Energy Cooperation in South Asia

As South Asia struggles to get out of low-growth equilibrium and achieves above six per cent GDP growth rate, it is faced with one of the biggest challenges of meeting a higher demand for energy. As compared to the last two decades, when the energy consumption was 5.8 per cent against low energy production of 2.3 per cent, the demand for energy is growing at a rate of 9 per cent annually, whereas the deficit in energy production has almost doubled in the last decade. Even though South Asia has the lowest per capita consumption of energy in the world (0.45 toe), it is going to have the highest rate of energy consumption by 2010 and beyond. While 60 per cent (775.3 million) of its population remains without electricity and is dependent on biomass, the energy intensity (total energy divided by per unit of GDP) is 0.65 toe, as compared to the world average of 0.29 toe -- which is much higher.

Higher rates of growth of economy, population and urbanisation in the South Asian region are resulting in higher consumption of energy well above the world average of OECD rates. Therefore, South Asia is faced with the multiple challenges of sustainable development: increasing energy demand, harnessing vast local natural resources, import substitution, making available cleaner and cheaper energy, developing an inter and intra-regional market and an energy grid while exploiting the economy of scale, reforming an inefficient power sector and attracting private investment, conserving natural resources and protecting environment. If South Asian economies are to grow at a higher rate and overcome poverty and backwardness, they will have to grapple with the energy crisis not only at their respective national levels, but also collectively at inter and intra-regional levels.

The South Asian countries have a great potential of energy and have complementary endowments on a contiguous landmass, which is a prerequisite to developing an integrated power infrastructure like power grids and gas pipelines. High levels of complementarities in energy sectors among the countries of the region allow varying comparative advantages: If India has an edge in producing coal-based energy, Pakistan and Bangladesh have the benefit of gas-based power generation, while Nepal and Bhutan are hydro-based. As opposed to trade, where compatibilities are few, these complementarities can be exploited to the mutual benefit of each other. The last SAARC Summit envisaged an 'energy ring' and formed a working group to explore the possibilities of cooperation in the energy sector. A network of gas pipelines and power grid will enhance energy security in the region, essentially of India, and also significantly benefit its smaller neighbours, reduce cost of fuel transportation and help in an optimal and efficient harnessing of energy resources. Although India is much ahead in the energy sector, it will still be depending heavily on external energy sources, especially from and through its smaller neighbours, Nepal and Bangladesh, and geo-strategically located Pakistan.

Located in close proximity to the Persian Gulf and Central Asia, South Asia can tremendously benefit from their immense resources of oil and gas. The natural gas supplied via pipelines by these countries would cost 35 per cent less than the cost of liquid natural gas (LNG) in India and Pakistan. By 2010, according to estimates, the demand for gas in India and Pakistan would be 8 billion cubic feet per day and only a quarter of it could be met locally while the rest would have to be imported. Pakistan, besides meeting its own needs, can serve as the gateway for supplying natural gas from Iran, Persian Gulf and Central Asia to India and beyond. The Indo-Pak joint working group has agreed on a framework and a tripartite meeting has been convened in August. But the Iran-Pakistan-India gas pipeline, even if all details are ironed out among the three partners, would critically depend upon the donors from the G-8 countries.

On the other hand, Bangladesh has substantial reserves of gas, 22.9 trillion cubic feet, according to latest estimates, of which 16 tcf has been proven, whose greater utilisation would require huge investment in infrastructure for installations and transportation. Bangladesh can choose to export it to India -- whose unmet demand would reach 60 bcm by 2010 -- and Nepal. Besides developing gas-based domestic industries, Bangladesh can export 200 mcf gas to India and earn revenues worth US$ 400 million annually while substantially reducing its trade deficit with India.

While there is a huge potential for hydroelectricity in the Hindukush-Himalayan region, only 11 per cent of it has so far been exploited; of this less than one per cent in Nepal, 1.5 per cent in Bhutan, 29 per cent in India, and 13 per cent in Pakistan could be tapped. Bhutan has the hydroelectric potential of 30,000 MW and Nepal has sites to produce 43,000 MW, mostly for export to India and Bangladesh. India will have to upgrade its transmission lines to reach West Bengal, Bihar and Uttar Pradesh and require a corridor through Bangladesh for such lines ensuring smooth and easy supply of Bhutanese power. The Indian officials often cite Indo-Bhutan collaboration in hydro-power as a successful model for others to emulate. However, given India-Bhutan special relationship, this success story is, perhaps, an exception and cannot be extended even to Nepal which is reluctant to implement Mahakali Treaty and pursue other projects.

Collaboration in hydro-power seems difficult between India and Pakistan, although a large potential for joint projects exists, given the sharp differences over various dams being built by the upper riparian India in the Indian-administered Jammu and Kashmir and Pakistan's serious objections on them under the Indus Water Treaty. Although Pakistan had increased its thermal power with the successful induction of independent power producers (IPPs), it could not supply over 3000 MW of surplus power available in the 1990s to India due to serious differences over rates. Moreover, thermal power is the dominant source of energy in most of the South Asian countries. It accounts for about 92 per cent of the installed capacity in Bangladesh, 73 per cent in India and 69 per cent in Pakistan. India, Pakistan and Bangladesh can cooperate in thermal-based power generation.

The energy cooperation in South Asia presents tremendous potential for the development of regional resources in an integrated manner by exploiting the complementarities and optimal utilisation of available resources. Much will depend on how South Asia benefits from its proximity with south western and central Asia to meet its gas and oil needs. But the real issues are of political economy, both at inter and intra- regional levels, further liberalisation and deregulation of an inefficient energy sector, attracting foreign investment and developing an integrated infrastructure of production, transmission and gas pipelines at a regional scale.