Legal and Regulatory Issues Promoting Cross Border Energy Trade in South Asia

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1 Legal and Regulatory Issues Promoting Cross Border Energy Trade in South Asia Dr. Salim Mahmud Member, Bangladesh Energy Regulatory Commission 1

2 Why cross border energy trade? Continued power shortages hamper growth prospects. Seven of the eight South Asian countries face a persistent energy shortage and outages that account for a loss of more than 2 percent of GDP Regional decision makers now recognize that they lag behind in energy integration. South Asian Association for Regional Cooperation (SAARC) countries in the 13th summit agreed on the energy ring concept. Energy Diversification is a key driver. Several countries are spending more than 10% of their forex spend on fossil fuel imports. This makes a combined, diversified regional approach to resource use critical to energy security. Economies of scale. In Western Europe close to 10% of the cost of production of electricity is saved by regional interconnections. Regional complementarity. South Asia is endowed with diverse energy resources with different countries possessing complementary resource to others. Seasonal Imbalances. 2

3 Cross Border Trade- The Beginning and Development USA-Canada Interconnection 1901 Germany-Austria Interconnection 1929 European Single Market- Florence and Madrid Forums- Balancing three dominant models Common electricity market in USA and Canada- the recent moves in the US and Canada towards the establishment of a common electricity market, mainly led by PJM Interconnection LLC and the Midwest Interconnection Transmission System Operator Inc. 3

4 Challenges of Cross Border Energy Trade in South Asia Security of Supply Transit Issue Inter-State Cooperation 4

5 Legal Issues for Facilitating Cross Border Power Trade -Intergovernmental Treaty -Comprehensive Legal Regime -A Secure and Stable Legal Framework for Private Investment -Supportive Policy Framework -Supportive List of Regulations -Long term contracts at the beginning 5

6 Creating an Effective Regulatory Regime Establishment of an Independent Regulatory Authority Independence Neutrality Quasi-Judicial Authority Basic Features of an Ideal Regulatory Regime : -Legal mandate for Liberalization of the Sector -Separation of Regulatory Issues from Policy Issues -Supremacy of the Reforming Law -Decisions through Public Participation -Dispute Settlement through ADR 6

7 Issues of Protection of Investment Legal Contractual Regulatory 7

8 Need for a Regional Legal Framework Energy Charter Treaty 1994 (ECT) - A Model Legal Framework for Cross Border Energy Trade The ECT s 4 areas of focus Protection of Foreign Energy Investments Free Trade In Energy Materials, Energy Products and Energy- Related Equipment Energy Transit Dispute Resolution through Arbitration Why South Asia should join ECT or develop a legal framework similar to ECT? 8

9 Move Towards Regional Regulation These regional and other international initiatives have resulted in the formation of various regulatory organizations such as: the APEC Energy Regulators Forum the Council of European Energy Regulators (CEER) in Europe the Energy Regulators Regional Association (ERRA) in countries of Central and Eastern Europe and the newly independent states of Eurasia the Ibero-American Association of Electricity Regulators (ARIAE) in Latin America, Spain and Portugal the National Association of Regulatory Utility Commissioners (NARUC) in the US the Canadian Association of Members of Public Utility Tribunals (CAMPUT) the Utility Regulators Forum (URF) in Australia and the Regional Electricity Regulatory Authority (RERA) in Southern Africa. 9

10 Need for a Regional Regulatory Authority or Forum of Regulatory Authorities 10

11 Harmonizing Legal, Policy and Regulatory Frameworks Licencing Tariff setting Wheeling Access to Networks Market monitoring Enforcement of codes and standards Dispute resolution 11

12 Issues to be Examined Legal Mechanism v. Market Mechanism Zero Sum Game v. Win-Win Situation: Markets at the End of the Grid v. Markets along the Grid Route Geopolitics v. Geo-economics: Role of Cross Border Power and Gas Trade against Geopolitics Energy Independence v. Energy Inter-dependence 12

13 Thank you all 13