Small Bhutan Dreams Big

In Bhutan, this is one sentence one hears often: “We are learning from Nepal’s mistakes.” Considering lack of political accountability and chronic incompetence of the past decades, Nepal indeed sets an example of what not to do.

But Nepal has not forcibly evicted one sixth of its population like Bhutan did in the early 1990s. More than 100,000 refugees were transported across India to Nepal and lived for over 15 years in camps in eastern Nepal. Most have since been resettled in third countries, but there are still about 6,000 elderly refugees who want to return to their homeland.

This history has strained relations between the two Himalayan nations which share many of the same socio-economic, geopolitical and environmental challenges. Despite the asymmetry in size and population between Bhutan and Nepal, there is untapped potential for them to learn more from each other and cooperate. 

Both have abundant natural resources and clean energy sources, both are sandwiched between two giant emerging global powers. Nepal and Bhutan also struggle with creating enough jobs at home and prevent mass outmigration of their youth.

Read also: Nepal in the new world order, Dhirendra Nalbo

Bhutan’s defence and foreign policy are handled by New Delhi, and there is a heavy presence of the Indian Army along Bhutan’s border with China, especially along the disputed Doklam region. Nepal is nominally more independent, and has tried to steer equidistant relations with India and China.

Bhutan generates 2,326MW of electricity from plants built mostly by Indian companies and half this power is exported to India. The government’s Druk Holdings and Investment is looking to harness an additional 15,000MW of hydroelectric and 5,000MW solar power for which it will need over $25 billion in investments.

There seems to be an acceptance among Bhutan’s officials that this is the geopolitical reality, and the country has to live with exclusive Indian involvement in its energy planning. 

Nepal pursued a different path in developing hydropower, with private producers and international investors generating nearly 70% of electricity in the country. But India has gradually asserted itself in Nepal’s hydropower development by sidelining Chinese involvement, and pressuring Nepal not to allow outside investment in large reservoir projects on its rivers.

The cascade of three out of four big hydropower plants in the Arun Basin in eastern Nepal are all being built by an Indian state enterprise, more or less along the same model as Indian projects in Bhutan.

“We are a 100% hydro energy portfolio with about 2.5GW installed capacity with about another 1.5 GW in the pipeline in the next year or so,” says Ujjwal Deep Dahal, CEO of Druk Holdings and Investment. “While we are a net exporter of energy over a year, winter demands are increasing and we look to invest for additional power and importantly firm power.”

Nepal also imports power from India in winter when its rivers are running low and demand is highest, but this is at a more expensive price than it exports during the rest of the year.

Ecological and climate concerns are prompting Bhutan to diversify from harnessing hydropower to explore pump storage, geothermal and solar power – a model that Nepal could also pursue.

Read also: Pump water, store energy, Dipak Gyawali and Sudhindra Sharma

While tensions between India and China affect Bhutan more than Nepal, Kathmandu has failed to adopt a more independent water and energy strategy. Despite being four times larger than Bhutan, Nepal has only 3,3000MW of installed capacity. It has also failed to increase domestic demand by electrifying industries, irrigation, transport and household consumption so surplus energy is not wasted.

Nepal’s goal is to generate 28,000MW by 2035 but transmission and distribution infrastructure will have to keep pace. The suspension of the US-supported MCC project may further delay energy trade and distribution.

Climate collapse is rapidly melting Himalayan glaciers, and it is going to be risky building large expensive hydropower plants in Nepal and Bhutan. Both countries must learn from a glacial lake outburst flood in 2023 that swept away the 1,200MW Teesta III Projectin Sikkim, a $1.7 billion dam. In Nepal, the $800 million Melamchi Water Supply Project for Kathmandu Valley was severely damaged in a flood in 2021.

The eastern Himalaya in Nepal, Bhutan, India and southern Tibet are affected more severely by glacial lake expansion, and combined with seismicity post a major threat to energy security in the region.

“We cannot predict disasters like these but we can’t also be fatalistic, we need to be pragmatic and strike the right balance,” says Pema Gyamtsho from Bhutan, and director general of Kathmandu-based ICIMOD (International Centre for Integrated Mountain Development). “We have to invest in risk assessment before developing mega infrastructure. Where the risk is high, we should opt for smaller hydropower and other alternatives like solar and biogas. We should have options rather than putting all our eggs in the same basket.”

GDP, GNH, GMC

Bhutan’s audacious Gelephu Mindfulness City mega-project is a risky gamble on the future 

On 17 December 2023, Bhutan’s King Jigme Khesar Namgyel Wangchuck announced the setting up of the Gelephu Mindfulness City (GMC) to be an international hub focused on energy, connectivity and skills for the 21st century. 

The city will be a 2,500 sq km Special Administrative Region to take advantage of Bhutan’s clean energy to power an information technology corridor with AI data centres. It will try to replicate Singapore in a city three times larger, with its own hydropower plants generating 5,000MW. 

“Gelephu will become a gateway connecting Bhutan to the world and the future,” the King said. “The road we have chosen is a gateway to the world – to markets, capital, new ideas, knowledge, and technology towards our future, and to chart our destiny.” 

The rapid spread of energy-intensive generative AI applications have prompted technology companies to scout for clean energy sources to power their data centres. Some like Amazon and Google are even building their own small nuclear power plants. 

“Investing in green energy with our hydro potential of over 35,000MW is a priority and the strategy on AI data centres are an important anchor industry,” says Ujjwal Deep Dahal of Druk Holdings and Investment.

Bhutan’s Finance Minister Lyonpo Lekey Dorji told visiting editors here earlier this month that energy cooperation under the South Asian Association for Regional Cooperation (SAARC) and the South Asia Free Trade Agreement (SAFTA) were going nowhere, and a new framework was needed.

“Significant connectivity challenges, poor infrastructure, and often tense diplomatic relations lead to limited cross-border trade and movements of goods and people,” Dorji added. “The GMC is envisaged to help not only Bhutan but also the South Asian region, and particularly the neighbouring states of India.” 

Economists say that if countries in the region could go beyond geopolitical differences and increase trade, each country in South Asia stands to gain from the regional energy trade. While Nepal and Bhutan have export potential for clean energy, Bangladesh can reduce its carbon footprint by buying cleaner fuel from neighbours.

“There are significant benefits if you increase investment in transmission across the region, increase connectivity, with more liberal trade,” says Simon Stolp of the World Bank.

In the first phase, the GMC will build infrastructure including an international airport, and a regional railway linking Gelephu to Assam with a six-lane highway.

Bhutan is one of few carbon negative countries in the world, and officials assure that 60% of the GMC area will retain its forest cover with two protected areas, a national park and a wildlife sanctuary. The Danish architecture firm Bjarke Ingels Group (BIG) has been hired to come up with a sustainable urban plan.

GMC is also Bhutan’s response to the increasing outmigration of its young people, primarily to Australia — a problem similar to what Nepal faces. 

Youth unemployment in Bhutan in 2022 was 28.6%, and in 2023, 1.5% of the country’s 800,000 people moved just to Australia to work and study. Bhutan has a total fertility rate of 1.4, which is much below replacement level.

These demographic trends have raised questions about Bhutan’s Gross National Happiness (GNH) approach to development. It has been hailed as a new age concept by some and ridiculed by others, especially because the regime has never answered for the eviction of one-sixth of its population in the 1990s (box). 

In that sense, the GMC could be Bhutan’s way of turning the page on GNH. Officials here said privately that Gross National Happiness has been largely misunderstood to be an idealistic dream, but it does not mean de-emphasising economic growth or GDP per capita.

In the first 20 years, the Gelephu Special Administrative Region will be a ‘mindfulness city’ under complete autonomy with a legislative, judicial and governance system independent from the rest of Bhutan. After that will be the ‘convergence phase’, when the rest of Bhutan will have caught up with Gelephu in terms of development and socio-economic status.

Gelephu was chosen for the mega-project because of the narrow strip of plains in a mostly mountainous country. This will make it easier to build infrastructure, especially the proposed new international airport which will be an alternative to Paro in which only specially trained pilots are allowed to land because of difficult terrain and weather. 

“GMC represents a new era for growth and opportunity for Bhutan, a bold experiment in  governance, sustainability and economic transformation, all the while preserving Bhutanese identity, cultural and spiritual heritage,” explained GMC’s Rabsel Dorji. “We have the unprecedented opportunity to build a Special Administrative Region from the ground up, and for Bhutanese this is a nation-building experience.”

Officials say that GMC needed to be a Special Administrative Region in order to speed things up, including decision-making so there would be no bureaucratic hurdles to foreign investments. 

But will such a separate ‘state’ not create a gap between haves and have nots, much like other parts of the world which have set up Special Economic Zones? Officials here are convinced that since GMC is the brainchild of King Jigme himself, it will succeed without compromising Bhutan's culture.

Bhutan lies in the emerging economic corridor between South Asia and Southeast Asia, which has close to half of the world’s population. The idea is that with better connectivity, GMC will be strategically located to attract investors, residents and retirees. 

Planners here hope this will also replenish Bhutan’s shrinking population and allow just GMC to accommodate up to 2 million people — more than double Bhutan’s current population.

Bhutan has the third highest GDP per capita in South Asia after the Maldives and Sri Lanka because of income from hydropower and tourism. It now wants to build on this for future growth with clean energy and connectivity.  

Added Rabsel Dorji: “The quality of life in Bhutan is very good but one could say the standard of living could improve. With the GMC, we are trying to mix the two such that people have high-paying jobs while retaining the Bhutanese way of life.”  

The Gelephu connection

Situated along Bhutan’s southern border with India at a point where the mountains meet the Brahmaputra plains, Gelephu was home to some 40% of the country’s 100,000 Nepali-speaking Lhotsampa people.

Many of their family members were forcefully evicted from Bhutan over 30 years ago. Rights activists have opposed the GMC project, especially since many of the refugees still have land titles for property they left behind in Gelephu.

People from Nepal were first invited by the Bhutan government to populate the lowlands in the south from the mid-19th century onwards. Over time, Nepali-speaking people accounted for one-sixth of the population of Bhutan, and were relatively better off because of their agrarian lifestyle in the fertile southern plains. 

‘However, their growing numbers and the formation of a political party were perceived as a threat to the cultural and political order of Bhutan,’ notes Human Rights Watch in an explainer. 

The Lhotsampa ('people from the south') were driven across India and dumped in Jhapa and Morang from 1990-92. They lived in refugee camps until they were resettled in the United States, Australia, New Zealand and some European countries between 2007-2016. 

Now, 6,577 refugees, most of them elderly who want to go back to Bhutan, remain in the camps even after UNHCR and WFP withdrew support in 2016.

Back in Gelephu, there is still a township of 15,000 people. One of the families there is that of a Bhutanese sociologist. In a carefully worded reply, he told us in Thimphu: “All of my childhood memories will soon be gone, but perhaps it is for the greater good.” 

Read also: Mindfulness about Bhutan’s refugees, Archana Darji