Identifier
Created
Classification
Origin
08NEWDELHI1832
2008-07-02 12:10:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy New Delhi
Cable title:  

BHUTAN STRATEGIZES ON ENERGY, PRIVATE-SECTOR GROWTH, AND

Tags:  ECON ECPS EINV ENRG ETRD BT IN 
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RR RUEHBI RUEHCI
DE RUEHNE #1832/01 1841210
ZNR UUUUU ZZH
R 021210Z JUL 08
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 2483
INFO RUEHLM/AMEMBASSY COLOMBO 0934
RUEHKA/AMEMBASSY DHAKA 1294
RUEHIL/AMEMBASSY ISLAMABAD 5047
RUEHKT/AMEMBASSY KATHMANDU 1756
RUEHCG/AMCONSUL CHENNAI 3169
RUEHBI/AMCONSUL MUMBAI 2252
RUEHCI/AMCONSUL KOLKATA 2439
RUCPDOC/USDOC WASHDC
RHEBAAA/USDOE WASHDC
RUEHGV/USMISSION GENEVA 7801
UNCLAS SECTION 01 OF 04 NEW DELHI 001832 

SENSITIVE
SIPDIS

USDOC FOR ITA/MAC/OSA/LDROKER/ASTERN/KRUDD
DEPT OF ENERGY FOR A/S KHARBERT, TCUTLER, CZAMUDA, RLUHAR
DEPT PASS TO USTR MROHDE

E.O. 12958: N/A
TAGS: ECON ECPS EINV ENRG ETRD BT IN
SUBJECT: BHUTAN STRATEGIZES ON ENERGY, PRIVATE-SECTOR GROWTH, AND
UNEMPLOYMENT

UNCLAS SECTION 01 OF 04 NEW DELHI 001832

SENSITIVE
SIPDIS

USDOC FOR ITA/MAC/OSA/LDROKER/ASTERN/KRUDD
DEPT OF ENERGY FOR A/S KHARBERT, TCUTLER, CZAMUDA, RLUHAR
DEPT PASS TO USTR MROHDE

E.O. 12958: N/A
TAGS: ECON ECPS EINV ENRG ETRD BT IN
SUBJECT: BHUTAN STRATEGIZES ON ENERGY, PRIVATE-SECTOR GROWTH, AND
UNEMPLOYMENT


1. (U) Summary: Econoff met with a number of contacts in Thimphu on
June 24 and 25 to discuss telecommunications, energy, tourism,
unemployment, and broader issues of economic planning.
Public-sector meetings focused on the problem of rising unemployment
and the overall challenge of improving Gross National Happiness. A
senior economic official outlined aggressive long-term plans for
hydropower exports, while a trade official described a cautious
approach to World Trade Organization (WTO) accession. A meeting
with Bhutan's new, private-sector mobile-services provider offered
an early example of the underdeveloped private sector trying to
compete with a public monopoly. End summary.

QUANTIFYING GROSS NATIONAL HAPPINESS
---


2. (SBU) Bhutan's Planning Commission got a revised mandate and a
new name in January. Now the Gross National Happiness Commission
(GNHC),the body has been charged with building the nation's
development plan around the concept of GNH and creating metrics to
determine progress. GNHC Secretary Karma Tshiteem told Econoff that
the GOB enlisted the Centre for Bhutan Studies (CBS) to conduct a
survey on nine factors presumed to contribute to the people's
happiness-- psychological well-being, good governance, education,
health, community vitality, time use and balance, culture,
ecological diversity and resilience, and living standard. The CBS
plans to release an analysis of survey results very soon, and
Tshiteem said the GNHC will use the results to devise quantitative
indicators to measure the success of GOB policy over five- to
ten-year periods. Gross Domestic Product (GDP),therefore, will be
subsumed as just one element of GNH in measuring Bhutan's
developmental success.


3. (SBU) Despite the formal shift away from GDP, Tshiteem said that
private-sector-led economic growth will remain a top priority, as
initial survey data showed that the Bhutanese consider financial
security the most important contributor to a happy life. In

particular, Tshiteem mentioned that Bhutan must work to reduce its
23-percent poverty rate and address rising unemployment, which UN
Development Program Resident Coordinator Nicholas Rosellini said had
reached 10 to 11 percent, with increasing proportions of young
people. Tshiteem said that at least for the next 10 years, Bhutan's
conventional development indicators cannot be sustained without
continued support from India and other development partners.

"HIGH-END" SOLUTIONS TO "SO-CALLED UNEMPLOYMENT"
---


4. (SBU) Bhutan's young population means the workforce will continue
to grow rapidly, with Ministry of Labor and Human Resources (MLHR)
Director General Pema Wangda estimating that the 50,000 who have
entered in the last five years will be followed by 93,000 in the
next five, an enormous challenge for a nation whose total population
is estimated at 660,000. Access to education has greatly improved
in Bhutan, so most of Bhutan's unemployed have at least a secondary
education, and many are college graduates.


5. Many educated Bhutanese from rural areas do not want to run
family farms and are migrating to urban areas. Wangda said the
capitol Thimphu's population is growing at 11 percent per year, and
the crime rate in the cities, while still negligible by most
country's standards, is rising rapidly. In the past, almost all
educated Bhutanese went into government jobs, but the GOB is now
hiring at attrition rates and cannot come close to absorbing new
entrants, according to Rosellini. Bhutan's largest growth industry,
hydroelectric power, does not generate many long-term employment
opportunities. Bhutan's other major growth industry, construction,
does generate jobs, but so few Bhutanese are interested in
low-salaried, blue-collar jobs that almost all construction work is
done by foreigners. Wangda said there are currently 37,000 Indians
holding work permits, and he acknowledged that illegals from India,
Bangladesh, and Nepal brought the total number of foreign workers in
Bhutan to around 100,000, with a vast majority in building or road
construction. He said the number of legal workers alone could
increase to 200,000 in the next five years.


6. (SBU) Wangda emphasized the magnitude of the problem from a GNH
perspective by saying the GOB feels that for every one person

NEW DELHI 00001832 002 OF 004


unemployed, 20 relatives and friends are unhappy. To help combat
unemployment, the MLRH is operating seven vocational schools and
plans to add five more in the next five years. The MLRH is also
planning to develop extensive apprenticeship programs. Wangda said
the GOB has closed 24 occupations to foreigners, most in the area of
clerical support, to maximize job opportunities for Bhutanese. The
MLRH reviews renewal applications for one-year work permits
carefully and rejects any for jobs it finds can be filled by
Bhutanese.


7. (SBU) Tshiteem identified four sectors the GNHC wants to promote
to spur economic growth and fight unemployment--tourism,
information-technology (IT) services, health care, and
education--always with an eye toward the "high-end" market segment.
Specific plans for health care and education are in early stages,
but the GOB has clearer roadmaps for IT and especially tourism. In
IT, the GOB is focusing on developing the necessary infrastructure,
laying optical fiber alongside electrical cables as the Bhutan Power
Corporation (BPC) expands its power-transmission network. As for
tourism, the GNHC hopes to increase the annual number of visitors
from 20,000 to 100,000 by encouraging year-round visits and a focus
beyond the usual western-region destinations. To support the latter
objective, the GOB plans to build an international airport in
Geluphu, in the south-central region. Tshiteem also said that the
minimum tariff for tourists will rise from USD 200 to USD 250 per
day during the peak spring and fall festival seasons from 2009 but
remain at USD 200 the rest of the year, which could steer visitors
toward off-peak schedules.


8. (SBU) Mr. Thuji D. Nadik, Officiating Director General of the
Tourism Council of Bhutan (TCB),said that everyone in the GOB is
"looking toward tourism as a panacea for so-called unemployment,"
opining that the refusal of young Bhutanese to take the jobs
available is "the product of a welfare mentality" and observing that
almost all jobs in tourism are of the low-paying sort that Bhutan's
unemployed are already rejecting. Nadik also disputed the value of
numerical targets for visitors and said the goals should be to
increase the lengths of stays and get tourists to spend more money.
He did agree that the economy would benefit from seasonal and
regional expansion of tourism but said the TCB has not found other
GOB agencies cooperative in pursuing those aims. He noted that
Bhutan has world-class national parks on the Indian border that
would appeal to trekkers in the winter months if they were not
closed to tourists due to "perceived security issues" stemming from
unrest in the Indian state of Assam. In the summer rainy season,
Nadik said, the flora and fauna in many places would draw trekkers
if the TCB could get the land and licenses to construct rain
shelters. He said the GOB has not built tourism infrastructure in
eastern Bhutan because no one has been interested in traveling
there, but in reality the reason no one is interested in traveling
there is that it is virtually impossible without the infrastructure.


HYDROELECTRIC GENERATION DRIVING GDP GROWTH
---


9. (SBU) Mr. Karma Tsering, Officiating Director General of the
Department of Economic Affairs (DEA),which is responsible for all
energy issues other than fossil fuels and wood-burning, said that
Bhutan has 30,000 megawatts (MW) of hydroelectric potential.
Engineers have deemed 24,000 MW to be feasible for development, of
which Bhutan has so far captured only five percent. The GOB has set
the goal of 10,000 MW in developed capacity by 2020, according to
Tsering, and with Bhutan's domestic consumption currently at around
200 MW, hydroelectricity figures to remain Bhutan's largest export
by far for the foreseeable future. All exported energy goes to
India, and the two countries have a deal in place for the export of
5,000 MW by 2010.


10. (SBU) Tsering said the primary hurdle to hydroelectric
development is financing. The GOB has received most of its
hydroelectric-project financing from the Indian public and private
sectors, with a small amount coming from Austria and some coming
from the Asian Development Bank. He said that Bhutan welcomes
financing from other countries but speculated that U.S. companies
and the U.S. Export-Import Bank would find opportunities in Bhutan
unattractive compared with what they can find in India and

NEW DELHI 00001832 003 OF 004


elsewhere.


11. (SBU) Rosellini, meanwhile, expressed a handful of other
concerns about hydropower. The absolute dependence of the sector on
India could lead to price instability, he said, if India develops
significant capacity in nuclear or other alternative energy sources.
He also noted that some predict all of the Himalayan glaciers will
have disappeared by 2035, leaving rainfall as the sole feeder of
Bhutan's rivers. Rosselini doubted whether current rainfall levels
would sustain Bhutan's hydroelectric projects and said that with
global rain patterns changing, the situation could become worse
yet.

MOBILE-TELECOM COMPETITORS OPTIMISTIC
---


12. (SBU) Bhutan's mobile-phone sector is a prominent instance of
private-sector investment in a field previously monopolized by the
public sector. In April 2007, Bhutan's first private
mobile-services provider, TashiCell, entered the market to compete
with parastatal Bhutan Telecom's B-Mobile unit. Mr. Tashi Tshering,
TashiCell's Executive Director, said the company feels the long-term
business potential is strong but that the early going has been
rough. He said TashiCell enrolled 18,000 subscribers very soon
after its launch but has climbed slowly since then to a current
total of approximately 27,500. TashiCell is seeking to
differentiate itself, he explained, by offering more calling plans
than B-Mobile, including friends-and-family plans and closed-user
groups. On the other hand, Tshering conceded that TashiCell will be
hard-pressed to match B-Mobile's nationwide coverage, as TashiCell
will have to reach beyond the north-south mountain ranges splitting
Bhutan without the help of the digital microwave radio network
provided to Bhutan Telecom by the Japanese government. However, by
negotiating access to the optical fiber laid by the BPC, Tshering
said TashiCell hopes to reach most district headquarters by 2009.
He estimated that the total potential market for mobile subscribers
is 250,000, with 150,000 in western Bhutan, and he noted that the
fact that mobile phones are forbidden in schools greatly limits the
market. He concluded, therefore, that the market could bear only
two competitors and noted that TashiCell's license came with a
guarantee that no additional licenses would be granted until at
least 2013.


13. (SBU) Bhutan Telecom's Managing Director, Mr. Thinley Dorji,
agreed that the market could not support more than two competitors,
although he estimated total potential subscribers at 350,000 to
400,000. He said that B-Mobile has not lost a significant number of
customers to TashiCell and currently has about 190,000 subscribers.
He expects the recent launch of 3G, GPRS, and EDGE technologies to
help B-Mobile reach even more of Bhutan's remote areas and
facilitate the use of the Internet in isolated schools.


14. (SBU) Bhutan Telecom is also one of Bhutan's three or four
Internet providers, according to Dorji. He said Bhutan has only
8,000 or so Internet subscribers, though the number of users is
higher, with Internet cafes gaining in popularity. Until recently,
Dorji explained, all of Bhutan's Internet access came via satellite,
which is very expensive, but in February 2008, Bhutan Telecom
completed an optical-fiber connection from Thimphu to Phuentsoling
on the Indian border and from there, with the help of Reliance
Industries, to Mumbai to connect with a submarine cable linking to
the London Internet Exchange. He speculated that the cost of
Internet service would have to be halved to 500 ngultrum per month
(USD 11.76) in order to stimulate the growth of a viable IT-services
sector.

BHUTAN NOT IN A RUSH ON WTO
---


15. (SBU) DEA Director of Trade Mr. Sonam P. Wangdi, having just
returned from discussions in Geneva regarding Bhutan's proposed
accession to the WTO, said most of the lingering issues are with the
U.S. The U.S., he said, is pushing for market access in a number of
areas that Bhutan considers too sensitive to open--e.g., retail,
which employs 4.5 percent of Bhutan's workforce, mostly in
mom-and-pop shops. Wangdi said Bhutan is in no rush to join the WTO
and said that accession definitely will not be completed in 2008.

NEW DELHI 00001832 004 OF 004


He claimed that Bhutan would gain somewhat from improved market
access for its exports but said that Bhutan was pursuing accession
primarily because negotiating with the WTO will be more
cost-effective than negotiating bilateral and regional agreements.
He said that proximity and the ngultrum's peg to the India rupee
would likely prevent a dramatic shift in Bhutanese trade away from
India, which he said currently accounts for 84 percent of Bhutan's
exports and 73 percent of total trade. He mentioned that because
Bhutan imports about twice as much as it exports, the strong rupee
has a positive overall effect on terms of trade.

COMMENT
---


16. (SBU) Bhutan faces major challenges in developing its economy
and tackling unemployment. Most of the civil servants with whom
Econoff met showed a determination to help work out a considered,
long-term plan for improving GNH. For now, it appears Bhutan will
stick with its economic strategy of attracting high-margin business,
but this could change if it fails to stem burgeoning unemployment.
Another potential pitfall on the road to GNH is increased corruption
among public officials, which some interlocutors have suggested is
rising as "the Bhutanese are eager learners when it comes to such
things" and have adopted the methods of "gurus" in neighboring
countries. If corruption does become a major problem, the Bhutanese
will likely discover like their neighbors that it will come at a
high cost to economic development.

DAVISON