Trade in energy: need and opportunity of the hour in South Asia

Arif ZAMAN

A famous newspaper headline in the 1992 UK general election suggested that ‘if Kinnock wins today will the last person to leave Britain please turn out the lights.’ Perhaps we should re-phrase and re-contextualise this for SAARC nations that ‘if SAARC leaders cannot ensure more progress in regional trade, the lights will go out while we are still debating.’

Despite ill winds blowing, South Asia is enjoying unprecedented economic growth. The growth, however, is becoming constrained by significant shortages in energy supply and unless corrective steps are urgently initiated and implemented it may be difficult to sustain the achieved and aspired growth rates.

Despite rapid growth in energy demand, the South Asian energy scenario is marked by low levels of per capita energy consumption, high energy intensity, and high levels of energy consumption per unit of GDP.

Investments

Fostering of cross-border energy investments and promotion of regional energy trade in order to take full advantage of the energy resources available within the region and its neighbourhood are important elements of the solution to this problem. This is being increasingly recognised both by the region’s political leaders and its business community. Moreover throughout the region, extreme poverty persists which is exacerbated by a lack of access to electricity.

Despite apparent synergies and opportunities existing for cross-border energy cooperation, the energy and power trade in the region is extremely low.

The South Asian region represents 22 per cent of the world’s total population comprising over one billion, of which 30-40 per cent live below the poverty line of which only 40-50 per cent have access to electricity.

Despite the development, the countries of South Asian region are energy starved. To meet the growing energy requirements, energy trade between these countries is essential.

Energy trade

However South Asia’s current cross-border energy trade is limited to Bhutan, India and Nepal. Recently, energy trade between Bangladesh, India and Pakistan has been proposed, in line with the construction of liquefied natural gas pipeline from Myanmar to India through Bangladesh, and Iran to India through Pakistan.

These proposed energy trade projects, if implemented successfully, will contribute to integrate regional economies.

Coal and petroleum are the predominant sources of energy in the region; however there are variations among the countries. Bangladesh is dominated by natural gas (86 per cent in 2005), India by coal (55 per cent in 2006),

Maldives on petroleum (100 per cent), Sri Lanka on hydroelectric power and petroleum (50 per cent and 46 per cent respectively in 2005).

Pakistan is diversified with petroleum (33 per cent), natural gas (30 per cent) and hydroelectric power (33 per cent) whereas Bhutan and Nepal rely heavily on hydroelectric power (99 per cent and 92 per cent, respectively in 2004). The variation in the energy mix in the individual South Asian countries provides a unique opportunity to enhance energy security in the region through mutual cooperation.

The countries of South Asia share similar conditions and the energy sector is no exception.

Demand

South Asian countries are faced with rapidly rising energy demand coupled with increasingly insufficient energy supplies. Because of the economic and political ramifications arising from energy and power shortfalls, improving the supply of energy, particularly the supply of electricity, is an important priority of the South Asian economies.

Only 59 per cent of the population is connected to the electricity grid and most of the rural population relies on biomass to meet its energy needs.

The demand-supply situation is bound to get worse as the proportion of population with no excess to electricity increases in the region with economic development.

There exists great potential in the region for energy cooperation and mutually profitable opportunities which will thereby increase regional energy security and give the region greater resilience against energy shortages.

Currently, only India, Bhutan and Nepal trade electricity and that too at a miniscule scale compared with the need and potential for energy cooperation. South Asia has considerable potential for mutually advantageous energy cooperation/trade:

H India is short of indigenous gas and is importing expensive LNG. It has a good amount of known reserves of coal at 204 billion tonnes

H Bangladesh has a gas reserve of 10.6 Tcf and an ‘undiscovered reserve’ of 32.1 Tcf and a coal reserve of 2.7 billion tonnes

H Nepal and Bhutan have large untapped hydro potential of 43,000MW and 30,000MW respectively

H Pakistan has a gas reserve of 27 Tcf (substitution oil by gas) and lignite with a coal reserve of 185 billion tonnes

Some of the countries of the region are well adjoined by the land surface. They have access to road to move from one country to another. Bangladesh can export natural gas to India and Nepal if the pipeline construction from Bangladesh to Nepal through India would be successful.

Bangladesh can import electricity from Nepal through India if the transmission lines are constructed.

The energy trade between the nations becomes a need today as the countries of South Asia are facing power shortages.

For this, joint ventures for the development of gas pipelines and transmission lines should be investigated and established. To meet the growing energy requirements, energy trade between these countries is essential. Nepal can sell its abundant electricity to other South Asian countries and, in turn, buy coal and natural gas and oil from other respective countries.

Electricity

There is a strong need for energy cooperation among the electricity markets of the South Asian countries to mitigate their energy security risks which can be done through the development of a regional electricity grid as well as gas and oil pipelines.

The economic and technical advantages of a network of electricity grid and regional gas pipeline are numerous.

Such networks increase the reliability and security of energy in the region, reduce the required reserves capacity to meet peak demand, reduce cost through large economies of scale, reduce cost of fuel transportation, and allow regional resources to be harnessed more efficiently.

In addition, such a system will bring substantial benefits in terms of environmental protection through reduced consumption of fuel wood and low quality coal.

South Asian countries are faced with the challenge of energy security which may be achieved by diversifying traditional energy supplies, promoting additional foreign investment for energy infrastructure development, improving energy efficiency, reforming and privatising energy sectors, building cross-border linkages and promoting and expanding regional energy trade and investment.

Competition

The creation of a South Asian energy market and cooperative development of the available diverse energy sources in the region can also help increase the level of energy security in the region and thus can subsequently contribute to achieving a sustained higher economic growth.

This could lead to a South Asian regional power and gas market and competition among power and gas producers both public and private that ensure economic and efficient delivery of services to the consumers in the region.

At the same time, the power system networks of Bangladesh, Bhutan, India, Nepal, Pakistan and even Sri Lanka can be interconnected to achieve greater efficiency and economy in the overall system.

Regional cooperation by itself is not a sufficient condition for harnessing resources more efficiently; a necessary precondition is market reforms in individual countries, which would remove existing bottlenecks and create a more conducive climate for attracting investment into the energy and power sector.

All South Asian governments need to continue embracing market reforms and policies supporting cross-border energy trade and power sector investments as a necessary step in meeting the energy demand.

These reforms and policies, if properly implemented, can have a snowballing effect on the investment climate and pave the way for harnessing hitherto unexploited resources.

(The author is adviser, Commonwealth Business Council and SAARC Chamber)