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