Trade in energy

A case of South Asia

Trade creates economic interdependence between countries. South Asia can never be an exception to this rule. Rather, it is more relevant for this region because trade can be the only binding force in this security sensitive region in general and between India and Pakistan in particular. While trade in goods and services is still largely restricted in the region due to so-called security related barriers, trade in energy is being dealt with in a much rational and prudent way.

In fact, the critical importance of this issue vis-a-vis South Asia demands a rational way of going about it and all the countries in the region duly recognise this fact, especially India and Pakistan, which, if worst comes to worst, cannot even think about going to the war without having the necessary quantum of energy. Surprisingly though, both of these countries, perhaps for the first time, are giving preference to the logic over the years old narrative of futile and endless rivalry.

In the recent Summit of South Asian Association for Regional Cooperation (SAARC) held in Kathmandu in November 2014, SAARC Framework Agreement for Energy Cooperation (Electricity) was the only agreement signed out of three important agreements related to connectivity, the others being Agreement for the Regulation of Passenger and Cargo Vehicular Traffic and the SAARC Regional Agreement on Railways.

If we further go back a little, trade in energy had been the only subject which came out victorious in all the previous SAARC summits and all the members showed an increasing realisation over the years towards this issue. For instance, in 2004 Islamabad Declaration, the Concept of Energy Ring was discussed; in Dhaka Declaration of 2005, Establishment of the SAARC Energy Center was discussed; in Colombo Summit of 2008, the Concept of Regional Intergovernmental Framework was discussed; in a meeting of Energy Ministers in Colombo in 2009, pursuing Energy Ring and formation of Sectoral Expert Groups for gas, electricity, renewable energy etc was  the main theme; Thimpu Summit of 2010 authorized the SAARC Energy Center in Islamabad to prepare an action plan on energy conservation and it also noted India’s proposal of preparing a roadmap for developing SAARC Market for Electricity (SAME) on a regional basis; Male Summit of 2011 concluded the Regional Intergovernmental Framework Agreement for Energy Cooperation.

So why is energy security and the trade in energy so critical for South Asia and especially for India and Pakistan, both of which play key roles in shaping any policy within the region and where the electricity demand is steadily rising owing to increase in the population and industry?

Firstly, as the electricity production in the South Asian region is not commensurate with the ever growing demand, the per capita power consumption and the area coverage for electrification remained low. Secondly, the whole region has huge resources of energy and this can be a pivotal tool for the development. Finally, the disruption of power and other forms of energy largely affected the human and national security, employment, investment environment, manufacturing, exports etc.

Moreover, energy mix of the power generation is also significantly varied across the region. So, the trade in energy would facilitate the government and the consumers of a particular country to buy cheap electricity, if they are earlier buying it at a higher rate. For example, Maldives is totally dependent on oil for all of its electricity production, so, energy trading across the region may provide her with a chance to buy cheap hydroelectricity say for example from Bhutan, which produces almost all of its electricity from hydel sources.

According to a study, except Bangladesh, all of the countries in South Asia have more than 50 per cent of their hydro potential unutilised, which shows that there still remains a lot of depth in electricity production and hence its exchange between the countries. An interregional comparison between SAARC and ASEAN (Association of South East Asian Nations) regarding access to electricity by the member countries show that SAARC countries’ electricity access is only near 50 per cent against almost 80 per cent of ASEAN countries.

There is also a direct relation in access to energy and the economic growth of a particular country. According to a study, less than 10v of the Afghan population has access to electricity and the population living below the poverty line is 70 per cent. In the case of Bhutan, this ratio is 30:60; for Bangladesh, it’s 33:50; for Nepal, its 40:43; for Pakistan, its 41:33; for India, its 56:28 and for Sri Lanka, its 64:25.

Now comes the question what are the benefits of energy trade across South Asia? It is to be mentioned here that the energy exchange across the region is now an established practice and a number of regional groupings around the world are gaining from this. For instance, Union for the Coordination of Transfer of Electricity (UCTE) and the member countries are Spain, Portugal, France, Belgium, Italy, the Netherlands, Luxembourg, Austria, Germany, Switzerland, Poland, Czech Republic, Slovak Republic, Hungary, Slovenia and Croatia. There are countries that do not enjoy healthy political and security relations with each other or there are internal strives within a country, but still they are part of the regional alliance for their own benefit, so, why not South Asian countries.

Other benefits of energy exchange may include effective utilisation of energy resources, reliability in supply and mutual support during emergencies and natural disasters and acting as a single most effective Confidence Building Measure (CBM) through the participation of multiple stakeholders.

The issue of energy exchange across South Asia should primarily be treated on purely commercial considerations, as we have seen in the examples for various regional arrangements across the world. Most importantly, Pakistan and India, as always, have to play a central role in providing a better-than-ever political environment to let it happen.