Best Practices in Cross Border Trade in Central Asia · Vitelli & Associates . Best Practices in Cross Border Trade in Central Asia 1. Overview of Cross Border Exchange and Trading

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


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


1. Overview of Cross Border Exchanges and Trading Arrangements 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


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


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




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



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


2. Regional Energy Projects


i. Afghanistan: Where Asia Meets

Illustrative Power Investments

Source: Inter-ministerial Commission on Energy 13


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


ii. Central Asia/South Asia (CASA) Overview


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


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



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


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


iii. Turkmenistan-Afghanistan-Pakistan-India (TAPI) Natural Gas Pipeline

Project


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


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)


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


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


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


iv. Resource Corridor

“National Resource and Regional Corridor

Program (NRRCP)


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


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


3. Governance of Cross Border Exchanges


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



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



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



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



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


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



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



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



Legal and Regulatory Certainty

i. Limited Experience – legacy approaches

ii. Contracting (predictability, stability)

iii. Settlement & Monitoring

iv. Enforcement



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



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?


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


Concluding Observations

v. Not a clear CAR “anchor” country; varies by

project

vi. Security and geo-political interests are first

priority for all countries


Exciting and Useful Possibilities

Thank You

Documents

Best Practices in Cross Border Trade in Central Asia · Vitelli & Associates . Best Practices in Cross Border Trade in Central Asia 1. Overview of Cross Border Exchange and Trading