Cross­bor­der Co­op­er­a­tion

Per­haps the energy map in South Asia would glow brighter if there was more re­gional co­op­er­a­tion.

Southasia - - COVER STORY - By Jamil Nasir

The South Asian re­gion has wit­nessed a com­par­a­tively faster rate of eco­nomic growth de­spite the global eco­nomic down­turn. The World Bank es­ti­mates that South Asia will be the sec­ond fastest grow­ing re­gion of the world with a growth rate of over 6% in the com­ing years. The achieve­ment of fast growth, how­ever, de­pends, in­ter alia, on meet­ing the ris­ing de­mand of energy in the re­gion. South Asia is home to about 1.5 bil­lion peo­ple out of whom about 612 mil­lion peo­ple do not have ac­cess to elec­tric­ity. Per capita elec­tric­ity con­sump­tion in South Asian coun­tries is very low com­pared to de­vel­oped and emerg­ing economies of other re­gions. Data of over one decade in­di­cates that per capita con­sump­tion of elec­tric­ity has in­creased in al­most all South Asian coun­tries but at a slower pace. For ex­am­ple, per capita elec­tric­ity con­sump­tion of In­dia in 2000 was 391 KWh which rose to 684 KWh in 2011, reg­is­ter­ing ap­prox­i­mately an in­crease of 75 %. Com­pared to In­dia, per capita con­sump­tion of China in­creased from 993 KWh to 3298 KWh dur­ing the same pe­riod, reg­is­ter­ing an in­crease of 232%.

Sim­i­larly, per capita con­sump­tion in case of Pak­istan in­creased from 359 KWh in 2000 to 449 KWh in 2011, reg­is­ter­ing only an in­crease of 25 % dur­ing a pe­riod of more than one decade. Con­trary to this, In­done­sia, an econ­omy com­par­a­tive to Pak­istan’s, wit­nessed an in­crease of 72 % (from 395 KWh to 680 KWh) dur­ing the same pe­riod. Sim­i­lar pat­terns can be ob­served in case of other South Asian economies. The points be­ing em­pha­sized here are sim­ply the fol­low­ing. One, the pace of de­vel­op­ment and per capita con­sump­tion of elec­tric­ity are di­rectly cor­re­lated, mean­ing per capita elec­tric­ity con­sump­tion is a fair in­di­ca­tor of eco­nomic de­vel­op­ment of a coun­try. Sec­ond, if the re­gion fails to meet the in­creas­ing de­mand of elec­tric­ity, its growth prospects will re­main doubt­ful. Em­pir­ics sug­gest that ev­ery 1% growth in GDP cre­ates 1.5% growth in energy de­mand. The In­ter­na­tional Energy Agency (IEA) projects that energy de­mand in South Asia will grow at dou­ble the rate of the world av­er­age in the com­ing decades. Energy short­age has se­ri­ous im­pli­ca­tions for the re­gion. Firstly, the energy cri­sis has played its role in the ‘pre­ma­ture dein­dus­tri­al­iza­tion’ in the South Asian re­gion. It is per­ti­nent to men­tion here that dein­dus­tri­al­iza­tion in the de­vel­oped world since 1970 is as­so­ci­ated with higher pro­duc­tiv­ity of the in­dus­trial sec­tor. How­ever, in South Asian coun­tries it was pre­ma­ture and oc­curred at low level of per capita in­come hav­ing se­ri­ous im­pli­ca­tions for em­ploy­ment, etc. Other fac­tors like in­dus­trial poli­cies and trade lib­er­al­iza­tion etc. can­not be ruled out for the pre­ma­ture dein­dus­tri­al­iza­tion in the re­gion but the ma­jor fac­tor was per­haps the short­age of elec­tric­ity as some stud­ies have sug­gested a pos­i­tive re­la­tion­ship be­tween in­dus­trial value ad­di­tion in GDP

and elec­tric­ity pro­duc­tion. Se­condly, im­port of oil is a big drain on the na­tional re­sources hav­ing se­ri­ous con­se­quences for po­lit­i­cal, so­cial, and macroe­co­nomic sta­bil­ity. The im­port bill of oil has added an el­e­ment of in­flex­i­bil­ity in the im­port struc­ture of these economies.

Hence, se­cure, re­li­able, sus­tain­able and rea­son­ably priced energy sup­plies to meet the ever in­creas­ing de­mand for com­mer­cial energy are the need of all coun­tries of the re­gion. But they have yet prac­ti­cally failed to forge re­gional co­op­er­a­tion for energy se­cu­rity and over­come the chal­lenges in this re­gard. All the South Asian coun­tries are faced with acute short­age of elec­tric­ity sup­ply. The crude oil re­fin­ing ca­pac­ity is in­ad­e­quate and out­dated, thus con­strain­ing do­mes­tic sup­ply of petroleum prod­ucts. They are mostly de­pen­dent on sin­gle fuel for elec­tric­ity gen­er­a­tion. In­dia is de­pen­dent on coal as 65% of to­tal elec­tric­ity gen­er­a­tion ca­pac­ity is ther­mal-based. Bangladesh meets 74% of its energy re­quire­ments from nat­u­ral gas, while oil is the sin­gle dom­i­nant source of fuel for Afghanistan (78%), Mal­dives (100%), Nepal (67%), and Sri Lanka ( 79%). Bhutan’s 50% needs are met from hy­del power and Pak­istan’s dom­i­nant sources of energy are oil and gas.

Ex­ces­sive de­pen­dence of energy on a sin­gle source of fuel raises se­ri­ous con­cerns re­gard­ing se­cu­rity and sus­tain­abil­ity of energy. It also lim­its op­tions for meet­ing di­verse energy needs of the pop­u­la­tion. Added to this, the share of non­con­ven­tional re­new­able energy like so­lar and wind is min­i­mal in case of South Asian coun­tries. De­spite, large re­source en­dow­ments, they are un­able to uti­lize their po­ten­tial due to lack of tech­nol­ogy, com­mer­cial in­cen­tives, in­fra­struc­ture, and fi­nan­cial re­sources. The ab­sence of a com­pet­i­tive power mar­ket, lack of energy in­fra­struc­ture and a har­mo­nious energy pol­icy and re­lated frame­work, and in­sti­tu­tional con­straints are some of the daunt­ing chal­lenges hin­der­ing energy co­op­er­a­tion in the re­gion but the big­gest stum­bling blocks to co­op­er­a­tion in the re­gion are the ‘po­lit­i­cal mind­set’ and the ‘ past legacy of mis­trust.’

Un­less the po­lit­i­cal lead­er­ship re­al­izes that energy co­op­er­a­tion is a win­win sit­u­a­tion for all coun­tries, the cri­sis in South Asia is dif­fi­cult to over­come. The re­sources for energy gen­er­a­tion in the re­gion are enor­mous. Re­al­iza­tion for re­gional co­op­er­a­tion is also there. For ex­am­ple, the SAARC In­ter-Gov­ern­ment Frame­work Agree­ment (IFA) for energy co­op­er­a­tion was agreed upon be­tween SAARC na­tions to ease the elec­tric­ity cri­sis in South Asia. Un­der this frame­work, SAARC coun­tries can en­ter into com­mer­cial agree­ments for buy­ing and selling elec­tric­ity, and na­tional grid op­er­a­tors can jointly de­velop pro­ce­dures for se­cure and re­li­able oper­a­tions of the in­ter-con­nected grids. The 16th SAARC Sum­mit held in Thimpu, Bhutan, on 2829 April 2010 adopted a roadmap for the es­tab­lish­ment of a re­gional mar­ket for elec­tric­ity and more re­cently, all South Asian coun­tries agreed on the es­tab­lish­ment of a re­gional energy grid dur­ing the 18th SAARC sum­mit in Novem­ber, 2014.

The po­ten­tial for energy trade with the Cen­tral Asian states is also an area which is now un­der se­ri­ous dis­cus­sion among South Asian coun­tries. TAPI is a prospec­tive pro­ject which, if im­ple­mented, will give im­mense ben­e­fits to Pak­istan, In­dia, and Afghanistan. Other SAARC coun­tries like Bangladesh can also join this ini­tia­tive at a later stage. There are many op­por­tu­ni­ties for the pri­vate sec­tor as well to par­tic­i­pate in both in­tra-re­gional and in­ter­re­gional co­op­er­a­tion ac­tiv­i­ties, par­tic­u­larly with re­gard to es­tab­lish­ment of cross-bor­der elec­tric­ity and trans­mis­sion lines and elec­tric­ity gen­er­a­tion sta­tions.

Re­gional co­op­er­a­tion can sup­port the coun­tries with sig­nif­i­cant energy im­port needs, it can en­hance energy se­cu­rity of the re­gion and can un­bur­den them from the high im­port bills and ex­ter­nal debts. The idea of re­gional co­op­er­a­tion and com­bin­ing re­sources is a prac­ti­ca­ble idea. It has not prac­ti­cally ma­te­ri­al­ized mainly due to po­lit­i­cal rea­sons. Time for se­ri­ous re­gional co­op­er­a­tion in the area of energy is the need of the hour. The South Asian re­gion faces for­mi­da­ble po­lit­i­cal, eco­nomic and geostrate­gic chal­lenges in har­ness­ing its col­lec­tive energy po­ten­tial due to lack of re­gional co­op­er­a­tion. Re­gional co­op­er­a­tion and trade of elec­tric­ity will not only re­duce cost due to economies of scale but will also en­sure greater sup­ply, se­cu­rity and re­li­a­bil­ity of elec­tric­ity. The writer is a grad­u­ate from Columbia Univer­sity with a de­gree in Eco­nomic Pol­icy Man­age­ment and a Chevening Fel­low­ship on Eco­nomic Gov­er­nance.

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