An Overview of Energy Cooperation in South Asia

There is a wide variation in commercial energy resource endowments and commercial energy demand among the South Asian countries. While India, Pakistan, and Bangladesh account for the major natural gas and coal resources, Bhutan and Nepal have large hydropower resources. All the countries have vast renewable energy potential and the sharing of these resources naturally leads to more optimal energy supply solutions for the entire region. South Asian countries need enhanced regional energy transfer to leverage economies of scale through a more vibrant intra and inter regional energy trade structure.

Key issues faced in energy sector cooperation are centered on the need to develop:

• a regional power market,
• energy supply availability,
• energy trade infrastructure, and
• harmonized legal and regulatory frameworks.

Energy cooperation through SASEC

Energy cooperation is a main focus of the South Asia Subregional Economic Cooperation (SASEC) program. The existing intraregional energy trade among the SASEC countries is limited to electricity trade between India-Bhutan and India-Nepal (in 2011, within the framework of SASEC cooperation, it was around 5,600 gigawatt-hour (GWh) and 700 GWh respectively); and trade in petroleum products between India and Nepal, Bhutan, Bangladesh, and Sri Lanka. The enhanced electricity trade will be based on the expansion of power transfer links between Bhutan and India, and India and Nepal. The establishment of ongoing and proposed new power transfer links between Bangladesh and India, India and Sri Lanka, and between India and Pakistan would further strengthen the regional power trade.

Apart from petroleum products, coal, liquefied natural gas (LNG), and the limited electricity trade, no interregional energy trade is seen between South Asia and outside the region. However, feasibility studies for some specific high-capacity inter-regional power and natural gas transmission systems, (identified as the Central Asia-South Asia [CASA 1000] power link, Iran-Pakistan-India [IPI] natural gas pipeline, and the Turkmenistan-Afghanistan-Pakistan-India [TAPI] natural gas pipeline) have been undertaken. The TAPI project has progressed to the stage to being a Gas Pipeline Framework Agreement, initialed in 2008, followed by an intergovernmental agreement signed in 2010.

Future steps

To increase energy cooperation, some of the important steps which need to be taken are:

• develop a structure for a regional power exchange after reviewing the power system structures in individual countries, along with their operational procedures and regulatory and commercial requirements for cross-border trade;
• improve investment environment for the private sector for both electricity generation and transmission, particularly in Nepal and Bhutan by streamlining the approval processes and establishing independent regulatory environments;
• identify the technically and economically feasible cross-border interconnections based on a scenario analysis and possible financing options; and
• harmonize legal and regulatory frameworks dealing with cross-border trade along with an Energy Charter Treaty for greater security for cross-border energy transfer related investments and transactions.