The Union Ministry of Power issued a memo that set the rules for the flow of electricity across South Asian borders.
The new electricity guidelines are seen as a first step towards creating a true regional market.
How has energy cooperation been?
In the early 2000s, India tried with the SAARC countries for cross-border energy flows.
It began to gain steam with substantial power trade agreements between India and Bhutan (2006) and Bangladesh (2010).
These were driven by India’s need for affordable power to fuel quickened growth in a recently liberalised economy.
What happened thereafter?
The SAARC Framework Agreement for Energy Cooperation and the India-Nepal Power Trade Agreement were signed in 2014.
These agreements imposed only few restrictions on trade.
But it formulated an institutional structure to allow private sector participation and to facilitate market rationality in electricity commerce.
The new government aimed for a seamless SAARC power grid, for power transmission within SAARC countries.
E.g. offshore wind projects set up in Sri Lanka’s coastal borders to power Pakistan or Nepal
But later, in 2016, the Union Ministry of Power released certain guidelines.
It imposed a slew of major restrictions on who could engage in cross-border electricity trade.
They seemed to be a reaction to perceptions of increased Chinese investment and influence in the energy sectors of South Asian neighbours.
What were the concerns in 2016 guidelines?
The guidelines prevented anyone other than Indian generators in the neighbouring country from selling power to India.
So, many privately held companies, particularly in Nepal, that had hoped to trade with India were excluded.
In restricting access to the vast Indian market, the economic rationale for Nepali hydropower built for export was lost.
The requirement that the exporting generation companies to be majority owned by an Indian entity worried Bhutan.
This created friction in joint ventures between India and Bhutan.
Bhutan was also concerned about the limited access to India’s main electricity spot markets.
Here, Bhutan could have been well placed to profit from evening peaks in demand.
Bangladesh sensed an opportunity to partially address its power crisis with imports from Bhutan and Nepal routed through Indian territory.
But the guidelines complicated this by giving India disproportionate control over such trade.
How are the new guidelines?
Liberal - A liberal trading regime is in India’s national interest.
So the new guidelines resolve the above issues and make the governance of electricity trade less restrictive.
The concern that India was enabling the incursion of foreign influence into neighbouring power sectors was addressed.
India now recognises that economic interdependency created by such arrangements have the political benefit of positioning India as a stable development partner.
Greener grid - As India transitions to a power grid dominated by renewables, regional trade could prove useful in maintaining grid stability.
A wider pool of generation sources, particularly hydropower from the Himalayas, is instrumental for a greener grid.
Nepal and Bhutan have also, for long, recognised the potential of sustainable use of vast hydropower reserves for their prosperity.
What is the significance?
The new guidelines could create a true regional market and lead South Asian electricity trade in progressive directions.
Generators across the subcontinent could now compete to deliver low-cost, green energy to consumers.
The new guidelines also, for the first time, allow tripartite trading arrangements.
Power generated in a country is routed over the territory of a neighbour to be consumed in a third.
Since this would soften the hard borders of South Asia, it is essentially a political vision too.
This is a crucial move towards the evolution of complex, multi-country market arrangements.
Such markets require the construction of regional institutions that absorb the politics and manage the technicalities of electricity trade.
Going ahead, South Asian nations might have to build joint, independent regional institutions that offer clear and stable rules.
In an atmosphere of regional mistrust, the new rules are a rare and recent example of political pragmatism.
