energy trade in south asia opportunities and challenges

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  • Energy Trade in South AsiaOpportunities and Challenges

    The South Asia Regional Energy Study was completed as an important component of the regional technical assistance project Preparing theEnergy Sector Dialogue and South Asian Association for Regional Cooperation Energy Center Capacity Development. It involved examining regional energy trade opportunities among all the member states of the South Asian Association for Regional Cooperation. The study provides interventions to improve regional energy cooperation in different timescales, including specific infrastructure projects which can be implemented duringthese periods.

    About the Asian Development Bank

    ADBs vision is an Asia and Pacific region free of poverty. Its mission is to help its developing member countries reduce poverty and improve the quality of life of their people. Despite the regions many successes, it remains home to two-thirds of the worlds poor: 1.8 billion people who live on less than $2 a day, with 903 million struggling on less than $1.25 a day. ADB is committed to reducing poverty through inclusive economic growth, environmentally sustainable growth, and regional integration.

    Based in Manila, ADB is owned by 67 members, including 48 from the region. Its main instruments for helping its developing member countries are policy dialogue, loans, equity investments, guarantees, grants, and technical assistance.

    Asian Development Bank6 ADB Avenue, Mandaluyong City1550 Metro Manila,

    Printed on recycled paper. Printed in the Philippines

    Sultan Hafeez Rahman Priyantha D. C. Wijayatunga

    Herath Gunatilake P. N. Fernando



    y Trade in


    th A

    sia: Opportunities and C



    Sultan Hafeez RahmanPriyantha D. C. Wijayatunga

    Herath GunatilakeP. N. Fernando

    December 2011

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  • 2012 Asian Development Bank

    All rights reserved. Published 2012. Printed in the Philippines.

    ISBN 978-92-9092-630-6 (Print), 978-92-9092-631-3 (PDF)Publication Stock No. BKK124531

    Cataloging-In-Publication Data

    Asian Development Bank.Energy trade in South Asia: Opportunities and challenges.

    Mandaluyong City, Philippines: Asian Development Bank, 2012.

    1. Energy trade. 2. South Asia. I. Asian Development Bank.

    The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent.

    ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use.

    By making any designation of or reference to a particular territory or geographic area, or by using the term country in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area.

    ADB encourages printing or copying information exclusively for personal and noncommercial use with proper acknowledgment of ADB. Users are restricted from reselling, redistributing, or creating derivative works for commercial purposes without the express, written consent of ADB.

    Note: In this publication, $ refers to US dollars.

    Asian Development Bank6 ADB Avenue, Mandaluyong City1550 Metro Manila, PhilippinesTel +63 2 632 4444Fax +63 2 636

    For orders, please contact: Department of External RelationsFax +63 2 636

    Printed on recycled paper.

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  • iii


    List of Tables, Figures, and Boxes viForeword viiiAcknowledgments xAbbreviations xiiEnergy Conversion Factors xviiExecutive Summary xviiiChapter 1: Introduction 1 Context 1 Message 2

    Chapter 2: Regional Cooperation and Energy Trade 4 Regional Cooperation 4 Regional Public Goods 5 The Benefits of Regional Energy Trade 8 Examples of Benefits of Cooperation in Energy 12

    Chapter 3: The SAARC Energy Sector: An Overview 15 Social and Economic Indicators 15 Energy Reserves in the SAARC Region 15 Current Energy Scenario in the SAARC Region 18 Commercial Energy Supply Features 22 Key Challenges and Issues Faced by the SAARC Energy Sector 27 Future Energy Demand and Supply in the SAARC Region 30 Likely Gains from Energy Trade Arrangements 32 Need for Harmonization of Legal and Regulatory Frameworks 33 Conclusion 34

    Chapter 4: Current Regional Energy Trade and Its Prospects 37 Introduction 37 Existing Trade of Petroleum Products 37

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  • iv Contents

    IndiaBhutan Electricity Trade 38 NepalIndia Electricity Trade 40 IndiaBangladesh Electricity Trade 42 IndiaPakistan Electricity Trade 43 IndiaSri Lanka Electricity Trade 44 Potential Areas for Cooperation in Regional Energy Trade 45 Interregional Energy Trade Opportunities 46 IranPakistanIndia Natural Gas Pipeline 46 Opportunities for Energy Imports from Myanmar 47 Central AsiaSouth Asia Power Transmission Project 48 TurkmenistanAfghanistanPakistanIndia Natural Gas Pipeline 50 Additional Energy Trade Options 51 Conclusion 52

    Chapter 5: Regional Power Market 53 Introduction 53 Indian Power Market 54 Developing a Regional Power Market 55 Implementation Approach 57

    Chapter 6: Regional Refinery 59 Introduction 59 Regional Refinery Justification 59 Expected Refinery Performance 61 Refinery Implementation 62

    Chapter 7: Regional Liquefied Natural Gas Terminal 66 Introduction 66 Liquefied Natural Gas Value Chain 67 Relevance of Liquefied Natural Gas to the SAARC Region 68 Commercial Arrangements 71

    Chapter 8: Regional Power Plant 72 Introduction 72 Power Plant Economics 73 Implementation Issues 77 Power Interconnections 77

    Chapter 9: Nonconventional Renewable Energy 78 Introduction 78 Key Nonconventional Renewable Energy Issues 79 Tariff Incentive Improvement 81 Technology Improvement 82 Scope for Smart Grids 83 Conclusion 84

    Chapter 10: Scope for Private Sector Participation 86 Introduction 86 Private Sector Participation in Electricity Generation 87

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  • Contents v

    Private Sector Participation in Energy Transmission 89 Conclusion 91

    Chapter 11: Conclusions and Recommendations 92 SAARC Regional Trade and Cooperation Agreement 93 Harmonizing Legal and Regulatory Frameworks 94 Developing Energy Database 94 Financing Mechanisms 96 Enhancing Institutional Capacity 97 Project Activities 97

    Annexes Annex 1: SAARC Energy Sector Institutional, Legal,

    and Regulatory Frameworks 99 Annex 2: Southern African Power Pool 120

    References 124

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  • vi

    Tables, Figures, and Boxes

    Tables 1 Estimated Capacity Shortages 9 2 Key Socioeconomic Indicators for the SAARC Region 16 3 Energy Reserves of SAARC Member States 16 4 Reserves to Production Ratio, 2007 17 5 Natural Gas Demand Supply Position, 2006 20 6 Commercial Energy Supply of SAARC Member States, 2006 23 7 Projected Commercial Energy Supply 31 8 Projected Electricity Demand 32 9 Key Features of the Legal and Regulatory Frameworks

    in SAARC Member States 3510 Gross Refinery Margin 6311 Gross Annual Revenue Accruing to Refinery 6312 Net Annual Revenue Generated from Refinery 6413 Comparison of Liquefied Natural Gas-Based and Diesel-Based

    Power Generation Costs 7414 Comparison of Liquefied Natural Gas-Based and Imported

    Coal-Based Electricity Generation Costs 7515 Basic Power Plant Assumptions 7616 Purchase Tariff for Nonconventional Renewable Energy-Based

    Electricity Generation 81

    Figures 1 Net Petroleum Imports against Total Consumption

    in South Asia, 2007 11 2 Per Capita Commercial Energy Consumption, 2006 18 3 Relative Contribution of Sources to National Energy Consumption 19 4 Electricity Shortages in SAARC Countries, 2006 21 5 Dependence on Traditional Fuels 22 6 Commercial Energy Supply Mix of SAARC Member States, 2006 23

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  • Tables, Figures, and Boxes vii

    7 Commercial Energy Demand Growth in India 24 8 Commercial Energy Supply Growth in Pakistan 24 9 Consumption of Natural Gas in Pakistan, 2006 2510 Commercial Energy Supply in Bangladesh 2611 Sector Consumption of Natural Gas in Bangladesh 2612 Fuel Mix in Bangladesh Electricity Generation, 2006 2713 NepalIndia Electricity Trade 4014 Typical Indian Power Exchange Day Ahead Market Operation 5615 Petroleum Product Consumption Profile 6016 Typical Large-Scale Refinery Flow 6217 Elements of the Liquefied Natural Gas Value Chain 6818 Typical Liquefied Natural Gas Receiving Terminal 6919 Wind Turbine Capacity Development 8220 Typical Location of Embedded Power Generation 8421 Typical Thermal Power Plant BuildOwnTransfer Structure 8722 BuildOwnTransfer Project Risk Perceptions 8823 Financial Structure of the Theun-Hinboun Power Company 8924 Possible Financing Structure of the Proposed

    IndiaPakistanIndia Natural Gas Pipeline 90A2 Hierarchical Structure of the Southern African Power Pool 121

    Boxes 1 IndonesiaMalaysiaSingapore Natural Gas Pipeline 13 2 The Energy Charter Treaty 95

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  • viii


    Regional cooperation provides an ideal opportunity to enhance sustainable growth by means of developing and sharing resources as a region, minimizing suboptimal development of these resources confi


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