New Delhi, July 13 (IANS): The Union cabinet chaired by Prime Minister Narendra Modi on Wednesday gave its approval for revised cost estimates of Rs 7,290.62 crore for the 1,020 MW Punatsangchhu-II Hydroelectric Project (HEP) in Bhutan.

The total cost escalation for the project, at this stage, is Rs 3,512.82 crore. 

"The project will provide surplus power to India and thus augment power availability in the country and would enable project works to proceed smoothly without interruption," an official announcement later said.

The bilateral agreement to execute the Punatsangchhu-II HEP was signed between India and Bhutan in April, 2010, at the approved cost of Rs 3,777.8 crore with the government of India committing to grant 30 per cent grant and 70 per cent loan at 10 per cent annual interest to be paid back in 30 equated semi-annual instalments. 

The factors behind cost escalation are inflation, change in surface power house to underground power house, increase in capacity from 990 MW to 1,020 MW, additional requirements due to Bhutan’s National Transmission Grid Master Plan and adverse geological condition encountered during the project.