Statement by the Chairman, DHI (Fifth Annual General Meeting) 26 April 2013

I welcome all participants at this fifth Annual General Meeting of DHI. We have representatives of the Ministry of Finance, and as per the Royal Charter, is the shareholder of DHI on behalf of the government and people. I am happy that all Directors of the DHI Board are here today. Thank you for your attendance.

Five years have elapsed since His Majesty the King established DHI. This is time enough to assess whether DHI is on the right track to achieve the objectives laid down in the Royal Charter. According to our key mandates, DHI has to strive for operational excellence, innovation and leadership.

The DHI Board and management, despite teething problems arising from the new democratic constitution which gave rise to new ways of functioning of government agencies, is of the overall view that we are very much on the right track. Yes, initially there seemed to be some confusion all around but gradually matters became more understandable, and working relationships became mutually beneficial.

This was especially clear in the State of the Nation report of the Hon'ble Prime Minister. It was delivered on 4th March earlier this year to the final session of Bhutan's first democratic parliament. From the elaborate report of the Prime Minister, he summarized DHI's activities as follows:

"We would like to thank His Majesty the King for having the great wisdom and foresight to establish Druk Holding and Investments by granting the Royal Charter for that purpose. In the last five years, in keeping with the government`s vision and policies, DHI has played a substantial role in helping us achieve several key objectives. Based on the positive transformations in its companies, the numerous business initiatives it has undertaken, and the substantial increase in its revenues to the government, the establishment of DHI has made an excellent contribution to the welfare of the nation. DHI has made a visible difference in the Bhutanese economy, and it is expected that DHI will continue to play a major role in defining and shaping the country's growing economy in the most positive way."

In this regard DHI thanks the Ministry of Finance as member of the Cabinet and National Assembly for endorsing this report. We also thank the Ministries of the outgoing government for their guidance and support, and especially the Ministries of Economic Affairs and Works & Human Settlements. Their understanding of DHI's responsibilities and support proved critical to the success of DHI.

So, let me assure you that DHI has been and is on the right course and though there will always be challenges, we will continue to strive to achieve the Royal Charter mandates and to serve the Tsa-wa-sum to the best of our ability. We will continue to attempt to set new boundaries and strive to achieve excellence.

With these introductory remarks, let me take time to reflect briefly on how DHI has fared with a focus on 2012.

Over the last five years, DHI has cultivated a performance-driven culture. As a result DHI has enhanced the performance of its companies. For example, DHI has developed the business processes and implemented it in all the DHI Owned Companies (DOCs), thereby promoting a professional and conducive work culture.

Right from the beginning of its functioning, DHI introduced a system of Annual Compacts with its companies. This evaluates the company's performance against mutually set targets. It should be noted that incentives given to employees are directly proportionate to this performance. The purpose of its introduction was not only to improve performance but also to identify and set important government and DHI targets. This system of annual compacts has proved highly successful, and DHI is proud to have been the first to introduce such a system in the country. DHI has over the years, implemented the DHI Ownership Policy – a policy that was developed in line with DHI's philosophy of good corporate governance. This policy not only provides an overall framework for the governance of DHI companies, but it also ensures integrity, transparency, accountability and responsibility in the DHI family. To further improve corporate governance in the State Owned Enterprises (SOEs), DHI also sourced a grant from the World Bank and some of which was utilized for capacity development of board directors and senior management in the companies.

At this stage I would like to bring it to your kind notice that DHI has introduced independent annual Customer Satisfaction Surveys. This ensures feedback directly from our customers, that is, those who avail of our services, to inform us on a regular basis what they feel about these. At the same time Customer Grievance Cells have been set up and customer service training conducted in the service-oriented companies. The services of DHI companies have not only improved but costs have also been coming down for customers. This is contrary to the belief in some quarters that costs of services goes up or service quality goes down when you pay your employees better! In fact DHI companies have proved this belief to be incorrect. It is also heartening to report that the large-scale projects taken up by DHI since its inception in the energy, ICT and manufacturing sectors are complete, or on the verge of completion. And, many more project ideas conceived by DHI are currently in the pipeline. To highlight this, Dungsam Polymers is today operational. The same goes for the Thimphu TechPark. Koufuku International was incorporated in 2011 and is at the construction stage. The Education City is under active implementation by the government after DHI completed its mandate. The three SEZs are under implementation. Projects that saw a revision of costs like the Dagachhu Hydropower will be complete by early 2014, and the Dungsam Cement Corporation has begun clinker production and will be fully operational in another four months or so. Mobilizing additional financing for these projects was a big challenge that DHI has met successfully.

DHI has also identified 10 potential business opportunities in eastern Bhutan and carried out pre-feasibility studies in other areas, namely, the Wellness Resort in Punakha, and IFC SME fund. Efforts to mobilize investments for these are taking place.

To support and stimulate the private sector, DHI has been working to come up with new investments and initiatives. We have developed the DHI-Private Sector Partnership Framework.

As a gesture of our support and solidarity to the sector, DHI helped one private company to successfully set up a Waste Management & Transfer Station for Thimphu City. To garner larger participation, DHI began an entrepreneurship program titled DHI-BEGIN. The program is designed to address practical skill development, provide equity capital for business start-ups and monitor businesses. Till date, two batches have undergone the program.

DHI has recently decided that wherever possible and in keeping with the Royal Charter provisions, we should diversify some of our corporations so that opportunities for the private sector are enhanced. In this connection DHI equity shares in various companies are being offered on the Royal Securities Exchange of Bhutan. This is the case with Dungsam Polymers, STCB, BBPL, and after sometime, shares in the Dungsam Cement Project will also be available. Putting shares for sale on our stock market also makes the Securities Exchange more active and dynamic. DHI is in contact with the Bhutan Chamber of Commerce & Industry to work closely together to look into the area of legislation in order to further facilitate the smooth functioning of business and industry in the kingdom.

Now, let me draw your kind attention to what happened in the year gone by, that is, 2012.

In 2012 DHI's income increased by 8%. The remittances made to the Ministry of Finance, including taxes, were to the tune of Nu. 4.5 billion – an increase of 6%. For DHI owned companies it was a successful year with increases in revenue ranging from 17% to 25%. On the whole in 2012, the revenue from all the DOCs put together increased by 10%, tax contribution increased by 4% and PAT increased by 6% compared to 2011. For DGPC there was only a marginal increase in its revenue by 1.76% although the company achieved operational excellence. This is understandable given the fact that they have no control over the tariff that is fixed, the increasing domestic consumption of electricity, and the low power generation due to the poor monsoons. Here, I would like to stress that DGPC and BPC constitute about 85% of the total dividend received by DHI. Thus, it is a concern and a challenge for DHI to pay increasing dividends to the government.

On the revenue front DHI has been in constant communications with the Ministries of Finance and Economic Affairs, and has also made out submissions to the Prime Minister and Cabinet. For revenues to increase it is necessary for the government to address the power tariffs, both domestic and international. The Bhutan Electricity Act has to be implemented in letter and spirit to yield greater revenues from this national resource and for the nation as a whole to benefit equitably. If the Act needs to be revised to enhance revenues the Ministries concerned need to initiate urgent action in the National Assembly. DHI has requested that this be done by the beginning of the 11th Five Year Plan.

Another bottleneck for DHI is the issue of double taxation. This has served as a deterrent in the creation of a reserve at the holding level, which in turn, hampers new investments. In this regard the Cabinet has directed the Ministry of Finance to take the required action. Hence, there is an urgent need for the Ministry to submit the matter to the National Assembly in order to address this issue as expeditiously as possible and enable the Ministry and DHI to fulfill the Royal Charter requirement to expand the reserves.

Other challenges faced by some of the companies are the cumbersome procedures of dealing with organizations for the issuance of clearances and land acquisition.

Finally, let me bring to your notice that one of the daunting challenges that DHI and its companies face is the lack of skilled human resources.

In conclusion, as we gear up to 2013, I am of the view that the environment external to DHI will continue to be a challenge. But, I firmly believe that the accomplishments and the hurdles of the past five years would have better prepared DHI and its companies to counter the difficulties we will face in the future. The employees of DHI and its companies' as well as our Boards, have time and again proved their commitment to take our companies to greater heights. And as I express my appreciation to each and every one of them, I would also like to remind them never to lose focus from the DHI vision. In the years ahead, the DHI family is expected to take more determined steps to implement the vision of His Majesty the King as outlined in the Royal Charter in order to serve the Tsa-wa-sum with greater effectiveness and excellence.

Tashi Delek!