Regional Cooperation GDLN Dialogue in South Asia Presentation 1 | Presentation 2 Tuesday, June 17, 2008
Time: 8.00-10.15 AM (EST) 1. A multi-country discussion took place among government officials, other stakeholders from Afghanistan, Bangladesh, India, Nepal, Pakistan and Sri Lanka together with the World Bank South Asia Energy Team in Washington. The discussion was held over Videoconference on Tuesday, June 17th, 2008, from 8.00 AM – 10.15 AM (EST). 2. This multi country videoconference is part of a series of regional cooperation GDLN dialogue with an objective to initiate, enrich and take forward the discussion among the various Government and civil society stakeholders on issues of regional cooperation. The goal is to build consensus among the stakeholders including the policy makers and the civil society on the opportunities, challenges and the way ahead. 3. The session on June 17, 2008 was organized in order to exchanging views on how to foster cross-border energy investments and promote regional energy trade in order to take full advantage of the energy resources available within the region. The session was attended by a large number of participants from each country, including representatives from government and energy institutions, organizations and corporations. 4. Opening remarks were made by Ejaz Syed Ghani, Economic Adviser, South Asia PREM unit, welcoming the distinguished speakers and participants and elaborating the goals of the regional cooperation dialogue series. He also highlighted three key deficits to help explain why South Asian countries are lagging behind East Asian countries in terms of energy trade and cooperation: (i) service deficit, in terms of supply is not meeting demand; (ii) policy deficit in terms of distorted pricing, poor cost recovery, etc. and (iii) cooperation deficit in terms of lack of cooperation in energy trade. 5. Julie Fraser, Sr. Financial Analyst, South Asia Sustainable Development unit, introduced the study on “Potential and Prospects for Energy Trade in South Asia” which will be published at the end of this month and placed on the World Bank’s website. She touched briefly on the benefits of energy trade, the role of IFIs in facilitating such trade, and the role of governments in promoting energy trade. 6. Raghu Sharma, Team Leader for Central Asia Energy, provided the keynote presentation which focused on: the key global and local drivers of regional cooperation in energy, specific examples of prevailing and potential cooperation; constraints for enhanced cooperation and possible approaches to address them; possible role for the World Bank Group; and leading to a discussion on the next steps to move to move the agenda forward. 7. Sharma presented a list of questions for discussion, see below, and encouraged participants to discuss and ask questions not just of the Bank but to each other. Key Discussion Questions: • Do the countries share the views that energy trade should be expanded?
• If so, in what particular areas – electricity, gas?
• What should be the approach
– develop an overall framework first and then pick up projects; or
– develop the framework in the context of specific projects? • What specific projects should be picked up?
• What analytical work needs to be planned:
• What about the existing treaties – Mahakali treaty (Nepal-India); Ganga treaty (Bangladesh-India)
• What specific messages to the World Bank (and other IFIs)?
• What specific help the countries need to begin the dialogue? 8. Jalil Shams, Minister of Economy and Head of the Inter-ministerial Commission on Energy in Afghanistan, was one of two key discussants. Shams indicated that Afghanistan is already importing electricity from its neighbors, is looking to expand its role as a transit country (i.e. replicating its role in the CASA 1000 transmission project), and in the future could also be an exporter of power. He highlighted challenges to trade including: (i) most Central Asian countries, including Afghanistan are in transition both politically and economically; (ii) the movement towards a market economy requires revamping of the legal structures and the movement towards a “commercial” mentality; (iii) the private sector is virtually nonexistent, especially when it comes to taking risks in larger projects; (iv) infrastructure facilities and standards are inadequate and/or not compatible for trade; and (v) lack of funds for the huge investment needs. To assist the transition countries to overcome all these obstacles, as well as to assist with the financing of the cross border energy projects, Shams stressed that the support of the World Bank and other IFIs is critical. Shams also highlighted the need for the political will of governments to participate in trade and commented that in some countries this is absent or too weak. 9. The second key discussant, Janak Karmacharya, former Managing Director, Nepal Electricity Authority and current head of the Energy Department of the Clean Energy Development Bank in Nepal, confirmed the need for regional cooperation in order to share the region’s vast resources but indicated that results to date are not very encouraging because there was an earlier decision to move forward on a bilateral basis. Karmacharya provided a broad summary of issues facing each of the South Asian countries which have been identified in various studies. Importantly, he stressed the need for “CBM” – confidence building measures. 10. The discussion was then opened up to participants from each country. Participants from Bangladesh indicated that one of the key obstacles is political and expressed their happiness at the participation of Ministers on the Afghan side. It was noted that the region is starving for energy but has huge potential and therefore cooperation is needed. Although pricing was raised as an issue to be sorted out, it was also stated that pricing will need to be specific to each project. In addition, several questions were raised such as: • If energy is imported, how to mitigate the balance of payment risk?
• If India produces surpluses, what should be the basis for price negotiation? Average cost?
• Has there been a pre-feasibility or feasibility study carried out for the Four Borders Project and, if so, what are the benefits of the project?
• How should investment costs be shared between two countries and how to finance?
Lastly, the need to take into account environmental risk of hydro-projects, and the impact on downstream countries, was mentioned. 11. Participants from India highlighted the need to de-politicize energy cooperation from political and other issues. The South African Power Pool was highlighted as a good example to follow. It was suggested that policy initiatives can be initiated at the SAARC level. It was mentioned that India currently has 132,000 MW with a projected need of 800,000 MW by 2030. In this context, the question of how much hydropower from Nepal could be harnessed in the next five years was raised. If 10,000 MW could be developed, this may not have a large impact for India but could be huge for Nepal, ala the Bhutan experience. (Bhutan’s growth exceeded India’s as a result of their hydropower development and trade with India.) A question was raised whether the multilateral model being followed in the west part of South Asia (e.g. CASA 1000) or the bilateral model in the east part of South Asia (e.g. India-Bhutan and India-Nepal trade) should be adopted or both. Lastly, a study of 21 interconnection points between Bangladesh and India at 11 or 33 kV, each costing between $1 and $4 million with less than 2 months implementation period, was mentioned as a possibility to establish goodwill and trust and demonstrate the benefits of trade. It was recommended that the World Bank look into this. 12. The participants in Pakistan stated that their Government has strong political will to strengthen regional energy cooperation, and in fact, Pakistan is already pursuing regional cooperation with Central Asia for the CASA 1000 Transmission project and with Iran for power and natural gas (i.e. Iran-Pakistan-India pipeline). It was mentioned that Pakistan has 187 billion metric tons of coal on the Indian border that they want to exploit for energy development and which could be important for India and Bangladesh; they have hydropower in the North of the country; and wind potential for which they would like to benefit from the Indian joint ventures to produce wind turbines. One of the participants also highlighted the challenges to regional cooperation such as: political tension between Pakistan and India; security conditions in Afghanistan; civil strife in Sri Lanka and Nepal; political uncertainty in Bangladesh; lack of investment resources, and commercial viability issues of the utilities. It was mentioned that the SAARC Energy Center was established in Islamabad last year and that energy cooperation is a high priority for SAARC with a vision of creating an energy ring in South Asia. It was recommended that a few opportunities be “projectized” with the assistance of the World Bank to act as demonstration projects. In addition, the need for an intergovernmental framework to implement regional energy trade concepts was stressed. 13. Participants in Nepal highlighted that they have over 50 years of trading experience with India although this is limited to 50 MW. While West Seti Hydro is an example, it has taken a very long time to come to this stage. In addition to West Seti Hydro, Indian investors have signed up to develop a couple of additional hydros. It was recognized that Nepal’s ability to develop hydropower will be key for its economic growth, and the new government has set a target of 10,000 MW in 10 years.. However, Nepal will need to change some of its legislation to enable this development. It was also mentioned that some barriers that need to be overcome for expanded trade in the future are: Indian government nominating only one nodal agency (Power Trading Corp.) for power trade; and the past preference of India to deal bi-laterally with countries as opposed to regionally. More than one participant stressed that the Bhutan model is neither sustainable nor replicable in Nepal given the very large grant component provided to Bhutan by India. 14. Participants from Sri Lanka reiterated the concern that despite meetings over the years, progress has not met expectations. Several major issues were highlighted including: (i) lack of political trust; (ii) need to take confidence building measures (CBM); (iii) unwillingness of countries to rely on each other for energy needs; (iv) need for an intergovernmental framework; (v) the need for special attention for countries that do not share physical borders; (vi) need to look at regional cooperation in “soft areas” such as renewable energy, energy efficiency, research and development, etc; and (vii) how to benefit from cooperation with other Asian countries. Another participant challenged the group to focus on the needs of the poor and questioned whether the poor will benefit from regional cooperation in electricity transmission lines and gas pipelines. He stressed the need to look at micro issues (education, energy efficiency, improved technologies, etc.) and not just the macro issues. 15. Conclusions: Sharma summarized the main conclusions of the meeting as follows which was subsequently endorsed by all participants: All countries are keen to enhance cooperation and trade in energy and it was felt that political will was quite stronger than a decade ago for enhancing such cooperation, in part because the global and local drivers are making regional cooperation an imperative; While there is an interest in trading all conventional energy, there is also a need to look at renewables (solar, wind, small hydro etc) as a part of a given country’s energy supply mix; There is a need for action and to “projectize” specific opportunities, and the focus should be on smaller ventures and low hanging fruit which would also be confidence building measures. Develop the appropriate frameworks - legal, institutional, financing/pricing, environment, etc. in the context of specific projects; Additional discussions would take place in each of the countries over the next eight weeks, as members of the World Bank’s South Asia Energy Unit are planning to visit the countries; and these discussions could be used to decide on which projects to pursue; On the question of bilateral vs. multilateral cooperation, it was agreed that this needed to be looked at opportunistically – multilateral where necessary (e.g., where transit countries are involved who also need energy supplies); and bilaterally where sufficient. Although imported energy can often bring in less expensive power, social protection needs to be factored in to focus on the poor A specific recommendation was for a proposal to be submitted for consideration at the next SAARC meeting in Sri Lanka this August whereby all countries would sign an agreement on energy cooperation.
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