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Second Consultation Workshop on the GMS Energy Sector Strategy

Opening Remarks by
Arjun Thapan
Director General, Southeast Asia Department
Asian Development Bank

28-29 May 2007
Bangkok, Thailand

Ladies and Gentlemen, Good morning.

I am delighted to welcome you all to this second consultation workshop. On behalf of ADB, I would like to thank you for being here in spite of your busy schedules to discuss the way forward for an Energy Strategy for the GMS.

We all understand the background to this exercise. Energy is crucial to the sustained growth of the GMS. This is a region that has continued to grow at an average rate of over 6% since 1992 and its economy stands at $1.4 trillion¹ today. Poverty has declined significantly in the region: in 2003, there were 30 million less people living under $1 per day compared to 1990 - in Cambodia, Lao PDR, Thailand, and Viet Nam. In Guangxi and Yunnan provinces, poverty declined by 50% and 66% respectively in 2003-2004 compared to a decade earlier².

Like the rest of Asia, trade and foreign direct investment have been major drivers of the GMS success story: exports and imports have grown at a compounded annual rate of 23% between 1992 and 2005. Foreign direct investments have quadrupled from $3 billion in 1992 to over $12 billion in 2005.

Such rapid growth also brings with it rapid energy consumption that has risen at rates faster than the overall GDP. Energy consumption increased at 8%. And electricity consumption has risen at 9.5%. The slowest growth of 6.5% per year was recorded in Thailand during 1992- 2004 whereas Viet Nam's electricity consumption rose by a staggering 15% plus during the same period. The average per capita electricity consumption of 870 kwh masks the range of variation across countries: given very different levels of overall electrification rates, per capita power consumption ranges between 62 kwh in Cambodia, 104 in Myanmar, 160 in Lao PDR to 1,865 kwh in Thailand.

Access to modern energy remains a major challenge in the GMS where every sixth person has to depend on non-commercial sources to meet day-to-day energy needs. Even today, there are large areas in Lao PDR, Cambodia, or Myanmar where energy consumption is dominated by non commercial sources and most of the burden of collecting fuel falls on women and children. Given the low access rates and the importance of energy in promoting growth and poverty reduction, regional energy options need to be explored to enhance access to energy for all.

A rapid increase in energy demand will necessarily have local and global social and environmental impacts given the dominance of fossil fuels. Asia's energy growth has already attracted global attention and hence any future strategy will have to be sensitive to such attention. There are increasing pressures to enhance energy efficiency and to develop renewable and new alternative energy sources. Against this background, ensuring that energy demand is met in a sustainable way would require a policy environment that encourages and ensures efficiency: efficiency in energy demand and ensuring efficient energy supplies. So this is the second challenge: to ensure that energy demand is managed in an efficient way. This is not just the agenda of ADB: it is also the objective of the GMS countries.

A third challenge is that the region's energy resources are unevenly distributed. It is important to explore possibilities beyond national borders so as to minimize overall costs of meeting energy demand. The region is rich in hydropower resources and there are large areas with unexplored potential for oil and gas resources within the GMS. We must also recognize that institutional and human capacities vary a great deal across the region, given the different levels of developmental stage of each part of the GMS. It is possible to enhance mutual gains from collaboration and cooperation as shown by 15 years of experience in the region as well as outside examples of integration in Europe in the field of energy. GMS today is fortunate that it can "leap frog" so as to create regional energy markets.

An integrated approach beyond national boundaries to diversify energy base and supply options would also enhance the security of energy supply, as the region is heavily dependent on imported fossil fuels. For example, Thailand - one of the largest energy consumers in the region - has to import 50% of domestic energy needs whereas Cambodia and Lao People's Democratic Republic import all commercial fuels. A program to diversify the oil resource base within and outside the region can help reduce vulnerability. Let us keep in mind that against this background, a regional energy market with enhanced security of supplies is a regional public good and will need external support.

The GMS Economic Cooperation Program that commenced in 1992 has given us more than 15 years of experience in working together for our mutual benefit. Until recently, our collaboration in the energy sector has focused on regional electricity trading. Under the Regional Power Cooperation Program, construction of several interconnection projects has been identified. Work on the first high voltage transmission line between Cambodia and Viet Nam is on going. The private sector has been catalyzed to invest in sub-regional projects such as Nam Theun 2.

A roadmap for developing a regional energy market is being developed and a policy and institutional framework for power trade is being designed so as to lay the foundation for enhanced cooperation. Most importantly, social and environmental concerns are expected to be addressed comprehensively with better collaboration and coordination between the Subregional Energy Forum and the Working Group on Environment.

Our recent initiatives in the area of promotion of rural renewable energy sources, particularly the demonstration and extension of biogas and biofuel technology are noteworthy. This is one of the priority thrusts under the Core Agriculture Support Program and a regional study completed last year has identified potential areas for cooperation, future directions for the development and widespread dissemination of biofuels, and requirements for financial support and sustainability through market development. A collaborative support program to integrate biofuel and rural renewable energy production into rural agriculture for poverty reduction is also under discussion between ADB and the International Fund for Agricultural Development as a medium-term strategy.

Our regional strategy must address these challenges and present options to policy makers. But it should also take into account the diverse needs of the GMS economies which are in various stages of development. Global and local issues relating to environment and social impacts need to be identified and options presented to address these challenges. The first workshop's theme was balancing energy and environmental concerns and we hope that the work carried out so far addresses these in a balanced manner.

Given the complexity of the tasks ahead, and the need to create greater awareness of the costs and benefits of greater cooperation in the energy sector, the study design includes a series of consultations. We hope to discuss the interim report and the initial results. We should question the assumptions used: and refine the analytical framework that will underpin the regional strategy. We have gathered here a diverse mix of participants consisting of senior government officials, policy makers, civil society organizations, energy experts, environment experts, donor agencies, and the private sector.

I would not like to preempt the presentations that are lined up for the next sessions, but the interim report (that was distributed to participants last week) has some interesting findings and I want to highlight some of the broader issues emerging from these results.

It seems very clear that fossil fuels, and coal in particular, will remain a dominant energy source for the next 25 years in the region. If we accept this, then we need to explore all options that will make these choices more sustainable. Energy efficiency both in supply and demand terms is vitally important. The report presents efficient light bulbs as an example, but there are a lot of other possibilities that are being explored across the region, but with variable levels of success and enthusiasm. This has to change. It requires action both in terms of investment components such as retrofitting existing industrial structures, and creating awareness, rules and regulations, prices, suitable incentives, and an entire institutional base that would drive energy efficiency in the economy. Sporadic action has commenced, but a lot needs to be done to manage the growing demand efficiently. A large part of the future demand will come from growth in energy for residential and commercial buildings. These buildings could be designed to maximize energy efficiency potential with the use of efficient technologies with efficient lighting, air-conditioning, and insulation. GMS must explore possibilities to leap frog in this area by its choice of technologies and incentive structures that ensure efficiency in the entire economic system.

Secondly, renewables and alternative technologies will continue to remain somewhat marginal in the near term as sources of base load power. However, these sources can be profitably exploited for decentralized systems and must be encouraged, when required with necessary fiscal incentives.

Thirdly, hydro-power will remain an important contributor (alternatives are coal or gas based systems). We need to create broad partnerships across the region as well as among different groups that will enhance accountability and ensure that outcomes are sustainable.

Fourthly, the transport sector has a large and growing share of overall energy demand and this would necessarily mean strategies that make transport more efficient. Options such as mass transport systems, strengthening railway networks, appropriate pricing and effective regulations will be needed to moderate this growth. Policy regimes will need to be tailored to achieve this goal.

Finally, regardless of demand efficiencies that we can secure, the large investments needed to meet the energy challenges facing the region will have to be mobilized, through pricing policies and an improved business climate. There is a huge, unfinished reform agenda in this respect that needs to be addressed.

Let me end by emphasizing that none of the above can be done by IFIs like us or the regional governments alone. Working together requires that we forge partnerships, of socially responsible private sector and civil society organizations that enhance overall accountability for better outcomes for the present and future generations of the GMS countries.

Thank you.

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