Energy cooperation in South Asia
Nuruddin Mahmud Kamal
It is an agonising paradox that energy cooperation in South Asia has been treated as a postscript in important meetings and discussions for many years. The usual allegation is that there has never been a sincere and a shared endeavour for the development and utilisation of the natural resources for mutual benefit of the people of the region. Some also allege that there exists perceptional differences, legacy of mistrust and lack of genuine goodwill among some of the member countries in the SAARC region. Except for sharing of thoughts as a normal courtesy in the intercountry meetings, energy cooperation has not yet become a focal point of discussion. Recently however the subject of trade and sharing of energy resources in business and economic terms have bubbled to prominency in bilateral discussions. The traditional planners have been snared to a sitting position witnessing the recent price of black gold's mercurial rise (over seventy dollars per barrel in the international market in August 2005).
South Asia region encom-passing Bangladesh, Bhutan, India, Nepal, Pakistan, the Maldives and Sri Lanka together is inhabited by about 1.3 billion people -- close to 22 per cent of the world population -- contributing a mere 2 per cent of the global GNP. The average GNP per capita of the region is US$ 440, which amounts to 9 per cent of the global average of US$ 4890. More than half of the total energy consumption in the region is met by non-commercial (renewable) energy resources such as animal waste, wood and biomass etc (SACEPS Task Force Report, Shakar Malla, Nepal, July, 2003). The region accounts for about 6 per cent of world commercial energy consumption. Despite rapid rise in demand, the region continues to average among the lowest per capita commer-cial energy consumption, almost one-fourth of the world average in kilogram of oil equivalent (kgoe) term. Bangladesh's position is even worse.
The average commercial energy mix of South Asia is around 47 per cent coal, 33 per cent petroleum, 12 per cent natural gas, 7 per cent hydropower, and one per cent nuclear (only in India). India's energy mix is heavily dominated by coal (55 per cent), while Bangladesh is dependent on natural gas (around 72 per cent), Sri Lanka relies primarily on imported petroleum (76 per cent) while the Maldives fully relies on imported petroleum. Pakistan has a more balanced energy mix (43 per cent oil and 38 per cent national gas). Nepal and Bhutan have overwhelmingly high share of hydropower.
Net energy import in the region amounts to 15 per cent of commercial energy use ranging from 8 per cent in case of Nepal to 22 per cent in case of Bangladesh to 39 per cent in the case of Sri Lanka. Rapidly growing electricity demand, coupled with inadequate supplies, is a challenge throughout the region. Electricity shortages have acted as constraints on economic growth (particularly in Bangladesh). Almost 75 per cent of the total population in Bangladesh is outside the coverage of electricity network (Power Sector Policy statement, 2000, estimated electricity coverage to less than 20 per cent) and almost 95 per cent citizens do not have access to natural gas. Nevertheless, the region as a whole is in a period of transition as it is striving to achieve higher economic growth to support sustained development through greater use of commercial energy.
About one per cent of the world total or some 55 trillion cubic feet (TCF) of gas are available in this region: about 11 per cent belongs to Bangladesh and the rest 89 per cent is shared almost evenly between India and Pakistan. Between these three countries, around 1.85 TCF gas is consumed annually, about 42 and 43 per cent by India and Pakistan respectively, and the remaining 15 per cent by Bangladesh. Its usage has increased significantly over the past decade. The region contains only 5 billion barrels (between India and Pakistan) of oil reserves, about 0.5 per cent of the world total. Although Bangladesh imports an insignificant amount of crude oil and petroleum products (about 3.6 million ton annually), the balance of payment gets heavily impacted. For instance, in the fiscal year 2005-06 for petroleum import alone, the exchequer is expected to cater for about US$ 1.25 billion if not more. On the other hand, the consumption (domestic) of natural gas (in 2004-05) substituted an import of energy of over 11 million tons of oil equivalent and saved over US$ 2.0 billion in one year. The fact of the matter is that all South Asian countries are imported-oil dependent, and this is likely to remain the case for years to come. One recent study indicates that the region could be importing as much as 5.2 million barrels per day -- more than triple of today's import volume -- mainly because of India's relentless demand for commercial energy.
The region has about 86 billion short tons of coal (about 15 per cent of the world coal reserve). It accounts for nearly half of South Asia's energy consumption. Most of the consumption is in India (mainly for generation of electricity, followed by steel and other industries). Hopefully, by early 2006, if and when coal production from Barapukuria starts, and the mine-mouth 250-megawatt power plant come into operation, about a million tons of coal per year would be consumed in Bangladesh. India's importance in energy trading (with Nepal, Bhutan and Bangladesh) is also apparent in the light of the reality that it can and do, bilaterally trade with any other country in the region but bilateral trade between any other two countries can become possible (it has not happened as yet) only after India agrees to be the third partner!
Unhappily, the regional countries have remained poor and energy deficit nations. Consequently, all the countries in the region depend on imported energy for sustained economic growth. Looking at the scope of regional cooperation it would generally appear that electricity is the main thrust sector where huge volume of fuel is needed. Given the pattern of demand, the countries in the region would benefit in the mid to long run by developing their generation capacities in an integrated manner and emphasising on creating a regional power grid. Cross border trade has not taken a shape as yet. However, cooperation in the energy sector cannot be considered in isolation ignoring other economic and political issues facing the region.
A reasonably significant prospect of gas trading exists, provided trans-national gas pipeline is built and operated from central Asia/Middle East (outside the domain of South Asia region) and Pakistan-India and Bangladesh are linked. Also, another similar transnational pipeline from Indonesia-Malaysia-Thailand and Myanmar can be connected with Bangladesh-India etc. Thus, Bangladesh could become the hub of gas trading because of its strategic/geographic location. Incidentally, Iran's gas reserve is 741 TCF; Turkmanistan (101 TCF), Uzbekistan (66 TCF) and Kazakistan (65 TCF) in Central Asia, while Malaysia (68 TCF) and Indonesia (69 TCF) also have large reserves in the East; both India and Pakistan have gas reserve of between 26 and 27 TCF each, while Bangladesh's remaining recoverable reserve is around 9.20 TCF. The political developments in the region, once settled, could provide a new horizon for a meaningful cooperation among the regional countries to import gas from the huge reserves of central Asia and/or South East Asia. Iran and Central Asia's gas reserve is mostly trapped and less used while India, Pakistan and Bangladesh are energy hungry nations.
There is an issue of energy security, which has not yet received adequate importance in Bangladesh. India has planned for a 50-year energy security. So has Pakistan for a 30 year period. Bangladesh government has left this vital subject to the unknown future. Indeed, the concept of energy security has a direct and strong linkage to the national economy and the environmental consequences. It is generally argued that a more diverse system is more secure than a less diverse one. Bangladesh is a mono-energy (natural gas) based country. Hence diversity in security of supply (physical) should be a good hedge against supply uncertainty. As a corollary, regional cooperation in energy would provide a vehicle for diversification of fuel sources, resulting in a better security of supply. Availability of proper infrastructure (power grid, for instance) will significantly balance the demand and supply, hence impacting positively on the supply security.
There has been a remarkable increase in demand for electricity in South Asia because of burgeoning domestic demand on account of both changing needs of the consumers and the emphasis on the electricity driven industrialisation particularly in the aftermath of the liberalised economic regimes.In Bangladesh, the demand for electricity would be five fold by 2020 (15,000 megawatt) from the existing poor supply of 3400 megawatt in 2005 (Power System Master Plan, 1995 and GOB's Power Policy Statement, 2000). Although the remaining recoverable reserve is very modest, the demand forecast is about 13.5 TCF by 2020 (62.9 TCF by 2050) indicating a deficit of at least 4 TCF in the next 15 years. On a cumulative basis, demand for gas varies between 22.9 TCF and 27.9 TCF in the low and high scenario by 2025 (Gas Sector Master Plan and Strategy for Bangladesh, Interim Report, 13 July 2005).
For many years, the South Asian countries have remained in an uncertain state of choosing between social objectives of electricity distribution and its commercial-use based economic growth. Interestingly though, hardly any of the governments in the region acted judiciously till it was engulfed by the large-scale sickness syndrome in power utilities. India is an exception -- it plans its future. But Bangladesh hardly bothers even after it sinks into darkness. At least the actions of the government over the past four years has created unnecessary sufferings to its own citizens due to wrong policy perceptions, corruption and indecision on creation of new generation capacity.
Though home to about 140 million people, Bangladesh has a large unmet demand of electricity, particularly in the rural areas. Almost 85 per cent in the villages live outside the ambit of power grid network. Power Sector Policy Statement, 2000 indicated that almost 80 per cent of the total population in the country live outside the coverage of electricity. Opening up the power sector to private investment to supplement public sector outlays to infuse the sector with market discipline was begun in late 1996, that has now been stopped (since 2001) creating severe power shortages in the country.
The need to develop various energy resources in Bangladesh arises from the necessity to meet some development challenges. With a high concentration of poverty and little progress made in raising living standards of the underprivileged citizens so far, a sustainable growth process remains incomplete. This is particularly true in case of Bangladesh. The awareness level about the benefit of SAARC Power Grid was at its peak in the late 1990s in Bangladesh, that has been deserted since early 2000. Improving the overall level of system reliability obligates the government to take all precautionary measures at the earliest.
Cost of import of petroleum in Bangladesh is likely to jump to over US$ one billion in the current fiscal year (2005-06) from the previous year's amount of US$ 650 million (the unit price of crude oil had already touched US $ 71/barrel in August, 2005 compared to an average price of US $ 35/barrel in the immediate past year). Curtailing petroleum use and emphasising on more domestic gas use is necessary. Meantime, even gas based export proposals (including the proposal of Tata, India for some composite projects, which amount to over 3 TCF in 20 years, may be kept pending--until new gas discoveries of at least 5 to 6 TCF is confirmed through international certification as per gas field practice.
Continued dependence on biomass fuel (over 60 percent people in the country relies on this renewable but non-commercial source of energy) has manifested in serious environmental hazards including natural resource degradation and air pollution in Bangladesh, apart from affecting the quality of life. The higher demands of energy expected in the coming years thus warrant a serious search for environmentally sound, economically efficient and sustainable energy alternatives including solar, wind and biogas plants. Energy cooperation could help the vast majority of population that live beyond the boundaries of towns and cities in Bangladesh.
On the discussion table, energy is increasingly looked upon as a tradable commodity that has an attractive market in South Asia in general and Bangladesh in particular. Bangladesh clearly provides the market for purchase of electricity; its neighbours acting as potential sellers of energy due to their differing endowments of natural resources. The energy profiles of the individual countries in South Asia region reveal tremendous scope for cross-border trade in energy.
To conclude, South Asian countries are expected to adjust to market economics and the energy sector is identified as a leading sector to take off to higher stages of growth. It is central to industrialisation, whether meeting the goals of increasing the access to electricity of households or facilitating economic activities. However, a major problem lies in generating resources for financing development of the sector. For ensuring investments, among others, the import substitution of energy by indigenous natural gas should be more carefully evaluated. For instance, consumption of 11 million tons of oil equivalent ((Toe) in one year would mean a saving of at least US$3.66 billion (in 2005-06), based on the current crude oil price. Even setting aside 5 percent profit would mean over US$180 million that can be ploughed back for gas exploration, infrastructure construction, even for building 200 megawatt power plants every year.
On a regional basis, cooperation in energy sector development requires that the countries enter into agreements on good faith for a win-win situation that the proposals presented are economically feasible, environmentally viable and politically acceptable. That the South Asian region possess vast stores of clean and renewable energy while simultaneously being energy dependent on external sources is indeed a paradox.
Nonetheless, sustainable development of the energy sector in South Asia requires coordinated and mutually beneficial policies that are both country specific and regionally agreeable. Above all, regional cooperation that warrants understanding among participating countries will engender and be a harbinger of development and peace.
The author is former Chairman, Power Development Board.