Contents
Integrating Stakeholders in Energy Cooperation
Energy Cooperation
Dr Mahendra P. Lama

Introduction
There are distinct advantages for South Asian countries to cooperate in the energy sector. These countries together possess vast stores of energy, mostly in the form of water resources, oil, forest, coal and gas. However, these countries continue to be characterised by low per capita consumption of energy, 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 liberalisation-led energy intensive activities and rise in income level-led steady switching over of the rural and urban families from traditional bio-fuels to more efficient and convenient modern fuels. The inability to cater to the increasing industrial and other commercial energy needs have adversely affected their productive activities, social development and investment climate. Power shortages, outages and low quality have imposed substantial costs on the economic growth. This is further exacerbated by structural, institutional and financial problems. Energy security is, therefore, emerging to be one of the most critical issues in the South Asian region.

Energy Sector Reforms
The South Asian countries have introduced massive reforms in the energy sector, targeted at improving availability, accessibility and affordability and reducing import dependence. Most countries have focused on the following strategy in energy sector reforms.

Segregation of the regulatory functions from the government and vesting them in an independent regulatory commission
Unbundling various activities from a vertically integrated unit to distinct and separate units based on functions

  • Corporatisation of various units
  • Tariff and pricing reforms
  • Private sector participation
  • Cross-border trading options
This restructuring is aimed at making these utilities, particularly power, more efficient and financially viable. The private sector including the foreign investors can now set up thermal, hydel and wind or solar and gas-based energy projects. A large number of private sector investors have entered into the energy sector. At the same time, there has been a realisation that availability and accessibility to energy can transform the quality of life and work substantially, help raise health and educational standards and retard rural-urban and cross border migration by enhancing the level and pace of income and employment generation.

Scope for Energy Cooperation
Regionalism, besides its strategic, geo-political and foreign policy dimensions, has been a major plank of development cooperation and integration in many parts of the world. There are examples of a variety of regional groupings that have transformed the conventional outlook and aspirations into more open, dynamic and wider systems and practices of peaceful coexistence, collective responsibility and regional development.
There are instances where bilateral conflictual issues have been effectively dealt with by the larger concept of and win-win situation generated by regionalism and multi-lateralism1. Regional cooperation has brought about significant transformations in some of the region's strategic options, political actions, economic orientation and development gains2.

Economic gains based on regional cooperation in the energy sector have become a firmly established practice across the regional groupings. Many developing countries, because of their low income and small market size, are unable to capture the inherent economies of scale of major infrastructure investments. Cross-border energy exchanges will bring the entire issues of region cooperation and integration in this sector to the forefront.

Given the historical context, topographic and demographic features, natural resource endowments and socio-cultural ethos, South Asia could be the most natural unit of cooperation and integration. Creation of a South Asian energy market and cooperative development of the available diverse energy sources in the region can 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 producers both public and private that would 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.

In South Asia there are clear options emerging in the arena of regional cooperation in energy sector. Cross-border energy trade is one with the Bhutanese success story spreading to Nepal, Bangladesh and even Pakistan. This is further corroborated by combining gas deposits in Bangladesh, hydro-power potentials of Bhutan, Nepal and North East India and the bourgeoning markets in the South Asian countries. The strong seasonality factor in both generation and demand that is noticeable in the South Asian countries has, in turn, generated a lot of interest in cross border power trading.

In some cases, the imprudent use of power during a typical day and season has led to major losses as well. For instance, in Bangladesh a sizable generation capacity to the tune of at least 1200 MW remains un-utilised during the off-peak hours and in effect power units remain shut off for these hours. They produce power only when they are requisitioned to produce. This available capacity can be a ready source for regional cooperation for import-export of electricity from a neighbouring country.

There exists clear seasonality in power generation in India and this becomes particularly prominent hydel power generation. The lean months for hydro power generation are from January to June, whereas in Nepal the supply capacity is maximum during the wet months. It is during the hot summer months that the Indian system is starved of energy and capacity. This is where the complementarity in cross-border power trade emerges.

Energy Cooperation: Regional Initiatives
A number of organisations in the region and outside have been consistently working towards fostering the cooperation in energy sector in South Asia. This includes the technical and professional public sector organizations, including Petrobangla, Power Grid and Power Trading Corporations of India, Electricity Authorities of Nepal, Sri Lanka and Pakistan. On the other hand, international agencies like the World Bank, ESCAP, Asian Development Bank, USAID (SARI-E initiatives) and UNDP have also been fairly active in the last few years. The SAARC has set up a Technical Committee exclusively on energy sector cooperation under its Integrated Programme of Action and has recently appointed a working group on energy cooperation.

A number of studies have already been conducted on various aspects of energy cooperation in the region. These are conducted by research organisations, such as South Asia Network of Economic Research Institutes (SANEI), Coalition for Action on South Asian Cooperation (CASAC), South Asian Centre of Policy Studies (SACEP) , Bangladesh Unnayan Parishad (Dhaka), Centre for Policy Dialogue (Dhaka), Institute for Integrated Development Studies (Kathmandu), Centre for Policy Research (New Delhi) and Tata Energy Research Institute (New Delhi) and premier universities like Jawaharlal Nehru University (New Delhi), BUET (Dhaka), Quaid-i-Azam University (Islamabad), Lahore University of Management Sciences (Lahore), Tribhuvan University (Kathmandu) and Colombo University (Sri Lanka). Some of these institutes and universities have played very active role in advocating the cooperation issues of cooperation in both water and energy sectors in the region.

The private sector role in the energy cooperation issues in the region is emerging slowly. This is both because of their marginal role in the past in their respective national energy sector and overwhelming public sector domination in energy related activities. After the reforms were initiated in the energy sector in the last decade or so, the private sector could play an active role both at the national and regional level. The SAARC Chambers of Commerce and Industries, a recognised apex body of the federations of chambers of commerce and industries in all the South Asian countries, is now emerging as a major agency of bringing the energy cooperation issues to the forefront.

Energy Cooperation: Options and Models
There is a whole range of options for any energy exchange project in the South Asian region. The reality is that till 1947 an overwhelming part of the region had an integrated energy market and system. The choice of a model to trade or exchange electric power and other energy varieties among these countries is a crucial issue. There are successful instances of international gas and power trading mechanisms in other regions across the world. One notable enabling feature in the energy markets in these regions is the prevalence of competitive energy trade legislation.

The possibility of energy trading has opened new vistas of cooperation. Cross-border energy trade could lead to:

i) effective utilisation of natural resources,
ii) increase in reliability of power supply,
iii) economy in operation and mutual support during contingencies,
iv) bring about large scale transformation in the sectors contributing to economic growth,
v) act as the single most effective confidence building measure (CBM) through the participation of multiple stakeholders and
vi) substantially promote market integration in energy related goods and services.

The changing nature of economic actors and institutions and their increasing support base in the civil society are likely to force policy designers in South Asia to procreate modalities for a substantive and lasting interaction3.

Interconnection of power systems of contiguously located countries and their coordinated operation provide immense technical and economic benefits also. All these interconnections allow each electrical utility to save on power plant investment and operating costs as a result of the improved use of the interconnected system. It also contributes to the quality of electricity supplied to customers as well as reduces environmental damage. Reducing losses in the power system is often more cost effective than constructing more generation capacity. Reduction of transmission and distribution losses (continue to remain very high in South Asia) by 90 MW due to the proposed interconnections would reduce the need for installing new capacity at an investment of Rs. 3600 million (US$ 79.12 million at the exchange rate of US$ 1=IRs. 45.50).

South African Power Pool (SAPP) created in 1995 encompassing among others South Africa, Lesotho, Mozambique, Namibia, Malawi, Zimbabwe and Zambia under the regional cooperation organisation viz., Southern African Development Community (SADC) is one example which matches very well with the South Asian situation. They trade in power with a view to provide a reliable and economical power supply. SAPP countries have a diverse mix of hydro and thermal generation plants serving a population of over two hundred million people. It has a coordination centre located in Harare which carries out a number of functions including monitoring the operations of SAPP, collection of data, undertaking planning studies and training activities, and disseminating information to members. The Pool is working satisfactorily with immense gain to all the participating countries. There are examples of such regional power pools successfully operating in several parts of the world. (Table 1)

Existing Regional Power Pools

Regional Arrangement Member Countries
Union for the coordination Transmission of electricity(UTCE)

Spain,Portugal,France,Belgium,Italy,Netherlands,Luxemburg,Austria,
Germany,Switzerland and now extended to Poland,Czech Republic,Slovak Republic,Hungary,Slovenia and Croatia
Nord Pool Norway,Sweden,Finland and Denmark
North American Electric reliability council (NERC) United States and Canada
Southern African power Pool(SAPP) South Africa,Lesotho,Mozambique,Namibia,Malawi,Zimbabwe and Zambia
The commession of Regional Power Integration(CIER) Jordan,Bahrain,Tunisia,Algeria,Saudia Arabia,Syria,Libya,Egypt,Morocco,Mauritania,Yemen,Iraq,Lebanon,Palestine,Dubai and Qatar
South America power trading Argentina,Paraguay and Uruguay,Central America

There already exists a considerable network of inter-connections among the South Asian countries. India's Power Grid Corporation has worked out the inter-connections required, their feasibility and the cost and benefits to the participating countries in the South Asia Growth Quadrangle (SAGQ) region consisting of Bangladesh, Bhutan, North East region of India and Nepal. All these inter-connecting channels will match the Indian efforts to integrate all regions to form a National Grid by the end Eleventh Five Year Plan in 2012.

As options for power trading in the broader ambit of regional cooperation in South Asia, the following three mechanisms can be cited:

i) Bilateral power trade
ii) Pool based
iii) Wheeling Facility

Cross-border power trade on a bilateral basis already takes place between India and Bhutan and, to a limited extent, between India and Nepal

India-Bhutan
In case of 336 MW Chukha project, Bhutan earned as high as Nu 2367 million (US$ 52 million) in 2002-2003 mainly from its power export to India (1472 GWh). This constituted almost 45 per cent of Bhutan's exports to India and 11 per cent of the kingdom's GDP4. It fully met Bhutan's power sector objectives of increasing government revenues through the generation of power for sale to India and to industries within the country. The projected revenue generation from the ongoing and the projects in pipeline could transform Bhutan into a middle-income country over the course of next 15 years. The sale of surplus power to highly power deficit areas of West Bengal, Orissa and the North East has been the hallmark of this project. The transmission link has also been a great success, which is likely to be upgraded to help evacuation of 4,500 MW from three large potential power projects, which are being built in Bhutan.

Exchange of power between India and nepal

  1993 1994 1995 1996 1997 1998 1999 2000 2001
Bulk energy sale to India (GWH) 46.1 50.5 39.5 87.0 100.2 67.4 64.2 95.0 126.0
Bulk energy purchase from India (GWH) 82.2 102.8 113.8 73.0 154 210.3 232.4 232.2 226.5
Revenue from bulk sale to India ( Rs million) 75.5 91.4 97.6 206.7 249.3 199.9 198.1 327.8 441.0
Source:source:NEA, A year in Review, 2000/01, kathmandu, August 2001

India-Nepal
Power exchange between India and Nepal has been underway since the last three decades. There is an agreement between the Governments of Nepal (HMG/N) and India (GOI) for exchanging power up to 50 MW, as and when required by the border towns. Interconnection is between Bihar State Electricity Board, Uttar Pradesh Power Corporation (formerly known as Uttar Pradesh State Electricity Board) and now also with the newly created State of Uttaranchal. The power exchange at present is on goodwill basis. This exchange has recently been increased to 150 MW. Despite the tariff being very nominal, the revenue generated by Nepal through sale of power to India has recorded almost six-fold increase during the last eight years (Table 2)5.

West Seti Project of Nepal
Another example is that of 750 MW West Seti power project in Western Nepal. This is a third type of bilateral power exchange, which is likely to take place in the region. A unique feature of this arrangement is the involvement of an independent power producer (IPP) to develop this power plant, the entire generation of which will be exported to India through Power Trading Corporation of India. This indicates a changing pattern of power exchange, a direct outcome of new hydro-power development policy that opened power development by private producers6.

It does not require grid synchronisation, as the entire generation will be transmitted to the Indian grid without connection to the NEA system. As such the project would work as an integral part of the Indian system. The power tariff deal is being negotiated for 25 years for which the levelised tariff would be computed at a rate not more than US$ 0.07. If this agreement, as designed, is implemented as per the schedule, Nepal is likely to realise the total payment of Rs. 14030 million (US$ 308.35 million) by 2007 and Rs. 56814 million (US$ 1248.57 million) by 2031.(Table 3).

India-Pakistan
Just a couple of years ago Pakistan was producing surplus power mainly because of lower than expected economic growth. Pakistan's informal offer to India in 1998 of selling surplus power very much matched the demand in the northern and the western regions of India. The northern region, one of the largest electricity consuming industrial areas, comprises the most populous states of Uttar Pradesh, Punjab, Haryana and Delhi. However, tariff came up as a major stumbling block in the entire negotiation process that was conducted during the second half of 1998 and first half of 1999. The WAPDA offered a price of US 7.2 cents/KWH while the Indian side offered a price of 2.25 cents7. It is mainly on this ground the negotiations broke off.

Pakistan already has a 500 KV primary transmission system extending from Jamshoro in the south to Tarbela and Peshawar in the north. All these lines run near the adjoining borders of India and may not require complex transmission extensions to the Indian borders. ‘There is a complete network on our side and, of course, on their (India) side as well. What we need are the connections, which would take only a couple of weeks’8. It is stated that each country will construct and maintain a double circuit twin-bundled 220 KV transmission from the designated substations viz., Dinanath in Pakistan and Patti in India. National Power Grid Corporation of India may play an active role in concretising the Indian side of the transmission of the power purchased from Pakistan. There is a proposal of laying a 50 km high voltage double circuit (HVDC) transmission line to evacuate power form the Dinanath sub-station near Lahore to the Patti sub-station in the Indian Punjab. If this happens, it is likely to bring about a major transformation in the political economy of regional cooperation in South Asia9.

Nepal:West Seti(western Nepal)Project offer for Export to india

  Year 2001-07 06-12 11-17 16-22 21-27 25-31
1 Saleable Energy MUs 3000

3000 3000 3000 3000 3000
2 Exchange Rate Rs/US$ 66.82 89.42 119.66 160.13 214.30 270.54
3 Rate / Unit
a.US$
b.Equivalent Rs[3a * 2]		 0.07
4.68		 0.07
6.26		 0.07
8.38		 0.07
11.21		 0.07
15.00		 0.07
18.94
4 Total Payment (Rs million)
[(3b*1)/10]		 14031.9 18777.9 25129.0 33628.3
 45002.2
 56814.3
  Discounting Factor 1.00 0.567 0.322 0.183 0.104 0.066
5 Present Value (Rs)
a.Total Payment [4*5]
b. Unit Rate [3b*5]		 1403.19
4.68		 1065.51
3.55		 809.09
2.70		 614.38
2.05		 466.52
1.56		 374.30
1.25
6 Levellised Tariff for 25 year     7.514      
Source:Power Trading Corporation of India, 2001

However, the key issues to be settled before the cross border flow is concretised are the cost of transmission line and its sharing mechanism; the determination of power tariff; the payment mechanism including the currency and the channel to be used like Asian Clearing Union and most importantly the power supply sustainability and its geo-political immunisation. It is very crucial to maintain a fair balance in the energy security equation in order to avert the risk of 'trade and fade'.

India-Sri Lanka Projects
The Government of India (GoI) and the Government of Sri Lanka (GoSL) signed a Memorandum of Understanding to build a bridge across the Palk Strait in July 200210. Indo-Lanka power interconnection through the land bridge is one important area where both countries can benefit. The Joint Study Group appointed by the Governments of Sri Lanka and India (2003), while noting the potential of a regional power pool for Southern India and Sri Lanka, enabled by interconnecting the respective electricity grids has recommended that ‘the interest of Indian companies to participate in future bids for coal-fired plants in Sri Lanka may be accentuated by the existence of a regional power pool. A regional power pool would also enable better management of peak-load demands on both sides, as well as enable faster recovery from disasters11.’

There is a considerable degree of provincial disparity in terms of power distribution, as the Western province has at a privileged position and, the North and East are at an underprivileged position. Sri Lanka is likely to have a huge power deficit because of the newly initiated peace and development process.

In a study carried out by the Nexant (2002), the pre-feasibility of a 400kv transmission interconnection with 500 MW transfer capacity in phase I, has been analyzed. Given the existing infrastructure conditions, this transmission line possibly connects to the Sri Lankan national grid at Anuradhapura12. The importance of the Indo-Sri Lankan land bridge in the Indo-Lanka power interconnection lies in the fact that with reduced infrastructure costs, the transmission line can be laid on the bridge and not in the seabed as perceived earlier.

With the proposed transfer of 500 MW power through Indo-Lanka power interconnection - Phase I, the total installed capacity in Sri Lanka would rise by 22 per cent from the current level of 2231 MW to 2731 MW. In the second phase of the project, it is estimated to double the transfer capacity by raising the installed capacity to 3231 MW. Even if the current gross power generation per MW at 3.1 GWh is taken as a benchmark, with this additional capacity the gross annual power generation in Sri Lanka will increase by 1550 GWh in the first phase, and by 3100 GWh in the second phase. By applying the different unit prices that are currently used by the Ceylon Electricity Board, it is possible to estimate the potential revenue from the transmitted power added to the national grid. The current average unit price of electricity in Sri Lanka is estimated to be SLRs. 7.25 (US$ 0.0763) per KWh. At this rate, the additional power supply will generate annually US$ 118.3 million in the first phase, and US$ 236.6 million in the second phase.

ii) The pool-based approach, also known as agent-based integrated simulation, can possibly provide support to develop a competitive long run market equilibrium in regional power trade. This approach involves the close working of a set of agents (manufactures), a monitoring, advisory and channelising regional body. These agents develop their own strategies to explore and exploit the capacity and other constraints of plant and market. They also evolve their own market clearing as well as settlement mechanisms. Each of the agent represents one of the generating firms. A key feature of this model is that it uses a micro level, bottom-up representation of the market with each generating firm (public and private) represented at the level of its individual plants.

In this context, establishing a Regional Power Trading Corporation (RPTC) would be highly beneficial to launch this type of market mechanism in SAARC region also. This could be called ‘SAARC-RPTC’ which could provide market feed-back to individual power producers (agents) as well as the power consumers. The SAARC-RPTC can maintain and disseminate information on plant structures, avoidable cost of production, plant sales prices, sales volume, rate of utilisation, profits generated, target utilisation and market conditions, consumer behaviour, and ongoing plant building and future investment in the sector.

This, in essence, would be a pooling of surplus power generated by individual plants in the participating countries and transporting into deficit ones by a coordinated exchange mechanism depending on demand and consumer categories (estimating consumer surplus). However, information asymmetry in this type of a model can create market havoc and thereby serious aberrations. Therefore, a major task of the SAARC-RPTC is to gather and analyse information on generation, demand, transmission and payment modes well in advance and arrange for the smooth operation of markets. The idea should be to evolve an effective bidding system for individual plant generators depending on the plant capacity, fuel use etc. across the entire spectrum of its activities.

To facilitate the process of setting up of SAARC-RPTC , it is rather essential to assess and understand the nature, direction and extent of intra-country power exchange of the South Asian countries. This gives a broad indications about the nature of power trading within a country and various regions of a country and also indicates geographical locations of load centers within a country.

The physical boundaries in South Asia region are such that it is only India which shares common borders with almost all its neighbouring countries. However, there are very distinct advantages for countries like Bangladesh and Sri Lanka to import power from Bhutan and Nepal, both because of the lower tariff and supply reliability. At the same time the power generating countries would also like to diversify the markets. For instance, Bhutan is keen to expand the market for its power exports, India being the only buyer for its power. This is more so as a number of hydro plants are under construction in the North East region of India, which may to a large extent lead to the diminution in the demand for Bhutanese power. Interestingly, these changing dimensions of power trading are widely matched by the expansive transmission lines that exist in all the bordering states of India including the North East, Tamil Nadu, Jammu and Kashmir, Punjab and Gujarat. Therefore, India as a transit corridor for power transfer could give a major boost to both the power trading activities and the process of regional cooperation and integration. India could also ensure full use of the transmission lines and generate a substantial revenue as wheeling charges13.

There are very strong possibilities of cooperation in other forms of energy. India can play an effective role in initiating trade in power between Bangladesh and Sri Lanka. For instance, Bangladesh could set up a plant of 2000 MW primarily to supply power to Sri Lanka via India which can also share this power. There is already an example of East Talcher to Kolar to Trivandrum (2200 km) 500 DC system completed in 2.5 years.

However, the power trading is in its infancy in the South Asian region. Whatever 'trade' takes place today is basically bilateral exchanges or apportioning of power from surplus areas to temporarily needy regions. Neither was any power purchase agreement (PPA), for the purchase of power by India from these projects signed with Bhutan and Nepal, nor any principle for fixing the rates for purchase of power have been evolved. In most cases, the tariff has been determined by political consideration, diplomatic goodwill and convenience.

Such an ad hoc arrangement based on negotiations and goodwill could work in the past mainly because the quantum of power purchase was limited. However, in years to come the size of power purchase would be substantial. Power trading will be in bulk and will have to have a more detailed framework of contracts and operating procedures.

Cross-Border Gas Trade
Besides electricity, the four areas which can be identified for cooperation in the oil and gas sector in South Asia region are i) trans-boundary natural gas trade, ii) trade in refined petroleum products, iii) cooperation in oil and gas exploration and iv) cooperation in NGV developments.

Sizable gas shortfall is expected in both India and Pakistan unless some major exploration and drilling operations are undertaken. The Tenth Plan of India has projected natural gas demand of 130 MMSCMD in the year 2006/7 which could rise to 175 MMSCMD in 2011/12. Indian Government policy in recent years has sought to promote the imports of natural gas, in view of the fact that demand is projected to outstrip production by 62 MMSCMD in 2006/7 taking the intermediate demand forecasted by Tenth Plan. It could be higher if the latent demand for natural gas is taken into account.

Smaller countries like Bhutan, Maldives and Nepal are also likely to record a quantum jump in the gas consumption in the next decade or so. The optimal techno-economic solution is for India, Pakistan and other South Asian countries to jointly pose their demands to potential suppliers in north and west and other Central Asian countries so that economies of scale result in a substantial reduction in unit cost of supply to both countries.

Though the South Asian countries, particularly India and Pakistan, have been envisaging both on-shore (Iran-Pakistan, Turkemenistan- Pakistan) and off-shore (Qatar-Pakistan, Iran-India and Oman-India) pipelines, nothing concrete has emerged because of : i) huge financial implications, ii) geo-political apprehensions, iii) unsure confirmation of natural gas reserves, iv) pricing of supplied gas, v) third country approval of transits and vi) environmental fallouts. This has also been the case in intra-regional gas pipeline between Bangladesh and India.

Indian concerns about the safety of the pipeline and assured supply through territory of Pakistan can be addressed through dialogue and legally binding guarantees by multilateral institutions14. This can be even ensured by extending this pipeline to Nepal, Bhutan and Sri Lanka. In fact, recent months have seen considerable progress in India laying gas pipeline into Nepal and Indian Oil Corporation's (IOC) planning to sell petroleum products in Sri Lanka15. Any of these pipelines, if laid, could change the energy as well as the economic picture of the entire region.
If political apprehensions are set aside, there are strong possibilities and scope for bringing gas from Bangladesh through pipeline. A number of feasibility studies have been done in this regard including by UNOCAL16, and Indian gas utilities like Gas Authority of India Limited (GAIL) and Oil and Natural Gas Commission (ONGC) of India. TERI's estimates suggest comparatively much higher net back for gas imported from Bangladesh if supplied to North India.

Among the several options available to use the rich gas resource base of Bangladesh the electricity generation and export of gas through pipelines are considered to be the most viable and profitable17. There have been numerous studies carried out to assess the gas reserves and also to examine the possibility of harnessing it for cross-border exchanges. This has generated a lot of interest and speculation as the estimates of gas reserves vary sharply18.

Recently two committees constituted by the Government of Bangladesh submitted their reports in June and August 2002. The Gas Reserve Determination Committee concluded that, as of April 2002, the proven as well as probable gas reserve of the country was between 12.04 TCF and 15.55 TCF for 22 gas fields. The possible gas in place was estimated to be in the range of 4.14 TCF to 11.84 TCF19. The Gas Utilization Committee ‘arrived at the finding, after in depth examination, that under the short and mid-term demand supply projections, there is a problem of short supply which militates against export of gas from the current reserves’20.

Swapping of Indian gas with Bangladesh gas is another proposal that also stands as a mutually gainful project. The proposal is that ONGC will sell the gas found in North East India, which could not be brought to mainland India since it would be too costly a proposition, to Bangladesh that would sell equivalent quantity of gas to India in return. However, nothing much has happened on this front.

Yet another proposal is to allow the right-of-way to lay a gas pipeline across Bangladesh to bring Indian gas, stranded in North East, to mainland India. This will bring transit fees to Bangladesh without any gas sales from the country. However, progress on this proposal is also very slow. More than this, the delay in any deal has been very costly for the South Asian countries. There are expert views that recent discoveries in the East Coast (Godavari) in India may thwart the plans to import natural gas into the country21.

An attractive option of this trans-boundary natural gas trade is to undertake the Iran-Pakistan-India Pipeline. Iran has shown urgent interest (particularly after the discovery of gas field at Tabnak) in supplying gas overland through Pakistan to India. The Pakistan government also formally announced its acceptance of such a facility to India22. Annually over U$ 200-400 million is likely to accrue to Pakistan as transit fees and royalty, if the deal is clinched.

Any of these pipelines, if laid, could change the energy as well as the economic picture of the entire region besides providing a robust CBM between India and Pakistan. These projects will substitute expensive imported liquid fuels to improve balance of payment, bring relief to the hard-pressed infrastructure of ports, roads and railways used in movement of liquid petroleum, improve environment, and reduce cost of electricity generation, besides several other direct and indirect benefits as a result of multi-billion dollar investment in the gas pipeline as well as in the downstream industry using the gas. As neither India nor Pakistan possess the necessary finances and technology to build such a pipeline, multinational and multilateral resources will have to be tapped.

The economies of scale will substantially reduce the cost of a unit of gas energy imported jointly than individually. According to an economic analysis conducted for a UNDP sponsored project on Energy-Environment Cooperation in South Asia, based on the then prevailing prices in March 1998, the tariff cost of the pipeline project could be reduced by about 26 per cent by having a joint pipeline for India and Pakistan as compared to having separate pipelines.

Therefore, in order to promote regional energy cooperation through trade of natural gas via trans-boundary gas pipelines in South Asia, these countries need to work on four major directions. This could be done only if an appropriate climate of trust is progressively created.

  • Full-fledged preparatory techno-economic work.
  • Intergovernmental agreement.
  • Informed public opinion.
  • Promotion of international commercial and financial interest in the proposed projects.

Conclusion
South Asian countries continue to be characterised by low per capita consumption of energy, 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. All these have adversely affected their productive activities, social development and investment climate. There has been a realisation that availability and accessibility to energy can transform the quality of life and work substantially, help raise health and educational standards and retard rural-urban and cross border migration by enhancing the level and pace of income and employment generation.

The creation of a South Asian energy market and cooperative development of the available diverse energy sources in the region can help increase the level of energy security in the region and thus can subsequently contribute to achieving a sustained higher economic growth. There are distinct advantages for South Asian countries to cooperate in the energy sector. There have been negotiations going on among the South Asian countries on the possibility of power trading and gas pipelines. Given the demand and supply situations in the subcontinent, it is rational to believe that the trade in power and gas will be mutually beneficial in terms of both economic and political gains. The studies conducted up to date reveal some important regional projects that merit serious consideration. They also provide a range of options.
However, there are several challenges ranging from trust and confidence building to investment and technology transfer, demand locations to really integrating the energy market and sustaining the effort to matching the regional aspirations with such efforts. The 12th SAARC Summit held in Islamabad in 2004 clearly indicated the need to consolidate in energy cooperation by creating an ‘energy ring’. What is required is a breakthrough project that can be set as an example for other regional energy ventures. In all these efforts and strategisation, the key element should be understanding the neighbours, strengthening both the traditional and emerging ties with them and making a much more concerted regional effort in consolidating a regional identity. The projects need to be depoliticised through sensitising the general mass about the gains that accrue and providing options and alternatives to the policy makers. An equally critical task is to build the capacities of the policy makers in energy sector across the region by re-skilling and reorienting them to the advantages of energy cooperation.

South Asian countries should also realise that cooperation is a goal oriented action wherein not only goal but also certain resources are shared together by the participants. This implies sharing of national control over them which is taken as a loss of national sovereignty. Whenever these countries have felt this, they have tended to withdraw from the regional cooperation process. States are reluctant to cooperate on merely economic goals. Therefore, tackling this perception of national sovereignty itself is a major question as it demands extending a new form of cooperation, sacrifice, contribution which the countries in this region invariably lack. This is why initiatives like ‘beneficial bilateralism’ and ‘unilateral gestures’ have worked in the region.

(Dr Lama is Chairman of the Centre for South, Central, South East Asian and South-West Pacific Studies, School for International Studies, Jawaharlal Nehru University, New Delhi)

End Notes
1. Edward D. Mansfield and Helen V. Miner, The Political Economy of Regionalism, (New York: Columbia University Press, 1997). Also see Maurice Schiff and L. Alan Winters, Regional Integration and Development, World Bank and Oxford, Washington, 2003; Miroslav N. Jovanovic, International Economic Integration :Limits and Prospects, (London: Routledge, 1998)
2. Ali M. El-Agraa, Regional Integration: Experience, Theory and Measurement, (London: Macmillan, 1999)
3. Mahendra P. Lama, QK Ahmad & Mohan Man Sainju, ‘Reforms in Power Sector and Cross Border Power Trade in South Asia’, in a forthcoming volume edited by Mohsin Khan, IMF , Washington, 2004.
4. Selected Economic Indicators, Royal Monetary Authority of Bhutan, September 2000, Thimphu and Kuensel, January 2004.
5. Fiscal Year 2002/03- A Year in Review, Nepal Electricity Authority, Kathmandu, August 2003.
6. The government earns revenue through royalty and export tax and gives several incentives and concessions to the private developer. Once the private developer agrees to the term and conditions laid down on the regulations, it receives a license to develop the project and subsequently takes on itself to market the power.
7. Data collected form the Ministry of Power, Government of India, New Delhi and Malik Masood, ‘A Note on Pakistan Power Sector/WAPDA Restructuring and Privatisation and Other Issues of Interest for South Asian Energy Forum’, South Asia Regional Energy Forum Proceedings, USAID, Kathmandu, 1999.
8. Statement by the Power Minister of Pakistan Gohar Ayub Khan, Hindustan Times, January 16, 1999. Also see Mahendra P. Lama, ‘Economic Reforms and Cross Border Power Trade in South Asia’, South Asian Survey, New Delhi, September-December 2000.
9. A. R. Kemal and Mahendra P. Lama, ‘Energy Trading Between India and Pakistan: Scope and Opportunities’, a collaborative research being conducted by Pakistan Institute of Development Economics (Islamabad) and Jawaharlal Nehru University, New Delhi under SANEI, New Delhi, 2004.
10. This is aimed at connecting the island nation with the mainland of South Asia by road and rail through India. The proposed multi-purpose and multi-modal land bridge between Dhanushkodi (South-East of Tamil Nadu state) and Thalaimannar (North-West Sri Lanka)] is expected to be 44 kms in length; Mahendra P. Lama et al, ‘India- Sri Lanka Land Bridge Project : Assessment of Economic and Social Impact’, A Report prepared for NEXANT under the USAID-SARI/E Programme, 2003.
11. Joint Study Group Report on ‘India-Sri Lanka Comprehensive Economic Partnership Agreement’, October 2003. Co-Chaired by Rakesh Mohan (India) & Desamanya Ken Balendra (Sri Lanka ).
12. Nexant, ‘Indo-Lanka Power Interconnection: Pre-Feasibility Study’, Colombo, 2002; Alternatively, the power transmission interconnection at Puttalam is no longer feasible given the fact that the proposed power plant at Puttalam has already been abandoned
13. Mahendra P. Lama, ‘Energy Cooperation in South Asia: Opportunities, Strategies and Modalities’, (Dhaka: CPD-CASAC, 2004)
14. Mahendra P. Lama and Rasul Bakhs Rais, ‘Pipelines and Powergrid for Peace’, Occasional Paper, (Mumbai: ICPI and London: Kings College, 2001)
15. ‘A joint venture of Nepal Oil Corporation (NOC) and Indian Oil Corporation (IOC) for cooking gas plants through pipeline is being implemented. This will link Nepal's main distribution depot at Amalekhganj, about 175 km south of Kathmandu, with IOC's supply centre at Raxaul in Bihar on the Indo-Nepal border. The pipeline will help Kathmandu save on transportation time and curb adulteration of the fuels while being hauled across the border in truck-tankers’, Himalayan Times, Kathmandu, 29 January 2004.
16. Unocal Corporation's Natural Gas Pipeline Project from Bangladesh to India includes construction of a new 30-inch diameter 1363-kilometre natural gas pipeline with a capacity to transport 500 MMSCFD of gas from Bibiyana fields in Bangladesh to major markets in India. Government of Bangladesh could expect to begin receiving estimated revenues and tax receipts of at least US$ 3.7 billion over the 20-year life of the project. The proposed pipeline is also expected to result in a direct investment of $ 500 million to US$ 700 million for field development and pipeline construction in Bangladesh. There are several additional benefits to Bangladesh.
17. As of today power generation with 46 % of the total gas consumption constitutes the most vital sub-sector for gas use followed by fertilizer production 30 %, industry 13 % and domestic and commercial 11%. All gas fields so far discovered are located in the East Zone, Consequently, all the power plants in the East Zone use gas as the fuel, while all plants in the West Zone are fuelled by oil of various grades. The completion of the bridge on the (Brahamaputra) river and the construction of a gas pipeline through the bridge and the subsequent gas supply to west zone and its connection with Baghabari plant is likely to change the power situation drastically.
18. A study stated that the estimated hydrocarbon resource base of Bangladesh ranges from a low side scenario of 34.2 TCF to a high side scenario of 51.5 TCF with a mean or ‘best technical’ estimate of 42.1 TCF. Another study carried out jointly by Petrobangla and the US Geological Survey in 2001 estimated the technically recoverable, undiscovered resource or ‘New Field Discoveries’ on a countrywide basis for Bangladesh. This showed that the total potential of New Field Discoveries ranges from a minimum case of 8.4 TCF to a maximum case of 65.7 TCF, with a mean of 32.1 TCF. Brown TA, AHM. Shamsuddin and MJ Rickard, Hydrocarbon Resource Base of Bangladesh, Proceedings of the 13th South East Asia Petroleum Exploration Society (SEAPEX), Exploration Conference, Singapore, 4-6 April 2001.
19. Report of the Committee for Gas Demand Projections and Determination of Recoverable Reserve and Gas Resource Potential in Bangladesh, submitted to Government of Bangladesh (GoB), Ministry of Energy and Mineral Resources, June 2002.
20. Committee Report on Utilization of Natural Gas in Bangladesh, submitted to Government of Bangladesh, Ministry of Energy and Mineral Resources, August 2002.
21. Preety Bhandari, India Country Study on Regional Cooperation in the Energy Sector in South Asia, CPD-CASAC Research Programme, 2003.
22. Iran proposed such a pipeline almost a decade back during Benazir Bhutto's regime. Since then Pakistan has been consistently denying such permission, Business Recorder, Karachi, April 8, 2000.
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