Energy is a critical ingredient for prosperity, and can be a catalyst for deeper regional integration. Energy security is a critical issue for South Asia, which is home to nearly one-fourth of the world’s population and where economies are growing by an average of nearly 7% each year.
But South Asia’s GDP per capita is less than one-third of the global average, and per capita energy consumption is far below the rest of the world, hinting at unmet need in spite of increasing economic growth, industrialisation, an increasing population, and accelerating urbanisation. All of these changes increase the demand for electricity.
There have been several positive developments in energy cooperation: the 2014 SAARC Framework Agreement on Energy Cooperation and the Power Trade Agreement between India and Nepal. Bilateral frameworks between India and Bangladesh, as well as India and Bhutan, have also been strengthened. Currently, around 2,300MW of power are traded in this BBIN sub-region.
These demonstrate win-win benefits for all South Asian countries. For example, Bhutan’s surplus hydropower exports to India account for 25% of its GDP. Bangladesh began importing 500MW of power from India in 2013, helping it reduce load-shedding by 70% and generate annual savings of around $500 million. India also gains by earning revenue from electricity exports.
A 2015 World Bank study found that regional electricity cooperation in South Asia could lead to savings of $19 billion per year over the next 25 years. A 2017 study by the USAID-funded South Asia Regional Initiative for Energy Integration (SARI/EI) showed that accelerated power trade between India and Nepal could increase Nepal’s GDP by over $120 billion in the next 30 years.
Energy cooperation is therefore not just about increasing integration but also an essential building block for regional prosperity. The US government actively supports regional energy integration in South Asia. We are committed to fostering connections from Central Asia to Southeast Asia, and everywhere in between – through increased physical infrastructure, coordinated regulatory and trade institutions, and human and digital connectivity.
Regional integration is not just good for South Asia, it is good for the world, including the United States. A more stable, prosperous, and integrated South Asia is more likely when countries of the region are linked through trade agreements and have greater physical infrastructure connections. Our activities include technical training on power contracts, procurement, regulation, and electricity system modeling as well as physical infrastructure – such as the planned 300 km of electricity transmission lines in MCC’s Nepal Compact.
International experience has shown that most cross-border power trade begins with bilateral interactions which provide a foundation for multilateral arrangements and transactions. South Asia is moving along this path, and the next step is to coordinate regional energy regulations and policies by:
Building strong and effective regulatory regimes
Designing competitive market pricing mechanisms
Developing solid contracts and agreements
Setting up dispute resolution mechanisms, and
Supporting a technical regional coordination agency to facilitate regional planning and development.
The United States looks forward to working with both the public and private sector, as well as multilateral organiations, to em-power South Asia. Pun intended.
Alaina B. Teplitz is the United States Ambassador to Nepal. This Guest Editorial is adapted from her speech to the 6th SAARC Business Leaders Conclave in Kathmandu on 17 March.