Regional Cooperation for Energy Security

Regional Cooperation for  Energy Security

[Combined and slightly abridged from two separate papers presented in the Regional Seminar on Energy Security for South Asia organized by the Federation of Engineering Institutions of South and Central Asia (FEISCA) on the eve of 12th Convention of Nepal Engineers Association held on 12th April, 2011 in Kathmandu, Nepal.]

The South Asia Regional Economy has successfully withstood the collapse in world growth, finances and trade with the onset of the global financial crisis in 2007 – 09 whose ripple effects continued into 2009 and persisted into 2010 (with fiscal stresses in Europe).  The period of economic stress has severely tested citizens and policy makers alike.  Yet the South Asian economy has come through with resilience and strength.  While some clouds linger – such as continued high food inflation and a slow down in industrial growth, the dynamism in overall growth is evident, even as a series of social protection measures have considerably strengthened the ability to withstand shocks.  These results owe to the counter-cyclical microeconomic policies, structural measures to promote growth, social spending to provide a stronger foundation to protect the poor and, as always with economic progress, some luck in the form of good weather and a slow but steady recovery of the global economy.  In each of these areas, enormous progress was made during this crisis, and valuable lessons were learned for the future.  This transformation has been possible because the South Asian economies have a deep understanding and belief in democracy in whatever local shade it might exist.

Energy is a pre-requisite for human sustenance and development. Human beings used to depend on natural sources of energy—mainly biomass—until the fossil fuels were discovered. With the discovery of fossil fuels, economic development started rapid growth. Coal contributed largely to the economic development, especially during the industrial revolution in the eighteenth, nineteenth and early part of twentieth century.  Coal is still a major fuel source for electricity generation all over the world. With the discovery and utilization of liquid fuel, economic development started surging forward at a much higher rate from the middle of twentieth century till now. Demand for liquid fuel as an energy source is still rising compared to other sources of traditional energy. Utilization of renewable energy, especially wind power, started long back in Europe. Use of hydropower for the generation of electricity started from the early part of twentieth century. The practice of harnessing energy from all kinds of renewable sources e.g. sun, wind, geothermal, water etc. is on rise. Two renewable sources, sun and wind, are receiving prominence over others. Though fossil fuels contributed immensely towards modern economic growth and development, their use is now closely associated with climate change and the destruction of forests for development.

South Asia is home to about a quarter of the world’s population i.e. about 1.56 billion, with a total land area of about 5.142 million sq km, which is about 4% of all land surface on the earth. A map of South and Central Asia is given in Figure 2. The population of South Asia will be about 1.86 billion by 2020. The average population growth of South Asia will be at the rate of 1.92% per annum from 2010 to 2020 as given in the Figure 2.2. According to a study conducted by the World Bank in 2004, it was pointed out that the South Asian region has 23% of the world population with only 2.1% of the world GDP, and Gross National Income of South Asian countries, excepting Maldives, was estimated as US$ 524, which was only 10% of the world average income of US$ 5,240 in 2003. Economies of South Asian countries are showing remarkable GDP growth during the recovery from global meltdown. India is persistently showing GDP growth of 6 to 9% per annum in recent years. Afghanistan is also showing rapid economic growth of about 8% because of a pouring in of huge amount of external assistance. Bangladesh ranks third with about 6% of GDP growth in 2009-10. Bhutan shows a GDP growth rate of about 6%. The Maldives, Nepal, Pakistan and Sri Lanka are showing an economic growth rates of 3.5 to 5%, although Pakistan is showing decreasing growth rate. It is estimated that the energy demand will grow with the economic growth almost at equal rate. In case of electricity demand increases at a rate of 1.5 times the GDP growth rate. As a result per capita income of all the South Asian countries is showing an upward trend. The per capita income of South Asian countries at present varies from about US$ 400 to 5,000 which is supposed to rise substantially for all countries in South Asia by 2020.

Although, currently, South Asia is considered to be the place where largest number of poor people of the world live by 2020 percentage of poor people are expected to be halved i.e. both the GDP and the per capita income will increase substantially.

Some basic data of all the South Asian countries are presented in Table 1 below:

In 1998,   The then Prime Minister of Nepal had inaugurated the Engineering Congress of the Nepal Association of Engineers and had shown keen interest in regional cooperation on energy matters. Thereafter, FEISCA organized in the same year a seminar on Grid Connectivity for the Power Sector in South Asia Region in conjunction with the Engineering Congress of the Bangladesh Institution of Engineers.  The discussion initiated in Kathmandu in 1998 encouraged large participation of leading energy sector professionals and officials from the region at Dhaka.  The Institution of Engineers (India) took keen interest in motivating Indian participation. Those two discussions really set the tone for engineering professionals in the FEISCA region to think seriously about the role of Regional Cooperation in ensuring energy security 13 years later. Nepal’s Association of Engineers is hosting this important discussion.

Traditional sources of commercial energy—i.e. oil, gas, and coal—are limited, and are being exhausted rapidly all over the world. It’s been revealed that with the current levels of exploitation and use, all available oil reserves can serve the needs of the world only till 2030. Every day demand for energy is increasing in the developed as well as in the developing countries. Demand for energy is surging in China and India with their rapid economic growth rates. Currently, these two countries alone are consuming almost a quarter of world oil production, although the population of these two countries is more than one-third of the world. The scenario is no different in other countries of South Asia. According to recent study, the growth rate of fuel based primary energy demand in India will be about 4.36% and demand for electricity will grow by about 8% per annum till 2020. In Pakistan, fuel based primary energy demand will increase at a rate of 3.72% and demand for electricity will grow by 8% per annum till 2020. In Bangladesh, fuel based primary energy demand will increase at the rate of 6.23% and demand for electricity will grow by 7.8% per year till 2020. In Bhutan, fuel based primary energy consumption will increase at a rate of 6.81% and demand for electricity will grow at a rate of 7% a year till 2020. In Nepal, fuel based primary energy demand will increase at a rate of 2.73% and demand for electricity will grow at a rate of 8.85% per year till 2020. In Maldives, fuel based primary energy demand will increase at rate of 5.84% and demand for electricity will grow at a rate of 11.3%. In Sri Lanka, fuel based primary energy demand will increase at a rate of 3.27% and demand for electricity will grow at a rate of 7.7%. From these figures it is evident that both the fuel based primary energy demand and the demand for electricity will grow almost at the same level in all the countries of South Asia in the period till 2020. A picture of energy demand trend during the period from 2010 to 2020 is given in Table 2.

From the Table 3.1, it is evident that the average energy demand of the South Asian countries will grow at average rates of 3.09 to 9.2%, the highest being in Bhutan and the lowest in Pakistan. It is expected that with the increase in per capita income or GDP, demand for both the primary fuel based energy and electricity will grow at a much higher rate than present one. According to the same study, cumulative demand for oil in South Asia for the period 2010 to 2020 will be 2,321 million tons. Cumulative demand for natural gas and coal for the same period will be 1,424 MTOE and 3,347 MTOE respectively. Besides, fuel based primary energy demand and demand for electricity is increasing all over the world. As a result, in present day world the geopolitics is centering the sources of major energy production, especially, oil and gas.

 A picture of energy consumption from different sources in South Asian countries is presented in Table 3

Due to the current levels of economic development, the demand for energy in South Asia is immense.  Most of the energy consumptions of South Asian people are usually met from traditional sources like biomass. More than half of the population of South Asia has no access to commercial energy i.e. electricity, gas, liquid fuel and coal. Per capita consumption of energy varied from 89 to 355 KGOE (kilogram oil equivalent) in 2005. Average per capita consumption of energy in the world is 1,780 KGOE. Variation tends to be wide due to uneven economic development. A picture of per capita energy consumption and energy utilization for per US$ of GDP is given in the Table 4.

It may be seen from the Table 4 that the energy consumption in Bangladesh, India and Pakistan is very low compared to world average but the amount of energy spent for each US$ of GDP is high in these countries compared to the world average.

South Asian countries import about 24% to 100% of their commercial energy from abroad. Most people still rely on the traditional sources i.e. fuel wood and agricultural wastes for meeting their energy demand. In South Asian countries biomass contributes 29 to 95% of the energy demand, the lowest being India at 29%, and the highest being Afghanistan at about 91%. The scenario for other countries in the region is not very encouraging. Maldives relies 100% on the imported fuel for its commercial energy demand. In India coal serves 35% of the energy needs. In all other countries dependence on coal for meeting energy need is low. Use of oil for meeting energy demand varies from 9 to 100%.  Bangladesh being 9%, India 24% and Pakistan 20%. Nepal and Bhutan met only 9% of their energy demand from oil. Natural gas meets 29% and 36% of the energy needs of Bangladesh and Pakistan respectively. Only 6% of energy need is now served from natural gas in India. Hydroelectricity meets 26%, 9%, 11% and 4% of energy demand of Bhutan, Pakistan, Sri Lanka and India respectively. Although potential for harnessing hydropower for meeting energy need is very high in Afghanistan, Bhutan, Nepal, Pakistan and India.

The majority of South Asian countries rely on biomass for meeting their daily energy demand. The main sources of biomass are fuel wood and agricultural wastes. One of the major sources of traditional energy in South Asia is depleting very rapidly with shrinking forest coverage. On the other hand, the rapid economic growth demand for commercial energy is increasing by leaps and bound. No South Asian countries have easy access to sources of commercial energy excepting India and Pakistan. In spite of the fact that all the countries are facing immense challenges in meeting growing demand of energy for the economic development as well as daily needs of the people. The availability of commercial energy is very low compared to other parts of the world. There are some oil and gas reserves in Afghanistan, Bangladesh, India and Pakistan. Very large coal reserves exist in India and Pakistan. Afghanistan and Bangladesh also have a small coal reserve. Let us now look at the picture of availability of energy in the South Asian countries. It is given in Table 5.

Let us now look at the sources of energy and the potential supply from these sources. India has the largest coal reserve and the supply potential is about 56.50 MT. Supply potential of coal in Pakistan is 3.45 MT. Afghanistan and Bangladesh has the supply potential of about 4.4 and 8.84 MT of coal respectively. Bhutan and Nepal has very low supply potential of coal. India has the highest oil reserve of 5.5 billion barrels. Afghanistan and Pakistan have supply potential of 75 and 353 million barrels of oil respectively. India has the highest gas reserve of about 37.26 TCF whereas Bangladesh and Pakistan has a reserve of 8.52 and 32.28 TCF respectively. India has the highest potential of hydropower generation but it has also very large demand for electricity in its own country. Hydropower potential in the north-eastern India is quite large and to the tune of about 40,000 MW. Transmission of huge electricity from north- eastern India to northern, western and southern part of India is not very easy task. India can swap part of its electricity generated in the north-east with Bangladesh. Similarly, Nepal and Bhutan have quite substantial potential of hydropower generation, which can be shared with other co-riparian countries.  A picture of potential sources of energy is given in Table 6.

Pictures of energy consumption, energy demand, energy availability and potential energy supply in South Asian countries have been given. For meeting the future energy demand of the South Asian countries we need to look into the potential of renewable energy resources of the region. It is presented in the Table 7.

It may be observed from the Table 7 that the South Asian countries have huge potential of harnessing energy from renewable sources. So far, India is the pioneer in South Asia in harnessing renewable energy sources and she has harnessed about 12,000 MW from these sources, wind source being the highest. Although India has harnessed about 500 MW from solar energy but it has taken a very ambitious plan of harnessing about 20,000 MW from solar by 2020. Bangladesh and Nepal have also harnessed substantial amount of solar energy. India has harnessed about 1,000 MW from mini and micro- hydropower. Sri Lanka and Pakistan harnessed about 500 and 253 MW from the mini and micro hydropower respectively. Among all the renewable energy sources solar seems to be the most potential source of all. Solar energy is still costlier than any other energy. With the continuous development in solar energy the cost will surely come down as well as improvement in the efficiency in conversion will also take place in near future. Besides, the sources mentioned above there may another source which needs attention i.e. energy generation from municipal wastes. Urbanization is fast growing in all the South Asian countries and the potential for generation of electricity from municipal waste has a promising future. Disposal of municipal waste is becoming a big headache for the municipal administrations in all the South Asian countries and if the wastes can be used to generate electricity it will help to maintain better environmental condition in the cities and towns.

Advantages of Energy Sector Cooperation in South Asia

There are distinct advantages for South Asian countries to cooperate in the energy sector. As the Seminar is being held under FEISCA it would be relevant to also include countries beyond South Asia and those covered in Central Asia.  Security of adequate energy supply has to be tackled at both the national and regional levels.  There is an abundance of energy resources within the region and its immediate neighbors in the  West (Central Asia and Iran) and in the East (Myanmar).  A large share of the resources is in hydro power and natural gas, some of the environmentally cleanest forms of energy.  Their geographic distribution is uneven and different from the distribution of demand.  Bhutan, Nepal, Myanmar and Central Asian economies (such as Tajikistan and Kyrgyz Republic) have energy resources power in excess of their domestic needs.  The development of these resources for export would enable the export led growth of these relatively smaller economies.  India and Pakistan, which provide the major import markets for the surplus energy from these countries as well as from Iran and Turkmenistan, would secure additional energy supplies to relieve shortages and sustain economic growth.  Therefore, regional trade in electricity and natural gas should logically be an important and logical element of the array of options to relieve the energy supply constraints in the least cost and timely manner, benefiting the exporting and importing countries.  World Energy Council, with which I had the privilege of being associated fore more than three decades have focused on South Asia Regional Cooperation for Energy Security.  In the late 90s, it had set up a task force on energy resources and then again developed a Regional Action Plan for Asia for the 3-year cycle 2005-07, which focused on specific subjects of Cooperation in South Asia.  WEC realized that sub-regional integration would lead to economies of scale, optimization of resource utilization, promotion of efficiency, promotion of technologies and expertise transfer and protection of the environment. The main issues of the main challenge to meaningful inter-country cooperation and integration was the lack of convergence between national energy security of the country and regional energy priorities.  WEC had emphasized on the need for a shift for thinking of the region as a whole, along with the country, as a unit of energy policy.  This will lead to much more efficient and economic use of energy resources and the consequent economic gains for the country in the region.

As shown in table 4, while the population in the region constitutes nearly one fifth of the world population of the region, South Asia accounts for about 4% of the World Commercial Energy Consumption.  South Asia oil reserves are estimated at 5.7 billion barrels of oil which constitutes around 0.55 of the world reserve.  While the proven reserves are likely to expand, long-term projections indicate rapidly increasing demand for Energy in South Asian region.  Barring sub-Sahara Africa, this region is among the least developed in terms of Human Development Indices and per capita energy consumption.  At the same time, it has the highest levels of energy consumption per unit of GDP because of less efficient use of energy.  This positive side is reflected in the tremendous growth appetite being demonstrated by certain economies in the region and the tremendous wealth of human resources and intellectual capital despite appalling poverty.

Although South Asian countries together will experience negative energy balance in a short period of time but many neighboring countries of South Asia in Central Asia and in South East Asia is endowed with huge amount of energy reserves. Let us now look at the energy potentials in Central Asian Republics, Iran and Myanmar. It is given in Table 8.

It is very much evident that Iran has the largest reserve of natural gas. Turkmenistan, Uzbekistan and Myanmar have also substantial reserve of natural gas. As regards the oil, Iran has quite a substantial reserve of oil. Kazakhstan and Myanmar have also remarkable oil deposits. Kazakhstan has very high deposits of coal. Tajikistan and Uzbekistan have also substantial amount of coal deposit. As regards the hydropower potential, Iran and Tajikistan have quite a large potential for hydropower but the potential in Tajikistan is most attractive because of its small size of population and relatively small energy need. Besides, Kyrgyzstan, Kazakhstan and Myanmar have also large potential for hydropower generation. Hydropower is considered to be the one of the cleanest and renewable energy in the world.

South Asian countries are experiencing high energy demand on the one hand to satisfy the economic growth and on the other hand equally facing shortage in energy supply. Among all the commercial energies, demand for electricity in all the South Asian countries is surging at a very high rate. A picture of the electricity generation in recent years and projected demand in 2010 and 2020 in the South Asian countries is given in the Table 9.

It is evident from the Table 9 that electricity demand between 2010 and 2020 will increase by 93% to 488% in South Asian countries whereas between the period from 2002-05 to 2010 electricity demand had increase by about 23% to 82.81%. In spite of the fact that with the exception of Bhutan all other South Asian countries are facing acute shortage of power which is adversely affecting their economic growth. In one of the major economy, in India electricity demand will increase by 96%. Electricity demand in Pakistan will increase by 93%, in Bangladesh by 130%, in Sri Lanka by 113%, in Nepal by 112%, Maldives by 336%, in Afghanistan by 243% and in Bhutan by 488%. If adequate power can be supplied, GDP in all the economies of South Asia will increase by 1.52 to 36%. The fuel mix of electricity generation is also noteworthy.

India, being the largest producer as well as the consumer of electricity in South Asia, let us examine the fuel mix in electricity generation in India. About 52% of electricity is generated by coal, 25% by hydro, 1% by liquid fuel,  10% by gas,  3% nuclear and about 9% Renewable Energy. The second largest producer of electricity in South Asia is Pakistan. Fuel mix in electricity generation in Pakistan consist 33% by gas, 32% by hydro,  0.75% coal,   32% by liquid fuel, 2.22% nuclear. Bangladesh is third. 82% of electricity generation in Bangladesh is dependent on gas. Although Bangladesh is endowed with substantial amounts of coal reserves, the use of coal for electricity generation has only recently been started. It is expected coal based generation will occupy the second position soon. Electricity generation in Bhutan and Nepal is mainly hydro based and Bhutan exports electricity to India. Nepal also exports electricity to India and the export will increase substantially in coming years. Maldives depend on liquid fuel for electricity generation. In Sri Lanka electricity generation is both hydro and liquid fuel based.

Difficulties in Energy Supply

All the countries of South Asia are very much concerned about the energy situation because of miss-match between the demand and supply situation. Currently, economies of all South Asian countries are suffering to different degrees due to inadequate energy supply. More than 50% of the people of South Asia do not have access to commercial energy, particularly, electricity which is regarded as the harbinger of modern economic development. How the rural economy can be benefited from the rural electrification, it was demonstrated in case of rural electrification in Bangladesh. Similar situation is also observed in India and other countries of South Asia. Issue of energy security in different countries of South Asia is being looked at from the country perspective. Issue of energy security needs to be addressed in a holistic manner. Following steps may be taken for ensuring energy security in longer time frame:

i) Integrated energy planning approach needs to be institutionalized in all countries of South Asia to ensure energy security of each country. India has already embarked on this road. Pakistan has also taken some steps in this regard. All other countries of South Asia should also follow the same path.

ii) It is very much clear that the South Asian countries are very much inefficient in energy use. South Asian countries spend more energy in producing per US$ of GDP than the world average of 0.32 TOE and 0.20 TOE per US$ of GDP in OECD countries. All the South Asian countries must undertake serious effort and appropriate measures to improve energy efficiency at all levels. If we can reach the efficiency of energy use at average world level, then, with the available energy we can serve 50% more demand.

iii) South Asian countries, with the exception of India, although contributes very little to the carbon emission, but they need to be very much careful about using fossil fuel for meeting their increased energy demand. South Asian countries must go for cleaner energy for meeting their future energy demand and ensuring long term energy security. In the event of sky rocketing increase in crude oil price, South Asian countries should take appropriate measures to reduce the demand for liquid fuel. It will save money as well as environment in reducing carbon emission. Among all the South Asian countries India has become pioneer in harnessing energy from the renewable sources, hydro, wind and solar. South Asian countries have abundant potential for harnessing renewable energy and all of them must go for harnessing future energy demand from renewable sources. Harnessing hydro-power potentials of Pakistan, India, Nepal and Bhutan must get priority over the other commercial energy.

iv) South Asian countries should try to accrue benefits from the excess energy available in the region through regional co-operation in establishing regional gas and power grids.

v) South Asian countries should take the benefits of importing energy from the neighboring regions, specially, from Central Asia, Iran and Myanmar through establishing gas and power grid connected to Central Asia and South East Asia.

The countries in the South Asia region continue to be characterized by poor quality of energy infrastructure, skewed distribution and inaccessible and costly energy availability.  These countries have remained largely energy importers and increasingly faced a serious energy shortfall.  This is likely to deepen further, both because of ongoing economic liberalization–led activities and rise in income level, steadying switching of the rural and urban families from bio-fuels to more efficient and convenient modern fuels.   The inability to cater to the increasing industrial and other commercial energy needs has adversely affected their productive activities, social development and investment climate.  This is exacerbated by structural, institutional and financial problems.

Most of the South Asian countries have introduced massive reforms in the energy sector, focusing on the following strategies in power sector reforms:

i) Segregation of the regulatory functions from the government and vesting them in an independent regulatory commission.

ii) Unbundling the various activities from the vertically integrated unit to distinct and separate units based on functions.

iii) Corporatization of various units

iv) Tariff reforms

v) Private sector participation

This restructuring is aimed at making their utilities more efficient and financially viable.  The private sector including the foreign investors can now set up thermal, hydro and wind or solar energy based projects.  A large number of private sector investors have entered into the energy sector.  At the same time there has been realization that availability and accessibility to energy can transform the quality of life and work substantially, help raise the educational standards and retard rural-urban migration by enhancing the level and pace of income and employment generation.

Prospects and problems of Energy Trade

There are clear options emerging, the cross border power trading is one of them.  Regional trade in electricity and natural gas should be an important and logical element of the array of options to relieve the energy supply constraints in the least cost and timely manner, benefiting both the importing and exporting countries.  Yet, such regional trade is far below the potential, held back historically by a number of factors: political and security concerns; inward-oriented energy security policies; poor commercial performance and practices of national utilities etc.

Broadly there are two geographic clusters centered on the countries with significant energy import needs, India and Pakistan, which could serve as pillars of regional integration in the eastern and western South Asia areas, respectively, with subsequent firm integration of the two clusters into a region-wide integrated energy market.  In the eastern cluster (Bangladesh, Bhutan, India, Nepal, Sri Lanka) the priority opportunities includes ( a) expanding India’s bilateral electricity trade beyond Bhutan to electricity imports from Nepal, and (b) possibly gas and electricity imports from Bangladesh.  This would create a good basis for an integrated electricity (and gas) trading among the four countries, which could link with Myanmar, ( especially for gas imports) and Sri Lanka.  In the western cluster (Afghanistan, Pakistan, India), the priority option include expanding electricity imports from Central Asia beyond Afghanistan to Pakistan, and , subsequently to India.  Imports of gas from Central Asia, as well as from Iran to Pakistan and India is also of significant interest.  India would eventually bridge the two clusters into a s single, unified energy market, with integrated electricity and gas networks.  The market, serving a population of about 1.5 billion, would be one of the largest in the world, whose sheer size would make it easier to mitigate the various risks, bear external shocks, reduce costs, create additional and more profitable trading opportunities and attract investments.

Such energy regional energy trade will be effective only when the policy makers in the public sector will look upon trade as diversifying the forms of energy and their sources of supply, thus enhancing energy security, rather than focusing on the costly and ill-affordable goal of full national energy self-sufficiency.  There are sufficient indications that such a change in the mind set of the politicians is occurring and that the region is gradually positioning itself on increased trade and cross border investments in the energy sector.

It would be appropriate to discuss the actions that have been recently undertaken.  Electricity imports from Bhutan to India have been gradually increasing, enabled by India’s significant technical and financial assistance.  India is looking into import of Myanmar’s natural gas through a pipeline.  India’s NTPC has signed an MoU to finance, install and operate a coal power plant  in Sri Lanka.  Private businesses have attractive opportunities to invest in the hydropower generation projects in Nepal, Bhutan and Myanmar and in gas-fired power generation in Bangladesh, for exports to India and possibly to Pakistan when the grid interconnections are established.  On the Western side of the region, Pakistan, Afghanistan, Tajikistan and Kyrgyz Republic with assistance of multi-lateral and bilateral aid agencies have been analyzing the proposal to export about 1000 MW of hydro power from Central Asia to South Asia (CASA-1000).    Should this proceed smoothly, the exports could increase several folds over time.  Private sector investments, both in generation and transmission are envisaged.  Pakistan and India are pursuing the possibility of gas imports from Iran and Turkmenistan.  When these projects materialize, they will help integrate Afghanistan with both the South Asian and Central Asian energy systems.  Most of these investments are perhaps best structured as public-private partnerships (PPP) with equity share for local partners and host governments and with the involvement of neutral third parties to mitigate a range of risks.

Therefore, countries will have to ensure that reforms, wherever necessary, should aim at making the importing sector entities financially solvent and trade worthy, trading partners and providing a choice of buyers to the exporters to the provision of non-discriminatory third party access to the transmission grid. Reforms should also encourage internal trade within the countries and enable evolution of the market price signals for the exporters.

The exporting countries should ensure a stable and attractive investment environment, as well as stable supply to domestic markets to mitigate the risk of energy export being diverted to domestic consumption.  Establishing and strengthening transparent, fair and stable sector regulation in both groups, which would not discriminate between domestic and export markets, would significantly benefit regional energy trade.  India is a classic example where major advances have been made under the Electricity Act of 2003 to promote internal trade.  Sector reforms with similar objectives are being pursued in Pakistan and Bangladesh.  Reforms in this direction and in ensuring long-term sustainable and profitable operation of the energy distribution entities will play an important role.

Reduction of political tensions and conflicts, both regionally and domestically is critical for improving the environment for regional energy trade and cross border investment.  At the same time, increased cross-border investments and trade and associated business interest would help lower the political tensions.  Entrepreneurial investment initiatives with imaginative financing and risk mitigation strategies – possibly involving in some projects, multilateral financial institutions, as neutral parties to help build the confidence and mitigate risks – could help to strengthen trade growth and regional peace.  Strengthening regional institutions, both at the policy and technical levels, to coordinate policy measures, exchange information, coordinate investment planning, develop congruous grid codes and operating procedures etc will facilitate regional energy integration.

Regional integration will happen through specific investment projects to build cross-country inter-connection and export oriented power plants and gas wells.  Selecting and implementing such priority projects would greatly help advance regional energy trade, both in terms of physical infrastructure and energy flows, as well as in terms of improving the policy, institution and commercial environment through the debate and arrangements that preparations and implementation of the investment projects would bring.

Model for Trade or Exchange Electric Power

The choice of a model to trade electric power and other energy varieties between countries is a crucial issue.  There are successful instances of international power trading mechanisms in some regions across the world.  One notable feature in the power market in these regions is the prevalence of competitive electricity trade legislation.

A successful model from Africa is worth mentioning.  South Africa Power Pool (SAPP) created in 1995 encompasses among others South Africa, Lesotho, Mozambique, Namibia, Malawi, Zimbabwe and Zambia under the Regional Cooperation Organization, viz, South African Development Community (SADC) is one example which matches very well with South Asian situation.  This is a model of trade in power with a view to provide a reliable and economical power supply consistently.  SAPP countries have a diverse mix of hydro and thermal generation plants serving a population of over 200 million people.  This is one-seventh the size of the population of South Asia.

It has a coordination centre located in Harare, Zimbabwe, which carries out a number of functions including monitoring the operations of SAPP, collecting data, undertaking planning studies and training activities and dissemination of information to members.  The pool is working very satisfactorily with immense gain to all participating countries.

Interconnection of power systems of contiguously located countries and their coordinated operation provide immense technical and economic benefits.  All these interconnections allow each electrical utility to make savings on power plant investments and operating costs as a result of the improved use of the inter-connected system.  It also contributes to the quality of electricity supply to customers as well as reduced environmental damage.  Reducing losses in the power system is often more cost effective than constructing more generation capacities.

There already exists considerable network of inter-connections among the South Asian Countries.  India’s Power Grid Corporation has worked out the inter-connection required, their feasibility and the cost and benefits to the participating countries in the South Asia Growth Quadrangle Region consisting of Bangladesh, Bhutan, north-East region of India and Nepal. All these inter-connecting channels will very much match the Indian effort to have integration of all regions to form a common grid in near future.

Challenges and Opportunities of Energy Security in South Asia

Energy Security in South Asia has a number of challenges but also opportunities.  The challenges can be overcome and opportunities explored only through regional cooperation.

The following challenges in the South Asian energy sector have been observed.

i) Improved electricity supply is a key to sustaining economic growth and improving social service.

ii) Electricity is still not available to about half of the regions 1.5 billion population, especially in rural areas, which adversely affects the efforts to reduce poverty and create better opportunities for all.

iii) Lack of access to modern forms of energy prolongs the widespread traditional use of biomass, with adverse environmental and health impact.

iv) Electricity services to the connected customers, whether to businesses or households, are often unreliable and of poor quality, coupled with high technical and commercial losses and poor commercial performance of service providers.

v) Advancing electricity reforms is critical to ensure sustained growth of the sector and optimal development and use of energy resources.

vi) There is little cross border trade in electricity, with the exception of India – Bhutan or India-Nepal.

vii) Consequently, optimal development of the region’s internal energy resources is hampered and access to the significant energy resources in the neighboring countries denied, which increases the cost of energy supply and reduces energy security of the individual countries and of the region as a whole.

Following opportunities have been observed:

i) Economic growth creates opportunities to expand access to modern and cleaner energy, especially electricity, to un served and underserved areas and strengthen performance of the energy utilities.

 ii) Differing resource endowments, development needs, and demand patterns among the countries in the region and its neighborhood create significant opportunities for cooperation and trade in the energy sector and – eventually – for creating one of the world’s largest integrated energy market.

iii) Win-win opportunities abound: energy resource-surplus countries (Nepal, Bhutan in the region, Central Asian countries, Iran, Myanmar in the neighborhood) would benefit from energy export-led growth and implementation of large-scale regional projects which otherwise would be infeasible; those with significant energy import needs (India, Sri Lanka, Afghanistan) would enhance energy security, as would the others (Bangladesh) from improving the energy mix

iv) All would benefit from reliability support, reserve sharing, cleaner fuels, better investment opportunities and reduced risks for investors, and the associated sharing of knowledge and experience.

v) A two-track approach: (a) enhancing energy trade through specific projects, whether bilateral or multilateral; (b) strengthening regional organizations and institutions, to complement the first track, help enhance mutual trust and confidence, and create conditions for scaling up.

vi) Some initial regional project opportunities: import of hydropower from Central Asia to Afghanistan and Pakistan; export of hydropower from Nepal to India; electricity interconnections between India and Sri Lanka, and India and Bangladesh; gas imports from Central Asia, Iran, and Myanmar.

vii) Two regional energy trading hubs initially: the first at the western flank of the region, comprising Afghanistan, Pakistan and north-western India as importing markets, trading with Central and Western Asia; the second at the eastern flank of the region, comprising India (as the main importing market), Nepal, Bhutan, Bangladesh, and Sri Lanka.  Both hubs could develop gradually, with India eventually bridging the two hubs into a region-wide integrated market.

viii) Continued strengthening of the national energy systems, both institutionally and in terms of physical infrastructure, is fundamental for a successful and sustainable regional integration.

ix) SAARC could play a major role in helping build mutual trust, develop regional institutions and physical infrastructure, and partner with development organizations.

If the issue of energy security can be considered from an inter and intra-regional perspective, then a solution to the problem of future energy security becomes much easier to achieve, and the pace of economic development in South Asia could be even more accelerated. Some of the countries of South Asia, Bhutan, India, Nepal and Pakistan are endowed with huge hydropower potential.  Pakistan and India have vast coal reserves which can also supplement to energy security. Some neighboring countries in Central Asia and South have been endowed with huge potential for hydropower generation, oil, gas and coal deposits. These potentials can be productively utilized to ensure future energy security of all South Asian countries. India and Pakistan are planning to import gas from Central Asia through pipeline. They are also planning to import hydro-electricity from Central Asia through a regional power grid. These pipelines from Central Asia and Iran have to be laid through Afghanistan and Pakistan to connect India. These pipe lines can be extended to Nepal, Bhutan, Bangladesh and Sri Lanka easily. Similarly, regional power grid which is being envisaged through Afghanistan and Pakistan can easily be connected with Nepal, Bhutan, Bangladesh and Sri Lanka. In case of regional oil and gas pipelines and power grid, the role of India is very important. In both the cases role of Pakistan is not less important. When India and Pakistan can leave aside the contentious political issues to agree to the construction of gas pipelines from Iran to India through Pakistan considering the issue of their long term energy security, it generates great hope that these two countries can join hands to agree to establish gas and power gridlines in South Asia to export and import gas and electricity within the region and from outside the region. Living in the 21st century we need to look forward, we need to see the alleviation of poverty in all the South Asian counties with equal importance. Economic development and improvement of the socio-economic conditions of teeming millions in the South Asian subcontinent can only ensure peace and harmony among the nations of South Asia. Poverty, illiteracy and backwardness will always push people to terrorism and extremism; it may be religious or political. Building regional gas and power grid in South Asia connecting Central and South East Asia will be a great technological solution to the socio-economic and political problems of South Asian people. Once the energy security of people South Asia is ensured, economic development progresses unhindered, poverty and discrimination are removed and an atmosphere of confidence among the nations of South Asia is established, this region will become a region of eternal peace and harmony.

Recommended Initiatives for Regional Cooperation

Both the cross border trading of energy and developing energy markets will be crucial going forward.  Promoting regional power exchanges and developing regional transmission network can help support efficient and economic load management.  It can provide access to un-tap energy resources, it can also enhance a reliability of energy supply.  There are good examples in Europe and Africa and South Asia can follow the same.  Regional Power Grid Integration would be a necessary pre-condition for cross border trading.

Potential for cross-border energy trading in South Asia, which emerge out of the FEISCA discussion in 1998, has already been recognized as a subject of interest to WEC South Asia members at their meeting in Kathmandu in 1999.  A report was presented at the 18th World Energy Congress at Buenos Aires, Argentina in 2001.  This was further discussed in the WEC South Asia Regional Task Force Meeting in 2005 and was consolidated during the period 2005-07.  The Task Force observed “Opportunity exists to explore and exploit the avenues of mutual cooperation leading to cross border trading in energy.  Working out suitable trading models and mature and developed energy market would be the important aspect of cross border trading of energy”.

Sharing knowledge and expertise:  Another area of cooperation is exchange of technical expertise.  The region is rich in technical manpower resource and is comparable to the best in the world.  What makes such cooperation attractive is its cost effectiveness.

Sharing of the experience by member countries can be a valuable input for the growth of the sector since such expertise is more likely to be relevant and more meaningful to the member countries o the region.

Creation and accessibility of a regional energy data base: Countries in the South Asia Region need to collaborate on a data base of energy resource spread across the region as well as of their utilization and potential for further development and sharing of energy information.

Explore funding for clean technologies:  Green Climate Fund announced at the Cancun Conference holds promise to support technology development in the energy sector, mainly in the South Asia. Green Climate Fund is proposed to support initiatives of technology development of environmentally sound and sustainable emission reduction projects in the developing world.  All the countries in South Asia Region qualify for such funds and have to really collectively develop strategies to access them.  The fund can effectively support the earlier two activities.

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