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Bank Policy Initiatives for the Energy Sector : Energy Policy Issues

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Regional Cooperation and Energy Development

80. Regional cooperation is a key component of the Bank's strategic agenda. Many of the energy resources yield optimal benefits when exploited by two or more countries rather than a national framework, especially when the countries are relatively small and the resource base is spread over many countries. Thus, the planning for exploitation of the hydroelectric potential of a river valley system covering several countries is more cost-effective when it covers the whole valley rather than individual countries. Interconnection of electricity grids reduces reserve margin requirements and leads to an overall lowering of the system costs. Similarly, gas grids connecting several markets provide greater capacity utilization and lower costs. Under the funds available for regional TAs, the Bank will attempt to identify the promising regional projects, formulate them and determine the most suitable implementation and lending arrangements. The focus will be to involve the international and local private sector to the extent possible.

81. The Bank has provided a number of regional TAs covering a wide range of subjects, aimed at improving the efficiency of energy sector institutions in carrying out their planning, operations, tariff regimes, and accounting and managerial roles. A good example of the Bank's regional role in lending operations was the assistance to the Lao PDR in building power generating capacity for export to Thailand.¹ More recently, the Bank has been successful in assisting the Lao PDR to negotiate a joint venture arrangement with private sector partners from Thailand and Scandinavian countries to finance and build further power generating capacity for electricity export to Thailand.² These hydropower export arrangements, which will be carried out with careful attention to minimize environmental impact, will result in considerable regional environmental protection by avoiding equivalent (or larger) amounts of coal-fired generation in the importing country.

82. About 75 per cent of natural gas transfer in the Region takes place through pipelines and regional gas trade could be promoted through pipelines such as the Trans-ASEAN gas pipeline system (about 8000 km long to link the East Asian markets).³ Australia, Brunei, Indonesia and Malaysia dominate regional LNG trade by exporting about 40 million tons a year to Japan, South Korea and Taipei,China.⁴ Transportation of LNG over long distances requires large dedicated reserves and cryogenic infrastructure that require very high investment costs, but growth in energy demand and rising concerns over environment have made LNG the fuel of choice for power generation in the importing countries. Natural gas has provided security of supply for consumers and security of demand for producers. Because future prospects for increased natural gas utilization in the Region appear distinctly promising, the Bank has recently commissioned a Regional TA for "Increased Utilization of Natural Gas" covering 11 countries.⁵ The study covers natural gas utilization plans, taking into account demand and supply scenarios including regional trade, existing programs, institutional frameworks, policy constraints and strategies for natural gas development. The prospects of importing gas from the Middle East as well as from the Central Asian Republics to South Asia are also being assessed separately.

83. A major initiative is also being taken for regional cooperation in energy development under the Bank's ongoing regional TA for subregional cooperation among Cambodia, PRC, Lao PDR, Myanmar, Thailand and Viet Nam. The focus in this connection will be on the hydropower and gas/oil resources of these countries and the scope for increased regional energy transfer through the formulation of appropriate energy projects.

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