World Bank Approves $815M Loan for Bhutan-India Hydropower Project

In parts of South Asia, electricity cuts are most noticeable in the early morning, affecting households and factories. This dependence on reliable power underlies a major financing decision reshaping regional energy economics.

⚡ Quick Snapshot

• The Deal: World Bank has approved an $815M financing package for the 1,125 MW Dorjilung Hydropower Project, a joint venture between Bhutan’s DGPC and India’s Tata Power.
• Strategic Impact: The project addresses India’s 250 GW peak power demand and stabilizes Bhutan’s economy, where hydropower contributes 20% of GDP.
• Financial Shift: It marks a transition from bilateral sovereign lending to a multilateral risk-sharing model to improve Bhutan’s debt sustainability.

Visual representation of the Dorjilung Hydropower site construction.

Strict Financial Newsroom Reporting

The World Bank has approved an $815 million financing package for a large-scale hydropower project jointly developed by Bhutan and India, marking one of the most significant multilateral energy investments in South Asia in recent years.

The funding supports the 1,125-megawatt Dorjilung Hydropower Project, led by Tata Power in partnership with Bhutan’s Druk Green Power Corporation (DGPC), and structured through a mix of concessional loans and guarantees.

The approval carries implications beyond electricity generation. It reflects renewed multilateral confidence in cross-border infrastructure financing, highlights hydropower’s strategic role in regional decarbonization, and signals how development lenders are recalibrating capital deployment amid tightening global financial conditions.

Why the Loan Matters for Regional Economies

A strategic partnership: The World Bank-backed 1,125 MW Dorjilung project strengthens energy ties between Bhutan and India.

Hydropower exports form the backbone of Bhutan’s economy, contributing about 20% of GDP and more than 40% of export revenues, according to World Bank and IMF data. India, meanwhile, faces rising peak electricity demand, which around 250 gigawatts in 2024, driven by industrial expansion and urban consumption.

The Dorjilung project directly addresses both pressures. Bhutan secures long-term foreign exchange earnings and fiscal stability, while India gains access to low-cost renewable power that supports grid reliability and energy transition targets.

Historical Context of Bhutan–India Hydropower Financing

Bhutan’s hydropower cooperation with India dates back to the 1980s, with landmark projects such as Chukha (336 MW), Tala (1,020 MW), and Mangdechhu (720 MW). These projects were primarily financed through Indian government loans and grants, often placing fiscal strain on Bhutan due to cost overruns and debt concentration.

By 2022, Bhutan’s public debt had exceeded 120% of GDP, largely driven by hydropower-related borrowing, prompting credit rating agencies to flag sustainability risks despite stable long-term revenue prospects.

The current World Bank financing represents a structural shift. Instead of bilateral sovereign lending alone, the project introduces multilateral risk-sharing mechanisms, longer maturities, and governance-linked safeguards designed to reduce fiscal volatility.

Macroeconomic and Financial Backdrop

The loan approval arrives amid a complex global financial environment. The U.S. Federal Reserve has kept policy rates elevated, with the federal funds rate holding around 5.25 % through most of 2025. Global bond yields remain high, increasing borrowing costs for emerging economies.

South Asia has not been immune. India’s 10-year government bond yield has hovered around 7.1%, while Bhutan’s access to international capital markets remains limited, increasing dependence on concessional lenders.

Against this backdrop, the World Bank’s intervention lowers the project’s weighted average cost of capital, improving debt sustainability metrics for Bhutan and reducing tariff pressure for Indian power buyers.

Source of Funds	Type	Amount ($M)
IDA (World Bank)	Grant & Credit	$300M
IBRD (World Bank)	Enclave Loan	$215M
IFC (World Bank)	Project Loan	$300M
Total Package	Mixed	$815M

Timeline Leading to the Financing Decision

Project planning for Dorjilung began in the mid-2010s, but progress stalled due to financing uncertainty, environmental approvals, and pandemic-related disruptions.

In 2021, Tata Power restructured its international energy strategy, prioritizing renewable assets with sovereign-backed offtake agreements.

Formal negotiations with the World Bank intensified in 2023, focusing on environmental safeguards, resettlement frameworks, and hydrological risk mitigation.

By late 2024, the Bank’s board cleared preliminary guarantees, followed by final loan approval in early 2026 after compliance reviews.

Statements from Financial Institutions and Governments

In its approval note, the World Bank stated that the project aligns with its Climate Change Action Plan, emphasizing renewable baseload power and cross-border energy integration.

Bhutan’s Ministry of Finance described the financing as “a critical step toward balancing long-term growth with fiscal prudence,” while India’s Ministry of Power highlighted the project’s role in stabilizing renewable supply during peak demand hours.

Tata Power confirmed that the loan structure reduces foreign exchange exposure and strengthens project bankability, enabling faster execution.

Market and Investor Reactions

While Bhutan does not have publicly listed equity markets, the announcement influenced investor sentiment around Indian power utilities and renewable infrastructure firms.

Shares of Tata Power showed modest intraday gains following confirmation of the financing, reflecting improved visibility on international project execution.

Debt market analysts noted that Bhutan’s sovereign risk profile could improve over the medium term if hydropower revenues materialize as projected, potentially easing future refinancing pressures.

Expert Commentary on Causes and Consequences

Energy economists view the financing as a response to structural changes in global development lending. With private capital retreating from long-gestation infrastructure due to higher interest rates, multilateral institutions are stepping in to crowd in investment while maintaining policy oversight.

Hydropower specialists also note that Himalayan river systems offer some of the world’s highest capacity factors, making projects like Dorjilung economically competitive despite rising construction costs.

However, experts caution that climate variability introduces hydrological risks, requiring adaptive reservoir management and conservative revenue forecasting.

Impact on Businesses, Consumers, and Energy Markets

For Bhutan, the project supports employment during construction and stabilizes public finances through long-term export contracts. For India, access to firm renewable power reduces dependence on coal during peak demand, helping utilities manage fuel cost volatility.

Industrial consumers in eastern and northern India could benefit from more predictable power tariffs, while grid operators gain improved frequency stability during non-solar hours.

Geopolitical and Policy Implications

The financing reinforces Bhutan–India strategic ties at a time when regional infrastructure competition is intensifying. Unlike debt-funded projects in other regions that have raised sovereignty concerns, the World Bank-backed model emphasizes transparency and shared governance.

From a policy standpoint, the project supports India’s target of 500 GW of non-fossil capacity by 2030, while allowing Bhutan to diversify financing partners beyond bilateral arrangements.

Comparison with Similar Global Projects

Comparable multilateral-backed hydropower projects include Nepal’s Upper Trishuli scheme and Laos’ Nam Theun 2 project, both of which demonstrated mixed fiscal outcomes depending on cost control and hydrological performance.

Dorjilung’s structure incorporates lessons from these cases, including phased disbursements and stronger environmental oversight.

Short-Term and Long-Term Risks

In the short term, execution risks include geological challenges and supply chain disruptions. Over the long term, climate-driven changes in river flow could affect output variability.

Currency risk remains a consideration, although power purchase agreements denominated in Indian rupees partially mitigate exposure.

Social and Public Perception Factors

Public sentiment in Bhutan has grown more cautious toward hydropower expansion due to debt concerns, making governance transparency critical. In India, renewable energy projects generally receive strong public support, particularly those reducing coal reliance.

The World Bank’s involvement may help address civil society concerns through standardized safeguards and reporting mechanisms.

Future Outlook and Scenarios

If executed on schedule, the project could strengthen Bhutan’s fiscal position by the early 2030s and contribute meaningfully to India’s clean energy base load. Delays or cost overruns, however, would test debt sustainability assumptions.

A favorable climate scenario would enhance returns, while adverse hydrological shifts could require tariff adjustments or refinancing.

Final Analytical Synthesis

The $815 million World Bank loan highlights a shift in infrastructure finance toward fiscal discipline, climate alignment, and execution quality. The project’s outcome will depend on governance strength, timely delivery, and effective long-term risk management.

💡 The Bottom Line

📊 Frequently Asked Questions

Q: What is the Dorjilung Hydropower Project?

It is a 1,125 MW hydropower project developed by Bhutan and India for cross-border power supply.

Q: Who approved the $815 million loan?

The financing was approved by the World Bank through a mix of loans and guarantees.

Q: How does India benefit from the project?

India gains access to stable renewable electricity to support its growing 250 GW peak power demand.

Q: When will it be operational?

Full commissioning is projected in the early 2030s, subject to construction progress.

​This project is not only vital for regional energy security but also sets a new benchmark for 'Green Finance' in South Asia. If this model proves successful, it will pave the way for multilateral risk-sharing in large-scale infrastructure projects across neighboring countries like Nepal and Bangladesh.