The Issue of Cross Border Electricity Trade in South Asia

Synopsis: India should plan a stable institutional model for governing electricity trade across borders. It should avoid imposing restrictive rules which is against the free market economy.

Background

• Currently, Guidelines for Import/Export (Cross Border) of Electricity-2018 govern the trade of electricity across its borders.
• In 2014, India through the South Asian Association for Regional Cooperation (SAARC) framework, liberalized its electricity trade.
• China entered the market in the south Asian region to take advantage of it.
• India countered by taking back the free market advantages. Further, it imposed strong restrictions that prevented regional Private entities and joint ventures from participating.
• After long years of protest by Nepal and Bhutan, new guidelines in 2018 (Guidelines for Import/Export (Cross Border) of Electricity-2018) were formulated.
• The new rules allow private sector participation but exclude Chinese investments. Through the new electricity rules, India attempts to balance China’s growing influence in the region.
• The new rules have clear limits on who can buy from and sell into India.
• However, it has the potential to disturb the electricity markets of Bangladesh, Bhutan, and Nepal.

What are the important provisions?

• First, According to the new rules, Power plants owned by a company based in the country, not having a bilateral agreement with India on power sector cooperation, cannot participate.
• Second, the rules place the same security restrictions on tripartite trade.
• Third, the rules establish a surveillance procedure to detect changes in the ownership patterns of entities trading with India.

What are the issues involved?

• First, the institutional structure that governs the trade of electricity across its borders is India-centric.
  • India is in a Geographical advantage as it is placed in the middle of south Asian countries. Moreover, India at present is the fourth-largest global energy consumer. It puts India in a dominant position.
  • However, India’s monopolistic tendency in power will attract displeasure from its neighbours as their economic growth will hurt.
  • Also, the prospect of an independent regional body governing electricity trade is unlikely in the near future.
• Second, lack of impartial institutions for planning, investments, and conflict resolution regarding electricity trade will impact India’s vision of One Sun One World One Grid (OSOWOG).
  • The OSOWOG aims to connect West Asia, Southeast Asia, and Africa. An impartial institution is important for making it functional.
  • However, the South Asian lesson, contained in these latest rules tells us that political realities will hamper the vision of borderless trade.

India should plan for an attractive institutional model by setting standards that profit investors and utilities. India needs to create a rule-based regional institution that can counter Chinese offerings in other theatres.

Source; The Hindu