Averting an energy crisis in South
Asia By Elizabeth Mills
South Asia has a problem: it doesn't have
enough energy. Pretty standard stuff, really, but
what is notable is that grand energy-policy
visions are drifting dangerously far from the
realities on the ground.
For a region that
is developing swiftly, energy problems can only
worsen in coming years. In response, institutional
change needs to happen swiftly and in the form of
basic energy management, better transmission
infrastructure, greater efficiency and, in
most
cases, something as
rudimentary as the drafting of a countrywide
energy strategy.
There is clearly
competition for energy resources, but what about
the heated competition for grand energy visions?
Hot out of the blocks we have India and its
nuclear deal with the United States. If statements
are to be believed, the support the US is prepared
to offer will help India overcome its considerable
power-sector difficulties in one fell swoop. To be
fair, it's a surprise that the deal has gotten
this far this quickly, and although there is
clearly a long way to go in finalizing all those
devilish details, once in place, India has a clear
run at developing its civilian nuclear-energy
program to international standards. Impending
energy crisis averted, future energy needs
addressed - job well done.
Not to be
outdone, Pakistan has its own energy strategies on
the boil. It is seeking to pursue international
gas-pipeline options with which it hopes to
position itself as an energy hub for South Asia
and possibly China through the port at Gwadar.
This shows some very savvy forward
planning. From Gwadar, which itself sits adjacent
to 40% of the world's oil-tanker shipping lines,
Pakistan can ship energy supplies in any direction
through its landmass and find an energy-hungry
market. Similarly, a planned gas pipeline -
possibly operational as early as 2009 - from Iran,
crossing Pakistan and heading on to India, offers
not just a supply on tap for both nations but
would be a major incentive for stability between
these two restive neighbors. Another pipeline
option running from Turkmenistan through
Afghanistan into Pakistan and potentially on to
India may be similarly well conceived on this
hypothetical basis.
The operational
reality of the projects, including security
concerns and pricing disputes, are noticeably
absent from the vision. Less successfully - though
it gets points for trying - Pakistan's attempts to
pursue its own nuclear agreement with the US have
fallen foul, with the administration of President
George W Bush arguing that when it comes to
nuclear issues, it treats India and Pakistan very
differently.
Then, of course, we cannot
overlook the ambitious visions from South Asia's
energy sectors, which include the competition to
secure oil and gas supplies abroad. The activities
of India - often considered in relation to China -
are the most notable here, though many other
nations are lining up prospective deals worldwide.
None has yet seemed able to surpass the Chinese
for global reach, with its top leaders dispatched
as far afield as Africa and latterly Latin America
in the unquenchable mission to satisfy its future
energy requirements.
Alongside this, there
are three other South Asian nations - Bangladesh,
Myanmar and Nepal - all of which are handsomely
bestowed with natural energy resources.
Ironically, the drive to commercialize energy
supplies has proved less ambitious here, despite
the natural endowments that the three countries
enjoy.
Currently Nepal uses just 0.3% of
its massive hydroelectric potential, which is
judged to be one of the world's largest, and yet
only about 40% of its population have access to
electricity.
Bangladesh, where fewer than
30% of people enjoy electricity, is estimated to
be sitting on between 12 trillion and 15 trillion
cubic feet of natural gas. Many of these blocks
have been sold off to foreign companies for
extraction and processing, but Bangladesh should
still have ample reserves to meet its own energy
needs with some left to export if it can only
overcome its historical aversion to selling its
natural resources to India.
In many
respects, Myanmar has proved the most proactive in
exploiting its energy resources, offering
concessions to a mix of state-owned and foreign
companies, but still leaving less than 20% of the
population with access to electricity.
So
the plans are in place, but this optimism by and
large fails to ring true on the ground. Instead,
South Asia's power sectors are perilously poised.
The incidents of power failure across most of
South Asia are innumerable. It is worth
highlighting that parts of India's capital,
including the more affluent suburbs, were without
electricity for up to 12 hours a day last month,
and Nepal's national state-owned energy company is
virtually bankrupt, the situation exacerbated by a
recent decision to reverse fuel-price rises in the
face of public protest. Energy problems have
elicited deadly protests in both Bangladesh and
Pakistan this year; while in Myanmar the energy
issue is a very different one, with the military
junta using the sale of the country's energy and
mineral assets both to prop up the ailing economy
and to secure diplomatic support from key
neighbors.
Given this situation, it is
also worth considering that unless the majority of
South Asian governments reform their respective
energy sectors, the grand schemes that are being
pursued with such vigor will not be fully viable.
More specifically, the governments of the
countries in question need to be addressing key
energy-sector issues. These include policy
strategy, energy efficiency, infrastructure
investment, and fuel subsidies and privatization.
Policy strategy In some
respects, it seems a bit odd that a country the
size of India does not have a coherent energy
policy. The fact that it needs one isn't just the
view of any old analyst or observer, but the
expressed opinion of the country's prime minister,
Manmohan Singh.
In July, Manmohan
announced that a complete rethink of the energy
sector was required to provide India with a new
model for its energy use. He referred to the
economic strains that high global oil prices were
creating, and said price volatility underlined the
need to translate energy security into realistic
policy. What this will encompass and when it will
happen are a matter for speculation, but what is
evident is that India is not alone in this
respect.
Elsewhere, any plans that might
be in place are fractured affairs, often
floundering in the face of myriad problems.
Pakistan has an energy policy, but not one that
has proved particularly effective. It was
formulated in 1994 with the aim of broadening
private participation and investment in the power
sector. In addition to this, the government formed
the National Electric Power Regulatory Authority
in 1997, tasking it with the oversight of the
power sector's privatization. This was followed in
2002 with a new power policy aimed at providing
financial incentives in an attempt to win over
investors. Policy in place aplenty, but results
have been hampered by allegations of corruption -
particularly surrounding the allocation of
independent power producers - a lack of government
transparency, the slow pace of reform and
privatization, and long-running security problems.
Energy efficiency It is
estimated that if the Indian economy grows by
about 8%, energy use will increase to as much as
five times its current rate by 2030. Elsewhere, to
meet its future energy needs, Pakistan is looking
to increase nuclear generation from 450 megawatts
to 8,800MW by 2030.
This situation is
fueling calls for nations to consider an energy
model that is focused on demand and supply, a
careful use of available resources and far higher
levels of energy efficiency. In reality, this sort
of policy is going to require a range of
incentives. A key component will be workable
strategies to counter the large-scale power losses
that result from system inefficiency and rampant
theft. Beyond this, respective governments will
need to examine the relevance of the system of
taxes relating to energy and consider the
subsidies imposed on energy and energy-using
devices.
Infrastructure
investment Energy infrastructure is a key
problem across the region. In most cases it is in
need of repair after years of underinvestment, has
been damaged by restive elements or inclement
weather, or simply wasn't constructed in the first
place. Added to this is the problem of rampant
power theft, with India estimating that it loses
about US$5.4 million worth of electricity
annually, simply as a result of inefficiencies and
theft.
Pakistan suffers the same problem,
and it is the opinion of some energy analysts that
the country's energy infrastructure is the worst
in Asia. As such, this deficiency arguably
presents the single largest risk to the country's
longer-term growth and development prospects.
Although Pakistan has the potential to increase
its domestic production of oil and gas
significantly to meet consumption needs, poor
infrastructure is one of the problems preventing
this.
In Nepal, the decade-long Maoist
insurgency has damaged the country's
infrastructure and undermined attempts to improve
access to electricity. Even at the point where a
negotiated settlement between the Maoists and the
government is finally secured, Nepal is unlikely
ever to meet its hydropower potential, simply
because its topography and weather patterns
present problems for the building and maintenance
of infrastructure.
Subsidies and
reform The global rise in oil prices has
forced many governments' hands on the issue of
reviewing fuel subsidies. State-owned energy
companies have faced mounting financial problems
as their operational costs based on fuel prices
have risen, most of which they have not been able
to pass on to their consumers.
Incremental
price rises, which go some way toward easing the
public energy companies' plight, have been
witnessed in many nations, often accompanied by
public protest. These were so virulent in Nepal in
August that the authorities were forced to reverse
the price rises, condemning the state-owned
Nepalese Oil Corp (NOC) to certain bankruptcy.
What the situation has highlighted is the very
real need to dismantle the subsidy system, as
painful to the domestic consumer as this option
is.
It also highlights a related issue,
that of reforming these state-owned enterprises.
Certainly, in the case of the NOC, alleged
corruption and mismanagement have likely
compounded its undoing. Its problems are, however,
mirrored elsewhere, underlining the fundamental
problem that many of these state-owned energy
monopolies are archaic monoliths unable to address
modern energy issues and problems. It is worth
noting that many of India's regional electricity
companies are technically bankrupt, with state
governments having used them as means to subsidize
power costs, often in the agricultural sector.
In Sri Lanka, last month saw the Asian
Development Bank cancel a $60 million loan to the
power sector over concerns that reform was too
slow and because of fears surrounding the
continuing unrest. The ADB has said institutional
reform and the restructuring of the Ceylon
Electricity Board's finances are key to
strengthening the domestic power sector, but
unions and political parties have been accused of
hobbling these efforts.
Open competition
and privatization offer the most obvious answers,
but produce short-term side-effects. Efforts to
privatize Karachi's energy-transmission network
have presented unforeseen problems. The company
concerned, Karachi Electricity Supply Co (KESC),
announced in June that it will be three years
before new generators come online because of years
of underfunding and the poor state of the
infrastructure, providing little relief to angry
residents who had been expecting swifter redress
under new management. The situation is similar in
the Indian capital, Delhi, whose residents are
facing certain power shortages until 2010 when a
raft of new power stations open.
Furthermore, in Karachi the change of
management from the military to KESC has resulted
in an unexpected side-effect, that of a rapid rise
in the incidence of power theft. Still, over the
longer term, the private sector is regarded as the
way to go, most effectively and efficiently
matching supply with demand.
Clearly a lot
of work needs to done and policy attention focused
on this issue. To be fair, there are dozens of
small-scale schemes and changes to policy taking
place throughout the region. This article is not
out to decry these efforts or the moves that are
being made to secure regional gas pipelines and
cut major deals with the likes of the United
States, but the governments in question should
also be addressing basic shortfalls: if you like,
installing the plumbing before adding the
fitments.
Elizabeth Mills covers
South Asian political and security affairs for
macroeconomic forecaster Global Insight.
(Copyright 2006 Asia Times Online Ltd.
All rights reserved. Please contact us about sales, syndication and republishing
.)
