South Asian countries facing challenges in efficiently meeting growing electricity demand can benefit from increased cross-border electricity cooperation and trade by harnessing complementarities in electricity demand patterns, diversity in resource endowments for power generation, and gains from larger market access.
The region has witnessed slow progress in expanding regional electricity cooperation and trade. Although bilateral electricity sector cooperation in the region is increasing, broader regional cooperation and trade initiatives have lagged in the face of regional barriers and domestic sector inefficiencies.
Deeper electricity market reforms are not a necessity for further development of cross-border electricity trade, but limited progress in overcoming regional and domestic barriers will limit the scope of the regional market and the benefits it can provide. Access to reliable, affordable and cleaner energy is a high priority to facilitate further economic development and improved welfare of the population in the South Asia region (SAR).
Access to adequate and high-quality energy is part of a larger effort toward reducing adverse impacts of infrastructure scarcity in the region. In the South Asian region, poor access to electricity combines with unreliable supply due to chronic electricity shortages and unexpected interruptions.
Shortages and unpredictable availability of electricity also have led to costly and environmentally harmful investment in small-scale back-up generators. Strengthening cross-border electricity cooperation in South Asia can be part of the solution for providing adequate and reliable electricity availability.
One reason is that there are complementarities in electricity demand and resource endowments among these countries due to diversity of primary energy resources and differences in seasonal patterns of supply and demand. In addition, increased electricity cooperation and trade among countries can bring economies of scale in investments, strengthen electricity sector financing capability, enhance competition and improve sector efficiency, and enable more cost-effective renewable electricity penetration. For example, Nepal and Bhutan have comparative advantages in hydropower production that can only be realized with cross-border trade. These countries also experience significant declines in hydroelectric generation during the winter season, and thus would benefit from improved access to thermal-based electricity generation from neighbouring countries.
Efforts to expand cross-border electricity cooperation and trade in South Asia need to address several barriers. Some of these reflect elements of the regional-level political climate, while others arise due to limited scope and extent of domestic electricity sector policies and renovations. Review of the reform process and identification of barriers to cross-border electricity trade should be looked into in this regard.
Increased regional electricity cooperation can be seen as part of a larger interest of trade expansion and cross-border market integration. General interest in regional economic cooperation existed for some time in the South Asian Region; it predates the formation of South Asian Association for Regional Cooperation (SAARC) in 1985.
The agreement for a South Asian Free Trade Agreement (SAFTA) signed in 2004 envisioned a transition toward a common market. Tangible expressions of the interest in regional energy cooperation followed soon after the formation of SAFTA. The South Asia Regional Energy Coalition (SAREC) in 2006 was formed to promote advocacy initiatives by leading policy-oriented business associations in South Asia. The SAARC Energy Centre (SEC), established in 2006 as a Special Purpose Vehicle with its base in Islamabad, Pakistan, also had a focus on regional energy sector cooperation in South Asia.
In late 2014, SAARC member states agreed to a "framework agreement" for regional cooperation in electricity. The agreement contains broad-ranging provisions for the establishment of a regional market for electricity, including nondiscriminatory access to transmission, market-based pricing of electricity exchanged, and establishment of a body for coordinating regional power integration and trade.
It remains to be seen as to how extensively or rapidly these provisions could be put into practice. At present, simple bilateral arrangements for power transmission and trade are predominant. In particular, bilateral generation and transmission arrangements between Nepal-India, India-Bhutan and most recently India-Bangladesh dominate regional electricity cooperation in South Asia
These bilateral relationships are mostly based on government-to-government relationships, with a limited to minimal role played by the private sector. Nepal relies heavily on energy imports from India, which includes importing energy products like electricity, diesel generations and petroleum products and inverters.
The history of bilateral electricity cooperation between Nepal and India dates back to as early as 1920s. The Kataiya powerhouse, and Trishuli, Devighat and Phewa hydropower projects were some of the initial government-to-government hydroelectric schemes implemented in Nepal with the financial and technical assistance from the government of India. Development of the 1 MW hydroelectric project in 1968 at Pokhara with Indian assistance laid the foundation for broader electricity sector cooperation between Nepal and India. This was followed up by a 21 MW plant at Trisuli (1969), 15 MW plant on Western Gandak (1979) and 14.1 MW plant at Devi Ghat (1983).
By 1971, Nepal and India signed a Power Purchase Agreement with limited low-capacity exchange at various locations along the Nepal-India border. Under this exchange programme, electric utilities in Nepal and India (Bihar) provide access to electricity to the towns that are accessible easily from across the border through a number of 11 KV cross border interconnections. However, it can become a net exporter of electricity as the country develops its vast hydroelectric potential.
BHUTAN-INDIA COOPERATION: Bhutan conducts 80 per cent of its total trade with India; electricity trade constitutes 45 per cent of Bhutan's total exports. Electricity is Bhutan's principal export commodity and the largest revenue earner. In 2011-12, earnings from export of electricity to India accounted for 11.4 per cent of the country's GDP. The bilateral arrangements between India and Bhutan started with the Jaldhaka Agreement in 1961. The first hydroelectric plant (Joshina) of 360 KW capacity was commissioned in 1967.
INDIA-BANGLADESH COOPERATION: Bangladesh and India are jointly building a coal-based power plant at Rampal, Bangladesh to produce 1320 MW of power. Besides India's leading private companies, Reliance Power and Adani Power, have signed agreements with Bangladesh to supply electricity. Bangladesh and India signed a memorandum of understanding (MOU) to exchange electricity through a cross-border interconnection leading to development of a 400 kV, 30-km double-circuit HVDC line from Bheramara (Bangladesh) to Baharampur (India) and a 500 MW 400/230 KV back-to-back HVDC substation at Bheramara.
The link has an initial capacity of 500 MW, which can be later expanded to 1000 MW. An electricity purchase pact was inked between NTPC Vidyut Vyapar Nigam in India and Bangladesh Power Development Board (BPDB) in early 2012 for import of electricity to Bangladesh. The 25-year government-to-government electricity purchase deal involves providing 250 MW of coal-fired electricity from India to Bangladesh.
Bangladesh has been importing 500 MW of electricity from India's Bahrampur and 150mw from Tripura. The government plans to import more power from India in future.
On December 4, 2013, the full transmission power capacity of 500 MW was achieved. The Asian Development Bank (ADB) financed the project under an India-Bangladesh power exchange initiative. Bangladesh is building 2400 MW Rooppur Nuclear Power Plant in Pabna with Russian and Indian collaboration.
BANGLADESH - NEPAL COOPERATION: Very recently on August 10, 2018, Bangladesh has signed a memorandum of understanding (MoU) with Nepal to increase cooperation in the power sector and speed up the process of importing hydro-electricity from Nepal. Apart from the import of hydro-electricity from Nepal through India, the MoU includes investments by Bangladesh in Nepal's power sector. According to Bangladesh's master-plan, a part of the goal to supply 40,000mw power by 2030 will come from imported power.
Nepal has the prospect of producing 40,000mw of hydropower and Bangladesh's state-run and private companies can invest in future projects in the Himalayan country.
At present, Nepal imports 400mw electricity from India but has set a goal to produce 15,000mw hydropower in 10 years. Besides, investment prospects in Nepal and the possibility of trading in power are also being looked into since hydropower is comparatively cheaper and environment friendly. A working group and a steering committee will work to increase the cooperation in the power sector between the two countries, according to the MoU.
Bangladesh signed an MoU with an Indian company in 2017 for importation of 500mw power from Nepal. GMR Energy in India has started a project to produce 900mw of hydropower. The Bangladesh Power Development Board has signed a MoU with GMR Energy to buy electricity from the project through a cross-country grid via India.
BARRIERS TO CROSS-BORDER ELECTRICITY COOPERATION: The scope and extent of cross-border electricity cooperation varies across regions. Regional electricity cooperation for market integration typically evolves in the wake of bilateral cross border electricity trade arrangements. The more advanced arrangements incorporate shared generation assets and multi-country trading through integrated competitive markets.
Slow progress of cross-border electricity trade can be attributed to technical, operational, political and commercial issues. These vary according to socio-economic and political circumstances in the region. A number of electricity cooperation initiatives around the world have faced some common challenges, even in sophisticated OECD electricity systems.
Arguably, the current state and magnitude of electricity cooperation and trade in South Asia is far less than the potential considering the regional diversity of energy resource endowments and differences in demand patterns across countries of the region. Weaknesses in domestic sector policies also impede cross-border cooperation and trade.
UNCERTAINTIES IN REGIONAL POLITICAL CLIMATE: Historical animosity or lack of trust has often frustrated the process of regional cooperation in South Asia, including regional power sector cooperation. While there are encouraging signs, political rhetoric for electricity cooperation has not consistently been translated into the political will and action for cooperation in South Asia. Internal political conflicts also have slowed down the process of regional electricity sector cooperation. In addition, the government-to-government model for cross-border trade typically involves lengthy political as well as technical negotiations, diminishing economic gains.
NEED OF A REGULATORY BODY FOR CROSS-BORDER COORDINATION: Increased electricity cooperation and trade in the region requires national regulators to pay more attention to harmonisation and coordination of their regulatory practices. Technical aspects such as rules and procedures concerning transmission access and its pricing, congestion management, operational codes and protocols for system operation, energy accounting and payment thereof, and data transfer protocols need to be gradually harmonised for seamless and stable operation of the transmission systems.
TARIFF AND NON-TARIFF BARRIERS: Like other commodities and services, trade in electricity is hindered by export tax, import duty and transit tax. The South Asian Free Trade Agreement (SAFTA), when signed, did not give special treatment to energy, particularly electricity trade. Although signing in 2014 of the SAARC Framework Agreement for Energy Cooperation (Electricity) during 18th SAARC Summit in Kathmandu has given impetus to expanded regional power trade, more needs to be done for implementation of a regional agreement for free trade of electricity. For example, electricity import licensing restrictions in India that limit participation to specifically identified (nodal) agencies also limit entry in cross-border trade and hinder the development of power exchange.
POWER SECTOR REFORMS IN SOUTH ASIA: Countries in the South Asia region initiated national electricity sector reforms following somewhat different timelines. The process of reform in the power sector was undertaken to address several ongoing problems: the fiscal burden of price subsidies and low revenue collection rates, the economic burden of low service quality, and high network losses experienced under largely state-owned and controlled systems. One of the objectives of power sector reform in South Asia (as elsewhere) is to attract more domestic and foreign private sector investments. Other objectives include reducing dependence on state support and ensuring affordable and reliable service quality.
To accomplish these aims, it is absolutely necessary to manage sectoral activities in a more economically efficient and competitive manner.
Jahangir Bin Alam is Secretary & CEO, India-Bangladesh Chamber of Commerce & Industry.
© 2017 - All Rights with The Financial Express