Written evidence submitted by Dr Lawrence
Sáez, London School of Economics
THE UNITED KINGDOM, THE EUROPEAN UNION AND
SOUTH ASIA'S ENERGY SECURITY
INTRODUCTION
Although facing common developmental obstacles,
South Asia is one of the most dynamic economic areas of the world.
Rates of economic growth—measured as percentage change in
gross domestic product (GDP) at market prices—in the four
major countries of South Asia (India, Pakistan, Bangladesh, and
Sri Lanka) all exceeded 5.5% in 2005. Growth in South Asia has
been sustained with two key sources of real expenditure growth,
namely private consumption and fixed investment. Likewise, in
addition to increases in economic growth, South Asia's developmental
panorama has improved markedly. Although the economies of South
Asia are predominantly low-income, human development indicators
have also improved impressively. With an adult literacy rate of
90.4%, Sri Lanka has a Human Development Index (HDI) value of
.751, the highest in South Asia. India had a score of .602, equivalent
to a middle-income country like Bolivia. Three other South Asian
nations (Pakistan, Nepal, and Bangladesh), had a nearly identical
of .527, .526, and .520 respectively, low by international standards,
but fast improving over the last decade.
The economic gains in South Asia have been offset
by numerous developmental challenges. They include an overall
weak physical infrastructure (roads, ports, etc) and wide divergence
in the delivery of social infrastructure (health, education, etc).
Whilst these challenges have not scuttled the prospects for sustained
economic development in the region, they could jeopardise potential
sustainability in economic growth and human development. Taking
into account South Asia's current developmental challenges—but
future economic prospects—the European Union, in general,
and the United Kingdom, in particular, have began to engage with
South Asia on the basis of a strategic partnership.
The level of engagement has taken many forms,
it has emphasised a broad array of economic, political, cultural,
and military dimensions. To date, the major evidence for a shared
partnership between Britain and the Indian subcontinent includes
the India-UK Joint Declaration. At an European level, the EU has
just finalised the seventh round of the EU-India summit. Although
the scope of bilateral relations with South Asian countries, other
than India, are at a formative stage, the EU has repeatedly expressed
its interest in building its links with the South Asia Regional
Cooperation (SAARC). What is certain is that the United Kingdom
and the European Union would benefit from further engaging with
South Asia in a more systematic manner.
This report will outline the roles that the
United Kingdom and the European Union ought to take in order to
best engage with South Asia. The emphasis of this report will
be on collaborative engagement in the field of development, more
concretely on how the United Kingdom and the European Union can
most optimally assist South Asia. For reasons of space, the focus
of this report will be narrowed to an examination of developmental
collaboration, particularly in the energy field. This report will
argue that British and EU collaboration with South Asia on the
energy field will help South Asia meet its energy security requirements.
This level of engagement, where Britain and the EU help South
Asia move away from development assistance towards assisting development,
will be mutually reinforcing.
DEVELOPMENT FROM
BRITAIN AND
THE EU TO
SOUTH ASIA
Historically, the UK has been the leading provider
of development assistance and technical aid to South Asian nations.
India is the leading recipient of development assistance from
the UK. In 2005-06, development assistance to India reached £280
million. Other South Asian nations also were recipients of sizable
development assistance packages from the UK. For instance, Bangladesh
and Pakistan received £125 and £70 million respectively.
The UK is the second largest provider of development assistance
to Nepal, reaching £30 million in 2005-06.
The EU has also been a recent contributor to
development assistance to South Asia. As Table 1 shows, Bangladesh,
India, and Pakistan are the leading recipients of development
assistance from the EU.
Table 1
TOTAL DEVELOPMENT ASSISTANCE FROM THE EU
TO SOUTH ASIA (2002-06)
|
| Recipient country | Amount (€ millions)
| Primary purpose |
|
| Bangladesh | 411
| Health, education, food security, and rural development.
|
| India | 225
| Health, education, and economic cooperation.
|
| Pakistan | 165
| Health, education, and economic cooperation.
|
| Nepal | 70
| Poverty alleviation. |
| Sri Lanka | 61.3
| Rural development and post-tsunami relief.
|
| Bhutan | 15
| Rural development and poverty alleviation.
|
| Total | 947.3
| |
|
Source: European Parliament.
As Table 1 shows the development assistance patterns have
shifted away from development assistance guided by concerns for
rural development and poverty alleviation and technical aid towards
development assistance in the form of technical assistance and
economic cooperation.
SOUTH ASIA'S
FUTURE DEVELOPMENTAL
CHALLENGES
Over the next 30 years, South Asia faces two critical challenges
that may alter its ability to sustain long-term economic growth.
These two challenges are population growth and growth in energy
demand needs.
Several facets of South Asia's population growth patterns
are worth considering. With an overall decline in child mortality
rates and an increase in life expectancy, India and Pakistan are
projected to have the first and fifth largest populations in the
world by 2030. As Graph 1 shows, India far outdistances its
neighbours in terms of projected population growth. According
to the medium variant population projections undertaken by the
United Nations' World Population Prospects, India will surpass
China as the most populous nation in the world by 2030. Likewise,
Pakistan's growth is noteworthy. Pakistan is projected to surpass
Brazil to become the fifth most populous country of the world
by 2025.
Graph 1
POPULATION GROWTH PROJECTIONS IN SELECTED SOUTH ASIAN
COUNTRIES (2000-30)
Source: United Nations.
The figures in Graph 1 suggest that the projected population
growth of India (using three projections, namely high, medium,
and low variants) suggests potentially unsustainable population
size. Likewise, with a projected medium variant growth, Pakistan
will nevertheless become one of the most populous nations in the
world. The impact of such levels of population growth on energy
consumption and economic growth are worth examining.
ENERGY OPTIONS
FOR THE
UNITED KINGDOM
AND THE
EU IN SOUTH
ASIA
South Asia's energy mix is highly dependant on oil imports.
Sharp increases in oil prices have a devastating effect on fiscal
stability. For instance, in 2004, India imported 1.94 million
barrels of petroleum a day. A year later, it imported 2.39 billion
barrels a day, a 23.4% increase from the previous year. Nevertheless
the fiscal impact from a sudden increase in oil prices has been
notable. In 2004-05, India spent $29.26 billion in crude oil and
petroleum products imports (nearly 4.4% of GDP), a year later
it spent $44.63 billion (over 5.7% of GDP).
South Asia has one of the world's lowest levels of known
oil reserves. For that reason, the domestic exploration and production
of petroleum is not likely to increase dramatically. India has
the largest known proven crude oil reserves of 5,919 million barrels.
Exploration and production in the country has resulted in an increase
in proven crude oil reserves of 6.4% since 2001. India's crude
oil production exceeded 651 thousand barrels a day in 2005. Nevertheless,
at present, India's total proven crude oil reserves constitute
0.51% of world total.
The portrait for the availability of natural gas reserves
in South Asia is also abysmal. India has proven natural gas reserves
of 1,101 billion standard cubic metres. Pakistan and Bangladesh
have proven natural gas reserves of 963 and 436 billion standard
cubic metres. The proven natural gas reserves from these three
South Asian countries constitutes 1.38% of the world's total proven
natural gas reserves.
As such, South Asia's closest source of crude oil and natural
gas is Iran. Iran has proven crude oil reserves of 27,580 billion
barrels and natural gas reserves of 136,270 billion standard cubic
metres. Likewise there has been a lot of interest in developing
a pipeline from Myanmar to India via Bangladesh. However, Myanmar
only has proven natural gas reserves of 500 billion standard cubic
metres.
Given the constraints posed by crude oil importation from
Iran, South Asia's energy demand needs are likely to be satisfied
from other sources. The likely options for South Asian countries
will be in one of the following energy generating sources:
The roles that the United Kingdom and the EU are likely to
play in South Asia will be examined from each of this energy generating
sources.
As is illustrated in Table 2, South Asia's indigenous energy
production is concentrated in thermal sources of energy. However,
as Table 2 shows, there is a wide variation in the region's energy
mix.
Table 2
SOUTH ASIA'S INDIGENOUS ENERGY PRODUCTION (SELECTED COUNTRIES,
2005)
|
| Source of energy | India
| Pakistan | Bangladesh
| Nepal |
|
| Thermal | 240,457 (51.5%)
| 29,588 (50.1%) | 9,544 (54.3%)
| 7 (0.08%) |
| Coal | 177,887 (38.1%)
| 2,052 (3.4%) | —
| 7 (0.08%) |
| Gas | 23,429 (5.1%)
| 3,486 (5.9%) | 9,345 (53.2%)
| — |
| Oil | 39,141 (8.3%)
| 24,050 (40.7%) | 102 (0.6%)
| — |
| Hydroelectric | 7,285 (1.5%)
| 2,208 (3.6%) | 97 (0.5%)
| 201 (2.5%) |
| Nuclear | 4,433 (0.9%)
| 728 (1.2%) | —
| — |
| Renewable | 214,375 (45.9%)
| 26,468 (44.8%) | 8,006 (45.6%)
| 7,858 (97.4%) |
| Geothermal solar | 323 (0.06%)
| — | —
| — |
| Total (100%) | 466,873 TTOE
| 58,993 TTOE | 17,549 TTOE
| 8,066 TTOE |
|
Source: International Energy Agency (2006). Figures
represent thousand tonnes of oil equivalent (TTOE). Figures in
parentheses represent percentages.
As Table 2 shows, there is wide inter-regional variation
as to the dominant source of indigenous energy production. India—the
largest economy in the region—has an installed energy capacity
heavily dominated by coal, which accounts for nearly 40% of its
domestically produced energy capacity. Aggregate thermal energy
production is also the largest source of indigenously produced
energy for Pakistan. However, it is worth noting that renewable
energy is the largest single source of domestically produced energy
for Pakistan. For Bangladesh, natural gas is the dominant source
of indigenously produced energy, however renewable energy also
amounts to a sizable component of the country's domestically produced
energy capacity. Finally, Nepal and Sri Lanka produces almost
all of its domestically produced energy in the form of renewable
energy.
Coal
Coal is the dominant source of installed energy capacity
in India. As Table 2 shows, it is less prevalent in other areas
of South Asia. India has large proven reserves of coal (92,445
million tonnes) Nearly 97.4% of India's coal reserves are in the
form of anthracite and bituminous coal, types of coal with a high
carbon content and comparatively low calorific content. Pakistan
also has substantial proven coal reserves, almost exclusively
in the form of sub-bituminous coal and lignite. The reliance on
coal to generate energy could have an adverse effect on global
warming.
In addition to the environmental effects, productivity of
coal mines in South Asia is low by international standards. For
instance, although nearly encompassing 10.2% of the world's total
proven reserves of coal, India only produces the equivalent of
6.9% of world's commercial coal production. The UK and the European
Union can assist India and Pakistan with increased levels of mechanisation
and improved mine design. Likewise, both the government of India
and Pakistan have expressed an interest in developing coal-related
sources of energy, such as coal-bed methane.
Hydroelectric power
Given its abundance of rivers, hydroelectric energy ought
to be a natural source of energy in South Asia. As can been seen
in Table 2, though, an insignificant portion of domestically produced
energy is accomplished through this energy generating method.
Nuclear power
Among South Asian countries only India and Pakistan are capable
of producing energy from nuclear sources. The amount indigenously
produced by these two countries is very small. Nevertheless, the
United States has taken a prominent role in facilitating the development
of nuclear energy for civilian purposes. Under the US-India nuclear
deal, India has agreed to separate its civilian and military nuclear
programmes over the next eight years in exchange for US expertise
and nuclear fuel. India has also agreed to allow its civilian
nuclear facilities to be subject to permanent international inspections.
Although expressing the shared interest in working towards
achieving the goals and objectives of universal disarmament and
non-proliferation of weapons of mass destruction and their means
of delivery, the India-EU Strategic Partnership Joint Action Plan
provides for bilateral collaboration in the area of nuclear energy.
Likewise, the India-UK Joint Declaration also includes a provision
for active collaboration between India and the UK in civilian
nuclear activity. According to Article 17 of the Joint Declaration,
the UK and India "agree to expand co-operation in the fields
of civilian nuclear activities, civilian space programmes, and
high technology trade, in accordance with their international
obligations".
Renewable energy
The domestic production of energy utilising renewable energy
sources is an important component of South Asia's indigenous energy
production. Renewable energy accounts for over 45% of indigenous
energy production in India, Pakistan, and Bangladesh. The domestic
production of energy using renewable energy sources accounts for
over 97% of total energy production in smaller South Asian countries
(eg, Nepal and Sri Lanka). Among South Asian nations, India has
taken a leading global role in renewable energy. At present, India
is one of the world leaders in wind power generation, ranking
fifth in the world (behind Germany, Spain, the USA, and Denmark)
in total installed wind power capacity. Moreover, India is a world
leader in the manufacturing of certain types of equipment for
the use of photovoltaic energy conversion. For instance, India
is the world's fifth largest manufacturer of silicon solar modules.
EU and UK collaboration on the renewable energy field, once
again, have been enshrined vis-a"-vis India in the Joint
Action Plan and the Joint Declaration respectively. For instance,
the Joint Action Plan led to the setting up of an India-EU Energy
Panel with the purpose of coordinating joint efforts and to discuss
energy related matters of mutual interest. Based on the recommendation
of the Joint Action Plan, the Energy Panel set up Working Groups
in the areas of energy efficiency and renewable energies as well
as coal and clean coal conversion technologies. The EU and India
have pledged further collaboration in "promoting energy efficiency
and energy conservation", in the "development of affordable
clean energy technologies", and in the "identification
of new technologies in the field of new, renewable, conventional
and non-conventional energy sources". Likewise, the Joint
Declaration subsumes a discussion about joint collaboration of
alternative and clean technologies within the framework of science
and technology collaboration. However, potential collaborative
assistance that UK firms may be able to provide in the areas of
renewable energy technology, particularly in the manufacture of
wind turbines, offshore wind farms, and wave technology is rather
underdeveloped at present.
CONCLUSION
The roles that the United Kingdom and the European Union
will take in South Asia will be defined by issues of mutual interest.
This report has argued that one critical issue for the sustainability
of South Asia development will be the security of its energy needs.
The governments of South Asia face an imminent energy crunch and
has the principal debate on how to alleviate this gap is via the
alteration of their energy mix, either by further increasing oil
imports or by moving towards the provision of energy through nuclear
technology. As has been emphasized in this report, the security
of supply, sustainability, and competitiveness are likely to be
the key drivers of South Asia-UK and South Asia-EU energy cooperation.
As has been shown in this report, the United Kingdom and
the European Union can play a decisive role in assisting South
Asian countries achieve energy security. This report recommends
that the following suggestions be considered to facilitate this
collaboration:
Firstly, it is clear that South Asia, but particularly India
and Pakistan, will face developmental and economic challenges
as a result of burgeoning populations. The UK and the EU ought
to further collaborate with the region in order to further reduce
infant mortality and to assist South Asia in primary school teaching.
Both of these measures would have a favourable impact in reducing
population growth.
Secondly, India and Pakistan's potential reliance on coal
to generate electricity could have severe damaging effects on
global warming. For this reason, the UK and the EU ought to collaborate
with India and Pakistan in developing carbon sequestration mechanisms
and other clean technologies, including nuclear energy.
Thirdly, South Asia also imports substantial amounts of crude
oil, petroleum products, and natural gas. Nevertheless, alternative
sources of energy generation, such as a hydroelectric power and
nuclear energy have not been developed in South Asia. At present,
both the UK and the EU are losing ground to the United States
in reaching agreements with key South Asian nations for the development
of nuclear technology for civilian purposes. This trend ought
to be reversed.
Finally, the countries of South Asia generate a great deal
of indigenously produced energy in the form of renewable energy,
mostly in the form of wind generation and solar photovoltaic energy
generation. Nevertheless, several potential sources of renewable
energy are underdeveloped. The UK and the EU could collaborate
with South Asia in the development of tidal power generation and
bioenergy.
Dr Lawrence Sáez
London School of Economics
10 November 2006
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