects, it is recommended that pre-feasibility studies be carried out by the RGoB within the 10th Plan and depending on IPPs interest DPR could be carried out by them. While tentative implementation status is indicated in Table 7.10, the actual implementation would depend on the responses received from the IPPs. The details of IPP modalities are discussed in Chapter 8. Table 7.10: IPP Projects Sl. No Project Name . 1 Kholongchhu 2 Rotpashong 3 Chamkharchhu I – Digala 4 Nikachhu (Tangsibji) 5 Khomachhu Cost (Nu. millions) 24,250 20,050 33,500 10,400 16,300 170 Capacit y (MW) Generati on (MU) 485 401 670 208 326 2,209 1,883 3,207 1,042 1,507 Status 2010-2017 2010-2017 2011-2018 2012-2016 2014-2021 Annexures to the Strategy for Gross National Happiness 6 Chamkharchhu II- Kheng 7 Shingkhar Amochhu I (Yangtsegang) Total 28,500 25,000 158,000 570 500 3,160 2,713 2,210 14,771 2017-2024 2020-2027 7.8. Assumptions for Financial Analysis 7.8.1. For RGoB Financed Projects (Dagachhu) a. b. c. d. e. f. g. h. i. j. k. Box 1: RGoB Financed Project (Dagachhu) Effective life of hydroelectric project is taken as 30 years. Interest rate of 9% per annum and repayment period of 15 years. Five year construction period from 2007-2011. All the energy produced is exported. Export energy tariff is worked out at 10% discounted rate, 30 years levelised cost of generation with levelised annual cost divided by the sale at the border. Corporate Income Tax (CIT) of 30% from the date of commissioning. Retained earnings of 20% on profit after tax. Return on equity – 14% Operation & Maintenance at 1.5% in the first year of commissioning on the total cost and escalated at 4% per annum thereafter, 10% interest on working capital, The transmission wheeling charge is taken as Nu. 0.125 per unit for export energy. 7.8.2. For Bilateral Projects Box 2. Bilateral Projects (Punatsangchhu I and Sunkosh) a. Effective life of hydroelectric projects is taken as 30 years. b. Interest rate of 9.5% per annum and repayment period of 12 years for Punatsangchhu I and 10 years for Sunkosh. c. Punatsangchhu I is 60% loan and 40% grant; and for Sunkosh while the proposed financing is 80% grant and 20% loan, the financial analysis are based on 60% grant and 40% loan to be on a conservative side. d. Construction period of Punatsangchhu I is taken to be eight years (2007-2014) and Sunkosh ten years (2009 to 2018). e. From the total energy generation in a year, 15% of the energy produced will be provided as Royalty to the Government at Nu. 0.30 per unit. However, for the additional energy, Punatsangchhu I will provide about 5% of annual generation till 2018 at Nu. 1.20. For Sunkosh no additional energy requirement is projected. f. Export energy tariff is assumed at 10% discounted rate, 30 years levelised annual cost divided by the levelised saleable energy rate at the border. g. Corporate Income Tax (CIT) of 30% is assumed from the date of commissioning. h. Retained earnings of 20% on profit after tax. i. Return on equity – 14% for Punatsangchhu I and 10% for Sunkosh. j. Operation & Maintenance at 1.5% in the first year of commissioning on the total cost and escalated at 4% per annum thereafter, k. 10% interest on working capital, l. The transmission wheeling charge is taken as Nu. 0.125 per unit for export energy. No wheeling charge considered for Sunkosh as it is located near the border. 7.8.3. For Joint Venture a. b. c. d. Box 3. Joint Venture Projects (Mangdechhu and Punatsangchhu II) Effective life of hydroelectric projects is taken as 30 years. Interest rate of 9.5% per annum and repayment period of 10. Debt equity ratio of 70:30. Construction period of eight years each (2009-2016). 171 Annexures to the Strategy for Gross National Happiness e. From the total energy generation in a year, 15% of the energy produced will be provided as Royalty to the Government at Nu. 0.30 per unit. However, additional energy of 5% of annual generation to be provided at Nu. 1.20 per unit till 2018. f. Export energy tariff is assumed at 10% discounted rate, 30 years levelised cost of generation. g. Corporate Income Tax (CIT) of 30 % from the date of commissioning. h. Retained earnings of 10% on profit after tax. i. Return on equity – 14% j. Operation & Maintenance at 1.5% on the total cost in the first year of commissioning and escalated at 4% per annum thereafter, k. 10% interest on working capital, l. The transmission wheeling charge is taken as Nu. 0.125 per unit for export energy. 7.8.4. For IPPs a. b. c. d. e. f. g. h. i. j. k. l. m. n. Box 4. Independent Power Producers Projects (7 projects) All the projects are to be constructed, operated and handed over to the Government on the principle of build operate and transfer (BOT). The developer will run the project for 30 years. Debt equity ratio is 70:30. Interest rate of 9.5% per annum and repayment period of 10 years. All the projects to be constructed in eight years. From the total energy generation in a year, 15% of the energy produced will be provided as Royalty to the Government either in the form of energy or cash at export price. No distinction between domestic and export tariff – same rate. Export energy tariff is set at 10% discounted rate, 30 years levelised annual cost of generation divided by saleable energy at the border. Corporate Income Tax (CIT) of 30% from the date of commissioning. No retained earnings. Return on equity – 14%. Operation & Maintenance at 1.5% in the first year of commissioning and escalated at 4 % per annum thereafter, 10 % interest on working capital. The transmission wheeling charge is taken as Nu. 0.125 per unit for export energy. 7.9. Revenue Projections based on the above assumptions. 7.9.1. For Bilateral 7.9.1.1. Revenue: On the first year of commissioning (2015), Punatsangchhu I would contribute to the Government revenue an amount of Nu. 2.521 billion. The revenue increases to Nu. 5.164 billion by the year 2027 after the loan is liquidated. Sunkosh is expected to provide about Nu. 8.134 billion by the year 2019 and the revenue would remain more or less at around Nu. 7 billion till the loan is fully liquidated in 2028, thereafter the revenue is expected to increase to Nu. 11.8 billion. 7.9.1.2. NPV & IRR: With the DPR cost of Nu. 49,894 m for Punatsangchhu I and the construction period of eight years, at 9.5 % interest rate repayable in 12 years and the expected life of the project taken to be 30 years, the NPV is Nu. 7,859 and IRR is 11.46%. This indicates that the project is financially viable. With respect to Sunkosh, construction period of 10 years, 9.5% interest rate repayable in 10 years’ time, taking 30 years as the expected life, the NPV is Nu. 2,278 and IRR is 9.68%. 7.9.1.3. Power Tariff: The levelised annual cost divided by saleable energy at the border for 30 years discounted at 8%, 10% and 12% yields an electricity price of Nu.1.86, Nu. 1.90 and Nu. 1.94 respectively for Punatsangchhu I. However, the export price is taken to be Nu. 1.90 at 10 % discount rate. In the case of Sunkosh, the power price is taken as Nu. 3.41 which is obtained by taking the total annual cost divided by the sale price at 172 Annexures to the Strategy for Gross National Happiness the border but at the same discount rate of 10 %. Any price below Nu.3.41 is found to be financially not viable. 7.9.2. For Joint Venture 7.9.2.1. Revenue: In the case of Mangdechhu, the revenue to the Government in the first year of commissioning (2017) would be around Nu. 317 million only. But the revenue would be around Nu. 3.289 billion by the year 2027 following the completion of loan repayment. For Punatsangchhu II, the project will contribute Nu. 204 million to the government revenue in the first year of commissioning. However, the revenue picks up to Nu. 4.872 billion (2027) after the completion of loan repayment. 7.9.2.2. NPV & IRR: With Mangdechhu cost of Nu.33.6 billion and the construction period of eight years, at 9.5% interest rate repayable in 10 years and the expected life of the project taken to be 30 years, the NPV is Nu. 8,827 and IRR is 12.61%. With respect to Punatsangchhu II, at a unit cost of Nu. 50 million per MW, construction period of 10 years, 9.5% interest rate repayable in 10 years time, taking 30 years as the expected life, the NPV is Nu. 13,281 and IRR is 12.66%. 7.9.2.3. Power Tariff: The levelised annual cost of generation for 30 years divided by the saleable electricity at the border discounted at 8%, 10% and 12% yields Nu.2.45, Nu. 2.54 and Nu. 3.06 respectively for Mangdechhu. The export price is taken as Nu. 2.54 at 10 % discount rate. In the case of Punatsangchhu II, the levelised annual cost of generation for 30 years divided by the saleable electricity at the border discounted at 8%, 10% and 12% yields Nu.2.26, Nu.2.33 and Nu. 2.83 respectively. The power export price is taken as Nu. 2.33. 7.9.3. For IPPs 7.9.3.1. Revenue: During the 11th Plan, the IPPs would be contributing about Nu. 1.712 billion to the Government revenue. Its contribution to the Government revenue increases substantially in the 12th and 13th Five Year Plans to Nu. 13.875 billion and Nu. 22.733 billion respectively. In the year 2028, the IPPs will be contributing about Nu. 6.439 billion to the Government revenue. Table 7.11: Summary of Findings for IPP Projects Sl. NPV (Nu.) Project Name 1 2 3 4 5 6 7 Kholongchhu Rotpashong Chamkharchhu I – Digala Nikachhu (Tangsibji) Khomachhu Chamkharchhu II- Kheng Shingkhar Amochhu I (Yangtsegang) 8,080 6,592 11,095 5,425 5,398 9,439 8,280 IRR (%) 13.41 13.36 13.39 15.32 13.39 13.39 13.39 Levelised Sale Price 2.42 2.33 2.29 2.19 2.38 2.31 2.48 7.10. Key Financial Parameters 7.10.1. The key financial parameters of all the selected projects are presented in Table 7.12 173 Annexures to the Strategy for Gross National Happiness Table 7.12: Key Financial Parameters of all the Selected Projects Key Param eter Bilateral Projects RG oB Joint Venture Puna Mang II de Independent Power Producer Khom a Cham II Amo I 208 326 570 500 3,207 1,042 1507 2,713 2210 20,000 33,500 10,400 16,300 28,500 25,000 17,010 14,000 23,450 7,280 11,410 19,950 17,500 10,080 7,290 6,000 10,050 3,120 4,890 8,550 7,500 9.50 9.50 9.50 9.50 9.50 9.50 9.50 9.50 9.50 15 10 10 10 10 10 10 10 10 10 13.44 12.66 12.61 13.41 13.36 13.39 15.32 13.39 13.39 13.39 NPV 7,859 2,278 3,280 Commiss ion Year 2015 2019 2012 Levelized Tariff (30 yrs) (Nu/unit) 8%Dsct rate 1.86 3.37 2.83 10 % Disct rate 1.90 3.41 2.89 12 % Disct rate 1.94 3.45 2.94 Exp Tariff 1.90 3.41 2.89 13,281 8,827 8,080 6,592 11,095 5,425 5,398 9,439 8,280 2017 2017 2018 2018 2019 2017 2022 2012 2028 2.26 2.45 2.34 2.26 2.22 2.12 2.30 2.23 2.40 2.33 2.54 2.42 2.33 2.29 2.19 2.38 2.31 2.48 2.83 3.06 2.49 2.40 2.36 2.12 2.45 2.38 2.56 2.33 2.54 2.42 2.33 2.29 2.19 2.38 2.31 2.48 Cap MW Av Gen Cap GWh Pit Cost Nu. Millions Loan Grant/Eq ty Int. on loan (%) Repyt prd (Yrs) IRR (%) Kholo ng Rotpa Cham I 672 486 400 670 4,667 2,909 2,209 1,883 8,208 49,600 33,600 24,300 67,418 6,156 34,720 23,520 19,958 101,128 2,052 14,880 9.50 9.50 9.00 12 10 11.46 9.68 Puna I S/kosh Daga 1,095 4,060 114 992 5,377 8,961 500 49,894 168,546 29,936 Nika Note: (1) 10% discount rate of Sunkosh does not include BPC transmission cost of Nu. 0.125 per unit but includes 15% royalty energy. (2) Electricity export rates are all based on the 10% discount rates. 8. Accelerated Hydropower Development through Independent Power Producers 8.1 Situation Analysis 8.1.1 To meet the expected growth in demand for electricity by 2030, developing countries across the globe are anticipated to need investment of US$ 5 trillion, with more than US$ 2 trillion required only for new generation capacity alone38. With governments unable to provide the required level of investment, capacity additions and expansions have to be through private investment. Worldwide, IPP deals closed in 1996 alone was US$ 17 billion. 8.1.2 In India, development of hydropower by the private sector was opened up in 1991 and 9 hydropower projects with an installed capacity of 1,700 MW will be in operation by March 2007. Three others, total capacity of 1,522 MW, are under construction39. The details of the hydro power projects under the private sector in India are indicated in Table 8.1 below. 38 Erik J. Woodhouse, A Political Economy of International Infrastructure Contracting: Lessons from the IPP Experience, Center for Environmental Science and Policy, Stanford University, CA, USA, September 30, 2005. 39 Jaypee Group Presentation to the Bhutanese Hydropower Development Committee at Delhi on 15/1/2007. 174 Annexures to the Strategy for Gross National Happiness Table 8.1: Hydropower Projects under Private Sector in India Sl. No . 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 8.1.3 Project Khopoli* Bhivpuri* Bhira* Bhira PSS* Malana Dhamvari Sunda Maheswar Agency State Tata PCL Tata PCL Tata PCL Tata PCL Malana PCL DPCPL Maharashtra Maharashtra Maharashtra Maharashtra Himachal Pradesh Himachal Pradesh Capaci ty (MW) 72 72 150 150 86 70 SMHPC/Sku mar Jaypee Group Jaypee Group RS & WM Ltd. Duncans NHPCL Jaypee Group Madhya Pradesh 400 Uttaranchal Commission ed till 3/02 (MW) 72 72 150 150 86 - 8.1.4 4/07-3/ 12 (MW) 70 - - 400 - 400 - 400 - Himachal Pradesh 300 - 300 - Himachal Pradesh 192 - - 192 Uttaranchal 330 - - 330 KarchamHimachal Pradesh 1,000 Wangto TOTAL 3,222 *Projects developed in pre-independence period. - - 1,000 530 1,170 1,522 Vishnu Prayag Baspa-II Allian Duhangan Shrinagar - At home, the target for addition of 10,000 MW by 2028, requiring an investment of Nu. 468 billion may not be possible, while preferable, through bilateral cooperation with India, similar to CHPC, KHPC and THPA. With only four projects of 6,819 MW proposed to be executed through bilateral cooperation with India (Puna-I and Sunkosh) and joint ventures (Puna-II and Mangdechhu), 7 Projects with a total installed capacity of 3,160 MW is proposed to be executed through private investors as IPPs. This requires a huge private investment of about Nu. 158 billion as shown in table below. Table 8.2: Projects to be developed through Private Investment Firm Sl. power Installed Energy No. Name of Project (MW) (MW) (GWh) 1 Kholongchhu 81.33 486 2,209 2 Nikachhu (Tangsibji) 35.00 208 1,042 Chamkharchhu-I 3 (Digala/Khomshar) 111.67 670 3,207 Chamkharchhu-II 4 (Kheng/Shingkhar) 95.00 570 2,713 5 6 7 4/02 to 3/ 07 (MW) Amochhu (814 Yangtsegang) Khomachhu (1920) Rotpashong (720) Total 83.33 54.33 66.667 527.327 500 326 400 3,160 2,210 1,507 1,883 14,771 Estimated Cost (Nu. Million) 24,300 10,400 33,500 28,500 25,000 16,300 20,000 158,000 To meet the increasing demand for electricity within the country, the unmet and rapidly growing demand in India, the competing opportunities in India and Nepal, Bhutan has to mobilize quickly to attract the required amount of private investment in hydropower development to achieve the targeted capacity addition. Otherwise, we 175 Annexures to the Strategy for Gross National Happiness 8.1.5 8.1.6 8.1.7 8.1.8 8.2 8.2.1 8.2.2 8.2.3 will continue to waste the opportunity of utilizing one of our most valuable and renewable natural resources. The comparatively fast, relatively low-cost and successful implementation of the Chhukha and Tala Projects indicate some inherent advantages that Bhutan possesses in development of hydropower projects. We need to capitalize on these comparative advantages before we lose them. The intentions of involving and expediting private investment in hydropower development are clearly reflected in the Electricity Act of Bhutan 2001. However, the fact that no private investment has occurred till date would indicate that additional policies and capacity building is required. To approve investment within six months of inviting offers, additional policies and legislations, institutional capacity strengthening is critical. To be able to tender, evaluate, award, monitor and eventually take over the projects developed by private investor, restructuring and augmentation of the DoE and Bhutan Electricity Authority (BEA) is essential to facilitate private investment. Due to inadequate domestic capital, and not to crowd out investment in other equally important sectors, FDI will be required to achieve the level of timely investment in hydropower development. Anticipating such a requirement even way back in 2001, the Royal Government has incorporated this aspect in the Electricity Act of Bhutan 2001 40 . Since the primary purpose is to accelerate hydropower development, the investment climate has to be made sufficiently attractive to draw investors to the Kingdom, especially in view of competing opportunities in Nepal and India. Given the cordial relations between Bhutan and India, large potential for export of Bhutanese power to India and existence of resource capacities in the Indian private sector, it is expected that almost all private external investment in hydropower development might be from India. With this basic assumption and reality, the policy on IPP has to be targeted to attract investment mainly from India. Investment plans worth US $10041 billion by NTPC, Reliance Energy, Tata Power and others and global giants like ABB, Alstrom and GE have been finalized for the power sector in India. Power equipment manufacturers in India are ramping up capacities to meet the increasing demand. Opportunities and Challenges for Bhutan The location and terrain of Bhutan provides both advantages and disadvantages to the development of hydropower. While the terrain is the reason for the nation being blessed with 30,000 MW of hydropower potential, it also provides challenges in providing access to all the potential project sites, increasing transportation and execution time. With eastern and north-eastern India not developing at the same pace as other regions of that country, Bhutan’s location makes it far away from the load centers of India. This increases delivery costs of electricity and puts us at a disadvantage in comparison to Nepal and the western Himalayan states of India. However, our projects are better placed physically while compared to the huge potential in the north eastern states of India. The relatively fast and economical completion of Chhukha and Tala hydroelectric projects are proof of the comparative advantages that Bhutan provides to project development. These are: o Timely and transparent decisions accorded by a compact and efficient government; 40 Part 4 of the Electricity Act of Bhutan 2001 defines private participation in the electricity industry. However, the Bhutan Electricity Authority has yet to “prepare and promulgate regulations in relation to the establishment, ownership, operations and activities of private investment.” 41 Outlook Business, February 20, 2007 issue. 176 Annexures to the Strategy for Gross National Happiness o No political interference in the management of the projects; o Quick environmental and other clearances; o Good law and order situation provided to the project activities; o Non-existence or minimal corruption; and o Exemption of taxes and duties. 8.2.4 The growing demand for electricity in India is an opportunity that cannot be delayed or wasted. The existing trade in electricity with India and the bilateral arrangement for future trade in this sector provides the basis for expediting hydropower development for export to India. Therefore, the growth of electricity generation capacity in Bhutan need not be constrained by domestic requirement 42 . Any domestic economic downturn with consequent crash in electricity demand will not impact the sector. 8.2.5 The success of hydropower development in Bhutan is contingent on the growth of India’s economy and its steady need for huge amounts of electrical energy. Electricity production in India 2006 was 630.6 billion units against 2,500 billion units for China and 3,979 billion units for USA 43. For the Indian economy to grow to the level of China, and to eventually reach the standards of USA, India needs to add huge capacities in electricity production. 8.2.6 In the long run, if multi-lateral cooperation takes off in South and South-east Asia, there could be market for Bhutan’s hydropower beyond India. 8.2.7 As the level and concern of pollution in India grows, clean energy may become attractive and essential even at a premium. Coal based thermal power plants pollute air and poses problem of ash44 disposal in particular while thermal plants in general require huge quantities of water. While nuclear power appears to be an attractive alternative in India, the level of “not in my backyard” opposition could determine its real success. 8.2.8 The Indo-US Nuclear deal has attracted serious interest in development of nuclear power generation business in India that, on a conservative scale, will be worth more than US$ 9 billion over the next five years45. CEA, GoI has projected that nuclear energy will account for 35% of total power generated in India by 2050. 8.2.9 With the private sector aggressively investing in the power sector in India, capacity addition within the country may pick up to a level to meet its growing demand for electricity. This may make import of hydropower from Bhutan, with availability varying greatly with the seasons, unnecessary or unattractive unless we are able to move rapidly to have the first-mover advantage and fill the demand and supply mismatches in India before the opportunity is lost forever. 8.2.10 India’s desire to have a thermal hydro generation mix of 60:40 is with the purpose of thermal generation, including nuclear, meeting the base load and the hydro to meet the daily peaks. Therefore, hydro generation from large reservoirs would become the need of the day as India’s power sector grows. Because of our own need for greater firm power, and the growing realities of Indian power sector, we need to find the means to develop reservoir schemes. The run of the river schemes in Bhutan provide 68% 46 of the annual generation during the four monsoon months, making such schemes suitable for only daily peaking during the winter months. With the same 42 Because of the Asian financial crisis, power demand dipped in Philippines during 1999-2002 just when power plants started earlier were coming on line. This drained the state utility’s finances and made the IPPs susceptible to criticism.[Erik J. Woodhouse, The Experience of Independent Power Producers in Developing Countries, June 2-3, 2005} 43 The Times of India, Kolkata Edition, Thursday, February 1, 2007. 44 Especially local India coal has very high ash content of more than 30%. 45 Business Today, December 31, 2006. 46 Price Waterhouse Cooper, World Bank Report on Bhutan Hydropower Sector Study: Opportunities and Strategic Options, October 2006. 177 Annexures to the Strategy for Gross National Happiness 8.2.11 8.2.12 8.2.13 8.2.14 monsoon season across the kingdom, the generation pattern of all run of the river schemes would be similar, making these unsuitable for seasonal peaking power. With tremendous investment taking place in India in the power sector, both in the public and private sectors, there could be resource crunches – financial, human resources, material, machinery and equipment. Unless Bhutan moves quickly to develop its potential in hydropower, we could find ourselves crowded out of this business. Even during the construction of Tala Project, delays in deliveries were experienced because the production capacities of the manufacturers were not available because of demand out pacing supply. Experienced and skilled manpower, especially in hydropower construction, can also become a factor for projects not being picked for development. In the mid-1990s, leading firms like Siemens and GE would not even quote a price because their backlog was so long 47 . Currently manufacturers like BHEL in India are also sitting on order backlogs as long as three years prompting the Ministry of Power, GOI to even consider setting up an additional PSU for manufacturing power equipment. The present institutions managing the power sector in Bhutan are not geared to manage both the magnitude and the schedule of investment envisaged for hydropower development in the country. This needs immediate focus and time bound strengthening. Before committing to investment and payment in hard currency, impacts on the nation’s economy and finances need to be carefully examined. Countries like Philippines, Mexico, Argentina and a whole lot of others have experienced severe difficulties in their payment obligations and electricity tariff for allowing dollar denominated investment in electricity sector48. Under the defined assumptions, summary of the financial analysis in Table 7.12 indicate that hydropower projects can be developed in Bhutan by private investors at competitive electricity tariff. 8.3 Policy Guidelines 8.3.1. Since 34% of the investment fund is being targeted through IPP, it is essential that IPP projects be promoted immediately, for which, an IPP policy needs to be adopted using the following policy guidelines: 8.3.2. The DoE has already received a TA from ADB for development of Hydropower Policy which would also cover policies concerning private sector participation in hydropower development. While issues concerning private investment in hydropower would be comprehensively addressed under this TA, the areas that need to be addressed are enumerated below. 8.3.3. The development of hydropower projects is capital intensive with long pay back period. Hydropower projects are also subject to risks like encountering poor geology in underground works, lack of control of “fuel delivery”, etc. These realities need to be factored in the policies through proper risk-sharing mechanisms so that investors are adequately safeguarded. The broad outline of the issues that need to be addressed in the policies to facilitate private investment in hydropower development are presented in the following sections. 47 Erik J. Woodhouse, The Experience of Independent Power Producers in Developing Countries, Program for Sustainable Development, Center for Environmental Science and Policy, Stanford University, CA, USA, June 2-3, 2005. 48 Ibid. 178 Annexures to the Strategy for Gross National Happiness 8.3.4. Royalty/Free Energy 8.3.4.1. For being accorded the privilege of utilizing the natural resource of the country, the state shall be compensated by payment of royalty49 from the energy generated by the hydropower stations. Based on the Indian experience of IPPs providing 12% of generated energy to the state government50, royalty at 15%51 of generation at bus bar for run of the river schemes will be levied, with payment to be either in energy or in cash as it may be convenient to the government. Jaiprakash Associates Limited (JAL) has signed MOU with Arunachal Pradesh for execution of two projects, where free power for the first ten years is 12% and then 15-15.5% thereafter52. Because reservoir schemes provide added benefits such as recreational facilities, waterways, fisheries, etc., the rights of which will remain with the state, royalty for such projects could be different from run off the river schemes. 8.3.4.2. The other option for deciding on the amount of royalty could be through competitive bidding. This will ensure that the relative advantages of different projects are factored in by the investors and yet ensure a reasonable return to the state. To protect the interest of both the state and the investor, mechanism has to be built into the royalty payment structure; royalty is defined on design generation with allowance for auxiliary consumption capped, minimum royalty payment is defined so that the state receives payment even during circumstances when the producer is unable to market their energy and royalty is based on actual generation when shortfalls are on account of hydrological reasons. 8.3.5. Ownership & Financing 8.3.5.1. The Electricity Act of Bhutan 2001 requires the construction of electricity supply facilities by private parties to be executed through competitive bidding. Pursuant to this requirement and for obtaining the best offers, the 7 projects identified for development through private capital need to be tendered out through competitive bidding, with tendering management and approvals to be accorded by the regulatory authority (BEA)53 and the government (DoE). Both agencies need to be strengthened to cater to these requirements. The development of such projects will be under Build Operate and Transfer (BOT) mechanism, with the transfer of assets to the state to occur after 30 years of commercial operation54. 8.3.5.2. To be able to achieve the targeted generation capacity by 2028, 100% FDI need to be allowed for hydropower development. The government, through its investment agencies, can retain an option to participate as an equity partner in the venture. Present FDI policy has to be amended to include investment in Indian rupees and to permit 100% ownership. Conditions for repatriation of profits, especially in hard currency, for projects where some liability is in hard currency, need to be addressed in the IPP policy in consultation with concerned ministries and agencies. Section 53.7, Part 5 of Electricity Act of Bhutan 2001 requires “Royalty on use and land resources may be determined by the Authority.” 50 Ministry of Power, Government of India, Policy on Hydro Power Development, August 1998 51 As per DOE’s notification No. 9/DOE/HQ/2005-06/16, dated 20/6/06, the government owned hydropower stations are required to provide 15% of their annual generation as royalty energy, at a subsidized price, to BPC for meeting domestic demand. 52 JAL’s presentation to the Bhutanese Hydro Power Development Committee on 15/01/07 at Delhi. JAL has signed MOU for the 1600 MW Lower Siang Project (Rs. 82.96 billion) and the 500 MW Hirong Project (Rs. 20.73 billion) with Government of Arunachal Pradesh on BOOT (Build Own Operate Transfer) basis for a lease period of 40 years. 53 Clause 49.2, Part 4 of Electricity Act states “The bidding procedures shall be managed by the Authority, which shall give his recommendations to the Minister for final decision regarding the selection of the successful bidder.” 54 Section 31.1 of Part 3 of the Electricity Act of Bhutan 2001 limits the duration of a licence to thirty years, with provision for renewal on terms and conditions specified by the Authority. 49 179 Annexures to the Strategy for Gross National Happiness 8.3.5.3. For projects that do not perform to projections, for reasons beyond their control, the BEA may provide extension to the BOT duration for a period not exceeding 5 years. Under such circumstances, the original contract shall be renegotiated. At the end of the BOT duration, the IPP shall hand over all installed assets, including inventory items and O&M manpower, to the state. To ensure viability of the project as a vibrant continuing concern, all rights to existing contracts shall be transferred to the state or its authorized agency. However, the projects shall be handed over without any residual obligations. It is expected that there will be substantial differences in service rules and benefits between the IPP and DGPC, which on behalf of the state would be taking over the projects, which need to be appropriately addressed at the time of transfer. 8.3.6. Taxes 8.3.6.1. To encourage investment in the sector and to make the projects competitive, investors need to be provided with tax breaks and holidays. During the construction stage, customs and sales tax be exempted for material and equipment utilized for construction of the project55. To provide at least a level playing field, duration and type of tax holidays need to be provided in line with those provided to IPPs in hydropower in India and Nepal. PIT and BEA fees will be paid as per the existing norms in the country. Levy of CIT, on actual or notional profits, after the tax holiday and imposition of a turnover tax need to be addressed in detail in the IPP policy to be developed by DoE. 8.3.6.2. As per the existing arrangement on the domestic sale and export to India of electricity, no taxes and duties shall be levied on the sale of electricity. 8.3.7. Power Purchase Agreement (PPA) 8.3.7.1. As per the Electricity Act 2001, PPAs are not subject to tariff regulations which will allow the IPPs to trade their power in the market facilitated by the recent open access in the Indian transmission grid and promotion of spot market. 8.3.7.2. A well formulated, transparent and predictable PPA will be the only basis which will attract private capital in hydropower development. Therefore, it is crucial that the government is either a direct party to the PPA or a proactive facilitator. Provided that the investment environment is made really competitive, it is anticipated that some investors will utilize some of the projects as captive plants to wheel energy to manufacturing bases outside Bhutan or arrange their own PPA. Where investors are unable to arrange their own PPA for export of energy, the cooperation agreement signed between Bhutan and India on 28th July 2006 can be used by Bhutan to arrange off take of energy from IPPs for export to India through PTC. To provide comfort to IPPs and that the state shall not resort to “obsolescing bargain”56, government may accept that all disputes with the IPPs, especially with regard to state guaranteed PPA, are subject to international arbitration norms. 8.3.7.3. While there are inherent risks in the government committing to purchase all energy produced by the IPPs, especially with the IPPs owning about 27%57 of generation by 55 Draft Energy Policy recommends taxes and duties be exempted for the import and sale of all hydropower generation, transmission and distribution equipment. 56 Erik J. Woodhouse, The Experience of Independent Power Producers in Developing Countries, Program on Energy and Sustainable Development, CESP, Stanford University, Seminar Draft, June 2-3, 2005. “Obsolescing bargain” – negotiating leverage in a large private infrastructure shifts during the project life cycle. Investors face an amortization of several years while the government has already secured its need once the project is operational; original bargain is obsolete and the state could force change in terms. 57 Of the total installed capacity of 11,581 MW, IPPs will own 3,160 MW. 180 Annexures to the Strategy for Gross National Happiness 2028, the domestic demand 58 projected to increase to 1,201 59 MW by 2028 may require the government to bear such risks. Capacity addition of 10,000 MW by 2028 assures firm power of only 1,860 MW and may therefore require the royal government to be engaged, in one manner or the other, in the PPA with the IPPs for making energy available for the domestic market – especially during the lean river inflow period in winter. Therefore, the royal government has to retain the first right for power purchase from the IPPs while awarding contracts. 8.3.8. Foreign Exchange 8.3.8.1. It is possible that investors from third countries would be interested in participating in hydropower development in the kingdom, especially if they are able to arrange their own PPA or if state guarantee can be provided for off take of their production. 8.3.8.2. Also to encourage the most efficient equipment and the latest technology, Indian and Bhutanese IPPs may make part of their investment in foreign exchange. Investors who arrange their own PPA will be required to factor their foreign currency obligation risks in their PPA and for cases where the state or its agency is the power purchaser, the currency fluctuation risks will have to be borne by the state. 8.3.8.3. Since IPPs have experienced difficulties in staying afloat during devaluation of the local currency when their PPA has been arranged in local currency and governments have encountered severe fiscal imbalances and crisis when having committed to cover currency fluctuations risks, the magnitude of transaction and risks need to be carefully assessed while permitting investment in hard currency or when PPAs are arranged in such currencies. Based upon prevailing or forecasted conditions, the government can hedge such risks and also negotiate for part of the payment for export of electricity in hard currency60. Subsection 49.1 (vi) of Part 4 of the Electricity Act of Bhutan 2001 requires the preparation and publication of clear mechanism for currency convertibility and remittances. 8.3.9. Land Acquisition and Other Infrastructure 8.3.9.1. All land required by IPPs will be acquired by the government61 and leased to them for the duration of the BOT. Since the project ownership would be transferred to the government at the end of the BOT term, the government will bear all costs of land acquisition. This will include the land required for providing access roads, colonies and storage sites. Resettlement, though to be arranged by the government, costs would have to be included in the project cost. 8.3.9.2. Acquisition of land, clearances from NEC, DoF, etc. should be initiated concurrently with preparation of the DPR of the projects and all such activities should be completed on completion of the DPR. Thus, clearances and acquisitions should be completed along with the DPR. Procedures of land acquisition and various clearances shall be defined by the related agencies. When DPR is ready all clearances are ready. 8.3.9.3. Transmission networks, to optimize resources, will be developed by the transmission licensee, currently BPC, up to the border for export projects. A summary of the new roads and transmission lines required for the projects is provided in the table below. 58 The 2003-2022 Power System Master Plan, March 2004 has projected domestic peak by 2022 at 352 MW. Projection made by BPC. 60 It is reported that 50% of the power sale to PTC from 750 MW West Seti Project in Nepal has been arranged for payment in US $. 61 Section 51.2, Part 5 of Electricity Act of Bhutan 2001 states “the Minister shall pursue the acquisition of the land on behalf of the Licensee in accordance with the Land Act.” 59 181 Annexures to the Strategy for Gross National Happiness Table 8.3: New Transmission Lines and Roads for IPP Projects Sl. No. 1 2 3 4 5 6 7 Name of Project Kholongchhu Nikachhu (Tangsibji) Chamkharchhu-I (Digala/Khomshar) Chamkharchhu-II (Kheng/Shingkhar) Amochhu (814 Yangtsegang) Khomachhu (1920) Rotpashong (720) New Transmission Lines (km)62 220 kV 400 kV 63 124 37 46 84 105 30 63 67 10 124 New Roads (km) 14 12 63 60 51 40 15 8.3.9.4. Regulated wheeling charges will have to be paid by the power producer.63 Beyond the border, the IPP which arranges its own PPA will be responsible for acquiring the transmission capacity. However, to make the investment in hydropower projects as attractive as possible, the government could leverage its bilateral relationship with India to facilitate transmission capacity addition in India for evacuation of power from projects in Bhutan. 8.3.9.5. Two power stations of 750 MW each are being developed on Tawangchhu in Tawang District of Arunachal Pradesh 64 , which adjoins the districts of Trashi Yangtse and Trashigang in Bhutan. These two projects are estimated to generate 6,636.50 MU in a 90% dependable year. Since this energy would need to be evacuated to West Bengal and beyond, there would be common interest to India and Bhutan if this power could be evacuated through shorter transmission lines through Bhutan. Since we could use these transmission lines to piggy back our own production from Kholongchhu, this possibility needs to be seriously examined. Wheeling of 1,500 MW and 6,636.50 MU would bring Nu. 830 million in annual revenue to BPC, even at current wheeling charge of Nu. 0.125 per unit. 8.3.9.6. Six of the projects to be offered to private investors require construction of roads more than 40 km per project. Leaving these to the IPPs may not only discourage them in picking up these projects, but also increase project costs and delay the completion of the projects. Where road access are planned to be provided near these sites in the Road Sector Master Plan 2007-27, the construction of these roads need to be initiated by the government in advance of project implementation. 8.3.9.7. All expenses related to environment protection and mitigation will be at the cost of the project. 8.3.10. Risks and Guarantees 8.3.10.1. There are risks associated with both the construction and operation of hydropower stations. The possible risks and their allocation and mitigation are indicated in the table below: Construction Risks Cost Overrun Underperformance Allocated to the investor via PPA Allocated to the investor by performance bonds. 62 Some sections of the transmission lines are to be shared by several projects, beyond a pooling point. Existing level of wheeling tariff is Nu. 0.125 per unit, but BPC has indicated that this could increase to Nu. 0.24 for the existing system. 64 MoU has been signed between NHPC and Govt. of Arunachal Pradesh on 21/09/06 for implementation of Tawang I (750 MW, 3156.10 MU in a 90% dependable year) and Tawang II (750 MW, 3480.40 MU in a 90% dependable year) Projects by NHPC. 63 182 Annexures to the Strategy for Gross National Happiness Operation Risks Cost Overrun Underperformance Others Hydrological Risks Water Availability Flood Market Risks Off-take/Demand Currency Risk Political Risks Regulatory Risks Legal Risks Contract Agreement Allocated to the investor by basing tax payment on notional profits and cash based royalty payment on deemed generation. Shared by the investor and the state. To the investor by basing tax payment on notional profits. For shortfall in generation due to hydrological reasons, some risks to be borne by the state by adjustment in royalty payment. Allocated to the investor. To be covered through appropriate insurance. Shared. State to adjust royalty payment for shortfall in generation on account of poor river inflow. Investor gets return as per actual production. Shared. For lost production, state adjusts royalty payment. Investor to provide insurance coverage as deemed fit. Allocated to Power Purchaser through long term PPA specifying rate and quantity. Allocated to investor who arranges own PPA. To the state if the off take is by the state. Allocated to the government through appropriate terms in the Agreement. Reduce by applying international arbitration norms to settle legal disputes. Performance Guarantee and arbitration through international norms 8.3.10.2. While we need to provide competitive enabling environment to attract IPPs, the interest of the state has to be also protected. To ensure that the committed investment is made, performance bond of 5% of project cost till 20% of the financial progress is achieved will be required to be provided by the investors. In case the project is abandoned, all assets at site and the performance bond will be forfeited to the government. 8.3.11. Employment and Immigration Issues 8.3.11.1. The execution of 12 projects over the next twenty years indicates deployment of 100,000 employees during the peak construction period of 2013-16. The operation and maintenance of these stations will provide permanent employment to 7,400 (6,000 skilled and 1,400 security personnel). It would not be possible to provide all the required manpower for construction and operation of the projects from within the country. This requires import of thousands of manpower, especially during the construction period. With the primary aim of accelerating hydropower development, import of manpower required for both construction and operation of hydropower stations need to be freely allowed. However, the opportunity for providing substantial numbers of good paying jobs cannot be wasted and implementation of SKILLS-2008 as an integral component of SGNH should provide the desired critical mass of skilled manpower to be employed by these projects. Without hampering the progress of the project implementation, to the extent that local skills are available, a minimum threshold of employment of Bhutanese by the IPPs should be defined in the IPP policy. 8.3.12. Security Issues 8.3.12.1. All activities in the nation will be secondary to its security and sovereignty, and therefore all IPPs shall strictly abide by the prevailing law and order requirements of 183 Annexures to the Strategy for Gross National Happiness the nation. During the construction period, when thousands of employees would be concentrated in project sites, special security arrangement would need to be provided by the state to ensure law and order in the particular region. The state shall accord equal protection to the IPP and their employees as to its citizens. IPPs will be responsible for the security of their plant and personnel. 8.3.13. Enabling Environment 8.3.13.1. The key to successful involvement of private developers in hydropower sector will hinge on the enabling factors to be provided by the government. To achieve the desired level of investment, certain shifts in policies and systems will be essential. 8.3.13.2. IPPs will be subject to all the laws of the nation. However, if required to encourage adequate and timely investment in the sector, special dispensation from certain Acts and their regulations need to be provided. Additional Acts to facilitate investment, such as Contract Law, Arbitration Act, IPP Act, etc. may need to be enacted. The full extent of the specific project dispensations to be provided would become clearer once the process for soliciting offers for private investment has been initiated, even before the finalization of the IPP policy and associated institutional strengthening has been implemented. All stakeholders should be involved during preparation of the project DPR so that all clearances are obtained on finalization of the DPR. 8.3.13.3. Institutional capacity building and restructuring is required to respond to these requirement. In the near term, in view of the capacity constraints within the nation, consulting firms for enabling developing of hydropower projects need to be immediately engaged. Single window for expediting project clearances shall be provided along with clear procedures for provision of permits during the execution stage. 8.4. Implementation Procedure and Program 8.4.1. To achieve the development of more than 3,000 MW of installed capacity by the year 2028 through private investment, an aggressive program for implementation has to be pursued. Because of what is occurring in our energy market – India, time is the essence if we are to succeed in our ambitious goals. 8.4.2. To serve as a learning experience, a pilot IPP project was contemplated to be initiated even ahead of finalization of related policies and institutional strengthening. However, a comparative study of the projects identified to be developed through IPPs does not provide a clear picture for selection of a pilot IPP project. Instead, it has been deemed better to initiate invitation of offers for implementing projects by IPPs even while related policies are being framed. 8.4.3. While the Hydropower Policy, including IPP participation, is being developed under the ADB TA, the offer of hydropower projects to private investment needs to be initiated concurrently while the policies are being developed. To enable this, consultants may be recruited to tender out some projects. A program for introduction of IPP is proposed below. 184 Annexures to the Strategy for Gross National Happiness Table 8.4: Program for Introduction of IPP Activity 2007 2008 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 Hydropower Policy Recruit Consultant for IPP deployment Road Show Invite potential IPP to Bhutan Invite Offers for IPP Projects Some Project to be awarded 8.4.4. The implementation schedule of the 12 projects, including the 7 to be developed through private capital is as per Table 6.1. The schedule for these 7 projects of 3,160 MW extends from 2008 till 2028. However, if private investors can be attracted to invest in these projects, these projects could be implemented well before 2028. Based on the response of investors at the road show and their visits to Bhutan, the required institutional strengthening would then have to be adequately and timely addressed. The potential IPP participants are identified in the next section. 9. 9.1. 9.2. Domestic Power Pricing and Industrial Demand The existing domestic demand as of December 2006 is 157 MW (67 MW for household consumers and 90 MW for the industries). In addition, about 140 MW of load demand has already been approved as of December, 2006. This will require that a total of 300 MW capacity is available for domestic consumption against the firm power availability of 283 MW even with the commissioning of Tala. The demand shortage is mainly on account of the recent mushrooming of power intensive industries due to the subsidized power tariff in Bhutan. The current annual subsidy to the domestic energy demand is over Nu. 1.00 billion with the heaviest subsidy to the household customers followed by industries. Table 9.1: Power subsidy for 2008 (BEA) MW Energy (MU) Subsidy Amount (Nu. million) Heavy Industry 175 1,021 300 Small industry 55 210 230 HH Consumers 70 272 750 9.3. Power Allocation and Industrial Subsidy Phase Out 9.3.1. Considering that rural electrification will add another 50,000 households and the industrial demand is increasing at a rapid rate (mainly on account of subsidized tariff), a power allocation notification (No. 9/DOE/HQ/2005-06/16 dated 20.6.06) has been issued limiting the sanctioning of new demand within the firm power availability. As per the tariff determination regulation of the BEA, the subsidy to the industrial consumers shall also be phased out by 2010 (with tariff increment of 10% per annum). 185 Annexures to the Strategy for Gross National Happiness 9.3.2. On the other hand, it would be in the long term interest of the nation to encourage power intensive industries so long as they are not subsidized and the seasonal variation of energy is acceptable to their production schedule. This will not only add to the GDP but also ensure a diversified demand to complement the export market. After the improvement of the regional infrastructure (through road and railway linkages) and establishment of the economic hubs, the production costs in Bhutan might still be competitive. Therefore, appropriate power pricing policy guidelines need to be adopted to encourage investments in the industrial sector. 9.4. Policy Guidelines for future power pricing in the Industrial Sector 9.4.1. The ideal situation is to capitalize on the export market and grow the domestic demand after removing the subsidy. Norway, another hydropower dominated country, in the early sixties found its export market limited due to lack of transmission infrastructure across the sea to mainland Europe. The country was also limited with internal resources to promote any domestic industries. However, they came up with the innovative idea of capitalizing on their competitive shipping industry; barges and ships were used not only for bringing in raw materials from overseas but also as marine industrial bases where factories where erected and connected with power supplies. After manufacturing, the finished goods were then exported in the same barges to overseas market. A similar strategy could be used to promote domestic industrial base. 9.4.2. Given that the industrial tariff is very high in most regions of India (Nu. 4-5/unit), Bhutanese industries might still be competitive since tariff in Bhutan will still be lower than that of India even after removing subsidy. In addition, CIT contribution and employment generated might be additional benefits from these industries. Some of the policy guidelines to be adopted in industrial power pricing could be as follows: o Power industries are encouraged provided there is no subsidy in tariff o Send a predictable signal for industrial power tariff to guide long term industrial planning o Tariff should be either equal to export tariff (at least meet the opportunity cost) or based on actual cost of delivery (remove subsidy). o Notify firm power availability and load scheduling (industries might have to shut down during the lean season). o Utilize re-import arrangement with GoI at export tariff during lean season as per the Article-7 of the Umbrella Agreement between the Royal Government of Bhutan and the GoI concerning cooperation in the field of Hydroelectric Power. o Encourage the Bhutanese hydropower plants with diurnal pondage to peak during lean season to further facilitate re-import during off-peak hours and export during peaking hours. o Discontinue re-import if re-import tariff is more than export tariff unless otherwise cost can be passed onto industrial customers. o Allocation of firm power should be in the order of priority; households & public institutions, small and medium industries and & heavy industries. o The remaining firm power allocation if available shall be done on antecedent rights (vested rights of first come first serve). o Allow captive power plants for domestic industries. 9.4.3. Domestic Load and Demand Forecast: 9.4.3.1. The PSMP (2004) had estimated that the domestic demand would reach 352 MW and 1,793 GWh of energy by 2022. 186 Annexures to the Strategy for Gross National Happiness Table 9.2: Year 2002 2007 2012 2017 2022 Load Forecast as per the PSMP (2004) Forecast (Mu) Peak Load (MW) 105 144 214 273 352 587 746 1057 1394 1793 9.4.4. Revised Load and Demand Forecast 9.4.4.1. The revised forecast with the latest data from the BPC indicates that the PSMP forecast has been exceeded by three fold (757 MW of demand by 2022 as against the projection of 352 MW in the PSMP). This is primarily due to the increased industrial demand and the increased rate of the rural electrification. This revised demand seems to be more realistic especially after considering that industrial estates are planned at Samtse & Jigmeling each with preliminary requirement of 100 MVA and with the growth centres and economic hubs planned along the southern and central belt. Table 9.3: Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Supply & Demand forecast based on planned generation and prevailing trend of internal demand Demand Load Peak Forecast Load (MU) (MW) 2,144.41 340 2,183.05 346 2,368.72 376 2,406.25 382 3,592.30 570 3,637.78 577 3,689.40 585 3,748.27 594 3,803.05 603 3,861.84 612 3,928.51 623 4,004.66 635 4,092.27 649 4,419.65 701 4,773.22 757 5,155.08 817 5,567.49 883 6,012.89 953 6,493.92 1,030 7,013.43 1,112 7,574.51 1,201 Supply Firm Peaking Energy firm power (MU) (MW) 2,444 388 2,444 388 2,444 388 2,444 388 2,444 388 2,444 388 2,444 388 4,038 640 4,038 640 5,335 845 5,948 943 7,770 1,232 7,770 1,232 7,770 1,232 7,996 1,268 7,996 1,268 7,996 1,268 8,403 1,332 8,403 1,332 8,403 1,332 8,735 1,385 Surplus/Deficit (MW) 48 42 12 6 -182 -189 -197 46 37 233 320 597 583 531 511 451 385 379 302 220 184 The diversity load factors used are 0.6 for domestic, 0.7 for MV and 0.8 for HV customers. Transmission and distribution losses are taken in account based on the actual field records. Due to constraint in availability of firm power during the lean season, the power sanction for new industries has been capped at 400 MW. This will be the scenario till the commissioning of the next project in 2011 unless we can arrange optimal exchange for export and re-import during peak and non-peak hours during lean season. The number of prospective industries is not known and this will be driven by the availability of firm power. For the load forecasting purpose, 8% annual growth rate has been used. 187 Annexures to the Strategy for Gross National Happiness 9.4.5. Domestic Energy Security: The above demand forecast indicates that the domestic energy security will not be achieved unless the target of accelerated hydropower development is met. 9.5. Rural Electrification (RE) 9.5.1. Rural Electrification is another challenge for the electricity sector. Given the difficult terrain of the remote villages, the cost of bringing electricity to the rural households is extremely high. The capital cost is over Nu. 100,000 per household and then the energy subsidy is almost Nu.3 per unit65. This translates into a fund requirement of Nu. 5.00 billion as capital investment and Nu. 1.00 billion per annum as energy subsidy thereafter for providing the services. While all rural electrification is based on an economic internal rate of return (EIRR) of 12%, the real impact, both economic and social has not been assessed as yet. Therefore, it is necessary to realign the targets of RE along with the SGNH. 9.5.2. Meanwhile, the target of Electricity for All by 2020 is being implemented rigorously for poverty alleviation and to provide access to clean energy for livelihood, environment conservation and creating opportunities to mitigate rural-urban migration. RE programs under the 10th & 11th FYPs are synchronised with the construction of feeder roads to optimise costs. While target number of households will remain the same, the actual list of villages shall now be changed depending on the strategy of cluster development which will require that first the other infrastructure like roads and urban centres be established before grid electricity is taken to those certain areas. 9.5.3. RE proposals for the villages covered in the Sunkosh & Amochhu basins need to be relooked considering the submergence. The affected villages have to be relocated and provided electricity as per the RE Master Plan. The RE plan to electrify Merak & Sakten on grid also needs to be re-looked in view of the NSP 2008. 9.5.4. Alternative Planning Framework for RE Project: Going by the 10 FYP RE Plan through JBIC financing, it is apparent that contribution from Central and Local Governments are working out to 70:30 ratio. The idea of constructing high tension line (11 kV or 33 kV) upto the village load center including distribution substations by the Central Government and allowing the Local Government to develop the LT network at its cost is already in practice as per the following cost allocation for the RE projects. Table 9.4: 10 FYP RE Plan included in JBIC financing Dzongkhag Central Govt. Local Govt. Bumthang 77% 23% Chhukha 60% 40% Dagana 72% 28% Mongar 70% 30% Paro 88% 12% Samtse 58% 42% Yangtse 69% 31% Trongsa 76% 24% Tsirang 69% 31% Average/Total 71 % 29% Cost 581.31 million 237.44 million 65 House Hold 701 2,506 2,096 874 21 2,456 819 1,146 4,832 15,451 Based on the generation subsidy of Nu.0.91 (1.21-0.30) & distribution subsidy of Nu.1.80 (2.8-1.0). 188 Annexures to the Strategy for Gross National Happiness Table 9.5: RE Master Plan Till 9 FYP 10 & 11 Remarks (Km) FYP (Km) No. of HH 64,500 29,338 21,519 in 10 FYP & 7,819 in 11 FYP Infrastructure: 33 kV lines 886 1,585 Booked to Central Budget 11 kV lines 1,468 725 Booked to Central Budget LT lines 3,027 Booked to Local Budget 10. Enabling Environment for Accelerated Hydropower Development 10.1 Introduction 10.1.1 The hydropower sector should capitalize on certain inherent and favorable conditions that exist in our country, e.g. safe and secure working environment, small and relatively more efficient bureaucracy, etc. Hydropower development should be accelerated while we still have this advantage. 10.1.2 A firm and quick decisions and approval from the government on accelerated projects (including IPP projects) with Sunkosh as one of the priority projects shall enable the sector to achieve the target faster. 10.1.3 The GoI is already committed to implement 1,095 MW Punatsangchu-I on a model similar to Tala Project. The realistic modality for execution of Sunkosh Project would be total financing from GoI preferably with 80% grant and 20% loan because of its magnitude and multiple benefits. In the event that the irrigation components of the project are not constructed, the project could be implemented as a peaking hydropower station without the 60 MW lift concrete dam and 13 km irrigation canal downstream of the main rock-fill dam. This mega (4,060 MW) project could be yet another major friendship project between India and Bhutan and therefore is recommended to be implemented. 10.2 Formulation of Policies and Guidelines for Foreign Investment 10.2.1 In addition to the current policies and plans, the following policies and guidelines which are crucial for acceleration of hydropower development should be formulated by the DoE on priority basis and adopted by the government by June 2007: Energy Policy Hydropower Policy IPP Guidelines 10.2.2 Bidding documents should be also prepared for prospective IPP projects by the Department of Energy. 10.3 Fund for DPRs and Hydropower Development Activities 10.3.1 For accelerated hydropower development, DPRs and availability of fund for equity investment would be very crucial. For this, 20% of the profit after tax from fully government owned generating companies should be retained with DGPC/DHI for reinvestment in hydropower development activities. This needs to be implemented starting from 2007 calendar year. 10.4 Permits and Clearances 10.4.1 For expeditious development of hydropower projects under SGNH, it is desired that the status of Special Economic Zones (SEZs) be given to the hydropower project sites to attract investments and expedite necessary clearances for implementation of projects. Past experience indicate that valuable time is lost on obtaining permits from the agencies. If this process is not improved, it will make our projects less attractive to the private investors. The following agencies involved in the issuance clearances for 189 Annexures to the Strategy for Gross National Happiness the projects should make every effort to improve their service delivery mechanisms to expedite the project implementation: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) National Environment Commission Department of Survey, Ministry of Agriculture Department of Agriculture, Ministry of Agriculture Department of Forest, Ministry of Agriculture Department of Immigration, Ministry of Home & Cultural Affairs Department of Revenue & Customs, Ministry of Finance Department of Labor, Ministry of Labor & Human Resources Department of Energy, Ministry of Economic Affairs Bhutan Electricity Authority Dzongkhag Administration, Ministry of Home & Cultural Affairs Royal Bhutan Police Department of Medical Services and Department of Public Health, Ministry of Health Services Department of Roads, Ministry of Works & Human Settlement 10.4.2 The DoE should provide the schedule of project activities to be implemented well in advance to concerned organizations for the purpose of obtaining clearances. 10.4.3 The NEC should process and issue Environment Clearance on time. It is necessary also to involve stakeholder agencies like NEC right from the pre-feasibility to DPR stage so that the EIAs are carried out and incorporated in the DPR to the satisfaction of NEC. This will enable fast environmental clearance for projects. 10.4.4 For continuous movement of people and transportation of machinery and materials, check posts on access roads will have to be kept open till late hours and also open at early hours. It is estimated that, just for Punatsangchhu alone, it would require 0.60 millions MT of steel, and 1.25 million MT of sands and in aggregate these translates into 2 million truckloads over 3 years of the project lifetime. In aggregate, this will require 87 days just to clear steel and sand even if the check posts operate 24 hours a day. Therefore, it is very essential that the agencies that are putting up check points facilitate movement of such goods without delay. Furthermore, a large number of heavy machinery & equipment, trailers, trippers and trucks would have to be mobilized for project construction and demobilized after completion of projects. Therefore, the following government agencies which have their respective regional offices/units in border town(s) will have to establish devoted counters for delivery of quick and efficient services to hydropower projects: i) Department of Revenue and Customs (MoF) ii) Department of Immigration (MoHCA) iii) Department of Labor (MoLHR) iv) Road Safety & Transport Authority (MoIC). 10.4.5 Devoted clearance arrangement by the above agencies is necessary for fast and smooth a) mobilization of large foreign workforce, b) induction of machinery/equipment/vehicles c) import of construction materials during construction period and d) demobilization of such resources after completion of hydropower project works. The Immigration and Labor departments will need to grant blanket annual sanction to the project authorities for en masse induction of foreign workers (skilled & semiskilled) and facilitate expeditious renewal of identity cards of project workers. 10.4.6 The DoF will need to issue forestry clearance for survey and erection of transmission lines. It is recommended that this clearance be issued by the concerned Divisional Forest Officers and Park Managers during the preparation of DPR. It is also 190 Annexures to the Strategy for Gross National Happiness recommended that the allotment of government land required for constructing HE Projects and construction of residential colonies for the project staff be processed or facilitated within the DPR preparation period by the DFO. 10.4.7 It is learnt from the experience of Tala Project that rocks suitable for construction of dam, tunnel lining, etc. is indeed scarce as most of the hard rocks in Bhutan Himalayas not only contain a lot of mica but also contain silica which reacts with alkali in cement (OPC). This alkali-silica-reactivity (ASR) is known to cause gradual deterioration of concrete structures. For this reason, it is very important that the quarries are adequately tested for their quality and suitability for production of aggregates and mass concrete for construction of dam, tunnels and other major civil structures. Large quantities of building materials like stones and boulders would be required by the projects. The DGM in co-ordination with DoF will have to be actively involved in identification of suitable quarries for sand & aggregate deposits and along with the NEC and grant permits expeditiously for extraction of such materials by major contractors or private parties. 10.5 Land Acquisition, Right of Ways & Compensation 10.5.1 The current land acquisition and allotment procedures are a major hurdle in the timely implementation of projects. Prospective developers have indicated this as their biggest concern. To expedite this, the following measures are recommended: Have a clear policy on buy versus rent on development of housing colonies and it is suggested that private housing be encouraged to supplement the requirement of projects during O&M stage. Share the information on project sites, transmission corridors layout and acquisition areas with Dzongkhag administrations and land owners. Familiarize stakeholders on revised Land Act procedures and assessment of fair market value. Constitute a strong national committee to plan, implement and supervise land acquisition and compensation process for projects. Adopt the draft ROW regulations from the energy sector (BEA). 10.5.2 The existing procedures have become lengthy due to limited coordination among the agencies concerned. In the case of hydropower projects, land has to be acquired for construction of permanent structures like dam, power house (if surface), substations, transmission towers, office & residential complexes and establishment of temporary sites such as labour camps, etc. Concerned Dzongkhag Administration should be involved in the allotment of government land and acquisition of private land for project construction right from the beginning. 10.5.3 Further, as land compensation rates are not attractive, private landowners are reluctant to give up their land for project purposes. To avoid complications which may arise from such situations, the procedures for land acquisition and land allotment need to be established as per the provisions of the latest Land Act. The Act specifies that compensation for land acquisition should be based on fair market value. If this procedure is implemented it will create an enabling environment not only for hydropower development but also for other development activities. 10.5.4 In the case of transmission lines passing through private or government land, easement right 66 has to be provided for un-interrupted distribution and supply of power to An easement is the right to make certain uses of another person’s property (affirmative easement) or the right to prevent another person from making certain uses of his own property (negative easement). The right to run a sewer line across someone else’s property would be an affirmative easement. An easement preventing somebody from erecting a structure in his won land would be a negative easement. Among others, easements are required by grant, reservation, prescription and by implication. For utilities, most relevant are those created by grants and by implication. 66 191 Annexures to the Strategy for Gross National Happiness consumers and for export purposes. A land or portion thereof required for the purpose of constructing transmission lines and underground cables shall be carried out with the RoW where it does not constitute a full acquisition and transfer of the ownership to the utility agency. Such right constitutes an easement by the utility agency both to the public and private property. 10.6 Safe Transport & Custody of Explosives 10.6.1 Safe transport and custody of explosives is of utmost national security concern as huge quantities of explosives & accessories would be stored at various locations within each project area. For example, Tala Project had built five magazines at various construction sites with a total capacity of 50 metric tones. The project works had consumed about 4,546 metric tones of explosives by end of January 2002. The prime responsibility for storage and safe custody of such large volumes of explosives should not lie with the project authorities, managements and their contractors. The explosives magazines could be built at required locations in the project area by the project authority as per the specifications approved by the MoHCA to be operated by State Trading Corporation of Bhutan (government authorized dealer) and guarded by RBP or NISF personnel. Armed escorts will have to be provided by RBP whenever explosives are transported from STCB’s mother magazine(s) to site magazines and within the project area. Regular inspections of site magazines and checking of monthly consumption of explosives should be carried out jointly by the Division of Law & Order (MoHCA), concerned Dzongkhag administration, RBP and project’s chief security officer (deputed by ISF) and destruction of damaged or expired explosives, detonators and accessories to be carried out as per prevailing Explosives Rules & Regulations. All these measures will enable proper storage, custody and handling of explosives and prevention of untoward incidences involving such restricted and dangerous items. 10.7 Infrastructure Facilities 10.7.1 Unhindered road access to the hydropower project sites is the most crucial enabling condition for timely and successful implementation. Delays in transportation of goods, machinery and services to project sites due to road blocks or traffic jams will lead to slow progress of works, substantial increase in project cost and contractors’ claims. 10.7.2 Since most project sites to be implemented are in central and western Bhutan, the immediate tendency of the contractors would be to use the Phuentsholing-Thimphu highway for transportation of construction materials and movement of heavy machinery. When this happens, the traffic density on this vital national highway would suddenly increase and would hinder the implementation of Punatsangchhu-I (1,095 MW) and Punatsangchhu-II (990 MW) mega projects. Further, the Phase-III road widening activity of DANTAK will further compound this problem. And conversely, such a situation may also drastically slow down the progress of DANTAK’s works on the highway. 10.7.3 During the peak construction stage of Tala Project, the traffic density had increased very significantly on the national highway between Phuentsholing and Wangkha with the addition of more than 150 to 200 trucks daily carrying construction materials and supplies to the project sites. This led to the rapid deterioration of the highway (as it was not built for such higher loads), occasional vehicle accidents and traffic jams which caused delays in transport of men & machinery and inconvenience to travelers. 10.7.4 Long and frequent traffic jams or road blocks on the Thimphu-Phuentsholing highway will not only lead to costly delays during the construction period but also adversely affect the daily lives of many living in the capital, western and part of central Bhutan. 192 Annexures to the Strategy for Gross National Happiness The Jhumja landslides during rainy season will add yet another dimension to this problem. 10.7.5 Therefore, to avoid such an undesirable and costly situation in the near future, widening of Gelephu-Sarpang-Tsirang-Wangdi and Gelephu-Trongsa roads and construction/reinforcement of bridges need to be accorded top priority as the basic enabling condition for Punatsangchhu-I & II, Dagachhu (CDM), Nikachhu and Mangdechhu projects. It is recommended that the above mentioned works be taken up by the Ministry of Works & Human Settlement using our internal resources. 10.7.6 However, while widening and up-gradation of Gelephu/Sarpang-Tsirang-Wangdi road is undertaken, due consideration needs to be given to the level and extent of submergence which would result when Sunkosh Project is implemented (up to 391.2 masl as per DPR, 1995, CWC, GoI). The highways/roads and bridges which need to be upgraded in the immediate and near future are given in Table 10.1. The Table also includes new roads which needs to be built on priority basis to meet the given implementation schedule (2008-2028). Table 10.1: Access Roads to Facilitate Implementation of Hydro Projects (2008-28) Highway/Road/Brid Hydropower Constructe Remarks ge Projects d/upgraded by Gelephu-SarpangPunatsangchu I & II & 2008 About 77 tons single Tsirang–Wangdi Dagachhu (CDM) load expected with 4.5x5.5x6 metres trailer weighing 30 tons additional. Gelephu-TingtibiMangdechhu & 2009 -doTrongsa Nikachhu Tingtibi-GongphuChamkharchhu-I 2010-2015 Prioritize construction Digala-Thidangbi (Digala), of inter-district highway (Mongar) link (Inter- Chamkharchhu-II Gomphu-Shingkhar Dzongkhag (Kheng Shingkhar) + (Zhemgang) and connectivity) power transmission extension to Thidangbi right of ways) (Mongar) Halhalay(Samtse)Amochhu I 2009-2013 Prioritize the Dorokha-Rangtseconstruction and Yaba (23+40+11.3 upgrade to 2 double km) lane roads. Mongar-LhuentseKhomachhu 2013 Build this section of Khoma road and bridge over Kurichhu Tashigang/ChazamKholongchhu 2009 Doksum Mongar-Lhuentse Rotpashong 2009 Phuntsholing-RaidakSunkosh & East-West 2009 Schedule construction Lhamoizingkhanational highway of Sunkosh Project and Phibsoo-SarpangSEWH so that Sunkosh Gelephu lift dam would serve as the bridge across Sunkosh river in Lhamoizingkha 10.8 Construction Power 10.8.1 Construction power would constitute yet another very important requirement for implementation of hydro power projects. Tala Project’s demand during its 5 years of 193 Annexures to the Strategy for Gross National Happiness peak construction stage was about 14 MW and was provided by CHPC located just 3 km upstream of Tala’s dam at Wangkha. Therefore, just as access roads have to be built or upgraded, the transmission lines and substations have to be constructed as per the schedule given below and this task is proposed to be given to BPC as soon as agreements are signed with the parties concerned for implementation. Table 10.2: Arrangement for construction power Construction Power & Hydropower Proposed Remarks Telecom Facilities Projects Action 66/33 kV Transmission Puna I, Puna II & Construction About 15 MW lines from Rurichhu/ Dagachhu CDM power lines to construction power Tsirang transmission be initiated required for Puna-I substations from 2007 and Puna-II and about 10 MW for Dagachhu. 132/33 kV lines extension Mangdechhu & 2009 15 MW for from Yurmochhu Nikachhu Mangdechhu and 10 substation MW for Nikachhu 132/33 kV lines extension Chamkharchhu 2010 15 MW each for each from Tingtibi Project. 132/33 kV lines extension Kholongchhu, 2010-2020 15 MW construction from Kanglung/Nangkor/ Rotpashong and Khoma power is required and Gyelpoizhing/Tangmachhu delivery to be scheduled as per Implementation Plan 66/33 kV lines extension For Amochhu Power 2009-2013 -dofrom Samtse/P/ling 220/400 kV lines extension Sunkosh 2009 Choose higher voltage from Malbase/Monitor or for inter-connection from Jigmeling/Tsirang possibility in future. 10.10 Labor and Immigration 10.10.1A total of about 17,000 workers were engaged during the peak construction stage of 1,020 MW Tala Project. Punatsangchhu-I and II together would engage about 30,000 workers when their peak labour requirements overlap. About 90% of this work force would be foreigners who would become fairly mobile once they are inducted. Further another 30-40% of this number will constitute people who will be going out on leave, getting repatriated or getting listed as absconded. In this regard, the immigration offices at the border town(s), at check post(s) and at outpost(s) in the project area need to be strengthened with adequate staff and modern office equipment to keep upto-date accurate records of entry and exit of foreign workers and fast verification of the identity of workers. The Labor Wing of the project would be their counterparts for ensuring peaceful working atmosphere in labor camps, general welfare of the laborers, their safety at work places and compensation in cases of accidents. 10.11 Health Services 10.11.1The Ministry of Health will have to provide the necessary health service support through establishment of hospitals and BHUs in project areas to cater to the project staff and workers. The hospitals and BHUs should be adequately equipped to deal with accident cases and carry out regular activities to prevent diseases in the project area or spread of disease from labor camps to local communities and vice-versa, and promote health and sanitation. In coordination with the Dzongkhag health officials, the project hospitals should initiate and carry out awareness campaigns on STD, HIV/AIDS, malaria, dengue and other life-threatening diseases. 194 Annexures to the Strategy for Gross National Happiness 10.12 Emergency and Disaster Management Plans 10.12.1An effective monitoring and warning system will have to be established by the DGM in coordination with MoHCA for glacial lake outbursts (GLOFs) taking place at the sources of Phochhu and Chamkharchhu. This is of paramount importance to downstream projects like Punatsangchhu-I & II, Sunkosh, Chamkharchhu I & II projects where several hundreds of people would be working day and night at or near river bed level. This is a very serious concern as GLOFs are known to be very catastrophic. It is essential that the project authorities make emergency/contingency plans and standard operating procedures (SOPs) for safe evacuation of men and machinery in the event of such flash floods. 10.13 Legal Issues 10.13.1Legal, regulatory and contractual issues will dominate the implementation of the mega hydropower projects with the involvement of the multinational stakeholders through IPP. Not only the policies have to be translated into Acts, rules and regulations and monitored thereafter, but also systems for proper contractual dispute resolution as per international norm should be established. In this regard, the BEA has to be strengthened to enable it to initiate the formulation of the regulatory frame work and create conducive investment environment. 10.13.2The following legislations may need to be adopted/observed to create proper environment for attracting IPPs: IPP Act Arbitration Act Dispute Resolution System National Spatial Act for governing zoning for hydropower Amendment of the Electricity Act-2001 to empower the BEA instead of the Minister. Labour Act Immigration Act Investment Act 10.14 Support Services by Private Sector 10.14.1The private sector participation in the construction of 1,020 MW Tala Project has been quiet substantial given the absorptive capacity of the local economy. The national contractors have taken up contracts and work orders for roads and buildings worth Nu. 4.52 billion during the period May 1997 – December 2006. For details refer table below. Table 10.3: Payments made by THPA and its Executing Agencies to National Contractors S# Type of Payment THPA THPA Total (Nu. million) Contractors (Nu. (Nu. million) million) 1 Payment on account of 2,120 975 3,095 contracts awarded 2 Payment on account of work 324 1,101 1,425 order awarded Total 2,444 2,076 4,520 10.14.2Considering the huge quantities of construction materials (steel, cement, sand, boulders, etc.) which would have to be transported to the project sites almost daily 195 Annexures to the Strategy for Gross National Happiness from the border town, the private sector would have to gear up to meet this enormous and critical requirement. The owners of local trucks and trailers should take all necessary prior actions to avail this opportunity and ensure that the bulk transportation needs of the project are fulfilled by them. The Bhutan Chamber of Commerce and Industry (BCCI) should find out the details of such requirement when projects are about to be started and quickly disseminate the information to the local transport agencies well before tendering of project works start. 10.15 Supply of Construction Materials 10.15.1 Besides cement, steel and explosives, the projects would also require huge quantities of sand and aggregates of appropriate quality and strength for the construction of dam structures, tunnel lining, etc. Private business houses which have already been given licenses for operation of quarries, for example, in Wangdi-Punakha area should get their materials tested in advance for their physical properties and alkali-silica reactivity. If the quality and specification of the materials are found suitable they could supply the material as boulders to the major contractors to supplement their bulk requirement at rates negotiated between the parties. Such boulders could be extracted from quarries or from river beds. The DGM should initiate geological studies to locate suitable quarries and river borne material (RBM) in project areas for allotment to the lowest bidder through public auction. Competing demand from the housing industry might not leave much for the project requirement. Therefore, as far as possible, specific quarries need to be identified and reserved for projects. The DGM in coordination with the DoE and the DoF should carefully look into this future need and plan accordingly for making the materials available. In the event the sand quarries are not feasible or suitable, the possibility of setting up crushing plants should be explored. Table 10.4: Consumption of Cement, Steel, Aggregate & Explosives in Metric Tones (MT) for THPA up to 31 January 2007 Works/Contracts Cement Steel Explosives Aggregate C1 Package (Dam complex) 235,236.55 32,857.88 1,356.35 1,058,269.23 C2 Package (HRT) 70,198.58 4,304.48 523.05 351,533.32 C3 Package (HRT) 63,722.30 4,561.04 480.01 200,391.65 C4 Package (HRT) 95,021.80 10,645.14 593.36 476,295.94 C5 Package (Power complex) 191,396.00 27,515.00 1,043.65 473,228.00 Infrastructure (Civil) 47,170.59 3,994.21 529.85 70,269.00 Transmission Works 17,960.55 11,961.05 20.11 94,126.00 Hydro-Mech Works 2,983.75 2,362.72 ----------Total 723,690.12 98,201.52 4,546.38 2,724,113.14 10.16 Supplies of POL and LPG 10.16.1 The local distributors of POL and LPG should set up their outlets in or near the project area(s) for supply to project establishments, major contractors and the townships which are expected to spring up in the vicinity of project locations. Their storage capacities would have to be large enough so that they would be able to cater to the requirement of all relevant agencies. If this does not happen then there is likelihood that contractors will keep their own stock of POL to meet emergency requirements arising mainly from road blocks due to landslides during the rainy season. The concerned 196 Annexures to the Strategy for Gross National Happiness Dzongkhag Administration and Government Agencies will have to allot land on lease at suitable locations to the local POL distributors to set up their depots. 11 Environmental and Social Impacts 11.1. Introduction 11.1.1. The accelerated development of hydropower projects and subsequent development of other important sectors in the country will inevitably result in impacts on our environment. This chapter highlights some of the major environmental concerns due to accelerated hydropower development in the country. 11.2. Impacts on Forest Coverage 11.2.1. Bhutan has a statutory requirement of maintaining 60% of the land under forest cover for all times to come. While most of the hydropower projects are environmentally friendly, the concern of deforestation and resulting environmental impacts are nevertheless apparent. As of today, Bhutan has a forest area of 72.5% of the total land area. The total area of forest with crown cover over 10% is 64.4% and the area under scrub forest is 8.1% of the total land area. The details are provided in the table below. Table 11.1: Forest Coverage Land Use Types Forest (with >10 % crown cover) Fir Mixed conifer Blue pine Chir pine Conifer + broadleaf Broadleaf Plantation Sub Total Scrub forest (Forest with < 10 % crown cover)Total Sub Total Forest Area (Km2) As % of Land Area 3,453 4,868 1,286 1,009 1,358 13,749 64 25,787 3,258 3,258 29,045 8.6 12.2 3.2 2.5 3.4 34.3 0.2 64.4 8.1 8.1 72.5 Source: MoA, 1995 11.2.2. As per data on accelerated hydropower development (2008-2028) provided by the DoE, approximately 165.49 km2 of forest area would be affected by accelerated hydropower development, which represents about 0.64% of the total forest area with cover. This means that the area under forest cover of the country would be reduced to 63.76% from the present figure of 64.4%. Further, there is another 8.1% of the forest area categorized as scrub forest. Therefore, the total area that would be available for all developmental activities, without compromising the statutory requirement of retaining 60% of the land under forest cover for all times to come, would be 12.5% of the total land area. The total forest area that would be affected through hydropower development would not reduce the area below the statutory requirement enshrined in the Constitution. The details of total land requirement are given in the table below. 197 Annexures to the Strategy for Gross National Happiness Table 11.2: Land/Forest area requirement for Hydropower Development. Particulars Existing (Km2) Future Requirement (Km2) Rural Electrification 28.22 25.45 Transmission 18.16 23.10 Submergence 0.74 69.82 Total 47.12 118.37 Source: DOE, 2006 11.2.3. Further, even after considering the remaining potential sites for development of hydropower, a maximum of 300 km2 of forest area is expected to be affected. Therefore, taking this as the total impact of future development of hydropower, the total forest land required for the development of hydropower, as per the PSMP would be about 1.2% of the total forest area. 11.2.4. However, even if changes in forest cover, due to accelerated hydropower development seem insignificant, the implication on area due to infrastructure development in the other sectors (as per SGNH) such as roads, urban development, etc. needs to be considered to provide an overall picture. 11.3. Transmission/Evacuation of Power 11.3.1. The transmission lines for power evacuation from Punatsangchhu II and Mangdechhu (and later - Chamkharchhu I and II) which is proposed through Jigme Singye Wangchuck National Park and Royal Manas National Park to India through Gelephu is very crucial for these projects. Hence RoWs and corridors for these lines should be incorporated within the zoning group. 11.4. Watershed Management and Environment Conservation 11.4.1. Water is a crucial element for development in general and hydropower development in particular. Therefore, conservation, development, utilization and management of this important resource will have to be guided by national goals. Effective watershed management is imperative for water resources conservation and sustainable utilization. Due to rapid pace of socio-economic development, there is increased pressure on watersheds. Although harvesting of forest produce is based on sustainable management plans, increasing demand for timber, firewood and non wood forest produce is starting to have negative impacts on watersheds. Further, forestland encroachment and forest fires pose serious challenges for watershed conservation. Therefore, the management of watersheds as a reservoir of water and other natural resources must be addressed collectively in the interest of all resource users. 11.4.2 Most of the hydropower projects today are mainly run-of-the-river schemes. As such they do not pose serious environmental and social threats as in other countries. However, the cumulative impacts of multiple projects could be a concern. 11.4.3 During construction phase of the projects, it is a requirement, as per law, to have an environment management plan (including environment mitigation) drawn up for the project. Drawing from the experiences from the neighbouring countries, a budget of 0.5 – 1% of the total project should be earmarked for environment management and mitigation. This will take care of environmental concerns during the construction stage. 11.4.4 The above proposal will only take care of environmental concerns during the construction stage. Therefore, to ensure steady supply and flow of water, it is important that efforts on watershed conservation are pursued on a continuous basis. This will call for plough-back of funds for the above purpose. One way of doing this could be through channeling funds for conservation directly. Alternatively, a smallscale or a medium-scale HP plant could be dedicated to conservation of the watersheds and catchments. 198 Annexures to the Strategy for Gross National Happiness 11.5. Water Resources Management and Coordination 11.5.1. Water allocation is not an issue as of now. However, in the longer term, there could be potential problem in this area. With rapid socio-economic development and population increase, the need for water in other sectors will rise. This may pose potential conflicts in the use of the resource. In addition, the value of water is often misunderstood as a free resource. This may not hold true, especially when IPPs and private sector participation becomes more prominent in the future. Water resource should be priced (in an equitable and affordable manner) to make the users understand the value of the resource. A surcharge could be imposed on the project developers/water users for the use of the resource. 11.5.2. The institutional capacity building efforts in the energy sector should also be accompanied by subsequent capacity building in other sectors – such as Environment, Forestry, Immigration, Customs, etc. Since 2002, the NEC has been appointed as the Focal Agency for water resources coordination and regulation. However, additional resources and manpower have not been allocated to pursue the mandates in the water resources sector. 11.5.3. The need for an integrated approach is crucial for effective management of water resources for fulfilling our diverse national objectives. An enabling environment has to be created for active participation of all stakeholders and for an integrated water resources management. A common framework for water resources assessment is crucial for informed decision-making. The inventory of water resources both in terms of quality and quantity needs to be developed. The development of the HP sector has to take into consideration the water needs and use of other sectors. 11.5.4. There is a need for coordinated efforts on all water resources development in the country. It is also pertinent that an institutional base be created to ensure an integrated approach in the management of water resources and its sustainable utilization. Efforts under accelerated hydropower development must consider the needs and development of the other related sectors. While hydropower development is crucial for Bhutan’s economic development, it should not compromise the needs and requirement of other sectors. 11.5.5. With accelerated development of HP sector, the role of NEC will increase substantially (Clearance procedures, monitoring, strategic environment assessment, coordination, etc). In addition and as the apex body on water resources coordination and regulation, the NEC is expected to execute the following functions: Planning of water resources at national level, Formulation of water policy and required legislation, Monitoring and evaluation, Setting water quality standards and guidelines, International water co-operation, Licensing and regulating activities, Report to the Government/National Assembly 11.5.6 Further, in collaboration with relevant sectors, the NEC is expected to coordinate: Research, development planning and support, Capacity building and technical backstopping, Coordination of emergency preparedness, Data collection and distribution, Flood and disaster management related to water resources 11.5.7 With accelerated development of HP Sector, the role of NEC in each of the above areas will increase substantially. This will call for additional resources (financial and human resources) to execute the above functions in an effective manner. 199 Annexures to the Strategy for Gross National Happiness 11.6 Glacial Lake Outburst Floods (GLOF) 11.6.1. Climate change has serious impacts on Bhutan. Glacial Lake Outburst Floods (GLOF) are increasingly becoming threats due to melting of glaciers triggered by climate change. GLOFs have serious impacts on life, properties and future infrastructure development in the country. Another major impact of climate change will be in reducing the natural flow and regulating capacity of the glaciers to feed our rivers with serious consequences on our water resources. Therefore, since Bhutan is affected by this phenomenon on which we have no control, we must continue to participate in international forums on climate change to negotiate on mitigation measures for our important resources. In addition, we must also mobilize resources to do things on our own. Hydropower development in Bhutan should consider the potential risks associated with GLOF, especially in the river basins which are glacial-fed. 11.6.2. There are various interventions being pursued through GEF in the country. These are: Lowering of Thorthomi lake/early warning system in Punatsangchhu valley and hazard zonation of Chamkharchhu. The total amount of the project is US$ 3.5m and PDF-B has been approved for project. The NEC, as the focal agency on United Nations Framework Convention on Climate Change (UNFCCC) is the executing agency and the DGM is the implementing agency. Hazard zonation of Punatsangchhu (downstream of Khuruthang until Kalikhola): The total project amount is 84,000 Euros funded through the Netherlands Climate Assistance Programme (NCAP). The NEC, as the focal agency on UNFCCC is the executing agency and the DGM is the implementing agency. 11.6.3 Future development in the HP sector may be pursued keeping in mind the above programmes and also future programmes that might come in as a result of the UNFCCC process. 12 Integration with the 10th FYP 12.1 To achieve the above targets in the sector, a lot of activities will have to be initiated within the 10th FYP. During the 10th FYP, the energy sector would like to focus on accelerated hydropower development and institutional capacity building of the sector. This includes the development of major hydropower projects of Nu. 179.00 billion (outside of the normal planned works) and total planned works of Nu. 6.30 billion. 12.2 The 10th FYP projects mainly include the interconnection transmission lines for industrial development in Bhutan, rural electrification of 25,000 households, hydropower development DPRs and feasibility studies, Institutional Strengthening and Capacity Building, Renewable Energy, and others for total plan outlay of Nu.6,308 million. Table 12.1 Summary of the 10 FYP works. Sl. No. 1 2 3 Code Program MTI/007/01 MTI/007/02 MTI/007/03 Power Transmission Programme Rural Electrification Programme Accelerated Hydropower Development 4 MTI/007/04 5 6 MTI/007/05 MTI/007/06 7 8 MTI/007/07 MTI/007/08 Institutional strengthening of the Energy Sector Development of Renewable Energy Strengthening of National Hydrological and Meteorological Services Electricity Regulation Private Sector Participation TOTAL 200 Budget in Nu. (millions) 1,340.000 3,162.000 792.110 666.455 343.120 145.990 200.000 72.000 6,721.680 Annexures to the Strategy for Gross National Happiness 12.2.1 The bulk of the above planned works are for the power transmission works (Nu. 1,340 million), the Rural Electrification Programme (Nu. 3,162 million), and Development of Renewable Energy (Nu. 343 million). Fund for these projects have already been identified under GoI, JBIC loans, and RGoB budget respectively. Budget for the power transmission network is being proposed as part of the GoI assistance for the upcoming industrial estate. Funds for the RE is being negotiated with the JBIC to be directly passed onto the BPC who will be implementing the RE projects. 12.3 For accelerated hydro development, the direct cost is for the activities identified for the preparation of the project feasibility studies and DPRs (Nu. 792 million). Since the DPR and reports are very crucial for accelerating the development of the hydropower projects, fund requirement for these activities shall be sourced from internal resources such as the hydropower retained earnings (20%) in the event the budgetary support for the amount is not available. 12.4 The budget required for strengthening of hydro-meteorological services is Nu. 146.00 million mainly for the collection of data and hydrological studies important for the design of the hydropower development. This amount is required for strengthening and establishment of additional gauge stations for the new hydropower sites where readings are either not available or need to be validated. 12.5 The budget for electricity regulation (Nu. 200 million) and for private sector participation (Nu. 72 million) are mainly for strengthening of the BEA, developing the regulations, preparation of the tender documents and policies for private sector participation. Since IPP is being taken up on priority basis, bulk of the budget shall initially be used to acquire short term institutional requirement like hiring of the professional services, etc. Fund for this shall be sourced either through NORAD institutional cooperation and other donor agencies or collected through the levy of licensing fees from the generating plants as per the provision of the Electricity Act by the BEA. 12.6 The development of the major hydropower projects under the accelerated program has been kept outside the plan works as used to be done in the past, especially for those projects identified under the bilateral financing: Table 12.2: Summary of Major Hydropower Projects Budget outside Plan works. #. Description of Projects/ Activities Budget (Nu. Millions) 1 Construction of Punatsangchhu I HEP (95 % of fund 44,905.00 disbursement) 2 Construction of Sunkosh HEP (34 % of fund disbursement) 58,991.00 Bilateral 103,896 3 Construction of Dagachhu CDM HEP (100 % of fund 7,387.00 disbursement) RGoB 7,387.00 4 Construction of Mangdechhu HEP (50 % of fund 16,800.00 disbursement) 5 Construction of Punatsangchhu II HEP (50 % of fund 24,800.00 disbursement) Joint Venture 41,600.00 6 Construction of Kholongchhu HEP (35 % of fund 8,505.00 disbursement) 7 Construction of Nikachhu HEP (30 % of fund 3,120.00 disbursement) 8 Construction of Chamkharchhu I HEP (23 % of fund 7,705.00 disbursement) 9 Construction of Rotpashong HEP (35 % of fund 7,000.00 201 Annexures to the Strategy for Gross National Happiness disbursement) IPP Total: 26,330.00 179,213.00 13 Recommendations 13.1 The energy sector shall target an additional capacity of 10,000 MW by the year 2028. 13.2 Facilitate and enable the sector to achieve the above target through the following action plans. 13.2.1 Adopt the draft Energy Policy, Hydropower Policy & IPP Guidelines. 13.2.2 Amend FDI policy to include 100% participation in power sector with investment in Rupees also. 13.2.3 Establish Druk Green Power Corporation (DGPC). 13.2.4 Strengthen and grant autonomy to BEA. 13.3 Initiate IPP projects. 13.4 Initiate and establish Joint Working Group as per Umbrella Agreement. 13.4.1 Start DPR studies for the listed projects by July 2008. Update studies for Sunkosh. 13.5 Accommodate the change in strategy for urban growth centres and cluster growths (road networks and other infrastructure) in the RE Master Plan, in consultation with other zoning group and NSP-2008 13.6 Remove subsidy for industrial power tariff. 13.7 Explore the following financing options: 13.7.1 Initiate for more bilateral projects, including Sunkosh. 13.7.2 Promote Joint Venture partnership between Indian PSUs and RGoB. 13.7.3 Attract and promote private sector investment through IPP. 13.8 Create the following enabling environment for investment: 13.8.1 When DPR is ready, all clearances for project DPRs are ready. 13.8.2 Government to do all land acquisitions and endorse the draft RoW Regulations within the proposed National Spatial Policy/Act. 13.8.3 Adopt suggested definition of forest cover and identify hydropower sites and transmission corridors as per the PSMP (2004) and the document on Accelerated Hydropower Development in the zoning strategy. 13.8.4 0.5% to 1% of project development costs should be dedicated to watershed conservation and management during project construction. 13.9 Enact the following Legislations/Regulations: Contract Law Arbitration Law IPP Law Amend Electricity Act to transfer some of the powers vested in the Minister to BEA RoW Regulations 13.10 Implement following strategic project infrastructures: 13.10.1 Upgrade existing and construct new highways and bridges line with the hydro strategy. 202 Annexures to the Strategy for Gross National Happiness 13.10.2 Encourage private sector participation for construction colony developments. 13.10.3 Align power network (construction power) and telecommunication networks in line with the hydro sites. 13.10.4 Facilitate supply of local materials like sand and stones to the project sites. DGM to identify quarries and test material quality in advance. 13.10.5 Require transmission licensee (BPC) to invest in the transmission network both for domestic as well as generating plants including IPP through self financing and joint ventures. 13.10.6 Allow evacuation of power from Indian projects in Gongri head waters in Arunachal Pradesh to load centres in India using Bhutan’s transmission lines. 13.11 Re-invest 20% (from June 2007) of profit after tax of the fully government-owned hydropower plants to be used for preparation of DPRs and equity injection in new power plants. 13.12 Expedite clearances and permits through inter-sectoral coordination amongst agencies like NEC, DoF, DGM, DoR, DRC, RSTA and Dept. of Immigration. 203 Annexures to the Strategy for Gross National Happiness Part II. National Spatial Policy (NSP 2008) Introduction The National Spatial Policy 2008 is a twenty year strategy that aims at achieving holistic economic development for Bhutan through high-quality planning, development and use of the spatial resources and values of Bhutan. It recognizes that every region and place has its own potential and roles and seeks to develop these potential to their highest levels to contribute to the optimal overall development of the country. It ensures that regions are developed in a competitive manner that works to complement other areas and not work against each other. The main objectives are a better quality of life for the people of Bhutan, a strong, competitive economic position and an environment of the highest quality. Present spatial structure in Bhutan The table below presents a quick summary overview of the current spatial land use in Bhutan67: Land use classes Forests Scrub/Shrubs Pasture Agriculture land Settlements Water spreads Others (rocky outcrops) Total Area in ‘000 Ha 2,578.70 325.80 156.40 314.60 3.10 30.40 598.50 4,007.50 Percentage 64.35 8.13 3.90 7.85 0.08 0.76 14.93 100.00 Bhutan is spatially divided into twenty Dzongkhags and two urban Municipalities which are currently being developed with development aims that are basically the same and contained within each Dzongkhag. Spatial development is thus fragmented. The diverse context and distinctive potential of one area as opposed to another area is not really taken into account to contribute to the optimal development of the country as a whole. No comprehensive spatial frameworks, plans or polices exist in the Government that looks at the spatial development and land resource utilization of the country as a whole. Each Agency has is own proposals, follows its own regulations and has its own sector legislations which often contradicts the legislation and policies of other sectors. There is thus a lack of coordination and cohesion for the spatial development, use and planning in Bhutan. Present spatial practices demarcate zones but do not actually comprehensively study and clear them for the activities they have been zoned for. This means that an agency or individual that wants to implement a task or project within these areas has to travel from office to office and wait long durations- often several months and at times even years - to get clearances from various agencies such as environment, forest, mining, industrial, municipal, and Dzongkhag to name a few. Thus, although an area is zoned for an activity, to actually initiate and implement the activity requires exhaustive effort and time for clearances leading to waste of funds and time. This does not create a conducive and attractive environment for investments nor ensures robust economic growth at an optimal pace. 67 Land Use Survey 1995 204 Annexures to the Strategy for Gross National Happiness The Department of Survey and Land Records (DSLR) has thus far only been able to update the 1:50,000 topographic maps originally produced by Survey of India. Recently it has initiated the production of 1:25,000 series topographic maps, and established a permanent GPS reference station to facilitate efficient ground survey. Shortage of funds and lack of primary data have hindered the full potential to embark on the 1:25,000 and larger scale mapping that is necessary for zoning. To ensure that the spatial values of the country are harnessed to stimulate and support a high-quality socio-economic growth in Bhutan at an optimal pace, it is necessary to plan ahead for the allocation and management of the spatial values of Bhutan (land, water and other natural resources) as a whole and for the appropriate distribution of population, commerce and public facilities within this spatial framework. This consequently will ensure a better quality of life for the people of Bhutan, a strong, competitive economic position and an environment of the highest standard in the world. National Population Settlement Objectives The current Government objective is to try to stem and slow the fast migration of population from rural to urban areas. This creates a weak urban development system. However, the NSP 2008 acknowledges that there is a strong relationship between the settlement size to create critical masses and the levels of services that can be supported. The support of a balanced distribution of population growth in Bhutan thus requires the economic strength that urban structures provide. Strong economic conditions in turn sustain and expand employment and population levels. Therefore rather than trying to stem the inevitable flow of population from the rural areas to the urban centres, spatial allocations and management should be put in place to not only allow this urban growth but also to enhance these urban areas to ensure that the potential and levels of services rise within a reasonable and cost efficient spatial development framework. The creation of dynamic and competitive economic conditions in regional urban centres other than Thimphu or Phuentsholing will support the ability of places to retain their existing population within the regions and cater for increasing population. With the establishment of selective urban hubs and centres in different regions of Bhutan, the population could be regionally balanced as opposed to the present trend where the rural urban migration is mainly from east to west. Recommendations for spatial use to enhance holistic economic development To ensure that the spatial values of the country are harnessed to stimulate and support highquality socio-economic growth in Bhutan at an optimal pace, it is necessary to plan ahead for the allocation, and management of the spatial values of Bhutan. The recommendations are given below: The Spatial Values of the Environment The rich and beautiful natural environment in Bhutan and its values and resources are among the greatest assets of the country. The environment is an integral part of the good quality of life that the Bhutanese enjoy and it is also greatly appreciated by visitors from around the world. The values and resources of the environment are already proving to be a great stimulus for economic growth through industries such as tourism and power. The protection and enhancement of the rich natural environment that Bhutan presently enjoys is thus an important objective. However, to ensure optimal socio-economic growth for the Bhutanese, it is important to not only maintain and enhance the quality and diversity of the natural environment and its resources but also to tap and integrate these values in a sustainable 205 Annexures to the Strategy for Gross National Happiness manner to accommodate and enhance economic development strategies and activities that will consequently create a dynamic and unique economic position for Bhutan. Maintaining and enhancing the natural environment in Bhutan Protected Areas: national parks, wild life sanctuaries, nature reserves Prior to 1993, the Protected Area system comprised only of areas in the Northern and Southern parts of the country. Since this did not represent all the ecosystems in the country, the protected area network was revised to rationalize the ecological representative-ness of the country. In 1993 except for Royal Manas National Park, all other protected areas were “Paper Parks” with little or no management. Since then six more protected areas – Jigme Dorji National Park, Thrumshingla National Park, Jigme Singye National Park, Bumdeling Wildlife Sanctuary, Sakteng Wildlife Sanctuary and Phibsoo Wildlife Sanctuary have been fully operationalized. Khaling (Shingkhar-Lauri) Wildlife Sanctuary and Toorsa Strict Nature Reserve will be operationalized during the 10th Five Year Plan. In order to enhance the protection and development of the Protected Areas in Bhutan within the NSP 2008, the following are recommended: i. ii. Maintain the current status quo of the Protected Area system. Upgrade all management plans for present Protected Areas according to the policies and objectives of the SGNH. iii. In the northern areas above 3000 masl and slopes above 51 degrees, the protection of the environment should be accorded high priority thus effectively increasing and enhancing the protected areas of the Bhutan. iv. Create and implement new environment management and area development plans for these areas. v. Operationalize Khaling Wildlife Sanctuary and the Toorsa Strict Nature Reserve during the 10th Five Year Plan. vi. Address environment protection conflicts among different land resource utilization agencies and individuals through the legalization of NEPA (National Environmental Protection Act) which is presently being prepared by the NEC. vii. Where Protected Areas are absolutely essential and are currently being disturbed by human settlements, measures for resettlement may be carried out. However, resettlement should be carried out in a manner that does not adversely affect the lives and future development of the people identified for resettlement. The resettlement thus should effectively be carried out to improve the quality and standard of lives and there should be no mandatory resettlement before notification. viii. No immigration into the Parks should be allowed ix. Parks should encourage voluntary migration from the Park. Each Park with inhabitants should explore and formulate incentives and resettlement plans in coordination with other relevant agencies so that these options are available to the inhabitants and not hastily drawn up in the last stages of necessity. x. For effective holistic and sustainable management, the Parks will be zoned into core, multiple use and buffer zones. a. Core zone- strictly for conservation b. Multiple use zone- limited use of park resources such as supply of forest products for park residents, trekking, and other non-consumptive uses c. Buffer zone- same level of use as other forest areas. xi. The Parks will promote ICDP (Integrated Conservation and Development Programs). xii. Management of the use of Park should be planned and implemented at a high professional standard that enhances the environment of the Park but does not keep the Park in isolation and allows it to integrate into future development strategies of a region. 206 Annexures to the Strategy for Gross National Happiness xiii. To ensure the parks are not encroached by buildings, thus spoiling the attractiveness or the balance of environment within Parks, careful regular monitoring systems should be kept in place. Green buffer belts between the Parks and built up human areas should be maintained. Biological Corridors With a total area of 3800 km2, Biological Corridors (BCs) form 9% of the country. BCs are expected to provide space for movement of mammals from one protected area to another. BCs also ensure that there is no fragmentation of habitat and that mammals can move around within their natural range. Therefore, for protected areas to function, biological corridors are essential. However, BCs do not have the same legal status as that of National Park, Wildlife Sanctuaries and Strict Nature Reserves. BCs are equivalent to a “multi-purpose use zone” where sustainable use of resources that do not disturb the movement of mammals that cross them is allowed. Some of the BCs pass through human habitations while others are dissected by large rivers. The following are recommended for biological corridors: i. ii. iii. iv. v. vi. The BCs be maintained as they are to ensure that habitats are not fragmented. However, the BCs in the south-east require further studies to assess whether these areas are necessary or functioning as they should since these areas have not been studied properly in detail nor are there any recent reports on these areas. If these areas are not functioning as they should, then they may be removed to allow for development. An updated detailed study of all other the BCs is also recommended. The requirement of a legal status for BCs should be explored and enacted if necessary to ensure that they operate as required and are not in place in name only. Where BCs are absolutely essential and are currently being disturbed by human settlements, measures for resettlement may be carried out. No migration into the BCs should be allowed. BCs should encourage voluntary migration. Forests According to the Land Use Survey (1995) the total forest cover is 64.35% (2.6 million hectares) with an additional 8.13% (0.32 million hectares) of scrub forest. The draft Constitution of Bhutan requires that a minimum of 60% of the country must be maintained under forest cover for all times to come. Till date the DoF has planted 20,000 ha of forest land. The Master plan has indicated that the DoF must plant 2500 ha annually, which amounts to 50,000 ha over a period of 20 years. Some of the constraints for successful plantation are grazing, shortage of water and forest fire. Assuming that 26,979 ha of forest land will be lost in the next 20 years for various developmental activities, and that plantations will be carried out as planned, it will be possible to maintain the 60% forest cover. It might be important to note that factors such as forest loss to forest fire, disease, natural disasters, etc. has not been taken into account while making the above projection. It is recommended that to ensure 60% forest cover while allowing the rest to be utilized, it is important to put in place the following: i. ii. A mechanism for regular monitoring of forest cover. Regular monitoring to ensure survival of replanted trees. 207 Annexures to the Strategy for Gross National Happiness iii. iv. v. Any institution (mining, hydropower, road, tourism, etc.) using forest land should invest in replenishing the forest cover through providing funds or direct investment. The Environment Protection fund should be initiated with the help of these funds. Effective coordination among all land users is necessary and a clear framework and management should be put in place for this. Promote both private and community forestry activities to encourage people’s participation of conservation and management of forest as well as ensure forest cover. Definition of Forest: The present definition of “FOREST” in Chapter 1, 3e, in the Forest and Nature Conservation Act 1995 creates an impression that irrespective of whether there is tree cover or not, any land that is not registered under an individual is forest. This registration is not accurate and creates confusion. The current definition of Forest Cover should be replaced by the following suggested definition: “Land spanning more than 0.5 ha with trees higher than 5m, and canopy cover of more than 10%”. All other areas should be registered as Government Land. Watersheds Watersheds are one of the most important natural resources of Bhutan. It is imperative to protect and enhance these resources. Currently there are 64 water sampling sites spread across the country. Although superficial studies exist, a comprehensive study of watersheds is yet to be conducted or made available. Further, presently there is no coordination in the management or protection of watersheds as there is no single agency focused on the protection of watersheds in spite of its importance as a natural economic resource and an important ecological feature. The following are the recommendations for watersheds: i. ii. iii. iv. v. vi. Carry out a comprehensive study of water sheds and rivers in Bhutan and make the report available to all agencies. Identify critical watersheds, and prepare and implement conservation plans. Develop a framework to link upstream conservation efforts and downstream beneficiaries. Create a Watershed Conservation Fund (e.g. one chetrum to be contributed for every unit of electricity generated from hydropower projects) for management of watersheds and related programs. The study of glaciers and watershed management should be closely coordinated. All agencies such as DoE, DGM, MoA, NEC, should coordinate for proper management and monitoring of catchments under the NEPA legislation. Integrating environment values to accommodate and enhance development strategies There are nine protected areas in the form of national parks, wildlife sanctuaries and strict nature reserves. Each of these protected areas represents the unique ecosystems of the country. Presently these protected areas are primarily managed for conservation of biodiversity. The management of protected areas could be diversified to derive economic benefits through non-consumptive programs and activities such as trekking, river-rafting, fishing, wildlife safari, bird-watching, etc. The table below presents the present situation and the future potential of each Protected Area in Bhutan for integrated development goals: 208 Annexures to the Strategy for Gross National Happiness 1 Name of PA Royal Manas Nationa l Park 2 Phibsoo Wildlife Sanctua ry 3 Jigme Dorji Nationa l Park Size 1,000 km2 278 sq km Altitu de from 150m to 700m Significance Manas is the keystone national park in Bhutan and world for the following reasons: Is habitat for globally endangered species such as tiger, rhinoceros, elephant, leopard, gaur and pigmy hog and endemic species such as golden langur. More than 424 bird species and 9 globally threatened species Large tracts of sub-tropical forest with rich biodiversity River Manas flowing through the Park that adds to aesthetic value and aquatic diversity It is the only habitat where spotted deer (Axis axis) is found. It is the only place in the country where natural Sal (Shorea robusta) forest exists. The Sanctuary is habitat for globally endangered species such as tiger, elephant, gaur. The Sanctuary could be home to 496 species of birds. 4,200 There is a wide range of ecosystem – sq km broadleaf, temperate, sub-alpine and alpine. 1,650 m to It is habitat for the takin, the national over animal, blue sheep, snow leopard, tiger, Present Infrastructure Inhabitants 3,250 Park Range Office Guest House Connected by motor road from the Indian NH – with a distance of 29 km from Barpeta, Assam. Connected to Panbang Dungkhag by motor road (12km) River transport by wooden boats Range Office Guest House Seasonal Four-wheel drive road from Sarpang – 32 km Wireless station 209 The village of Singye falls in the buffer zone of the Sanctuary. The Park headquarters is To located at Gyan Damji surveyed under Gasa Dzongkhag. It is connected by the Tashithang-Damji motor Future potential River Rafting Trekking Elephant Safari Wildlife Sightseeing Bird Watching Green Resorts Research and training Trans-boundary Conservation Opportunities. Across the border is the Indian Manas National Park which has been designated as World Heritage Site. After the establishment of Bodo Territorial Council, the Park has been fully operationalized. The Park receives hundreds of visitors every month. The approach to Royal Manas National Park is through the Manas National Park of Assam. Elephant Safari Wildlife Sightseeing Trekking Green Camping Sites Bird watching Research and training be Trekking Collection of Medicinal Plants Develop additional camping sites along the trekking routes Develop resorts in “special Annexures to the Strategy for Gross National Happiness 7,000 m 4 Sakteng Wildlife Sanctua ry 650 km sq 5 Bumdeli 1,300 ng sq km Wildlife 1,650 Sanctua m to ry 4,500 m 6 Thrums hingla Nationa l Park leopard, marmot, samber There are 317 bird species and 9 globally threatened species The Park is home to several valuable medicinal plants such as Cordyceps, Sasuria, Delphenuim, Datylorhiza, Putishing, etc Most of the mountain peaks such as Jumolhari, Gangkar Puensum, Gangchentak are inside the park Spectacular scenery with snow-capped mountain ranges and vast valleys Important rivers such as Thimchhu and Pachhu originate from the Park Gasa Hot Spring is located inside the Park The Park is home to the Layaps with distinct culture and tradition Large tracts of temperate forests Habitat for red Panda More than 25 species of Rhododendron including R. kezangai Residence of Brokpas that represent a unique cultural heritage system. The Sanctuary is habitat for the threatened migratory Black-necked crane It is habitat for the Red Panda There are more than 296 species of which 7 are globally threatened. road. There are park range Offices located at Gasa, Lingzhi, Soe and Rimchu. Camping sites have been developed at Damji, Soe and Jangkothang. The Park headquarters is connected by motor road – 50 km from Punakha. All Park Range Offices are connected by mule tracks. The Park headquarters is 3,080 located at Phongmey, 40 km from Trashigang. There are three Park Range Offices – Sakteng, Merak and Jongkhar. The Sanctuary 680 headquarters is located at Chortenkora. There are three Park Range Offices located at Dungzam, Sherzong, Khoma. 768 Over 343 species of birds. The Park headquarters is 3,330 sq km Two of the best bird watching sites – located in Ura and is connected by the east 650 m Yongkola and Lingmethang are inside the west national highway. to Park. 5,500 10 species found in the Park are globally There are three Park m Range Offices – Autsho, threatened 210 designated zones” for the tourists. Strengthen Management of Medicinal Plants Organize Bird Watching Groups Wildlife Sightseeing Trekking Green Camping Sites Bird watching Research and training Cultural tourism Religious and Cultural Tour Black-necked Crane Watching in Bumdeling Trekking Research and training Wildlife Sightseeing Trekking Green Camping Sites Bird watching Research and training Annexures to the Strategy for Gross National Happiness 7 Lingmethang, Ura. With altitude range of 650 – 5,500 masl, the biodiversity is one of the richest in the country The Park is home to endangered species such as tiger, leopard, Red Panda, etc. Jigme 1,400 sq The habitat of threatened migratory The Park headquarters is 4750 Singye km Black-necked crane is inside the Park located at Tshangkha on Wangch 1,500 m The Park is home to several endangered the east-west national uck to 4,500 highway. species such as tiger, leopard, clouded Nationa m leopard, Red Panda, Golden Languor Range Offices are l Park located in Langthel, It is home to 391 species of birds out of Athang and Tingtibi. which 11 are globally threatened. 8 Khaling WS 9 Toorsa SNR 273 km sq This reserve will consist of the existing Nil reserves of Khaling and Neoli. The reserve is important for elephant, gaur, and other tropical wildlife and may be the only locality in Bhutan where pygmy hog and hispid hare occur. Both are known from the Khaling Reserve on the Assam side of the border with which this reserve will form a transfrontier reserve. 650.74 sq This reserve protects the western most Nil km temperate forests of the country from broadleaf forests to alpine parks including the small lakes of Sinchulungpa. The area has no human habitation and is a security area near the Chinese border. 211 Wildlife Sightseeing Trekking Bird watching Research and training Survey not Trekking from Merak to Daipham carried out Research and training 0 Potential research site Annexures to the Strategy for Gross National Happiness Recommendations to enhance the non-consumptive use of Protected Areas are: i. ii. iii. Carry out comprehensive biodiversity and socio-economic surveys. Develop Management Implementation plans for each Park. Develop proposals to enhance the sustainable use of all the protected areas through non-consumptive measures such as fishing, river rafting, trekking, bird watching, ecotourism, service centers and for research and institutional studies. iv. Take up the Royal Manas National Park as pilot project under “autonomous” management. This approach will provide an opportunity for the park management to work directly with other partners such as Department of Tourism, Association of Bhutanese Tour Operators (ABTO), local communities to develop programs for the use of the park. v. The Royal Manas National Park should be managed by a Park Manager who will report to the Board of Directors. The Chairman of the Board will be the Director of Forest and members will be drawn from Dept. of Tourism, ABTO, Nature Conservation Division, Ministry of Finance, NEC, Dzongkhag, local community members and relevant agencies. vi. Prepare and implement proposals to use the potential of the Indian Manas World Heritage Park for the Royal Manas National Park. vii. Explore the possibility of putting the Royal Manas National Park up for approval to the World Heritage Council for selection as a World Heritage site. viii. Integrate the enhancement and management of all protected areas with the regional development plans keeping in mind the links of Parks with neighbouring areas including urban centres and hubs where there will be population concentrations. The Parks and its attractions could provide a stimulus for development of urban areas. Urbanization in Bhutan The Population and Housing Census of Bhutan, 2005, indicates the total population of Bhutan at 634,982, with an urban population of 196,111. This establishes the present urban population of Bhutan at 30.8% of the total population. While the annual population growth rate of the nation is established at 1.28%, the urban population is estimated to be growing at a rate of 7.3% owing particularly to high levels of rural-urban migration. At the current urban population growth rate, the implied urbanization level by 2020 will be 73%. The two key urban sector issues in Bhutan are the very high rates of urbanization inspite of the Government’s objectives to try to stem rural-urban migration and the limited availability of serviced land. This rapid urban growth has already created severe pressures on services as well as the environment such as water shortages, lack of sanitation and waste disposal facilities. This has been largely due to lack of well laid plans and projections to create proper liveable urban areas. Urbanization, however, if managed and planned well allows for the concentration of population markets which foster faster, cheaper and diverse economic development. Presently, each Dzongkhag has separate development proposals and policies to create a central urban area within each Dzongkhag regardless of the context and potential of the area. There is no linkage between urban proposals for the country as a whole. In general, urbanization presently consumes prime agricultural lands in the valleys. Urbanization is inevitable and as urbanization has many economic benefits if planned appropriately, the development strategy of the nation thus needs to change from inhibition 212 Annexures to the Strategy for Gross National Happiness policies of rural-urban migration to the more focused concentration on planning of high quality liveable urban areas. The recommendations for Urban Growth are: i. ii. iii. iv. v. The policies and development strategy of the nation needs to change from inhibitive policies of rural-urban migration to the more focused concentration on planning of high quality liveable urban areas. However, this does not mean the neglect of rural areas which also require development. Urbanization thus should be classified and planned for the country as a whole for the next 20 years. This planning should take into account the country as a whole rather than focusing on each individual Dzongkhag. Urbanization according to the potentials and objectives of each region should be studied in detail and created accordingly. This means that urbanization policies in the North may be different from the urbanization policies in the South as the needs and potentials of each area are different. Urbanization should be planned in areas that do not threaten prime agricultural land or around agricultural land. This agricultural land should be incorporated into the urban area as part of the greening of the urban area rather than being urbanized. This may include the introduction of higher densities in certain areas. However, all lands zoned as agricultural belt, etc. should be provided by the government. Before areas are zoned for different activities and uses (e.g. industrial, IT parks, tourism, etc), all necessary comprehensive studies for approvals such as environmental clearance, type and intensity of activities, forest clearance, road clearance, etc. should be conducted by all agencies within a given period before the zoning is approved. Once a zone is approved, this means that this area is ready for implementation and time is not wasted in efforts to get clearances all over again. Encouraging National Urban growth to stimulate development Currently, although there are plans by the Government to develop the present urban areas, the Government’s objectives have always been to try to stem and slow rural-urban migration. However, through the NSP 2008, urbanization in Bhutan seeks to enhance the performance of strategically placed engines of growth or "gateways" to attract ‘critical masses’ and thus draw together people, business activities, services, infrastructure and amenities that are necessary to drive economic growth and contribute to more balanced patterns of development within the country. Dzongkhag Head Quarter towns, other towns, villages and rural areas around these main hubs and centres will draw strength from, contribute to and complement them. Through urbanization, bringing together the location of buildings, amenities, shops, employment and transport in a given area and in the appropriate way can dramatically enhance people’s access to the services they need while enhancing the attractiveness of the area for investment, business activity and progress. The key element of the preferred development scenario is the recognition of the spatial diversity of the region and the role of various regionally centered urban hubs and centres, determined by population, function and location, within the development areas. This is addressed by way of: • Accelerated population and economic growth to gateway and principle towns • Targeted population and economic growth to key service towns • Consolidation of service towns • Appropriate service provision to local service towns to serve wider rural regions 213 Annexures to the Strategy for Gross National Happiness • Physical, social and recreational infrastructure to support settlement strategy The development of a strong transport and communication links between the hubs and centres as well as links to Dzongkhag Headquarter towns and other towns is also essential in order to fuel the growth of the hubs and centres and for the development of the country as a whole. Proposed Urban Hubs and Centres in Bhutan Traditionally, urban centres in Bhutan are categorized into three classes A, B and C based on about 26 criteria ranging from population estimates to number and types of schools, shops, other commercial facilities, public bus service, and level of urban infrastructure provision. The classification is mainly used for taxation and assessment of compensation when government acquires land pursuant to the Land Act. As per the NSP 2008, ten regional urban centres are envisioned. Of these, six Growth Centers are located in the hinterland and four Economic Hubs are proposed in the South. These regional urban centres and hubs include Paro, Thimphu, Punakha/Wangdue, Bumthang, Mongar, Kanglung, Samdrup Jongkhar/Nganglam, Gelephu, Phuentsholing, and Samtse. Urban boundaries, design and planning of the Urban Hubs and Centers The draft Bhutan National Urbanization Policy 2006 (BNUS) similarly envisions the development of all these regional urban centers except for Kanglung. Extensive studies have been carried out by large consulting firms for all the regional urban areas identified in the NSP (except for Kanglung) and their respective structure/master plans are already in place. This study includes population projections and potentials of each urban centre. However, these have limited to the present municipal boundaries and do not take into account the extended boundaries as proposed in the NSP 2008. They have also not looked at urbanization within the country as a whole. The recommendations for Urban Hubs and Centres are: i. ii. iii. iv. The existing proposals for the urban centres should be developed further for the urban centres identified in the NSP 2008 as the range and scope of the NSP extends beyond the existing municipal boundaries of each of these townships and therefore more detailed study requires to be undertaken at a regional level, looking at potentials and constraints beyond the present defined town limits. Accurate maps with all details should be developed for each urban centre with their new extended boundaries. In the context of developing the 10 urban centres and hubs identified in the NSP, it is proposed that each area be developed around a predominant concept and theme which is comparatively advantageous for the particular area. This means that each urban centre develops around its own potential rather than being treated as the same as it is presently done. For instance the following themes could be explored and adopted for the urban centres in the hinterland: 1) Kanglung (Knowledge City) 2) Mongar (Handicrafts City) 3) Bumthang (Cultural City) 4) Punakha-Wangdue (Horticultural City) 5) Thimphu (National Capital City) 6) Paro (Resort City) 214 Annexures to the Strategy for Gross National Happiness v. vi. vii. Likewise, the four economic hubs could also be designed around a predominant economic activity such as: 1) Samtse: Mining and f&b industries, development of large institutions, healthcare, and integrated resorts of international standards. 2) Phuentsholing: Heavy industrial, mining, finance, services and commercial centre. 3) Gelephu: Export, integrated resorts, high value processing industries, education and training, finance and commercial centre. 4) Samdrup Jongkhar: Coal and related industries, services and trading, and export services. The urban hubs and centers should be developed with the highest standards of infrastructure and services to fulfill their national level roles. To strengthen local areas, and to realize balanced regional growth and to sustain the main centres and hubs, Dzongkhag HQ towns and other towns should be developed with positive links to the centres and hubs in their regions. Role of rural areas A high quality rural environment is an economic, social and environmental asset to both urban and rural areas. A high proportion of Bhutan is rural and provides tranquility, leisure and recreation opportunities for urban and rural inhabitants. There are many attractive villages in Bhutan and the quality of the rural environment is vital to the quality of life. Therefore, the protection, management and enhancement of the natural and cultural assets of the rural areas of Bhutan should be integral considerations in decisions on development. While the quality of the landscape in rural areas is fragile, the environmental quality of the rural regions is an important characteristic in attracting investment especially tourism related industries. Therefore, damaging the quality and aesthetics of landscape should be avoided. The promotion of the quality of life for local people and visitors by ensuring that the rural landscape remains unspoilt, the rivers remain unpolluted and the towns and villages retain their character is important. The futures of both urban and rural areas are increasingly intertwined. The sustainable development, conservation and marketing of rural attractions are increasingly important in defining a positive and unique identity and setting for the establishment of competitive urban hubs and centres in the region. Conversely, the development and enhancement of the vitality of the urban centres is vital to the economic development of rural areas as increasingly, the traditional reliance on agricultural based employment in rural communities is being replaced by a dependence on jobs in urban areas in the manufacturing and services sector. Many rural areas in Bhutan especially those next to present urban centres like Thimphu and Phuentsholing are undergoing profound changes due to the economic restructuring of agriculture or to the influence of nearby urban areas. Recommendations for rural areas are: i. Develop a complete mapping of all rural areas and their potentials such as landscape, natural and cultural heritage and other resources. ii. Rural area development plans should be formulated keeping in mind the links to urban hubs and centres and the rural assets of the country as a whole as identified from the mapping of potentials of the rural areas. iii. Establish clear positive links between rural areas and urban centres. 215 Annexures to the Strategy for Gross National Happiness iv. Rural areas should be developed with the aim to ensure that the strengths and resources of the rural areas in agriculture, tourism and local services are harnessed and developed to the highest standards. v. The quality and aesthetics of landscape should be conserved and development activities should avoid negative effects to this asset. All new buildings should add to the aesthetics rather than the current trend of degrading the aesthetics of the natural landscape of rural areas. Harnessing architectural design and forms The imprint of architecture is a powerful visible physical aspect of our image as a country in the international scene. However, presently there are no concrete efforts to develop, upgrade or use this physical imprint for benefits to the country as a whole or to look at creating unique and regional physical environments for each region based on their potentials. This has huge bearing on sectors such as tourism which brings the second highest revenue to our country and the quality of life for our citizens. There are current negative practices undertaken both by the Government and the private sector where areas of huge aesthetic potential are often ruined by the construction of architecture or other physical infrastructure that aesthetically degrades the beautiful environment it imposes on. Thus rather than increasing the aesthetics of an area, the current practice of infrastructure and architecture almost always leads to the decreasing of the environmental aesthetics of the country. The overall concepts and regulations for architecture are presently the same for all Dzongkhags within Bhutan. They do not take into account the diverse potentials of different areas within the country. For example, every school or health building is the same. Even in areas with no roads, one often finds RCC structures of the same design and type found in urban areas. This creates monotony throughout the country and does not provide the incentive for visitors to travel from place to place as each place looks the same. The present strict regulations for the urban centres and the free regulations with material incentives within rural areas act to inhibit development and creative growth within the urban centres while the rural areas are encouraged to grow haphazardly and often with RCC high rise buildings of low standards and designs that actually create negative benefits to the overall aesthetics for the rural environment. Bhutan has a very recent history of urbanization which can be dated perhaps to the early 60s with the growth of two urban centers namely Phuentsholing and Thimphu. The need to establish a Bhutanese identity based on existing rules in the built form today has led to a degree of monotony in the urban facades today. This is due to factors like: 1. Regulations and bye-laws regarding no. of floors, setbacks, etc To facilitate easy and cost effective infrastructure, regular plot sizes are encouraged but compounded with rules regarding set backs and no. of floors that are similar; the urban landscape today constitutes of similar looking buildings. Norzin Lam is good example of a streetscape that is characterized by buildings, each similar to the other without making any attempt to create any urban and social spaces. The built forms all tend to maximize the allowable area in terms of coverage and no. of floors. 216 Annexures to the Strategy for Gross National Happiness Recommendation: The above problem could be addressed by introducing the Floor Area Ratio along with the plot coverage and no. of floors. This was initially proposed in the draft Development Control Rules (DCR) for the Thimphu Structure Plan and was presented as follows: “Floor Area Ratio: Floor Area Ratio (FAR) and Floor Space Index (FSI) are basically the same concepts. They mean the amount of built-up area that will be allowed on a given amount of land. If in a residential area the FAR is 75; it means that on a 1000 sqm plot one can build 750 sqm. If we restrict the “plot coverage” to 40 percent it means one can build ground floor (400sqm) plus an additional floor restricted to 350 sqm. By payment of a premium the owner can choose to build upto FAR 350 sqm, which means he can build a total of 1500 sqm on his plot (three floors of 400sqm plus another partial floor of 300 sqm.) Floor Area Ratio (calculation) = Total floor area including walls of all floors x 100 ---------------------------------------------------------------Total Plot Area Building features that shall be excluded from the calculation of built up area and hence from FAR calculations are Areas covered by porches, canopies, weather shields etc Parking Spaces Basements if not used for habitable purposes. There shall be two stages for permissible FAR: a Basic FAR without payment of premium, an optional higher Maximum FAR allowable on payment of premium”. The FAR concept would therefore give the freedom to builders to go high rise and free the ground for recreational, parking, etc. purposes. It must be noted that the FAR will not make sense if the rule for the number of permissible floors are still applied. The rule regarding maximum number of permissible floors shall have to be updated. The other concept which was proposed in the draft DCR was the concept of Transfer of Development Rights. “In the Thimphu Structure Plan certain areas are designated as Reserved Land. Such Reserved land is to be used in the public interest for a public purpose. Transfer of Development Rights or TDR is a mechanism to protect the development rights of the owners of Reserved Land, while facilitating the Municipal Authorities in acquiring lands needed to implement a Structure Plan. In cases where the government has to acquire land for the public good, the owners may choose to be compensated, or their land traded for an equal size of FAR or Development Rights which can be used elsewhere. The compensation is in the form of FAR which can be transferred and used elsewhere.” The concept of TDR should however be used only as a source of fair compensation regarding a particular plot for the greater good of the city or town area. It should not be a tool for real estate developers to maximize FAR and therefore gain commercially from it. The concept of TDR could have saved the Luger Theatre Square, which was perhaps the only urban public space in Thimphu (besides the Clock Tower square) from being developed. The owner or intending developer could have been given a substitute plot with additional FAR rights in another location. 217 Annexures to the Strategy for Gross National Happiness 2. Traditional Architectural Features One may agree to the need to have a Bhutanese identity in terms of architectural form and therefore a sense of place. However the contemporary building language that has emerged in the urban towns has to address other factors besides mere superficial ornamentation. Though decoration and ornamentation is an integral part of Bhutanese architecture, other aspects like materials, forms, textures and colours are not explored enough. The Aman projects have to a large extent managed to capture the essence of Bhutanese architecture without relying on the profuse use of decoration. The new Druk hotel building is a good example of the use of textures and colours that are vernacular. The “Guidelines to Traditional Architecture” which was introduced to merely guide architects has become a steadfast rule/byelaw which has regulated the facades of buildings to the elements/features that are propounded by “the book”. Traditional architecture has a lot more to offer which is manifested in various buildings (Dzongs, farmhouses, temples, etc.) throughout the country. Recommendation: Mere imitation and superficial use of elements on the facades is not the only way of creating a Bhutanese contemporary identity. There is the need to explore and encourage the use of local materials, forms (sloping walls, roofs), textures and colours. Other features and elements that are existent in traditional architecture should be accepted beyond what is labeled as permissible and not permissible in the guidelines. 3. Construction Materials Traditional architectural form and language is in many ways a resultant of the method of construction. The massive sloping walls, rabseys, lintels, cornices are features that were integral to a load bearing system of construction. However today in multistoried buildings, RCC and brick or Concrete blocks are the order of the day. The urban centers are prime examples of this kind of buildings. Commercial buildings may often demand this kind of approach but institutional and residences certainly have a better alternative. Use of traditional materials makes it easier to capture the essence of Bhutanese architecture. This makes it easier for the designer to conceive and realize a building which is more appropriate and in harmony with the environment. It also helps sustain a host of traditional disciplines that are associated with buildings like zows (master builders), traditional painters, wood carvers, sculptors, etc. However the general misconception amongst people is that a RCC building is more permanent and therefore better. These buildings are also valued much more by financial institutions, which encourage business people when they want to use it as a mortgage. People who try to use local materials which are more eco-friendly and climatically appropriate find many obstacles while trying to implement them. Availability and costs of materials and workers make it difficult compounded by the fact that a lot of traditional buildings fail to meet the structural standards that are enforced by the authorities. This is due to the fact that a lot of architects and engineers are primarily trained in the design of such RCC structures. Recommendations: Need to encourage use of local building materials which can be achieved by: Creating awareness in the building industry (professionals and builders) Making it more affordable by meeting demands 218 Annexures to the Strategy for Gross National Happiness Training more construction workers in appropriate skills (e.g. CTC workers that are already working with Heritage projects) Looking into alternative technology like stabilized/interlocking mud blocks which has already been initiated by the SQCA; but somehow has not permeated to the local building industry. Facilitating easier and quicker procedures during scrutiny of drawings by authorities. Facilitating housing loans for applicants that are interested in building with traditional materials. Marrying appropriate technology like modern amenities and services within. The other recommendations for harnessing architectural and other built forms to stimulate and enhance socio-economic growth are: i. ii. iii. iv. v. The diverse potentials of different areas within the country should be reviewed and an architectural proposal should be prepared not just for individual regions and towns but keeping in mind the benefits of architecture to the country as a whole. These objectives should be achieved through a comprehensive review and revision of the existing rules on building construction such as the Bhutan Building Rules and the Guidelines to Traditional Architecture. Within the North the focus should be on maintaining the beautiful and pristine environment, diverse wild life, ancient living cultural traditions and through these measures enhancing the benefits that these can bring through tourism. Therefore the architectural design concepts should reflect and promote these objectives. The following architectural design concepts are recommended for the North: a. Environmentally friendly and sustainable buildings. b. The main materials should be traditional – stone, earth, bamboo, and timber as per the regional style and local availability. c. The construction methods should be mainly traditional with modern materials used only where required and absolutely necessary (e.g. bathrooms). d. No new building should be higher than two floors. e. Sewerage and waste systems should be environmentally friendly. f. The designs should be largely traditional and as per the regional design concepts. g. RCC buildings (of the type presently being built for apartments, schools, hospitals, industrial structures) should not be allowed in order to uphold the historical environment of the zone. h. Above all the built environment should enhance the natural environment rather than degrade the existing quality of the natural environment as is often the case at the present. Within the hinterland: This zone will have a combination of buildings that reflect the needs of the Growth Centers and enhance the economic benefits and the living standards of the population within this zone. Regulations will be freed up for the main centres while the rural areas will have traditional buildings and will follow the Northern regulations to maintain an environment that will be conducive to tourism. In the Economic Hubs: Architectural designs and forms should be conducive to encourage economic growth but at the same time it is also important to ensure that the hubs in this zone grow to have identities that are recognizable as being Bhutanese. All architectural works must be implemented only by trained and registered professionals to ensure that the built environment maintains high standards as the physical environment has a high impact on not only living environments and quality of 219 Annexures to the Strategy for Gross National Happiness vi. lives but also on such industries as Tourism which depend on visual aesthetics. Presently many works are taken up or approved by non-professionals. Further, approving authorities often have professionals that do not have much experience or specialized education and therefore are unable to appraise projects appropriately. Natural and local materials should be made available at competitive prices. Presently the regulations and practices in place inhibit people from using natural and local materials even though Bhutan is said to have abundant natural resources. This results in architecture built with cheaper imported materials – e.g. RCC even in rural areas. Legislation and policies for spatial use There is no integrated utilization of land resources in the country. As a result, land related issues are evident in the field. These issues often lead to conflict among the involved institutions that are working for good cause - working independently while the basic resource in question is land. The table below summarizes these current and anticipated problems and issues. Land related functions Land use policies. Present and anticipated Issues Legislation. Implementation problems Urbanization industrialization and Conservation of cultural and religious sites Land information Implementation of large projects Lack of comprehensive national land use policy. Existing policies are sector-specific objectives and have conflicting interests. No integrated land use plan or zonation particularly at district level. The existence of Acts in different organizations shows the complexity of regulations governing the land. The Acts are sector specific and were framed in the past when situations were different. There are contradictions and mismatches in these regulations. Absence of national spatial code. There are instances of overlapping interests, which give rise to clashes in the interpretation of policies and legal provisions, the non-application or overlooking the existing laws, etc. The implementers of policies, landowners and land users are often confused with complexity of regulations. Time and other resources are under-utilized in getting or sorting out legal issues. Half of total population will live in urban centers by 2020. Currently, agriculture, industrialization and urbanization compete for developable lands. While high cost of investment has been a constraining factor, the possibility of exploring hills and steeper areas for settlements is hindered by the lack of geological data. Appropriate spatial code is critical for making and using land for urban and industrial purposes. Dzongs, monasteries and cultural and religious monuments are subject to adverse impacts of modernization. Most impacts could have been avoided if there was proper land use planning. In some cases, local people’s religious sites have not been respected while constructing development infrastructure. Lack of database on land resources specifying their capability and potentials. In absence of such database, we are not able to prepare land use plan that considers the requirements from different sectors. A large land surface required by mega projects is met haphazardly either through acquisition of land belonging to local population or through occupation of government reserved forests. This creates hardship to the 220 Annexures to the Strategy for Gross National Happiness Land valuation affected population and adhoc release of forest areas. A national spatial code that shall not compromise our forests resources while using them on sustainable basis is required. Both from sustainable use as well as from economic point of views, it is now necessary that we tag value to our land. Currently, the utilization and taxation of our land is not based on its economic value. Also, it may be necessary to assess the land value, particularly of wetland, from the policy of food self-sufficiency. One starting point for land valuation is to have enabling legal code on land and to assess and develop land capability information system which will also be the basis for an integrated national level land use planning and land use policy. The current legal environment is very strong where environmental protection is concerned but not very conducive to developmental processes. Many Acts exist with blocks and approval requirements for development activities. The present laws governing some of the land uses are a serious concern to creating a conducive environment for a fast growing economy. The recommendations are: i. ii. iii. iv. v. vi. vii. A National Spatial Act should be formulated. Sectoral rules on land and space should fall within this broad national spatial code. All Acts related to spatial use should be reviewed and revised to not only provide protection to the environment but also at the same time be conducive to development. This means including certain clauses such as: Lift the prohibition on Chhuzhing and orchard in those regions that fall outside the prime agricultural production zones. Manage the Chhuzhing in agricultural production zones under special Government programs, such as incentive or compensation packages. The Land Act should have provisions to allow urban areas under the jurisdiction of Thromde Tshogde to be managed and used as per the Thromde Act. The rules and regulations on social forestry should allow establishment of private forestry schemes on areas less than 2 acres. Within a national policy of land resources zoning, the potential Government Reserved Forests land, including those under tree cover, as community forests, should be identified and demarcated. Both the Land Act or the Forest and Nature Conservation Act should support the use of Government Reserved Forests land for cardamom plantation and other niche products. All land used for different categories of agriculture/horticulture should be allowed to be used for any type of agricultural or horticultural use that will be of the most economic benefit to the farmer rather than restricting the types of crops, plants, trees, etc. that can be planted. However, if there are requirements to maintain certain areas for only certain types of farming/horticulture, then incentives and tax breaks should be granted as these regulations prohibit a farmer from maximizing the benefits of his land as per market forces. 221 Annexures to the Strategy for Gross National Happiness Part III. Strategic Infrastructure (SI 2008) Surface Transport Being landlocked, Bhutan faces unique challenges and opportunities as it pursues the development of its road transport network. In the absence of other modes of transport, movement of goods and services within the country takes place by land transport through a system of roads and mule tracks while connectivity to the outside world takes place both by land and air. Road Sector Master Plan 2007-2027 (RSMP) In order to make road transport fast, reliable and efficient, an aggressive policy of national highway expansion, improvement and shortening needs to be adopted while ensuring connectivity to the far flung villages and rural communities to reduce regional disparity and ultimately to fulfill the vision of GNH. The RSMP envisions construction of over 2,600 km of new feeder roads, 537 km of National Highways for inter–Dzongkhag connectivity, construction and improvement of 794 km of the Southern East – West Highway (SEWH), and realignment and construction of tunnels on the existing national highways. Among the roads included in the RSMP, the construction of the SEWH is vital to catalyze economic activities in the economic hubs. Transport service delivery The Road Safety & Transport Authority (RSTA) is mandated with public service delivery covering vehicle registration and annual renewal, driver licensing and renewal, vehicle fitness program and monitoring of passenger transport services. The amount of work involved is often lengthy and generally of routine nature. The printing of driving license is centralized at the head-office with vehicle registration and fitness program handled at the level of the regional offices. Monitoring of passenger transport services are further decentralized at the base office level. Logistics Logistics service providers are usually transport operators and freight forwarders using multiple modes of transport issuing a single transport document and accepting responsibility for delivery to the end retailer/user. It involves the integration of information, transportation, inventory, warehousing, material handling and packaging at the lowest cost possible. In other words, it is associated with having the right item in the right quantity at the right time for the right price to ensure steady flow of material through a network of transport links and storage nodes. This is missing at the moment with the logistic management system highly disorganized. Bhutan’s 2028 Transport Network To support balanced regional development, Bhutan’s transport network must be expanded and improved particularly the East-West and North-South Highways to spur and sustain the Bhutanese economy. It should be ensured that the hopes and aspirations of every Bhutanese to live within half a day’s walk from the nearest motorable road are fulfilled by the year 2028. Looking forward Bhutan’s 2028 transport network can be envisioned in terms of: Primary National Highways (PNHs) comprising of: Thimphu –Phuentsholing Wangdue-Sarpang-Gelephu Trongsa-Gelephu Gyalpoizhing - Nganglam Trashigang-Samdrup Jongkhar 222 Annexures to the Strategy for Gross National Happiness - Thimphu-Wangdue-Trongsa-Bumthang-Mongar-Trashigang Samtse-Phuentsholing-Lhamoizingkha-Sarpang-Manas-NganglamSamdrup Jongkhar The PNH being the highest in the road hierarchy shall connect points through the shortest routes, be of double lane with partial access control and constructed to high design standards catering to high travel speeds to facilitate fast movement of goods and services. Secondary National Highways (SNHs) comprising of: Autsho –Gorbaktang Road (new) Chazam-Trashi Yangtse Road (existing) Ura-Ungar-Gorgan Road (new) Shingkhar-Thidangbi Road (new) Ura-Shingkhar-Zhemgang/Panbang Road (new) Haa-Samtse road (new) Khasadrapchu-Paro - Haa (Khasadrapchu –Paro new and Paro-Haa new) Chuzom-Paro (existing) Chuzom-Haa (existing) Paro –Haa (existing) Dewathang – Samdrupcholing - Jomotsangkha (Dewathang Samdrupcholing existing and Samdrupcholing - Jomotsangkha new) Tshelingor-Pema Gatshel-Tsebar-Mikuri-Sokphurongchu Punakha-Gasa Road network expansion over the next 20 years would have to be primarily guided by the RSMP which would have to be reviewed from time to time in line with the country’s needs and priorities. Crucial among the roads included in the RSMP is the construction of the SEWH in the South which is important to fuel and sustain the country’s economic growth as a whole. Road Network Development Intervention Strategy Working towards achieving the above vision of road transport connectivity requires the following broad interventions to be made in the development of the country’s road network: Improvement or up-gradation of existing roads to PNHs and SNHs Construction of new PNHs and SNHs Road realignment / tunneling Construction of feeder/link roads Construction and Strengthening of Bridges Alternative modes of surface transport (urban transport, ropeways, railway links & waterways). Thimphu-Phuentsholing Highway Thimphu-Phuentsholing Highway (TPH) forms a part of the Asian Highway link of ThimphuPhuentsholing-Indian Border – AH48 and is currently being upgraded to Class III (2 lanes) standard of the Asian Highway. The development and improvement of TPH would essentially comprise of the following three components: (i) (ii) Widening between (a) Damchhu and Babesa and (b) Chhukha and Phuentsholing Realignment between Damchhu and Chhukha and 223 Annexures to the Strategy for Gross National Happiness (iii) Tunnel construction to bypass the problematic area at Jhumja The widening works of Damchhu-Babesa and Chhukha-Phuentsholing section of the highway is to be implemented in three phases and completed in 2010. The pavement crust would consist of granular sub-base (GSB), graded aggregate base course (GABC) and bitumen sealing (BS) and is designed to carry 30 ton axle load which corresponds to structure loading HS2044. Wangdue-Sarpang-Gelephu Highway Considering that a new international airport will come up in Gelephu, the Wangdue-SarpangGelephu Highway will become the most important transport corridor. Further it is required to be improved and widened to facilitate the implementation of the upcoming Punatsangchhu Hydropower Project. Trongsa-Gelephu Highway (TGH) TGH is an important North–South transit corridor connecting Gelephu and should be upgraded to PNH in a phased manner. It is recommended to adopt a phased construction approach. Gyalpoizhing-Nganglam Highway Gyalpoizhing-Nganglam Highway is under construction as a single lane highway from both Gyalpoizhing as well as from Nganglam side. Construction of 20 km (10 km each from Gyalpoizhing as well as from Nganglam side) which has already started to single lane highway standard will be completed during the 9th Plan. The remaining 44 km should be designed and constructed as per PNH specifications with provisions for upgrading the 20 km section to PNH standard at a later date. Trashigang-Samdrup Jongkhar Highway Trashigang-Samdrup Jongkhar Highway (TSH) is currently under the maintenance responsibility of Project DANTAK. It is proposed to take over TSH from Project DANTAK and upgrade it to PNH standard. Thimphu-Wangdue-Trongsa-Bumthang-Mongar-Trashigang Highway Currently the East-West Highway in the North provides the only connectivity to Eastern Bhutan from within the country. Up-gradation of Thimphu-Wangdue and Trongsa-Bumthang sections of the highway to PNH shall receive highest priority followed by the sections Mongar/Lingmethang-Trashigang and Bumthang-Mongar. Construction of the 35.6 km realignment between Nangar and Ura which is being implemented will reduce the road length by about 27 km. Construction of the bypass with 8.5 meters formation width has commenced and 25.6 km is planned to be completed during the 9th Plan and the remaining 10 km will be implemented during the 10th plan. It will be upgraded to PNH at a future date. Five potential locations for road tunneling are identified viz. between Thimphu and Wangdue, Nobding and Chendebji, Dorji Goenpa and Geytsa, Gayzamchu and Sengor and Kilikhar and Ningala. Samtse-Phuentsholing-Lhamoizingkha-Sarpang-Manas-Nganglam-Samdrup Jongkhar Highway (SEWH) As per the RSMP, the length of the SEWH is 794 consisting of 506 km of missing links on various stretches and 288 km of up-gradation of existing roads. Another alternative alignment 224 Annexures to the Strategy for Gross National Happiness close to the international border was studied within an aerial distance of 1 to 2 km which yielded a distance of 743 km. The construction of Samtse –Phuentsholing section (69 km) is underway and 30 km each of formation cutting and permanent works are planned to be completed by the end of 9 th Plan. All remaining works including formation cutting, permanent works, base course and bitumen sealing works are planned to be implemented during the 10th plan. The entire project has been divided into 15 contract packages and each package is designed to be implemented simultaneously from both ends. The number of contract packages can be reduced further by increasing the contract value. Construction/Improvement of roads to SNHs The following SNHs are identified in the NSP. The SNHs shall be of single lane without access control. The SNHs which will complement the PNHs to make the transport network efficient and meaningful would cater for at least 80 percent of the design speed of the PNHs. Autsho – Gorbaktang Road (51km) It will provide the shortest and fastest connectivity between Lhuentse and Mongar Dzongkhag while bypassing the problematic area at Rotpashong on the existing Gangola–Lhuentse Road. The construction of this road is scheduled to commence in the 9th Plan as a feeder road and completed during 2009-2010 of the 10th Plan. It is proposed to be upgraded to SNH in future if the flow of traffic justifies upgradation. Chazam-Trashi Yangtse Road The existing Chazam-Trashi Yangtse road currently classified as Dzongkhag/District road will be upgraded to SNH standard. Ura – Ungar-Gorgan Road Ura-Ungar-Gorgan road will shorten travel distance between Bumthang and Lhuentse by at least 69 km and thus time saving would be substantial. The Ungar-Gorgan section of this road reflected in the RSMP as a feeder road should be designated as SNH. This road will be initially constructed to feeder road specifications and upgraded to SNH in future. Shingkhar-Thidangbi Road The Shingkhar-Thidangbi Road will improve connectivity between Bumthang Dzongkhag, Mongar Dzongkhag and Zhemgang Dzongkhag once Ura-Shingkhar-Zhemgang road is constructed. Ura-Shingkhar-Zhemgang/Panbang Road Ura-Shingkhar-Panbang Road will become another important North-South connectivity which will provide fastest and shortest route to Panbang on the 2nd East-West Highway in the South. It would also facilitate the implementation of the Chamkharchhu Hydropower Project. Out of 56 km of Gomphu-Panbang highway construction of 4.86 km is completed to double standard. Since Gomphu-Panbang highway will become part of Ura-Shingkhar-Zhemgang/Panbang road the specification for Gomphu-Panbang Road is proposed to be downgraded to SNH standard for consistency. The existing 40 km of Tingtibi-Gomphu road will be upgraded to SNH standard at a later date. The farm road planned to be constructed from Buli to Shingkhar via Nimshong and the existing feeder road from Buli to Dakpai should be upgraded to SNH standard. 225 Annexures to the Strategy for Gross National Happiness Haa-Samtse Road Haa-Samtse road will serve as the North-South link in western Bhutan. It will comprise of the 21 km Samtse - Halhalay segment of the SEWH in the South and five feeder road links identified in the RSMP namely Halhalay-Dorokha (23 km), Dorokha - Rangtse (40 km), Rangtse – Yaba (11.3 km), Yaba - Sombeykha (24.5 km) and Sombeykha - Haa (117 km). Samtse - Halhalay section which forms part of the SEWH is under construction and will be completed during the 9th plan. Only few settlement areas would be connected between Dorokha and Haa and therefore the proposal to construct this road segment may have to be reviewed. Khasadrapchu-Paro-Haa The proposed Khasadrapchu-Paro-Haa SNH would essentially mean linking Khasadrapchu and Paro as there already is a road from Paro to Haa. There is an existing rough road from Khasadrapchu leading towards Paro and another existing rough road from Paro towards Khasadrapchu which could be connected by constructing the missing link. However, preliminary studies have shown that it is possible to construct a tunnel between Khasadrapchu and Shaba which is estimated to be about 9 km with the tunnel portal on Paro side located near Nego at Shaba and that on Thimphu side located at Jamdowon (opposite Langdru) near Khasadrapchu. If this tunnel is constructed the distance between Thimphu and Paro would reduce by at least 31 km (from the present length of 58 km to 27 km). After upgrading Babesa/Thimphu-Chuzom segment of the existing highway to the Asian Highway standard and Chuzom-Paro road to PNH standard the effective journey time between Thimphu and Paro can be reduced from one and half hours to half an hour or less. Since the distance reduction is substantial and in view of the high intensity of traffic expected to travel on this route the idea of build, operate and transfer (BOT) scheme should be explored with the involvement of private sector in partnership with regional/international firms. Feasibility study for tunneling should be carried out during the 10th plan and construction implemented in the 11th Plan if tunneling is found feasible. Chhuzom-Paro Highway With over 1,100 vehicles per day (including two wheelers) currently plying on this route Chhuzom-Paro road would continue to remain heavily trafficked in future by virtue of the existence of the airport at Paro. Double laning works which have commenced are planned to be completed soon. The magnitude of the present and the anticipated future traffic growth justifies it to be designated as PNH. As highlighted above the travel time between Thimphu and Paro would reduce from present journey time of one and half hours to about half an hour if a tunnel is constructed between Khasadrapchu and Shaba. As a result of the reduced travel time people from Paro and its adjoining areas would prefer to commute daily to work in Thimphu which would have the positive impact of depopulating Thimphu City. Chhuzom-Haa Road Although it is presently categorized as national highway, Chhuzom-Haa does not conform to the national highway standard. It should be upgraded to SNH standard. It is proposed to ascertain the requirement to upgrade this road and the course of action taken at a future date. Paro-Haa Road via Chelela Paro-Haa road (also all other roads in Bhutan constructed by DANTAK) is said to be constructed to Class 9 specification of the Indian Border Roads Organization and it therefore 226 Annexures to the Strategy for Gross National Happiness does not conform to national highway standard. It should be upgraded as SNH to enhance linkage between Paro, Thimphu and Haa Dzongkhag. Dewathang-Samdrupcholing-Jomotsangkha Road Dewathang-Samdrupcholing-Jomotshangkha road would essentially form part of the SEWH in the South but would have lower traffic intensity as the urban growth is likely to remain confined within Samdrup Jongkhar and Samdrupcholing. Therefore, this road which is presently classified as Dzongkhag road should be designated as SNH. The stability of geologically weak spots on the existing Dewathang-Samdrupcholing road should be ascertained thoroughly prior to the implementation of the up-gradation works. Tshelingor-Pema Gatshel-Tsebar-Mikuri-Sokphurongchu Road It will connect Pema Gatshel to Gyalpoizhing-Nganglam highway at Sokphurongchu and create access to Nganglam on the SEWH while opening up many isolated villages under Pema Gatshel Dzongkhag. The existing Dzongkhag road from Tshelingor to Pema Gatshel and Pema Gatshel to Khothakpa require to be improved and construction of Khothakpa-Tsebar road which is planned to be implemented in the 9th plan as a feeder road should be designed with basic highway geometric features for up-gradation to SNH in future. Nyaskar-Shingchunri Road Khothakpa-Khar-Tsebar-Yurung road is identified to be implemented as a feeder road under the Rural Access Project Phase II starting in the 9th Plan. Instead of extending the road from Yurung to Nyaskar which is about 45 km it would be more meaningful to extend the road from Yurung up to Chimung and connect Nyaskar to Gyalpoizhing-Nganglam Highway at Sokphurongchu by constructing a separate feeder road via Shinchungri. Construction of the missing link between Yurung and Nyaskar could be considered at an appropriate time in future if found justified. Meritsemo-Bongo-Getana-Bangale-Tashigang (Dagana) Road A feeder road from Meritsemo to Bongo (17.5 km) is identified to be constructed under Road Network Project. Construction of Bongo - Tashigang (Dagana) Road via Getana and Bangale is proposed to be initially constructed to feeder road specifications and later upgraded to SNH if traffic level justifies its upgradation. Aimeri-Nimtola-Kerabari-Sama Dhovan Aimeri (Gesarling)-Nimtola–Kerabari-Sama Dhoban Road is approximately 93.5 km which is proposed to be constructed as a feeder road. The existing feeder road from Tshendagang to Gesarling which is 16 km is proposed to be upgraded to SNH in future. Road Realignment Many locations exist on the national highway network where there is an opportunity to construct a new alignment which offers substantial saving in distance. Nangar – Ura bypass is one such realignment which is under construction on the existing East-West Highway. Damchhu –Chhukha Realignment The realignment of TPH between Damchu and Chhukha fits in well with the policy of making the PNHs provide the shortest and fastest route between any given two destinations. The travel distance along the proposed bypass between Damchhu and Chhukha after the realignment will be only about 24 km compared to the existing length of 48 km between 227 Annexures to the Strategy for Gross National Happiness Damchhu and Chhukha implying reduction in road length by 24 km which is substantial. It is proposed to be implemented starting from 2009-2010 to 2012-2013. As the TPH is declared as Asian Highway – AH48, traffic on this road will increase significantly from the present traffic of over 1,500 vehicles per day because of international traffic. The idea of implementing the bypass construction as a BOT project should be explored with participation of national/international firms. Wangdigang - Tingtibi Realignment The road length between Wangdigang and Tingtibi can be shortened by at least 39 km by way of realignment involving construction of about 15 km. The construction of this bypass road is being taken up and is scheduled for completion during the 10th Plan. It is proposed to construct the bypass to SNH standard and later upgrade it to PNH standard. Road Tunneling There is a great potential to cut short the highways to reduce travel time by constructing tunnels taking advantage of our mountainous terrain. However road tunnels are expensive to construct and operate. Analyses have shown that for a traffic level of 200 vehicles per day construction of 0.5 km tunnel would have to yield a distance saving of at least 50 km to be economically viable. However, in the context of Bhutan, tunnels would also provide large benefits from avoiding landslides and the cost of clearance, delays and diversions and therefore we need to look beyond the domain of conventional economics to ensure reliability of the transport network for national solidarity and security. Southern East-West Highway Preliminary map studies show that 10 tunnels with lengths ranging from 0.8 km to 7.7 km are probably feasible to be constructed on the SEWH. It is proposed to conduct detailed studies during the 10th plan. Thimphu-Phuentsholing Highway Jhumja is one of the major problem spots on the TPH. Preliminary studies conducted jointly by the Norwegian Geotechnical Institute (NGI) and the DGM indicate that about 1 km tunnel would have to be constructed to bypass the landslide area. The construction of 1 km tunnel is estimated to cost Nu. 180 million and is likely to reduce the road length by about 6-7 km. The study also indicates that construction of the tunnel would result in a cost saving of Nu. 18 million annually on driving cost alone. Further, the study indicates that the cost of 1 km tunnel could be recovered in ten years through driving cost in addition to the cost savings from maintenance of the existing road. Construction of Feeder Roads/Farm roads Increased accessibility means reducing walking time to the nearest motorable road. People in the rural areas are willing to forego other development programs and social amenities like water supply and electricity for a feeder road. The notion that road is the harbinger of economic development cannot be negated. Over 2,650 km of feeder roads are identified in the RSMP with priority ranking assigned based on cost per household. Remoteness is a direct measure of poverty – more distant the rural population from the motorable road, poorer the community. Presently, the MoA is responsible for planning and implementation of farm roads through the Dzongkhag Administrations. This mandate should be transferred to the DoR. The 228 Annexures to the Strategy for Gross National Happiness Dzongkhags should be responsible for planning and identification of the farm roads and technical backstopping should be provided by the concerned central agency. Construction and strengthening of Bridges SOUTHERN EAST-WEST NATIONAL HIGHWAY The construction of SEWH has been identified as a priority by the SGNH for development of the economic hubs. Since the proposed highway cuts across the full length of the country along the southern border, it has to cross all the major rivers in the country. The Highway would therefore require construction of quite a large number of bridges. Number of bridges, span and proposed type The SEWH would require construction of about 65 permanent bridges of which 19 are major ones (span 50mtrs or more). Loading Class/Capacity and Carriageway width of the bridges The SEWH is proposed to be connected to the Asian Highway Network and since Class III (double lane) AH specifies Load Class HS20-44 for the bridges, the same load class is proposed to be adopted for the SEWH. HS20-44 is the standard live loading for bridges specified by American Association of State Highway and Transportation Officials (AASHTO) for Interstate Highways in USA. The HS20-44 loading consists of standard HS trucks and a uniform lane loading. As per the proposed alignment, the SEWH passes Shompangkha Zam at Sarpang and Gelegzam at Aie, Gelephu which have single lane carriageway widths of 4.5m and 3.76m respectively. The permanent bridges were constructed in 2001 with grant aid from GoI and despite requests by the then Ministry of Communications, RGoB, for double lane bridges, GoI constructed a single lane bridge, mainly on the ground that the traffic volume did not justify double lane bridges at the above locations. Therefore, for the above two locations, the bridge width would have to be extended to accommodate two lanes of traffic. The extension would basically mean construction of another single lane bridge along side as the existing single lane bridges are quite new and it may not be justifiable to dismantle and replace them. Both the bridges are close to urban settlements and Gelegzam especially can be expected to have considerable vehicular traffic once Gelephu starts to develop as an economic hub. Since access at the above locations is currently being provided by the single lane permanent bridges, there is a visible option to construct the extensions after 2017 depending on the traffic volume demand. This would, although in a small way compared to the overall work volume, contribute towards reducing the work load and also the resource strain on the government. Between Sipsu – Samtse, Sarpang – Gelephu and Dewathang - Samdrupcholing, the proposed alignment falls on the existing road. There are fourteen single lane semi-permanent bailey type steel bridges on these stretches of the Highway which would have to be replaced with double lane permanent bridges. THIMPHU – PHUENTSHOLING HIGHWAY There are eleven bridges on the TPH. The two major bridges at Tanalum (span 67m) and Chhukha (span 67m) have double lane carriageway widths of 7.50m. The other minor bridges with spans less than 12m have single lane carriageway widths of 4.50m only. But these bridges are being replaced / extended by Project DANTAK under the TPH Widening Project. 229 Annexures to the Strategy for Gross National Happiness WANGDUE - SARPANG HIGHWAY All the bridges on this Highway are semi-permanent Bailey bridges. Bridge Division, DoR, has already conducted a study on the strengthening/replacement of the bridges on this highway in preparation for the upcoming Punatsangchu Hydro Power Project. Since the Bailey bridges have a carriageway width of 3.28m only and a limited loading capacity of not more the 24 tons, almost all the bridges on this highway warrants replacement not only on account of the up-gradation of the Highway to PNH but for transportation of the heavy equipment for the upcoming power project. Total of 11 bridges are to be constructed on this Highway. The Wakleytar Bailey Suspension Bridge is being replaced by a permanent Langer Arch-type of bridge under Phase II of the ‘Project for re-construction of bridges in Bhutan’ funded by JICA. Loading Class/Capacity and Carriageway width of the bridges Since the highway is going to be upgraded to PNH, the bridges are proposed to be designed for HS20-44 vehicle load specified by AASHTO. This class of loading will cater to the heaviest of the vehicular traffic and also include provisions for military vehicles. As this PNH is going to connect the North – Western growth centers to Gelephu and since the highway has also been identified as the main route for transport of equipment and machinery for the planned Punatsangchhu Hydro Power Project, all the bridges on this route shall be double lane. But for bridges with span less than 50m, a slightly restricted double lane carriageway width of 6.00m is proposed. However, for bridges with span of 50m or more, a double lane carriageway width of 7.50m would have to be adopted. TRONGSA – GELEPHU HIGHWAY Trongsa – Gelephu Highway connects the growth centers to Gelephu. Currently, almost all the bridges on the highway are single lane. Out of total of 21 bridges on the highway, six are new permanent bridges and would therefore not require replacement. But the remaining 15 bridges would have to be replaced to upgrade the road to PNH. Loading Class/Capacity and carriageway width of the bridges Since the highway is going to be upgraded to PNH, the bridges are proposed to be designed for HS20-44 vehicle load specified by AASHTO. This class of loading will cater to the heaviest of the vehicular traffic and also include provisions for military vehicles. Since the highway is already in operation and being further improved currently under Road Network Project, the replacement of bridges on this highway may not be considered a priority for now. The bridge replacement program for this Highway could begin sometime after 2020. For now, the traffic volume on this highway is quite low. JICA had, in 1998, conducted a study on the traffic volume at Mangdechhu, Tingtibi, for planning and construction of Mangdechhu Bridge. As per the study, the traffic volume projection at Mangdechhu bridge site for the year 2020 is 79 vehicles per/day which is less than 7 vehicles/hour. Since the traffic volume is so low, even though the span of Mangdechhu Bridge is 96m, the bridge is built as a single lane with a carriageway width of 5.50m. But the width of 5.50m is a comfortable double lane for light vehicles. 230 Annexures to the Strategy for Gross National Happiness However, with the development of Gelephu as a main economic hub and as a result of up gradation to the Highway to PNH, the scenario is expected to drastically change after 2028. Therefore similar to Wangdue-Sarpang PNH, while double lane carriageway width of 6.00m is proposed for bridges with span less than 50m, for span of 50m or more, width of 7.50m could be adopted. GYALPOIZHING – NGANGLAM HIGHWAY Gyalpoizhing – Nganglam Highway is currently under construction and therefore all the bridges on this PNH are going to be new. This highway will be the main trade route for the eastern part of the country. There are total of 13 new bridges to be constructed on this highway. Loading Class/Capacity and Carriageway width of the bridges; Being the main trade route for the East, the highway would need to cater to considerable traffic volume in due course of time and hence the bridges are proposed to be designed for HS20-44 vehicle load specified by AASHTO. As for the carriageway width, 6.00m is proposed for bridges less than 50m span while 7.50m could be adopted for span of 50m or more. TRASHIGANG – SAMDRUP JONGKHAR HIGHWAY There are total of 13 bridges on the highway. With the up-gradation of the highway to PNH, all the 13 bridges will require replacement. Some bridges are too old and others do not meet the width requirement for the PNH. However, except for the 60m span Steel Hamilton Bridge at Samdrup Jongkhar, all others are minor bridges with span less than 50m. Loading Class/Capacity and Carriageway width of the bridges Since the highway is going to be upgraded to PNH, the bridges are proposed to be designed for HS20-44 vehicle load specified by AASHTO. Like the other North – South PNHs, minor bridges with span less the 50m, carriageway width of 6.00m could be adopted. But for bridges with span of 50m and more, carriageway width of 7.50m would be appropriate. THIMPHU – WANGDUE – TRONGSA – BUMTHANG – MONGAR TRASHIGANG HIGHWAY There are total of 31 bridges on the highway. With the up-gradation of the highway to PNH, 23 of them will require replacement. Most of the bridges do not meet the carriageway width requirement for the PNH. However, most of the major bridges on the highway have in the recent years been replaced by JICA grant aid and Project DANTAK. Hence the bridges requiring replacement are mostly minor ones with span less than 50m. Loading Class/Capacity and Carriageway width of the bridges Since the highway is going to be upgraded to PNH, the bridges are proposed to be designed for HS20-44 vehicle load specified by ASSHTO. Based on their traffic volume count survey conducted for the ‘Bridge Re-construction Project in Bhutan’, JICA has made projections for traffic volumes on a number of bridges on the highway for the year 2020. The highest traffic volume projection of 388 vehicles per day each was made for Bjee Zam at Trongsa and Wachay Zam at Wangdue. Since this volume of traffic did not justify 7.50m wide bridges, they have adopted bridge width of 5.50m only for the four bridges they constructed on the Highway in 2001. However since the replacement of the bridges on this highway is proposed to be taken up after year 2020 and more so because of the expected change in the traffic condition scenario 231 Annexures to the Strategy for Gross National Happiness after full implementation of the SGNH, like in the other PNHs, carriageway width of 6.00m is proposed for minor bridges with span less than 50m. But for bridges with span of 50m or more, carriageway width of 7.50m could be adopted. SECONDARY NATIONAL HIGHWAYS (SNHs) Since the SNHs conform to single lane standards (with provision for future up gradations), following general design specifications shall be adopted for the bridges on the SNHs:Loading Class/Capacity; To keep provision for possible up gradation of the SNHs to PNH in future, the same Loading Class/Capacity of HS20-44 of AASHTO shall be applied for the bridges on these highways. Carriageway width Carriageway width of 5.50m shall be adopted for the bridges on the SNHs irrespective of the span. This width of bridge would be quite restrictive for two heavy vehicles to pass. But during emergencies such as engine trouble on the bridge, other heavy vehicles can move beside the stopped vehicle. The 5.50m width is a comfortable double lane for light vehicles. Hence even if the SNH gets upgraded to PNH in the near future, 5.50m width of the bridge would serve the purpose unless the heavy vehicle traffic increases many folds, which is highly unlikely on the SNHs during the design life of the bridges. Therefore it will not be economical to build double lane bridges on the SNHs for now. BRIDGES ON FEEDER ROADS (FRs) Loading Class/Capacity For Feeder Roads, Load class H20-44 as per AASHTO is proposed to be adopted. HS20-44 which is heavier than the above class of loading is adopted for highways where heavy truck traffic is anticipated. Therefore, it will not be economical to adopt HS20-44 class of loading for FRs. In fact AASHTO had introduced HS trucks only in 1944 and till then, even the bridges on the Interstate Highways in the US were designed for H trucks. Even if the FR in future gets upgraded to SNH or even PNH for that matter, H20-44 class of loading would suffice. Carriageway width In preparation for the project for re-construction of bridges in Bhutan, JICA has conducted a traffic volume count for a couple of roads in Bhutan and have recommended for single lane bridges even on the National Highways. Therefore it would be too uneconomical to adopt double lane bridges on FRs. Hence single lane carriageway width of 4.50m is proposed for FRs with span less than 50m. However, for major bridges with span of 50m or more, carriageway width of 5.50m could be adopted. The road network in the country for 2028 provided in the SGNH would require construction of a large number of permanent bridges within a short span of 20 years. This is an extremely huge capital investment for a small country like ours and therefore a comprehensive and realistic implementation strategy and schedule is of paramount importance. For instance, on the SEWH alone, there are 65 new bridges to be constructed and the highway has to be completed by 2017. Planning and construction of so many numbers of bridges within 10 years will be a unique and unprecedented challenge for our construction industry. 232 Annexures to the Strategy for Gross National Happiness Proposed implementation strategy For effective implementation of the SGNH, especially for activities such as roads and bridges involving longer implementation duration and higher investment, prioritization and proper distribution of the activities over the 20 years of implementation time is quite critical. The other important procedure is the judicious contract packaging of the works in relation to the capacity to implement and the limited time frame. Prioritization of bridge works Top priority shall be accorded to the bridges on the SEWH and the Wangdue – Sarpang (WS) PNHs in preparation for the upcoming Punatsangchhu Project. However, the bridges on the on-going projects like Gyalpoizhing – Nganglam, Gomphu - Panbang and the FRs planned for the 10th plan may be carried out as per planned road construction program. The replacement of the existing bridges on the SEWH and the other PNHs could be taken up after the new constructions on the SEWH and the replacements on the Wangdue - Sarpang PNHs are taken up. Contract Packaging Considering the number of bridges to be constructed in the next 20 years, it will be impossible to manage if we have a Contractor and a Consultant each for all the bridges. Therefore, the bridges will have to be grouped, depending mainly on their span, to form contract packages. Each package shall be handled by a single or a Joint venture or even a Consortium of Contractors or Consultants. Design and construction supervision The professional services such as topographical survey, subsoil investigation, detailed design and construction supervision of the bridges shall be outsourced as a single lot as per the contract packaging discussed above. The outsourcing of the design and the supervision consultancies as a single package usually make the services cheaper besides avoiding the conflicts between the designer and the site supervisor during the construction phase. In view of the highly specialized nature of the job, packages may be invited from reputed international firms through International Competitive Bidding (ICB) or from Joint Ventures (JV) between Bhutanese and experienced International Firms. But the local firms would be required to actually involve in the design and supervision process than just being a signatory in the JV partnership to ensure that there is transfer of technology from the international to the local partner. The procurement of professional services for design and construction supervision shall be carried out by Bridge Division of DoR in consultation with the Management of the Road Construction/Upgradation Unit under which the bridge(s) falls. For shorter span bridges across smaller river and shallow valley crossings, concrete bridges may be the preferred option against steel bridges since the construction materials such as sand, cement and aggregate are all available locally. Bridge construction works The construction works, in keeping with the RGoB’s policy of private sector development, shall be outsourced. Bridge construction works, especially for major bridges, is a high-tech job requiring specialization and experience. Looking at the current situation, it is unlikely that our construction industry would have the capacity, especially in terms of technical requirements, to construct bridges as per the packages proposed above. Hence for the initial five to six 233 Annexures to the Strategy for Gross National Happiness years of the 20-year program, it would be necessary to allow our local contractors to form JVs with experienced regional/international firms or rely totally on international firms acquired through ICB. The regional/international-Local JV is already in practice for construction of major bridges in the country. The reason for initiating the exercise was two fold – so that the international partner can provide the technical support to the local partner during construction of the bridge and that there is transfer of technology from the former to the latter. So far, although the technical support part had been satisfactory, technology transfer was not very encouraging. The locals more or less restricted themselves to management and liaison and the technical part of the job was mostly independently handled by the international partner. With the implementation of the SGNH, Bhutan will have to construct a huge number of bridges and it is not only necessary but essential that our own construction industry develops the capacity to undertake construction of heavier and more hi-tech infrastructures such as bridges. Hence at least by the end of 2017, we should aim for a full in-house capacity to plan, design and construct any type of bridges. Alternative modes of surface transport Ropeways The use of ropeways in Bhutan is limited to Trashila Ropeway (length 7 km) near Wangdue built in the early 1980’s mainly to transport timber but later used to carry passengers. Ropeways are generally thought to be a suitable mode of transport as a substitute for roads in terrain with significant differences in altitude. Any ropeway system to be implemented in Bhutan would have to be short to serve specific needs. Although it may be less expensive than a road, a ropeway requires fixed facilities at a substantial cost and therefore it is appropriate only when there is significant transport demand over a long period. There is a possibility to construct a ropeway from Zamechu to Gasa Dzong for passengers and freight once the construction of Damji-Zamechu road reaches Zamechu. It is recommended to carryout a detailed study for establishing ropeways as a part of the country’s surface transport study to carry passenger and freight as well as to promote ecotourism for which the potential is very high. Surface Transport Development Intervention Strategy Access to regional and global markets Under the on-going initiatives of the regional bodies such as SAARC, SASEC (ADB), BIMSTEC and UN-ESCAP, the following transport corridors and gateways are being developed to enhance connectivity to landlocked countries including Bhutan: Transport and transit road corridors i) Thimphu/Paro – Phuentsholing – Hasimara - Siliguri – Kolkata/Haldia (for trade to and through Indian ports) ii) Thimphu/Paro – Phuentsholing – Hasimara - Siliguri – Kakarvita (for trade with Nepal) iii) Thimphu/Paro – Phuentsholing – Hasimara – Burimari – Khulna or via the Jamuna Bridge to Dhaka – Chittagong/Mongla (for trade to and beyond Bangladesh transiting through India) 234 Annexures to the Strategy for Gross National Happiness iv) Samdrupjongkhar – Guwahati – Shillong – Sylhet (Bangladesh) – Dhaka – Kolkata alternate transport corridor for trade beyond India and Bangladesh, from the eastern part of the country. In view of the on-going sub-regional and regional initiatives, it is important to focus attention for developing the Thimphu – Phuentsholing – Jaigaon – Hasimara – Siliguri – Kolkata/Haldia corridor for promoting international connectivity. Fortunately for Bhutan, investment required for improving road corridors are not significant since physical, non-physical and institutional improvement within these road corridors in India and Bangladesh are expected to be addressed by the governments of India and Bangladesh for providing access to the nearest ports in their respective territories. The following activities are however, required from the Royal Government: Establishment of an integrated cross border facility addressing immigration, customs processing and quarantine facility at the border towns starting with Phuentsholing and gradually replicating these facilities in Samdrupjongkhar, Samtse and Gelephu. It is given to understand that the GoI has already initiated the development of 13 such facilities at different border crossing points with Bangladesh, Nepal and Pakistan. Establishment of a Dry Port at Phuentsholing as a matter of priority with similar facilities at Samdrupjongkhar and Gelephu developed gradually. Creating physical facilities in terms of adequate parking space at Phuentsholing to facilitate faster custom clearance, including the procurement of cranes and forklifts. Bilateral transport agreement and multilateral transport transit agreement among members of the SAARC region within a regional framework for allowing reciprocal movement of vehicles, goods and people across the border. To further improve connectivity, it will be important to have two other points i.e. Gelephu and Samdrup Jongkhar connected to the Asian Highway network. Samdrupjongkhar should be linked to AH1 in Nagaon and Jorabat in Assam. Similar access from Gelephu should be requested and the route Gelephu – Santaibari – Indian National Highway 31 for traffic destined towards Siliguri and Guwahati designated in the Asian Highway Network gradually, so that traffic could move through the Indian National Highway 31, for Bangladeshi and Indian markets and ports through Guwahati and Siliguri. Consequently, it would be beneficial to integrate Samdrup Jongkhar –Phuentsholing sector of the SEWH to the AH network as and when it is complete. Road connection from the east for trade with Arunachal Pradesh is another possibility since it is given to understand that Arunachal Pradesh is exploring options for a bypass through Bhutan without having to use the Assamese national highway. Trade route from Sikkim for access to Samtse or Haa with the opening of trade between China and India through Nathula pass, is an area requiring more study. Maritime gateways i) Kolkata/Haldia ports ii) Chittagong/Mongla ports in Bangladesh With regard to these maritime gateways, the governments of India and Bangladesh would initiate all actions necessary to improve the efficiency and management of the above ports. Further study and consultation with the GoI would also be required to study the possibility of using Jawaharlal Nehru Port in Mumbai for trade to European markets. 235 Annexures to the Strategy for Gross National Happiness Waterways i) Possibility of using the Inland Water Transport (IWT) corridor from Kolkata via Sunderbans and bypassing Narayanganj (in Bangladesh) - Brahmaputra - Guwahati (Assam) and by road to Samdrupjongkhar, and vice-versa. The IWT is currently available between India and Bangladesh on a small scale. However, expert studies have suggested the strong possibility of using this IWT corridor through investment by Bangladesh and India. Bhutan could request for extension of this IWT corridor as additional trade route from Samdrupjongkhar to Bangladesh via Assam68, as submitted by the members of the National Assembly during the 86th session. ii) Feasibility of using Manas river for water transport has not been studied and would therefore require more investigation through expert study. Rail corridor i) Hasimara (West Bengal) – Phuentsholing with bifurcation to Pasakha (18 km). Due to unavailability of space in Phuentsholing, the consultants M/S Rites Limited have been requested to concentrate on providing link to Pasakha. In such a case, a new site will also need to be identified for a Dry Port at Pasakha instead of Phuentsholing. ii) Kokrajhar (Assam) – Gelephu (70 km) iii) Pathsala (Assam) – Nganglam (40 km) iv) Rangia (Assam) – Samdrupjongkhar via Darranga (60 km) v) Banarhat (West Bengal) - Samtse (16 km) The first priority should be to complete the physical link to the five border towns. Consequently, effort must be made to gain membership to the Trans-Asian Railway (TAR) network at an appropriate time in future. For this purpose however, consultation with the GoI will be necessary to provide links from the above places (starting from Phuentsholing/Pasakha) to the Indian railway system for subsequent connectivity to the TAR Network. This will help international trade to take place through railway system in the region as well as to other parts of the world. In this regard, the railway networks which are already designated in the TAR Network in India and Bangladesh, and could possibly provide connectivity to Bhutan are: Radhikapur – Birol –Abdulpur - Kolkata – Haldia – Chennai – Mumbai (India) and onward to Sri Lanka via a ferry link. Using the same network or combination of other network in India, access to West Asia and Russian federation may also be possible. Radhikapur – Birol –Abdulpur (West Bengal) - Tongi – Chittagong (Bangladesh) and onward connectivity to countries in the South-East Asia, Korea, Japan, Central Asia and Russia. Passenger transport services The following strategies are proposed to enhance passenger transport services in the country: a) With the improvement of road network, passenger transport services would be provided by using comfortable and deluxe buses. b) Private companies will be invited to provide passenger transport services. This is expected to improve the quality of services, improve professionalism and make the services sustainable. 68 Kuensel issue dated 6 January, 2007 236 Annexures to the Strategy for Gross National Happiness c) Develop integrated transport infrastructure in the form of bus terminals, bus sheds, parking and public toilets. d) De-regulate passenger transport services especially in the capital region, with the RSTA concentrating on standards and regulatory aspects. e) Introduce free pass system for senior citizens (65 years and above) and disabled. The private operators would be compensated through a suitable subsidy package. f) Continuous monitoring of passenger transport services to ensure efficiency, safety, reliability and quality services. g) Introduce ICT and Global Positioning System to assist drivers of the hazards/dangers enroute, and monitor and track the movement of passenger buses. h) Subsidize transport operators on non-profitable routes. i) Develop vehicle standard for taxi and enforce the use of taxi meters. j) Identify and develop highway amenities such as eating and resting places, and automobile workshops along major national highway. Urban Transport Thimphu municipality is served by 14 buses, which is inadequate during the rush hours but under-utilized during lean hours. With the continuous expansion of urban boundaries, demand for public transport is growing significantly. In order therefore, to reduce traffic congestion, environment pollution, and road injuries and death, it has become necessary for the government to find ways of promoting urban transport, particularly in the capital region. While options are fairly limited because of the terrain and small size of market, study must start now for introducing mass urban public transport. The following urban transport strategies are recommended: Trolley buses Trolley buses which run on electricity are widely used in different parts of the world. A trolley bus is powered by two overhead electric cables, from which the bus draws electricity using two trolley poles. Trolley buses are considered particularly advantageous on hilly routes as electric power is more effective than diesel for climbing steep hills and trolley buses’ rubber tires have better adhesion than wheels on steel rails. Trolley buses are especially favored where hydropower is abundant and cheap. Standard trolley buses are 40 to 60-feet long which have carrying capacity of 41 passenger seats and 42 standees on 40' standard vehicles and 54 passenger seats and 70 standees on 60' articulated vehicles. The 40’ buses weigh approximately 31,500 pounds, uses NiCad batteries for emergency propulsion. Such trolley buses can be introduced to serve the core municipality of Thimphu. Similar services should also be explored for other larger towns like Paro, Samdrupjongkhar and Gelephu. Number of trolley buses, frequency of services and the route coverage within the urban boundaries for each town will need to be assessed through expert input. Enhance urban transport The number of buses operating in urban areas especially in Thimphu should be increased. For this purpose, the Ministry of Finance should continue to subsidize the urban transport as is being done presently so that adequate number of buses is available to operate at an interval of every 10 minutes covering most residential areas, especially during the rush hours. Also, as a short-term measure, such buses should be introduced in other larger towns like Phuentsholing, Samdrupjongkhar, Paro and Gelephu. 237 Annexures to the Strategy for Gross National Happiness Revision and strict enforcement of vehicle emission standards Emission standards should be revised to international level so that the older and more polluting vehicles are discouraged from plying on the road, thereby also reducing congestion. Develop safer and convenient footpaths and dedicated bicycle lane in urban centers Such a strategy will encourage people to walk or use bicycle wherever feasible. Transport safety The following transport safety strategies are proposed: (a) Promote cooperation and collaboration among key stakeholders through the establishment of a National Road Safety Board or the Road Safety Council with RSTA playing the lead role (b) Improve road traffic management and information network system including road signs (accident data collection and analysis, road information system, signs and signals) (c) Promote safer roads in consultation with relevant agencies (routine and periodic road maintenance, road widening and improvement works) (d) Educate road users including pedestrians (road safety campaigns and messages, safety messages, refresher courses) (e) Develop safer vehicle programmes (vehicle fitness program, enforce standards for automobile workshops, enforce vehicle standards especially taxis and passenger buses) (f) Develop an efficient incident management or post accident management system (capabilities and facilities for emergency medical and rescue services) (g) Support enforcement agencies with modern equipment and adequate mobility (consistent enforcement, communication and road safety equipment, vehicles for mobility of enforcement agencies) (h) Adequate manpower and training of enforcement and regulatory authorities. (i) Establish road safety fund (j) Set road safety targets and national road safety plans (k) Undertake road safety audits on the entire road system. Transport service delivery As an agency which has direct and routine dealings with the general public, it is important for RSTA to provide services efficiently and at the minimum time possible. For this purpose, the following strategies are suggested: Deploy ICT and promote e-services Reduce processing time for driving license and vehicle registration Introduce computerized driver testing and licensing system to minimize human intervention to the extent possible Study and implement Intelligent Transport System (bus movement information, speed cameras, CCTV, electronic toll collection, traffic monitoring, emergency communication system) Establish reliable data-bank Develop and enforce service standards and basic facilities in passenger transport vehicles Develop appropriate skills for efficient delivery of service to the public Achieve better compliance to laws, rules and regulations and ensure fair and effective enforcement. 238 Annexures to the Strategy for Gross National Happiness Enabling Environment The following problems and constraints are identified in planning and implementation of road infrastructure works. Planning & Design Phase Non-availability of large scale maps (1:10,000 or larger). Currently topographic maps of only 1:50,000 and 1:25,000 are available which are not accurate for road alignment studies. Topographic maps of 1:10,000 or less are required which should be produced by the DSLR. The user agencies should have access to the diapositives of existing topographic maps to enable them (the user agencies) to produce topographic maps of the required scale. At present issue of diapositives is restricted. Shortage of Surveyors and Designers There is an acute shortage of surveyors and design engineers in the DoR. Many of the surveyors are due for superannuation. Given the magnitude of road works foreseen during the 10th plan and beyond implementation of road works will be seriously constrained due to lack of departmental surveyors and design engineers. To alleviate the problem it is proposed to outsource road survey and design works. Forestry Clearance Typically issue of Forestry Clearance (FC) which is a prerequisite for issuing environment clearance (EC) takes anything from 3 to 6 months. The procedures for issue of FC require to be simplified which otherwise seriously hamper road implementation programs. The clearance should be issued within 1 month. Use of local materials Section 8(1) of the Road Act 2004 states that “The Department and other road agencies shall have priority for the use of natural resource available within the road right of way and road control area over other organizations for collection of resources within the road right of way and road control area without the express written consent of the Department or other road agencies”. On the other hand the Forest Act stipulates that all resources are the properties of the DoF and approval of the Forest authority is required for collection and utilization of resources including from areas within the road right of way. The present Forest Act and Road Act 2004 need to be revised empowering the DoR to collect and utilize resources from within the road right of way for road works. Land Acquisition Land acquisition for roads take considerable time. There is a need for very strong coordination among the concerned agencies. All agencies should ensure that assessment of land and other structures is carried out quickly and payment of fair and just land compensations made within a certain pre-determined period to avoid inconvenience to the persons affected by land acquisition. Implementation Modality Construction of the SEWH is the key to the growth of the economic hubs and hence shall be accorded highest priority. In view of the importance accorded to the SEWH and other PNHs in the SGNH, an ambitious work plan has been prepared for the 10th Plan. However, as the local construction industry is still in its fledgling stage it is recommended that the road construction be implemented as a fast track project by involving international contractors or joint ventures between Bhutanese construction firms and regional/international firms to boost 239 Annexures to the Strategy for Gross National Happiness the capacity of the local construction industry. Each contract package shall be between 50 to 100 km to make the contract package attractive so that the size and value of each contract justifies investment in specialized equipment viz. asphalt concrete paver for laying asphalt concrete, spot mix plant for production of asphalt concrete and pugmill type of mixing plant required for mixing wet mix macadam for pavement works. The contractor concerned shall be liable for the maintenance of the road stretch for a defect liability period of five years to ensure that construction quality is ensured upfront. 240 Annexures to the Strategy for Gross National Happiness Air Transport The SGNH recognises the Air Transport Sector as a major contributor to the country’s rapid and sustainable economic growth. Developing a safe, efficient and reliable air transport network within and outside the country has been identified as a priority not only in terms of sustaining the projected growth of tourism under the new policy, but also to promote the development of niche and high value manufacturing and service industries that are time sensitive and command a premium for air cargo. The development objectives for the Air Transport Sector are: To improve accessibility to and within the country and promote development of tourism. Priorities identified in the air transport sector include expansion of Druk Air’s operations, encouraging foreign airlines to fly in, building an all-weather international airport in Gelephu and establishing domestic air connections to Bumthang and to another location in Trashigang. The airport in Gelephu will also have the potential to service the international air travel needs of the adjoining areas in West Bengal and Assam. Good air connectivity – domestic and international, has been identified among others, as a critical factor for attracting FDI, accessing international markets, fostering a wide range of enterprise activity, employment generation, and achieving strong economic growth. Paro airport to remain as an international airport as it has latent potential for growth through promotion of all-year-round tourism. The alternate strategy for third country exports is to develop efficient air connectivity and promote cluster industries in potential niche and high value manufacturing and services sectors that are highly time sensitive and command a premium for air cargo. Establish legal and regulatory framework to meet international norms, standards, and best practices. Based on the detailed analysis done, the following are the recommendations for the air transport sector that would act as a catalyst for the growth of the Bhutanese aviation industry: 1. Undertake institutional reforms in the Department of Civil Aviation (DCA) and Druk Air to achieve the objective of providing a safe, reliable, efficient and sustainable air transport services in Bhutan. 2. Expand Paro International Airport and construct a crossing runway to enhance safety. 3. Construct an ILS capable international airport at Gelephu that would assist in developing Gelephu into the economic hub of Bhutan in the near future. 4. Develop airline business strategies to respond to changing markets and enhancement and renewal of fleet. 5. Construct domestic air strips in Bumthang and Trashigang to promote domestic air connectivity. Institutional Reforms (Civil Aviation) Developing an efficient air transport network has been identified as a priority not only in terms of sustaining the projected growth of tourism under the new policy, but also to promote the growth of cluster industries in potential niche and high value manufacturing and services sectors. Under the new development strategy, major aviation infrastructure 241 Annexures to the Strategy for Gross National Happiness development projects are foreseen in the near future involving heavy capital investments. The ongoing developments call for a detailed review of the present institutional arrangements and human resources capacity in the air transport sector to identify the critical shortcomings in the institution and propose remedial measures. The DCA under the Ministry of Information & Communications (MoIC) is responsible for civil aviation sector in Bhutan. The DCA’s broad functions are: Promote safe, economical, and efficient development of the air transport sector. Provide airport and air navigation services. Implement infrastructure development projects. The present DCA organisation structure, conceived sometime in the early 1990s, does not sufficiently support the fulfilment of the above functions. The most evident drawback in the present organisation structure is the lack of clear separation of regulator and service provider divisions, which has caused ambiguities and overlap between the two functions, and a resulting compromise in aviation safety standards due to conflict of interests. As the air transport sector continues to grow the greatest challenge confronting the sector will be to enhance and maintain safety efforts matching public expectations. Bhutan cannot at any cost afford to have an aviation accident. The stakes are too high. However, ensuring aviation safety is not a straight forward issue. It entails deeper understanding and knowledge about organisation and management issues, and requires initiating reforms targeting the system as a whole. The above analysis shows that institutional reforms must be initiated to achieve the ultimate separation of the regulator and service provider functions. However, the legal instrument that will empower the establishment of an independent Civil Aviation Authority must be developed first. This time lag necessitates taking a two-step reform to achieve full regulatory independence immediately. As a transitional phase one reform, the DCA should be re-organised. The main feature of the proposed transitional organisation structure is the clear separation of the regulator (regulatory division) and the service provider (airports & ANS division). The transitional arrangement is necessary as the legal, administrative, and technical processes for establishing a Civil Aviation Authority are expected to take some time. The proposed transitional structure will offer the following benefits: Improved aviation safety and security through separation of regulatory and service provider functions and reduced conflict of interest; Immediate capacity building in key regulatory and development areas; and Reduced administrative and overhead cost through sharing of support services. Recommendations i) Achieve aviation safety and security standards matching internationally acceptable levels through full independence of regulations and regulatory processes, sufficient discretionary powers, and professional excellence. Undertake functional separation of the regulator and service provider through reorganisation of the DCA. 242 Annexures to the Strategy for Gross National Happiness Immediately recruit experts to head flight operations section and ANS division until such time sufficient local capacity has been built. Establish an autonomous Civil Aviation Authority, with the powers to make safety regulations and enforcement decisions. Establish fair and transparent regulatory procedures. Establish fair and transparent selection process for safety regulators, based purely on professionalism and merit. ii) Ensure independence of aviation accident investigation process from both the regulator and the service providers. Establish an Accident Investigation Unit directly reporting to the Minister of Information and Communications. The investigation unit may be structured to manage all types of public transport accidents – surface, air, water, railways, etc. Develop local capacity to lead and manage the investigation processes. For air accidents investigation experts may be hired in from outside the country. iii) Enable airports and air navigation services providers to operate with greater commercial focus and business enterprise. Undertake functional separation of the regulator and service provider functions through re-organisation of the DCA. Consolidate operation and management of all airports, heliports, and air navigation services under a single organisation. Legal and Regulatory Framework Bhutan ratified the Convention on International Civil Aviation (Chicago Convention) and became a member of the International Civil Aviation Organisation (ICAO) in 1989. As a member of ICAO, Bhutan must accept and achieve compliance to the International Standards and Recommended Practices (SARPs) for aviation safety and security, developed by ICAO. The Civil Aviation Act 2000, Bhutan Air Navigation Regulations 1999, and other requirements provide the legal and regulatory framework for safety and security of air transport operations. The Act and the regulations in the present form do not cover many areas of air transport critical for ensuring safe and secure operation of flights. Examples of missing regulations include those for air traffic services, aviation security, aviation meteorology, aeronautical information services, etc. Those regulations that already exist do not sufficiently reflect the international standards and require further review and amendment. For flight operations and maintenance, the European Joint Aviation Requirements (JAR) has been adopted as regulations in 1999. However, the JAR requirements in the original form, without adapting them to our local operating environment, have in many ways given rise to implementation problems. A Capacity Development Project (CDP), jointly funded by the Swedish International Development Agency (SIDA) and RGoB is currently in progress. Under the CDP project framework, one major programme is dedicated to legal and institutional (L & I) development. Under this programme the existing Civil Aviation Act and regulations will be reviewed and amended to establish comprehensive and forward-looking legal and regulatory instruments for civil aviation that covers all the 18 technical standards issued by ICAO. Bhutan must actively take part in the ongoing regulatory harmonization efforts, and propose the establishment of a regional regulatory agency. The air transport industry is critical for a developing economy like Bhutan to gain from participation in the global economy. Aviation 243 Annexures to the Strategy for Gross National Happiness cooperation is essential for successful economic cooperation. The ultimate objective of liberalizing air transport in South Asia should be the establishment of a South Asian Common Aviation Market. Given the many barriers to liberalization, a gradual, two-pronged (bilateral and multilateral) step-by-step approach to liberalization should be pursued. Liberalization opportunities do exist within the bilateral framework. The existing bilateral ASAs with countries like Nepal, Bangladesh, and India should be systematically reviewed to allow the following provisions: Remove frequency and capacity limits on 3rd and 4th freedom; Add more 5th freedom points and capacity; Allow multiple designations of airlines; Open charter markets; Open freight markets, etc Fresh bilateral ASAs should be concluded with countries in the Middle East, HK SAR, Singapore, Malaysia, China, and other South Asian countries. However, bilateral air services negotiations are often constrained by direct political interventions, and historically have resulted in less than optimal outcome for the two parties. Along with the bilateral initiatives, aviation liberalization should be pursued at the regional level using the existing institutions like SAARC. Transportation policies facilitate the efficient movement of goods and passengers in a manner that supports economic growth and trade in the region. Therefore, the SAFTA Agreement which came into force on 1 January 2006 provides a viable regional framework which can be expanded to include trade in aviation services. The following recommendations and strategies are based on the assessment presented above: i) Strengthen the legal and regulatory framework for aviation safety and security. Civil Aviation Act revised to enable the establishment of an autonomous Civil Aviation Authority. A comprehensive set of aviation safety and security regulations developed compliant with the ICAO technical standards. ii) With the overall objective of improving aviation safety and security standards, enabling growth of air transport business, and reducing cost of aviation services, proactively pursue the move towards harmonization/standardization of aviation regulations in the South Asia region. Actively engage in the ongoing projects on regulatory harmonization. Propose the establishment of a permanent institutional framework (e.g. South Asian Aviation Safety Agency) for common aviation rulemaking, certification, standardization, and enforcement. iii) Pursue progressive and incremental liberalization of air services within the bilateral framework. Negotiate and conclude more liberal and progressive bilateral agreements with Nepal, Bangladesh, India, and other South Asian countries focussing on 5th freedom traffic rights. Conclude fresh bilateral air service agreements with China, ASEAN, and Middle East countries. 244 Annexures to the Strategy for Gross National Happiness iv) Guided by the common goal to achieve strong economic cooperation through free and open trade and investment among the SAARC member states, proactively support air transport liberalization in the South Asia region within the framework of SAARC / SAFTA. Leveraging on the Indian Prime Minister’s statement at the 13th SAARC Summit, Dhaka in 2005, propose the adoption of a progressive, phase-wise liberalization of air transportation in the South Asia region. SAARC leaders to chart out a clear vision (establishment of a South Asia Common Aviation Market by 2020) for air transportation. Include air transport objectives within the framework of SAFTA. Institute a regional consultative mechanism (Biennial SAARC Air Transport Ministers’ Meeting). Formulate SAARC guiding principles for air transportation and develop a roadmap. Establish a permanent institutional framework for aviation rulemaking, certification, standardization, and enforcement. Paro International Airport Following are the proposed strategies for development of Paro International Airport to enhance safety and to accommodate the projected rise in passengers for the next twenty years. Expansion of the terminal building and its facilities Expansion of the apron and the taxiway to accommodate more aircraft Construction of private aircraft parking Construction of domestic terminal, apron and taxiway for fixed and rotor wing aircraft Expansion of the width of the runway Construction of turn pads at the ends of the runway River protection works with embankment and motor road on top that would reclaim land and divert the current road. Construction of a cross runway to enhance safety Accommodation for security and fire staff. Construction of fire station. Consolidation of airport security under one agency. Upgradation & expansion of Closed Circuit TV (CCTV) system coverage. Installation of airport perimeter lighting Upgradation of airport security system Procurement of runway sweeping machine Establishment of Automatic Weather Observation System (AWOS). Aeronautical Information Service (AIS) Automation System Feasibility study for adoption of satellite-based navigation and surveillance systems: Study for adoption of Automatic Dependent Surveillance-Broadcast (ADS-B) with VHF Data Link (VDL)-mode4 and Ground Based Augmentation System (GBAS). Upgradation of Aeronautical Fixed Telecommunication Network (AFTN) to Aeronautical Telecommunication Network (ATN). Improvement of communication & navigation aid technology Upgrade mini radio link (UHF to Microwave) between Paro airport and Jabjeykha (JJ) peak (Location of VOR). 245 Annexures to the Strategy for Gross National Happiness Upgrade air-ground VHF R/T equipment and establish ATS Reporting office. DVOR/DME & High Capacity Uninterruptible Power Supply (UPS) system upgrade. Relocation of the Air Force Element for better utilization of the area - The following table will provide the current situation of Paro International Airport and the capacity that the airport will be able to handle in the next twenty years after expansion works. Sl. Functions No . 1 Arrival hall Immigration counter 2 Baggage Claim area 3 4 Customs/ BAFRA counter Check In counters Druk Air 5 Immigration 6 Departure hall 7 VIP Lounge 8 CIP Lounge 9 Business Lounge 10 Car Park 11 13 14 Out bound Cargo Capacity in volume In bound Cargo Capacity in volume Cargo Car park Fire Station 15 Aircraft parking 16 17 18 19 Taxiway Turn pads Width of the runway Strengthen Apron and taxiway River Protection works 12 20 Current Capacity at one time 114 passengers With 6 counters 114 passengers One conveyor belt 114 passengers , 4 counters 114 passengers Operational 4 counters 114 passengers 6 counters 228 passengers One departure hall The lounge is located at the concourse The lounge is located at the concourse 30 passengers with no toilet and kitchen facilities 100 cars at one time Capacity after expansion works and in the next twenty years 342 passengers With 12 computerized counters 342 passengers with 3 conveyor belts 342 passengers, 6 counters and one agency to look after both functions. 342 passengers Operational 7 computerized counters 342 passengers operational 8 computerized counters 456 passengers Two departure halls The lounge will be located after the Immigration counters The lounge will be located after the immigration counters 60 passengers with toilet and kitchen facilities 300 cars at one time 8 cars In the Air Traffic Control Tower 2 airbuses 30 cars Separate Building with standard requirements 3 additional at the international parking bay 5 private aircraft parking bay 5 helicopter parking bays 5 Domestic parking bay 1 Nil 30 meters 20 PCN 4 2 45 meters 41 PCN - Land 150 acres - No proper - 165 acres - Proper protection from flood 246 Annexures to the Strategy for Gross National Happiness 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 Upgrade mini radio link (UHF to Microwave) between Paro airport and JJ peak Upgrade air-ground VHF R/T equipment and establish ATS Reporting office. DVOR/DME & High Capacity Uninterruptible Power Supply (UPS) system upgrade. Upgrade Aeronautical Fixed Telecommunication Network (AFTN) to Aeronautical Telecommunication Network (ATN). Study for adoption of ADS-B with VDL-mode4 and GBAS systems. AIS Automation System. Establish Automatic Weather Observation System (AWOS). Upgrade & expand CCTV system coverage. Install airport perimeter lighting Upgrade airport security system Consolidation of airport security under one agency. protection from flooding - Road to close to the runway Needs to be upgraded - Diversion of road Needs to be upgraded Upgraded version Needs to be upgraded Upgraded version Needs to be upgraded Upgraded version Needs to be upgraded Upgraded version Not available Upgraded version Not available Upgraded version Out dated version Latest system available in the market No lighting Lighting around the perimeter fencing Out dated equipment Two agency at the moment: DCA and RBA Accommodation for security Not available and fire staff. Runway Sweeping Machine No machine to sweep the runway Air Traffic Control Currently done by Indian Air Force Air Force Element Station at the airport Domestic terminal No terminal Domestic parking No domestic parking Cross runway No cross runway Upgraded version Updated equipment Security under the DCA Quarters available Sweeping machine available The controls to be done the DCA controllers Relocate the AFE to Khangkhu with Imtrat Domestic terminal available Domestic parking available Cross runway available if found feasible Additional runway to enhance safety To enhance safety at Paro International Airport, feasibility study for construction of an additional cross runway from North-East to South-West will be carried out. Expertise will be brought in to study the feasibility and relative increase of safety by constructing an additional runway. Other considerations that will be looked into will be the cost for purchasing private 247 Annexures to the Strategy for Gross National Happiness land and houses that fall on the construction path once the orientation of the proposed runway is finalized. Gelephu International Airport Essential pre-requisites for an international airport at Gelephu Taking into consideration the constraints faced at Paro Airport both in terms of aircraft operations and future aviation growth, the proposed international airport at Gelephu is expected to provide the following facilities: All time operational Capability (day & night, low visibility etc) In view of Paro Airport’s Visual Flight Rules (VFR) limitation on flight operations, the airport at Gelephu should compensate for the existing limitation through the use of Instrument Flight Rules (IFR) capability and flight procedures, approach aids, etc. This could be achieved through use of Instrument Landing System (ILS). This will inevitably have a positive impact on future air traffic growth, thereby contributing to the socio-economic development of the country. Not limited to particular type of aircraft It is expected that Gelephu international airport would allow operation of wide-bodied aircraft on international routes capable of carrying more passengers and freight. Runway length Gelephu being in the foothills of Bhutan adjoining the plains of the state of Assam, India, has more plain area than anywhere else in Bhutan, will be sufficient to have a runway length to accommodate most of the wide-bodied carriers. The problems associated with atmospheric pressure/air density and temperature normally encountered at Paro airport causing load penalty will also be reduced immensely. Airport Infrastructure Development of airport infrastructure such as airport terminal building with the capacity to handle multiple flights at a time, aprons to handle maximum aircraft parking stands and maneuvering areas, hangars to adequately accommodate many aircraft, aero-bridges to accommodate enough wide-bodied aircraft at a time, modern and fully equipped Air Traffic Control Tower (as per ICAO norms) to handle the air traffic and reliable communications and navigational systems. Efficient and fully equipped airport fire and rescue section to react promptly in the event of an accident or incident and efficient and well trained airport security, etc. will enable efficient handling of higher volume of traffic and cargo. Programmes/Activities The preliminary field studies and survey to locate a suitable site for developing an international airport in Gelephu was carried out by a team of experts from the Airports Authority of India (AAI), GoI, in May 2006. Naya Basti under Bhur Gewog was considered the most probable site by the team. However, their final report on the preliminary survey is still awaited. During the 10th plan, a core group of experts needs to be formed to carry out and go forward with the project and a detailed study has to be undertaken to further evaluate the site and assess the scope of works for developing an international airport at Naya Basti, including Environmental Impact Study and an Airport Master Plan. In doing so, the following scope of works will need to be clearly addressed and studied prior to commencing the work. 248 Annexures to the Strategy for Gross National Happiness Project Implementation Phase 1 (2007–2009) During the 1st phase (2007-2009), the meteorological data of the area will have to be collected and recorded for the period so that the actual pattern of the wind flow of the site and the meteorological phenomenon of the area is understood and confirmed. The actual orientation of the runway at the selected site is decided after understanding the wind pattern. A geotechnical study also has to be carried out to determine the type and strength of the soil. The strength and the load bearing capacity of the soil of the proposed site needs to be ascertained so that once the airstrip is constructed problems like sinking and cracking should not occur. The actual flow pattern and behavior of the two seasonal streams, Paitha Khola & Aipoli Khola, that flows through the proposed site, in the North – South direction into India, needs to be monitored & studied thoroughly so as to confirm on the diversion possibility. At the same time the negative impact that the diversion could cause to the people and villages across the border needs to be ascertained and addressed. The Government has already written to the Embassy of India requesting to expedite the second visit of the GoI study team and to provide the report of the first visit of May 2006 on the Feasibility study and Master Plan for Gelephu International Airport. Phase 2 (2010) In the 2nd phase the acquisition of the total land area needed for the construction of the Gelephu International Airport (airstrip and the infrastructure) will commence. The total land area needed as indicated by the AAI’s experts in their preliminary survey report is as follows: i) ii) iii) For airstrip: 4000m x 600m For Terminal complex: 1500m x 1000m (northern side of runway) Total land area required for the construction of the Gelephu Airport is estimated at 1,600 Acres (4000m x 1600m). Phase 3 (2011-2014) After the completion of the feasibility studies and acquisition of land, the actual work for the construction of an international airport will commence. The work in the 3rd phase should commence with the construction of a runway and other infrastructure to follow simultaneously. Completing the runway as the first project will also facilitate the airline in using it as an airport for any diversion as well as testing the operation till such time the supporting infrastructure are completed. Unlike Paro, Gelephu will have a longer runway with ILS and will have an all-time operational capability (day & night, low visibility, etc.). Network and Capacity Business Strategy In the absence of any other airline operating in the country, Bhutan’s designated carrier Druk Air has been the sole operator since 1983. While Druk Air has served its purpose in linking Bhutan to the outside world, the efficiency in delivering service has often been subjected to criticism when compared to global standards. What must be understood is that while services can be upgraded these come at a cost and hence as a business that cannot sufficiently project profits, additional expenses need to be scrutinized more deeply. As such, in a monopolistic environment, expenses to enhance the image, service and product are sometimes given lower priority. 249 Annexures to the Strategy for Gross National Happiness The future traffic growth demand for Bhutan will be driven from outside and as such in order to tap this potential, networking of the airline must become more globally accessible. Recognizing the need to overcome the weaknesses, the immediate short-term goals for the airline include the following proposals. Distribution Network. IATA & MITA. Alliances & Code Shares. Distribution Network For airlines all over the world, the cost of distributing its network is perhaps one of the most critical aspects of its business. However, the technology has severe cost implications but undeniably no airline can afford not to participate in this technology. For Druk Air while this has been resisted, it has now become imperative that participation in a global system must be recognized for the airline to be prepared for competition in the future as well as exposing its network worldwide. Currently, Druk Air uses the Gabriel Computerized Reservation System (CRS), but access is restricted to Druk Air offices only with limited functionality. Except in countries where Druk Air has appointed agencies, buying tickets to Bhutan has to be processed in Bhutan. Druk Air has interline agreements with some carriers but this has not been fully exploited. Recommendations: (a) Global Distribution System. Evaluate one of the Global Distribution Systems (GDS) – Amadeus, Sabre, Worldspan, Galileo, Abacus and the current CRS Gabriel. Costs for these will have to be negotiated. (b) E-Ticketing Introduce internet linked reservation for direct client access. However, the success of this will also be dependent on the banking policy of acceptance of credit card and secure protection. E-ticket by all airlines is required to be implemented by the end of 2007 for IATA members. (c) De-regulating distribution in Bhutan. Currently, in Bhutan, only Druk Air offices issue Druk Air tickets. No agencies have been given the ticket stock. As the only airline this is not necessary as the distribution of the service can be conveniently provided directly. Hence for the time being it is not recommended to de-regulate the distribution, but this may be reviewed in the future in a competitive scenario. (d) Online Reservation & Ticketing Introduction of Online Reservation. The airline is in discussion with some providers of this web-based application. In order to make this effective Credit Card Acceptance will need to be sorted out by the banks. The airline however, is analyzing this aspect through its service provider to secure the payments which could be hosted through external banks. 250 Annexures to the Strategy for Gross National Happiness Air Service Agreements Bhutan has currently signed air service agreements with the following countries. 1. India 2. Myanmar 3. Bangladesh 4. Nepal 5. Thailand Druk Air is the designated carrier to exercise the traffic rights from Bhutan. No other airline is exercising these rights partly because of the operating difficulties at Paro airport. But in the near future, with growth in the traffic, it is almost certain that some airlines will operate to Bhutan even before Gelephu airport becomes operational. For Bhutan, the biggest opportunity will prevail out of India. However, tourists being an important component of our traffic, Nepal will play an important intermediate route. It is recommended that the Government negotiate with the respective governments on the following issues: Negotiate and finalization with Nepal on the ASA and to include new beyond points. Adopt an open sky policy to begin within the SAARC region. RGoB and GoI have concluded a fairly liberal Air Service Agreement. Negotiate ASA with Hong Kong, Singapore, Dubai. New Routes In the 10th plan, new routes proposed are as follows. Mumbai Druk Air has been evaluating Mumbai since the last two years. Current traffic does not justify a direct service and this has been considered as a point beyond from Kathmandu, Nepal. There is no direct service from Mumbai to Kathmandu currently and the traffic from West & South India is channeled through Delhi. Hong Kong This is also being proposed for operation initially through Kathmandu. Dubai Until we can migrate our international operations to Gelephu and start operation with wide body aircraft, any long haul direct flights will not be feasible both technically and commercially. Fleet Enhancement & Renewal Druk Air acquired the Airbus in late 2004, and these are expected to reach a maturity level by around 2017-2018 after which the operating and maintenance costs would increase. There is no current company or RGoB policy on the retirement age of aircraft. Different airlines have different standards, for example Singapore has one of the youngest fleet of around 5-6 years. The decision on the fleet will depend on Gelephu Airport, replacement of the current fleet and enhancement to meet growing traffic. Product Development The airline has the biggest opportunity to represent the country as a truly Global Brand and should strive towards institutionalizing its services to adopt ISO standards. Cost benefit analysis will be examined, as obligations are stringent, so will be a long-term strategy. The airline cannot sustain purely on its primary business of passenger and freight. It needs to 251 Annexures to the Strategy for Gross National Happiness expand its business operations through diversification into other ancillary services which would be a useful method in spreading risk: (a) (b) (c) Hotel Infrastructure. Ground Handling Agent. Most countries protect the ground handling business for the National Carrier. With the opening of Gelephu, and several airlines that may operate this would definitely be a profit center for the airline. Catering Services. The catering unit of the company in the long term should be examined to be turned into subsidiary unit of the airline as another profit center. In order for the airline and the Country to achieve the desired projected growth of traffic the following immediate proposals are recommended: (a) (b) (c) Review visa and royalty policy for BIMSTEC Countries. This is expected to see substantial increase in traffic from particularly Thailand. Improve and enhance marketing of Bhutan through coordinated efforts of all the stakeholders at Global Tourism Marts. Focus on India. Currently the interest level for Tour Operators in Bhutan does not exist, as the return on the Indian tourist with no regulated tariff is much lower. Some effort has been made more by the hoteliers and the airline has made several efforts in the Indian Market. The airline truly recognizes this as a potential but for this to be a success, all stakeholders must compare what we offer as a nation with other successful countries that the Indian middle class are flocking to like Singapore, Thailand, Malaysia and even Nepal. Introduction of Domestic Air Connectivity Civil air transport activities in Bhutan are currently limited to international flight operations. Domestic connectivity by helicopters was looked at by the DCA since 2001, but until now has found no takers due to the high cost of operation and limited market condition. Now with SGNH and keeping in line with the projected increase in tourist arrivals, there is the need for domestic connectivity to facilitate greater growth of tourism while at the same time build up the capacity for domestic air transport. Considering the geographical and the difficult terrain we live in, the use of helicopters would be the best option as of now instead of fixed wing aircraft to immediately start domestic operations due to the following reasons: Start up operations can be done with minimal infrastructure requirement Heliports are already available in most Dzongkhags Versatility of the helicopter Recommendations i) Domestic airplane operation should commence with twin-engine, pressurized turboprop aircraft with a power-to-weight ratio sufficient for the steep climb envisaged in Bhutan. Single-engine airplanes have been evaluated to undermine safety (purely based on the topography of our country) and as such are not recommended for certification to operate scheduled commercial air transport operation in Bhutan. ii) Construction of domestic airports in Bumthang and Trashigang should be taken up together to render them simultaneously operational. These airports in addition to the 252 Annexures to the Strategy for Gross National Happiness international airport in Gelephu will provide sufficient diversion points during sudden deterioration of weather en-route. iii) In keeping with the recommendations made in the past study reports, further studies to explore the technical viability for the construction of an airport in Phuentsholing will be carried out. iv) It is recommended that fixed wing operations should be promoted through the Private Sector. 253 Annexures to the Strategy for Gross National Happiness Part IV. Care and Relief for Everyone (CARE 2008) Health Situational Analysis 1. Organizational Issues: a. Administration and management The overall structure constitutes a long chain of command and centralized decision making that negates the roles of the departments and divisions. Major challenges in the current system are detailed below. i. Centralized decision making and ineffective committees: Decisions relating to policy formulation, HRD/M, clinical services and procurement of medical supplies are all made by Head Quarters. Though committees have been formed to support the HRD/M and the procurement division, they are not effective as they are not well represented and decisions are made by a few people in the committees. ii. Ineffective and weak Research and Epidemiology Unit: The Research and Epidemiology Unit has a very weak management and has made minimal utilization of information that is available. The Ministry also does not have an active communicable disease surveillance system and only a few vertical reports are available. However, even these reports have not been incorporated into the health information and research system for dissemination and planning purposes. iii. Lack of outsourcing of activities in the Ministry: Currently the Head Quarters are involved in almost all the processes of planning, fund mobilization, implementation, monitoring and evaluation. For instance, in the Health Infrastructure Development Project (HIDP), there are about 60 staff, the Drugs Vaccines and Equipment Division (DVED) has 33 staff and the PHED has 19 staff out of which 10 are engineers. Retention of such large numbers of staff is not sustainable and it limits work opportunities for the private sector. b. Human Resource Development and Management (HRD/M) issues: The HRD/M Unit has not always had the most qualified and capable manager, which has resulted in mismanagement and improper HR planning. Furthermore, the fact that training is seen as an incentive and opportunity to travel and earn some money, and since the Ministry receives a good share of training opportunities, there is a lot of partiality and nepotism when it comes to training nominations. c. Public Health Laboratory (PHL): Although PHL functionally comes under the Department of Public Health (DoPH), it is physically located in JDWNRH. The plan to construct a new PHL has already been approved. However, PHL continues to face several other constraints such as inadequate budget allocation, lack of authority to make plans and implement them, etc. The roles and responsibilities of the PHL have also not been well defined and some of their activities overlap with those of the Clinical Laboratory. They also do not have co-ordination with other agencies like BAFRA for food testing and Forensic Medicine who are planning to set up a Toxicology lab and DNA testing facility as a result of which duplication of services could result. 254 Annexures to the Strategy for Gross National Happiness d. Traditional Medicine: Although there is adequate support from the MoH, there is a gap in understanding between Allopathic health care managers and Traditional Medicine (TM) managers and this is more apparent at district level. There is also a lack of opportunities for specialization courses for Drungtshos and Menpas which impedes the development of HR. Inadequate and inappropriate infrastructure to provide quality Traditional Medical Services poses a problem. As the Institute of Traditional Medicine Services (ITMS) is also located in the same complex, there is limitation of space as well. Complexities of TM based research and lack of suitable R&D facilities including manpower, techniques and technologies have resulted in lack of progress in R&D. 2. Sustainability and Economic Issues: The contribution by aid to the overall health expenditure used to be approximately 50%, however, recently it has decreased to as low as 25% for various reasons. The health sector is facing constraints in all spheres related to funding and in almost all areas the activities are held up due to budgetary constraints. In addition, the draft Constitution states that “the state shall provide free access to basic public health services in both modern and traditional medicine” to every Bhutanese citizen. The patient referral for treatment outside Bhutan is also very expensive and it takes up almost 5%69 of the country’s total health expenditure. It is also to be expected that the cost of health care services will keep increasing since the number of patients are increasing manifold worsened by the escalating costs of drugs and equipment. 3. HR/Training Issues: Shortage of human resources both in terms of absolute numbers and qualifications continue to plague the Ministry. There is a shortage of specialists, general medical doctors and nurses in the hospitals, and other categories of health staff in the BHUs. Most of the constraints are due to improper planning and management of the human resource. While the country still needs to send people for health-related training outside the country, there are some training programs that can be conducted or developed in the country itself. Very little initiative has been taken by the Ministry in the promotion of in-country training and in phasing out trainings abroad. Staff are reluctant to attend continuing education programs conducted in-country because these training programs do not offer financial benefits. 4. Health-Related Industry Issues One of the areas not explored by MoH is the feasibility and also the benefits that will be accrued by various health related industries. In fact, there are many opportunities available such as manufacturing of modern allopathic hospital equipment and drugs, exporting traditional medicine, etc. Medical tourism is another example where tertiary level hospitals with the latest technology could attract foreigners for medical services. Private companies could also start medical insurance, and thereby reduce the Government expenditure on health care. There are also numerous other services, offered by the Ministry and hospitals but not directly related to health per se, where some fees could be charged. For instance, the herbal bath services offered at the traditional medicine hospitals, water testing for private purposes, etc. 69 Nu. 80 million in 2006 255 Annexures to the Strategy for Gross National Happiness RECOMMENDATIONS 1. Administrative Reforms a. Autonomy In the long run, to resolve on-going conflicts between the professionals and the administrative staff, it will be important to separate the two i.e. make the medical and the clinical staff independent of the civil service with its own service conditions and personnel rules and regulations. Instead of the RCSC, it should be an independent Board or Council that is responsible for the medical profession. This will help in developing professionalism and the medical staff will be able to determine their own salaries and perks depending on their endemic conditions and within the prescribed parameters. Synonymous with the granting of administrative and management autonomy, it is also important that the autonomous bodies should also be given financial autonomy. However, autonomy will have to be granted in the following phased manner: i. Immediate: 1. JDWNRH 2. Health Trust Fund ii. In the short-term (i.e. during the 10th Five-Year Plan) 1. All Hospitals and BHUs 2. National Institute of Traditional Medicine 3. Drug Regulatory Authority 4. Bhutan Health and Medical Council iii. In the long-term (11th Five-Year Plan): 1. All Medical Services There is sufficient reason to believe that autonomy will improve the delivery of health care services. The advantages of making the clinical bodies autonomous are numerous and will seek to address some of the major problems faced by the health sector. Some of the main advantages are highlighted below: Decentralization of decision making will shorten the bureaucratic procedures and lead to quicker action. The hospital management will enjoy a more democratic decision making process. Accountability will be enhanced because the hospitals and agencies will be responsible for their own action. Efficiency and quality of the service will be improved. Sustainability will be promoted through better utilization of available resources. Morale and motivation of the staff will be improved through sense of ownership and direct participation. Hospitals can introduce additional facilities as and when found necessary. Workload of the Ministry will be reduced enabling them to focus more on policies and other services. As a precursor to structural reforms to the health sector, JDWNRH will be the first body to be made autonomous. Therefore, it is important that this reform should prove successful since it will determine if the other recommendations for the granting of autonomy is to follow. A Board will be formed as an overall advisory and policy formulating team to the Hospital that is headed by a Medical Director. Primarily, the Board will be responsible for 256 Annexures to the Strategy for Gross National Happiness ensuring that the national policies outlined by the Government and the MoH for the Hospital are implemented. It will also set targets for the Hospital, review and approve the Annual Budget/Work Plans and frame (review and approve) policies, rules and guidelines for the Hospital. The Board will comprise of a broad-based members comprising of people from the civil society (public, private sector or NGO), Civil Service (not from the MoH), eminent retired professionals and an official from the MoH. The Medical Director supported by a Hospital Management Committee will be given HR responsibilities. Another body which should be made autonomous immediately is the Health Trust Fund, which is currently sitting on about US$ 20 million. The Trust Fund management is weak and only one person is presently managing the Trust and its activities. The Trust Fund needs to be separated from the Ministry and its management strengthened with more investment analysts in the management team. b. Other Administrative Recommendations In the move towards autonomy in the long-term, administrative reforms should also be introduced to the following bodies in the immediate and short-term: i. Public Health Engineering Division The main function of the PHED is to manage the Rural Water Supply and Sanitation Program. With the strengthening of local governments, the responsibility for implementation may be decentralized with appropriate authority devolved to the Dzongkhags. The PHED’s role at the MoH should be only to design, provide policy, strategic planning, monitoring and evaluation of the program under the DoPH. The actual implementation should be decentralized to the Dzongkhags. Dzongkhags may further outsource the work. ii. Public Health Laboratory The existing structure and role of the PHL is not clearly defined to enable proper functioning while the role of Public Health Laboratory is of great significance in the delivery of health services. Development of the core functions of the PHL will reduce the communication and coordination issues with the Clinical Laboratories. The role of the PHL should be redesigned to incorporate among others the following: Disease Control, Prevention and Surveillance Food Safety and Environment health protection Data Management Policy development for lab. improvement and regulations Emergency response A National Reference laboratory needs to be established jointly, to save resources, by the different organizations – DRA, BNCB, BAFRA and PHL. iii. NCWC The National Commission for Women and Children should function as a Commission independent of the MoH. 2. Privatization In order to facilitate the entry of private sector in the provision of alternative health care services, the following pre-conditions will have to be fulfilled: 257 Annexures to the Strategy for Gross National Happiness Free basic health services in all government hospitals will have to be identified and defined Bhutan Medical and Health Act to be reviewed and amended accordingly BHMC strengthened and Private Practice Regulatory Authority under the BHMC will have to be put in place Rules and regulations for private practice will have to be formulated The following section describes some of the form and responsibilities of the pre-conditions in greater details: i. Health Private Practice Regulatory Unit (PPRU): In most countries where privatization failed, one of the most common cited reasons was that a strong regulatory body did not exist. As a result unchecked malpractices and uncontrolled private practice monopolized the health care services. It is recommended that the Health PPR Unit be set-up under the BMHC. Its members should include the Health Secretary, an official of the Drug Regulatory Authority, Director of Department of Medical Services, an official of the BHMC, and a relevant official from the MEA. The main responsibility of this Unit will be to: Maintain record on all private practitioners, private clinics and hospitals. Set standards for minimum requirements. Monitor private practitioners. Monitor private clinics/hospitals. Refer to BMHC for legal action like suspension of license to practice, etc. ii. Role of BHMC in privatization: The BMHC will play a strong role in the regulation of the private players. The institution needs to be strengthened and more qualified personnel need to be recruited. In addition to the role of the Health PPR Unit, the BHMC will also be responsible for the following broad functions: Provide registration and license to practice Set out minimum requirements for recognition for the private practitioners and private clinics/private hospitals. Monitor and regulate clinical practices. Take medico-legal actions, e.g. de-recognition/withdrawal of the license to practice and prosecute in a court of law. iii. Rules and regulations for private practice: In the guidelines for the private practitioners of health care, it is important that some of the following important rules and regulations should be mentioned: Private practitioners, private clinics, private hospitals, etc. must register with the BMHC and MEA and obtain license to practice. All private practitioners and private health care facilities should abide by the BMHC Act. All private practitioners and private health care facilities are bound to comply with any inquiry or investigation by the BMHC or PPRU. All private practitioners and private health care facilities are answerable to the BMHC or a court of law for any malpractice or breach of the Act. 258 Annexures to the Strategy for Gross National Happiness All private practitioners and private health care facilities must abide by the Acts of other related sectors and ministries. Modalities of Privatization: Before prescribing the modality of privatization to be adopted, it will be important to analyze all possible types of private practices that can be introduced. The table below mentions the advantages and disadvantages of the various types of privatization model those are useable for Bhutan’s purposes. Comparative Analysis of the Possible Types of Private Practices in Bhutan Sl. No. 1 Type Advantages Off hour private practice in government hospitals. 2 Off hour private practice in private clinic. 3 Retired and resigned doctors to work on contract. 4 Full time private practice in private clinics. It prevents brain drain Maintains quality of services in the government hospitals Cheaper than foreign doctors Most socially acceptable option Provides alternative choice of treatment to the patient. Reduces government expenditure. Reduces workload on the government hospitals. Provides extra income to the government through royalty and taxes. Provides employment for other categories of health personnel. Socially acceptable. Same as above Same as in 2 5 Full time private practice in private hospitals, nursing homes and day care surgery 6 Part time visiting consultation in private hospitals Reduces patient load during working hours Provides revenue to the government Provides extra income to the practitioners No fear of loss of manpower to the private sector Government pays lower salaries as the income can be augmented from private practice Same as above Disadvantages 259 Compromises the quality of care during working hours May lead to diversion of patients to the off hour clinics Socially less acceptable No revenue generation for the Government hospital. Rest same as above. It might be expensive as contract workers are usually paid much higher salaries than regular government employees. Might attract government employees to resign and take up private practice Might lead to “supply induced demand” Same as above Same as in 2 Annexures to the Strategy for Gross National Happiness 7 Private nursing homes and day care surgery. 9 8 Full fledged private general hospitals OR Full fledged super specialized tertiary hospitals either owned by locals, FDI or in partnership Private teaching institutes e.g. Nursing/ Medical College 10 Dental practice 11 private Private Traditional Medical Services Provides alternative choice of treatment to the patient. Reduces government expenditure. Reduces workload on government hospitals. Provides extra income to the government through royalty and taxes. Provides employment for other categories of health personnel. Socially acceptable. Reduces number of patients going out of the country for services available in the nursing homes. Might attract government employees to resign and take up private practice Might lead to “supply induced demand” Will obviate the need to refer patients outside the country and cut down on the cost of travel and overheads. The macro economic structure of the country can be diversified in terms of broader investment opportunities through FDI. It can become a centre of excellence and serve as a training centre for HRD. It can also encourage health tourism. It will enhance our HRD. It will cut down on the cost of training people outside the country. It will obviate the need to go and look for training centres outside the country. It can become a centre of excellence for training and attract foreign trainees thereby bringing in foreign exchange. Might attract government employees to resign and take up private practice Might lead to “supply induced demand” Risks of compromise in the quality of the trainees if the regulatory and monitoring mechanisms are not effective. Reduce workload and expenditure on the Same as for medical Government Provide alternative choice to patient Reduce workload and expenditure on the Same as for allopathic medical services Government Provide alternative choice to patient Recommendations for private practice: Based on the analysis, the following options are recommended based on their feasibility, acceptability, their advantages and level of care: Allow full-time private practice in private clinics, private hospitals, nursing homes and day care surgery Allow private nursing homes, private day care surgery, full-fledged private general hospitals, full-fledged super specialized tertiary hospitals either owned by locals, FDI or in partnership Allow private teaching institutes e.g. Nursing/ Medical College Allow dental private practice and private Traditional Medical Services Off-hour practice in government hospitals, and government doctors to work in private clinics during off-hours or as part-time visiting consultants in private clinics are not recommended. If 260 Annexures to the Strategy for Gross National Happiness private hospitals refer patients to government hospitals for investigation, especially for specialized treatments such as CT scan, MRI, etc. then government hospitals should charge a fee and offer the service. However, more details need to be worked on this front. 3. Training Institutes The Government shall establish new institutes to meet the gap on HR requirements of the health sector. The following recommendations are pertinent in the case of the health-related institutes: i. Up-gradation of Royal Institute of Health Sciences (RIHS): Currently, the institute offers the following courses: Pre-service courses: o 2 year certificate courses in Health Assistant (HA), Dental Hygienist, Dental Technician, Eye Technician, ENT Technician, Laboratory Technician, Pharmacy Technician, Physiotherapy Technician, Orthopedic Technician, Operation Theatre Technician and X-Ray Technician o 3 year diploma course in General Nursing and Midwifery (GNM) In-service courses: o 1 year Diploma in Assistant Clinical Officer (ACO), District Health Management and Supervision, Technical Nurse, o Bachelor in Nursing Conversion course (in collaboration with La Trobe University, Australia, 2 years part time) The institute has 211 students, 25 faculty members and 20 support staff. At the current capacity, around 75 students graduate every year and join the health workforce. Human resource shortage at all levels is the main constraint in the health sector compromising accessibility to services as well as delivery of quality care. It is projected that the health sector would require around 990 nurses, 230 health workers and 500 technicians during the 10th FYP period in order to meet the requirements of the new hospitals and health facilities coming up. Therefore, RIHS has to be upgraded immediately in terms of facilities, faculty and funding to increase the intake of students if it is to reach anywhere near to fulfilling the projected requirements. At the same time, the MoH will have to consider other options to fulfill the requirements of expatriate nurses, staffing configuration norms, prioritizing on the expansion of facilities. Following are some futuristic recommendations and proposal for the short and long term development of the Institute. In the short term (10th FYP) The institute has to be expanded and upgraded in terms of facilities and faculty to accommodate more students to fulfill the current acute shortage of nurses, health workers and technicians. Jigme Dorji Wangchuck National Referral Hospital to be recognized as Teaching hospital. In the long term (11th FYP and 12th FYP) Develop Faculty of Nursing and start Bachelor in Nursing course. Develop Faculty of Public Health. 261 Annexures to the Strategy for Gross National Happiness ii. Up-gradation of NITM: Since the NITM has come under the Royal University of Bhutan (RUB), its financial and administrative management will also be taken over by the RUB. The training component will still be with the ITMS and the training will be conducted in conjunction with the National Traditional Medicine Hospital (NTMH) while the curriculum setting and examinations will be conducted by the RUB. In the 10th FYP, it is expected that more focus will be given on the improvement of the quality of traditional medicines services through strengthening of training capacity by human resource and infrastructure development. The quality of the services will be strengthened through the up-gradation of the teaching facilities and the qualification and skills of the Lecturers. The NTMH will focus more on the quality enhancement through standardization of the therapy services and improvement of the access to TM health care services. The main objective is to improve the quality and accessibility of traditional medicine services through the standardization and increase in the health service delivery points. This can be achieved through the following strategies: Improving the quality of traditional medical services. Strengthening integration with the modern healthcare system. Strengthening the managerial and technical capacity at various levels. Consolidating the existing range of services and inclusion of new range of services. Protection and preservation of traditional knowledge and traditional medical interventions. Consolidation of infrastructure and acquiring appropriate technology. (Therapy Section, staff quarters and inpatient services to provide practical trainings to the trainees). Currently the Institute offers two main regular programs: Bachelor Degree (Drungtsho) and Diploma (Menpa) in Traditional Medicine with course duration of five and three years respectively. The Institute is totally run by Bhutanese Faculty members and has its own capacity of producing human resources, thus promoting self-reliance and preserving the unique culture of the Kingdom. The Institute lacks proper classrooms for formal teaching. The existing infrastructure was not designed for teaching and class room spaces are not adequate to accommodate the present class sizes comfortably. The Institute shares the campus with the Hospital, Pharmaceutical & Research Unit (PRU) and the ITMS administration section. This restricts its expansion for infrastructure development with access to entertainment and sports facilities. Therefore, there is an immediate need to upgrade the infrastructure facilities. The technical capability of existing Faculty members will have to be enhanced to provide quality training. Additional qualified Lecturers and staff members will have to be recruited. The Institute aims to expand the TM services through the production of quality and adequate human resources and promote self-reliance and self sufficiency in technical manpower through: Providing CME and other in-service training programmes. 262 Annexures to the Strategy for Gross National Happiness Create conducive environment by developing appropriate infrastructure. Up-gradation of training/teaching facilities. Introduction of higher courses including international training programs. Enhancement of technical capability through: o Initiation of postgraduate course and specialization o Acquisition of appropriate teaching technology. o Review and revision of curricula based on the training needs. o Up-gradation of qualifications for the existing Faculty members. o Development of training manuals on different subjects. o Recruitment of additional qualified Lecturers iii. Establish the Royal Institute of Tropical Medicine (RITM) The Vector-borne Disease Control Programme (VDCP) in Gelephu is well established and is already involved in control of malaria and other vector borne diseases. These diseases together form the bulk of the tropical diseases load. On the other hand tropical diseases themselves form approximately one third of all disease load in the medical department in our region of the world. Therefore upgrading the VDCP to Royal Institute of Tropical Medicine capable of providing PG Diploma course in Tropical Medicine (DTM) is a very futuristic and logical approach. The advantages of establishing such an institute are: Help in controlling all types of tropical diseases Help in HRD by providing training for Diploma in Tropical Medicine. Can attract foreign doctors to attend such course and thereby increase foreign revenue. Provide employment opportunities. Enhance research and development in Tropical diseases The establishment of the RITM will require very little input in terms of infrastructure as it can be located within the existing Gelephu hospital since a new hospital is planned outside the old hospital campus. The most important input required will be the building of a full-fledged faculty of Tropical Medicine and initially hiring some tropical medicine experts from outside might be necessary. Otherwise most of the other staff are already attached with the existing programme and therefore require very little input in this area. Mandates: To conduct research activities in tropical diseases and provide evidence for a sustainable preventive, control and management of the tropical diseases. To publish the findings in local and international journals and contribute to the knowledge bank. To train students on tropical diseases both from the country and abroad. To serve as a referral centre for tropical diseases. To establish institutional linkages with reputed institutions and foster research of international quality. To promote and contribute to the economic growth of the country. iv. Nursing School in Mongar Even after the up gradation of the RIHS there will still be shortage of intake of nursing students to meet the nursing HRD requirements. In order to establish a new institute to meet these requirements MRRH will be a very suitable location due to its infrastructure and existing facilities. 263 Annexures to the Strategy for Gross National Happiness As the new Regional Referral Hospital in Mongar is near completion, the only extra infrastructure needed would be to build a block or two at the most for the students’ dormitory and administrative offices. Since this is only going to be a small school for the lower category of nurses, the infrastructure required will not be substantive. At the same time the faculty requirement will also be fulfilled quite easily as the staff of Mongar hospital can participate in the training. The advantage of using the Mongar Hospital staff for training in the health institute is that the teaching is imparted from a clinical point of view by those with practical knowledge and experience in contrast to the current training in RIHS where the teachers or instructors themselves have very limited practical experience and as a result the freshly passed out students are very weak and limited in their confidence and skills, when they enter into their jobs. 264 Annexures to the Strategy for Gross National Happiness Part V. Enabling Environment (EE 2008) Civil Service Reforms Objectives of the Civil Service: The Civil Service should create an enabling environment towards implementing the SGNH. Enabling Environment, specifically, can be created in the following ways: 1. Providing the necessary legal, policy, administrative and financial framework for agencies to deliver outcomes. 2. Instituting structural changes by moving away from centralized structure of management, separating policy formulation and regulation from implementation, reducing levels of hierarchy, etc. 3. Inculcating a culture of excellence by formulating rewards and incentives to attract and retain the best, implementing effective performance management system, providing career enhancement opportunities, etc. 4. Promoting better coordination among sectors by forming a central coordinating body and merging or relocating agencies (where roles duplicate). 5. Improving delivery of services through: proper customer-service orientation, reducing unnecessary red-tape, establishing accountability, creating awareness, establishing one-stop services, making effective use of ICT, etc. Civil Service Reform Strategies To meet the objectives of the Civil Service reforms, the following strategies should be adopted: 1. Foster Performance in the Civil Service through: 1.1. Financial Autonomy 1.2. HR Autonomy 2. Reorganize Agencies 3. HRD Interventions 4. Improve Service Delivery The above-mentioned strategies should use the following guidelines: 1. Structure of Ministries 2. Positions in the Civil Service 3. Size of the Civil Service Strategy 1: Foster Performance in the Civil Service Strategy 1.1: Financial Autonomy The Ministry of Finance will decentralize the budget, which is approved by the Parliament, to the agencies for implementation. The Heads of Ministries and Agencies shall be entrusted with adequate authority over resources allocated to meet their predetermined targets. Fiscal decentralization will initially be limited to current expenditures as the bulk of the capital expenditures in any case is bound by planning guidelines as well as projecttied funding from donors. Resource allocation should be based on an objectively verifiable basis that is linked to the identified targets. The use of the resources allotted to the sector should be the sole 265 Annexures to the Strategy for Gross National Happiness prerogative of the sector and the sector head should be allowed to use it in any way he deems fit to meet the targets. However, the Head of the sector is also fully accountable for the usage of funds, and failure to meet any of the targets or any other lapses must be placed squarely on the shoulders of the Head of the sector. Macro level plans will be broken down into annual and agency-wise budgets and closely monitored and measured against output at the end of the budget period. The GNH Commission will be responsible for setting the broad framework for the FYPs of the Government, while the allocation of the budget into specific projects and activities will be done by the MoF. For current expenditure, the Department of National Budget (DNB) will formulate a scientific basis to be used as a basis for its allocation. Under this new performance-based budgeting mechanism, agencies will be held accountable for deliverables of the outputs. The DNB will be responsible for monitoring outputs while the GNH Commission will be responsible for monitoring outcomes. Strategy I.2 – HR Autonomy The current system of Civil Service management is centralized and not conducive to enhancing performance. This is because on the one hand, the Agencies are given their mandates and targets, and on the other they have very little say in the way human resource allocations are made in order to fulfill these given mandates. Presently, it is the RCSC Secretariat which is responsible for the central co-ordination of most HR decisions and actions. Therefore, a decentralized model is presented below that will allow agencies greater autonomy in terms of HR management. By this delegation of HR authority, Agencies will play a prominent role in recruitment, transfer, promotion, separation and training of their staff. Agencies will also be allowed, within the confinement of their budget allocation, the perks and incentives for their staff. However, any influences used by the Senior Management to take undue advantage of this delegated power, will be checked by the RCSC, ACC and other bodies such as the RAA and the MoF. The model for the Civil Service in terms of decentralized HR is presented below: Civil Service Structure in Pictorial Representation: Current 266 Annexures to the Strategy for Gross National Happiness 2018 2028 Outer Periphery/ Private Sector/ Corporate Sector Definitions: 1. Core: Executive Services Group (i.e. EX1-EX3) 2. Inner Periphery: P levels of the following major occupational groups: a. Finance Services Group b. Foreign Services Group c. Human Resource Development and Management Services Group d. Planning and Research Services Group e. Trade, Industry and Tourism Services Group f. General Administration and Support Services Group 3. Outer Periphery II: S1 – O4 of all groups and ES – P5 of the following groups: a. Architectural and Engineering Services Group b. Agriculture and Livestock Services Group c. Arts, Culture and Literary Services Group d. Forestry and Environment Protection Services Group e. Information Communication and Technology Services Group f. Laboratory and Technical Services Group g. Legal and Legislative Services Group h. Library, Archives and Museum Services Group i. Sports and Youth Services Group j. Transportation and Aviation Services Group 4. Outer Periphery I: ES – O4 of the following groups: a. Education and Training Services Group b. Medical Services Group 267 Annexures to the Strategy for Gross National Happiness Mechanisms for Management of the Civil Service: Services from the Outer Periphery I will be granted autonomy first and will move inwards towards the Inner Periphery. Services such as Education and Training Services and Medical Services will be granted autonomy or will be out of the civil service first (by 2018), followed by those in the Outer Periphery II such as Architectural and Engineering Services, Forestry and Environment Protection Services, Agriculture and Livestock Services, Information Communication and Technology Services, etc. By 2028 the civil service shall be based on an open system, and the entry into the core from all areas— inner periphery and private and corporate sectors—will be allowed. The RCSC will recruit civil servants—selecting only a small group of top talent—into services that have been identified as the Inner Periphery and the Core. Upon successful selection the select group will be placed in various agencies and will be placed at P5 level. This group of civil servants will be groomed for Executive Positions in the Civil Service. Recruitment and selection into those services belonging to the Outer Periphery (I and II) will be delegated to Agencies, Management Boards or Councils as per the timelines indicated. These Boards and Councils will be responsible for recruitment and selection, promotion and transfer of personnel under their jurisdiction. Considering that Agencies and independent Boards and Councils will have a sizeable amount of administrative power, it is important that monitoring mechanisms should be put in place. It is in this respect that the RCSC should play an important role to monitor and conduct HR audit of the various Agencies. Clear guidelines and procedures for the devolvement of HR responsibilities should be put in place before granting administrative authority to Agencies. The RCSC should restrict itself to the following policy and focused areas related to the Civil Service: 1. Framing policies to promote merit, productivity and equity in the civil service. 2. Recruitment, appointment, promotion and transfer of civil servants in the Inner Periphery and Core Services. 3. Advising on the suitability of officers for transfer-on-deputation. 4. Appellate for all personnel grievances of civil servants. 5. Monitoring/Checking the HR functions delegated to Ministries and Agencies. 6. RCSC and the relevant sectors shall develop guidelines for the service conditions and rules for the independent Boards and Councils. The Boards/Councils will have to be formed based either along professional or agency lines. In addition, the Commissioners of the RCSC should take on the following personnel responsibilities: o Chairperson: Chairman of the Board for Core services o Commissioner 1 & 2: Chairman of the Boards for Inner Periphery o Commissioner 3 & 4: Chairman of the Boards for Outer Periphery The responsibility for approving staff strength and positions within organizations remain with the RCSC, at least until the MoF finalizes the financial decentralization policies and lessons learnt from granting autonomy to teaching and medical services. System to reward agencies that meet their targets and have resources to spare from the allocated budget should be put into place. The budget lines where such reward system can be instituted will have to be identified. 268 Annexures to the Strategy for Gross National Happiness Managers should also be more innovative in their approach towards work. Use of ICT and e-governance should be encouraged as these will lead to financial incentives. Overall misuse of government property such as vehicles and stationery, etc. will also be minimized. Strategy 2: Reorganization of Agencies At present there are 10 ministries and numerous autonomous agencies. It is suggested that this figure should not be restrictive and depending on the time and need, agencies should either be deleted or changed. For instance some of the Ministries that could be merged or separated are as follows (note that the examples are only suggestive and need further analysis before it is implemented, in any case the number of Ministries must be maintained at not more than 10): o Ministry of Education and the Ministry of Labour and Human Resource could be merged: This is in light of the fact that with the teachers being separated from the civil service, the role of the Ministry of Education will diminish. As also the fact that since skills produced by the institutes will have to be aligned with the demands of the economy there will need to be closer coordination between schools (MoE) and the tertiary (MoE and RUB) and vocational training institutes (MoLHR). o Ministry of Information and Communications could be done away with: With the formation of BICMA, the role of the Ministry has reduced substantially. If RSTA and DCA are separated, only DIT remains. The functions of DIT could be merged with MEA (since IT infrastructure is closely linked to electricity infrastructure). o A separate Ministry (Environment and Natural Resources) could be created by merging the DoF, DGM and the NEC, with the mandate to also look after water resources management. Strategy 3: HRD Interventions Investment in HRD should be focused and tied to the achievement of the overall goals of the Government. Training and development programs should lead to increased efficiency and effectiveness of a civil servant (increased output per capita) in order to maintain a small, compact and effective civil service. While the GNH Commission and the RCSC will be responsible for the approval of training programs in line with national priorities and goals, the nomination of the candidate and the implementation of the program will be left to the sectors themselves. However, the nominations must be based on best practices such as open competition, vigorous selection criteria, etc. The scholarships that the Government receives from bilateral donors should be allocated to the relevant sectors by the GNH Commission, RCSC and MoLHR based on national priority. Strategy 4: Improve Service Delivery In order to improve service delivery, it is imperative that the procedures should be clear and kept to the minimum. Optimal use of ICT to promote e-governance and a paperless office should be the order of the day. 269 Annexures to the Strategy for Gross National Happiness Institute a workable one-window service system, where a client can submit an application to one work place and pick up the services required from the same station after the prescribed time has elapsed. All agencies that offer services to the public shall be required to provide the following: o A checklist of all documents that are required to be submitted by clients which should be made widely available including the Ministry’s/Agency’s website. As far as possible, all forms shall be made available online and agencies must then work towards enabling online applications. o A clear outline for all procedures required for the processing of the application including the time required for the completion of formalities. o A designated time within the week an official will meet clients. As far as possible, the institution of the one-window system attempts to eliminate all official-client dealings but there will be instances when clarifications or discussions are unavoidable. o A designated substitute with appropriate delegation of responsibilities as well as authority for an official who is out of the office for more than a day. o A comment/suggestion box will be kept in the agency, and comments (positive and negative) dropped in the box will be taken seriously and used during the performance evaluation of the concerned official. Guideline I: Structure of Ministries In general, all organizations should strive to separate policy formulation role from implementation. Ministries/Agencies should primarily be responsible for formulating policies and plans, and to a certain extent in the area of regulating those policies and plans, i.e. only if an independent Authority cannot be created. The private/corporate sector should be responsible for implementing those policies and plans. And, in cases where the private/corporate sector is not in a position to implement activities then the Government agency will have to play a part in the implementation. Nevertheless, in such instances, the roles must be made clear and accountability mechanisms should be established. The structure of the Ministry is proposed below: 270 Annexures to the Strategy for Gross National Happiness Minister Secretarial Staff for Minister Secretary Secretarial Staff for Secretary Department 1 Department 2 Policy and Planning Division/ HRD Division/Adm. & Finance Division The PPD, HRD Division and AFD will function as independent divisions and will provide advisory, support and other services to the Departments and the Ministry. Internal Audit Units should be strengthened in order to enable them to fulfill their mandates, otherwise should be discontinued in their present form. For those agencies that deal with the delivery of services and the public, a Customer Relations Office should be instituted. These Customer Relations Offices should function as the one- window-stop shops for delivery of services. Guideline II: Positions in the Civil Service The current structure of the civil service is observed to be consisting of too many levels (17) thereby contributing to the extreme hierarchy of agencies which itself leads to the creation of numerous bureaucratic layers as also the hierarchical attitude of civil servants. For example, in the illustration below, there are three layers at the professional P3-P5 levels – while the number of layers is 3, the nature of job is largely the same. Therefore, there is a great opportunity to compress civil service position levels which will hopefully lead to reduction in the bureaucratic layers and help in change of civil servants’ mindset from “authoritarian” to “service oriented” and build up teamwork. 271 Annexures to the Strategy for Gross National Happiness o Position levels are broad-banded so that at the officers’ category (P5 – EX1) there are only 4 levels. This is to reduce the hierarchy in the civil service. o Within the broad-banded positions (e.g. P3 – P5), individual position levels are retained (e.g. P3, P4 and P5) since it will not upset the present system’s salary scale. o Below the Division level, there should not be any levels of hierarchy in terms of work but be based on teamwork. This model will also be applicable to S1 – O4 levels. Guideline III: Size of the Civil Service In order to contain the size of the civil service, the appointment rate must be reduced and the separation rate must be increased. Overall, the net increase rate should be close to 0%. An attractive Early Retirement Scheme is to be formulated and offered to remove civil servants whose performance is below average. However, the scheme should not remove good civil servants. The following minimum ratios should be determined and set as targets: o Civil servants to population. o Support staff to officers. o Civil servants in the Dzongkhag to the centre. o Civil servants based on national priorities and activities. 272 Annexures to the Strategy for Gross National Happiness Security, Immigration and Labour STRENGTHEN COORDINATION MECHANISMS, ENHANCE PEOPLE-TO-PEOPLE CONTACTS & DEVELOP RELATIONS WITH POLITICAL ENTITIES BETWEEN BHUTAN AND INDIA Bhutanese have established cordial relations at all levels such as key state and local politicians, important civil administrators and even community leaders, in both Assam and West Bengal. However, such contacts and relationships are personality based and remain informal and ad hoc. There is no institutionalized system of contacts with the local politicians of districts, blocks, towns and villages that adjoin important Bhutanese commercial centers and towns. Many of these politicians are influential and tend to hold tremendous sway over their constituencies. The establishment of good relations with such politicians and community leaders could slowly result in the change in attitude of locals towards Bhutanese. Over time, any animosity could be mitigated and eventually overcome, and they could also help to avert any form of anti-Bhutan activities from their areas. In view of its benefits, it is recommended that new coordination, cooperation and friendship mechanisms with local Indian politicians and political entities to further promote relations with India, particularly those Indian districts bordering Bhutan, be established in a more formal and systematic manner. Local political parties We must follow political developments in the neighboring Indian districts and establish links with the dominant political parties. The Communist Party of India (Marxist) (CPI-M), which has been in power in West Bengal for the last four decades, is also the dominant party in Jalpaiguri district70. In Darjeeling district71, the Gorkha National Liberation Front (GNLF) led by Subhash Ghising has held power in the Darjeeling Gorkha Autonomous Hill Council (DGAHC)72 since the end of the GNLF agitation in 1988. In the four neighboring Assamese districts73, the Bodo People’s Front in coalition with the Congress has been in power since the first elections to the Bodo Territorial Council (BTC) in 2005. While good informal contacts have been established with these local parties, we need to formalize these relations as these parties are likely to continue to remain dominant for a long time. A formalized system of contacts must be undertaken at a more senior level such as Secretary or Joint Secretary Level preferably by the Ministry of Home and Cultural Affairs (MoHCA). Local political entities/leaders West Bengal: Jalpaiguri (i) Institute a mechanism for contacts with the Pradhan of the Gram Panchayat of Chamurchi village, which is immediately adjacent to Samtse gate. The Panchayat Samiti of Nagarkata Block bordering most of Samtse has jurisdiction over Chamurchi Gram Panchayat. Through the Pradhan, who is a member of the Nagarkata Panchayat Samiti, 70 Jalpaiguri has three Sub-Divisions: Jalpaiguri, Alipurduar and Mal. Its political structure is as follows: It has a Zilla Parishad (District level) with 31 seats, 374 Panchayat Samities (Block level) and 2,241 Gram Panchayats (Village level). The Zilla Parishad is headed by the Sabhadhipati, the Panchayat Samiti by a Savapati and a Gram Panchayat by a Pradhan. 71 Darjeeling is the other district in West Bengal with which Bhutan shares a border. In particular, it is the Kalimpong Sub-Division of Darjeeling District that shares a river border with Sipsu Dungkhag. 72 The DGAHC has 12 members. It has not yet received the Sixth Schedule status under the Indian Constitution. Therefore, in the interim, Subhash Ghising is functioning as the Chief Administrator of DGAHC. 73 Bhutan shares a border with four districts of Assam – Kokrajhar, Chirang, Baksha and Udalguri – which are under the Bodoland Territorial Council. Panchayati Raj institutions do not function in the BTC Districts. 273 Annexures to the Strategy for Gross National Happiness establish contacts with the Savapati. The Savapati could be used for establishing relations with the Sabhadhipati and other members of the Zilla Parishad of Jalpaiguri. (ii) A similar approach could be used for establishing contacts with the Pradhan of Jaigaon Gram Panchayat and the Panchayat Samiti of Kalchini Block under Alipurduar SubDivision. (iii) Also establish contacts with the Gram Panchayat of Birpara, which is an important transit town for Gomtu and Pugli. Darjeeling (i) Institute a mechanism for contacts with the Councillor of Gorubathan, which is one of the three blocks under Kalimpong Sub-Division74 of Darjeeling District governed by DGAHC. Gorubathan block borders Sipsu Dungkhag. (ii) Institute a mechanism for contacts with the Pradhans of Bindu, Jholong and Garibas, which all fall under Gorubathan block. In the early 1990s, all these three places were used by anti-nationals as bases to launch armed attacks and many of their occupants are sympathetic to people in the camps. Due to the absence of motorable roads to Bara geog in Sipsu Dungkhag, its people continue to find it more convenient to use these three places for the purchase of basic consumer items. Given that only a river separates these three places from Samtse’s highly porous border, they could be used by anti-Bhutan elements to infiltrate into the rural areas of Samtse to carry out their activities. The Pradhans of these three places are highly influential and maintaining good relations with them would help to avert any anti-Bhutan activities. Assam: 1. As Kokrajhar, Chirang, Baksha and Udalguri districts are governed by the BTC 75, we must institutionalize relations and increase contacts with the Chief and the Deputy Chief of the BTC. Both are based in Kokrajhar town, the headquarters of BTC. Since both are equivalent to the rank of state cabinet ministers of Assam, they should be cultivated by high-level MoHCA officials. 2. Establish and cultivate separate relations with BTC members of each of the four districts in the following manner: Bhutanese counterparts from Sarpang Dzongkhag should concentrate on Kokrajhar BTC members; Counterparts from Samdrup Jongkhar Dzongkhag should concentrate on Baksha and Udalguri BTC members; As they share immediate borders, counterparts from Gelephu Dungkhag, Sarpang Dzongkhag and Panbang Dungkhag of Zhemgang Dzongkhag should strengthen contacts with Chirang BTC members; 74 Kalimpong Sub-Division elects three of the 12 Councillors of DGAHC. BTC has 46 members: 1 elected from each of the 40 constituencies (30 reserved for scheduled tribes, 5 for nontribal communities, 5 open for all communities), 6 nominated (at least two should be women) by Governor of Assam. BTC has an Executive Council consisting of 14 members with adequate representation of non-tribal communities. The status of the Chief and Deputy Chief of the Executive Council are equivalent to a Cabinet Minister of Assam and the Executive Members equivalent to that of a Minister of State of Assam for protocol matters in BTC. 75 274 Annexures to the Strategy for Gross National Happiness As it shares an immediate border, the counterparts from Nganglam Dungkhag, Pema Gatshel Dzongkhag should strengthen relations with Baksha BTC members. As it shares an immediate border, the counterparts from Jomotsangkha, Samdrup Jongkhar Dzongkhag, should strengthen relations with Udalguri BTC members. 3. We must also establish relations with the leaders of the other districts of Assam76. Of importance would be the Zilla Parishad of Rangia Sub-Division under Kamrup District in view of the proposed railway link to Samdrup Jongkhar originating from Rangia. 4. Establish relations with the Zilla Parishad of Bongaigaon District through which all Bhutanese vehicles have to travel. Bongaigaon town is also a major commercial centre for Gelephu residents. The rail link to Gelephu is also proposed from Bongaigaon. 5. Also develop relations with the local leaders of small towns/villages located immediately across Bhutanese towns: Kumargram bordering Lhamoizingkha; Dadhgari village/town outside Gelephu main gate; Saralpara in the vicinity of Sarpang town; N.K. Darranga (Mela Bazaar) close to Samdrup Jongkhar town; Tinali, which is 2 km away from Jomotsangkha; and Rangapani, which is outside Nganglam. Sikkim & Arunachal Pradesh: Although we also share a border with these two states, we have no connection due to the absence of motorable roads from the Bhutanese side. However, we must also look at building relations with the political leadership of these two states as they share borders with Samtse, Haa, Samdrup Jongkhar, Trashigang and Trashi Yangtse Dzongkhags. Once good working relations are established, some of the key local leaders from all the above areas should be invited to visit Bhutan. Cultural exchange programs and trade fairs should also be initiated and formalized through them. This is most likely to result in a better understanding and appreciation of each others cultures, customs and traditions. It is recommended that from our side, such coordination mechanisms should be initiated by a mix of BIFA members, civil administration officials, business people and the chairpersons of DYTs and GYTs. Revival of the Tradition of Kurma and Shazhi77 This age-old tradition of reciprocal hospitality between the people of eastern Bhutan with the people of Assam be revived and encouraged by the government. The Royal Government and the Government of Assam must encourage the civil authorities in these areas to encourage their people to revive this tradition. This tradition had helped cultivate the strong bonds of 76 While traveling through Assam, Bhutanese vehicles have to travel through the other districts of Darranga, Kamrup, Nalbari, Barpeta, and Bongaigaon. Panchayati Raj institutions still function in these districts. 77 This is an age-old tradition that existed between the people of eastern Bhutan with the people of Assam. During the winter months, people living in the higher areas of Samdrup Jongkhar and Pema Gatshel would come down to Assam, where Assamese families would host them for few months. When the winter was over, they returned home with gifts from their host families. In the summer months, the people of Samdrup Jongkhar and Pema Gatshel reciprocated the hospitality. This tradition stopped with the problem of IIGs in Bhutan. 275 Annexures to the Strategy for Gross National Happiness familial ties and brotherhood between the Bhutanese with the Assamese living across the border. Revival of this tradition could be critical to the need for rebuilding mutual trust, understanding and goodwill between the Bhutanese and the people of Assam. Establishment of IBFAs and Reinforcing BIFA Activities While Indo-Bhutan Friendship Associations (IBFAs) exist in all the major cities of India, none have been established in the bordering Indian towns. Prominent residents of these towns tend to feel ignored as the IBFAs that are meant to cover their areas are far away, cut-off from them and have members who are oblivious of events in the border areas. While IBFAs in the bigger cities will continue to be beneficial for Bhutan in the long-run, it is recommended that IBFA chapters also be established in the smaller towns of Assam and West Bengal. It would also increase the sense of importance of these towns. This would also provide an opportunity for the Bhutan-India Friendship Associations (BIFAs) of Phuentsholing, Samtse, Gelephu and Samdrup Jongkhar to have counterparts with whom they could collaborate for organizing activities. Therefore, within the next year, IBFAs need to be established in Jaigaon, Chamurchi, Birpara, Kajalgaon, Bongaigaon, Rangia, Kokrajhar, Bhaksha and Udalguri. Prominent Indian businessmen that have good ties with Bhutan and local Indian officials/politicians should be encouraged to become officials of IBFAs. Some BIFA chapters have adequate resources at their disposal, while others find it difficult to mobilize funds to carry out activities in a meaningful way. The Gelephu BIFA chapter has, with some funds made available to them, promoted greater people-to-people contacts with the people of the neighboring areas. The government would need to make some funds available to the BIFAs on a regular and systematic basis for their activities. They must then be encouraged to initiate activities that promote greater people-to-people contacts between the peoples of our border areas. They must organize activities such as cultural events, talks and receptions on His Majesty’s birthday, National Day, religious festivals, etc. The youth of our border areas must also be encouraged to engage in BIFA and IBFA activities. Increased Official Bhutanese Representation in India It is recommended that a Bhutanese Consulate be established in Kolkata. Such a proposal was made during the Bhutanese Ambassadorial Conferences held from 1999-2001. The proposal is already under consideration by the Royal Government. Factors such as a common border with North Bengal, Druk Air operating to and from Kolkata, Bhutanese goods transiting through Kolkata, increasing number of Bhutanese patients and students availing of medical and educational services in Kolkata and the increasing business interaction by Bhutanese all necessitate the establishment of a Consulate. Furthermore, the Royal Government also owns substantial real estate in Kolkata. A Consulate would provide the Royal Government with the opportunity to have instantaneous and constant contact with the state government of West Bengal. The consulate should be established as soon as possible. A Bhutanese Consulate is proposed for establishment in Guwahati. This is in view of Guwahati being a preferred destination for Bhutanese traders from eastern Bhutan. A Consulate would also enable the Royal Government to have direct contacts with the state government of Assam. In the event it is feasible to use the Brahmaputra River for the transportation of Bhutanese goods in the future, a Consulate would be even more useful. As Guwahati is the gateway to the rest of the North Eastern states, we could use it to explore economic and trade opportunities in the future as well as for alternative trade routes to other neighboring countries. Since we would only be in a position to use the waterway when we increase our capabilities for export, we should aim to establish a Consulate when our potential increases. We must also be mindful of the fact that any Bhutanese establishment in 276 Annexures to the Strategy for Gross National Happiness Assam could come under attack from insurgent groups. We could study the possibility of establishing the Consulate during the 10th plan. Other Measures to Strengthen Relations between Bhutan and India In order to increase and improve contacts, we must train the relevant Bhutanese officials at the three institutions of the All India Services, namely, the Indian Administrative Service (IAS), the Indian Police Service (IPS) and Indian Forest Service (IFS). We must also train them at the institutes of the Central Services such as Customs Service, Audit and Accounts Service, Indian Foreign Service and the Indian Survey Training Institute. Contacts established at such institutions are invaluable, especially when Indian colleagues are posted in key positions along the Indian border areas. Bhutanese officials trained at these institutes must serve in the southern Dzongkhags so that they can benefit the country even more through their contacts with counterparts. The Royal Government must have a long-term arrangement with GoI for an annual quota system to avail of training slots at such institutions for our officials. The training of Bhutanese officials at Indian institutions also conveys the message that we have confidence in the quality of their educational institutions. Use of Media to Promote and Strengthen Bhutan-India Relations Bhutan must start investing resources to use the Indian media to make people aware of a friendly Bhutan for trade, investment and touristic purposes. Even the Internet must be fully utilized for this purpose. Through the media, we must win over the hearts and minds of Indians and portray Bhutan as a genuine friend of India. We must also control and address any negative publicity on Bhutan that appears in the Indian media. Even the Bhutanese media must be used appropriately in publicizing any Indian initiatives in Bhutan to show the importance we are attaching to India. The Ministry of Foreign Affairs must be the lead agency for media related matters to promote and strengthen Bhutan-India relations. INTEGRATED CHECK POSTS (ICPS) Border security is important for safeguarding the sovereignty and creation of a safe and secure strategic economic zone in southern Bhutan. As it is the first line of contact, the Check Posts play a vital role in ensuring the security and safety of the country. The Check Posts must be improved and strengthened so that there is not only smooth flow of people and goods, but illegal activities such as illicit trafficking of humans, drugs, smuggling of arms and ammunition, antiquities, bio-products and other contraband are prevented. Therefore, ICPs will be established at all entry points into the country that will manage all the enforcement work currently performed at the various Check Posts by RBP, Immigration, Customs, BAFRA, Forests & DGM. The concept of ICPs is not new as such a system exists in many developed countries. An example is Singapore, which, just like Bhutan, is also bordered by a large neighbor. The Woodland Check Point in Singapore handles a large number of passengers, arriving/exiting through 5 different modes of transport. The operation of this Check Point is aided by a highly sophisticated system with well trained staff using ICT and other state of the art technology such as CCTV, security screening system, lorry X-ray machines, etc. Function of ICPs The functions of the Check Posts at the international border would be very similar to the airport and railway points. At such points of entry, the main function would be to check and monitor the flow of goods, visitors/passengers and conveyances. The inspection of goods would normally be confined to the baggage of passengers that would be in smaller volumes. Pre and Post clearance system shall be adopted for bigger consignment of goods 277 Annexures to the Strategy for Gross National Happiness for export/import. Consignments requiring quarantine clearance shall be referred to the nearest BAFRA office if the matter requires expert opinion. At each entry/exit point, there would be several one window service counters, which will be authorized to clear passengers with their baggage, including passing through a security clearance screening system. The passenger may have to go through an investigation counter if he fails to get cleared by the security system. One window service counters can be increased or decreased depending on the volume of traffic. Besides clearance counters, it is proposed that necessary sector specialists for all the law enforcement agencies be posted at the Check Posts. Development and Harmonization of ICT for the ICPs Presently, the application of ICT at the Check Posts is limited to agencies like Customs, Immigration and BAFRA. With the implementation of the concept of an integrated ICP, it would be critical to develop and put in place a common information system, which could be further integrated with the Automated Border Management System (ABMS). The ABMS is already under implementation with support from the DIT. This approach would be cost effective as each agency would not be required to develop separate systems. Establishment and the Categorization of Check Posts For smooth implementation and to standardize the level of services at every Check Post in the country, the Check Posts are categorized into 3 types viz; A, B and C. Type A Check Post Sample Check Remarks Posts 1.Phuentsholing Type A Check Posts would be located at the Airport(s)/major entry/exit points in the economic hubs. 2.Paro airport 3.Gelephu 4.Samdrup-Jongkhar 5.Samtse Type B Check Post Sample Check Posts 1.Bakbakay 2.Jitti 3.Tashijong 4..Gomtu 5.Pugli 6.Sarpang (Muri) 7.Lhamoizingkha 8.Panbang 9.Nganglam 10.Samdrupchhoeling 11.Jomotsangkha Remarks These are border Check Posts that could be upgraded to type A in the future. These Check Posts are along the international border leading to economic hubs. Currently, only the critical law enforcement agencies are present at these Check Posts. They are likely to remain until further developments take place. Type C Check Post Sample Check Posts 1 Hilley (Sarpang-Tsirang HW) Sershong Bridge Remarks To be relocated to Gechu To be relocated between Serkem & Jigmechhoeling 278 Annexures to the Strategy for Gross National Happiness 2.Tanalum 3.Manitaar (Pasakha - Monitar HW) 4.Jhumja (P/ling-Thimphu HW) 5.Chazam 6. Bjizam 7.Wangdue 8.Chuzom 9.Sunkosh 10.Tingtingbi 11.Wakleytar 12.Pinchina 13.Saureni (Samtse – Dorokha HW) 14.Jangphutse 15.Sakteng 16.Dukti 17.Hongtso To be closed (only RBP OP exists) To be closed ( only RBP OP exists) To be retained for strengthening security into Thimphu (only RBP OP exists) To be closed (only RBP OP exists) To be closed (only RBP OP exists) To be retained (only RBP OP exists) To be relocated at Aerong Saureni, Samtse To be retained (only RBP OP exists) To be opened To be retained (only RBP OP exists) Proposed to be closed (only immigration out posts exists) ESTABLISHMENT OF NATIONAL LAW ENFORCEMENT ACADEMY (NLEA) It is proposed that an NLEA be established to build the capacity of the security personnel. This academy will be responsible for training of the police and other security personnel in an integrated approach. The Academy will be used for training of the RBP, security personnel of law enforcement agencies, private industrial security personnel, and in the event of approval by the Royal Government, even for service personnel selected for UN Peace Keeping Operations. With its growth, the Academy could also cater to the training needs of the law enforcement agencies such as Immigration, Customs and BAFRA, as it would have similar course content. In time, the NLEA could be affiliated to the Royal University of Bhutan. In order to save costs and make the training center more sustainable, the RBP Jigmeling Training Centre could be augmented and developed into a full fledged NLEA. The Academy should be developed to meet the training requirements of all law enforcement agencies. It should receive all the necessary resources and inputs to be developed into a well reputed institute of learning. It would require the necessary support at the initial stage so that the Academy would be able to meet its objective of developing a cadre of law enforcement personnel, which would eventually result in improving public service delivery. Rationale for establishment of NLEA As all law enforcement agencies would require a good training centre to train their personnel, it would be most logical to integrate all these requirements into one training centre. The integrated and combined training centre will be cost effective. It would lead to savings, in terms of financial and other resources as some of the courses such as basic computer sessions, office management, communication techniques, public relations, basic arms and ammunition courses, drill, etc. could be made common. Mandate of the NLEA (i) (ii) The NLEA shall be responsible for training the personnel of the RBP and other law enforcement agencies in an integrated manner. It shall be mandated to produce the best cadre of law enforcement personnel in the country. 279 Annexures to the Strategy for Gross National Happiness (iii) (iv) (v) (vi) The training regime shall ensure that the graduates from the Academy are able to meet any challenges that may arise due to the innovations and advancement of technology. The graduates shall be imparted with a code of conduct to improve their public relations skills. The Academy will be mandated to conduct refresher courses for the personnel of all law enforcement agencies. The Academy should regularly review and update the course content, both in substance and quality. The Academy shall be headed by a Director/Commandant with faculty members and trainers for all disciplines and support staff. As the facilities at the Jigmeling Training Centre are not adequate for the proposed NLEA, it is recommended that in the initial stage, the training be conducted within the capacity of the existing facilities. Gradually, the NLEA should be able to take up the training needs of other law enforcement agencies as and when required. With its upgradation, all the required facilities could be established to enable the NLEA to function as a training centre for all the law enforcement agencies. LABOUR, IMMIGRATION AND CUSTOMS Proposed Policy for Managing Foreign Workers in the Future The Foreign Worker's Policy is to maintain a controlled and revolving pool of foreign workers to supplement the local workforce as there is a high demand for cheap foreign workers due to fast economic growth coupled with the shortage of skilled manpower within the country. The proposal for managing foreign workers will consist of 3 main strategies: (i) (ii) (iii) Different types of work permits for different level of skills of foreign workers Levy system instead of labor ceiling Introduce work permits for workers in the border towns/free movement areas Work Permit System The proposed new work permit system will give highly skilled and talented foreign workers more incentives to draw them to Bhutan. Certain privileges shall be given to middle level skilled professionals and limited privileges to the low-skilled foreign workers. The current system of work permits will be classified into three types of work permits (Work Permit A, B & C) with privileges accorded to the skills and income levels of the foreign worker. Type 1 (Work Permit A) Work Permit A shall be issued for professionals, managers, administrators, investors, entrepreneurs, and others, e.g. top artistes and musicians, and others that include highly skilled foreign workers. Privileges: Grant a work permit for four years in the first instance and renew after every four years if required Can work in all sectors of the Bhutanese economy There will be no restriction on the number of Work Permit A holders that a company can employ Permits for spouse and children Long term visit passes for parents & parents-in-law 280 Annexures to the Strategy for Gross National Happiness After one extension the worker must stay outside the country at least for 3 months. But if that worker wishes to come back he/she should be allowed if he/she has no adverse record Category of Work Permit A Holders: Foreign workers earning more than Nu. 30,000 per month (may need revision from time-totime based on market situation) will fall under this category. Type 2 (Work Permit B) Work Permit B shall be issued for skilled workers, technicians and those with specialized skills. This will be for the mid-level foreign workers. Privileges: Applicants who qualify for work permit B will have renewable work permits valid for three years in the first instance and could renew for two extensions. Total stay would be for six years. There will be no restriction on the number of work permit B holders a company can employ. Work Permit B holders may work in all sectors in Bhutan. They will be allowed to work up to the prevailing retirement age. Permits for spouses and children shall be given. After one extension, the worker must stay at least 3 months outside the country. If the worker wishes to come back to work, he/she shall be allowed provided there is no adverse record. Category of Work Permit B Holders Foreign workers earning from Nu. 10,000 – 30,000 per month will fall under this category. Type 3 (Work Permit C) Work permit C shall be issued to semi-skilled and unskilled workers e.g., construction and mining sector workers subject to sectoral restrictions and on a company's dependency ratio ceiling. Applicants who qualify for general work permit will have renewable work permits valid for one year. The worker must stay outside the country at least 3 months after one extension. The worker would be allowed to come back to work provided he has no adverse record. Obligations Work permit holders cannot bring in their immediate family members to live with them in Bhutan. Workers shall be subjected to a security bond. Category of Work Permit C Holders: Foreign workers earning less than Nu.10, 000 shall fall under this category. Employment Period for the Three Work Permit Schemes Workers holding Work Permit A up to 8 years. Workers holding Work Permit B up to 6 years. Workers holding Work Permit C up to 2 years. 281 Annexures to the Strategy for Gross National Happiness Sources for Foreign Workers under Work Permit Schemes No nationality restrictions for Work Permit A and Work Permit B issued by MoLHR. Work Permit C for Indian nationals only. Levy System Currently, the numbers of foreign workers working in the country is determined according to the ceiling fixed by the Government. It is recommended that instead of fixing a number, a levy system be introduced. Rationale for a levy system The levy would make employment of foreign workers expensive. This would reduce employers' reliance on foreign workers, which would otherwise impede Bhutan's efforts to generate employment. In the absence of a levy scheme, employers are not discouraged from indiscriminate recruitment of low-skilled foreign workers and, therefore, delay in automating and mechanizing the construction industry. The higher levy for unskilled workers will help to reduce the industry's dependence on foreign labour. Levy system emphasized for construction workers for the following reasons: Construction workers constitute the majority of foreign workers in the country. It can be observed that the ability to recruit foreign construction workers has made local construction enterprises unwilling to take measures to reduce their requirement for labor, especially where these call for high amounts of investment. The general observation is the relatively low level of productivity in construction sector. Problems relating to productivity in construction are due to: o The lack of transferability of experience that is exacerbated by the use of a revolving pool of foreign workers. o The relatively short duration of stay of foreign construction workers gives employers little incentive to invest in their improvement. o The free recruitment of cheap foreign workers drives down the wages of local workers. It further detracts people from careers in construction and makes it necessary for even more foreign workers to be recruited to meet the industry’s’ labour requirements. o The image of the industry is already unattractive as more foreign workers with low skills and poor educational backgrounds are engaged in it. Thus if there is no policy shift, this sector would remain stagnant. Work Permits for Border Towns/Free Movement Areas/SEZ Assumption: SEZ will be a free movement area. All foreigners employed/working in the SEZ must possess a valid work permit. It will be the employer and the foreign worker’s responsibility to ensure that they hold a valid work permit, otherwise both parties will be subjected to penalty. Although SEZ is a free movement area, not all foreigners will be entitled to work permits. Managing problems caused by Foreign Workers While the Labor Act allows workers to associate, a regulation must be developed that will prevent them from undertaking activities that will disrupt industrial operations. 282 Annexures to the Strategy for Gross National Happiness The enforcement agency of such regulation must be strengthened in terms of labor relations, mediation and inspections so that a harmonious environment at work place is created. Employers and employment agents must be made responsible for any mishaps of foreign workers during recruitment. Labournet and immigration information system must be fully upgraded so that all foreign workers are recorded and monitored. Customs Procedural Reforms In order to facilitate smooth flow of goods and passengers and avoid time consuming clearing procedures at the entry and exit points, customs management should introduce the following widely accepted goods clearance procedures: (i) Pre-clearance system needs to be introduced immediately whereby, goods meant for imports and exports can be cleared in advance on submission of required details through online system. The present system of compulsory clearance at the time of exit or entry should not be made mandatory. This will avoid congestion and delay at the entry and exit points. (ii) Post-clearance facility for major companies, corporations, government agencies and business establishments should be introduced so that goods can flow directly into customs bond area and required custom formalities could be completed at a later stage. This system is customer friendly and cost effective as detention of goods and vehicles at the point of entry and exit will be minimized. (iii) Establishment of dry ports & custom bond warehouses are essential to facilitate the proper storage and clearance of goods and simplification of customs procedures. Further, the congestion, damages and delays can be avoided. (iv) Customs strapling for the goods from consigner to consignees needs to be introduced to avoid un-necessary harassment on the way. This system will also ensure one time documentation and checking. It will also act as a safeguard against smuggling and enhance security. (v) Customs duty and sales tax currently assessed at the point of entry should be phased out and be replaced by a more progressive sales or service tax at the points of sale. (vi) Online customs clearance system & payment procedures need to be introduced to foster a convenient and cost effective clearing system. (vii) Clearing Agents currently operating only at entry for convenient clearance of goods. All the above procedures will not only be customer friendly and cost effective, but will also act as check and balance against corruption. PROPOSED SOUTHERN EAST-WEST HIGHWAY AND MANAGEMENT OF BORDER Settlements along southern East-West Highway It is apparent that the absence of habitation along our border areas has resulted in illegal activities such as encroachment, illegal felling of trees and extraction of sand and stone, poaching and other criminal activities. Leaving out the Manas Sanctuary, the rest of the border areas along the new highway, in all the six Dzongkhags, should be utilized for resettlement programmes. While resettling landless people, special care should be taken to ensure that people belonging to the same community/ethnic background are placed in the same locality. This will help ensure unity and preservation of their cultural values and traditions. 283 Annexures to the Strategy for Gross National Happiness As the highway falls within the SEZ, viable business establishments such as hotels, restaurants, gas stations, parks, rest rooms, repair places, guest houses, entertainment centres, etc. should be encouraged. Some of these facilities could serve as holiday centres for the residents of northern Bhutan in the winter. Eco-tourism facilities could also be set up. With increased human activities, the threats can be minimized. Security for the southern East-West Highway (SEWH) In order to ensure unhindered, safe and secure movement of goods and people on the SEWH, a special unit under the RBP will have to be created and mandated with its security responsibilities. Given that police is a more widely recognized, accepted and visible law enforcement agency, it is recommended that this special unit be raised as the National Border Police (NBP) under the command and control of the RBP. In the field, the NBP, with a distinct outfit, should be placed under the direct command and control of the respective RBP field divisions. The mandate of this unit could cover the following: Provide security coverage for SEWH users and their properties. Implement highway traffic safety regulations. Combat smuggling and movement of contraband items in collaboration with other law enforcement agencies. Provide and coordinate rescue and first aid medical services. Collaborate with other law enforcement agencies and secure southern borders from infiltration and prevent encroachment. Prevent and assist in detecting cross border crimes. Prevent and detect entry of illegal immigrants. Correlation between the border security and SEWH security To ensure the security of the SEWH, in addition to deploying personnel to patrol the highway, it is critical for the stretch of territory between the highway and the international boundary to be well secured. Without adopting these dual mechanisms, it would be difficult to ensure the safety of the highway. The safety of the SEWH would largely depend upon the deployment of well trained and resourced police security against the sum total of threat perceptions, proximity of the highway to the border and the vulnerability due to isolation of certain stretches of highway from human settlements. Evolution and functioning of the NBP NBP will develop as a specialized branch of RBP with specific charter of duties and responsibilities. Establish and make operational NBP Command Centres at Gelephu, S/Jongkhar and Samtse under the existing RBP divisions. The NBP will cater to the security of SEWH and the borders in the rural and uninhabited areas by deploying highway patrol and border patrol. Ideally, the creation of the NBP would make a big difference in strengthening the existing security arrangements in the border areas of southern Bhutan. However, given the high cost implications, the following may also be explored: o Explore the possibility of inducting the existing RBA and RBP personnel having work experience in border areas of southern Bhutan for NBP. On induction of such personnel, additional cost incurred would only be on training them for NBP functions. o Explore the possibility of utilizing the existing RBA infrastructure/facilities in the border districts for setting up the three proposed NBP Command Centres. 284 Annexures to the Strategy for Gross National Happiness o Explore the possibility of assigning the responsibilities of the proposed NBP to the existing RBA establishments in the border districts. This new security force could then operate under a new name and uniform. COMMUNITY POLICING The concept of community policing will be inducted into the policing mainstream by extending the services through Community Policing (CP) desks directly under the purview of the existing Police Stations. The community policing services will be delivered to individual communities through the service outlets known as CP Desks. CP approach will prove beneficial in preventing and reducing crime and can be developed anywhere, in mountainous regions or valleys, in rural or urban areas. CP approaches such as Koban system in Japan, Neighborhood Watch in Australia and Neighbourhood Police Posts in Singapore have proven very successful. It will have positive impact on reducing neighbourhood crime and thus improve the quality of life in the community. It also invites public participation to fight crime by encouraging a free approach to problem solving through community education on their safety and security. This will also integrate police into the fabric of the community and help identify the root causes and solutions to crime. Further, response time will reduce automatically due to the close proximity of police and the community. Community policing will deliver effective crime control through the following means: - Root-cause problem solving Customized solutions Tap on community resources Encourage active citizenry The support of the community and its role in enhancing the overall policing output is fundamental to fostering peace and security. Therefore, the residents should be made aware of their individual role in community safety through training program based on the principle of police and community partnership. The community police service desk along with local residents will ensure safety of the communities and improve the overall quality of the community life through elimination of the fear of crimes. On the whole, the CP desks will carryout the following measures for community safety: - Mobile and foot patrolling by officers. Monitor vulnerable areas and new faces in the community. Make frequent door to door visits and ask the residents about their problems and get their views. Fast response to emergency calls. Conduct on-scene investigation to avoid lengthy practices and improve services. Mobilize volunteers and resources for the community vigilance. Work together with residents in dealing with petty offenders. Interact with media to promote safety habits and crime prevention measures. As a pilot project, such a system could be first introduced at Changjiji in Thimphu city and at Gelephu town and gradually extend to other parts of the country. 285 Annexures to the Strategy for Gross National Happiness COMPULSORY NATIONAL SERVICE Given the important role that the Pazap, Militia, Village Volunteers and Risup systems have played in safeguarding national security in the past and considering the prevailing threat perceptions, today there are all the more reasons for a small country like Bhutan to make national service compulsory. The concept of National Service should be built on the tradition of Pazaps and promoted as a sacred duty for the protection of the Palden Drukpa. Following are some compelling reasons for introducing National Service: Given Bhutan’s geo-political realities and being a small country with a population of less than 600,000, it is imperative for all able bodied Bhutanese to enroll and undergo national service training so that every citizen is in a state of preparedness to make sacrifices for safeguarding national security and sovereignty. National Service will serve as a great asset at times of wars and situations of national crisis and emergencies caused by disasters such as earthquakes, floods, fires, famine and outbreak of diseases. They will serve as a valuable pool of trained reservists. National Service will not only supplement the professional security force, which currently has a combined strength of less than 10,000 personnel, but also create a reserve force and enable the government to maintain a small security force. Such a policy will help drastically reduce cost of maintaining a large armed force. In countries like Singapore and Switzerland, National Service has also fostered greater cohesiveness and understanding among different ethnic groups. The presence of a strong National Service will serve as an effective deterrence against external aggression as well internal disturbances. The concept of National Service will help promote a culture of responsibility and service to the nation. The National Service training will help inculcate self-discipline and strengthen the spirit of nationalism and patriotism. Since our efforts are geared towards introducing reforms and strengthening the efficiency of existing arrangements, it is believed that introducing the concept of National Service will help the government to cut military costs and maintain a small, cost efficient security force that will be supplemented by a large pool of well trained reservists to be mobilized in times of national crisis. SECURITY POLICY FRAMEWORK FOR INDUSTRIES & VITAL INSTALLATIONS MEA should formulate a security framework for industries and incorporate a separate chapter in the proposed Industries and Investment Act. (a) As an interim measure, an appropriate industrial security framework should be drawnup in close consultation with agencies like MoHCA, RBP, BCCI and key stakeholders for implementation by the concerned. The identified agencies should look into the following: Industrial Security Framework and Policy addressing separately the security issues of industrial estates, railways, airports and vital installations. Categorization of high and low security risk industries and vital installations should be done based on their strategic importance and locations. Specification of the required minimum security standards with specialized services like firefighting units should be based on the nature of industries and installations. Fulfillment of security requirements to be set as one of the conditions for renewal of business licenses. 286 Annexures to the Strategy for Gross National Happiness (b) (c) (d) (e) (f) Financial institutions to set security measures as a prerequisite for industrial insurance policies. Setting up of a mechanism for monitoring and evaluation of the security systems in industrial units to be effected by an independent agency. A protocol for coordination and information sharing is to be developed. Identification of vital installations requiring 24 hours security coverage. Identify an appropriate government agency to monitor private security firms on issues such as recruitment policy, information sharing with law enforcement agencies, confidentiality procedures, etc. In case of accidents, senior management of industry/organization should be made equally accountable and responsible along with the security personnel. Management must be educated on its responsibilities and provided with the tools to deal with risk management effectively. Management of industries should provide clear career development opportunities for private security personnel. Needs assessment study to be carried out for industries requiring double layer of security. To carry out a study for the feasibility of sharing common security resources wherever feasible. REFORM & UPGRADING THE CAPACITY OF RBP The RBP as a law enforcement agency has the crucial role to ensure internal safety and security. In order to address increasing challenges and to continue to be effective and efficient, its capacity will need to be constantly upgraded. Furthermore, with the transition to parliamentary democracy and increased economic activities planned from 2008, RBP will need to be reformed to address the challenges that would emerge with new developments. Reform & Upgradation of RBP Reforms need to be undertaken within the RBP to make it more efficient in the discharge of its responsibilities. In this regard, the revised Police Act, which is proposed for submission to the Royal Government soon, would provide the guiding principles for RBP and its personnel. The Act would provide a clear mandate with defined roles, responsibilities and procedures for the functioning of RBP. Therefore, it would be vital for the revised Act to be enacted. Human Resource Development There is a need to establish a HRD section within the RBP so that it can have a clear human resource development master plan for the proper growth and development of the organization. Officers and personnel must be provided with opportunities to regularly update and enhance their skills through in-service specialized training, refresher courses, seminars and workshops. Officers must also be provided opportunities for post-graduate courses in specialized areas. Career development opportunities would be an incentive for competent graduates and class X and XII pass students to join the RBP. The RBP and RCSC must work together to seek training opportunities in India such as in the Indian Police Service academy and in third countries. New training modules like community policing need to be developed and encouraged. This will help in shifting from a conventional method of policing to one that is in partnership with the community. 287 Annexures to the Strategy for Gross National Happiness Recruitment The entry qualifications for recruitment for constables must be raised from Class VIII to Class X pass. Raising the entry qualification levels would lead to a pool of skilled police constables. Raising the qualification levels would also contribute towards improving the performance of the RBP as a whole. For the RBP to receive good quality graduates in future, the Royal Government could also explore the possibility of recruiting RCSC selected graduates similar to the practice in India. These graduates could then undergo specialized police training in India or third countries. Upgrading facilities To develop into an effective police force to counter the increasing challenges associated with rapid socio-economic development, the RBP would need to upgrade its infrastructure and be provided with modern equipment/facilities. The establishment of forensic laboratories for DNA, drug and document analysis, automated finger print system and the development of a comprehensive data base, etc. will become prerequisites for future policing. In the absence of such facilities, RBP would not be in a position to provide foolproof security. Currently, in the absence of such facilities, successful crime detection can be attributed to the determination of the investigating officers and sometimes due to sheer luck. Improving Jail and Fire Services Jail and Fire Services involve professional roles and responsibilities quite different from policing. Personnel trained in prevention and detection of crimes that are deployed for rendering reformative and fire fighting services cannot deliver their services professionally. In view of this, it is recommended that Jail and Fire Services be established as specialized units under the RBP staffed by personnel specially trained in these fields. Functional Autonomy Drawing on the experiences of other countries, there is the general perception that in the absence of functional autonomy for the RBP, post 2008, interferences could adversely impact on the efficient delivery of police services. In this regard, since the Police Act is being revised and reviewed by the Royal Government, the matter would need to be given due consideration. PARTICIPATION IN UNITED NATIONS PEACE KEEPING OPERATIONS (UNPKOS) In view of the numerous benefits that could accrue to Bhutan and our service personnel, it is recommended that the Royal Government favourably consider contributing military and police personnel in UNPKOs as well as take up assignments on secondment in the UN Department of Peacekeeping Operations (DPKO). However, such decisions must be taken only after the security requirements of the nation have been fully met and when Bhutan is in a position to spare its service personnel. The security of the nation must continue to be accorded the highest priority. 288