Tense over energy
On a blazing morning in May 2012, top government representatives of two Central Asian states (CAS), Afghanistan and Pakistan, stream into a plush conference room at the Grand Hyatt in Dubai to discuss an ambitious energy project. There is a heavy contingent of World Bank officials on hand to steer the ministerial talks on the $1 billion project that will bring electricity from the energy-rich countries of Kyrgyzstan and Turkmenistan to South Asia. The CASA 1000 project, as it is called, is expected to be the harbinger of improved energy security in South Asia, which is essentially an area of darkness.
CASA 1000, which the World Bank is part-funding with a loan of $510 million, is projected to bring in 1,300 mega Watt (MW) of electricity into Afghanistan from its neighbours who are floating in petroleum and have enough power to spare. War-torn Afghanistan requires just 300 MW currently and the rest is to be transmitted to Pakistan. The project is part of a grand idea of integrating the energy infrastructure of the region which was thrown up by a summit of South Asian Association for Regional Cooperation, or SAARC, leaders in 2004 in Islamabad. The idea is to have energy rings in places where trading of power is possible (see ‘Power exchange’).
At the Dubai meeting there is general agreement on this path-breaking venture among the assembled officials. But the more interesting development for the rest of South Asia, particularly India and Pakistan, is the interest in another initiative: a power link between the two neighbours who are also the largest countries in the eight-member SAARC. On the sidelines of the CASA meeting, the World Bank holds an unscheduled session to discuss power trade between Pakistan and India.
It is here that the project for exchange of 500 MW of power from India to Pakistan is initiated, with then Pakistan minister for water and power Naveed Qamar readily agreeing to a pre-feasibility study. Later, the minister pulls out all stops to get the report finalised in double quick time. But, despite being fast tracked and the World Bank putting its full powers of persuasion behind it, the electricity link between Amritsar in Indian Punjab and Lahore in Pakistan’s Punjab has still a long way to go. High-level delegations of the two countries have met to discuss the power trade but there is no tangible outcome as yet. The deliberations have been kept confidential; there is nothing on paper.
What has been achieved so far is a pre-feasibility report by consultants appointed by the World Bank for the project which will cost no more than $120 million. In Islamabad there are complaints about the “not very cooperative attitude of the Indian bureaucracy” which refused to share details of power availability and the way the electricity markets work in India. For its part, Indian officialdom justifies its position by saying it could not have done otherwise because there is no formal agreement on inter-connectivity. Experts say that barring the political nod everything is in place for the grids to be connected. The broad regulatory frameworks and associated laws in both India and Pakistan are similar and pose no legal hurdle to power trade, they say. Neither do the technical aspects.
According to them, all that is needed is a 30-40 km high voltage direct current (HVDC) transmission line. Although India works on a 400-kilovolt (kv) line while Pakistan uses 500 kv, a back-to-back alternate system should work, they say. For India, the cost is minimal, at around $10-15 million, according to persons privy to the report. The rest of the cost will be borne by Pakistan which has reportedly called for a final feasibility report.
Qamar, who was stripped of his portfolio in June 2012 ostensibly because of the acute power crisis in Pakistan that had resulted in heavy load-shedding in its Punjab province and shifted to the defence ministry in the Yousuf Raza Gilani government, told Down To Earth (DTE), “There are too many political issues to be resolved between the two countries but Pakistan is moving forward on these. India has to understand this change.” This is a common refrain in Pakistan where officials, political analysts and journalists accuse New Delhi of failing to respond to the new political winds blowing across the country. They believe that India’s intransigence and insistence on resolving issues bilaterally is the main impediment to a cohesive South Asia.
Qamar and others of his ilk could be a mite too sanguine about Pakistan’s desire to move forward on cooperation. There is invariably some political opposition to any rapprochement.
In September this year, the Senate Standing Committee on Water and Power opposed the move to import electricity from India and said the government should not be wasting huge amounts of money undertaking feasibility studies and raising loans from multilateral agencies. In a report from Islamabad, Dawn quoted Senator Zahid Khan of Awami National Party, chairperson of the standing committee, as saying, “How is it possible to import electricity from India amid exchange of heavy firing on the borders for 20 days in a month?” The money, he said, would be better utilised in expediting hydropower projects.
This is but a small example of how complex such issues, even a mutually beneficial power exchange, can become in South Asia. It is a region like no other. Historical rivalries have left a bitter legacy of deeply entrenched antagonisms and a huge trust deficit. India is viewed with suspicion by its neighbours. Or, as an arrogant and sometimes meddlesome Big brother of South Asia. The exceptions have been Bhutan and till recently Maldives with which it has enjoyed a sound relationship.
In fact, the tragedy of SAARC has been that the Bhutan example has not proliferated. Since 1974, the Himalayan Kingdom has been supplying hydropower to India, the total now coming to around 1,000 MW. The consequences of mutual distrust are immense for the 1.62 billion people who live here, people who account for the largest number of the poorest outside of sub-Saharan Africa. In terms of energy security, too, they are among the most vulnerable. Hundreds of millions have no access to electricity, whereas their giant neighbour China provides power to practically its entire population (99.7 per cent).
India’s Big Brother attitude
Viewed as the regional superpower, India is usually blamed for having stalled cooperative energy ventures. Charles Ebinger, author of Energy and Security in South Asia: Cooperation or Conflict? sums up the mess and political impediments with the example of Nepal. He says hydropower is “one of the great tragedies of the region” because its tremendous resources lie unexploited.
Nepal’s total installed capacity is just 757 MW, the size of one coal plant in India, it is sitting on a potential of at least 43,000 MW of commercially viable hydropower. It is this fact that upsets Ebinger. At the launch of his authoritative book on South Asia, Ebinger, director of the Energy Security Initiative and a senior fellow at Brookings Institution, had this to say: “I literally spent 10 years representing the government of Nepal on funding by various donor agencies.
For 10 years our team argued that because building these dams would dislodge farmers and poor people from where they live in Nepal, and because India would gain major irrigation and downstream flood control benefits, that these ought to be considerations in the electricity tariff that would be negotiated on a particular project. And for 10 years I heard respective Indian power ministers and secretaries say no. Not ‘no, we will negotiate,’ but just ‘no’. To be fair, to the Indian side, in the 10 years I worked there, I had no less than 14 secretaries of energy on the Nepali side, so that every time we would get the minister up to speed on what we were trying to do with trading with India, the government would fall and we’d have a new person.”
It is easy to see India as the villain of the piece in all such failures. But other countries, too, have been equally mistrustful. In the case of the Iran-Pakistan-India gas pipeline, which has been in the works for close to a quarter century, international analysts say Islamabad did play politics with the first pipeline project in South Asia (see ‘Still in the pipeline’). India’s misgivings on the security of the project and finally the sanctions pressure exerted by the US have made it opt out of the multi-billion dollar project. The big game that is played over the world’s energy resources makes no concession for pusillanimity and that is why there are thousands of kilometres of pipelines stretching from Russia, Central Asia going all the way to China but none coming to this part of the world.
There was a time, during Mani Shankar Aiyar’s tenure as minister for petroleum and natural gas (2004-06), when India was in the forefront of seeking energy cooperation not just with its SAARC partners but China, Russia and West Asia, too. In January 2006, he famously said, “The Asian Resurgence depends on energy cooperation in Asia. The 21st century will indeed be the Asian century only if Asian countries join hands in a continent-wide bid at bringing Asia together and keeping Asia together.” He was sacked by Manmohan Singh within days of that speech.
In a detailed conversation with DTE, Aiyar explains how and why cooperation between India, Bangladesh and Myanmar on a gas pipeline, a deal that he had in the bag, was torpedoed by the Ministry of External Affairs for geopolitical and security reasons (see www.downtoearth.org.in for detailed interview). His belief is that the future of South Asia lies in the region coming together, in enmeshing the economies together, primarily through energy linkages. “In our quest for energy security, we seem to be paralysed in our search for friends and partners, or to have abandoned the effort in despair,” says Aiyar.
Pakistan is possibly in the worst fix amongst all SAARC countries on energy. Shortfall in electricity supply currently averages at 25 per cent of demand or 4,000 MW, increasing to 6,000 MW in peak season. Peak power load shedding extends to 20 hours in rural areas and to eight in urban areas. In winters, the outlook is chilly because the shortfall in natural gas supply is as much as 50 per cent of the demand. One of the reasons for the five-day week in Pakistan is to conserve dwindling fuel supplies.
Efficient combined cycle power generation capacity remains idle due to shortfall in gas supply and less efficient fuel oil-fired steam units are being operated to meet the demand which increases the cost of electricity generated. This is a sad state for a country that was among the first to embark on a major utilisation of gas after the discovery of the giant Sui field in the 1950s with even its vehicles running on compressed natural gas (CNG). Its automobile fleet is probably the largest user of CNG anywhere in the world.
But heavy subsidies have messed up the gas market thoroughly, a problem compounded by the fact that no fresh exploration has taken place because of lack of incentives to do so. Points out Abid Suleri, executive director of the Islamabad-based Sustainable Development Policy Institute, “All gas supplies came with a pilot light or a small flame that was always kept alight. Nobody wastes matches in lighting the gas. Ditto for geysers which run on gas and are never turned off.”
Consumer electricity prices, however, have doubled in the last three years, and are currently among the highest in South Asia, with tariffs ranging between 7 cents and 12 cents per unit. Yet, Pakistan’s circular debt problems are a besetting worry. This is the result of its Central Power Purchasing Agency having no money to pay the power supply companies because of non-payment by the provincial and federal governments.
On December 9, the Asian Development Bank (ADB) stepped in with a loan of $900 million for a new supercritical coal power generation that is being planned as an emergency measure. Announcing the loan for the 600 MW plant, Klaus Gerhaeusser, director-general of ADB’s central and west Asia department, spoke of “acute power shortages of up to 20 hours a day that have crippled economic growth and are contributing to unemployment and social unrest across the country”.
Perhaps that is one reason Pakistan is willing to talk to India on buying imported liquified natural gas (LNG) from the state-owned Gas Authority of India Ltd (GAIL). Sources in the petroleum ministry in New Delhi say India is ready to export 400 million cubic feet of gas daily to Pakistan if the price is right. This would involve the laying of a 110-km pipeline between Jalandhar and Attari. Although negotiations lost momentum after fresh outbreak of hostilities on the Line of Control, in September talks resumed during the visit to Delhi of Sartaj Aziz, adviser on foreign policy to Prime Minister Mian Nawaz Sharif.
The Indian side is reportedly seeking payment guarantees before it inks a gas supply contract. While such guarantees form part of any commercial deal, the sticking point is the $21 per million British thermal units (mBtu) that GAIL wants. Imported LNG, costing around $14 mBtu will be regassified before it is piped to Pakistan. If the project does see the light of day it would provide a much stronger thrust to regional energy cooperation than the power exchange that is taking place between India and Bangladesh.
For Pakistan, which expects to have its first LNG terminal ready by the end of 2014, there is every reason to push the project if a deal can be struck on prices. Official source in Islamabad told DTE, “No government will survive if it buys from India at this price.” The energy crisis has led to a sharp drop in investment and left industry and small businesses in bad shape. In 2012, the shortfall lopped an estimated two percentage points off the country’s GDP, while the rising tab for imported fuel oil continues to strain its finances.
India’s power situation is not all that comfortable either, with an energy deficit of 8 per cent and peak demand shortfall of over 9 per cent. In July 2012 it suffered a massive grid collapse, leaving most of north India in utter darkness for several hours, twice in the course of a week. That is one reason some Indian officials scoff at the idea of energy cooperation because they say there simply isn’t enough power to go around. Mismanagement of the resources, and the high levels of energy subsidy in each of these countries coupled with spiralling demand have meant that governments are forced to take decisions that do not bode well for their economies or their environment. Take the case of Bangladesh.
In October this year, Bangladesh celebrated a milestone: the power generation capacity crossed 10,000 MW. There was reason to celebrate because for years on end there were 10-hour power cuts countrywide. Now per capita consumption is up 75 per cent to 321 kWh. But these increases have come at a cost. Much of the capacity addition has been through expensive oil-fuelled plants where per unit cost of generation is 15 times that of gas stations or four times that of coal-fired plants. Although the bulk (65 per cent) of the electricity is now generated from natural gas, coal will be the fuel of the future. Such plants are expected to produce half the electricity by 2030 while gas will account for just 23 per cent due to depleting reserves. Interestingly, it is banking on the regional grid to provide nine per cent while nuclear is envisaged to contribute 10 per cent. The share of oil-fuelled power plants will be cut to five per cent.
significant portion of the GDP. In 2012 alone Bangladesh spent 4.1 per cent of its GDP to pay for oil imports. For a country which still runs its energy-intensive sectors on supply of cheap domestic gas, the advent of oil-fired power plants has been a costly choice. “The government aggressively promoted oil-based power generation as an emergency measure which is costly and inefficient. It also brought in private players to start these plants guaranteeing them huge profits,” says Anu Muhammad, professor of economics at the Jahangirnagar University, Dhaka, and secretary of the National Committee to Protect Oil Gas Mineral Resources Power and Ports, a civil society group working on energy issues.
All of South Asia is vulnerable on the count as there is increasing dependence on imported energy, specially petroleum. India imports 80 per cent of the crude oil it requires, while Pakistan imports over 84 per cent and Bangladesh over 95 per cent; the other South Asian economies rely totally on imported oil. An equally important statistic is that nearly a fourth of the energy input that goes into economies of these countries comes from traditional biomass. The per capita energy use in the SAARC region is only 514 kg of oil equivalent per capita per year, a pathetic figure compared to other regions.
What is the outlook? Energy experts say SAARC’s primary energy demand could increase by 50 per cent by 2030 while its power demand could triple by 2030. Despite the apparent deficit, Ebinger believes the way forward is cooperation. He says South Asia is sitting on huge domestic resources, such as coal and natural gas even if it is “not as great in the existing fields as we had thought.” Cooperation, he insist, is the only way.
India, according to the International Energy Agency, has 63 trillion cubic feet of shale gas, apart from the possibility of large reserves of conventional gas that is yet to be explored. Pakistan, too, has substantial deposits, but in the tribal areas of Balochistan where violent insurgency is under way.
But ultimately, energy cannot be divorced from overall trade. SAARC is economically the least integrated of trade blocs. Bilateral trade between India and Pakistan is insignificant at $ 3 billion, which is just a fraction of their overall trade with the rest of the world. Before the romance of energy cooperation, the region needs the bedrock of larger commercial exchanges.
For detailed interviews see https://www.downtoearth.org.in