It is the single most effective confidence-building measure
Davinder Kumar Madaan
RECENTLY, a draft of the Memorandum of Understanding (MoU) was handed over by Pakistan to India for a deal to buy 500 MW electricity from India for which an inter-grid connection will be built between Amritsar and Lahore via the Wagah border. Earlier, on January 20, 2014, the Pakistani Cabinet had approved the signing of the MOU. Both countries have constituted a joint working committee to resolve matters related to the technical, commercial, construction and regulatory issues of this deal. If all goes well, electricity trade between the two countries can start by the end of 2014 at a tariff of around Rs 8 per unit. Cross-border trading will be through high voltage direct current, which will ensure that both the grids operate independently. It will be economical to transfer power through Amritsar as Lahore has complete transmission lines and grids, and is near the grid in the Indian Punjab. The project requires 45 km of 220 KV transmission lines on both sides of the border -- 25 km in India and 20 km in Pakistan -- within six months following the signing of a formal agreement. Earlier, the World Bank funded the feasibility study and worked out the imported cost at 10-11 US cents per unit. It offered to provide $300-400 million for installing 220 KV transmission lines to import a total 1200 MW of power from India.
Currently, electricity production in Pakistan is about 15430 MW against an installed capacity of 22797 MW because of poor infrastructure, old plants and theft of electricity. The inefficient transmission and distribution system is costing the taxpayers Rs 1.7 per unit over and above the cost of generation - averaging around Rs 7.3 per unit. Power theft alone amounts to Rs 8,500 crore per annum. Pakistan is producing 36% of electricity from oil, 30% from hydel, 29% each from gas and 5% from nuclear plants. A sharp decline in the share of gas in energy production from 52% in 2005 to 29% in 2014 has increased the cost of power in Pakistan. The country faces 7,000 MW power deficits. This turns out to be 31 per cent of the total annual demand. The decision of the International Court of Arbitration (ICA) at The Hague in February 2013 is likely to hurt its 980 MW Neelum-Jhelum Hydro-Power Project being set up in occupied Kashmir, as the ICA allowed India to divert water from the Kishanganga river (called Neelum in Pakistan) to its 330 MW Kishanganga Hydro-Electric Project on the Jhelum river basin in Kashmir. Given Pakistan's internal energy situation, the total 1200 MW power imports from India will be acute and cannot simply be replaced by other sources. In this way, Pakistan will be more dependent on India for its electricity needs. The country imports 35 MW of power from Iran, and is considering to import another 1000 MW from Tajikistan by 2016. In recent times, China has agreed to invest US$20 billion in Pakistan's energy infrastructure, and in return, it will take ownership of coal plants.
Pakistan has also been negotiating the import of 200 million cubic feet (MCF) Liquefied Natural Gas (LNG) per day from India. The latter proposed to lay 110-km pipeline from Jalandhar to the Wagah border via Amritsar. LNG will be imported through ports in Gujarat and moved through the Gas Authority of India Limited (GAIL)'s existing pipeline network up to Jalandhar. The cost of LNG imports to India is US$ 13.5 per million british thermal units (mbtu). After including the customs duty, transportation charges and local taxes, the delivery price works out close to US$ 21 per mbtu. Pakistan wants India to exempt LNG from taxes so that the delivery price does not exceed US$16 mbtu. India is likely to waive the duty on the proposed export. However, in case of sudden termination of the contract, GAIL has sought letters of credit from Pakistan for US$ 415 million to cover the estimated value of LNG supply for three months and a bank guarantee for $100 million. It will be a win-win situation for both countries to do gas trade, as India will earn a significant profit and Pakistan will get the commodity at lower prices as compared to the international import price of US$ 19 per mbtu. Moreover, the existing gas reserves in Pakistan are expected to last only 18 years.
This gas deal will be a test case for the feasibility of the Turkmenistan-Afghanistan- Pakistan-India (TAPI) natural gas pipeline, which is being developed under the guidance of the Asian Development Bank and expected to be completed by 2017. The inter-governmental agreement on this pipeline was signed on December 11, 2010, in Ashgabat (Turkmenistan). This pipeline will transport Caspian Sea natural gas from Turkmenistan through Afghanistan into Pakistan and then to India, covering a distance of 1680 km. It is being constructed via Herat-Kandahar (Afghanistan)-Quetta-Multan (Pakistan) to Fazilka, Punjab (India). The estimated cost of this project is US$ 7.6 billion. Its capacity will be 90 million standard cubic meters per day (mcmd) of natural gas, of which 14 mcmd will be provided to Afghanistan and 38 mcmd to each Pakistan and India. India will pay a transit fee of US$ 0.5 per mbtu each to Afghanistan and Pakistan, and the delivery price will be around US$ 13 per mbtu. Unlike the Iran-Pakistan-India pipeline project signed in 1995, from which India backed out in 2007 under US pressure, the TAPI is supported by the US.
Pakistan also signed an MOU with the Indian firm Universal Biomass Energy on December 27, 2013, to set up a 15 MW biomass power plant within two years in Pakistani Punjab. The energy generated by it would be linked with a 132-KVA supply line.
Cross-border energy trade can lead to effective utilisation of natural resources. It will act as the single most effective confidence-building measure between India and Pakistan. During the post-SAFTA period (2006 onwards), the two countries have accelerated the process of mutual trade and gained due to their geographical proximity and contiguity of territories, which helped them in saving the transportation and transshipment costs. Their bilateral trade in goods increased from US$ 0.8 billion in 2005 to US$ 2.6 billion in 2013. The Wagah border is very important for exploiting the mutual trade potential, and accounts for more than one-third of the total trade.
The writer is the Professor-cum-Programme Coordinator (South & Central Asia), Centre for Research in Rural & Industrial Development (CRRID), Chandigarh
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