CONTEXT  

• India has released new rules governing the trade of electricity across its borders. They define the contours of the South Asian electricity market, placing clear limits on who can buy from and sell into India.
• The new rules show that India’s approach is unmistakably political.
• It attempts to balance China’s growing influence in the region with developmental aims.

RULES ON OWNERSHIP

• The ownership of power plants wishing to sell to India is of central importance.
• The rules strongly discourage the participation of plants owned by a company situated in “a third country with whom India shares a land border” and “does not have a bilateral agreement on power sector cooperation with India”.
• The rules place the same security restrictions on tripartite trade, say from Bhutan to Bangladesh through Indian territory.
• To make things even more airtight, the rules establish elaborate surveillance procedures to detect changes in the ownership patterns of entities trading with India.

IMPLICATIONS

• With new rules, it seems South Asia’s electricity politics has hit a holding pattern after several years of unpredictability.
• This has ramifications for the electricity markets of Bangladesh, Bhutan, and Nepal, which, to varying degrees, have aligned their energy futures with the Indian market.
• Chinese companies hoping to establish plants in Nepal, Bhutan, or Bangladesh will presumably have a hard time making good on their investments with the Indian market cut off.

NEED FOR NEW RULES

• In the months after the present government came to power in 2014, India used the framework of the South Asian Association for Regional Cooperation (SAARC) to make historical moves towards liberalising electricity trade.
• China soon began to make its presence felt in the region, and India responded by walking back its free-market impulses.
• It imposed stringent restrictions that dissuaded everyone other than Indian and government entities from participating. This in return, threatened to undermine private sector participation and promising joint ventures across the region.
• Later in 2018, after Nepal and Bhutan protested for years, lead the way to new guidelines that tried to find a middle ground.
• The new rules formalise that balancing act. They allow private sector participation but exclude Chinese investments.

INDIA’S ADVANTAGE

• The institutional structure that has emerged through this churn over the last decade is India-centric. As the Government of India, through ministries, regulators, planning bodies and utilities, determines the rules of the road.
• India’s geographic centrality combines with its economic heft to give it a natural advantage in determining the shape of the market, as all electrons must pass through it and most electrons will be bought by it.
• Therefore, the prospect of an independent regional body governing trade is unlikely to happen. 
• India will thus enjoy pre-eminent rule-setting powers, but continually attract the anger of its smaller neighbours who feel their economic growth is being stunted by decisions in Delhi.

COUNTERING CHINA

• The first battle in Southeast Asia will be where China presently holds sway.
• A considered, stable institutional model will likely surpass anything China has to offer.
• It is worth considering releasing the very firm hold on South Asia, aimed at countering China. It can be done by creating a rule-based regional institution that can counter Chinese offerings in other theatres.

INDIA’S AMBITIONS FOR- ONE SUN, ONE WORLD, ONE GRID

• India is ambitious for anchoring a global super-grid called One Sun One World One Grid, or OSOWOG, which needs an institutional vision.
• It aims to begin with connections to West Asia and Southeast Asia and then spread to Africa and beyond.
• The logic underpinning OSOWOG is sound.
• Multi-country grids will allow to balance the unpredictable outputs from renewable energy plants, thus avoiding expensive country-specific balancing technologies such as hydropower and gas plants.

CHALLENGES

• The new rules provoke some larger questions that must be tackled soon.
• But an ad hoc design makes the Indian project less attractive to countries looking to sign up to a power trading project.

WAY FORWARD

• India needs to learn the lessons contained in the latest rules that- the political realities will constantly collide with, and damage, expansive visions of borderless trade.
• Therefore an impartial institution for planning, investments and conflict resolution are crucial to multi-country power pools.

Managing the needs of three relatively small neighbouring economies in South Asia has consumed large amounts of time and political capital for the better part of a decade. Papering over the cracks of a power pool of a dozen countries or more will be much harder.

Reference:

1. https://www.thehindu.com/opinion/lead/the-surge-of-geopolitics-in-south-asias-power-trade/article34144319.ece