Energy links may reshape South Asia

Posted on June 20, 2011. Filed under: Global |

SOME of the confidence displayed by the senior Indian leaders about the country’s economic future has begun to dissipate.

In his budget speech in 2010, Pranab Mukherjee, the current finance minister, had predicted that the country was headed towards double digit rates of GDP growth.

The revised growth numbers for the first quarter of the current financial year suggest a much lower rate of growth – of about 7.6 per cent on an annualised basis.

There are several reasons for this decline in expectation of the country’s future economic performance, some of them shared by other countries of the South Asian region. Inflation — in particular food inflation — has begun to take a heavy economic toll.

Large scale corruption has undermined the confidence of the citizenry in the quality of governance offered by the governments that hold the reins of power in South Asia. And, there are serious shortages of energy that inhibit investments in the economies. There is some indication that the South Asians may be on the way to find ing regional solutions to the problem of energy deficiency.

At the time of independence, the electric systems of the countries of mainland South Asia were connected with one another, albeit in a low technology way. For instance, a significant share of power used by Lahore came from a power station that was located in the part of the Punjab that went to the share of India.This link was severed soon after the two countries gained independence. Since then the power systems have not been linked. There have been some discussions but without much progress of connecting the much more elaborate grid systems in Bangladesh, India and Pakistan.

At one point when Pakistan had a surplus of energy, a number of power stations were commissioned by the private sector, there was some talk of exporting the surplus power to India. This could have been done only if the grid systems of the countries were connected. The proposal did not go very far as within a few years Pakistan had gone from being a surplus to a power-deficit situation.

The recognition that without regional integration, South Asia will not be able to realise its economic potential has been slow in coming.

If there is a lesson to be learned from experiences around the globe, it is the largest economy in the area that has to play a leading role in bringing about greater economic integration.

This was the case in Europe when the initiative to move towards greater economic cooperation was taken by the area’s largest economies, France and Germany. In the North America Free Trade Area, the United States took the lead. In the Association of South East Asian Nations, ASEAN, Indonesia, by far the largest country in the region, decided not to throw its weight in moving forward the arrangement.

India, South Asia’s anchor economy and also by far the most rapidly growing economy in the region, has been reluctant to take the lead. In fact, it was Bangladesh that was behind the initiative to create the South Asian Association for Regional Cooperation (Saarc) The Indian insistence that the goals set out in the Saarccharter should be relatively modest has kept this initiative from developing a momentum.

Politics, rather than economics, was the reason why the South Asian region remains poorly integrated. That may be changing with the sector of energy taking the lead. According to a study carried out by USAID with the help of the Confederation of Indian Industry only nine per cent of the hydropower potential of South Asia has been tapped. Coal and water are the two most important sources of power in South Asia followed by natural gas. But India and Nepal are making some progress in developing plans that would result in providing benefits to both countries from the tremendous hydroelectricity potential of the fast flowing rivers and streams that originate in the Himalayas.

India will need to add 250,000 megawatts of power to its current capacity by 2017, a five-fold increase to sustain its economic growth. According to the AI study, “a South Asia grid will give the region 100,000 megawatts of power to trade and help India tap the hydropower and natural gas reserves of its neighbours.” There are several projects at the planning stage. The most advanced is a 87 miles inter-country grid to be built to initially supply Indian power to its neighbour, Nepal. In return Nepal will construct power plants that will tap into its enormous hydro potential and supply the surplus power to India over the same grid. By 2019, Nepal will harness about 3,000 megawatts of power and will export most of it to India. Another project — but at an early stage of development — is a $450 million undersea power transmission link between India and Sri Lanka.

Among the projects that have gone beyond the planning stage is the New Silk Route that will bring natural gas to Pakistan and India from Turkmenistan. This promises to supply 3.17 billion cubic feet of natural gas daily to the energy starved nations of South Asia. The project being developed with the help of the ADB will cost $7.6 billion and could be completed by 2016. Fuel prices, transit fees, and gas sales and purchases are being negotiated.

According to one assessment, “discussions have faltered many times in the past decade, and many issues remain unsettled. Officials in the region also worry about how to ensure against supply disruptions in the event of political hostilities between India and Pakistan.” More or less the same applies to another multi-country gas pipeline – this one will connect Iran with Pakistan and India. Negotiations for concluding this deal have gone on for years but remain inclusive. Added problem is the pressure by the US is putting on both Pakistan and India not to go forward with this project.

While Pakistan has successfully resisted this pressure, India has been less willing to defy the US. It is deeply engaged in working out the arrangements that will allow the flow of western nuclear technology to India.

Thawing of relations between Bangladesh and India after the return of power of the India-friendly Awami League in Dhaka may result in the building of a pipeline that would connect the two countries. Again, this is one of the projects that have been under discussion but politics rather than economics came in the way. Now that New Delhi has opened a line of cheap Indian credit that Dhaka could use, there is a possibility that the pipeline may get to be built.

Given all these projects now in discussion and planning stages, it would appear that gas pipelines connecting the countries of mainland South Asia may result in building confidence and lead to the development of connections in other energy areas. If that happens, the economies of the region may get to be better integrated.


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