Thursday, December 24, 2015

Business 360-32, Energy independence in Asia

* This is my article in Business 360 magazine in Kathmandu, Nepal, December 2015 issue.

Energy Independence in Asia

Energy independence is a virtue that a country must pursue. And this independence can mean two things. One, independence from only one major energy source because if that resource would experience a major price hike or supply disruption, the economy can be endangered. And two, independence from only one major country supplier because if there is any political or economic tension and instability in that country, energy supply to the home country can also be endangered.

Here is a review of electricity production per country and what energy sources they come from.

Laos has14.9 bill. kWh production in 2014, but no data on distribution of energy sources. Brunei produced 3.9 bill. kWh in 2012, 99% of it from natural gas. And Cambodia produced 1.4 bill. kWh in 2012, 60% from oil, 36% from hydro.

Nepal has high dependence on hydro power. While this is a good thing as Nepal has lots of rivers and lakes, big and small, this can be dangerous too during severe winter and frozen water stays longer in the mountains, meaning longer power supply disruption.

Mongolia has high dependence on coal and this can produce some dangers in the future if the price of coal shoots up very high, although currently, coal prices remain low and stable. Brunei too has high dependence on natural gas, but this might be an exception to the risks mentioned above because Brunei is a major natural gas producer and exporter in Asia.

When I was in Nepal for one week in January 2015, the lack of electricity was among the most prominent issues that I observed. Many road intersections have no stoplights, all hotels have generator sets, many streets are dark at night, and so on.

In previous papers in this magazine over the past two years, this column has advocated the need to liberalize and deregulate the energy sector in Nepal and other countries in Asia. In particular:

Prioritize the liberalization and deregulation of the power generation sector, encourage more hydro power companies, big and  small, to come and build more dams, or expand power capacity in existing dams.

Second, allow other indigenous energy production like coal power if there is sufficient amount of coal that can be mined and extracted within Nepal.

Third, facilitate more power imports from India especially that India is building more coal plants now. Coal is generally cheap and supply from abroad is stable. This means the construction of more transmission lines and facilities from India to Nepal.

Fourth, deregulate power rates. Let those who can afford to pay higher electricity rates in exchange for more stable supply do so, whether imported from India or locally produced. This has been happening actually for many years now as the richer residential areas and big commercial centers have their own generator sets. Their willingness to pay higher rates in exchange for stable electricity supply is already there. Power rate deregulation will encourage faster construction of more power generation plants and transmission lines.

Fifth, privatize some power plants that produce more losses than revenues for the government, sell to private power companies in a competitive bidding. Privatization of course should be coupled with industry deregulation, to encourage competition among more players.

And finally, reduce the number of permits, bureaucracies, taxes and fees for companies putting up new power generation plants and transmission lines.  Invite and call in more power generation companies, more suppliers of large engines and turbines from many countries to enter Nepal.

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