What is the issue?
- The Union Ministry of Power issued a memo that set the rules for the flow of electricity across South Asian borders.
- The new electricity guidelines are seen as a first step towards creating a true regional market.
How has energy cooperation been?
- In the early 2000s, India tried with the SAARC countries for cross-border energy flows.
- It began to gain steam with substantial power trade agreements between India and Bhutan (2006) and Bangladesh (2010).
- These were driven by India’s need for affordable power to fuel quickened growth in a recently liberalised economy.
What happened thereafter?
- The SAARC Framework Agreement for Energy Cooperation and the India-Nepal Power Trade Agreement were signed in 2014.
- These agreements imposed only few restrictions on trade.
- But it formulated an institutional structure to allow private sector participation and to facilitate market rationality in electricity commerce.
- The new government aimed for a seamless SAARC power grid, for power transmission within SAARC countries.
- E.g. offshore wind projects set up in Sri Lanka’s coastal borders to power Pakistan or Nepal
- But later, in 2016, the Union Ministry of Power released certain guidelines.
- It imposed a slew of major restrictions on who could engage in cross-border electricity trade.
- They seemed to be a reaction to perceptions of increased Chinese investment and influence in the energy sectors of South Asian neighbours.
What were the concerns in 2016 guidelines?
- The guidelines prevented anyone other than Indian generators in the neighbouring country from selling power to India.
- So, many privately held companies, particularly in Nepal, that had hoped to trade with India were excluded.
- In restricting access to the vast Indian market, the economic rationale for Nepali hydropower built for export was lost.
- The requirement that the exporting generation companies to be majority owned by an Indian entity worried Bhutan.
- This created friction in joint ventures between India and Bhutan.
- Bhutan was also concerned about the limited access to India’s main electricity spot markets.
- Here, Bhutan could have been well placed to profit from evening peaks in demand.
- Bangladesh sensed an opportunity to partially address its power crisis with imports from Bhutan and Nepal routed through Indian territory.
- But the guidelines complicated this by giving India disproportionate control over such trade.
How are the new guidelines?
- Liberal - A liberal trading regime is in India’s national interest.
- So the new guidelines resolve the above issues and make the governance of electricity trade less restrictive.
- The concern that India was enabling the incursion of foreign influence into neighbouring power sectors was addressed.
- India now recognises that economic interdependency created by such arrangements have the political benefit of positioning India as a stable development partner.
- Greener grid - As India transitions to a power grid dominated by renewables, regional trade could prove useful in maintaining grid stability.
- A wider pool of generation sources, particularly hydropower from the Himalayas, is instrumental for a greener grid.
- Nepal and Bhutan have also, for long, recognised the potential of sustainable use of vast hydropower reserves for their prosperity.
What is the significance?
- The new guidelines could create a true regional market and lead South Asian electricity trade in progressive directions.
- Generators across the subcontinent could now compete to deliver low-cost, green energy to consumers.
- The new guidelines also, for the first time, allow tripartite trading arrangements.
- Power generated in a country is routed over the territory of a neighbour to be consumed in a third.
- Since this would soften the hard borders of South Asia, it is essentially a political vision too.
- This is a crucial move towards the evolution of complex, multi-country market arrangements.
- Such markets require the construction of regional institutions that absorb the politics and manage the technicalities of electricity trade.
- Going ahead, South Asian nations might have to build joint, independent regional institutions that offer clear and stable rules.
- In an atmosphere of regional mistrust, the new rules are a rare and recent example of political pragmatism.
Source: The Hindu
