10. HOW CAN SOUTH ASIA PROMOTE ENERGY TRADE 6

Transcription

1 10. HOW CAN SOUTH ASIA PROMOTE ENERGY TRADE 6 Energy supply constraints in South Asia impede economic growth. Sustained growth with job creation is presently the priority development objective of South Asia. For this to materialize growth has to be broad-based, cutting across different economic areas: services (in which the region has registered some remarkable achievements) as well as productive sectors, industry and agriculture, ed by improved delivery of health and education. One of the major impediments for such broad-based development is the presence of significant infrastructural constraints, including adequate provision of energy. Relieving the constraint, especially ensuring sustainable, secure, and reliable supply of electricity at reasonable prices deserves the urgent attention of both the governments and businessmen. Regional energy trade could significantly contribute to improved energy supply and economic growth. Securing adequate energy supply has to be tackled at both the national and regional levels. There is 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 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 far in ecess of their domestic needs. 7 The development of these resources for eport would enable the eport 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. 8 Therefore, 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 eporting and importing 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. 6 The paper was prepared by Vladislav Vucetic and Venkataraman Krishnswamy of the World Bank. The views are those of the authors and should not be taken as reflecting the views of the Bank. 7 Total hydro potential of the five countries eceeds 170,000 megawatts. 8 Total gas reserves of Turkmenistan, Iran and Myanmar eceed 1000 trillion cubic feet. 45

2 Possible evolution of regional energy trade within the SAARC region and between the SAARC region and its neighbors: toward one of the largest integrated markets in the world. 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 SAARC areas, respectively, with subsequent firmer integration of the two clusters into a region-wide integrated energy market. Tables 1 and 2 summarize the opportunities for and evolution of intraand etra-regional energy trading for these two clusters (see also the map attached). In the Eastern cluster (Bangladesh, Bhutan, India, Nepal, Sri Lanka) the priority opportunities include (a) epanding 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 options include epanding 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 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 eternal shocks, reduce cost, create additional and more profitable trading opportunities, and attract investments. 46

3 Table 1: Summary of the Prospects for Trade in the Eastern Part of SAARC 9 Importing Eporting Countries Countries India Bhutan Nepal Bangladesh Sri Lanka Myanmar India Bhutan Dry Season Support Nepal Bangladesh Sri Lanka Thermal. Dry season Sharing reserves; Electricity swaps Dry season and thermal quantities hydro (H). Similarity resources seasonal shortages of of and Some hydro. Connection via India (L) (far hydro eport. Similarity of resources and seasonal shortages X Some hydro. Connection via India (L) (far amounts of gas or. Some resource uncertainty Small amounts of thermal and gas; connection via India (L) Small amounts of thermal and gas; Connection via India (L) (far Some peak gas and supply (far off; too small market) (although some potential in hydro) (far Myanmar Uncompetitive Uncompetitive Uncompetitive 9 tes on color coding for Tables 1 and 2: Red Color denotes that trade prospects are significant and are either being eploited or can be brought to fruition in the short-to-medium term. Green Color denotes that prospects of the trade are good and may materialize in the medium term. Yellow Color denotes that prospects for the trade are more limited and may materialize in the medium-to-long term, and Grey Color denotes that the prospects for the trade are weak. 47

4 Importing countries Table 2: Summary of the Prospects for Trade in the Western Part of SAARC Eporting Countries CARs Turkmenistan Iran Afghanistan Pakistan India CARs Turkmenistan Mutual electricity Some gas eports are ; mutual electricity (uncompetitive) (similarity of resources gas; little in electricity) Limited (some emergency ) Scope Iran Limited eports Power eports are ongoing Scope Afghanistan Pakistan Power eports are ongoing and should grow Potential for eports Power eports are ongoing and should grow gas eports Power eport ongoing and may grow gas eport; cross-border electricity trade could grow for trade; Transit of electricity and gas Small cross-border eport Mutual short-term trading in India Gas and eports gas eports gas eports ; Transit of gas Mutual short-term trading in ; transit of gas Promoting regional energy trade: what should be done. Policy makers in the public sector need to 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 indications that such a change in the mindset of the politicians is occurring and that the region is gradually positioning itself for increased trade and cross-border investments in the energy sector. 48

5 Electricity eports from Bhutan to India keep increasing, enabled by India s significant technical and financial assistance 10. India is looking into import of Myanmar natural gas through a pipeline, and India s NTPCL is epected to finance a coal plant in Sri Lanka. Private businesses have attractive opportunities to invest in the hydro generation projects in Nepal, Bhutan, and Myanmar and in gas fired generation in Bangladesh, for eports 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 multilateral and bilateral aid agencies are analyzing the proposal to eport about 1000 MW of hydro from Central Asia to South Asia (CASA-1000) 11. Should this proceed smoothly, the eports could increase several-fold over time. Private sector investments both in generation and transmission are envisaged. Pakistan and India are pursing the possibility of gas imports from Iran and Turkmenistan. 12 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 shares for local partners and host governments and with the involvement of neutral third parties to mitigate a range of risks. The importing countries should promote sector reforms aimed at making the importing energy sector entities financially solvent and creditworthy trading partners, and providing a choice of buyers to the eporters through 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 eporters. The eporting countries should ensure a stable and attractive investment environment, as well as stable supply to domestic markets to mitigate the risk of energy eports being diverted to domestic consumption. Establishing and strengthening transparent, fair and stable sector regulation in both groups, which would not discriminate between domestic and eport markets, would significantly benefit regional energy trade. Major advances have been made in India under the Electricity Act of 2003 to promote internal trade through: (a) the creation of independent national and state regulatory bodies; (b) undertaking a major epansion of the inter-regional transfer capacity; (c) a phased provision of third party access to the national and regional grids; (d) adoption of the availability based tariffs (ABT) with a special charge for unscheduled interchange of ; 13 (e) creating licensed and regulated energy traders; and (f) 10 The recently completed Tala hydro plant is the third financed by India, with the combined capacity of the three plants at 1,416 MW. 11 A Memorandum of Understanding for the Central Asia South Asia 1000 MW electricity trade project (CASA-1000), was signed in October in Dushanbe. The project is seen as an initial step toward eventual creation of the integrated Central Asia South Asia Regional Electricity Market (CASAREM). 12 These projects are in public referred to as Iran-Pakistan-India (IPI) and Turkmenistan-Afghanistan- Pakistan-India (TAPI) gas projects. 13 Under the ABT pricing, the price of electricity increases if the demand outstrips the supply, as measured by system frequency which goes down in such case (in other words, price of electricity goes up if the 49

6 tightening the payment discipline of the state electricity boards. Sector reforms with similar objectives are being pursued in Pakistan and Bangladesh, after India the two largest countries in the region. Reforms in this direction and in ensuring long term sustainable and profitable operation of the energy distribution entities should continue. Reduction of political tensions and conflicts, both regionally (Afghanistan, between India and Pakistan) and domestically (in Nepal, Sri Lanka, Bangladesh) 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 interests would help to lower political tensions. Entrepreneurial investment initiatives with imaginative financing and risk mitigation strategies possibly involving in some projects multilateral financing institutions as neutral parties to help build the confidence and mitigate risks -- could help to strengthen the virtuous circle of trade growth and regional peace. Strengthening regional institutions, both at the policy and technical level, to coordinate policy measures, echange information, coordinate investment planning, develop congruous grid codes and operating procedures, etc., would facilitate regional energy integration. Accession of the South Asian countries to the Energy Charter Treaty 14 (or developing a similar agreement at the SAARC level), could also help improve investment climate in the sector and spur regional integration by signaling policy intents, providing a degree of investment protection, and improving dispute resolution mechanisms. India, with its geographic position and the size and the buoyancy of its economy, plays a unique and critical role in regional integration in South Asia. Bilateral energy trade between India and its neighbors is a key building block of the integrated regional energy market. While it would be useful and perhaps necessary to develop an upfront understanding, at SAARC level, as to how such region-wide energy systems (regional electricity and gas grids) and trade could evolve, the pace of regional integration will be in large part determined by the pace of development of energy trade with India. In this contet, it is very encouraging to see the reforms that are taking place in the Indian energy sector and the efforts which India is taking to strengthen its domestic electricity transmission grid. This should bode well for development of bilateral energy trade with India, as well as for regional integration. Regional integration will happen through specific investment projects to build cross-country interconnections and eport-oriented plants and gas wells. Selecting and implementing such priority projects (some of which are mentioned in the preceding paragraphs) 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, institutional, and commercial environment through the debate and arrangements that preparation and implementation of the investment projects would bring. system frequency goes down). This provides monetary incentives to reduce the demand and thus close the gap between demand and supply. 14 Afghanistan and Pakistan, of the SAARC countries, are observers of the Energy Charter Treaty (ECT). SAARC may associate collectively with ECT, as did ASEAN. 50

7 51