Financing Southeast Asia's Economic Development

Appendix 2. Financing Electricity and Gas Supply in Southeast Asia: The Role of Intergovernmental Co-operation

349 Appendix 2© 2003 Institute of Southeast Asian Studies, Singapore Introduction If the countries of Southeast Asia are to prosper, and further raise the living standards of their peoples, then there will need to be a very large, if not massive, increase in electricity supply. The expansion of power supply raises the question of fuel choice, and the extent to which individual countries will be able to rely on their own resources. Natural gas is an attractive choice, given the region’s generous endowment of this resource, and the less damaging environment impact of gas combustion when compared with coal. The scale of future power and associated fuel needs, and its Appendix 2 FinancingElectricityandGasSupply inSoutheastAsia:TheRoleof IntergovernmentalCo-operation ANDREW SYMON Reproduced from Financing Southeast Asia’s Economic Development, edited by Nick J. Freeman (Singapore: Institute of Southeast Asian Studies, 2003). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at Andrew Symon 350© 2003 Institute of Southeast Asian Studies, Singapore implications for finance, make it imperative that governments in Southeast Asia co-operate as far as possible, so that demand can be met as efficiently as possible. The geographical distribution of gas and other primary energy reserves in the region is uneven. So is the electricity and gas supply infrastructure. Some countries or areas may have a surplus, while nearby regions are hungry for energy. There is clear potential for extensive cross-border electricity and gas trade. Even where a country may have abundant electricity capacity and gas, distant parts of the country might be served more cheaply by imported supply from immediate neighbours. Efficient development should also minimize environmental costs. Inter-governmental co-operation is necessary if governments wish to promote the use of natural gas as the main fuel for power generation. Fuller use of natural gas will require more cross-border pipelines. But bringing gas to market is not a simple task, given its high capital costs and the regulatory issues associated with cross-border gas supply. An obstacle to the development of cross-border gas and power transmission is government concerns over the security of supply. Governments are cautious about relying on energy supplies that can be easily interrupted. There may therefore be merits in an ASEAN Energy Treaty, whereby governments make legally binding commitments to common principles supporting the regional transit of gas and power.This would give comfort both to governments and investors that there would not be arbitrary interference with energy transit. Power Demand Outlook To realize the scale of this region’s potential power demand, it is useful to compare Southeast Asia with Western Europe. This comparison also serves to introduce the idea of a co-operative approach among governments to achieve their energy goals. Both Southeast Asia and Western Europe are made up of different sovereign states, which cover a coherent geographical area. Economic co-operation, including co-operation in the energy sector, is pursued in both regions. Europe, through the fifteenmember European Union (EU), 1 now has well-established political institutions and legal frameworks for economic co-operation. These are less advanced in the Southeast Asian region. But progress nevertheless is 351 Appendix 2© 2003 Institute of Southeast Asian Studies, Singapore being made in developing and implementing regional and sub-regional approaches, through the Association of Southeast Asian Nations (ASEAN) 2 and the Asian Development Bank (ADB)–assisted Greater Mekong Sub-Region programme (GMS). 3 There would seem a substantial possibility for deepening this work through energy sector co-operation. The ten countries of Southeast Asia occupy a landmass of four million square kilometres, have a total population of roughly 525 million, and an average annual per capita income of less than US$900. The fifteenmember EU occupies a land mass of 2.5 million square kilometres, has a population of around 300 million, and an average per capita income over twenty times greater, at US$22,000. Differences in the two regions’ economic development are underlined by the levels of electricity and gas infrastructure. Southeast Asia has an installed generation capacity of approximately 90 gigawatts (GW), or 90,000 megawatts (MW). In 2001, gross electricity production was 750 kWh per capita, and total regional output was 2.5 per cent of world output. More than 190 million...