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February 16, 2012
United States Energy Association
New Delhi, India
South Asia Regional Conference on Policies and Regulations to Increase Cross Border Energy Trade
Best Practices in Cross Border Trade in Central Asia
Mary Louise Vitelli, Esq.
Vitelli & Associates
Best Practices in Cross Border Trade in Central Asia
1. Overview of Cross Border Exchange and Trading Arrangements in Central Asia 2. Regional Energy Projects i. Afghanistan: Where Asia Meets ii. Central Asia/South Asia (CASA) iii. Turkmenistan-Afghanistan-Pakistan-India (TAPI) Natural Gas Pipeline iv. Resource Corridor
3. Governance of Cross-Border Exchanges
4. Issues and Challenges
5. Concluding Observations
2
Best Practices in Cross Border Trade in Central Asia
1. Overview of Cross Border Exchanges and Trading Arrangements in Central Asia
Best Practices in Cross Border Trade in Central Asia
Best Practices in Cross Border Trade in Central Asia
Overview of Cross Border Exchanges and Trading Arrangements in Central/South Asia
Central Asia Countries Kazakhstan
Kyrgyz Republic Tajikistan
Turkmenistan Uzbekistan
Central Asian Republics Possesses Significant Energy Resources
Source: Asian Development Bank 6
Best Practices in Cross Border Trade in Central Asia
Total Fossil Fuel MTOE
Coal MTOE
Gas MTOE
Crude Oil MTOE
Legend
Hydro Potential TWh/year
24,100
16,000
5,400
2,700
27
Kazakhstan
82
1,674
2,851
4,607
Uzbekistan
15
2,678
0
68
2,610
2 Turkmenistan
The Kyrgyz
Republic
Tajikistan
317
5
2
507
514
163
5
5
580
590
Best Practices in Cross Border Trade in Central Asia
Overview of Cross Border Exchanges and Trading Arrangements in
Central Asia
Overview 1. Most abundant natural resource in Central Asia is
energy resources 2. Legacy of Soviet-era power grid infrastructure 3. 232 tcf proven gas (comparable to Saudi Arabia) 4. 17-50 billion barrels oil (comparable to Qatar) 5. 50,000MW + hydro potential 6. Tremendous energy shortages 7. Central Asia bridges Europe and all parts of Asia:
potential to be the Center of Regional Energy Trade
Central Asia and its Neighboring Electricity Export Markets
Source: Asian Development Bank 8
Best Practices in Cross Border Trade in Central Asia
Overview of Cross Border Exchanges and Trading Arrangements in Central/South Asia
Overview
Kazakhstan: 10th world coal reserves 100 tcf natural gas
9-40 billion barrels oil
Kyrgyz Republic: Massive hydro reserves; untapped coal; small population (6 mil)
Tajikistan: Massive hydro reserves; significant coal
Turkmenistan: Massive oil and gas reserves; 40% exported
Uzbekistan: Oil, gas and hydro; Tashkent Dispatch Center
Best Practices in Cross Border Trade in Central Asia
Overview of Cross Border Exchanges and Trading Arrangements in Central/South Asia
Issues 1. Unified Energy System: Legacy infrastructure 2. Collapse of existing bilateral energy relations 3. Kyrygz-Uzbek Gas and Power Exchanges 4. Uncertain commitment of Turkmenistan Gas Sales 5. Water Use Issues: Notably Uzbek-Tajik Water Use 6. How and where to focus development and the
market: e.g., Europe, Russia, China, South Asia
Best Practices in Cross Border Trade in Central Asia
2. Regional Energy Projects
Best Practices in Cross Border Trade in Central Asia
i. Afghanistan: Where Asia Meets
Illustrative Power Investments
Source: Inter-ministerial Commission on Energy 13
Best Practices in Cross Border Trade in Central Asia
Issues challenging Afghan Power
1. Cross-border Power Agreements
2. Cost of Power
3. Infrastructure and Finance
4. Development strategy (NEPS, SEPS, generation)
5. Operations and Maintenance
Best Practices in Cross Border Trade in Central Asia
ii. Central Asia/South Asia (CASA) Overview
Best Practices in Cross Border Trade in Central Asia
CASA Overview
1. 1300 MW linking Central and South Asia
2. Hydropower Generation (for now)
3. Kyrygz Republic/Tajikistan Supply
4. Afghanistan (300MW)/Pakistan (1000 MW)
5. CASA Secretariat based in Kabul
6. Multi-Country Working Group: Technical, Legal, Financial
7. World Bank support
Best Practices in Cross Border Trade in Central Asia
CASA Specifics
1. Sangtuda I (670MW) and Ragun (3600MW) – Tajikistan proposed Generation • Vaksh and Talimarjin could also be used
2. Toktogol HPP Cascade – Kyrgyz Republic (1200MW today)
3. Summer excess beyond 11,000Gwhr 4. Not dependent on Afghanistan “NEPS” and “SEPS” 5. Technical and Commercial Feasibility Studies
completed
Possible Transmission Links for Exports
Source: Asian Development Bank 18
Source: Asian Development Bank 19
CASAREM is a Set of Projects and Institutional Framework for Enabling this Trade
20
Northern Transmission Links Options
Regar
21
Regional Market Price-Cost Gaps Private Investor (AES) View
$15 to $45 per
MWh
$8 to $30 per
MWh $30 to $75 per
MWh
$65 to $120 per
MWh
$15 to $40 per
MWh
$10 to $40 per
MWh
$25 MWh to $350
MWh
Best Practices in Cross Border Trade in Central Asia
CASA Issues
1. Water: Hydropower generation/use issues 2. Domestic supply vs. Export sales 3. Long-term Stability of cross-border Power Sales
and Purchase Agreements 4. Cost of Power 5. Infrastructure and Finance 6. Operations and Maintenance
Best Practices in Cross Border Trade in Central Asia
iii. Turkmenistan-Afghanistan-Pakistan-India (TAPI) Natural Gas Pipeline
Project
Best Practices in Cross Border Trade in Central Asia
TAPI Overview 1. Projected cost: $7.6 billion
2. Project production: 32.7 billion cu m/yr
3. Project life: 30 years (1 trillion cubic meters) Afghanistan – 153.3 bcm Pakistan and India – 822,346 bcm
Best Practices in Cross Border Trade in Central Asia
TAPI Transit
1. Turkmenistan: Gas from South Osman Yulatin Fields (200 km) 2. Afghanistan: Heart, Farah, Lashka Ghar, Kandahar,
Spin Boldak (735 km) 3. Pakistan: Balochistan, Punjab (800 km) 4. India at Fazilka (Total pipeline 1735 km)
TAPI Natural Gas Pipeline Map
26
Fazilka
Osman Yulatin South Gas Field
Shiberghan Gas Field Mazar-e-Sharif
Turkmenistan Afghanistan Pakistan & India Gas Pipeline Project (TAPI)
Best Practices in Cross Border Trade in Central Asia
TAPI Implementation
Phase 1 Government Agreements – to date Phase 2 Head of Gov’t Agree -April 2011 Phase 3 Transaction Advisor – April 2013 Phase 4 Project Preparation & Financial Close
– April 2014 Phase 5 Construction & Commissioning –
October 2016
Best Practices in Cross Border Trade in Central Asia
TAPI Status 1. December 11, 2010 – Inter-Gov’t Agreement Gas Purchase Framework 2. April 2012 – Gas Sales & Purchase Agreement 3. Operations Agreement 4. Transit Fee 5. Gas Transport Agreement 6. Bilateral (Pakistan-India) 7. April 2013 – Transaction Advisor
Best Practices in Cross Border Trade in Central Asia
TAPI Issues 1. Domestic supply vs. Export sales 2. Cross-border political relations 3. Routing, Security 4. Long-term Stability of cross-border 5. Cost and Price of Gas 6. Infrastructure, Finance, Operations & Maintenance
Best Practices in Cross Border Trade in Central Asia
iv. Resource Corridor
“National Resource and Regional Corridor
Program (NRRCP)
Best Practices in Cross Border Trade in Central Asia
Resource Corridor
Electricity
Mining
Roads
Rail
Civil Aviation
Energy Infrastructure
32
Resource Corridor Mining
33
Road Infrastructure
34
Rail Infrastructure
35
Civil Aviation Infrastructure
36
Best Practices in Cross Border Trade in Central Asia
Resource Corridor Issues 1. Coordination of complex array of infrastructure
development projects
2. Multiple-government and funding agents
3. Financing segments of Infrastructure
4. Emerging roles of Private and Public Sector
5. Operations and Maintenance
6. Legal Enforceability
Best Practices in Cross Border Trade in Central Asia
3. Governance of Cross Border Exchanges
Best Practices in Cross Border Trade in Central Asia
Governance of Cross Border Exchanges
Operational and Trading Guidelines
i. Harmonization of different grid codes
ii. Coordinated dispatch (Central Asia grid, NEPS)
iii. Synchronization of Systems
iv. Protection Systems
Best Practices in Cross Border Trade in Central Asia
Governance of Cross Border Exchanges
Legal and Regulatory Aspects
i. Varied legal frameworks
ii. Dispute resolution and enforcement
iii. Technical, financial, health & safety
• Legacy of Soviet-era technology/practices
• Modern technology/new practices
• Equipment/technology from different system standards/countries
Best Practices in Cross Border Trade in Central Asia
Governance of Cross Border Exchanges
Financing and Pricing Aspects
i. Public-private financing
ii. System-based approach to finance
iii. Agreement on pricing, escalation
iv. Potential new market entrants: impact on energy pricing
Best Practices in Cross Border Trade in Central Asia
Governance of Cross Border Exchanges
Power and Transmission Pricing
i. Information sharing
• Regular meetings/sales & purchase templates
ii. Modeling of pricing options over mid and long-term
iii. Leveraging investments
iv. Bilateral “deals” presently in place
Best Practices in Cross Border Trade in Central Asia
Governance of Cross Border Exchanges
Congestion Management Procedures
i. Not fully tested; dedicated transmission lines
ii. Central Asia dispatch has traditionally functioned
iii. Simple upgrading communications systems as first step
Best Practices in Cross Border Trade in Central Asia
Challenges and Solutions
Best Practices in Cross Border Trade in Central Asia
Challenges and Solutions
Technical Issues
i. Supply/Demand Constraints (e.g., seasonality)
ii. Transmission Constraints (e.g.,corridors)
iii.Reactive Power & Protection Systems
iv.Dispatch v. Operations & Maintenance
Best Practices in Cross Border Trade in Central Asia
Challenges and Solutions
Financing
i. To date very donor-driven
ii. Project-based not system-based financing
iii. Regional project structures not certain
iv. Global market lukewarm v. Lack of Sovereign Guarantee and other
guarantee mechanisms
Best Practices in Cross Border Trade in Central Asia
Challenges and Solutions
Coordination and Infrastructure
i. Changing National Priorities
ii. Use of Different Technologies
iii. Energy Master Plans Changing
iv. Leveraging regional development funds i. Political vs. Commercial
Best Practices in Cross Border Trade in Central Asia
Challenges and Solutions
Legal and Regulatory Certainty
i. Limited Experience – legacy approaches
ii. Contracting (predictability, stability)
iii. Settlement & Monitoring
iv. Enforcement
Best Practices in Cross Border Trade in Central Asia
Challenges and Solutions
Social and Environmental Challenges
i. Undefined Roles of Institutions ii. Land Acquisition (including border lines) iii. Public & Private Sector Responsibilities iv. Role of Water and Coal-fired Power Generation v. Public Access to new Energy
Best Practices in Cross Border Trade in Central Asia
Challenges and Solutions
Geo-political Uncertainty
i. Sequencing of Geo-political priorities with
Infrastructure needs
ii. Changing Political Priorities
iii. Public & Private Sector Existing and Emerging Roles
iv. Undefined roles of Institutions – who is making the decisions?
Best Practices in Cross Border Trade in Central Asia
Concluding Observations
i. Complicated and new arrangements
ii. Bilateral Exchanges important first step
iii. Practical financing essential
• Donors have a role to play
• Private sector must be engaged
iv. Governance aspects require more effort
Best Practices in Cross Border Trade in Central Asia
Concluding Observations
v. Not a clear CAR “anchor” country; varies by
project
vi. Security and geo-political interests are first
priority for all countries
Best Practices in Cross Border Trade in Central Asia
Exciting and Useful Possibilities
Thank You
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