Kathmandu, November 15:

The level of cross-border energy trade is very low in South Asia and the national gas and electricity networks are largely isolated from each other. “Significant electricity trade exists only between India and Bhutan and there are no gas pipelines crossing the national borders of any South Asian country,” states a report by World Bank.

According to the study ‘Potential and Prospects for Regional Energy Trade in the South Asia Region’ India, Pakistan, Bangladesh, Sri Lanka and Afghanistan have energy demand growth far outstripping domestic supply. At the same time, a number of the countries in the region like Bhutan and Nepal have energy resources far in excess of their domestic needs.

“South Asia’s strong economic growth has translated into rapidly increasing energy demand and this growth is becoming constrained by significant shortages in energy supply,” said Alastair McKechnie, WB director for Regional Programmes in South Asia adding that while there is undoubtedly potential for savings from improving energy efficiency, fostering of cross border energy investments and promotion of regional energy trade in order to take full advantage of the energy resources available within the region and its neighbourhood are critical to tackle this problem. Importing clean fuels such as hydropower and natural gas, together with using energy more efficiently, are viable options for reducing the local and global environmental impacts of the energy sector in South Asia. Bhutan’s success in exporting hydropower to India demonstrates the substantial benefits of energy trade to both exporter and importer, states the report adding that widespread cross border electricity and gas trade could provide significant contribution to me-eting demand, which is expected to grow annually in the ran-ge of 6.6 per cent to 11.5 per cent during next 15 to 20 years.

Energy exports could make dramatically significant contribution to the GDP growth of Bhutan and Nepal, who have energy resources far in excess of their domestic needs. Bhu-tan’s electricity export in 2007 is expected to constitute nearly 25 per cent of its GDP and 60 per cent of its state revenues.

Major barriers to stronger energy trade in the past included the lack of cross-border transmission links, presence of bottlenecks in the domestic energy infrastructure, poor operational efficiency, financial performance and creditworthiness of the utilities and long standing political disputes. These barriers have overshadowed favourable factors such as complementary primary energy endowments, complementarities in seasonality of demand, improved energy security and economic efficiencies associated with larger integrated markets.

More favourable conditions for increased cross-border energy investment and trade have started to emerge, strong economic growth fueled by increased integration in global economy, increasing commercialisation and structural reforms of national energy markets and stronger role of private sector in energy supply.

“In recent years we have witnessed greater interest and enthusiasm in cross border electricity and gas trade among South Asian political leaders and the private sector,” said Vladislav Vucetic, the bank’s Lead Energy specialist adding that the bank expects more regional projects in the energy sector in the coming years, as increased energy trade should bring economic and financial benefits to all countries involved, spur economic development, enhance energy security, and reduce environmental impact of development. And more energy trade could also reduce system development costs and enable lower cost supply, the report states.

Nepal could dramatically reduce its cost of power supply by optimising its power system w-ith sale of hydropower to India.