By Septia Buntara Supendi, Aloysius Damar Pranadi, Nadhilah ShaniTuesday, 31 Oct 2017
As part of the efforts to enhance the energy connectivity in the region, ASEAN has shown a strong commitment through the establishment of ASEAN Plan of Action for Energy Cooperation (APAEC) 2016-2025 which addresses seven programme areas, including ASEAN Power Grid (APG) and Trans-ASEAN Gas Pipeline (TAGP). In accordance with the APAEC, ASEAN has set strategies to initiate multilateral electricity trade—at least one sub-region by 2018—in the area of APG. The region also aims to become more connected for the purpose of energy security and accessibility via pipelines and regasification terminals through TAGP. In accomplishing these programmes and realising its goals, there might be several challenges encountered by ASEAN. This article will propose several possible solutions to overcome the identified challenges.
TAGP is being constructed on a step-by-step approach based on bilateral interconnections, evolving towards a more integrated cross-border gas and liquefied natural gas (LNG) connections through pipelines, regasification terminals, and petroleum security agreement to enhance the energy security of the region. Apart from enhancing connectivity for energy security, the programme is targeted to minimise the environmental impact of CO2 and other environmental contaminants on gas field development and utilisation. Currently, there are 3,673 kilometres of existing pipelines that connect six ASEAN Member States (AMS) and six LNG regasification terminals with a total capacity of 22.5 million tonnes per annum (MTPA). In compliance with the programme, there were two additional regasification terminals established in 2016 followed with the legal aspect study of ASEAN LNG Flexible Destination Contracts to develop more stable LNG market.
The major challenges in the implementation of TAGP are the financial and legal frameworks issues. The physical pipelines need intensive financial expenditure from the AMS. The development of LNG facilities will be more effective than conventional pipelines. However, an LNG project will have a large initial capital requirement. The legal and administrative issue is another big challenge for ASEAN. The cross-border pipelines need a long negotiation process to meet the bilateral requirements.
Meanwhile, in APG Programme, as of May 2017, ASEAN has achieved grid interconnection of 5,212 MW from only 3,489 MW in 2015 in the entire region. The additional APG interconnection was reported around 1,723 megawatts (MW) from only 3,489 MW in 2015. For the multilateral electricity trading, Lao PDR-Thailand-Malaysia (LTM) have signed the Cross-Border Power and Transmission Agreement at the 35th ASEAN Ministers on Energy Meeting in Manila, the Philippines, in September 2017. The first power trade in the LTM interconnection will be started on 1 January 2018.
Despite these achievements, ASEAN still needs to overcome some regulatory and commercialisation issues on regional power cooperation. The regulatory issues on regional power purchasing consist of the different licensing regimes, the absence of free flow of funds, and the Absence of Double Taxation Agreements (DTAs) within the AMS. Moreover, confidentiality is another concern in which access to national-level information, contracts and other documents still need to be resolved among many stakeholders in the project. Technical problems such as monitoring to solve the absence of the provisions on sale and purchase of electricity and the legal standards for cross-border power trading also exist. For commercialisation issues, some AMS may have some anti-competition acts or market structures and there is no access to the transmission line for the third party. The absence of interest from investors, cost recovery and guarantee framework for regional power cooperation also become the main hindrance of the APG progress.
Similar to APG, the AMS need strong financial support from other institutions to realise TAGP and achieve their gas connectivity and accessibility target in 2025. One way to fund the projects is by having the funding institution to work together in providing the resources. The funding collaboration could help encourage the creation of common regional technical harmonisation of ASEAN interconnection. The long-range gas transportation challenges could be addressed by the LNG shipment. In this situation, ASEAN needs to deep dive into its market study through more practical, legal, and cross-border frameworks. Lastly, enhancing regional commitment from all AMS to update the existing gas database is important to achieve the TAGP goals.
To accelerate APG progress, it is very important to focus on the harmonisation of intra-region policies, as well as to establish a standardised power purchasing license along with legal standards and code, to create a clear pathway in cross-border investment, and to formulate a tax framework for power purchase. For APG commercialisation, the establishment of project guarantee, attractive interest and cost recovery model for regional power trades will trigger a competitive market sector which could resolve financial challenges of APG.
As a recommendation, solving the legal and technical frameworks issues and creating a firm investment scheme shall accelerate the APG and TAGP achievements. The successful implementation of APG and TAGP will increase the electrification ratio, ensure the stability of gas supply, and lead ASEAN towards an integrated energy market system which provides benefit to all Member States.
Featured photo credit: Pixabay.