Designing for Consensus: The ASEAN Grid 9789814377980

Table of contents :
Contents
List of Tables
List of Figures
Acknowledgements
I. Introduction
II. Scope of the Study
III. Basic Concepts and Assumptions
IV. Experiences in Other Regions
V. History of ASEAN Energy Co-operation
VI. The Concept of an ASEAN Grid
VII. ASEAN Power Industries
VIII. External Factors Affecting the Feasibility
IX. Project Design Issues
X. Options of Electricity Trade
XI. ASEAN Options and Scenarios
XII. Summary and Conclusions
Appendix. Agreement on ASEAN Energy Cooperation
Glossary
Bibliography
Index
The Author

Citation preview

DESIGNING FOR CONSENSUS

The Institute of Southeast Asian Studies was established as an autonomous organization in May 1968. It is a regional research centre for scholars and other specialists concerned with modern Southeast Asia, particularly the multi-faceted problems of stability and security, economic development, and political and social change. The Institute is governed by a twenty-two-member Board of Trustees comprising nominees from the Singapore Government, the National University of Singapore, the various Chambers of Commerce, and professional and civic organizations. A ten-man Executive Committee oversees day-to-day operations; it is chaired by the Director, the Institute's chief academic and administrative officer. The ASEAN Economic Research Unit is an integral part of the Institute, coming under the overall supervision of the Director who is also the Chairman of its Management Committee. The Unit was formed in 1979 in response to the need to deepen understanding of economic change and political developments in ASEAN. The day-to-day operations of the Unit are the responsibility of the Co-ordinator. A Regional Advisory Committee, consisting of a senior economist from each of the ASEAN countries, guides the work of the Unit.

DESIGNING FOR CONSENSUS The ASEAN Grid

Serafin D. Talisayon University of the Philippines

I5EA5

ASEAN ECONOMIC RESEARCH UNIT

Institute of Southeast Asian Studies

Published by Institute of Southeast Asian Studies Heng Mui Keng Terrace Pasir Panjang Singapore 0511 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Institute of Southeast Asian Studies.

© 1989 Institute of Southeast Asian Studies The responsibility for facts and opinions expressed in this publication rests exclusively with the author and his interpretations do not necessarily reflect the views or the policy of the Institute or its supporters.

Cataloguing in Publication Data Talisayon, Serafin D. Designing for consensus : the ASEAN grid. 1. Energy industries-ASEAN countries. 2. Electric power systems-ASEAN countries. 3. Electric power production-ASEAN countries. I. Institute of Southeast Asian Studies (Singapore). ASEAN Economic Research Unit. II. Title. HD9502 A92T14 1989 sls89-44780 ISBN 981-3035-06-4 (soft cover) ISBN 981-3035-07-2 (hard cover) Typeset by The Fototype Business Printed in Singapore by South Wind Production Pte Ltd

Contents

List of Tables

ix

List of Figures

xi

Acknowledgements

I. II.

xiii

Introduction Scope of the Study 1. Review of the Literature 2. Aim and Scope of the Study

III. 1. 2. 3. 4. 5.

Basic Concepts and Assumptions Electricity Grid Variations in Load Variations in Power Plant Characteristics Interconnection and Electricity Trade Characteristics of a Grid

4 4 7 12 12 12 16 18 23

6. A Regional Interconnection/Grid as a Socio-Technical System 7. Stages of Feasibility IV. 1. 2. 3. V.

Experiences in Other Regions Existing Interconnections Studies/Plans for Interconnection in Other Regions NORDEL

History of ASEAN Energy Co-operation 1. Initial Impetus for ASEAN Energy Co-operation

2. 3. 4. 5. VI.

Proliferation of ASEAN Energy Bodies Recent Developments History of Electricity Co-operation Thailand-Laos Electricity Co-operation The Concept of an ASEAN Grid

1. Interconnection versus Grid

2. The ASEAN Power Interconnection Concept VII. 1. 2. 3. 4.

ASEAN Power Industries Energy Resource Base Lifetimes of Fossil Fuel Reserves Technical Characteristics of ASEAN National Grids Organizational Structures and Policy Processes in ASEAN Power Utilities 5. Long-Term Overview of ASEAN Power Industries

25 27 33 33 34 35 41 41 42 47 50 56 59 59 60 64 64 65 69 73 78

VIII.

External Factors Affecting the Feasibility of an ASEAN Grid 1. Energy Prices 2. Technological Developments 2.1 High-Voltage Transmission Technology 2.2 Dispersed Storage and Generation 2.3 Small-Scale Energy Technologies 3. Environmental Consequences of Power Production 3.1 Carbon Dioxide (C0 2 ) Production from Fossil Fuels

81 85 85 85 85 87 89 89

Contents

3.2 Storage of Nuclear Wastes 3.3 Hydroelectric Power 4. Geography 5. Summary of External Factors IX. Project Design Issues 1. Environmental and Social Impacts 2. The Issue of Ownership and Organicity of Interests 3. Security Implications 4. Bilateral Relations 4.1 Thailand and Malaysia 4.2 Singapore and Malaysia 4.3 Philippines and Malaysia 4.4 Brunei and Malaysia 4.5 Malaysia and Indonesia; Brunei and Indonesia 4.6 Indonesia and Thailand 4.7 Political Implications of Interconnections 5. Financing 5.1 Project Risks and Uncertainties 5.2 Country Debt Ceilings 6. Pricing of Electricity 7. Organizational Issues X.

Options of Electricity Trade 1. Scale Properties 2. Stages Reached by Existing Interconnections 3. Terminal Stage

XI.

ASEAN Options and Scenarios 1. Individual Interconnection Projects 2. Future Options 2.1 Submarine HV Cable Joint Venture 2.2 Joint Sea Bed Survey Project 2.3 R&D Consortium 2.4 Natuna-Bakun Linkage 2.5 Medium-Term Export of Asahan Power

Vll

90 91 93 94 99 99 104 107 110 111 111 112 113 113 113 114 115 115 121 123 127 134 134 141 141 144 144 146 146 148 148 150 155

viii

3. Remote Scenarios 4. Project Identity

Contents

156 157

XII. Summary and Conclusions

160

Appendix Agreement on ASEAN Energy Cooperation

165

Glossary

172

Bibliography

179

Index

196

The Author

209

List of Tables

III-1

Growth of Electricity versus Total Energy Consumption in ASEAN VII-1 Non-Renewable Energy Resource Base in ASEAN VII-2 Renewable Energy Resource Base in ASEAN VII-3 Shifts in Generating Mix in ASEAN VII-4 Characteristics of ASEAN Grids/Utilities VIII-1 ASEAN Hydropower Potential VIII-2 Summary of External Factors Affecting the Feasibility of an ASEAN Grid X-1 Stages in Electricity Trade/Co-operation X-2 Scale Properties of Stages of Electricity Trade and Co-operation

24 65 66 67 70 92 96 136 138

List of Figures

III-1

III-2 III-3 III-4 V-1

VI-1 VII-1 VIII-1

Relationships between Levels of Electricity Supply and Demand Typical Weekday Load Curves of Thai and Malaysian Grids NORDEL Regional Grid Peak-Power Trading Interrelationships among Energy Bodies in ASEAN Existing and Contemplated ASEAN Interconnections ASEAN National Grids Location of Energy Resources and Demand Centres

14 15 19 21 44 62 71 95

Acknowledgements

The author must give thanks, first and foremost, to the Institute of Southeast Asian Studies which made this work possible through a Research Fellowship. The topic was suggested by Prof. K.S. Sandhu, the Director. He was most helpful in defining more precisely my research programme. The ASEAN grid, I discovered, is an interesting but neglected area of academic study. The study of the ASEAN grid concept cannot be a purely library work - little or no academic material has been written on the topic. The author is therefore indebted to the materials generously provided by power and energy experts from ASEAN power utility companies. In this regard, special thanks are due to Dr Rozali Ali and Mr Tajudin Ariff of the National Electricity Board of Malaysia. Dr Rolf Langhammer of the Kiel Institute of World Economics kindly reviewed Chapter IX. Source materials that cannot be found elsewhere and most valuable insights were provided by Mr Kong Ai Tiing of Sarawak Electricity Supply Corporation (SESCo), Mr Somkiet Phaloprakarn

xiv

Acknowledgements

and Mr Siridat Glankwahmdee of the Electricity Generating Authority of Thailand; Dr Ing Nengah Sudja and Dr Adhi Satriya of Perusahaan Umum Listrik Negara (PLN of Indonesia), as well as the chairman of the PLN, Dr Arismunandar; Dr Prida Wibulswas of the Asian Institute of Technology; Dr Filino Harahap, Dr S.K. Torok, and Mr Saha Pranesh Chandra of ESCAP-Bangkok; and Dr Higino Ibarra and Engr Deogracias Peralta of the National Power Corporation (Philippines). Mr Paul-Frederik Bach and Max Pilegaard of Danish Power Consult generously provided information about NORDEL. Mr Rolf Wiedswang, chairman of NORDEL, gave permission for the use of NORDEL source materials. Others who helped the author are Dr Zuhal of Badan Pengkajian dan Penerapan Teknologi (BPPT in Indonesia), Mr Caesar Atienza of the ASEAN Secretariat (Jakarta), Mr Hartoyo Notodipuro and Soenarjo Sastrosewojo of the PLN Research Centre, Datin Hajjah Jusnani Haji Lawie of the Ministry of Finance (Brunei) and Awang Malai Ali of the Ministry of Development (Brunei), and Mr Choy Hon Tim of the Public Utilities Board (Singapore). Finally the author thanks his wife, Vivien, for reviewing the manuscript, catching his grammatical lapses, and giving him moral support throughout the study.

~

Introduction

The forces which impel ASEAN towards effective co-operation have always been external. After the founding of ASEAN in 1967, strong political will to co-operate started only during the Bali Summit in 1976 - a watershed in ASEAN regional co-operation - coming closely at the heels of the fall of Saigon in 1975. The frequency of bilateral summits and multilateral meetings of foreign ministers has since increased, impelled by perceived threats associated with the Vietnamese occupation of Kampuchea in 1978, the brief 1979 Sino-Vietnamese war, and the subsequent departure of Vietnamese "boat people" to ASEAN shores. Oil-importing ASEAN member countries were adversely affected by the first oil crisis of 1973, which led to an important, although informal and since untested, agreement in emergency sharing of petroleum. Oil demand and oil prices collapsed in 1985-86 due to world-wide recession following the second oil crisis of 1979-80. This time, oil-exporting ASEAN member countries were adversely affected. Motivated by the need to protect themselves against

2

Designing for Consensus: The ASEAN Grid

future extremely wide swings in oil prices, ASEAN member states finally formalized in Manila the decade-old informal agreement into two major agreements in 1986: the Agreement on ASEAN Energy Cooperation and the ASEAN Petroleum Sharing Agreement. In other areas of co-operation, where there is no commonly perceived immediate or acute crisis or threat, the progress of co-operation had been observed to be slow, ineffective, or disappointing. These pessimistic views fail to see the importance of the slow trust and confidence building processes which attend the deluge of intra-ASEAN governmental and personal contacts, discussions, and information exchange that the floodgates of the Bali Summit have opened. How quickly or slowly, could ASEAN henceforth learn to cooperate in the face of a problem that is common but is neither acute nor reaching crisis proportions? The other side of the question asked by sceptic observers of ASEAN is, will ASEAN member states act in concert and effectively only in the face of crises? Many energy problems build up slowly and inexorably - as inexorably as energy demand follows population growth, and as depletion of natural stocks of energy follows from energy consumption. Long-term problems have a way of being relegated behind immediate needs in the political, and in the policy, order of things in any government. Will energy co-operation again wait for an external crisis? In this sense, power interconnections and electricity trade are challenges to ASEAN decision-makers. Power interconnections create mutual benefits and vulnerabilities. They demand a longterm commitment and a concrete regional perspective among ASEAN leaders. Because the economic and technological basis for any interconnection is fundamentally sound, the concept is a challenge to the mutuality of their goodwill and the maturity of their relationships. The more ambitious concept of an eventual ASEAN grid represents a bigger challenge: it is a challenge to the breadth and width of their vision. An interconnection between two or more national grids can take a number of technical forms, and the attendant co-operation can similarly take a number of shapes and modalities. The more basic question pertinent to considerations of an ASEAN interconnection is not a question uf feasibility. The more basic question

Introduction

3

is how to design the co-operative venture so that it is acceptable to all and appropriate to the political maturity of the regional grouping at any given point in time. Accordingly, this study addresses the concepts of an ASEAN interconnection and ASEAN grid primarily as a problem of design, and secondarily as a prior problem of analysis. As analysis will reveal, the set of technical and non-technical designs of an interconnection is flexible and scalable. A grid is a socio-technical system cutting across national boundaries and demanding new levels of common conception, planning, and action. This makes power interconnections interesting subjects of study. The contribution a study such as this one can claim to make is to ensure that the eventual realization of the ASEAN grid is not limited more by insufficient creativity than by insufficient political goodwill.

uu

Scope of the Study

1. Review of the Literature The mutual economic advantages of interconnecting two electricity grids, arising from economies of scale 1 and improving security of supply, are well known. Since the first trans-country interconnection between Sweden and Denmark was established in 1915 (Anders 1986), many bilateral and multilateral agreements on transcountry interconnection and electricity trade have been made. 2 Academic literature on the ASEAN power grid is nil. The scant published and unpublished sources on the ASEAN grid are mostly the work of power system engineers in ASEAN power utilities or authorities and of energy planners in the United Nations Economic and Social Commission in Asia and the Pacific (ESCAP). The concept of an ASEAN power grid, or ASEAN electricity grid, 3 gained currency at the beginning of the 1980s (Lee et al. 1979; Th' ng and Kong 1980; Chi a 1980), after it was first proposed at the 11th Session of the ECAFE (now ESCAP) Subcommittee on Energy Resources and Electric Power in 1968. Well before

Scope of the Study

5

the formal organization of the Forum of Heads of ASEAN Power Utilities/ Authorities in 1981, bilateral discussions between power utilities of Thailand and Malaysia had been started in 1972, culminating in 1981 when the first trans-country interconnection in Southeast Asia was first energized. 4 One of the earliest elaborations of the concept was made, significantly, jointly by a group of authors from ASEAN power utilities/ authorities who are well aware of the sizeable potential economic benefits from interconnections (Lee et al. 1979): The technical and economic advantages of interconnections are well known. These include the pooling of reserve capacities and emergency assistance in day-to-day power system operation. Interconnections also provide an alternative for the transportation of energy and economic energy interchange to exploit time-dependent diversities in demand. For long-term system planning, considerable cost savings can be achieved by the earlier installations of larger-capacity generating units ... and consequent utilisation of economies of scale . . . . The capital investment (in constant 1979 US$) required for the projected 30 GW increase in generating capacity between now and 1990 in ASEAN would be of the order of some $20 billion. The sheer magnitude of this figure makes a regional approach to electricity supply planning imperative ....

The planning of a long-distance submarine interconnection between Sarawak and Peninsular Malaysia within the context of an ASEAN grid has also been mentioned (Th'ng and Kong 1980). Again, the rationale presented by the authors is largely economic. The low power generation cost (2-3 Malaysian cents/kWh in 1980) at the time of the second oil crisis, and the sheer magnitude involved (the hydroelectric power potential of the two biggest sites at Balui and Pelagus together exceeds 1986 demand in Peninsular Malaysia) make the interconnection attractive. This hydoelectric project would be the biggest in Southeast Asia and the submarine HVDC (high-voltage direct current) transmission link would be the longest in the world. These components alone qualify the ASEAN grid as a "megaproject" requiring investments in the order of billions of U.S. dollars. Extensive work and exchange of information have been going on in connection with the work of Project No. 3 of the Forum of

6

Designing for Consensus: The ASEAN Grid

Heads of ASEAN Power Utilities/ Authorities. This project, the ASEAN Power System Interconnection Project, was inaugurated in its maiden meeting in 1982. Academic interest in the ASEAN grid concept is continuing (Rozali 1987; Rozali undated). A techno-economic study commissioned by ESCAP was released in 1987. 5 It looked at interconnections between two groups of Asian countries: (1) Thailand, Malaysia, Singapore, and Indonesia; and (2) Nepal, India, and Bangladesh. The study made sensitivity analyses of internal rates of return (IRR) (defined in Glossary) as affected by trans-country differences in electricity generating costs and by investment costs. The study did not employ the optimization routines commonly used by utilities; the sensitivity studies on IRRI assumed a given configuration of interconnections and viewed grids as "gray boxes" characterized by their respective average generating costs. The value of the ESCAP study lies in its demonstration, for the case of the Thailand-Malaysia interconnection, 6 of the economic benefits of trans-country interconnections and in its heightening of interest in the Southeast Asian grid concept among ASEAN decision-makers. It also identifies the next concrete steps to be taken; it paves the way for feasibility studies of corresponding specific projects that may eventually be components of an ASEAN grid, and for other studies that look beyond techno-economic feasibility. Lucas and Salim (1987) demonstrated substantial potential for economic benefits resulting from a Singapore-Malaysia power exchange. In spite of the similarity between the two grids' load curves (the two countries follow the same standard time), US$36 million per year can be realized in 1990 if a 500-MW interconnection exists. All studies conducted so far have been focused on prior questions of technical and economic feasibility, as they should be. No studies have yet been conducted on subsequent questions that are also important especially for projects of the magnitudes involved here, such as those questions revolving around, among others: - political feasibility or the related question of politically acceptable and administratively effective institutional arrangements; - energy security as an important part of national security as perceived or defined hy ASEAN member governments;

Scope of the Study

7

- financing schemes, stable long-term pricing formula, ownership structure, etc. that can encourage/discourage participants to join in the venture; and - environmental and social benefits and costs, which may possibly complicate project implementation vis-a-vis local, provincial, or state governments or local populations. Some of these research gaps were identified during a high-level meeting evaluating the ESCAP study, which mentioned the need for follow-up studies on "organizational aspects, trade and tariffs". 5 A regional electricity grid is a form of long-term multilateral political and technological commitment which requires attention to factors not ordinarily met by state power authorities who are used to domestic decision environments largely within their statutory scopes of control. In venturing towards the vision of an ASEAN grid, power authorities are entering into an unfamiliar political and technological terrain wherein many factors are largely outside their familiar scope of management control and authority. For a fledgling regional organization such as ASEAN which is still in the process of learning co-operation, the concept or the dream of an ASEAN grid offers great challenges.

2. Aim and Scope of the Study Accordingly, the aim of this study is twofold: 1. Descriptive and analytical phase: to identify and analyse the

issues, technological and non-technological, surrounding the concept of an ASEAN grid; and 2. Design phase: to delineate alternatives or options for ASEAN decision-makers, which are appropriate over a wide range of political readiness and which seek to integrate the interests of all participants and affected parties. A value assumption behind this study is that ASEAN economic co-operation, which includes energy co-operation, plus the train of consequences co-operation brings, is desirable. A corollary to this assumption is that it is desirable for this study to suggest forms of co-operation that are judged to be effective and acceptable to all concerned, or to design/configure the relationship in a novel

8

Designing for Consensus: The ASEAN Grid

way that fosters co-operation. De Bono (1985) had argued that a new "design idiom" is necessary if people and nations are to get out of the conflict-prone perceptual and mental channels that they habitually employ in their dealings. This modality of thinking has been espoused to alter the slow pace in progress of ASEAN economic co-operation (italics supplied): The design and implementation of effective economic cooperation and the building up of necessary institutions takes time. It is important to guard against the temptation to plan only for what is politically feasible now, and to ignore the ultimate goal of regional economic co-operation and integration and the long-range strategy for achieving this. The purpose of economic co-operation and integration should be to create an environment that will facilitate ... (ISEAS 1987)

This study will not aim to test any hypothesis. Neither will it aim to arrive at or formulate hypotheses. Its aim is to analyse issues and formulate options for action. A second assumption is that large-scale systems to be operable in the real world demand nothing less than a multidisciplinal planning viewpoint. Monodisciplinal planning perceptions rarely fit real world problems, and the lack of fit is sometimes brought home to the planner in a painful and costly way. 7 The study therefore makes a deliberate attempt to address a multidisciplinal audience using as wide or multidisciplinal a viewpoint as possible. The author has no illusions that a single study such as this one can succeed in this attempt. But in making the attempt nevertheless, it is hoped that the effort will sensitize the audience to a range of issues that must be addressed in their totality by decision-makers. It is hoped too that the analysis, with its shortcomings, will be worth the benefits arising from further thinking and debating about the concept of an ASEAN grid. Thirdly, the study will not be arbitrarily limited to the ASEAN region, although its main geographic focus will be on ASEAN. It will include consideration of electricity trade with other Southeast Asian countries. Electricity is not the only energy medium that can be transported along a trans-country interconnection. Especially after ASEAN runs

Scope of the Study

9

out of petroleum in the first half of the next century, natural gas will loom large as another energy medium that can be transported along submarine pipeline interconnections. Long after natural gas, in turn, runs out, coal liquefaction and coal-water mix technology could possibly continue to make gas pipelines useful. 8 These te.:_hnical possibilities are included within the purview of this work. Chapters I to IV prepare the background. They delineate the scope of the study, define the concepts and terms used, and review the experiences of other regions in power interconnection. Engineering concepts and terms used in the power industry are defined and explained in Chapter III for the benefit of readers with social/policy science backgrounds to facilitate subsequent discussions. A glossary of terms and acronyms necessary in a multidisciplinal effort such as this is provided. Chapters V to VII look at the ASEAN background. They analyse the history of ASEAN co-operation in energy, the germinal ASEAN co-operative project in interconnection - Project No. 3 of the Forum of Heads of ASEAN Power Utilities/ Authorities - and the power industries in each ASEAN country. The next two chapters look into external and internal factors affecting the feasibility of an ASEAN grid. External factors are treated in Chapter VIII. These are those factors largely outside the control of ASEAN governments. Chapter IX looks into issues and problems largely within the control of ASEAN governments. Proposals on how to configure interconnection and energy projects first appear here. Chapter X introduces the concept of political scaling of a transcountry interconnection. It continues to identify and examine concrete steps towards an ASEAN grid, steps that can be ordered in a sequence of an increasing degree of integration of respective electricity grids, and also of corresponding levels of co-operation and mutual trust. Finally, Chapter XI identifies component projects and likey scenarios of resulting regional events. Both the steps and the scenarios are offered as options for consideration by ASEAN decision-makers in their work of steering the young regional organization towards this technological goal. Chapter XII is a summary and concluding chapter.

10

Designing for Consensus: The ASEAN Grid

Notes 1. If C 1 is the minimum cost (say, in US$ per year) solution of the problem of optimizing the operation of an existing grid 1, and C 2 is the minimum cost solution for grid 2, the minimum cost solution, C 12 , when grids 1 and 2 are interconnected in a specified way, is often less than C 1 + C 2 . If the difference is greater then the amortization (or annualized investment cost) of the transmission facilities, potential economic benefit can be realized from the interconnection. See, for example, Hadi Dowlatabadi and Nigel Evans, "Electricity Trade in the U.K.: Economic Prospects and Future Uncertainty", Energy Policy, February 1986, pp. 35-45. 2. Chapter IV reviews some of the past experiences and future plans for interconnection in other regions. 3. The audience anticipated in this study broadly consists of ASEAN policy makers, scholars interested in Southeast Asian area studies, and energy and electricity planners in ASEAN. The disciplinal scope of the study gives rise to the problem of differences in meanings of terms such as "power", "grid", etc. The term "power" is understood differently by political scientists. To avoid confusion, this study will not use the term "ASEAN power grid". The terms "electricity grid" or "power grid" are somewhat redundant. In this work, the term "grid" will be used. A grid is an interconnected network of power sources, transmission and distribution lines, and power users. An "ASEAN grid", in this sense of a fully integrated system of national grids, is an ambitious technological goal in view of the dispersed archipelagic geography of the ASEAN region. Short of a fully integrated regional grid, intra-ASEAN trans-country "power interconnections" are more feasible and modest targets. In the course of development of intra-regional interconnections, when a regional system of interconnection ends and a regional grid begins is a blurred technological threshold. Furthermore, at this point in time, the technical distinction between an "ASEAN grid" and an "ASEAN power interconnection" is not yet useful to make. Therefore, the two terms are used interchangeably in this work. The definitions of "power" and other terms appear in the Glossary. 4. EGAT/LLN-SESCo/PUB/PLN/NPC, "Report on the Inaugural Meeting of the ASEAN Power System Interconnection Project", held in Kuala Lumpur, 11-12 March 1982. The report from the first meeting in 1982 was kindly released to this author for use as reference by the Co-ordinator of the ASEAN Power Interconnection Project (Project No. 3), Mr Tajudin bin Mohd. Ariff of the National Electricity Board (NEB), Malaysia. 5. UNDP and ESCAP Regional Energy Development Programme, 1l-ans-country Power Exchange and Development, RAS/84/001 (Bangkok: UNDP/ESCAP, May 1987). Results of consultation meetings with decision-makers in Asian governments concerned are reported for limited circulation in the following unpublished reports: Report of the Expert Group Meeting on Trans-country Power Exchange and Development held in Bangkok, 17-19 September 1986; Consideration of the Report of the Expert Group Meeting by the High-level Meeting on Transcountry Power Exchange and Development on 20-21 November 1986, NR/

Scope of the Study

11

HMTPED/1 (Bangkok, 20 October 1986): Summary Report on Trans-country Power Exchange and Development by the High-level Meeting on Trans-country Power Exchange and Development on 20~21 November 1986, NR/HMTPEG,'2 (Bangkok, 20 October 1986): and Report of the High-level Meeting on Transcountry Power Exchange and Development on 20~21 November 1986, NR/ HMTPED/3 (Bangkok: 3 December 1986). Results were summarized by H.K. Dorn, Lahmeyer International GmbH in "Assessment of Benefits of Transcountry Power System Interconnection in South-East Asia", in Proceedings of the Asian Energy/Power '87 Conference (Kuala Lumpur, 8~11 April1987). Lahmeyer is the engineering consulting firm commissioned by ESCAP for the study. A brief news summary appeared in "Asian Trans-country Power Exchange and Development Prospects", ESCAP Energy News 4, no. 1 (February 1987): 12. 6. A study of extra-high-voltage (EHV) interconnections between the grids of Thailand, Malaysia, and Singapore had been jointly conducted by their respective power utilities earlier (1980). It clearly showed and quantified the benefits that would accrue to each utility from resulting electricity trade. It is interesting to note that this study was conducted at the initiative of the power utilities themselves, outside the ASEAN framework, and was successfully completed relying entirely on locally available expertise, facilities, and funds. Although the study was undertaken when world oil prices were at their peak, the direction of its conclusions remains valid. (Personal communications from Dr Rozali bin Mohd. Ali and Mr Tajudin Ariff of the National Electricity Board, Malaysia, May 1987). 7. The aborted Chico River Hydroelectric Power Project in northern Luzon, Philippines is a good case in point. Please see Chapter IX, Section 1. 8. Please see Chapter VII for a long-term projection of the ASEAN energy situation.

~~~

Basic Concepts and Assumptions

1

1. Electricity Grid

A power grid, or an electricity grid, 2 or simply a grid, is a power system in the form of a network. Several power plants and several load centres all connected together by transmission/distribution segments in a network configuration assure that there is more than one simultaneous path of power flow to most load centres. The redundancy is designed to enhance reliability of supply. The term "grid" is also used to refer to a distribution system that is in the form of a network. A transmission line brings power from the point of generation to a substation serving a load centre. Thereafter it is distributed to various points of end consumption. Transmission is usually by high-voltage lines, because energy losses per unit distance are less at higher voltages. The network structure allows scheduled or unforeseen disconnection of a transmission line or a power plant, or one of its generating units, from the rest of the grid without affecting the

Basic Concepts and Assumptions

13

ability of the entire system to continue meeting all load requirements. The reliability of a system is a measure of this ability; the higher the system reliability, the lower the probable number of days per year that the system is unable to meet all or part of power demand (loss-of-load probability or LOLP). 3 Reliability is increased by having more total power plant capacity (defined in Glossary) than needed during periods of peak demand. Firm capacity is total system capacity remaining after outage of the largest (or two largest) generating unit. Outage is inability to produce or deliver power to a load(s). The difference between highest anticipated demand and firm capacity is called the reserve margin, expressed as a percentage of the highest anticipated demand. Reserve margins of 25 per cent are usual. Investing in plants utilized only a couple of hours a day or only a few hours a week is costly. An interconnection allows mutual sharing of reserve capacities thereby generating savings. At any time of day, some generating units held in reserve may be mechanically but not electromagnetically activated (spinning reserve) while others are both mechanically and electromagnetically inactivated (standby reserve). The advantage of spinning over standby reserves is that the former can be energized and connected to the system in seconds. The fuel wasted by an unutilized spinning reserve is justified by the increased reliability it gives to the entire grid. Figure III -1 shows the interrelationships among these quantities using hypothetical values. 2. Variations in Load

Power demand exhibits hourly, daily, and seasonal variations. A twenty-four-hour load curve or simply a load curve shows the expected hourly variation: typically starting lowest in the early morning and exhibiting one or more peaks, typically around midday (due to the use of air-conditioning systems and other commercial/industrial needs) and in the evening (due to household and commercial lighting). In a typical week, Sunday or holiday loads are lower (due to closed offices and factories). Figure III-2 shows typical weekday load curves of the Thai and Malaysian grids. There may be seasonal variations, say, arising from greater use of

FIGURE III-1 Relationships between Levels of Electricity Supply and Demand VALUE FOR A TYPICAL NATIONAL GRID 6,000 MW

6,000 MW

CAPACITY AND DEMAND LEVELS

--~~----Total

Available Capacity

----~emporary unavailable capacity

standby reserve

5,000 MW

6,000 MW - - + - - - - - Firm Capacity = Total Available Capacity less the capacity of 1 or 2 largest generating unit(s)

4,000 MW

5,000 MW

highest Peak Load -t~,:- demand for a typical week =

spinning reserve

--

Load at any time during a week varies between Base Load and Peak Load

2,400 MW--

- - - - Base Load = approximately lowest demand for a typical week

Variable

3,000 MW

2,000 MW

1,000 MW

FIGURE III-2 Typical Weekday Load Curves of Thai and Malaysian Grids

t

MW

4,000

3,500

THAILAND

3,000

2,500

2,000

1,500 MALAYSIA

1,000

0

2

4

6

8

10

12

14

16

18

20

22

TIME __. LOCAL 24 (HOURS) MALAYSIA

16

Designing for Consensus: The ASEAN Grid

air-conditioning during summer months in the tropics or from use of heating during winter months in temperate areas. As a consequence of these variations, some generating units operate only for a few hours a week (peaking units) while others operate full time (base load units). Intermediate units operate for several hours a day. Typically, 65-75 per cent of system capacity consists of base load plants. For economy of day-to-day operation in any system, plants with lowest unit generating costs (such as nuclear) are operated as base load plants, and those with highest operating costs (such as gas turbines and diesel) are operated as peaking plants. The dispatching office in a power company makes minute-byminute decisions on which generating units to turn on and at which time. The economic optimization problem is called the "optimal dispatch problem". It is solved and applied either manually (using plant figure-of-merit related to its ranking by generating cost) and/or automatically (using computers on-line and specialized computer programs for supervisory control and data acquisition or SCADA). From year to year, demand exhibits a secular increase reflecting factors like growth in population, per capita electricity consumption, industrial and commercial use, etc. The problem of estimating future demand and determining the most economical way of meeting that demand (what types of plants to build, what capacities, construction/ commissioning schedule and where) is called the optimum expansion problem. It is the long-term version of the short-term optimum dispatch problem, with two additional complications: (i) investment decision and (ii) uncertainties in future values of parameters, for example magnitude of demand, cost of fuel, and construction lead time. Expansion planning is also supportable by specialized and often complex softwares.

3. Variations in Power Plant Characteristics

Energy cannot be created nor destroyed. When power is said to be "produced" or "generated", energy is not created but merely converted to a more usable form. Vvhen electricity or any traded form of energy is "consumed", energy is not destroyed but merely

Basic Concepts and Assumptions

17

transformed by the act of consumption into a less useful or less available form which is usually low-temperature waste heat. Generating plants vary in capital and operating costs, determined mainly by technology and fuel costs, respectively. Plants with high capital costs but low operating costs are operated as base load plants, while those with low capital costs and high operating costs are operated as peaking plants (United Nations ESCAP 1981). In 1982 prices, a large oil-fired power plant requires an investment of about US$800/kW, a coal-fired plant about US$1,100-2,000/ kW (a smaller plant is more expensive), and over US$3,000/kW for some hydroelectric projects (Ramachandra 1986; United Nations ESCAP 1987). An idea of variation of generation costs can be had from the following data reported in 1986 for the Peninsular Malaysian grid: M$2.27 per kilowatt-hour from solar (photovoltaic) panels, M$0.1677 from oil-fired power plants, M$0.121 from natural gas, M$0.1198 from coal, and M$0.066 from a 400-MW capacity hydroelectric power plant (lower for larger capacity hydro). 4 Plants with lowest generating costs are operated as base load generators, running twenty-four hours a day except during repairs and periodic maintenance. Gas turbines are used for peak load generation because their generating costs are high and they can be energized quickly should demand arise. Hydropower plants can also be energized quickly; therefore, small hydro plants are also employed for peak-power generation. A nuclear power plant takes longest (hours) to energize (and days to unload/reload the fuel core). They are used only for base load generation. Plants differ in "lumpiness", or the smallest size of economical units. Nuclear power plants are the most lumpy, requiring at least 600 MW to be economical. Hydropower plants are the least lumpy; mini- and micro-hydropower plants with capacities of a few megawatts down to a few kilowatts can be economically constructed. However, hydro-power is dependent on the amount and distribution of rainfall. Its availability is seasonal. The reserve margin of a hydro-based grid can drop to dangerously low levels during dry months. The bigger the hydropower plants, the more vulnerable is the grid. Although bigger plants tend to be less expensive to operate, the probability of a breakdown or an outage of a big plant is a factor to consider in overall system reliability.

18

Designing for Consensus: The ASEAN Grid

Plants also vary in their construction lead-times and useful operating lifetimes, their environmental impacts, and the social benefits and costs generated during construction and operation. A hydroelectric power plant's lifetime is generally the longest but it is dependent on the condition of the watershed (for example extent of vegetative cover, frequency of high run-offs, agricultural practices, and population density) which affects the rate of siltation and therefore the storage volume of its reservoir. Social benefits from a double-purpose dam (irrigation and power) can be high but tradeoff between power and irrigation occurs depending on the seasonal variation of rainfall in relation to seasonal irrigation demand. 4. Interconnection and Electricity Trade 1\vo adjacent grids can be interconnected so that power can flow or be traded bidirectionally or unidirectionally. The interconnection can be through an AC (alternating current) transmission line, in which case the two systems must be synchronous (in phase or "in step" with each other); otherwise full power transfer is not achieved. An interconnection can transmit both power and disturbances from one grid to another. An interconnection can be by DC (direct current) line, which requires an AC/DC converter station at both ends. DC lines are employed despite high cost of converters because they can better isolate the two grids from each other's disturbances (Stackegard and Olsson 1986; Hansson et al. 1987; Rosenqvist and Stackegard 1987). DC lines enable interconnection of a 60-Hz (60 cycles per second) grid, such as the Philippines', to a 50-Hz grid, which is commonly employed in Asian countries (United Nations ESCAP 1986). As the number of interconnections between two grids increases, the combined system physically behaves and could be managed more and more like a single grid. The closest example is the case of interconnections among four NORDEL member-countries: Finland, Sweden, Denmark, and Norway. For example, between Sweden and the other three Nordic countries are seventeen interconnections, including eight with Norway alone (Figure III-3). An ASEAN grid by definition consists of a similar network of many bilateral interconnections - practically a geographic impossibility unless dramatic developments take place in long-distance

FIGURE III-3 NORDEL Regional Grid

to Germany

SOURCE: NORDEL 1985 Annual Report.

20

Designing for Consensus: The ASEAN Grid

submarine transmission technology and costs. It is perhaps accurate to say at this point in time that the concept of an ASEAN grid is a long-term dream. A more realistic concept is that of an ASEAN power interconnection and even its feasibility depends on the favourable confluence of a number of economic, technological, and political factors. Like any trading transaction, electricity trade is motivated by production cost differentials. Some of the forms of electricity trade are the following: 5 1. Bulk energy import. Cheaper power from one grid can be sold through long-term purchase agreements by unidirectional bulk transfer to another grid where power generation cost is higher. Site-specific power sources, otherwise uneconomical to develop due to low local demand, can be developed earlier for sale of bulk power to the other utility under a medium-term energy import agreement. 2. Peak-power cross trading. If the peak loads of two grids do not occur at the same time in a day, electricity can be traded unidirectionally or usually bidirectionally because peak generating costs are higher than base load generating costs. 6 The result is a mutual reduction of peak-period generation and fuel costs (Figure III-4). 3. Sharing of reserve capacities. During emergencies such as the unexpected breakdown of more than one power plant, a grid requiring extra power can temporarily buy power from another. No matter how expensive is the electricity imported, such purchase is always preferable to an outage that negatively affects broad household, commercial, and industrial sectors of the affected grid. The latter type of electricity trade enables both utilities to reduce their reserve margins without sacrificing their LOLPs. In effect, system reliability is maintained at lower cost. 4. Unplanned borrowing of reserve capacity. In a similar manner, medium-term reduction of reserve, such as during unforeseen major plant repairs, occurrence of an unseasonally long dry season, or during delays in commissioning of the next addition to capacity, can be augmented by the reserves of a neighbouring grid.

FIGURE III-4 Peak-Po wer Trading

MW 4,000 . savmgs

3,500

/\

1 I I I

, ~

THAILAND 3,000

IMPORT FROM LLN

EXPORT TO LLN

2,500

I ' , savings

2,000

I

~--'\

\

\

\

1,500 IMPORT FROM EGAT

MALAYSIA

1,000·

0

2

4

6

8

10

12

____ isolated system - - - with energy exchange SOl!RCE: UN ESCAP, May llJ87.

14

16

18

20

22

TIME LOCAL--. .. 24 (HOURS) MALAYSIA

22

Designing for Consensus: The ASEAN Grid

5. Planned borrowing of reserve capacity. Alternate borrowing of reserves can be planned over the medium term by two utilities to effect savings from postponement or spreading out of investments on new capacity over time. 6. Lease of reserve transmission capacity. A utility may lease extra transmission capacity to enable it to buy power from a third party using the geographically intervening transmission system of a second utility (short-term), or to enable it to serve outlying users in its franchise area nearer the border of the second utility (long-term).

The non-coincidence of peaks in load curves of the Malaysian and Thai grids (Figure III-2) is an example of a situation suited to sharing of reserve capacities and/or peak-power cross trading. During peak periods a utility can buy power from its neighbour instead of turning on its expensive peaking generators. In turn, to sell power during peak periods of its neighbour, its base- and/or intermediate-load generators must then operate at higher load factors. The overall results are mutual savings and greater efficiency in system operations. The trading is usually bidirectional. A preliminary assessment of the economic benefits of an upgraded interconnection (which will allow peak-power trading and sharing of spinning reserves) between the Malaysian and Thai grids came up with an estimate of US$240 million per year potential total savings that can be shared by the Lembaga Letrik Negara (LLN) and the Electricity Generating Authority of Thailand (EGAT).? The non-coincidence of peaks in daily load curves is attributable to differences in time zones and composition of electricity demand. A predominantly household or residential load centre will exhibit a sharp evening peak demand while a predominantly industrial load centre will exhibit a daytime demand plateau. Differences in holidays (Friday for Muslim countries and Sunday for Christian countries) result in differences in weekly load curves. Improvements of system efficiency and reliability are the main concerns of a utility. As fuel costs rise and as government revenues slow down, the pressure on the utilities is to keep tariffs down and to reduce or postpone investments in future capacity (Arismunandar 1987).

Basic Concepts and Assumptions

23

5. Characteristics of a Grid A grid is a complex, large-scale, and centrally-controlled system closely embedded within a country's economic and social systemperhaps more closely than some would recognize. This is illustrated by the following sectors in society affected by a grid or having strong interests in its operations: -

households; commercial and industrial firms; lenders: public and private, foreign and domestic; privdte parties affected by pollution from power plants or by construction of dams; employees of the utility company; energy and economic policy-making bodies in government; civil and electrical contractors; local (state or provincial) governments where generating and transmission facilities are located; and the military sector as well as any rebel/terrorist groups.

The temporal and geographic span of concern of a power utility is unusually wide. It performs second-by-second monitoring and control, and at the other end it makes long-term investment plans stretching to one or two decades into the future. In between it is routinely involved in a weekly load forecasting cycle, a monthly billing cycle, and an annual budgetary cycle. The franchise possessed by a utility cuts across political subdivisions of a country. Monitoring and forecasting world fuel prices are usually also part of its functions. To perform such weighty functions and responsibilities, a power utility in ASEAN is typically a public or semi-public corporate body empowered by law into a state authority able to claim rights of way, set tariffs, and negotiate with foreign lenders. The National Power Corporation in the Philippines can import supplies and equipment free of taxes and customs duties. A utility is usually staffed with highly-trained technical personnel, professionals, and managers who generally receive higher remuneration than other civil servants. Electricity consumption is, expectedly, highly correlated with gross domestic production (GOP). In fact, growth in electricity consumption in most countries has outpaced growth in total energy

Designing (or Consensus: The ASEAN Gria

24

consumption, an evidence of growing relative importance of this energy medium in the economic life of many countries. ESCAP estimated that growth rate of the energy sector in developing countries was 4.2 per cent per year in 1980-85; during the same period, the growth rate of the electricity subsector was 6.2 per cent per year in the same countries. The ASEAN region exhibited a similar trend (Table III -1). Electricity, in particular a grid, represents a major long-term technological and economical commitment of a modern society. It is a technological commitment because it binds society to that energy medium for the foreseeable long-term future, 9 and because it predisposes social choices towards centralization.10 It is an eco· nomic commitment because power infrastructures always constitute a considerable portion of investments in an economy. For many developing countries power loans make up a considerable portion of their foreign indebtedness. A regional interconnection/grid fur· ther deepens these commitments. TABLE III-1 Growth of Electricity versus Total Energy Consumption in ASEAN (Per cent per year) 8 Country/ Region

Electricity 1960-73 1974-80

Total Energy 1960-73 1974-8(

Brunei Indonesia Malaysia Philippines Singapore Thailand

n.d. 6.4 10.6 12.9 14.2 21.8

11.6 10.7 5.5 10.3 11.7

n.d. 6.5 9.6 9.0 16.7 16.5

11.6 8.2 5.5 5.9 6.2

ASEAN

13.0

9.2

9.9

8.1

n.d.

=

no data

Electricity, being a secondary form of energy, can be producec from a wide choice of primary fuels. Electricity can be consumec via a wider choice of uses. In contrast, a pipeline is geared usually

Basic Concepts and Assumptions

25

to one form of energy and consumers are constrained to a narrower choice of uses. Household use of gas is only for cooking and heating. Energy trading via pipeline is a somewhat more rigid form of trade. Compared with electricity trade, it "locks" both seller and buyer to more inflexible technological positions. However, both types of trading represent long-term technological commitments. This basic difference is apropos to the Indonesian plan to pipe natural gas from its huge reserves in the Natuna Islands 11 and sell some to Singapore, and to the competing Malaysian plan to extend the Peninsular Gas Utilisation project, Phase II, towards Singapore from Johor Bahru. Electricity trade has other advantages: (i) unlike in commodity trade, protected domestic industries of the importing country are benefited rather than jeopardized by free trading, and (ii) benefits of a given type of electricity trade are mutual (but not always symmetric), clear, and predictable. Computerized procedures exist which enable estimation of prospective benefits to both partners before an interconnection investment decision is made. Electricity, however, is not as freely tradable as oil; electricity can be traded only with a neighbouring utility. Electricity cannot be stored and therefore electricity consumption must be simultaneous with production. Consequently, a close operational (minute-by-minute) and planning (over years) co-operation between exporter and importer is required. 6. A Regional Interconnection/Grid as a Socio-Technical System

A regional interconnection/grid commits the parties to a long-term buyer-seller relationship and mutual dependence wherein the commodity traded, energy, is judged to be crucial to a country's economic and security interests. The security dimension and the relative permanency required of the transaction agreement give this trading relationship a character different from short-term commodity trading or commercial transactions. Furthermore, ASEAN governmental and policy-making processes are highly centralized. Therefore, decisions to participate in an ASEAN grid would have to be first and foremost national political decisions. If and when the political decisions are made, the establishment

26

Designing for Consensus: The ASEAN Grid

of the grid would be expected to entail multilateral co-ordination, planning, and negotiation among the power authorities/utilities. Progressing from the present set of two bilateral interconnections (Thailand-Malaysia and Malaysia-Singapore) to an ASEAN interconnection or later to an ASEAN grid requires multilateral action. The reason stems from the nature of the technology. A set of bilateral interconnections involving more than two national grids does not behave as independent, isolated physical linkages. The presence of an additional interconnection affects the operation of existing ones, and vice versa. This technical character of a regional interconnection becomes more pronounced as the number of bilateral interconnections among three or more national grids increases. A regional interconnection, by its technical nature, requires effective operational, institutional and, in ASEAN, political cooperation. Electricity trade and co-operation take several forms which can be scaled or graduated to reflect the degree of trust, goodwill, and political maturity in a bilateral relationship (Chapter XI). The political willingness to assume certain mutual vulnerabilities and risks in exchange for clear benefits does set an upper limit to the corresponding level of electricity trade and co-operation feasible and acceptable to both partners. The level or stage of electricity trading/co-operation in fact can be employed as a measure or scale of that political willingness or goodwill. An intriguing obverse proposition is that the use of the right kind of technology can provide a stimulus towards the formulation of that will. This idea stems from the more general proposition that technology is culture-bound just as it is culture-determining (Talisayon 1985, 1986). Hoelscher and Humon (1986) suggest that technology and organization develop interdependently. A regional electricity interconnection/grid certainly fulfils that prescription. It can be hypothesized, for instance, that the success of the NORDEL grid is both a function of the strength of cultural communalities and political trust among Nordic countries, as well as itself a stimulus towards further co-operation. An analogous situation obtains when a group of adjacent farming households decide to build and operate a large-scale communal irrigation system. The strong linkages between irrigated lowland paddy culture, the local ecology, and the social relations among

Basic Concepts and Assumptions

27

the community members have long been assumed, both in preindustrial and modern societies.12 This technology imposes a number of requirements that not only improve the productivity of each farming household but also alter the nature of social relations among them. An irrigation system may be regarded as a "sociotechnical system" (defined in Glossary) consisting not only of the physical infrastructure, or hardware, but also of the intertwined and necessary social or relational infrastructure, or software (Coward 1980a) including: - contribution of fees, harvest, and/or labour for construction and maintenance; - co-ordination/scheduling of farming cycles and associated discipline required in water use; - waiver or sale of rights-of-way; - negotiation and implementation of protocols m water distribution; - formal or informal definition of technical and managerial duties and election/selection of officers; and - sanctions against impermissible water use (such as modifying the flow in any way to favour one's farm plot). The shift from a group of isolated household-level farms to one linked by an irrigation system is a qualitative cultural leap in addition to a quantitative technological change. The larger the scale, and the wider and more complex the social impact of a technical system, the more obvious must be this observation. Large-scale technical systems (for example a naval carrier, a space programme such as the United States' NASA, a computer large-area network or LAN, or an interconnected grid) are more properly viewed as socio-technical systems. We are beginning to discover what makes irrigation organizations effective (Coward 1980b), but unfortunately we cannot say the same for large-scale socio-technical systems. It is conceivable that parallel changes in regional thinking and organized action could take place if and when ASEAN governments decide to form an ASEAN grid. 7. Stages of Feasibility "Feasibility" of a project is defined in many ways. For this study

Designing for Consensus: The ASEAN Grid

28

the term is conceived as a graduated property of a project, a property applying to a project in stage-wise steps [Talisayon et al. 1980): Stage 1: Technical Feasibility a) Is the project based on accepted scientific principles [theoretical feasibility)? b) On paper, is net energy [of the energy technology) positive? c) Can a prototype be constructed and made to work? Stage 2: Economic Feasibility a) Is there sufficient market for the product? b) Is IRR greater than prevailing interest rates? c) Do expected returns outweigh all project risks (financial feasibility)? Stage 3: Social Feasibility a) Do present social benefits exceed present social costs? b) Is the project acceptable to all sectors of society? If not, are there compensation mechanisms for negatively affected parties (Pareto transfer)? 13 c) Is it environmentally/ecologically sound? Does it maintain the integrity and continuing productivity of an ecosystem? d) Is the project culturally sound? Will it result in desirable, or no undesirable, changes in values and life-styles? e) Is it politically acceptable at both national and local political leaderships? Does it jeopardize national security? Most feasibility studies pay major attention only to the first two criteria of feasibility. Producers and users of feasibility studies are aware of the importance of the third criterion but prediction and assessment of broad social impacts are still imperfect arts. Perceptual barriers against consideration of social impacts in the planning process exist (Burdge 1987). Furthermore, the third criterion cannot be addressed until after the first two have been satisfied. The larger the scale of the project and the wider its impact on society, the more important is the third criterion. The importance

Basic Concepts and Assumptions

29

of social as well as political feasibility cannot be underestimated for a regional megaproject such as the ASEAN grid. The third-stage criterion requires an expanded accounting and impact assessment framework to include sectors of society that may be indirectly affected: those who shoulder risks from air pollution, those whose farms and homes will be inundated by a hydroelectric project, those who shoulder risks of radiation from nuclear power plants or flooding from dam collapse, as well as those who will enjoy the benefits from the availability and use of electricity. This necessitates the use of cost-benefit analysis methods, also known as extended benefit-cost analysis, or social benefit-cost analysis (Hofschmidt et al. 1981). In social benefit-cost analysis, direct and indirect project impacts are accounted for. Direct impacts refer to benefits and costs accruing to the owner and/or investor of a private project, or to the targeted beneficiaries of a public project. Indirect impacts are impacts accruing to private entities not involved in the project but who enjoy benefits (variously called positive externalities, external economies, side benefits, or spill-over benefits) or suffer costs (called negative externalities, external diseconomies, or negative side effects) arising from the project. Direct costs and benefits are those internal to, or reflected in, the private accounts of a project owner. A private feasibility study concerns itself solely with this private account. For private projects, a private feasibility study is viewed as sufficient. For public projects, most especially large-scale ones, a purely private feasibility study is not adequate. Public projects spend public money and may adversely affect many people. Hence, use of a wider accounting framework is socially necessary and politically prudent. An extended accounting framework additionally embraces indirect effects, or those external to the accounting system of a project owner. Costs and benefits accruing to all affected entities in the economy for each year during a project's lifetime are reduced to present values and compared. Cost-benefit analysis identifies and quantifies direct and indirect benefits and costs, but they fail to consider whether or not affected sectors belong to politically organized or integral social groups. Such groups possess capabilities for mobilizing opinion or action. Projects have been aborted midstream because such groups were

30

Designing for Consensus: The ASEAN Grid

not recognized, compensated, or involved in the planning process all because of a narrow definition of feasibility arising from a limited accounting framework. Environmental feasibility includes the criterion of ecological stability, that is, whether or not a project reduces the continuing productivity and diversity of an ecosystem. A project that jeopardizes the long-term sustainability of yield of a natural life support system is not ecologically sound. Many environmental impacts enter in a social or extended benefit-cost framework, such as medical costs and lost productivity arising from respiratory illnesses related to air pollution, higher expenditure on fertilizers by farmers denied rich silt impounded by a dam upstream, loss in real estate values or tourism income due to a noisy and unsightly power plant nearby, increase in real estate values of private lands at the edge of a man-made reservoir (arising from new business opportunities related to fishing and leisure activities). Section 1 of Chapter IX discusses these issues further. The feasibility of the ASEAN grid will be examined from these broadened criteria. Notes 1. Readers with engineering backgrounds can skip some sections of this chapter.

2. 3.

4. 5.

The general references on which this chapter is based are the following: United Nations ESCAP, Optimization of the utilization of Electricity Generating Plants, Energy Resources Development Series No. 23 (Bangkok: U.N. ESCAP, 1981); Thran Gonen, Electric Power Distribution System Engineering (New York: McGrawHill Book Co., 1986); and UNDP and ESCAP Regional Energy Development Programme, Trans-country Power Exchange and Development, RAS/84/001 (Bangkok: U.N. ESCAP, May 1987). Please see Note 3 in Chapter II. "Loss-of-load probability" is a misnomer. Strictly speaking, the demand or load is still present during outages. What is actually lost or deficient is generating or transmitting capacity such as when peak demand exceeds available capacity. Similarly, terms like "load shedding" reveals the viewpoint of the utility or the power system engineer. Again, local demand or load is not lost or "shed" at all, what is actually removed is the power supplied to the part of the system. "Solar Power Better But Not Cheaper", The Sunday Star, 9 February 1986, p. 7. New terms to describe various types of electricity trade and co-operation are coined and defined here to facilitate succeeding discussions. The types are described in the following sources: U NDP and ESCAP Regional Energy Development l'rogranune, 7hmo-COIII/Iry Powa Exchange and Dec>clopmcnt,

Basic Concepts and Assumptions

6.

7. 8. 9.

10.

31

RAS/84/001 (Bangkok: U.N. ESCAP, May 1987); Fernando Lecaros, "Central America Power Interconnection: A Case Study in Integrated Planning", Energy Department Paper No. 15 (Washington, D.C.: World Bank Energy Department, April 1984); H.K. Dorn, Lahmeyer International GmbH. "Assessment of Benefits of Trans-country Power System Interconnection in South-East Asia", in Proceedings of the Asian Energy/Power '87 Conference, Kuala Lumpur, 8-11 April 1987; and Hadi Dowlatabadi and Nigel Evans, "Electricity Trade in the U.K.: Economic Prospects and Future Uncertainty", Energy Policy, February 1986, pp. 35-45. This is the reason why some utilities, such as Singapore's Public Utilities Board, Thailand's Metropolitan Electricity Authority, and Indonesia's state electricity company, charge industrial users a higher rate during peak periods. See for example: Asian Development Bank, Asian Electric Power Utilities Data Book 1985 (Manila: ADB, 1985), p. 5 and PUB announcement on electricity tariff, Straits Times, 1 February 1987, p. 13. Minutes of the EGAT/LLN Stage II Interconnection Meeting, Bangkok, 3-4 July 1986. Ang Beng Wah, ASEAN Energy Demand: ']}ends and Structural Change (Singapore: Institute of Southeast Asian Studies, 1986). Other forms of power distribution such as via hydrogen gas or microwave transmission have been mentioned in various energy literature. For instance, see: Lawrence W. Jones, "Liquid Hydrogen as a Fuel for the Future", Science 174 (22 October 1971 ): 367-70. Because the infrastructures for electric power distribution are in place, it would he very expensive to shift to another form. The fast growth of electricity industries in both developed and developing countries has been an evidence of the hardening of this technological commitment. A school of thought associated mainly with Amory Lovins, argues that centralized power systems: (1) set up a vulnerability to society (in case of sabotage and war); (2) are wasteful of energy (about two-thirds of the energy in a primary fuel is lost as heat in the process of converting to electricity and about one-tenth of the electricity produced is further lost during transmission and distribution); (3) surrender energy pricing, taxation, and other energy-related decisions into the hands of a monopoly; and in general (4) predispose social choices against low-power, small-scale or household level, decentralized, and user-oriented forms of energy. (Please see Chapter VIII, Section 2.3). See also Amory B. Lovins' "Energy Strategy: The Road not Taken?", Foreign Affairs 55 (1976): 1; "Scale, Centralization and Electrification in Energy Systems", in Proceedings of a Conference on Energy and Scale (Oak Ridge, Tennessee: Institute of Energy Analysis, 1971); and Soft Energy Paths - Toward a Durable Peace (Harmondsworth, Middlesex, England: Penguin Books Ltd., 1977). Some technological developments may, however, take the edge out of these arguments: co-generation to use previously wasted heat, distributed storage and generation systems (DSG), and low-cost photovoltaic cells. Low-cost photovoltaic cells, coupled with innovations in small-scale energy sabotage systems, may revolutionize or "democratize" power use in the tropics in the same way that

32

Designing for Consensus: The ASEAN Grid

microcomputers have revolutionized and "democratized" access to information and computing power (please see Chapter VIII, Sections 2.2 and 2.3). 11. Please see Chapter VI. The idea of Singapore buying piped gas from Natuna was agreed in principle between Prime Minister Lee Kuan Yew and President Soeharto in 1982. It was brought up again in the ministerial bilateral talks in 1987. See the following: "Indonesians Brief S'pore Officials on Gas Pipeline", Straits Times, 3 February 1987, p. 9; "Gas Sale Raised in S'pore-Jakarta Talks", Straits Times, 26 February 1987, p. 8; and David Hayes, "Natuna Gasfield Development Moves Step Closer", Asian Oil and Gas, October/November 1986, pp. 12-13. 12. For instance see: Edwin Bingham Copeland, Rice (London: McMillan and Co. Ltd., 1924); various articles in E. Walter Coward, Jr., ed., Irrigation and Agricultural Development: Perspectives from the Social Sciences (Ithaca, New York: Cornell University Press, 1980); and James Clark Stewart, "People of the Flood Plain: The Changing Ecology of Rice Farming in Cotabato, Philippines" (Ph.D. dissertation, University of Hawaii, 1977). 13. According to Pareto, a project is desirable from the viewpoint of social welfare if it leaves some people better off and nobody worse off than before (zero social cost). This is known as the Pareto criterion. A project which leaves some people worse off could be made desirable if sufficient resources can be transferred from those people made better off to adequately compensate those made worse off (social benefits exceed social costs). The compensation process can be called a Pareto transfer.

~w

Experiences in Other Regions

Many regional interconnections exist, for example in Europe and North America. Experiences from these interconnections can provide insights into problems and workable arrangements. 1. Existing Interconnections

In Europe, three groups of multilateral interconnections are: the UCTPE, with eight members and four associate members from Western Europe including Yugoslavia; NORDEL, with four of its five Nordic member countries interconnected (Iceland is still too far to be interconnected); and the CMEA, with members from the Eastern European bloc. NORDEL has the longest experience in interconnection among these groups. Minor interconnections among the three groups are a Finland-U.S.S.R. and a Denmark-West Germany connection (Knudsen 1987; Anders 1986; NORDEL 1986). Among existing bilateral interconnections are those between Scotland and England (Dowlatabadi and Evans 1986), between Kenya

34

Designing for Consensus: The ASEAN Grid

and Uganda, between Finland and the Soviet Union (NORDEL 1986), between Thailand and Laos,! between Thailand and Malaysia, between Malaysia and Singapore, between Zambia and Zimbabwe (SADCC 1986), between France and England (Rowe et al. 1987), between Ghana and the Ivory Coast (Bach undated), between Mozambique and South Africa (Jeffs 1979), and between Brazil and Paraguay. The 2000-MW England-France interconnection benefits both parties. Because of high-priced and protected British coal, imported electricity from France is 25 per cent cheaper. France built more nuclear power plants than it needs for now, and therefore would like to sell excess power. 2 Major power utilities in North America are interconnected particularly in the east: Consolidated Edison Company, American Electric Power System, Tennessee Valley Authority, and various Canadian utilities. Through these interconnections, the United States has imported an increasing amount of electricity from Canada and Mexico. 2 The Itaipu project between Brazil and Paraguay does not involve power exchange, but it exemplifies latest HVDC transmission technology. The Itaipu Dam across the Parana River separating the two countries is the largest hydropower station in the world (12,600 MW installed capacity). The full capacity (6300 MW) and rated DC voltage (600 kV) of the transmission line linking the power plant to the demand centre at Sao Paolo 800 kilometres away, are among the world's highest.3 The experience from this and other high-voltage, high-capacity transmission systems, such as the 850-mile 750-kV DC line in the American west coast, is being watched by power authorities/utilities planning long-distance interconnections. 2. Studies/Plans for Interconnection in Other Regions An interconnection study among four countries in western Africa (Ghana, Togo, Benin, and Nigeria) has been commissioned to two Nordic firms (Bach undated). The proposed interconnection will enable power exchange among five countries (including Ivory Coast which is presently linked to Ghana) to take advantage of the difference in generating characteristics of the mix of hydro- and

Experiences in Other Regions

35

thermal power plants in the region. Funds were provided by the African Development Bank. Similar interconnection plans are being drawn up between Senegal, Mali, Mauritania, Gambia, Guinea, and Guinea Bissau, which includes the tapping of the Senegal (Manantali project) and Gambia (Kekreti project) Rivers (Lamine 1986). In southern Africa, nine SADCC countries (Angola, Botswana, Lesotho, Malawi, Mozambique, Swaziland, Tanzania, Zambia, and Zimbabwe) have shown interest in establishing a NORDEL-type electricity co-operation among themselves (SADCC 1986). In the Central American isthmus, a regional electrical interconnection study was conducted by the U.N. Economic Commission for Latin America (ECLA) covering Gautemala, Honduras, Nicaragua, El Salvador, Costa Rica, and Panama (Lecaros 1984). The study was undertaken to provide a firm economic and technical foundation to future decisions on interconnection in the region. A U.N. ESCAP study looked into technical and economic factors behind the concept of a Nepal-India-Bangladesh interconnection based on the large hydropower resources of Nepal (UNDP & ESCAP 1987). Initial computations and sensitivity studies for an assumed interconnection configuration clearly indicated favourable IRR. ASEAN is another region, but a predominantly archipelagic one, which has been moving towards a regional grid since the ASEAN Power System Interconnection Project (Project No. 3 of the Forum of Heads of ASEAN Power Utilities/Authorities) was inaugurated on 11-12 March 1982. Evidently, the world-wide trend is towards establishing regional interconnections or upgrading existing ones.

3. NORDEL4 The first international electricity interconnection, between Denmark and Sweden, was energized in 1915 following a formal agreement in 1912. It was an AC link between the then hydro-based power system of southern Sweden with the entirely thermal-based system of Denmark. The interconnections have since increased and involved other Nordic countries. In 1963 a non-governmental advisory body of utility personnel drawn from five Nordic countries (Denmark,

36

Designing for Consensus: The ASEAN Grid

Finland, Norway, Sweden, and Iceland)- NORDEL- was established, superseding erstwhile bilateral agreements. NORDEL is the longest running and apparently among the most successful electricity interconnection groupings. However, it is interesting to note a number of features in the Statutes of NORDEL, the multilateral agreement creating NORDEL. The agreement is not government-to-government or even utilityto-utility. It is executed among "persons active within the field of power supply in Denmark, Finland, Iceland, Norway and Sweden" (Anders 1986). The statutes do not even specify that members be employed by utility companies in the five Nordic countries although in practice members have always been drawn from the top executive ranks of these companies. The support from the respective utilities and governments has been indirect but effective. Tacit justification and authorization for NORDEL may be traced to a resolution adopted in 1959 by the Nordic Council, directing the governments of Denmark, Finland, Norway, and Sweden to investigate the opportunities and benefits available from expanded electric co-operation. Thereafter, the utilities took up the matter, a conference among Nordic participants was held in March 1961, and it was decided that NORDEL be constituted. Formally, NORDEL is ... independent of political bodies, the Nordic Council and the Nordic Council of Ministers. However, mutual interchange of information and other liaison take place between Nordel and these bodies. (Anders 1986)

The effectiveness of NORDEL could be due to a number of factors. One is the self-evident assumption among all concerned that NORDEL is for common and mutual benefit. Another is the high level of trust and confidence between and among the Nordic countries and the effective, though tacit, support from Nordic governments. In many respects, the Nordic countries can now be regarded as one unit. Historical, cultural, and linguistic ties have fostered a sense of unity and this has served as an important base for the co-operation. The general views on legal, social, and religious matters, for instance, are similar in the various Nordic countries (Anders 1986).

Experiences in Other Regions

37

Another factor mentioned is the "simple organization and minimum of bureaucracy [which] have led to smooth and effective co-operation which has produced major economic and technical benefits, as well as environmental advantages" (Anders 1986). The committee and working-group structure is an effective one, with members drawn from the utilities who are responsible for implementing their own recommendations and findings. Although the statutes specify NORDEL only as "an advisory and recommendatory body", its recommendations are workable, relevant, and effective because the co-ordinator-planners are themselves involved in the implernentation. 45 Relatedly, NORDEL chairmanship is drawn from upper executive positions in the participating utilities. The final decision is made by the utilities concerned, after negotiations which are largely bilateral. The Secretariat, which rotates among the five countries, has no budget and permanent employees. Most of the activities appear to take place among the various permanent and standing committees and working groups - at their own pace and initiative and with costs charged to committee members' respective utilities: A considerable amount of NORDEL's work takes place in standing and special committees. The committees include specialists from various fields of energy .... No cumbersome bureaucracy was created, and all activities are undertaken by utility personnel wherever they are. (NORDEL 1986)

Another factor is the Statutes, which by involving only private persons, did not decrease or compromise the autonomy of each utility. When the group was founded in 1963, even after many years of experience in electricity trade, the Statutes did not explicity aim and establish mechanisms to decidedly advance the level of co-operation. On paper, the three functions or "assignments" of NORDEL are basically simple monitoring functions. This approach is consistent with the recommendatory/advisory role of NORDEL. It is also one that does not create too high expectations or pressures on what it can or should do. The fact that, after more than two decades, the mechanism has worked satisfactorily for all parties is evidence of the strong and effective informal role of the grouping,

38

Designing for Consensus: The ASEAN Grid

a role that cannot be fully understood by examining only the "letter" of the Statutes. A strong impression one gets is that the grouping, in the minds of its participants, is only for mutual economic and technical benefit; no political factor at all appears to enter explicitly or implicitly into their activities. Perhaps it is more accurate to say that there is a near complete absence of political problems or obstacles among the five countries and therefore they do not enter at all in NORDEL's activities. This assumption may not hold true in a young regional organization such as ASEAN, an assumption that must be borne in mind while trying to learn from the NORDEL experience and translate it to ASEAN specific needs and conditions. There are three permanent committees: Planning Committee, Operations Committee, and Thermal Power Committee. Significantly, (i) the first interconnection antedated the organization of NORDEL, and (ii) the first permanent committee to be established was not the Planning but the Operations Committee. The former was set up after four years. This sequence shows the NORDEL members' initial view of Nordic power co-operation as increasing system efficiency more in terms of short-term commercial transactions than in terms of long-term integration and/or co-ordination of their expansion plans. This interpretation is consistent with their stated guideline of not infringing on the autonomy of each other's utilities. Relatedly, NORDEL has developed a sophisticated pricing formula based on the principle of splitting of benefits. When a utility with higher marginal cost of producing power (defined in Glossary) buys from another utility with lower marginal production cost, the net benefit is the difference between the two. Marginal production costs vary from hour to hour in the same day because peak-load generators are more expensive to operate. Marginal production costs also vary from month to month in a hydro-based system, which is true for Sweden and specially Norway, where marginal production cost is inversely related to levels of water reservoirs and therefore to seasonal fluctuations in rainfall and snowfall. In practice, NORDEL has developed a mutually-agreed upon quantitative procedure for computing short-term marginal costs (STMC) every half hour for each grid. Price of traded electricity is

Experiences in Other Regions

39

the average of the STMCs of buyer and seller for the times of day that the transaction takes place. This procedure has more advantages than disadvantages, and is superior to the pricing formulas currently employed in bilateral electricity trading among Laos, Thailand, Malaysia, and Singapore. It can also provide a useful starting point for setting up an electricity pricing formula geared to ASEAN conditions (Chapter IX, Section 6). It must be noted that agreement on this manner of pricing, to be effective and implementable, necessitates mutual disclosure of detailed information about each other's generating plants, fuel consumptions and costs, and even current and expected rainfall patterns. Such information also needs to be frequently updated and exchanged. The model of Nordic co-operation in electricity is a useful subject of study not only in N 0 RD EI.: s organizational aspects but also in pioneering technical advances in the region in the areas of HVDC transmission, submarine cable manufacture, thyristor converter design, and power systems analysis. The hydro-based NORDEL system consists physically of four interlinked grids with a total installed capacity of 77,000 MW (1985), more than one-half of which is hydro. Due to its good control characteristics, hydroelectric power has been used for taking up hourly variations in intra-system loads. Twenty-two interconnections are in place, excluding those between Finland and the Soviet Union, and between Denmark and West Germany. Five to six per cent of electric energy consumption in the region comes from traded power. The first submarine interconnection was built in 1915 between Sweden and Denmark. ASEA, a Swedish company (merged with Brown Boveri in January 1988 into ASEA Brown Boveri), developed the first high-voltage (50 kV; 90 A) mercury arc valve. This was employed in 1954 for the converter stations in the first HVDC submarine linkage, Gotland 1, in Sweden (20 MW at 100 kV over a distance of 96 km). The first experimental thyristor converter (37.5 MW at 125 kV) was installed in Japan in 1968 (Kuwahara 1976) but the first commercial installation was made by ASEA for the Gotland 9 interconnection in Sweden in 1970 (30 MW at 150kV). 3

Designing for Consensus: The ASEAN Grid

40

Notes 1. "Eyewitness", Asiaweek, 5 April 1987, pp. 44-45. 2. "Juice sans Frontieres", The Economist, 25 January 1986, p. 59.

3. Personal communication from Hans Stackegard, ASEA Transmission AB, Vasteras, Sweden, 11 April 1987. 4. This section was based on documents, personal communications, and interviews with Paul-Frederik Bach and Max Pilegaard of Danish Power Consult A-S. The Statutes of NORDEL were provided by Mr Bach, with permission from Mr Rolf Wiedswang, chairman of NORDEL. 5. According to John Kirke: If the project is to be successful in the long term, the organization responsible for its operation and maintenance should have a major role in the design in the first place. That seldom happens - centra] government frequently imposes designs and hands over major items for a local government agency to maintain ..

We recently did a review of waste stabilization pond systems that the World bank had financed over the last ten years - thirty pond systems in some seven countries. We tried very hard to deduce the common factor between the ponds that were working well and being maintained reasonably and those that were not. The only common factor that was readily apparent was an interesting one - those that were working well were maintained and operated by an agency which had had a major role in their original design. Whether the ponds were well designed was irrelevant. ("The Missing Link in the Design of Projects", Asian National Development, March 1983, p. 8.)

w History of ASEAN Energy Co-operation

1. Initial Impetus for ASEAN Energy Co-operation ASEAN heads of state in their first summit in Bali, Indonesia on 24 February 1976 adopted the "Declaration of ASEAN Concord" which states in part: Member states shall also intensify cooperation in the production of basic commodities particularly food and energy in the individual member states of the region .... The expansion of trade among member countries shall be facilitated through cooperation on basic commodities, particularly in food and energy and through cooperation in ASEAN industrial projects.

The Declaration also provided for regular ''ministerial meetings on economic matters", a provision recommended earlier as a result of a pre-summit meeting of ASEAN economic ministers in Jakarta on 26-27 November 1975. That meeting would be the first of such meetings among ASEAN economic ministers.

42

Designing for Consensus: The ASEAN Grid

In their second meeting in Kuala Lumpur on 8-9 March 1976, the economic ministers started implementation of relevant provisions of the Declaration by creating five committees dealing with the following areas: industry; food and agriculture; trade; communication and transportation; and finance and banking. The first committee's area was widened in scope in their third meeting on 20-22 January 1977 and it became the Committee on Industry, Minerals, and Energy or COIME.l

2. Proliferation of ASEAN Energy Bodies Earlier, a Committee on Science and Technology (COST) had been created, the concern of which embraced energy technology research and development (R&D). Also earlier, on 15 October 1975, in response to the first oil crisis of 1973-74, a non-governmental body of heads of oil companies in ASEAN had been set up with headquarters in Jakarta: the ASEAN Council on Petroleum or ASCOPE. The three groupings were all interested in energy matters and delineation of responsibilities among them was clarified in the first meeting of energy ministers held in Bali, Indonesia on 19-30 September 1980. To avoid potential duplications among the three bodies, the following guidelines were adopted: 1 1. ASCOPE to deal with oil and gas matters;

2. COIME to deal with other sources of energy which have reached their commercial stage; and 3. COST to deal with energy sources which are in the R&D stage. The ASEAN Economic Ministers on Energy Co-operation's area of first interest was coal, therefore the ministers decided to call a meeting on this energy source. The subsequent first ASEAN Meeting on Coal on 6-7 April 1981 held in Bandung, Indonesia reviewed the ASEAN coal situation, adopted a programme, and created another body, the ASEAN Coal Information Centre, in Thailand (Luhulima 1984). In their second meeting in Kuala Lumpur on 27 April 1981, the energy ministers recommended the creation of a new body, Committee on Energy Co-operation or COEC, to co-ordinate all energy efforts in the region. Energy ministers or, using the ASEAN terminology, the Economic

History of ASEAN Energy Co-operation

43

Ministers on Energy Co-operation, have since continued their periodic meetings. The ministers have come to constitute a highlevel group in itself, practically independent of COIME and COST which involve other ministries. On 13-14 April 1981, an additional body was set up in a Jakarta meeting among power utility heads, the Forum of Heads of ASEAN Power Utilities/Authorities (Luhulima 1984). The Forum adopted ten co-operation projects and their corresponding coordinating countries: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Micro/minihydropower development, Indonesia; Computer applications, Malaysia; Interconnection, Malaysia; Research, development, and engineering, Malaysia; Training, Malaysia; Geothermal power development, Philippines; Nuclear power development, Philippines; Rural and urban electrification, Thailand; Standardization, Singapore; and Electric power information centre, Thailand.

In the same month, on 8-11 April 1981 in Manila, COIME adopted a work programme focusing on other energy sources, such as geothermal, hydro, uranium, and also coal. Subsequently, however, the attention of COIME was focused mostly on the ASEAN Industrial Projects (AlP) and the ASEAN Industrial Complementation (AIC). Presently, its energy concern is mainly on solar energy. On the other hand, since its second meeting in September 1979, COST has evolved into its own responsibility compartment covering research and information exchange on non-conventional energy technologies. Figure V-1 illustrates the interrelationships among these various bodies. The disjoined structure reflects the sectoral concerns of ministries of ASEAN member-states, as well as the all-embracing or cross-sectoral character of the energy problematique. Such a structure obviously does not conduce to a total approach to energy problems or, at least, to addressing energy problems requiring a total approach. Figure V-1 shows the predilection of ASEAN leaders to create a proliferation of committees and bodies. The first meeting of

FIGURE V-1 Interrelationships among Energy Bodies in ASEAN

Other Forms of Energy

j

Oil and Gas

j

COEC (proposed)

Research and Development Stage

Commercial Stage

COST

COIME

ASCOPE

I ASEAN Economic Ministers on Energy Cooperation

(=

ASEAN-EEC Energy Management, Training, & Research Centre (Jakarta)

Senior Officials on Energy Cooperation Consultative Committee)

Forum of Heads of ASEAN Power Utilities/ Authorities Project Nos. 1-10

ASEAN Coal Project Coal Information Centre (Bangkok)

History of ASEAN Energy Co-operation

45

ASEAN ministers on energy co-operation in Bali in late 1980 and the resulting spate of meetings in April 1981 must have been a reflection of a crisis-like atmosphere prevailing in ASEAN capitals due to the skyrocketing oil prices in 1979-80 and the economic recession which was beginning to hit even industrialized countries. Indonesian Vice-President Adam Malik's opening speech during the Bali meeting of energy ministers reflected these overtones: The availability and cost of energy for continued industrial development and, indeed, for continued civilised life on this earth has become a world-wide concern .... Unless the search for alternative and renewable sources of energy is accelerated and serious efforts at conservation are effected, the world will have no choice but to cope with a progressive increase in the price of this rapidly depleting, non-renewable resourcesz

His words were repeated almost verbatim in the Joint Press Release after that meeting. Among ASEAN bodies, it is interesting to note that ASCOPE, which antedated the Bali Summit, has so far been the most advanced in implementing its various work programmes and projects (Luhulima 1984). ASCOPE is non-governmental and quasi-independent; its members are state oil firms which are administratively directly under their respective ministers for energy or industry. Following a meeting among top officials of national oil companies and observers of government oil agencies in Manila on 5-6 September 1975, ASCOPE was established on 15 October 1975 with headquarters in Jakarta (ASCOPE 1984). The aims of ASCOPE are: 1. To promote active collaboration and mutual assistance in the

development of petroleum resources in the region through joint endeavour in the spirit of equality and partnership; 2. To collaborate in the efficient utilization of petroleum; 3. To provide assistance to each other in the form of training, and the use of research facilities and services in all phases of the oil industry; 4. To facilitate the exchange of information which will promote methodologies leading to successful achievements in the petroleum industry and which may help in the formulation of policies within the industry;

46

Designing for Consensus: The ASEAN Grid

5. To conduct petroleum conferences on a periodic basis; and 6. To maintain close and beneficial co-operation with existing international and regional organizations with similar aims and purposes. The work of ASCOPE is undertaken through three working committees: the Technical Committee (technology sharing, manpower development, marketing, symposia, and assessment of R&D facilities); the Economic Committee (studies on economic, financial, and ecological aspects of the petroleum industry including future joint projects and activities); and the Legal Committee (comparison of ASEAN laws and regulations relating to oil, including environmental protection and petroleum conservation, feasibility studies on the adoption of uniform or standardized policies and regulations, and legal advice). Parts of ASCOPE's agreed programme also include co-operation on pollution mitigation and environmental protection, crude and product marketing, and matters dealing with shipping, transportation, and storage facilities (Chia 1980; ASCOPE 1984). ASCOPE's achievements in co-operation in training and technology transfer exemplify some of the few successful areas of ASEAN energy co-operation. Fifty-seven ASCOPE courses have been undertaken, involving transfer of technology and expertise from an ASEAN member with greater experience in an area to one or more other ASEAN members with less experience. Malaysia has taken the lead in petroleum technology, oil pollution control, project evaluation and monitoring, and marketing strategies; the Philippines in marketing, bulk plant management, and petroleum logistics; Singapore in oil spill prevention and control; Thailand in natural gas production; and Indonesia in drilling and logistics management. Courses are bilaterally arranged or centrally co-ordinated (Victoriano 1985). A personnel exchange programme and bilateral technology assistances are two other ASCOPE mechanisms of recognizing and taking advantage of other emerging specializations in energy technology among ASEAN members. These include geothermal exploration and drilling in the Philippines, petroleum refining in Singapore, and oil exploration in Indonesia. While ASCOPE co-operation in technology sharing has proceeded

History of ASEAN Energy Co-operation

47

on a purely regional self-help basis, co-operation in non-conventional energy R&D under the Committee on Science and Technology (COST) has proceeded predominantly with foreign technical and financial supports. The Working Group on Non-Conventional Energy Research (WGNCER) is implementing the following R&D and technology transfer programmes with support mainly from ASEAN' s so-called "dialog partners": 1. Since 1980, the ASEAN-US Energy Co-operation Agreement

has undertaken projects such as training on coal, energy planning, energy conservation, and planning of R&D projects; U.S. expert services via the Asian Institute of Technology (AIT); and a Renewable Energy Resource Information Centre, also at AIT. So far, more than US$6 million in financial assistance has been given by the U.S. Government. 2. In 1981-83, an ASEAN-EEC Co-operation Programme on Science and Technology undertook projects such as training, technical assistance, seminars, and short-term studies. EEC is funding the ASEAN-EEC Energy Management, Training, and Research Centre. 3. The Canadian International Development Agency (CIDA) supports seminars and study tours in Canada in the fields of energy development and conservation, and use of coal and natural gas for electric power generation. 4. The Australian Development Assistance Bureau (ADAB) made a grant of A$3.2 million in 1982 to WGNCER for nonconventional energy research in biomass heat and power, energy conservation techniques, and utilization of low-grade coal. 3. Recent Developments

The ASEAN Economic Ministers on Energy Co-operation met five more times after its creation. 'JYpically, the primary achievement of high-level ASEAN meetings is the creation and maintenance of channels for information exchange, and thereby the gradual building of mutual trust, confidence, and solidarity. Concrete decisions were made on the initiation of an ASEAN Coal Development Study, the creation of a Coal Information Centre in Thailand, and co-operation in research on new and renewable

48

Designing for Consensus: The ASEAN Grid

energy resources. The recommendation to create a new position of Energy Secretary in the ASEAN Secretariat and the repeated recommendation to create a separate Committee on Energy Cooperation (COEC) have not been approved or implemented for one reason or another. This step would remove energy from the jurisdiction of COIME (ASEAN Committee on Industry, Minerals, and Energy), not an attractive proposition for industry and economic planning ministers. 3 The progress reports of the ten projects under the Forum of Heads of ASEAN Power Utilities/ Authorities were endorsed during the Third (Manila, 8-9 October 1981) and Fourth (Singapore, 19 January 1983) Meetings, but the same were only "discussed" during the Fifth Meeting (Bangkok, 25-26 April 1985) and "reviewed" during the Sixth Meeting (Jakarta, 12-13 March 1987). The two important energy agreements signed by the foreign ministers in Manila on 24 June 1986- the Agreement on ASEAN Energy Cooperation (Appendix) and the ASEAN Petroleum Security Agreement - are potentially landmark agreements in energy cooperation. The draft was prepared by the ASEAN Senior Officials on Energy Co-operation in Chiang Mai on 9-10 December 1985. Changes proposed by Indonesia were incorporated and finalized during the Senior Officials' subsequent meeting in April 1986 in Jakarta. In that meeting it was agreed that the two documents be signed during the 19th ASEAN Ministerial Meeting in Manila in June 1986 without waiting for a formal agreement among the energy ministers. The petroleum security agreement finally formalized what had been a "gentlemen's agreement" on emergency petroleum sharing since 1976-77. The emergency oil-sharing scheme was discussed at the Second ASCOPE Meeting in October 1976 in Kuala Lumpur and by ASCOPE's Economic Committee in Manila in April 1977. The initial discussions did not lead to any formal multilateral agreements for the next ten years. Rather, ASEAN member countries found bilateral energy purchase arrangements sufficiently effective. The extreme swings in oil prices and supply in the early 1980s finally convinced both oil buyers and oil producers in ASEAN that it was to their mutual interest tJ make a firm or formal agreement to help each other, during periods of scarcity and oversupply, respectively.

History of ASEAN Energy Co-operation

49

Opening the June 1986 meeting of foreign ministers, President Corazon Aquino summarized the disappointing ASEAN performance: After 19 years of existence, ASEAN should already be evaluating the impact of regional economic co-operation instead of endlessly discussing how to get it off the ground . . . . it is lamentable that, despite our experience, we continue to look outwards from the region for the revival of its progress and the fulfillment of its promise .... Charity begins at home. 4

Some observers were sceptical of the effectivity of the petroleum security agreement, which is hampered by restrictive qualifications as to what constitutes available supply from an oil producer. The agreement, for example, gives priority to contractually committed exports to "traditional buyers" mainly outside the region, over the emergency needs of an ASEAN buyer. Apparently, past experiences with some of these extra-regional traditional buyers, who at times do not honour their commodity import contracts during emergencies, have been forgotten. Prudently, the agreement excluded petroleum handled by non-governmental, usually foreign-owned, oil companies - indeed a delicate issue. The practical effect is to exempt Singapore and Brunei from any meaningful participation under the agreement. Petroleum marketing and/or refining activities are very largely handled by private companies in these two countries. The agreement recognized the importance of mutual assistance during emergencies but, by its stipulated exclusions, reaffirmed the overriding principle of free market decisions in their respective energy trades. An example is the Thailand-Indonesia rice-for-oil agreement. In 1977 the two countries concluded a preferential bilateral trade accord; it was followed in 1978 by a joint communique in Jakarta whereby Indonesia would supply Thailand with various types of crude and LPG and Thailand would give Indonesia first priority in buying surplus Thai rice. The agreement went into effect from 1979 to 1984, when Indonesia supplied Thailand 5,000 barrels/day of crude. However, in 1985, at the wake of the drop in world oil prices, Thailand did not import any Indonesian crude but bought cheaper oil elsewhere. Indonesia, in turn, had become self-sufficient in rice and stopped imports from Thailand. 5

Designing for Consensus: The ASEAN Grid

50

In anticipation of an ASEAN interconnection or grid, three provisions of the Agreement on ASEAN Energy Cooperation are worth noting. The operationalization of these three provisions also bears watching: Article I, Section 1: The ASEAN Member Countries hereby agree to co-operate in the efficient development and use of all forms of energy, whether commercial, non-commercial, renewable or nonrenewable, in modalities that may be appropriately designed by them for the above purposes. Article II: ... the Member Countries shall endeavour to co-operate in: . . . developing strategies to promote energy-related trade within the ASEAN region. Article VI: . . . the Member Countries shall endeavour to co-operate in drawing up and concluding: (1) emergency agreements for different energy forms as may be desirable from time to time; and (2) appropriate measures to cope with these emergency situations.

With the benefit of hindsight it can be observed that no dramatic progress has taken place in ASEAN energy co-operation. It remains to be seen if the two Manila agreements on energy would yet become landmark agreements. 4. History of Electricity Co-operation Electricity co-operation has a longer history and presents a different, and somewhat more successful picture. Bilateral and trilateral utility-to-utility electricity co-operations among ASEAN member countries have, like those of ASCOPE, antedated the Bali Summit and were initiated and sustained outside any formal ASEAN umbrella. Concrete projects were undertaken on the basis of mutual benefit and technical merit as perceived by the utilities concerned. The concept of a Southeast Asian interconnection was first suggested in Singapore in 1968 at the 11th Session of the Economic

History of ASEAN Energy Co-operation

51

Commission for Asia and the Far East (ECAFE, now ESCAP) Subcommittee on Energy Resources and Electric Power. The resulting regional study carried out in February 1969 recommended the interconnection between southern Thailand, Malaysia, Singapore, and Sumatra. The twin idea of a regional energy centre was also proposed whereby large bulks of electric power would be produced by: a nuclear power plant in Singapore, the Asahan hydroelectric project in northern Sumatra, and the Bukit Asam coal-fired plant in south Sumatra (Lee 1979; IDC 1982). At the 12th Session of the ECAFE Subcommittee in Bangkok in 1972, Perusahaan Umum Listrik Negara (PLN, or State Electric Authority) of Indonesia submitted a paper on "The Asahan Hydro Electric Power Development for the Supply of Power to Singapore, South Thailand, Malaysia and Indonesia". In 1978, the idea of a Singapore-Batam Island (Indonesia) interconnection was also raised (Lee 1979; IDC 1982). The first interconnection in the region - between Singapore's Public Utilities Board (PUB) and Malaysia's Lembaga Letrik Negara (LLN or National Electricity Board) -was conceived in late 1977 to link Pasir Gudang in Johor Bahru (southernmost state of Peninsular Malaysia) to Senoko power station in Singapore. The 20-MW interconnection was commissioned into operation in May 1978 (Lee 1979; IDC 1982). 6 The interconnection capacity has since been upgraded to ZOO MW in December 1985. The interconnection is not employed for daily peak-power cross trading (Malaysian and Singaporean load curves are similar) but mainly for sharing of reserve capacities. The tie is asynchronous except when emergency power flows from one utility to another. The emergency power is not bought but only borrowed and returned soon afterwards. A feasibility study of a Thailand-Malaysia interconnection was finished by the Electricity Generating Authority of Thailand (EGAT) in January 1977. It paved the way towards the decision to set up the second interconnection in the ASEAN area. 7 On 27 July 1978 a trilateral utility-to-utility power supply exchange agreement between Thailand, Malaysia, and Singapore was signed in Kuala Lumpur. This landmark agreement also provided for the establishment of an EGAT/LLN/PUB Joint Computer Applications Committee, which was operationalized the following year. Its first joint project, an EGAT/LLN/PUB EHV Interconnection Study, was completed in the same year. The study showed the

52

Designing for Consensus: The ASEAN Grid

expected economic benefits of the interconnection to everybody. The study is significant in other respects: it initiated close exchange among the three utilities of information about each other's systems; it was conducted without external funding; and it made use solely of local expertise and computer facilities. 8 The PLN of Indonesia and the National Power Corporation (NPC) of the Philippines joined the computer committee. In its July 1979 meeting in Singapore, the PLN renewed its 1972 proposal for a 1,460-MW Asahan hydroelectric project which would have ample power for domestic use, the Asahan aluminium plant, and export to the contemplated EGAT/LLN/PUB interconnected grids. In this meeting, the committee was given a new designation: the ASEAN Power Utilities Joint Computer Applications Committee. Another interconnection proposal was conceived by the Sarawak Electricity Supply Corporation (SESCo) in 1977: a long-distance submarine HVDC link to transmit power from Sarawak to Peninsular Malaysia. The results of the initial economic assessment encouraged the incorporation of the concept in the Sarawak Master Plan Study (Th'ng and Kong 1980). Malaysian power systems experts early saw the possibilities of incorporating the idea within the larger concept of an ASEAN grid. The feasibility study for the huge Bakun hydroelectric power system in Sarawak was completed in 1982. Malaysian authorities are still committed to the concept in principle but the project schedule was moved back by three to ten years (new estimated completion time is 2005) because the 1985-86 drop in oil prices altered the economic assumptions and reduced the viability of the project.9 The eventual realization of the project has become one of the accepted central assumptions behind the co-operation and joint preparatory/planning undertaken in the ASEAN Power System Interconnection Project, which is Project No. 3 adopted and implemented by the Forum of Heads of ASEAN Power Utilities/ Authorities (Chapter VI). Meanwhile, negotiations and studies preliminary to setting up of a Thailand-Malaysia interconnection had been started as early as 1973 (IDC 1982). In 1977 the Thai-Malaysian interconnection plan was implemented and in February 1981 the power tie was energized - the second in the ASEAN region.

History of ASEAN Energy Co-operation

53

The interconnection suffered from technical problems: uncontrolled oscillations took place whenever the tie was energized (system oscillations damage rotating devices such as generators and motors, and reduce the efficiency of power transfer across an interconnection). Various reasons for the problem were advanced: the small capacity of the tie, the weak link of Thailand's southern region to the main metropolitan Bangkok system, differences in frequency control mechanisms/procedures employed by the two utilities, and the innate vulnerability of loose networks to oscillations at their so-called natural frequencies (defined in Glossary). To solve the problem temporarily, the two authorities have decided to disconnect the southern portion from the rest of the Thai grid whenever it is connected to the Malaysian grid. In effect, at those times, the area of Thailand south of Hat Yai becomes part of the Malaysian grid. At the heels of the commissioning of the second interconnection, in April 1981, the Forum of Heads of ASEAN Power Utilities/ Authorities was established. Project No. 3, one of the ten projects that the Forum established, is the ASEAN Power System Interconnection Project co-ordinated, not surprisingly, by the LLN of Malaysia. This country has been a key actor and participant in ASEAN interconnection activities and also, because of its geographic location, it will have to play a key role in working towards the realization of the ASEAN grid. Project No. 3 is being implemented by a team drawn from system development and planning personnel from the various utilities. It absorbed and took over the work of the utility-level committee- the EGAT/LLN/PUB Joint Computer Applications Committee -that had been started earlier on 27 July 1978 by Thailand, Malaysia, and Singapore outside the ASEAN framework (Lee et al. 1979). Project No.3 was formally inaugurated in the following year (11-12 March 1982) in Kuala Lumpur. These developments mark the incorporation of interconnectionrelated activities formally within the ASEAN framework, and outside the sole hands of the utilities. Project No. 3 met three more times. Brunei has not sent any representative to Project No. 3 since it obtained its independence in 1984. The last meeting was in Thailand on 22-24 September 1986 where project concepts and studies were again exchanged and updated.

54

Designing for Consensus: The ASEAN Grid

Compared to the five years before 1981, the next five years after 1981 were uneventful. Economic and technical reasons lie behind the hiatus. One reason is the fall of oil prices in 1985-86 which made large-scale hydroelectric power projects (HEPP) in Bakun and Asahan less attractive, and reduced or rescheduled public investment plans in ASEAN as a whole. Another reason is the fact that additional interconnections will involve greater distances, voltages, and/or capacities than the Malaysia-Singapore and Malaysia-Thailand ties. Most will require submarine HVDC ties. The pattern of electricity co-operation, compared with (nonelectricity) energy co-operation in ASEAN, has been different. High-level ASEAN decision-makers move when prodded by acute crises. The Bali Summit is the best example. The Manila energy agreements are others. A multiplicity of committees and working groups are created. The power utilities on the other hand have a clear concept of their objectives and how to attain them. The technical and economic span of their decision-making, however, are narrower than the multifarious considerations that higher-level ASEAN leaders have to look into. The power utilities' mandate is clear: to provide an adequate, reliable, and secure supply of electric power at lowest cost to consumers and to government. Due to their managerial and technical orientations, power utility experts also tend to define tasks clearly and to assign them into working groups appropriate to the task. Management and purposive use of ambiguities, which some politicians are good at, are not part of the day-to-day work of utility decision-makers. The technical and managerial styles of ASCOPE and power utilities in ASEAN are parallel. Managers in both have clearly shown the will to co-operate and the awareness of mutual benefits. They are aware that absence of co-operation translates into foregone potential benefits. Their organizations possess the technical wherewithal to perform the necessary tasks, and the readiness to do them. High-level ASEAN decision-makers on the other hand have often expressed a will to co-operate, can be said to be fully aware of the costs of non-co-operation, and are in command of a wide scope of expertise in their countries. But because they have to reconcile many interests, not the least their perceived national interests,

History of ASEAN Energy Co-operation

55

and perhaps because of other reasons, they are often not ready to make the decisions many are waiting for them to make. Electricity is far different from other traded commodities. Issues which bog down ASEAN economic co-operation - such as tariff protection for domestic industries, availability of cheaper goods outside ASEAN, common ASEAN tariff barriers to the outside, and the competitive position of many ASEAN products - do not apply to electricity trade. Electricity is not freely tradable, except with a neighbouring utility. Production and consumption of this commodity are inherently simultaneous. Production must always exceed consumption. This fact provides the basic motivation for several forms of electricity trade. Electricity trade does not jeopardize but instead benefits protected domestic industries. By mutual reduction of electricity generating costs, it can assist rather than upset local industrial development plans. Unlike most widely-traded commodities, electricity trade is conducted between two monopolies. Demand is highly predictable. Therefore, the potential benefit to both parties is clear and in almost all cases can be accurately predicted using appropriate computer programs. Electricity trade is a utility-to-utility commercial transaction for which national benefits/costs are so clear to the utilities involved that they started and progressed successfully even before an overriding ASEAN regional framework was superimposed in 1981-82. That an ASEAN framework is not necessary for the planning and implementation of interconnection projects, can easily be concluded from the utilities' past track record of non-ASEAN electricity co-operation. Many also think that bilateral commercial transactions are more effective and simple, less wieldy, and therefore preferable to multilateral co-ordination. However, it should also be asserted that bilateral agreements before 1981 - although effective in the early stages of bilateral interconnections - will not be able to progress towards a more extended regional interconnection or towards an eventual full-blown ASEAN grid without unqualified political support from ASEAN governments at the highest level. A regional grid, more than just one or two bilateral interconnections, entails important questions of energy dependence or interdependence, energy security, and long-term commitments to electricity trading.

56

Designing for Consensus: Tfze ASEAN Grid

In the end, we are back to the basic question of presence or absence of political will. One of the propositions forwarded in this study is that if "political will" is not an "all or none" but a scalable quantity, then the level of electricity trade/co-operation can be adjusted to match the level of the political will at any point in time (Chapter XI). Whether or not the 1986 Agreement on ASEAN Energy Cooperation is an indicator of or starting basis for the evolution of political will still remains to be seen. It will be seen in how ASEAN leaders will react to concrete project proposals for upgrading existing interconnections and setting up new interconnections submitted by the Forum of Heads of ASEAN Utilities/Authorities. 5. Thailand-Laos Electricity Co-operation

Another example of electricity co-operation in Southeast Asia but outside ASEAN is that between Thailand and Laos. Thailand purchases power from the Laotian hydroelectric project in Nam Ngum, north of Vientianne. The first phase of this interconnection with 30-MW capacity was completed in 1971 and the second phase of 80 MW in 1978. 8 The US$25 million earnings represent about one-half of Laotian export income.10 The scheme consists of a 135-MW transmission line from Laos across the Mekong River to Nong Khai, through which 30-100 MW of power is normally sent to Thailand. Further downstream, Thailand sends smaller amounts of power back to Laotian towns remote from the Vientianne power system again across the Mekong River: from Nakhon Phanom to Thakhek, and from Mukdahan to Savannakhet. Laos has informally mentioned a third interconnection, from Bung Kan to Paksan, but this may depend on the outcome of price renegotiations that Thailand would like to make with Laos_ll The Laos-Thailand case benefits both parties: Thailand purchases cheap hydro power (which is no longer as cheap after the 1985-86 drop in oil prices) while Laos uses part of Thailand's transmission capacity to serve its remote border towns and earns income from export of electricity. A similar scheme is possible in the future between Burma and Thailand, which also share long common borders including the Salween River. The well-developed and long north-south transmission

History of ASEAN Energy Co-operation

57

system of Thailand could be used to serve Burma's remote southern border towns of Mergui, Tenasserim, Bokopyin, and Maliwan. This borrowing of Thai transmission capacity could be in exchange for a power-sharing arrangement in favour of Thailand if and when Burma and Thailand jointly develop the large hydro potential of the Salween River. The hydro potential of 14,000 MW of international rivers in Thailand's borders far exceeds Thailand's domestic hydro potential of 8,000 MW (UNited Nations ESCAP 1987). The equivalent of 86 million barrels of oil per year is estimated to be obtainable from the Salween River at a cost of less than U.S. 3 cents/kWh in 1983 (Desai 1983). However, this scenario must wait for the long-term resolution of the conflict between the Rangoon government and rebel groups in eastern and southern Burma. Notes 1. "ASEAN Committee on Industry, Minerals and Energy (COIME): A Com-

2. 3.

4. 5. 6.

7.

8.

prehensive Review", unpublished aide memoire (Manila, Philippines: Ministry of Foreign Affairs, 1982). "All Nations Have a Vital Interest in Cooperating to Solve the Energy Problem", ASEAN Newsletter, 15 October 1980, pp. 6-7. "Energy Bloc Poised to Bolt ASEAN Body", Financial Times, 7 October 1981, p. 8. Joint press statements of the ASEAN Economic Ministers on Energy Cooperation: First Meeting, Bali, 29-30 September 1980; Second Meeting, Kuala Lumpur in April 1981 (no press release); Third Meeting, Manila, 8-9 October 1981; Fourth Meeting, Singapore, 19 January 1983; and Fifth Meeting, Bangkok, 25-26 April 1985. "Pressure Mounts for Change within ASEAN", Manila Bulletin, 14 July 1986, p. 17; "ASEAN the Irrelevant", Asian Wall Street journal, 26 June 1986, p. 4. Sue Kendall, "ASEAN Oil Agreement could be Difficult to Implement", Agence France Presse, 29 June 1986. An interconnection had been set up as early as 1957 for supplying power to Johor Bahru from Woodlands (Singapore). This arrangement under the then British Malaya was a purely domestic one. See: "$41m Power-Sharing Scheme with S'pore", The Star, 5 February 1986, p. 23. "EGAT-LLN Interconnection: Operation Aspect", in "EGAT/LLN-SESCo/PUB/ PLN/NPC: Report on Inaugural Meeting of the ASEAN Power System Interconnection Project", Kuala Lumpur, 11-12 March 1982. This is an unpublished source kindly furnished by Mr Tajudin bin Mohd. Ariff, Co-ordinator of ASEAN Power Interconnection Project (Project No. 3). Personal communication from Dr Rozali bin Mohd. Ali, National Electricity Board, Malaysia, 20 May 1987.

58

Designing for Consensus: The ASEAN Grid

9. Personal communication from Mr Tajudin bin Mohd. Ariff, Co-ordinator of ASEAN Power Interconnection Project, 21 May 1987. 10. "Eyewitness', Asiaweek, 5 April 1987, pp. 44-45. 11. Personal communication from Mr Siridat Glankwahmdee, Assistant Director, Planning Department, Electricity Generating Authority of Thailand, 27 May 1987.

w~

The Concept of an ASEAN Grid

1. Interconnection versus Grid

A "grid" is a system of power sources and power consumption centres, connected to one another in a network via transmission and distribution lines. For at least one consumption centre, power can be supplied from two or more alternative sources and/or through two or more alternative transmission routes. A system consisting of one power plant, one transmission line, and a distribution system is sometimes loosely referred to as a grid if the distribution system is in the form of a network through which power can flow to some consumers via more than one alternative route. A state power authority/utility may be operating several isolated, usually island-wide, grids as in the case of Indonesia and the Philippines. Different state power authorities/utilities may be operating different isolated grids in the same country, as in Malaysia: National Electricity Board (NEB, also known as Lembaga Letrik Negara or LLN) in Peninsular Malaysia, Sabah Electricity

60

Designing for Consensus: The ASEAN Grid

Board (SEB) in Sabah, and Sarawak Electricity Supply Company (SESCo) in Sarawak. An interconnection is a transmission link between two grids. An interconnection does not necessarily result in the integration of two grids into one. However, several interconnections between two or more grids, as in the case of the NORDEL system, can result in a combined system having properties and behaviour of a single grid. Applying strictly the definition of a grid, an "ASEAN grid" is one which links all national and island grids in ASEAN via multiple interconnections. This ultimate end may not be attainable even within the next fifty years due to constraints posed by ASEAN's insular geography. An ASEAN grid is thus a long-term vision or a dream, while an "ASEAN power interconnection" is a more realistic but almost equally significant long-term target. It consists of a step by step establishment of various bilateral interconnections among ASEAN member countries. The first two concrete steps towards this target have long been taken: the Malaysia (Johor Bahru)-Singapore interconnection (1978, upgraded in 1985),1 and the Thailand (Hat Yai )-Malaysia interconnection (1981). In this study "ASEAN grid" and "ASEAN power interconnection" will be used interchangeably. For purposes of discussion and application to ASEAN at this point in time, it is not yet useful to make a strict distinction between a mature or fully integrated grid and a set of bilateral power interconnections. An interconnection entails one or more of the following: technical co-operation, co-ordination of system control procedures (short-term) and expansion planning (long-term), and bilateral commercial transactions. A grid entails something much more than co-operation: it implies a close integration of planning and management of the interconnected grids. In an interconnection, management autonomy of each utility is intact but in successfully operating a regional grid, management concerns and responsibilities of participating utilities overlap and interlock with one another. 2. The ASEAN Power Interconnection Concept The concept of an ASEAN power interconnection is not a single

The Concept of an ASEAN Grid

61

concept. It consists of a series or stages of interconnections; it is not a single target but a moving or escalating one. Present interconnections in ASEAN are: (1) the Malaysia-Thailand interconnection, and (2) the Malaysia-Singapore interconnection. Interconnections also exist between Thailand and Laos. The various future interconnections being explored by the Project No.3 team, in their approximate order of likelihood or immediacy of operationalization, 2 are the following (Figure VI-1): 1. Upgrading of voltage and capacity of the LLN-EGAT (Penin-

sular Malaysia-Thailand) tie for daily peak-power trading; 2. Sarawak (SESCo) to Pontianak, West Kalimantan (PLN) overland transmission for bulk power purchases; 3. Batam-to-Singapore submarine link for bulk power purchase by Singapore from coal-fired plants planned in Batam Island; 4. After or together with the commissioning of the Bakun hydroelectric power project (HEPP) around 2005, a long-distance submarine HVDC link between SESCo and the LLN for bulk sale of power to the LLN - and thence to the PUB, EGAT, and/or Sumatra provided that synchronous connections through high-capacity lines have been set up between the LLN on one end and the PUB, EGAT, and/or Sumatra at the other ends. Bakun power can conceivably reach the high-demand centres in Java if and after a submarine Sumatra-Java link and a Sumatra grid have been established by the PLN. 5. SESCo-SEB (Sarawak-Sabah) overland transmission line with by-connection(s) to Directorate of Electricity Services (DES) power network in Brunei; 6. Sumatra-Malaysia/Singapore submarine interconnection, for peak-power trading or transmission of bulk power from the Asahan HEPP using Lake Toba (Sumatra) hydro potential; 7. Interconnection between the SEE and north/eastern Kalimantan; and 8. HVDC connection from the SEB/SESCo to the Mindanao grid in the Philippines or to the Luzon grid via Palawan island. The U.N. ESCAP study mentioned earlier presented prime facie cases for positive benefits resulting from Steps 1, 2, 5, 6, and 7 above (UNDP & ESCAP 1987).

FIGURE VI-1 Existing and Contemplated ASEAN Interconnections SOUTHEAST ASIA S 0 U TH

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Designing for Consensus: The ASEAN Grid

96

TABLE VIII-2 Summary of External Factors Affecting the Feasibility of an ASEAN Grid Factors

Direction

Comments

+

Firming up in 1990s

Transmission systems (e.g. superconductors)

+

EHV AC/DC R&D; cheap bulk DC transmission

DSG w/microprocessor controllers

+

Greater reliability and flexibility

Oil price Future technological developments in:

+I-

"Democratization" of power production; mix of large grid and dispersed power sources likely

C0 2 /Greenhouse effect

+I-

Fossil burning limited but hydro/solar favoured

Storage of radwastes

-I-

Nuclear power limited but hydro/solar favoured

Hydroelectric plants

+I-

Depends on intelligent planning/management

NRSE

Environmental impacts:

Geography of ASEAN

Energy sources are far from demand centres

(Bangkok: ESCAP, 17 February 1986); Fereidun Fesharaki, "Oil Refining Policies and Prospects to the Year 2000: Planning Long-Term Strategies in a Short-Term Market", in Proceedings of the 2nd International Asia-Pacific Petroleum Conference, Singapore, 15-17 September 1986; "Looking to the Year 2000", Petroleum Economist, November 1986, p. 400; World Bank, Half.Yearly Revision of Com· modity Price Forecasts and Quarterly Review of Commodity Markets for December 1986 (Washington, D.C.: World Bank, 10 February 1987). 5. One of the earliest good sources is Hubbert's works. The general outlines of hio conclusions are still valid. SeeM. King Hubbert's "Energy Resources", in

External Factors Affecting the Feasibility of an ASEAN Grid

6. 7. 8. 9. 10. 11. 12.

13. 14. 15.

16.

17.

97

Energy and Man (Washington, D.C.: National Academy of Sciences- National Research Council, 1969), pp. 157-239 and "Survey of World Energy Resources", in Energy and Man: Technical and Social Aspects of Energy, edited by M. Ganger Morgan (New York: IEEE Press, 1975), pp. 3-19. "ASEAN Told to be Careful in Managing Energy Resources", Jakarta Post, 13 March 1987. "Oil Prices 'Firm, May Rise to $24 by 1990' ", Bangkok Post, from a Reuter dispatch, 28 May 1987, p. 19. "Steady Oil Prices for Next 3 Years, Says Economist", Straits Times, 10 January 1987, p. 12. "Oil Analysts Disagree on Pace of Oil Price Hike", The Nation, 26 May 1987, p. 28. "Stable Oil Prices Seen", Business Day, 4 June 1987, p. 14. "Looking to the Year 2000", Petroleum Economist, November 1986, p. 400. "New Superconductor May Lead to Cheaper Power", Straits Times, 17 February 1987, p. 4; "Superconductors Set to Change the Way We Live", Straits Times, 17 June 1987, p. 8; Brookhaven Power Transmission Group, Brookhaven National Laboratory, Underground Power Transmission by Superconducting Cable, BNL Report 50325, ed. E.B. Forsyth (March 1972). "US-Japan Race in Offing to Sell Superconductors", Straits Times, 25 May 1987, p. 4. "Uninterruptible Power Supplies", Asian Electricity 5, no. 3 (March 1987): 29-36. Edwin Schumacher, Small is Beautiful: A Study of Economics as if People Mattered (London: Sphere Books Ltd., 1974; Christopher Flavin, "Electricity's FutureSmall Looks Beautiful", The Futurist, April 1985, pp. 36-44; C. Flavin, "Electricity for a Developing World:' New Directions", SunWorld 10, no. 3 (1986), pp. 69-74. Amory B. Lovins, "Energy Strategy: The Road not Taken?", Foreign Affairs 55 (1976): 1; A.B. Lovins, "Scale, Centralization and Electrification in Energy Systems", in Proceedings of a Conference on Energy and Scale (Oak Ridge, Tennessee: Institute of Energy Analysis, 1971); A.B. Lovins, Soft Energy PathsToward a Durable Peace (Harmondsworth, Middlesex, England: Penguin Books Ltd., 1977). "Soft" has two meanings. A technology is said to be soft if it results in low per capita energy consumption, and low demands on natural resources and natural capacities to absorb wastes. Most solar-based energy technologies belong to the "soft" category. United Nations, Proceedings of the High-Level Regional Consultative Meeting for the Mobilization of Financial Resources for New and Renewable Sources of Energy and of the Meeting of Focal Points on New and Renewable Sources of Energy, Bangkok, 4-10 September, 1984 (New York: United Nations, November 1985); Tan Siok Choo, "Solar Power Better But Not Cheaper", The Sunday Star, 9 February 1986, p. 7; Yeoh Guan Jin, "But for the Sun and Plants ... ", The Sw,day Star, 9 February 1986, p. 7; "Solar Energy Lighting Up Lives of Folk in 1\vo Villages", New Straits Times, 10 April 1987, p. 15.

98

Designing for Consensus: The ASEAN Grid

18. "A Hotter World 'Unless Less Fossil Fuel Used'". Straits Times, 11 November 1987, p. 6. 19. "Japanese Firm Hands in Plan for Indonesian Nuclear Plant", Straits Times, 30 April 1987, p. 9. Under a "BOT" (build, operate, and transfer) scheme, a foreign investor builds and operates a nuclear power plant at his own expense. The government binds itself to purchase power produced while the investor, after a period sufficient to recover all costs and make a profit, binds itself to turn over the plant to the government. 20. See, for example: Toufiq A. Siddiqi, "Environmental Aspects of Energy Developments", in Critical Energy Issues in Asia and the Pacific: The Next TWenty Years, edited by Fereidun Fesharaki, Harrison Brown, Corazon M. Siddayao, Toufiq A. Siddiqi, Kirk R. Smith, and Kim Woodard (Boulder, Colorado: Westview Press, 1982) and Janet Mohun and Omar Sattaur, "The Drowning of a Culture", New Scientist, 15 January 1987, pp. 37-42. 21. Figure VIII-1 was based on information from: Oxford Economic Atlas of the World, 4th ed. (London: Oxford University Press, 1972); The Economist, Quarterly Energy Review, Far East and Australasia, Annual Supplement 1985 (London: The Economist Intelligence Unit, 1985); Information Malaysia 1987 Yearbook (Kuala Lumpur: Berita Publishing, 1987); and Montreal Engineering Co. Ltd. and Swan Wooster Engineering Co. Ltd., ASEAN Coal Development Project, a report on a study commissioned by the Asian Development Bank and U.N. ESCAP Regional Energy Development Programme, Bangkok, March 1985.

~~

Project Design Issues

The feasibility of an ASEAN regional interconnection or grid depends on project definition and design, which are largely within the scope of control and influence of ASEAN decision-makers. The aim of this chapter is to identify and analyse these "project design issues", towards the goal of suggesting the most feasible options and modalities of regional electricity trade. These options are detailed in the next two chapters. The magnitude and scale of the contemplated ASEAN grid is such that no less than a comprehensive consideration of these issues must be undertaken. 1. Environmental and Social Impacts

Several big hydroelectric power projects around the world have had disastrous environmental and social impacts. Food aid for 100,000 people displaced by the Aswan High Dam in Egypt was necessary to avert famine (UNEP 1980). The Hoover Dam in the United States caused salinity downstream to rise from 250 ppm

100

Designing for Consensus: The ASEAN Grid

to 655 ppm in 1969, and the government had to spend several hundred million dollars to install a desalination plant. The Volta River Project in Ghana displaced 64,000 people in 1962 and caused losses of livelihood, social disruption, and large-scale health problems (Mohun and Sattaur 1987). The aborted Chico River Dam in the Philippines, by a series of mistakes of omission and commission, led to violence and deaths and fueled an upland ethnic minority rebel movement (Chapter VIII, Section 3.3).1 After widespread public opposition and demonstrations against the Lake Pedder hydro project in Tasmania, Australia a Committee of Inquiry convened by the Australian Government in 1973 concluded, among others, that There is a need to adopt a much broader multi-objective approach to the planning and management of water and land resources .... Public participation in the decision-making process is desirable whenever major resource development projects are undertaken in what is alleged to be the public interest. (Siddiqi 1982)

A survey of such large-scale development disasters and mistakes around the world convinces one that little trans-country learning has taken place. This study must therefore address the issue of externalities (Chapter III, Section 7) with the end in view of contributing to needed trans-country learning processes. Electricity production entails both indirect benefits and indirect costs. The total value added induced in Malaysian economy by increases in the electric power supply due to OECF-financed power projects up to 1984 was estimated at M$36 billion (40 per cent of GDP). The multiplier effect ranges from 2.1 to 2.7. 2 Because the total value added cannot be attributed solely to availability of power (it is due to joint effects of many other factors such as new capital investments), it can be regarded as the economic growth made possible by availability of electric power. Multiplier effects (ratio of indirect plus direct benefits to direct benefits) computed for small and medium-scale non-conventional energy projects have been found to vary in the neighbourhood of 1.64 to 5. 75 (Talisayon et al. 1980). Large-scale production and transmission of power also entail indirect costs, such as negative impacts on the environment and

Project Design Issues

101

on various individuals and groups in a society. The first mistake a project planner can commit is to limit project planning to direct effects, or to view a project as self-contained or isolated from the rest of the world. Project studies, by defining/delineating project scope in a neat engineering fashion, can produce an illusion that it does hardly affect, or is hardly affected by, the environment and surrounding communities. The case of the Chico River Dam in the Cordillera Mountains, in Luzon island in the Philippines, is an instructive ASEAN example of how not to plan and implement a large-scale power project.l The P586 million project threatened the ethnic and cultural integrity of an upland minority group, the Kalingas, whose viewpoints and interests were not adequately addressed in the engineering studies, if at all. Opposition was by verbal persuasion at first. Religious and international interest groups, environmental pressure groups, and left-wing rebel groups joined the conflict on the side of the Kalingas. Then the conflict took the form of violence on both sides, resulting in deaths. The problem has become a "security problem" of the national government. The disliked project substantially contributed to the growth of the Cordillera People's Liberation Army under a former Catholic priest, Father Conrado Balweg. After the February 1986 revolution that overthrew former President Marcos, President Corazon Aquino met with Father Balweg and she agreed to stop or indefinitely postpone the project after much expenditure of money, lives, and goodwill. With the benefit of hindsight, it can be observed that the failure of the project stemmed, at first, from a narrow planning definition of what constitutes a "hydroelectric project" and, much later, from a seeming readiness of the government then to employ the coercive power of the state over a minority group. In rough chronological order, the failures were as follows: 1. Narrow delineation of project scope. Interactions between the hydroelectric power project and important social and cultural factors were not recognized or were grossly underestimated (a perceptual fix). The limited, largely engineering conception of project scope followed naturally from the narrow sectoral responsibilities of the government agencies involved (National Power Corporation and

102

Designing for Consensus: The ASEAN Grid

National Irrigation Administration) and from the technical training and background of planners in these agencies (a bureaucratic and technical fix). 2. Poor community relations skills. Consultation with, or involvement of, local communities was too little and too late in the planning cycle. This operational mistake arose from the perceptual mistake as well as from the bureaucratic and technical fix mentioned above. The problem touched several conflict dimensions: upland tribal minority groups versus the dominant lowland group (the ethnic dimension); local government/people versus the central/national government (the administrative dimension); rebels versus military authorities (political/ideological dimension). 3. Inadequate Pareto transfer. 3 Compensation of people adversely affected by a public project was recognized by the government, but was deemed inadequate, delayed, or unacceptable by the people. Erosion of goodwill had made negotiation processes difficult. If indeed a public project is for the greater public interest, in other words, if social benefits exceed social costs then there should be more than adequate funds available for compensation. Government commands sufficient authority and mechanisms to effect such Pareto transfer. If social costs cannot be quantified (for example, a loss in the form of a non-tradable amenity that cannot be valued using market pricing mechanisms) or the valuation system by affected groups differed from that of the government (for example, places regarded sacred by an affected minority ethnic group) then Pareto transfer is still feasible by many forms of peaceful negotiation processes and mutually-acceptable compensation mechanisms. In the latter, economic rigour in determining correct pricing is replaced by the criterion of social and political acceptability to all parties concerned. The chances of a project being accepted are higher if consultation processes are initiated early in the project planning cycle. The "environmental bargaining" process employed in the Mahaweli hydro complex in Sri Lanka can be cited as a successful example. 4 In the case of the Lake Pedder controversy, the government's Committee of Inquiry found that acceptability suffers and bitter, unnecessary conflicts over an environmental issue result whenever

Project Design Issues

103

the government withholds information and shows an unwillingness to give consideration to the public viewpoint (Siddiqi 1982). 4. The problem was later regarded as a "security problem'~ The failure to manage the environmental conflict later led to involvement of external groups: environmental activists, church people, international interest groups, and left-leaning rebels. When violence and killings took place, the problem came to be seen by the national government as a "security problem". Attention to symptoms and after-effects of the illness, in relation to perception of basic causes, became disproportionate. The problem had gone too far beyond the administrative and technical scope of control of the electric power and irrigation agencies of the Philippine Government. Presidential action, the last recourse, had to be made. ASEAN cannot afford a repetition of the Chico River Dam developmental planning/implementation mistakes. Any form of large-scale failure in developing renewable energy resources can foreclose energy options in the distant future, when population densities in upland and frontier areas (where hydro, geothermal, solar farms, and other renewable power projects will be located) have increased well above manageable proportions, and when fossil fuel alternatives are narrowing down. Among ASEAN countries today, some large-scale power projects will need careful consideration and handling by the governments concerned. Two examples where positions are being taken by local groups and environmental pressure groups are the proposed Nam Choan hydroelectric project in Northern Thailand 5 and the Bakun hydroelectric project in Sarawak, Malaysia. 6 The legal framework for correct environmental management and for environmental impact assessment of large projects is in place in many ASEAN countries, to a greater or lesser extent (Siddiqi 1982): Indonesia. Policy and Programmes for Management of Natural Resources and Environment under Repelita III, implemented by the Minister of State for Development Supervision and Environment. Malaysia. Environmental Quality Act of 1974, implemented by the Division of Environment with the Ministry of Science, Technology,

104

Designing for Consensus: The ASEAN Grid

and Environment. An Environmental Impact Assessment (EIA) regulation is expected to be in force starting in 1987.7 Philippines. Presidential Decree Nos. 1121, 1151, and 1152 in 1977 establishing the Philippine Environmental Policy and the Philippine Environmental Code, including an EIA requirement for large projects, implemented by a National Environment Protection Council, under the Department of Natural Resources and Environment since 1987. Thailand. 1977-81 Economic and Social Development Plan, Chapter on Development of Conservation of Critical Economic Resources and Environment; and the National Environmental Quality Act of 1978 which includes an EIA requirement. Under existing Philippine law, public hearings can be held after an EIA is submitted by a project proponent. This and similar open information dissemination, public scrutiny and evaluation, and negotiation mechanisms sanctioned by the national government can theoretically be utilized to ensure both the public and government of the smooth implementation of a project, incorporating modifications arising from such processes. The key in managing environmental and social issues inevitably but not always visibly - connected with big natural resource-based projects is to view them as embedded within the natural ecosystem and social milieus. Management of a resource exploitation project becomes management of the wider ecosystem or natural resource base (Talisayon 1986).

2. The Issue of Ownership and Organicity of Interests After the issue of economic feasibility of a megaproject is settled, the next issue (Chapter III, Section 7) is social feasibility - that is, will all sectors of society be happy with it or will some sectors oppose it? Should and can the project be pushed and sustained despite negative political/social factors? These issues may be under control by a government in a purely domestic development project. However, the same does not hold true for a regional co-operation project. A partner will be concerned

105

Project Design Issues

in the face of strong local opposition and other obstacles to the project located in a second country, factors that are beyond the control of the first. If the economic stakes are high, participants and financiers will particularly look for features in the project concept and design that will pre-empt or proactively solve the issue to their satisfaction. The feature called for in a project is stability. A growing body of experience and research findings at the level of the enterprise indicates that the productivity and stability of a project/venture is associated with the extent to which all or most of the affected and concerned parties perceive an interest in, or identify with, that enterprise. 8 - 11 The issue revolves around three interrelated questions: 1. Ownership: Of whom is the enterprise? 2. Management: By whom is the enterprise? 3. Benefit: For whom is the enterprise?

Innovations in enterprise design and management in the last two decades revolve around these three key questions. The following examples illustrate this point: 1. On ownership:

Senior executive share option; Employee stock ownership plan; Employee stock purchase option; and Privatization of state company.

2. On management: Productivity improvement circle; Quality control circle; Employee innovation award; and Participatory planning/management. 3. On benefit:

Profit-sharing; Productivity bonus; Housing/transportation allowance; Patronage rebate; and Commissary privilege.

Ownership is the most crucial issue, and how it is spread around to all private parties involved, interested, or affected by an enterprise.9 Whether ownership is direct or indirect is a significant corollary issue.l 0

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To have efficient and stable productive enterprises, convergence towards employee/worker autonomy, self-management or/and co-ownership, is taking place in the United States, People's Republic of China under Deng Xiaoping, the Soviet Union under Gorbachev, and Yugoslavia.l 1 Employee co-ownership and participatory management by employees work to create an organicity of interests in an enterprise - a condition far different from the adversary labour-management relationships in a classical Western corporation. The family-like (more accurately, the iemoto-like) character of the Japanese corporation works in a similar fashion. The relevance of this issue to the case of the ASEAN grid lies in the intricate problem of reconciling and constructively weaving together various interests affecting the viability of major components of the project: 1. Local people and local governments within the influence

2. 3. 4.

5.

zones of large energy projects (hydroelectric dam, lignite mine, EHV transmission, nuclear power plant, coal-fired power plant, and others); Employees hired during construction and during operation of a power plant; Local and ASEAN utilities depending on a power plant for emergency, peak-period, or bulk power trading; ASEAN governments concerned with adverse impacts to their economy and security in the event of any failure in the grid; and Domestic and foreign lenders and stockholders.

Potential problems arising from local people suffering from negative impacts of an energy project, if not averted or resolved, can easily become linked to other problems, such as: local/provincial versus federal/national government conflict; 12 ethnic conflict between upland/frontier groups and dominant lowland majority groups; 13 armed conflict between locally-based rebel groups and government armed forces; conflict between local employees/residents and project managers from urban centres; and opposition from environmental pressure groups. Besides, the welfare of people in or near the energy resource versus the welfare of people in urban areas who need electricity, is related to the issue of equity. If each of the concerned parties would take an interest in the

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continuing viability of a project, then the security perceived by the others would be enhanced and uncertainties attendant to megaprojects could be reduced. Accordingly, institutional mechnisms and options for designing a desirable organicity in ASEAN electricity trade will be detailed and proposed in Chapter XI. The question is one of a correct and workable institutional design appropriate to a specific situation. In the Philippines in the last two decades, the search for workable and acceptable development processes and institutions in this direction has been a mix of failures and successes. The correct direction appears to be towards participatory ownership, management or/and benefit (Castillo 1983). By "participatory" is here meant participation by the people at the local level (for example, surrounding communities) or lowest (for example, employee) levels. 3. Security Implications

Energy is crucial to the economic development and national security of a nation. For an energy-importing nation, security of energy supply is important. The lessons of the first and second oil crises led ASEAN nations to a number of policy directions: diversification of external energy sources, reduction of oil in the national energy mix, development of indigenous energy sources, and experimentation in new and renewable sources of energy. The overriding objective is to obtain a cheap and reliable supply of the strategic commodity. Electricity trade -to be more accurate, bulk import of electrical power - creates vulnerabilities somewhat more for the importer than for the exporter. The asymmetry of vulnerabilities is traceable to the multiplier effect of electricity consumption. In the worst case scenario of mutual hostilities, the exporter would lose export earnings but the importer could lose more, namely, the commercial and industrial production relying on that amount of power that could be cut off.14 The asymmetry of vulnerabilities could be lessened by designing the project in an organic fashion (Chapter XI). Cutting off supply of a vital commodity or verbal threat thereof is an act of hostility. The likelihood of this act can be minimized even under a highly strained bilateral relationship, if vulnerabilities are symmetrical. An analogy is that of a person unlikely to release

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a guillotine if it will cut off not only his enemy's but his own head as well. He may do so if it will cut off his enemy's head at the cost of, say, only his own leg. An application of this strategy of designing symmetric benefits and vulnerabilities to minimize mutual insecurities is the proposal (explained in Chapter XI) to integrate an Indonesian Natuna energy complex with the Malaysian Bakun HEPP cum trans-Malaysian HVDC interconnection. Based on this principle, peak-power trading (a bidirectional transaction) does not entail as much risk as bulk power import (a unidirectional transaction); the former has symmetry of benefits and vulnerabilities. In the case of trade in fossil fuels, the seller is not tied to one buyer, and the buyer is not tied to one seller. Once the trans-country tie is constructed, electricity trade binds buyer and seller to each other for the duration of the useful lifetime of the transmission equipment. In case of voluntary (hostilities) or involuntary (serious accidents or sabotage by a third party) power cut-off, both parties forego the recovery of their investment. Distinctions between voluntary and involuntary acts of government could be blurred. Under conditions of domestic scarcity or deprivation, a supplier can cut off exports - an act which could be understood by the importer as non-hostile. Also, a steady rise in domestic energy demand reduces exportable surplus so that eventually, the exporter may not want to renew a supply contact. These problems must be anticipated and planned for by both parties not during execution of long-term electricity supply agreements but earlier, that is, when the interconnection is being planned. Paradoxically, one motivation that drives two utilities to interconnect is mutual improvement of each other's reserve margins and system reliabilities (see Chapter III, Section 4 on sharing of reserve capacities). Since the physical infrastructure is the same in both cases, the only difference between sharing of reserve capacities and mutual denial of benefits by voluntary (for example, hostile) power cut-off is presence/absence of goodwill. The damage also depends on the percentage of total energy consumption made up of imported bulk power. Among Nordic countries, traded electricity is about 6 per cent of total electricity consumption and therefore even less compared to total energy consumption. According to the principle of increasing security by

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diversification and/or distribution of risks, electricity trade can be acceptable politically if this percentage is kept sufficiently small. Mutual trust and confidence among ASEAN member countries which grows together with the regional association's cohesiveness and political maturity - will also contribute to this political acceptability. In the ultimate analysis, ... really the problem of regional energy security is basically one of political will. It is not an economic question. It is not a technical question. It is one of political will.I 5

Regional cohesiveness and political maturity are not all-or-none qualities. They develop and grow, or retrograde. Fortunately, the economic and technological commitment accompanying a power interconnection can be ordered along a scale of increasing political commitment or of increasing willingness to assume mutual dependencies or vulnerabilities. In other words, the type of electricity trade can be selected to match the level of maturity of the relationship between two or more participating countries (see Chapter X). This is borne out by observations of existing bilateral and regional interconnections: 1. Western Europe and Eastern Europe have their own separate regional grids. Significantly, Yugoslavia is interconnected not with the eastern but with the western European grid. Yugoslavia, though socialist, is ideologically and economically independent of the Soviet bloc. 2. The east/central North American grid as well as the Nordic grid reflects the close and friendly relations among the participating countries. Canada and the United States were never party to political conflict (the American Revolution was against the British, who were occupying the Dominion of Canada about two hundred years ago). The last war among Scandinavian countries was also approximately two hundred years ago. Significantly, Finland - a country with substantial historical, cultural, and trade ties with Russia - has several interconnections with the Soviet Union. The values of peace and neutrality evident in Nordic countries also help. 3. Interconnection plans among ASEAN countries and among

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three groups of countries in Africa reflect the growth of regionalism in their respective areas. An exception is the Cabora Bassa hydroelectric project in Zambesi River in Mozambique, which exports power to South Africa (Jeffs 1979). The project is a colonial legacy from the Portuguese, who made the decision to build the hydropower plant and sell power to South Africa. But after gaining independence in 1976, the new government upgraded the interconnection twice: from 960 MW to 1440 MW and then up to 1920 MW. Mozambique and other members of the South African Development Cooperation Committee (SADCC) are presently contemplating formation of a regional grid. SADCC is a regional grouping among "frontline" southern African states for mutual development assistance, self-help, and reduction of economic dependence on South Africa (Griffiths 1984). Mozambique meanwhile would not- or could not- disengage from the trading relationship with South Africa. Mozambique needs the export earnings while South Africa needs the electricity. This fact must also be viewed against the backdrop of a long history of economic interdependence between the two countries. The converse could also be asserted: a technological and economic interdependency hastens the maturation of a regional grouping. A power interconnection or grid, specifically, is a form of relationship driven by mutual economic gain or/and by mutual improvement in reliability of each other's power supply. Once entered into, it requires heightened levels of co-ordination of planning and operations, technical consultation, and information exchange.

4. Bilateral Relations

The status of bilateral relations within ASEAN is an issue important to security perceptions of each member country. The decision to enter into a long-term electricity trading relationship, invest money in a transmission link, and commit one's utility to co-ordinate operations/plans closely with another will be calculated according to economic and political criteria. The latter covers the status of bilateral relations between the prospective trading partners,

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presence of any rebel or secessionist groups in the border area where the transmission link will be set up, and past history of bilateral relationship between the partners. As regionalism develops, the strength or fragility of bilateral relationships will be important considerations. The following examples are some of the bilateral problems or potential problems that must be managed by ASEAN leaders in the future.

4.1 Thailand and Malaysia Left-leaning rebel groups in the Thai-Malaysian border- a common concern wherein the two countries have co-operated in solving since 1965 - appear to be under control. Military pressure and an amnesty policy by Thailand has succeeded in reducing the numbers of the Communist Party of Thailand and Muslim separatist groups in southern Thailand. The two countries have co-operated in weakening the Communist Party of Malaya, and Thailand would like Malaysia to adopt a similar amnesty policy to further reduce this threat.l 6 Problems on poaching by fishermen, illegal border entries, and smuggling of drugs are not politically significant. The cordial relations between the two countries can be seen in their efforts to set up a Joint Authority to explore and develop petroleum resources in an offshore area claimed by both,l 7 as well as the establishment and operation of an interconnection across their borders - the second ASEAN power interconnection. The two countries agreed in 1987 to set up a joint ministerial-level commission to oversee all bilateral relations except security matters.18 In contrast, the large hydro potential of rivers on the common borders of Thailand with Burma and Laos can not be exploited yet because of political instability. The Interim Mekong River Committee has been ineffective precisely for this reason. 4.2 Singapore and Malaysia

Occasionally, irritants in Singapore-Malaysian relations occur. Protests and demonstrations against Singapore were held by a number of groups in Malaysia as a result of their indignation over the decision of Singapore to welcome in a state visit Israeli President Chaim Herzog last November 1986. The usc of water supply

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as a weapon was privately mentioned in Malaysia.19 In early 1987, a ranking Singaporean leader raised the question of loyalties of Malay Singaporeans in the Singaporean armed forces in case hostilities may put them to test. That statement again stirred up controversy across both sides of the causeway. The water supply issue is pertinent. Singapore buys water from Malaysia under a long-term contract. It is unlikely that the Malaysian Government sees it as an issue at all, except perhaps on the matter of renegotiating the price. 20 But this issue, though raised by private individuals, is precisely an issue faced by an electricity importing country. Even if these irritants are soon forgotten, they are concrete reminders of differences in perceptions and cultural undertones which underlie the strength or fragility of their relationship. 4.3 Philippines and Malaysia

An issue with continuing considerable potential for conflict is the issue of the Philippine territorial claim over Sabah. The claim started during the administration of Philippine President Macapagal, and continued during President Marcos's administration. The latter's dramatic 1977 announcement during the Kuala Lumpur ASEAN Summit that the Philippines intends to withdraw the claim was not followed by concrete actions. President Corazon Aquino expressed the desire to resolve the issue during her campaign, and after the February revolution, Vice-President and former Foreign Minister Salvador Laurel stated that For too long this dispute has been allowed to fester and adversely affect the relations between the Philippines and Malaysia. We are, therefore, prepared to undertake new negotiations as soon as possible in order to resolve the dispute. 21

Malaysian observers, however, point to the fact that the new Philippine Constitution is ambiguous on the territorial question, and are waiting for clear steps from the Philippine side towards the final resolution of the issue. 22 The first step was taken by the Philippine Congress on the eve of the Manila Summit in December 1987. A bill was introduced by President Aquino's party renouncing the claim. The presence of Muslim secessionist movements in western

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Mindanao presents another obstacle to the option of a Sabah/ Sarawak-Philippines interconnection. The great distance between Sabah and Mindanao, the low power demand in Mindanao, and the absence as yet of a power link to Luzon (where power demand is mainly concentrated) are difficult physical obstacles. A Sabah/ Sarawak-Philippines interconnection is perhaps not yet economically viable nor politically feasible. This may be the reason why this option was not included in the ESCAP study of interconnection in Southeast Asia. Substantive planning can start only after the Sabah and the Muslim secessionism issues have been resolved satisfactorily to all parties concerned.

4.4 Brunei and Malaysia A sensitive issue between Brunei and Malaysia is Limbang, a stretch of Malaysian territory that divides Brunei into two separate sections and which was historically a part of the once wide span of control of the Brunei Sultanate until it was taken over by (Rajah) Sir James Brooke. 23 An event, forgotten by ASEAN for the sake of regional unity, is the sponsorship by Malaysia, Indonesia, and the Philippines, and the "yes" vote by Thailand, of U.N. Resolution 1514(XV) of the U.N. Committee of 24 on Decolonization, which called for "free and democratic elections" in Brunei. 24 4.5 Malaysia and Indonesia; Brunei and Indonesia An old issue, Indonesian President Soekarno's policy of con{rontasi with Malaysia, is no longer an issue after he was deposed following the abortive 1965 coup. Almost forgotten, too, is President Soekarno's support for a rebellion against the Brunei Sultanate in 1962led by A.M. Azahari, who fled and took asylum in Indonesia. According to Indonesian Foreign Minister Mochtar Kusumaatmadja, those past policies will not recur: I think with changes of government and of presidents [in Indonesia] and the reversal of past policies, [better bilateral relations] ... has followed from that.2 5

4.6 Indonesia and Thailand Indonesia and Thailand do not have differences now nor in the

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past, except in their perceptions of threat to their security posed by Vietnam as against that by China. Thailand perceives a greater threat coming from Vietnam and therefore cultivates a relationship with the People's Republic of China. Indonesia on the other hand believes that the greater threat to its security comes from China and would like to cultivate Vietnam as an ASEAN buffer vis-a-vis China. For the sake of consensus, these differences have not been allowed by ASEAN foreign ministers to influence their common stand against the Vietnamese occupation of Kampuchea.

4. 7 Political Implications of Interconnections ASEAN is different from the NORDEL grouping in several respects: ASEAN is much younger; its average per capita GNP is low and economic/social development is a primary concern; unity among its diverse ethnic and racial citizenry is no less a concern of many member countries. Bilateral irritants and misunderstandings continue to appear and events since the founding of the regional association lead one to hazard a guess that these irritants will not suddenly disappear. The relevant question is not whether or not they will continue, but whether these problems will pose insurmountable obstacles to any regional goal of establishing a regional grid. Electricity trade/co-operation is not all or none. It is a relationship that can be approached in stages, or halted at any stage. For ASEAN therefore, the degree or stage of technical and economic commitment cannot far exceed what the political maturity of the grouping at any juncture of time would allow, or judged as prudent by both parties in any trading agreement. The next chapter will describe the stages of this "scale" further. From geographical considerations, the key countries in the prospective ASEAN grid are Malaysia, Indonesia, and Singapore. The Philippine interconnection with Sabah, at best, is a long-term goal. Thailand can interconnect only with Malaysia. In the long-term view and given the right political conditions in the Indo-Chinese peninsula, Thailand's grid can act as the intermediary grid to bring power to and from the rich hydroelectric potentials of the Salween and Mekong Rivers at Thailand's boundaries with Burma, Laos,

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and Kampuchea. Brunei can interconnect only with Malaysia, but for the moment this possibility does not appear prominent in the minds of Brunei power planners because of plentiful natural gas feedstocks. Brunei, since being admitted to ASEAN, has not yet attended meetings of the ASEAN Power Interconnection Project. There appears to be no serious obstacle in the interrelationships among the three key countries. In spite of the series of irritants in 1986-87 between Singapore and Malaysia, perceptive leaders of both sides see their countries' fates as "inextricably" linked with each other. 26 The bilateral relations between Malaysia and Indonesia are most crucial. In the conceptual planning board are at least two interconnections between Malaysia and Indonesia. The proposed Sarawak-Peninsular Malaysia HVDC submarine cable must pass through Indonesian territory, close to the latter's rich Natuna gas fields. The two countries will be the major electricity sellers in the next several decades after an ASEAN grid is realized. Their relationship is excellent and there appears to be no foreseeable obstacle between them towards electricity co-operation in the future.

5. Financing In a project demonstrated economically and socially feasible, financial feasibility remains a problem if: (i) risks and uncertainties 27 attendant to project implementation are substantial, and (ii) the borrower-country is approaching its country limit set by a lender.

5.1 Project Risks and Uncertainties Risks include those associated with new technologies: insufficient operational experience with the technology itself, or of the Third World technology user, and risk of obsolescence of a device within a rapidly developing technological field. Political and bureaucratic factors may pose the risk of project delay and resulting cost overruns, an outcome unwanted by bankers more than political risk per se (Files 1983). Presence of political or otherwise powerful groups opposed to a project could create a small but distinct probability of abortion of the project, and may convince lenders to stay away from it.

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Hydroelectric, coal-fired, and gas-fired power plants are wellknown and established technologies in which ASEAN countries have had long years of operating experience. However, an HVDC interconnection, particularly a long submarine HVDC interconnection, is new to ASEAN utilities and to any utility in the world for that matter. It will be expected that lenders will scrutinize any project employing a new technology or one at a scale so large that it sets a world precedent. Overall project risk and uncertainty are made up of distinct components. Each risk can be assigned its individual probabilities while uncertainties can at most be assigned estimated (subjective) probabilities. A financial packaging technique is to clearly identify and spread these risks to more than one party and to assign them to those who are in the best position to appraise and shoulder those risks. For example, few companies in the world have long experience in HVDC technology. A lead financing agency is more likely to take on risks and uncertainties associated with submarine HVDC technology if such risks are passed on to the experienced manufacturer itself. The manufacturer is best familiar with past performance and repair/maintenance requirements of HVDC equipment. This can take the form of a long-term maintenance and repair agreement with the manufacturer, wherein downtime penalties commensurate to utilities' losses can be imposed. In such a case, the manufacturer may insist on retaining a direct hand or primary responsibility in the operation of the cable and the converter stations at both ends. This is reasonable provided a gradual transfer of operations skills to ASEAN engineers can be incorporated into the agreement. The issue of technology transfer need not be an obstacle with suppliers of HVDC technology. This issue is important considering the insular nature of ASEAN. Utilities in the region would probably plan to put up not one but eventually numerous inter-island submarine HVDC or HVAC interconnections in the next decades. On the side of the manufacturer, ASEAN will be a considerable market for some time to come. The trans-Malaysian submarine HVDC interconnection will set a world record in distance, and manufacturers will be competing as well for the concomitant prestige associated with the megaproject. Since ASEAN utilities would be ordering a number of transmission equipment, a skills-pooling

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scheme or even an ASEAN power utilities joint venture (with an experienced manufacturer) for in situ cable manufacture and laying may be worth considering. ASEAN utilities can also co-ordinate and stagger their transmission expansion schedules to enable rotation of use of the same cable-laying ship, and gradual build-up of expertise from short- to longer-distance submarine and overland interconnections. Both schemes, especially the second, or similar technology transfer schemes would definitely lower technologyassociated risks from the viewpoint of lenders. The problem with communities displaced or otherwise negatively affected by large-scale energy projects creates a form of project uncertainty lenders would like to look into. The problem can be converted into an opportunity by adopting multi-objective planning to include social development of these communities. They can be partners rather than adversaries in frontier development projects. From discussions and analyses presented in previous chapters, it can be posited that the central principles of any community relations scheme are adequate Pareto transfer and community participation. The problem of avoiding or alleviating indirect costs arises in trade questions like tariff reduction. It has been suggested that The necessary adjustments required by economic co-operation and integration proposals must be achieved without placing too heavy burdens of unemployment or other forms of income loss on the groups of workers affected by the adjustment process. (ISEAS 1987)

The advantage in undertaking specific forms of co-operation such as electricity trade which can be planned down to the specific project level, is that benefits and losses can be anticipated and estimated in advance, and the individuals or groups bearing the costs can be identified with certainty. Indirect costs can then be compensated rather than just minimized. In practical terms, the project planners can include components such as the following: 1. Forest stewardship award to ethnic communities over the remainder of a watershed upstream of a reservoir. This scheme has been tried

in the Philippines 28 and it has four advantages: (i) forest protection,

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critical and imperative for extending the lifetime of a dam, is made the responsibility of people who know and want to stay in the forest; (ii) displaced communities are assured an income and little change in their familiar livelihood, if they want to; (iii) if the income is drawn from an upland development trust fund (a component of capital costs) or financed by hydropower plant earnings rather than from regular government appropriations, the people will perceive a benefit from the project rather than feel they are being wards of the government; (iv) the stewardship agreement, if longterm (extending to next generations), in effect will confer the role of "involved advocate" of ecological stability to the people whose livelihoods will depend on that continuing ecological stability. Pareto transfer can take many forms. A similar lake stewardship can complement the forest stewardship scheme. These schemes enable the capture of positive externalities of a hydro project: the economic opportunities created by the reservoir and ecological protection (a long-term programme for protection of the watershed upstream of a dam reservoir is an imperative component of any hydro project, enabling the useful lifetime of the dam to be extended). The community instead of becoming an actual or potential adversary of the government becomes organically linked to the project. The people will feel a sense of participation, interest, and even "ownership" of the project. In fact their stewardship income will cease if anything goes wrong with the hydroelectric power project. 2. Priority to local people in employment, both during construction and operational stages, of a project, say, coal mining. An extended preparatory period of training, thoughtfully inserted in the project plan, will ensure that the project is manned mainly by local labour rather than imported skilled and semi-skilled labour. A project manned by imported labourers creates the potential for social friction with the local community, so does an isolated energy resource development enclave surrounded by low-income frontier communities not benefiting in any way with the "development". 3. Ancillary community development projects linked to the "main" energy project. A small- to medium-scale coal briguetting project, attached to a coal mining or mine-mouth power project and operated

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by local people, can utilize otherwise wasted low-rank coal and give employment to local communities. A phased and concessional equity buy-off scheme in favour of employees and local management will further consolidate local community interest and concern in coal development. The venture must benefit the broadest labour base and all neighbouring communities, rather than only a narrow skills base or one community; otherwise, greater social problems may arise. To be viable a mine-mouth coal briquetting project needs transportation facilities to demand centres. In the case of the Bukit Asam (south Sumatra) coal development project, the Indonesian Government recognizes the social and developmental advantages of the coal transport option over the mine-mouth power plant and submarine transmission option. The former entails development of roads/railroads, port facilities, and colliers which can exert greater social benefit multiplier effects than construction of high-voltage transmission lines. 29 A coal briquetting project is an example of a deliberate and planned manner of capturing these multiplier or spill-over effects for the benefit of local communities. In geothermal power development, some development wells yield low-enthalpy heat which cannot be utilized for power production. Rather than capping such wells or using them all for water reinjection, some could be tapped for small-scale industries such as fish drying, food preservation, and timber processing. Geothermal power projects would then be viewed by local governments and the local people less as an invasive entity and more as a welcome opportunity for new livelihood and community development. The key element to achieve local interest and support is local participation. Local initiative, whether it is purely "from below" or gradually nurtured "from the top", is a superior development strategy to local participation. In local participation, the initiative remains "at the top". It is unrealistic to expect or try to employ this development strategy in big energy projects because they are almost always originated by planners in the national or federal government. A notable and rare case is that of the Bakun HEPP. SESCo, the state power authority in Sarawak, is taking a leading and active role in the project. Through proper project design, this can be improved by eliciting local interest farther down to the division and district levels directly affected by the project.

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From the viewpoint of the power utility with its main and perhaps single-minded concern for power development, schemes such as these complicate the utility's planning process, or involve more government agencies and people to deal with. Terms and conditions of any stewardship project have to be worked out and implemented. These schemes also require a difficult change in thinking within the power utility establishment - one wherein social development objectives are consciously brought into their corporate goal mix. It requires a recognition that a single-minded objective of producing power at least cost could at times be counter-productive viewed from a longer-run and broader social perspective. In such cases, the alternative is continuing or addition of social problems, which could in time become economically costly, and higher risk premiums paid to lenders for exposing themselves to these kinds of project uncertainties. These schemes can be viewed as business propositions, as an integral part of investment costs - not in visible physical assets but in less visible but nevertheless real"social assets": community goodwill, local government co-operation, and peace of mind for all concerned. They carry the seeds of social development and stability. They can eliminate any potential for social conflict to which a megaproject may be subject. What is required from utilities is not a change in corporate operations, but a broadening of conceived corporate objectives and planning criteria. Social development components are best subcontracted or awarded to entitites best placed to implement them, such as social development agencies or local governments or local livelihood co-operatives. If an energy project is a joint venture among ASEAN utilities, the presence of any local problem whether environmental, social, or political/security also becomes a risk and an uncertainty to the other ASEAN partners. The local problem however is not under their control. Banks with equity or loan exposures would be in a similar position. More political problems would have been created if, say, the aborted Chico River Dam or the Bataan nuclear power plant had been an ASEAN joint venture. Steps must therefore be taken to ensure that the ASEAN grid projects create reasons for co-operation rather than breeding grounds for new conflicts. Project non-completion risks should be borne by the party in

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the best position to minimize and manage these risks: the lead/host government. Accordingly, a possible arrangement is a provision in any joint venture agreement that, in case a project is aborted or postponed more than, say, ten years for domestic reasons beyond the control of other ASEAN partners, the host government must assume the equity and loan exposures of its partners. This potential penalty clause will spur the host government to take the necessary steps to properly plan for and handle any local complications that may arise from the regional venture. Inadequate or overestimated demand resulting in grossly underutilized capacity after a hydropower project had been completed was encountered in Africa. This problem was both a demand forecasting problem, a problem of firmness of associated powerconsuming development projects, and commitment of trans-country power importers. Compared to most of Africa, ASEAN is a fastgrowing area and this risk should be small. Even if local or regional demand is adequate, ability to pay back external loans will be hampered by balance of payments problems. These difficulties should be minimized, perhaps by treating a big energy project within the ASEAN grid as a joint venture among producers and buyers of power alike. 5.2 Country Debt Ceilings The other problem in financing is that of banks' country ceilings to a developing country's borrowings. The difficulty stems from at least two reasons: (i) project components of the ASEAN grid are expectedly large-scale and capital-intensive, and (ii) the problem cannot be completely solved by reconfiguring the technical design of the project. A rough estimate of capital requirements in the power sector in ASEAN for 1980-2000 is US$3.5 billion annually (excluding Brunei requirements), about half of which is for Indonesia (Espiritu 1987). A solution that should be studied is whether, and how, an ASEAN utility joint venture can best qualify among lenders for joint sovereign guarantees of more than one ASEAN government. The country where the energy project is located is the lead participant or majority equity holder, while others contribute equity wherein their investment is given full national treatment. If the prospective

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country-buyer of bulk power is as a rule involved as a minority partner, in addition to execution of long-term power purchase contracts, then market uncertainty is reduced. The viability of any joint venture depends on, among others, the energy pricing formula: how stable is the formula in the face of rapid swings in oil prices (Section 6 on pricing of electricity). Unless the joint venture is designed properly, there is no assurance that lenders will be more confident to take risks in a regional project compared to a less complicated national project. Another solution is to identify lenders with interests in the project, and who will be more willing than others to assume the same risk for better financing terms. Examples are banks with exposure/investment in oil or LNG importing companies in the United States and Japan. These companies would welcome preferential access to oil and LNG supplies that would be additionally made available for export as a result of development of poorlytradable energy resources such as hydro, geothermal, and lignite. Alternatively, these companies themselves can be induced to take minority positions in the joint venture to take advantage of their built-in interests in the project. Innovative schemes have been proposed by the World Bank for financing electrification in developing countries, such as the Multilateral Investment Guarantee Agency (MIGA) and B-loans (International Chamber of Commerce 1986). MIGA would provide guarantees against non-commercial risk (armed conflict, civil unrest, expropriation by government, etc.) in IMF-MIGA members' borrowings. This is to encourage commercial investors and lenders to support economically viable but politically risky undertakings in Third World countries, by passing the costs of those risks over to MIGA. Countries approaching their borrowing ceilings can avail of a B-loan, a syndicated loan between a commercial bank and the World Bank which takes a minority position (10-25 per cent); the incentive to the commercial bank is the assistance that the Bank, with its stature and facilities, can give in case repayment problems arise. B-loans are special forms of co-financing between multilateral agencies and commercial banks. Co-financing, despite large Third World debts, have mushroomed, averaging about US$5 billion a year in the period 1982-84. The role of co-financing between

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commercial and multilateral financing institutions has expanded lately. 30 The World Bank in particular is committed to finance power development in Third World countries, solely or via cofinancing (International Chamber of Commerce 1986). If a power project is economically sound and if risks reasonably under the control of host ASEAN governments can be convincingly minimized (prospectively) by proper project design and/or (retrospectively) by a good track record of the lead government in project implementation, then banks may consider "project cash flow financing" (or "project financing") solely or partly in conjunction with guarantees sourced elsewhere. These are big ifs. In contrast to a pure sovereign guarantee, project financing relies entirely on the prospective schedule of cash earnings of the project for repayments (Ross 1981; Rugg 1981). Because banks shoulder more project risks, interest is higher in this type of non-recourse or limited-recourse financing. This scheme can apply more to hydropower development than to oil and gas development where the extent of the resource base is not as definitive. To hedge against exchange rate volatilities and uncertainties characteristic of the financial markets since 1975, the loan, equipment costs, and electricity pricing should be arranged to be denominated on the same currency, say, SDRs. Megaprojects require rather involved technical and financial consortia to prosecute. For example, if equipment costs were denominated in Swedish kronor and Japanese yen, the loan in U.S. dollars and/or Japanese yen (for pioneering technologies, wherein top expertise may be found in one or a few companies, it is not to ASEAN interests to secure loans tied to purchase of equipment from the lending country), and electricity price in U.S. dollars or an ASEAN currency, the project would be exposed to additional uncertainties to all parties.

6. Pricing of Electricity Several pricing arrangements are followed in Southeast Asia. The Singapore-Malaysia price formula is better than the MalaysiaThailand price formula, which in turn is better than that between Thailand and Laos. All these pricing arrangements suffer from defects. Thailand and Laos agreed in 1981 (when oil prices were high) to

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a base price plus a yearly escalation rate. After oil prices collapsed, Thailand was paying Laos 4.4 U.S. cents/kWh in 1986 compared to the average 3.8 U.S. cents/kWh production cost in the Thai grid. Laos, with half of its foreign exchange earnings coming from power sold to Thailand, would like to increase the price to 4. 7 U.S. cents/kWh. This price is unfavourable to Thailand considering low oil prices obtaining since 1986. Thailand wanted the price adjusted to 3 U.S. cents/kWh. The pricing formula was still being negotiated one year after the last supply contract expired in October 1986. 31 The use of a fixed base price, with or without escalation, leads to an unstable trading relationship because whenever prevailing energy prices shoot up or down, or whenever the inflation rate exceeds or drops below the agreed escalation rate, then one of the parties would like to renegotiate the formula at the same time that the other would like to stand pat. One party will always feel cheated in the arrangement. The Malaysia-Thailand pricing formula is one step better: it is hinged on prevailing oil prices. The price is computed according to the formula: Price

=

Constant 1 x Oil Price + Constant 2

Constant 1 and Constant 2 are parameters fixed in the agreement; Constant 2 can be interpreted as an overhead charged for fixed costs like depreciation, administrative costs, etc. Constant 1 reflects cost of energy production to the seller. Calculations using this formula must be based on average oil prices over as short a computation period as possible (a day or week). The disadvantage of this formula is that it is hinged to the price of only one energy commodity - in effect, the buyer is asked to pay the generating costs of an oil-fired power plant. Once cheaper power enters the Malaysian grid from big natural gas and hydroelectric projects, this pricing formula will be a disincentive to potential buyers. To correct this defect, the price must neither be hinged on the lowest nor highest generating costs but on system-wide generating costs. After all, power is bought not from one power plant but from the whole grid. The electricity pricing arrangement between Malaysia and Singapore is better and simpler in this respect.

Project Design Issues

125

Malaysia and Singapore do not engage in peak-power trading. Their interconnection is used only during emergencies. Whenever one requests for emergency power from the other, the same amount of power is returned at the next earliest opportunity. Power is not bought and sold but just "borrowed". Any net power is priced according to prevailing (domestic) tariffs of the exporter. The advantage in this arrangement is that electricity tariff is a partial, though usually poor, reflection of system-wide generating costs (United Nations ESCAP 1985). It is "partial" because prevailing tariffs also include government taxes (or subsidies) and profit margin of utility. Any difference in tariff policies between two utilities, under this scheme, would result in an incentive to one-way power sales. A low-tax and low-profit utility would prefer not to buy power, while the other would like to buy power, given equal marginal production costs. In the EGAT-LLN and LLN-PUB agreements, power is paid in the currency of the exporter. In this mechanism exchange rate risks are shouldered by the buyer alone, a defect absent in the NORDEL pricing formula. The NORDEL pricing formula appears superior to the above schemes. To recapitulate (see Chapter IV, Section 3), price is the average of short-term marginal costs (STMCs) of exporting and importing utilities. The STMC (defined in Glossary) is computed for the time the purchase is made because it changes from hour to hour and from utility to utility. A price ceiling of 1.25 times the STMC of the exporter is set whenever a utility makes an emergency power purchase from another.32 Effectively, the two utilities share equally in the total savings. The pricing formula requires a more complex but easily computerized procedure for calculating marginal cost at any given point in time. Confirmation by other utilities of data inputs to the STMC computations for a utility requires full disclosure of information to the purchasing utility. The advantages, however, outweigh this setback. A built-in incentive for both exporter and importer to lower their respective generating costs is in higher earnings for the exporter if he makes his power system more efficient, and lower payments by the importer if he makes his more efficient. The formula is more stable: there is no incentive for any party to renegotiate prices whenever energy prices swing

126

Designing for Consensus: The ASEAN Grid

up or down because energy prices are automatically reflected in STMC computations. In brief, the advantages of the NORDEL formula are: (i) total benefit is equally shared between buyer and seller; (ii) price is based on system-wide generating costs reflecting whatever are prevailing energy costs and whatever is the generating mix of the seller at the time of purchase; (iii) differences in tariff policies do not affect prices; and (iv) the price reflects actual variation of generating costs from hour to hour. Its disadvantages are: (i) the STMC includes indirect taxes and subsidies in the fuel cost paid by utilities; (ii) if the fuel is a domestically produced non-renewable resource, government depletion allowance is reflected in the STMC; and (iii) the STMC does not reflect the long-run marginal cost including or arising from (firm) future development costs and investment streams for a body of non-renewable resources. Depletion allowance is a form of economic rent charged by governments of energy producing countries. Because the STMC is based on actual generating costs, it does not reflect taxes or subsidies and utility profits which appear in the tariffs levied domestic users. However, indirect taxes or subsidies and depletion allowance may still appear in the STMC via fuel cost paid by utilities. This must therefore be corrected for. Absence of this correction leads to errors in estimating true production costs. This has given rise to the problem of which country to site ASEAN industrial complementation ventures. Among ASEAN countries, Indonesia provides the greatest energy subsidy for its domestic consumers because electrification is viewed as a form of basic social service (Arismunandar 1987). Therefore, the claim that Indonesia's bid to host an ASEAN industrial joint venture was based on artificially low production costs, has some justification. 33 Furthermore, marginal cost pricing applied to producers of non-renewable energy resources requires two data inputs: (i) past and future exploration and development costs of the resource, and (ii) depletion allowance (Mashayekhi 1983). On the first data input, it has been argued that pricing of natural gas be based on long-run marginal cost. Because of lumpiness in investments in, say, a gas field, the suggestion is to compute the long-run average of marginal production costs over the series of

Project Design Issues

127

exploration-to-production cycles until the gas field is depleted, or "average incremental cost" or AIC (Mashayekhi 1983). This approach assumes two essentially uncertain pieces of information: (i) future pattern of all capital expenditure for additional capacities in a gas field, and (ii) size of the gas reserve. Overand under-pricing from any error in assumptions are internal to a utility selling to domestic consumers because corrections can be retrospectively applied. However, in trans-country electricity trade, over- and under-pricing is passed on to the importer. Given a choice, an importer would not want to pay for the exporter's errors in computations. A better approach is to use the AIC computed for projects in existence. This quantity, which may be called medium-term marginal cost (MTMC) is the average of discounted STMC over complete exploration-to-delivery cycles of facilities in actual use or construction. The MTMC in effect is similar to the "average incremental cost" concept3 4 except that the averaging is performed over one or a few exploration-to-delivery cycles covering projects in actual operation or firmly budgeted in the development planning pipeline. The MTMC is thus based on information known with certainty. The second data input, depletion allowance, is an economic rent set largely arbitrarily by the producer as long as it is not set higher than what the world market can bear. If ASEAN power utilities decide to use the STMC pricing for electricity, they have to agree on a stable formula to set depletion allowances, say, at a pre-agreed percentage of the differences between the MTMC of the primary energy resource and its prevailing market price. For renewable resources like hydro power, ASEAN could employ the same scheme used at the hydro-based NORDEL grid, where current and prospective water levels in reservoirs are inputted in the computations of the STMC in any day and hour.

7. Organizational Issues Much can be argued for a purely utility-to-utility trading arrangement, based on the experiences of NORDEL utilities; Canadian and American utilities; and utilities of Thailand, Malaysia, and Singapore antedating the ASEAN framework.

128

Designing for Consensus: The ASEAN Grid

Decision-making in utilities is governed largely by economic criteria (for example, meeting demand at least cost, meeting a given level of reliability at least investment cost, and minimization of system losses) and secondarily by social criteria (for example, subsidy to low-income power consumers, and service to remote areas). Political considerations are not part of the normal policyand decision-making environments at the level of utilities. Precisely for this reason, ASEAN governments will not allow their utilities to make sole decisions on electricity trade. Electricity trade, especially if quantities involved begin to constitute a big percentage of total electricity consumption, has security implications. ASEAN leaders will therefore have to step in. The highly centralized structures and styles of governance in ASEAN countries, and the as yet comparatively low level of regional cohesiveness achieved, make the NORDEL model in its complete form inappropriate to the ASEAN setting. However the NORDEL approach of minimizing centralized or co-ordinative bureaucracies outside of utilities and of simply creating working committees staffed by utility personnel who will themselves implement committee decisions in their respective utilities, presents a model to ASEAN. On the other hand, if the upper echelons of governments in ASEAN will involve themselves in non-political, or operational and technical levels of decision-making - a possible tendency in ASEAN - the execution of ASEAN interconnection projects may die a natural death from the sheer weight of the bureaucracies. The predilection of ASEAN leaders to proliferate bureaucracies is counterproductive to the achievement of the technology-specific goal of building an ASEAN regional interconnection. In adapting the NORDEL experience to the ASEAN situation, the following approach can be suggested. 1. Top ASEAN leaders give prior political authorization on: type/ stage of trading, level of financial commitment, and degree of energy dependence; while economic ministers give guidelines and delegate review powers to the Forum of Heads of ASEAN Power Utilities/ Authorities; 2. ASEAN Heads of Power Utilities/ Authorities are given full authority to make financial, technical, and operational plans, decisions, and agreements consistent with 1; and to organize

Project Design Issues

129

any co-ordinative body, which preferably consists entirely of ASEAN utility personnel; 3. ASEAN Heads of Power Utilities/ Authorities are given full authority to establish joint ventures among their utilities to pursue specific, time-bound projects, consistent with 1 above. Notes 1. Some recent sources are the following: "Human Drama behind Chico Dam Project", Times journal, 6 April1980, p. 24; "Chico River Project Nearing Completion", Times journal, 31 July 1982, p. 8; "Chico River Project Hits Snag- Hill Tribes Continue to Oppose Construction", Philippine Daily Express, 28 September

2.

3.

4.

5.

6.

1982, p. 2; Paul Icamina, "Northern Luzon Tribes Resist Government Plans", Philippine Daily Express, 26 April 1984, p. 5; and Nick Quijano and Vittorio Vitug, "Parties Forge Chico Dam Agreement", Malaya, 14 September 1986, p. 1. Ryoichi Nishimiya, "Evaluation of the Socio-Economic Impact Induced by Electric Power Development - A Case Study on OECF-Loan Projects in West Malaysia", in Proceedings of the Asian Energy/Power '87 Conference, Kuala Lumpur, 8-11 April 1987. Disaggregating the effect of electricity from total impacts jointly attributable to other factors is a methodological problem. Another problem is estimating allocation effects: foregone employment and other losses by other sectors resulting from diversion of scarce resource flows to large-scale, capital-intensive power projects. A public project is desirable from the standpoint of social welfare if it makes some people better off and nobody worse off (strong Pareto criterion: positive social benefits and zero social costs). A public project which makes some people worse off can still be desirable if social benefits exceed social costs and adequate transfer payments can be made to compensate those made worse off (weak Pareto criterion: positive net present benefits and zero social costs after transfer payment). "'Environmental Bargaining': A Mahaweli Case History", Asian National Development, May 1983, pp. 6-7; W. Paul Weatherly and John H. Arnold, Jr., Environmental Assessment of Stage II of the Mahaweli Ganga Development Project [Washington, D.C.: U.S. Agency for International Development, 1977). Geoffrey Walton, "Ecological Bankruptcy", Bangkok Post, 28 May 1987, p. 3; "Nature Groups Step Up Bid to Block Dam Plan", Bangkok Post, 29 May 1987, p. 3; "Nam Choan Proposal: All for One Percent of Electricity?", Bangkok Post, 29 May 1987, p. 4; Frances MacGuire, "Dread of Nam Choan Dam", Bangkok Post, 29 May 1987, p. 5; "Opposition Against Nam Choan Builds Up", Bangkok Post, 30 May 1987, p. 5. "Should Malaysia Build Bakun?", Asiaweek, 30 March 1987, pp. 27-28; "Protest Drive Against Bakun Project", The Star, 7 February 1987, p. 8; Evelyn Hong, "In the Name of Development ... ", Asian Pacific Environment, 4, no. 2

130

7. 8.

9.

10. 11.

12.

13.

Designing for Consensus: The ASEAN Grid

(February 1986): 10; "Launched- Campaign Against Bakun Dam", The Star, 12 February 1987, p. 9; "BN Youth: Act Against Those Who Oppose Plan", The Star, 12 February 1987, p. 9. Also see Mohun and Sattaur (1987). "EIA Rule to be Made Compulsory", New Straits Times, 23 May 1987, p. 4. Serafin D. Talisayon, "Harnessing Human Resources Towards Greater Productivity" (Paper read at the University of the Philippines Diamond Jubilee Project 3 Symposium, Western Mindanao University, Zamboanga City, 1983). John Naisbitt and Patricia Aburdene, Reinventing the Corporation: TI·ansforming Your job and Your Company for The New Information Society (New York: Warner Books, 1985), pp. 62-69; Katherine J. Klein, "Employee Ownership", New Management 3, no. 4 (Spring 1986); and Serafin D. Talisayon, "Developing New Forms of Enterprises" (Paper read at the Symposium on Cultural and Institutional Changes for Entrepreneurship Development, College of Commerce, University of Santo Tomas, Philippines, 1986). Philip Chappel, "Why Ownership Matters", Long-Range Planning 19, no. 6 (1986): 130-36. Ajit Singh Rye and Serafin Talisayon, "Present Trends in International Relations: Their Impact on International Co-operation and Understanding with Special Reference to the Asia-Pacific Region" (Paper delivered at the UNESCOsponsored International Meeting of Experts on the Current Place and Role of the International Community in International Relations, Public International Law, and International Co-operation and Understanding held in Malta, 30 June3 July 1987). ASEAN examples can be mentioned. The Chico River Dam in the Philippines was a power cum irrigation project which divided the national from the local government (see Section 1 of this chapter). The Philippine Tongonan geothermal power project is an enclave in Leyte province not regarded happily by local people because they pay higher tariffs compared to Metro Manila consumers and the plan is to eventually transmit the excess power via submarine HVDC cables to serve Metro Manila consumers. In Malaysia, state governments were unhappy over the "federalization" of petroleum resources when PETRONAS was created in 1975. Now states receive only 5 per cent of oil revenues. If the Bakun HEPP becomes operational, two things could happen. Hydro power may be federalized too on the argument that it is the federal government which shoulders the huge financial obligations and risks of the project. Alternatively, LLN could buy power from SESCo at concessional rates (LLN and SESCo are independent utilities within the Malaysian federation). See: G. Vernon Hough, "Internal Problems Impede Progress", Petroleum Economist, May 1986, pp. 177-79. Two important goals of most ASEAN governments are: racial and ethnic harmony, and national unity and consolidation. Development projects and processes serving rather than contravening these goals are definitely preferred. Particularly for ASEAN countries with armed liberation or secessionist movements, develo?ment projects could in this respect be either a political asset or a political liability - depending on how the projects arc designed and implemented.

Project Design Issues

131

14. Let: Bd

15.

16.

17.

18.

direct benefit of seller utility = profit from sale of electricity = GS (gross sales) - operational costs - depreciation (or amortization) indirect benefits accruing to power consumers made possible by Bi availability of power. If traded electricity is cut off, the exporting country will forego benefits equal to (Bd + indirect benefits stimulated by spending of the utility). This sum is less than but almost equal to GS. It is equal to GS if all operational and capital expenditures were paid and stayed within the economy of the exporting country. On the other hand, the importing country will suffer a loss equal to (Bi - GS) for as long as it has not found an alternative source of fuel. Therefore, the ratio of importer's loss to exporter's loss is approximately (Bi/ GS) - 1. B1 is always greater than GS and therefore, the importer will suffer more than the exporter. Besides, the importer's loss is distributed over broad sectors of power users while the exporter's loss is confined largely to the producer of power and fuel suppliers. Discussion following C.P. Luhulima, "ASEAN's Energy Cooperation: Problems and Prospects", in The Invisible Nexus: Energy and ASEAN's Security, edited by Kusuma Snitwongse and Sukhumbhand Paribatra (Singapore: Executive Publications, 1984). "A Held-Over Problem", Far Eastern Economic Review, 12 January 1987, pp. 26-27; "Thailand Urges Malaysia: Use Amnesty to Fight Insurgents", Straits Times, 16 January 1987. The concept was formally introduced when Prime Ministers Hussein Onn and Kriangsak Chomanan signed a memorandum of understanding in February 1979. The planned co-operation is based on the principle of equal sharing of benefits. After dragging on for almost a decade, negotiations appear to be nearing conclusion by 1988. See: "Pact on Joint Gas Venture Drawn Up", New Straits Times, 28 April 1986; "Gas Project: Talks with Thais Finalized", The Star, 28 April 1986; "Malaysia to Consider Gulf of Thailand Development Proposal", New Straits Times, 1 February 1987; "KL, Bangkok Near Accord on Oil and Gas Venture", Straits Times, 20 November 1987, p. 14. "Thai-Malaysian Co-operation Panel Approved", Straits Times, 11 June 1987, p. 9.

19. A Malaysian writer, disputing the use of water as a weapon suggested by some quarters in Malaysia, wrote this news article. (Amirdin Ithnin, "'Don't Use Water Supply as Weapon'", Straits Times, 7 January 1987, p. 15 [reprinted from Utusan Malaysia]). 20. "Johor Intends to Renegotiate Water Rates with S'pore", Straits Times, 11 April 1987, p. 40. 21. "Aquino: Justice the Key to Sabah Claim Issue", The Star, 4 March 1986; "Moves to Discuss Sabah Claim: Laurel", New Straits Times, 11 April 1986. 22. "Manila's Sabah Claim: Neither In Nor Out", New Straits Times, 12 July 1986. 23. "Rahman Trip Marks End of Discord with Brunei", Straits Times, 20 March 1981; Hugh Mabbctt, "1\mku Can Shed More Light on Brunei Affair", Straits

132

24.

25. 26. 27.

28.

29.

30.

31.

32.

Designing for Consensus: The ASEAN Grid Times, 9 November 1981; "Brunei Denies KL Paper's Version of Why It Did Not Join Malaysia", Straits Times, 28 September 1983. "Brunei's Partai Rakyat Thanks Thn for Support", New Straits Times, 4 December 1975; "Sultan Hits Out at 'Meddlesome Neighbour'", Straits Times, 30 December 1975; "Free Brunei", editorial in New Straits Times, 31 December 1975; "'Let Us Hope Brunei Will Hold General Election'", New Straits Times, 7 January 1986. "No Return to Old Policies, Mochtar Tells Brunei", Straits Times, 14 August 1982. "Well-Being of KL, S'pore 'Inextricably Bound'", Straits Times, 4 July 1987, p. 1. Risk is the objective probability that a given event will happen; uncertainty is a subjective notion about whether or not an event will happen. Risk is attached to definite or identified outcomes; uncertainty includes inability to identify the complete outcome set. Probability is objective or empirical when derived from frequencies of past similar events or actuarial data. "Social forestry" is a programme of the Department of Natural Resources and Environment of the Philippine government. Under the programme, traditional forest dwellers and slash-and-burn upland farmers are awarded stewardship certificates over a piece of forest land. This document allows them to make use of the land in exchange for forest protection responsibilities. A more innovative model of land tenure of the Department is a forest protection agreement with an upland tribe over 14,000 hectares of their ancestral lands. The agreement was executed with a registered educational foundation with a governing board consisting of tribal elders. The agreement provides (i) land security by preventing lowlanders from acquiring land patents within their area of responsibility, and (ii) a livelihood base by giving the tribe sole rights to productive enterprises in the area (except logging). Personal communication from Dr Zuhal, Director for Assessment of NonMineral (Energy) Resources, Technology Assessment, and Application Agency (BPP Teknologi), Indonesia, 18 May 1987. "The Role of Co-Financing Expands", Asian National Development, January/ February 1985, p. 13. Personal communications from Mr Siridat Glankwahmdee and Mr Somkiet Phaloprakarn, Systems Planning Department, Electricity Generating Authority of Thailand, 26 May 1987 and 7 July 1987. The STMC of an importing utility during emergency shortages in its system can become rather high. The average STMC of exporter and importer will then be so high that it discourages the importer. The exporter may also be tempted to withhold power in order to wait for even higher STMC of the importer. See: Nordel Operating Committee, Operating Co-operation within NORDEL (Stockholm: Nordel, July 1971), pp. 15-16. To avoid this undesirable situation, NORDEL adopted a ceiling price equal to 1.25 times the STMC of the exporter (personal communications with Paui-Fredcrik Bach and Max Pilegaard of Danish Power Consult A-S).

Project Design Issues

133

33. Where to locate ASEAN industrial projects had been an issue among ASEAN economic ministers. The member country which offered lowest production cost has a strong negotiating position. It has been argued, however, that production costs claimed by Indonesia were artificially low because fuel prices are heavily subsidized by the Indonesian government. See: Narongchai Akrasanee, "Comments" following the paper of Sevinc Carlson, "Southeast Asian Energy as a Dimension of the Pacific Basin Community", in The Invisible Nexus: Energy and ASEAN's Security, edited by Kusuma Snitwongse and Sukhumbhand Paribatra (Singapore: Executive Publications, 1984). 34. Success of pricing agreements will depend on (1) clarity, simplicity, and objectivity of computational method, (2) clear specification and measurement of data, and (3) willingness to reveal and exchange operating data. The MTMC, defined as proposed above, fulfils these criteria more than the AIC.

~

Options of Electricity Trade

1. Scale Properties A regional grid is not a fixed goal or end-point. Even the welldeveloped NORDEL regional grid cannot be said to be "complete": quantitative and qualitative additions to bilateral interconnections can still take place in the future. A "complete" regional grid is undefined. Interconnections are of several types. The differences between types are technical, for example, asynchronous or synchronous, and AC or DC. For each year, power capacity of the interconnection can be scaled up or down. A given type and capacity of interconnection can be utilized via more than one modality of electricity trade. For example, a synchronous tie can be used for peak-power trading, emergency purchase, or bulk power purchase. Several types or modalities of electricity trade are known well 1 but no political/security assessment of each type has been studied. More attention in the literature is devoted to the technical nature ancl economic usc of various types of interconnections than to the

Options of Electricity Trade

135

political implications of various modalities of electricity trade. The distinction between modalities is highlighted in this work because the modalities can be arranged in a sequence of increasing mutual vulnerability. The type of interconnection chosen is determined by economic and technical considerations. Shifting from one to another modality of electricity trade is determined, in addition, by political and security considerations. The purpose in this study of focusing on modalities with distinct levels of energy vulnerabilities and security implications, and arranging them in a "political" scale or sequence, is to clearly delineate the political choices open to ASEAN leaders in establishing, and in upgrading already established, interconnections. This can be accomplished by specifying the advantages and disadvantages, economic and political, pertaining to each stage or modality of interconnection. Table X-1 identifies each stage and shows the nature of its economic and political consequences. Table X-2 demonstrates its scale properties. 2 TABLE X-1 Stages in Electricity Trade/Co-operation with Advantages ( +) and Disadvantages (-) Stage I : Information Exchange + + + -

Pooling of expertise Joint research projects Transfer of know-how and technology Disclosure of confidential information

Stage II : Co-ordination of Planning + Options for future interconnections - Adjusting to one another's capacity expansion schedules Stage III : Standardization of Hardware/Procedures + + + + -

Better transfer of know-how, expertise, and technology Market open to each other's domestic electricity supplies industry Options for future interconnections Pooling of manufacturing facilities Time and expense

Designing for Consensus: The ASEAN Grid

136

TABLE X-1 (continued) Stage IVa : joint Exploitation of Common Resource + + -

Normally symmetric benefits Gain in energy self-reliance Some operational constraints Investment in physical infrastructure

Stage IVb : Interconnection for Emergency Power Import

+ Improvement of system reliability + Options for upgrading to next stages - Unpredictable returns to investment; probabilistic NPV is negative for large interconnection distances Stage V : Interconnection for Regular Peak-Power Trade + Fuel cost savings due to: (a) higher load factor of base load generators, and (b) lower cost for peak load generators + Further improvement of system reliability + No substantial loss of energy self-reliance and planning autonomy - Vulnerability to disturbances from each other's grid - Close co-ordination of two grids' control procedures required - Short-term (hours) loss of energy self-reliance

Stage VI : Interconnection for Alternate Borrowing of Each Other's Capacity + + + -

-

Delay investment in next capacity Larger capacity plants justified Cheaper generating costs from higher load factors Medium-term (months to a few years) loss of energy self-reliance Medium-term vulnerability to construction delays in partner's system Mutual adjustment/constraints in expansion planning

Stage VII : Interconnection for Bulk Power Purchase, or Lease of Transmission Capacity + + + -

Cheaper power for importer Larger capacity plants for exporter Delayed/averted investment costs for importer Long-term loss of energy self-reliance for importer

Options of Electricity Trade

137

TABLE X-1 (continued) -

Long-term mutual dependence: often asymmetric against importer Vulnerability of importer to technical problems of exporter's grid Very high cost of reversion

Stage VIII : Full Integration of 'IWo Grids + +I-

Full capture of scale and external economies Permanent interdependence Loss of individuality and management autonomy of utilities Irreversible technological commitment

Several observations can be made. First, the stages are primarily along political or security considerations and only secondarily along technical or economic considerations. For example, essentially the same physical transmission link can be utilized at different modalities (Stages V to VII) with different levels of, say, energy vulnerabilities to one or both partners. Second, the sequence is analogous to the stages of regional economic integration 3 in the sense of temporal, progressive development. The last stage is also full integration. However, electricity trade is a more specific form of trade/co-operation involving a narrow sector in an economy. The last stage should not be viewed as an "end point" or as an "ideal" form of electricity co-operation. The well-developed NORDEL regional grid is at Stage VII and the participants do not seem to view Stage VIII as a "better" stage. The stages must not be regarded as an inflexible sequence; the choice depends on the partners. It is possible within certain limits for two partners to jump up (Stage I to V, for example) or down (say, from Stage V to IVb). Stage IVb and above require commitment in the form of investment in transmission infrastructures and once they are in place, jumping down from Stage IVb entails losses. Returns on investment will not be fully realized in jumping down from Stage V (or above) to Stage IVb. Third, the highest hurdle in terms of energy security and energy vulnerability is the step from lower stages to Stage VI or VII. Political considerations underlie this step. However, if the amount

TABLE X-2 Scale Properties of Stages of Electricity Trade and Co-operation Stage I

Stage

Stage

II

III

IVa

IVb

Asymmetry of Vulnerability

No

No

No

No"

No

Short-term Medium-term Long-term xxxxxxxxxxxxXXXXXXXXXXXXXXXXXX

Loss of Planning Autonomy

No

No

No

No

No

Nil Yes Yes xxxxxxxxxxxxXXXXXXXXXXXXXXXXXX

Loss of Energy

No

No

No

No

Power Flow

None

None

None

+I-

Investment in Transmission Infrastructure

None

None

None

Property

Stage

Self-reliance~>

Stage

v

Stage VI

Stage VII

Nil Short-term Medium-term Long-term xxxxxxxxxxxxxxxxxxxxxxxxxXXXXXXXXXXXXXXXXXX

Only during Few hours Yes Yes emergency a day xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxXXXXXXXXXXXXXXXXXX Yes

Yes

Yes

Yes

Yes

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

TABLE X-2 (continued)

Property

Stage I

Stage II

Operational Constraints

None

None

Little Some Sometimes Yes Yes Yes xxxxxxxxxxxxxxxxxxxxxxxxxxxxXXXXXXXXXXXXXXXXXXXXXXXXXX

Cost of Reversion

None

None

Some High High High Very high Very high xxxxxxxxXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

Planning Constraints

None

Economic Benefits

Stage III

Stage IVa

Stage IVb

v

Stage VI

Stage VII

Little Yes Yes Yes Yes Yes Yes xxxxxxxX X X X XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

Little None Mixed Yes Mixed Yes Yes Yes xxxxxxx xxxxxxxxXXXXXxxxxxxxxxxxxxXXXXXXXXXXXXXXXXXXXXXXXXXX

" Asymmetric if one party sells part or all of its share to the other. Loss is a matter of degree, measured in per cent import dependence. X = Criterion satisfied. x = Criterion partly satisfied. Blank = Criterion not satisfied.

140

Designing for Consensus: The ASEAN Grid

of energy dependence created by bulk power purchase or longterm lease of transmission capacity (Stage VII) is small in relation to total electricity consumption, the resulting vulnerability can be politically acceptable. Besides, energy dependence must be viewed in the context of the overriding reality of global and regional economic interdependence. The goal of one hundred per cent energy self-reliance in the long-term planning horizon is most difficult to achieve; a more realistic goal is to manage rather than avoid economic dependencies and interdependencies within the region. Fourth, Stage IVa is somewhat unique. This stage is strictly not an interconnection, wherein power is transmitted from one grid to another. Joint development and exploitation of a common resource, such as a hydroelectric power plant in an international river, entails dividing the power produced and transmitting one-half to one grid and the other half to the other grid. No interconnection between two grids need be effected. Therefore Stage IVa is neither a stage nor an interconnection; it may, therefore, be "bypassed". Stage IVa infrastructure is technically different from the others. The closest example is the Itaipu HEPP between Brazil and Paraguay, which taps the common river, Parana, between the two countries. An equal number of separate generators are constructed in the same dam. One set generates power for one country, and the second set for the other country. No energy vulnerabilities are created because no power flow takes place between grids. Both countries benefit and have an interest in maintaining and protecting the power plant. The benefit is symmetric, unless one party sells part or all of its entitlement to another. This is the case of Paraguay, which cannot as yet consume all the power it is entitled to and hence sells part of its power entitlement for the time being to Brazil. The contemplated joint development of the Salween River between Thailand and Burma and of the Mekong River between Thailand and Laos (the Kheun-Pha-Mong project) will be an example of Stage IVa co-operation. A similar type of co-operation in petroleum development is the Thailand-Malaysia joint development authority, which will tap offshore oil resources in areas where the two countries' exclusive economic zones overlap. Another example is the "unitization" of production from the same offshore

Options of Electricity Trade

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oil reservoir in the boundary of Brunei and Malaysia. In all cases, the principle followed is equal sharing of costs and benefits. Fifth, changes can be qualitative (shifting stages) or quantitative (scaling capacity in a stage up or down).

2. Stages Reached by Existing Interconnections At present, the EGAT-LLN interconnection is at Stage V, although amount of power exchanged is still low. The LLN-PUB interconnection is at Stage IVb, but the amount of power that can be exchanged through the link is much greater. The rest of the ASEAN utilities are engaged in information exchange (Stage I) and are beginning to (i) share information on each other's future expansion plans, with the idea of creating or preserving the option for future interconnections, and (ii) undertake studies at the conceptual and pre-feasibility stages in specific interconnections. Among the projects of the Forum of Heads of ASEAN Power Utilities/ Authorities is one on standardization; however, this project is still in the conceptual stage. The rest of ASEAN can be considered to be in the process of moving from Stage I to Stage II or III. The interconnection between Thailand and Laos is at Stage VII. However, the power purchased by Thailand is less than 3 per cent of Thailand's total power consumption - an acceptable loss in energy self-reliance. Once large-scale power projects are set up for export of bulk power (such as at Bakun in Sarawak and Batam Island and Asahan in Indonesia) the percentage of power dependence of importing countries under Stage VII will come into security consideration. The total power traded since 1970 among France, West Germany, and the Low Countries is an estimated 7 per cent of total energy consumption. The proportion is 2 per cent in the United States and 8 per cent within NORDEL. 4 3. Terminal Stage

Following the proposed scheme, any stage can be regarded as a terminal stage. Even if the ASEAN regional interconnection does not progress beyond its present stages, the information exchanges

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already taking place under the aegis of the Forum are by themselves useful. However, an ASEAN umbrella is not necessary for the lower stages. Information and technical exchange among power industries of Asian countries has long been a programme of the United Nations ESCAP (the Regional Energy Development Programme). Information exchange in various forms like training, sharing of technical experiences, joint studies, and holding of seminars had been going on among Thailand, Malaysia, and Singapore even before the Forum was established. The same holds true for ASCOPE. Stages I to III can still take place without assuming any regional goal towards a grid, and they can take place in useful forms. Standardization of hardware (Stage III) opens many possibilities for mutually beneficial co-operation: - creation of an AIJV or ASEAN joint industrial venture to manufacture commonly-needed power supplies and equipment; - sharing of expertise in repair and redesign; - pooling of procurement from external sources; - expansion of market for each other's electricity suppliers; - sharing of testing equipment and research/training facilities (Subroto 1985); - easy transfer of experience in new technologies; and others. ESCAP identified standardization as an important measure in facilitating trade and use of energy (United Nations ESCAP 1986). The potential and benefits of ASEAN co-operation in energy technologies has been argued well by Rozali (1987) .1c Technical co-operation, or Stage I or III, can eventually pave the way to higher stages if desired. A feature of power interconnection not found in most other forms of trade is the predictability of economic consequences. The buyer is identifiable; the market is sure and quantifiable; technical behaviour of the power system is well understood; and unforeseen events are often identifiable and probabilities thereof assignable. Specialized computer programs can make good estimates of prospective economic benefits from an interconnection, although much developmental work and adaptation on this area of application remain to be done. Decision-making in power utilities is supported by a host of software for various levels of application. A form of technical co-operation which ASEAN power utilities can therefore engage in is development of specialized

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software. Application to specific problems, such as a prospective interconnection, can make concrete estimates of realizable economic benefit, thereby paving the way for any decision to proceed with the interconnection. Notes 1. The types of electricity trade and their advantages are described in the following sources: la. Fernando Lecaros (English summary), "Central America Power Interconnection: A Case Study in Integrated Planning", Energy Department Paper No. 15 (World Bank Energy Department, April 1984). lb. Hadi Dowlatabadi and Nigel Evans, "Electricity Trade in the UK: Economic Prospects and Future Uncertainty", Energy Policy, February 1986, pp. 35-45. lc. Rozali bin Mohd. Ali, "ASEAN Energy Co-operation: Status and Outlook", ASEAN Series, Institute for Strategic and International Studies (Kuala Lumpur, 1986). ld. UNDP and ESCAP Regional Energy Development Programme, Trans-country Power Exchange and Development, RAS/84/001 (Bangkok: UNDP/ESCAP, May 1987). le. H.K. Darn, Lahmeyer International GmbH. "Assessment of Benefits of Trans-Country Power System Interconnection in South-East Asia", in Proceedings of the Asian Energy/Power '87 Conference, Kuala Lumpur, 8-11 April 1987. 2. The validity of a scale is established if a set of properties can be shown, such that a property satisfied in a stage is always satisfied in succeeding stages, and a property not satisfied in a stage is also not satisfied in previous stages: Stage 1 Stage 2 Stage 3 Stage 4 Property 1 No No No Yes Property 2 No No Yes Yes Property 3 No Yes Yes Yes 3. For stages of regional economic co-operation or integration, for example, see Hong Hai and Victor F.A. Ng, "Trade Among Asean Countries", in Growth and Direction of ASEAN Trade, edited by Saw Swee-Hock and Hong Hai (Singapore: Singapore University Press, 1982). 4. "Juice sans Frontieres", The Economist, 25 January 1986, p. 59.

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ASEAN Options and Scenarios

This chapter discusses projects already identified under the ASEAN Power Interconnection Programme and proposes specific projects for future consideration.1 1. Individual Interconnection Projects

Several interconnection projects are under study by the Forum: 2 - Sadao (Thailand)-Bukit Ketri (Malaysia): Synchronization of the present interconnection cannot be effected because of uncontrollable oscillations. Studies and planning are undertaken by the EGAT and LLN to solve the problem of preparing for upgrading of the interconnection. - Pasir Gudang (Malaysia)-Singapore: The link is used only for emergency power purchase. The LLN and PUB are building up operating experience before undertaking full synchronization or possibly upgrading the interconnection in the future.

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- Singapore-Batam Island (Indonesia): The concept includes a coal-fired power plant in Batam Island and sale of power to Singapore via submarine HV cable. This project can be started earliest, or as soon as projected growth of Singapore's power demand justifies new capacity. However, Singapore has other options such as natural gas piped from Malaysia. - Sumatra (Indonesia)-Peninsular Malaysia: Studies are going on. - Sarawak-Peninsular Malaysia: Consultants have completed initial studies. This interconnection hinges on a companion project, the Bakun HEPP. Its construction was postponed as a result of the drop in oil prices. Tentative date of completion of both projects is 2005. - Kuching, Sarawak (Malaysia)-Pontianak, West Kalimantan (Indonesia): Initial studies have been made but decision also hinges on the Bakun HEPP timetable. - Sarawak-Brunei-Sabah-Philippines: This long-distance and expensive interconnection is viewed as a long-term option. Therefore, studies only at the conceptual stage have been undertaken. Even with the best regional political and external economic conditions, the earnest beginnings of an ASEAN grid could be in place in two or more decades. If firm decisions on non-oil energy projects are made in the mid-1990s, when higher oil prices are expected to make alternative energy sources attractive again, project lead times of as long as ten to fifteen years 3 will bring new energy supplies starting around 2010. Timing will also be determined by schedules of domestic inter-island and overland ties, and both will in turn depend on growth of domestic demand. The Sarawak-Sabah-Philippines interconnection, even with favourable political conditions, will have to wait until after the Samar-Luzon and Leyte-Mindanao HVDC ties have been in place. For Indonesia, whose production sector is projected to be the fastest growing in ASEAN, the Sumatra-Java HVDC tie will begin to be economical only after 1994. 4 The Sumatra-Peninsular Malaysia tie is hinged on further development of the Asahan HEPP and on construction of the north-south Sumatran transmission backbone.

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The long time-frames will allow ASEAN ample time to coordinate their plans and project studies. The real pressure towards the development of an ASEAN grid will be felt only after the end of the oil era in the region - when ASEAN will become a net oil importer and ASEAN countries begin to draw heavily from their reserves of natural gas and coal. When this time comes, poorly-tradable location-specific energy sources (hydro, geothermal, lignite, dendrothermal, or solar plantations) will take a dominant role in ASEAN's electricity generating mix. This will take place perhaps around the second quarter of the next century. 2. Future Options

Because the concept of an ASEAN grid will take a long time to be realized, the following future options are offered which may not all be immediately feasible. They are nevertheless presented so that whenever conditions are appropriate, they can be reconsidered for adoption in one form or another. 2.1 Submarine HV Cable Joint Venture Several short-distance HV submarine cable ties are in operation or under construction in ASEAN countries: -

Penang to the Malaysian mainland; Langkawi Island to the Malaysian mainland; Pulau Seraya to the main island of Singapore; Bali to Java, Indonesia; Madura to Java, Indonesia; and Panay Island to N egros Island, Philippines.

Several more are in the conceptual or planning stages in: - Samar Island to Luzon, Philippines; - Negros-Cebu-Leyte Islands, Philippines; -Java to Sumatra, Indonesia; - Sarawak to Peninsular Malaysia; - Batam Island (Indonesia) to Singapore; - Sumatra to Malaysia; and - Leyte Island to Mindanao, Philippines.

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It is conceivable for other islands in the Philippine and Indonesian archipelagos to be interconnected together in the far future. Indeed, insular Southeast Asia will be a good market for manufacturers of submarine HV cables for a long time to come. Sooner or later, ASEAN power utilities will have to include submarine HV cable technology in their stock of expertise: initially in the areas of technical planning and evaluation, next in operation and maintenance, and ideally also in all or some phases of repair and manufacture. ASEAN will be a region wherein submarine HV cable technology will be extensively tested and operated. Therefore, the issue of technology transfer will arise. This issue is most advantageously addressed regionally, and soonest. The issue will arise with or without the ASEAN grid, such as in the planning of inter-island ties in the Philippines and Indonesia. The proposal here is to establish an ASEAN joint venture, in partnership with experienced foreign manufacturer/s, on various phases of planning, fabrication, laying, and operation of submarine HV cables. The manner and scope of technology transfer are best negotiated with the right parties, but arrangements can be designed to capture several advantages for ASEAN:

1. The venture must entail substantial savings and technology

learning over the alternative option of case-to-case contracting of individual ties. For example, the same cable-laying and/or manufacturing ship can be used in rotation around ASEAN, according to a co-ordinated long-term schedule of inter-island ties. Manufacturing facilities and subcontracting networks can be set up for production of parts on a long-term basis, rather than for one inter-island tie. Economies of scale can also be realized in pooling ASEAN expertise in planning and maintenance. 2. Learning must be carried over from one cable project to the next. If experience from shorter ties precedes construction of longer-distance ties, and the same regional outfit is involved, lending agencies will be more confident in supporting later, bigger, and more expensive cable projects. They will welcome this reduction of technological risks. 3 Maintenance and repair must be pooled. Because construction and repair are not continuous but episodic activities, the

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required expertise need not be hired full-time. ASEAN utility personnel in systems development and transmission technology can instead be given special training and placed "on call" from their mother power companies as the need arises. This arrangement further justifies the need for training and technology transfer. 4. Training of ASEAN personnel can take place well before the issuance of tenders for the next HV submarine tie. The staff can be sent for advanced training in companies selling the technology for them to intimately learn from and compare the companies, preparatory to the important decision of which company to take in as the foreign partner in the ASEAN submarine HV cable joint venture.

2.2 Joint Sea Bed Survey Project The rationale forwarded in favour of an ASEAN Submarine HV Cable Joint Venture can also justify the setting up of a regional co-operation project for conducting bathymetric surveys of straits where submarine HV cables will be laid down. Savings can be realized by using the same ship, equipment, and trained personnel for surveying each site. An alternative would be for ASEAN utilities together to contract the same foreign firm to undertake a series of surveys in different sites. 2.3 R&D Consortium The development towards a regional grid will take several decades. Planning would have to be undertaken with close co-ordination among ASEAN power utilities and over a long-term planning horizon. Many information inputs to planning, such as status of new technologies and effective means of managing social and environmental factors, require research. They require time and money. Many studies preliminary to a regional interconnection/grid have to be made. ASEAN power utilities possess uneven expertise and experience in R&D which can be shared with other utilities in solving common R&D concerns. The LLN of Malaysia has a good R&D outfit; the PLN has a research centre with ample library facilities. Since R&D is remote to immediate production concerns

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and because it is viewed as a low-prority cost element, R&D efforts tend to be allocated little resources. Common research needs can be addressed together, thus realizing savings. These facts together are cogent justifications for an R&D consortium among ASEAN power utilities. The concept of an R&D consortium is the next step from the present set of co-operative projects undertaken by lead utilities within the Forum of Heads of ASEAN Power Utilities/Authorities. The proposed consortium can take over the work of some of its projects. It need not be physically located in one place, nor involve separate and new equipment and infrastructures. It can operate as a set of funded research projects located in the lead utility, from where the project leader is also drawn. Specific research projects could be started corresponding to specific research needs common to all utilities or identified in anticipation of the regional grid. A system of secondment of personnel across utilities for research engagements over limited periods, with travel and other financial supports will have to be set up. The concept of a regional or "ASEAN civil servant" - a fertile symbolism - can be introduced at this point. Information exchange much more frequent than once a year will also have to be set up. As the frequency increases in response to developing regional needs, a pooled data bank may eventually have to be considered. Restraints in the sharing with another utility of proprietary information bought by a utility from outside (such as software and technical design) may also have to be modified or renegotiated. The purposes of a regional R&D consortium would be contravened if technology use is limited by the technology seller solely to the buying utility. Alternatively, technology and other proprietary information with regional application could henceforth be bought not by one utility but by the R&D consortium for intended regional use. The differences between a formal R&D consortium and the present set-up are: (i) joint commitment by participating utilities of budgetary and manpower contributions to the consortium, (ii) managerial responsibility and authority to an appointed research project leader replacing his present weak co-ordinative function that depends on voluntary participation; and (iii) more systematic and purposeful information exchange.

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Some of the commonly useful areas for R&D are: l. Software development or modification/adaptation, such as

2.

3.

4. 5. 6.

simulation modeling of interconnections suited to ASEAN applications; Development of an STMC electricity pricing formula, incorporating factors relevant to the ASEAN situation, such as pricing of non-renewable energy resources and marginal production cost of hydroelectric power as a function of reservoir level and expected rainfall (see Chapter IX, Section 6); in conjunction with this, monitoring and comparison of plant-level generating costs (average, base, and peak periods) using a common currency; Pilot testing of small-scale or community-level "ancillary energy enterprises" and other Pareto transfer schemes (see Chapter IX, Section 5); Energy price forecasts; Monitoring of recent or impending technological developments; and Feasibility studies of interconnection projects in co-operation with foreign firms.

In any preparation for an STMC pricing formula, information on generating costs across ASEAN utilities would be useful in prima facie assessment of benefits from electricity trade. A regional research project to derive this information and express it in a common currency will be useful in anticipating problematic issues in negotiating electricity pricing between utilities. Electricity pricing, if not approached correctly, could be a fractious regional issue. Because no political commitments are at stake, it is safer to first address the pricing issue under a research framework. Potential problems would become visible and hence can be addressed and ironed out in advance. Realization of cost savings and development of regional-level planning viewpoints are the basic rationales behind an R&D consortium.

2.4 Natuna-Bakun Linkage Several potential problems or obstacles on ASEAN energy cooperation can be anticipated.

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First, exploiting the huge Natuna gas field is a problem for Indonesia because of its depth and great distance from demand centres. Located in the South China Sea, it is much closer to Singapore and Peninsular Malaysia than to Java. The viability of the concept of a long pipeline bringing natural gas to Batam Island (and Singapore) and then to the Duri oil fields in Sumatra and later on to Java, is enhanced if the Singapore market can be tapped along the way. Indonesian officials have sounded out their Singapore counterparts on gas sales. 5 Indonesia and Malaysia are in competing positions. Through the Peninsular Gas Utilization (PGU) pipeline project of Malaysia which is in its second phase of implementation, natural gas can be brought to Singapore from offshore Trengganu fields much ahead of and perhaps cheaper than Natuna gas. Phase II of Malaysia's PGU project is expected to supply natural gas to Johor Bahru by 1990 (MNC-WEC 1986), while the Natuna-to-Duri gas pipeline project of Indonesia is planned to be operational by 1991-93 (Hayes 1986). Second, the 650-km long trans-Malaysian submarine HVDC cable will pass through Indonesian territorial waters. Right-of-way must first be obtained from Indonesia. Third, the 1,500-MW power from Bakun/Pelagus is a large single source of power any outage of which would black out wide areas in the Malaysian grid and could affect the Singaporean and Thai grids. If the outage occurs at the Bakun hydropower plant, it would also black out areas in Sarawak and affect Pontianak (in South Kalimantan, Indonesia) if the Sarawak-Kalimantan interconnection is operational by then. Fourth, reliability of the Malaysian grid would be subject to seasonal variations of water level in the Bakun and Pelagus reservoirs and to occasional dry years. Fifth, with (i) cheap and large amounts of power to be made available from Bakun, (ii) rising demand for power in Sumatra, and (iii) planned export of any excess power from a future transSumatran grid/backbone to Java through the contemplated SumatraJava submarine HV link, 4 the long-term rationale behind export of the Asahan River hydropower to Malaysia and the attractiveness of a Malaysia-Sumatra interconnection would be lost. Sixth, the Malaysian PGU pipeline project and the Indonesian

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Natuna-to-Duri pipeline concept- like any pipeline project -locks both seller (Malaysia or Indonesia) and buyer of gas (Singapore) into a technological fix which is unattractive to the buyer (Chapter III, Section 5). These obstacles can be overcome by a Natuna-Bakun linkage scheme, one with the potential to weave together in an organic fashion the interests and security perceptions of the parties concerned. Several possibilities, not all mutually exclusive, are open to Indonesia for the exploitation of Natuna gas. One possibility is for the gas to be piped to Batam Island and Singapore. This requires a 480-km pipeline from the closest Natuna fields at Hiu and Belanak (Hayes 1986). If the farther D-alpha fields would be interconnected in a second stage, an additional 475 km of pipes are needed. The capacity of the first stage pipeline must therefore allow for this addition, if firmly planned. Another possibility is for the gas to be sent from Batam Island, through an additional 410-km pipeline across the Malacca Straits, to the Duri oil fields. The rationale advanced for this concept is replacement of fuel oil with gas in firing the steam flood project at Duri. The steam flood project aims to enhance recovery of heavy crude from the Duri fields. The assumption supporting the concept is weak, that is, the cost of delivered gas at Duri will always enjoy a sufficient margin of feasibility below the cost of fuel oil throughout the next twenty-five years, the estimated lifetime of Duri field reserves. The surge of prices of nuclear fuel a few years after the quadrupling of oil prices in 1973-74 is a reminder that prices of fully or partially substitutable energy forms eventually tend to catch up with each other. Piped coal-water mixture or coal brought in by railroad from the nearby (around 150 km) Ombilin coal fields is an alternative concept. Cost studies of this concept could be undertaken. A railroad project is expensive but its social multiplier effect is greater than that of a pipeline project. The concept might be feasible in the long-term view if the plan is to continue the pipeline towards the Java demand centres. The great distances involved are Natuna's disadvantage. The Singapore market or a possible industrial centre at Batam Island in the next century can arguably enhance its feasibility, but the same argument supports the concept of pipeline between Natuna and Batam. The

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natural gas requirements of Java are best met from elsewhere, even piping it from as far as Mahakam, East Kalimantan (Migas 1985). Another alternative is to pipe Natuna gas from the D-Alpha field, before or after clean-up of its high carbon dioxide content, to Paloh, the nearest point in the Bornean mainland. The distance involved is almost the same as the distance to Matak, where the D-Alpha gas is planned to be connected to the Phase I pipeline. At Paloh, the gas can be used for power generation, or for both power and petrochemical industries. This alternative will link Natuna gas to the ASEAN grid. This Natuna-Bakun linkage scheme consists of the following: (a) D-Alpha Natuna gas is piped to a power plant located near Paloh in the northwestern tip of Kalimantan, close to the landing point of the trans-Malaysian HVDC cable. This option does not close the possibility of later or simultaneously setting up an LNG, or later also an LPG, plant in Paloh. The power plant can later provide power for a natural gas-based petrochemical industry in the area. (b) Power from the "Natuna energy complex" is transmitted via cables parallel to, or laid integral with, the trans-Malaysian cables, for sale to Singapore and Malaysia and eventually for transmission to Sumatra via a Malaysia-Sumatra interconnection and then to Java via a Sumatra-Java interconnection. The planning of the Natuna energy complex and the Bakun HEPP/trans-Malaysian link is undertaken together to enable the Natuna power plant to complement Bakun. Both power sources can be operated simultaneously. In cases of outage or periodic low reservoir water levels at Bakun, the Natuna power plant takes up the slack and supplies power both to Singapore/Malaysia and Sarawak/Pontianak. Aninitial estimate of 300 mmscfd (million standard cubic feet per day) from D-Alpha can produce about 450 MW of electricity (assuming 8 TOE/mmscf of raw gas with 70 per cent C0 2 and 40 per cent plant efficiency). This figure is about one-third of the planned 1,500-MW capacity of the trans-Malaysian cable. More Natuna gas-fired generators can also be planned to provide peak load power and greater reliability to a future interconnected LLN-EGAT-PUB giant grid.

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(c) At some planned future time, the capacity of the Natuna energy complex can be increased so that excess power can be transmitted via the Malaysian grid to Sumatra and thence to Java, and possibly also to Batam Island via Singapore. To make this feasible, the expansion of transmission infrastructures in Malaysia and Sumatra and construction of the MalaysiaSumatra interconnection have to be planned together. A less expensive alternative is for Natuna gas to serve power requirements in Java, compared to the expensive Natuna-to-Java pipeline alternative (Migas 1985). It complements, rather than replaces, the Mahakam (East Kalimantan)-to-Java pipeline concept. The concept of a Natuna-Bakun linkage requires detailed studies at the pre-feasibility level because many assumptions made above have to be confirmed. Furthermore, the realization of the linkage demands much planning collaboration among ASEAN utilities a level of co-operation much closer than has hitherto taken place. Its potential advantages justify more detailed studies of the concept. Malaysia, Singapore, and Indonesia - the key participants in a regional interconnection - will each realize benefits and take a vital and organic interest in setting up and protecting the Bakun-Natuna-HVDC system. Potential problems and competition relationships could be transformed to opportunities for mutually beneficial regional co-operation using the basic outlines of a NatunaBakun linkage. Project details, however, can be worked out by pre-feasibilities once the basic idea gets accepted by ASEAN energy planners. The repercussions of linking the exploitation of Natuna and Bakun are many. This will provide a stimulus for accelerated development in Borneo, for upgrading the Thailand-Malaysia tie to enable transmission of cheap power to Thailand, and for earlier development of a Peninsular Malaysia-Sumatra-Java power transmission linkage. A study estimated that by 2004, power generated from the PLN Region 4 (Bukit Asam and Muara Tiga coal mines) in south Sumatra could be supplying about 4 tWh northwards to Medan (PLN Region 2) and 33.6 tWh eastwards to Java. 4 Even if the Sumatran HV backbone is not yet operational by 2004 (or later, depending on the Bakun/Natuna timetable), power from the Bakun-Natuna system can supply Medan (say, through Pcnang

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Island) and release 4 tWh additional energy from Bukit Asam for consumption in Java. 2.5 Medium-Term Export of Asahan Power

A glance at the map shows that the next geographical hurdle is to interconnect Java to the Singapore-Malaysia-Thailand system. The proposal submitted to the PLN in 1972, and resubmitted in 1979, to develop the 1,460-MW Asahan hydro potential for export to Singapore, Malaysia, and southern Thailand (Chapter V, Section 4) has not been resurrected. From a purely regional viewpoint, for the moment disregarding the individual national planning frames, Asahan hydro power should be tapped before Bakun. The Sumatra-Malaysia link entails much shorter submarine and overland transmission routes. At first glance, it should be cheaper on a per kilowatt basis to transmit to Peninsular Malaysia, say, 1,000 MW from Sumatra than 1,500 MW from Sarawak. The physical obstacles are as follows: there is no transmission spine along Sumatra; the present development of Asahan is more than sufficient for the purpose of running the Inalum aluminium plant; and future power needs of northern and central Sumatra will require use of the Asahan River's full potential. In other words, Indonesia has no compelling reason to invest in an Asahan-toMalaysia tie. However, if a decision to proceed with a Natuna-Bakun power tandem is made to enable Indonesia to develop the Natuna fields and transmit power from Natuna through the Malaysian grid to Java, then a Sumatra-Malaysia interconnection would be a necessity. If feasibility studies indicate that an Asahan-to-Malaysia power export is more economically attractive and would take a shorter lead-time, then the logical sequence from a regional planning perspective is to first interconnect Malaysia and Sumatra for northward power transfer over the medium term when Sumatran power needs are still small. The Bakun-Natuna-trans-Malaysian HVDC cable project can then be implemented much later. By then, transmission infrastructures passing through south Sumatra coal fields would be part of a Sumatran transmission backbone that will send power southwards through the Sumatra-Malaysia and Sumatra-Java submarine interconnections to Java.

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Again, the concept requires more detailed pre-feasibility studies to establish its prima-facie rationale. Again, these schemes demand far closer regional co-ordination of power system expansion planning than before. Whatever merit can be claimed for these conceptual schemes (without benefit as it is of detailed technical and economic studies), is that they offer the possibility of linking the national interests of prospective participants in the ASEAN grid in such a way as to motivate them towards effective collaboration. 3. Remote Scenarios

In the distant future, energy systems will have to be completely weaned away from fossil fuels. Solar-based energy, geothermal energy, and nuclear energy via breeder reactions and thermonuclear fusion have been suggested as long-term large-scale energy options. The long-term effects of radiation on human population and on ecosystems continue to place doubts on the last two options. Geothermal energy is renewable (depending on continuous availability of water from associated aquifers) and clean, but it is locationspecific. Only solar-based energy can be large-scale, clean, widely available, and renewable. Solar energy technologies are the subject of world-wide R&D. Large-scale solar power plants can either be based on (i) tree plantations to produce dendrothermal power, (ii) photovoltaic panels, (iii) solar thermal power using concentrators/ mirrors, and/or (iv) microwave transmission from orbiting geostationary satellite-collectors. In all cases, large surface areas in the order of several hundred square kilometres are required. 6 A possible option worth exploring in the future when photovoltaic systems will be cheaper is the complementary operation of an associated solar power plant with a hydroelectric power plant. The solar power plant can cushion seasonal loss of system reliability typical of hydro projects. Solar farms are land intensive, futuristic propositions. This option is available only in frontier, low population density areas such as the heartlands of Borneo (in association with the Bakun HEPP), Mindanao (in association with the Agus HEPP), Sumatra (in association with the Asahan HEPP), and Irian Jaya. For example, if the Bakun HEPP becomes a reality, Malaysia, alone or in co-operation with Indonesia, can consider this option in the future and plan

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for a nearby solar farm. To create and preserve this option, the governments concerned can declare well beforehand appropriately selected "solar plantation reservation areas", integrate the reservations in their land use policy and planning processes, control population influx, and thereby pre-empt the solution of social problems. Problems may become too unwieldy if action is taken at a much later time, when population pressures on frontier lands make large-area projects difficult to implement. The availability of large quantities of cheap power from Borneo provides a stimulus for overland interconnections to the rest of the island, or even to the Philippines. Alignments of rights-of-way can be located and obtained not only for the transmission line but simultaneously also for a parallel highway (a "trans-Borneo highway"). The highway will enable convenient maintenance and protection of the transmission line, and it will spur local trade, travel, and other developments - complementing the availability of power. Renewable energy projects will become more feasible in the coming decades: hydroelectric power plants, solar farms, and dendrothermal power projects. These energy resources are plentiful in Borneo. Borneo could be expected to play a a more important energy role in the twenty-first century.

4. Project Identity The issue will arise on whether specific project components of the ASEAN grid should be regarded primarily as national projects or ASEAN projects. If a project is a component of a developing regional grid, the proposal in this work is to implement it as a joint venture of the utilities concerned involving at least the two ASEAN participants linked by an interconnection and ideally all ASEAN countries having a physical and economic interest in the project. This way, there is no question that the project is an ASEAN project. One can be regarded as a national project only insofar as the role of lead implementor and majority equity holder is assigned to one country. The proposed trans-Malaysian HVDC submarine cable project could be viewed and pursued as a purely domestic affair by the

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Malaysian Government. However, the Malaysian leadership has a broad view of the project: The viability of the project is not only based on the country's energy needs, but also on the setting up of an ASEAN electricity transmission programme in future. In the face of diminishing oil resources, the ASEAN power grid interconnections perhaps offered the best solution for the pooling of non-transportable and renewable energy resources such as hydroelectric and geothermal power among member countries. 8

Labeling or identifying a project as part of the ASEAN grid creates a symbolic value. Symbols are important to ASEAN unity. They play an important role in shaping the political future of ASEAN. Notes 1. Project No. 3 of the Forum of Heads of ASEAN Power Utilities/ Authorities is

2.

3.

4.

5.

the ASEAN Power Interconnection Project. In this chapter the Project is referred to as the "ASEAN Power Interconnection Programme" rather than "Project No. 3" to avoid confusion with the term "project" as commonly understood in development literature, namely: an enterprise producing a service or commodity, employing a physical or/and organizational infrastructure, and located in a specific area. "Programme" is properly understood as consisting of a coherent set of projects towards a general goal. A programme is an instrument of policy, while a project is a unit of management and accounting. Banks finance projects, not programmes. "Project identification" is the first stage in the project development cycle. Personal communication from Mr Tajudin bin Mohd. Ariff, Co-ordinator, ASEAN Power Interconnection Project (Project No. 3). Forum of Heads of ASEAN Power Authorities/Utilities. The Bakun HEPP is estimated to take ten to twenty years to complete. See: V. V. Desai, Energy Resource Balances and Supply Developments in the Asia-Pacific Region, Papers and Proceedings of the 13th Pacific Trade and Development Conference, held in Manila on 24-28 January 1983. Kraftwerk Union, PLN, and Siemens, Energy ']}ansport {rom Sumatra and Kalimantan to java; Siting of Coal Power Plants (July 1986), report of a study commissioned by the Indonesian Government. "Indonesians Brief S'pore Officials on Gas Pipeline", Straits Times, 3 February 1987, p. 9; "Indonesia in Search of Market for Gas Deposits", Straits Times, 24 February 1987, p. 6; "Gas Sale Raised in S'pore-Jakarta Talks", Straits Times, 26 Fehru;1ry I gs7.

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6. Under best sunshine conditions, about 1 kW/square metre is received on the earth's surface. Assuming 10 per cent efficiency, a four-hour useful daily operating time, and availability of energy storage technology, a solar power plant in the tropics requires 100 square kilometres of active area to produce a daily average power of about 1,600 MW. This conversion factor is close to that of dendrothermal power plantations: 350 hectares per MW. See for instance: Regional Energy Development Programme, United Nations ESCAP, Manpower Profiles in Energy Sub-Sectors. Volume 5: Dendra Thermal (Bangkok: UNDP/ ESCAP/ILO, December 1984). 7. Quote from Malaysian Minister of Energy, Telecommunications, and Posts Datuk Leo Moggie ("Energy Policy Shift Gives Gas Bigger Role", Straits Times, 18 June 1g87, p. 10). 8. Quote from then Deputy Prime Minister Mahathir Mohamad (BERNAMA Newsletter, No. 26/81, 2 May 1981).

~uu

Summary and Conclusions

Many bilateral interconnections exist in the world today and more are planned or upgraded. Southeast Asia alone has five interconnections: three between Thailand and Laos, and one each with Peninsular Malaysia's two closest neighbours: Thailand and Singapore. These are evidences of the essentially sound basis of electricity trade. Energy is the lifeblood of modern society. After two oil crises, the availability of adequate, cheap, clean, and secure sources of energy is high in national priorities. The ASEAN region is blessed with abundant energy resources. It is a net energy exporting region. However, this happy situation will not remain for long. The next century will see a mixed energy landscape: tighter petroleum supplies, new technologies, conservation life-styles, and importance of renewable energy sources. The three oil crises, counting the precipitous drop in oil prices in 1985-86 as the third, are visible, acute challenges to oil exporters and importers alike. The other challenge is less visible and less acute. It is the slow exponential rise in domestic energy demand,

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the slow and inevitable exhaustion of reserves, the slow process of planning and sourcing development funds, and the slow recognition of all these. ASEAN has demonstrated splendid responses to crises. The question remains: can it respond to a non-crisis, to problems with a lack of urgency hiding their long-term importance? This is a challenge in strategic perception. The ASEAN grid is a technological challenge for a young regional grouping of developing countries. But technological means are available once the political decision is made and the will is set. The ASEAN grid is therefore more of a challenge in regional, strategic perception. A strategic perception is the precursor of regional political will. For a perception to be strategic it needs to be regional in outlook and long-term in planning vision. Several external forces, those beyond the control of ASEAN, may affect the realization of an ASEAN grid. Overall, they pose no serious obstacle. They may in fact exert facilitatory influences, the timing of which is the only uncertainty. There are many factors within the control of ASEAN project planners and implementors. Nevertheless, mistakes can still be made. Past experiences with projects in ASEAN, and outside ASEAN for that matter, do not bode so well. Many megaprojects around the world have been either misplanned or misimplemented, generating social problems at the same time that they avowedly pursue development. Development disasters are repeated elsewhere around the world. The mistakes partake of the same themes and issues. There appears to be a paucity of learning: both in moving up a learning curve within, and in transferring experiences across, national borders. This constitutes the second challenge to ASEAN mega planners. The ASEAN grid is a complex challenge. For one, it requires a deliberate broadening of planning objectives and methods. In dealing with communities within the influence zone of a project, the competence of an engineer can turn out to be, by its narrow planning vision, the very source of incompetence. It is a difficult demand for a skilled or trained specialist to adopt generalist and systemic perspectives. The ASEAN grid is also an organizational challenge: how various ASEAN power utilities or authorities can get their act together to attain a technological objective; how clearly defined is the authority

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from the highest political leaders to the project implementors; how purely technical concerns can be isolated from political changes or undue political interference; how well utilities can work in an unfamiliar managerial environment wherein decision elements are, unlike those at home, not fully under their control; how well utility planners can shift from a closed-system engineering viewpoint to open-system political perspectives; and how well utility managers can shift from clear-cut technical tasks and authorities in a circumscribed corporate setting to a world of negotiations and co-ordination, disjunctive interests, implicitness, and political ambiguities. For another, the ASEAN grid requires sufficient political goodwill from the highest levels of government to start and sustain. Energy trading is, after all, an exchange of resources vital to national well-being and security. Security is sacred to nations young or old. Political maturity and goodwill are issues that reside at the core of ASEAN. Only time can tell for sure whether the goodwill can be sustained and nurtured. And yet, a joint regional decision to work towards an ASEAN grid is no less than a long-term commitment. The commitment is financial, technological, and political. It will take decades of step by step and sustained development effort to implement. A megaproject requiring decades to develop demands attention to long-term considerations. This is really a demand on the political leadership, which worries about the next elections, or about drafting a press release tomorrow morning to counter damaging allegations. Who cares about voters not yet born? Yet it is the duty of government to invest in long-maturing projects that no businessman would dare to venture into. More than any citizen or organization, the government is alone in the duty to face important future problems, while attending to day to day urgent matters.1 A project with regional political repercussions also requires creativity in project design. The ASEAN grid, while seeking to meet mutual development needs, at the same time poses a test to ASEAN. It provides a stimulus to regional thinking and planning. It is a socio-technical system which can modify social relations as it fulfils social needs. Fortunately, regional electricity trade can take various stepwise modalities. Each step can be designed or upgraded to match the

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political maturity of a bilateral relationship at any given time. A "political maturity scale" of electricity trade and co-operation has been devised and proposed in this work. The endeavour of designing a regional relationship by the use of a megasystem therefore takes an interesting form and opportunity in the ASEAN grid. 2 Formulating good designs is a group process which tends to shift adversarial into organic modes of international intercourse. The present study has illustrated this design modality in regional thinking and planning. The minimum objective of this work is to contribute to this design. If ASEAN planners and decision-makers consider the proposed design concepts then its maximum objective would have been attained. In the face of the complexity of the challenge, this academic work can only hope to extend the limits of analysis and creativity. The real action still belongs to the planners and implementors.

Notes I. It is apropos to quote some "lessons of global models" culled from several

attempts at really long-term decision modeling of the global problematique: Owing to the momentum inherent in the world's physical and social processes, policy changes made soon are likely to have more impact with less effort than the same set of changes made later. By the time a problem is obvious to everyone, it is often too far advanced to be solved. The interdependence among people and nations over time and space are greater than commonly imagined . . . . simple measures intended to reach narrowly defined goals are likely to be counterproductive. Decisions should be made within the broadest possible context, across space, time, and areas of knowledge. Cooperative approaches to achieving individual or national goals often turn out to be more beneficial in the long run to all parties than competitive approaches. (World Resources Institute 1986). 2. Two among such megaprojects can be noted. (a) A submarine tunnel between France and England is a concept that had been suggested oftentimes in the past. The US$10 billion tunnel is planned to enable passengers to travel from Paris to London in three hours, a shorter time than via air. Recently an Anglo-French consortium, the Eurotunnel, has launched a serious campaign for funds to make it a

164

Designing for Consensus: The ASEAN Grid reality. Aside from economic advantages, this megaproject can convey some symbolic value ("Drive to Raise $20b to Build Channel Thnnel", Straits Times, 15 August 1987, p. 6). (b) Prime Minister Thrgut Ozal of Thrkey announced the favourable results of a study by Brown and Root Ltd. on a US$15 billion "peace pipeline" that would bring water from the Seyhand and Ceyhan Rivers in Thrkey to the Middle East. The study proposed bringing two billion cubic metres of water to the United Arab Emirates via Iraq and Kuwait, and a branch to Jeddah and Mecca via Syria and the Israeli-occupied West Bank and Jordan. The philosophy of the project is to provide cheap water to countries along the route, and at the same time to help foster peace and co-operation among them ("Thrkey Plans Water Pipelines to Middle East", Straits Times, 27 April 1987, p. 28).

For reasons discussed in this work, a pipeline has technological disadvantages compared to electricity trade: pipelines set up a technological fix to both buyer and seller. A pipeline also creates dependencies and vulnerabilities that a water importing country may not welcome. In contrast, electricity trade and co-operation can take any of several stepwise modes corresponding to the political readiness of the participants. However, in terms of motivation, the "peace pipeline" proposed by Thrkey takes on some parallelisms with the ASEAN regional grid.

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Agreement on ASEAN Energy Cooperation

THE GOVERNMENTS OF BRUNEI DARUSSALAM, THE REPUBLIC OF INDONESIA, MALAYSIA, THE REPUBLIC OF THE PHILIPPINES, THE REPUBLIC OF SINGAPORE AND THE KINGDOM OF THAILAND, being the members of the Association of South East Asian Nations, which Association shall hereinafter be referred to as ASEAN. RECALLING the Declaration of ASEAN Concord signed at Bali, Indonesia, on 24 Feburary 1976 which provides that the ASEAN Member Countries shall take cooperative action in their national and regional development programs: NOTING that the Declaration of ASEAN Concord calls upon the ASEAN Member Countries to assist each other by according priority to the supply of the individual country's needs in critical circumstances, and priority to the acquisition of exports from Member Countries, in respect of basic commodities, particularly food and energy: NOTING the presence of similar energy resources in most ASEAN

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countries for both renewable forms such as hydropower, biomass and wood-based energy, solar, wind and geothermal, as well as non-renewable resources of energy such as oil, natural gas, coal and nuclear minerals: CONSIDERING that cooperation among Member Countries to ensure and develop these sources of energy is a basic component in strengthening the economic resilience of the individual Member Country as well as the economic resilience and solidarity of ASEAN. HAVE AGREED on the following provisions:

ARTICLE I GENERAL PROVISIONS 1. The ASEAN Member Countries hereby agree to cooperate in the efficient development and use of all forms of energy, whether commercial, non-commercial, renewable or non-renewable, in modalities that may be appropriately designed by them for the above purposes. 2. The range of cooperation will span planning, development, manpower training, information exchange, efficiency and conservation, supply and disposal, where appropriate, in any of the following energy sub-activities:

(i) resource investigation, exploration, assessment, planning and development; (ii) technological research, development and demonstration; (iii) transfer of technology; (iv) energy conservation techniques; (v) upgrading of environmental impact assessments resulting from different activities in energy, production, processing, handling, transport, and utilization; (vi) standardization of energy-related facilities; (vii) manpower development and safety programs in various energy fields, including production, processing, handling, transport, and utilization; (viii) energy security arrangements for emergency situations; (ix) exchange of technical information on personnel, technology transfer, operational experience, research publications, as

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well as program policy and implementation experiences; and (x) maintenance of a conducive environment for trading and investment opportunities in relation to energy fuels, materials and equipment. ARTICLE II COOPERATION IN PLANNING Recognizing that energy planning is an instrument to strengthen each country's capability to optimize energy resources development, allocation and utilization, the Member Countries shall endeavour to cooperate in: (i) the sharing of methodologies, techniques, skills and experiences in national energy planning (ii) conducting regional studies of energy as and when the Member Countries desire; and (iii) developing strategies to promote energy-related trade within the ASEAN region. ARTICLE III COOPERATION IN ENERGY DEVELOPMENT Considering that energy development is a continuing process which could result in the economic resilience of ASEAN as a whole, the Member Countries shall endeavour to cooperate in: (i) studies on various energy development management measures (ii) expediting and facilitating energy development schemes of common interests. ARTICLE IV COOPERATION IN CONSERVATION Recognizing that improving energy efficiency is of concern to all, the Member Countries shall endeavour to cooperate in: (i) pursuing energy conservation measures of common interest; (ii) undertaking various energy management and conservation researches; and

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(iii)

sharing information on energy conservation programs and activities. ARTICLE V COOPERATION IN TRAINING

1. The ASEAN Member Countries, in light of their comple-

mentary interests and of their long-term objectives to improve manpower capabilities, shall endeavour to cooperate in manpower training activities in all fields of energy. 2. The modalities of such cooperation shall include but not be limited to the following: (i) training and exchange of expertise in research, development and implementation of energy programs and conservation measures; (ii) strengthening of relevant existing institutions with programs in human resources development for the energy sector; (iii) sharing of methodologies, techniques and skills which facilitate the planning, implementation and management of multilateral cooperative programs; and (iv) familiarization with Environmental Impact Assessment techniques as an essential input to energy policy formulation. ARTICLE VI COOPERATION IN SECURITY OF ENERGY SUPPLY Recognizing the need to alleviate emergency situations relating to the shortage and/or oversupply of renewable and/or non-renewable energy products, the Member Countries shall endeavour to cooperate in drawing up and concluding: (i) emergency agreements for different energy forms as may be desirable from time to time; and (ii) appropriate measures to cope with these emergency situations. ARTICLE VII COOPERATION IN EXCHANGE OF INFORMATION 1. Recognizing that energy data and information are the basic

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means for monitoring the effect of energy policies for formulating plans and programs: 2. The Member Countries shall endeavour to cooperate in information exchange with the following objectives: (i) to benefit from transfer of technology and operational experience encountered during program implementation or studies; (ii) to enable common regional researches; and (iii) to establish adequate information systems of networks for the storage and retrieval of regional energy data.

ARTICLE VIII CONSULTATIVE COMMITTEE 1. The Senior Officials of the ASEAN Economic Ministers on Energy Cooperation shall act as a Consultative Committee to promote and keep under review various cooperation activities envisaged in the framework agreed by the Member Countries. Consultations shall be held in the Committee in order to facilitate the implementation and to further the general aims of this Agreement. The Committee will meet at least once a year. Special meetings of the Committee shall be held at the request of a Member Country/ Member Countries. 2. The Committee shall adopt its own rules of procedure and program of work.

ARTICLE IX FINAL PROVISIONS 1. This Agreement is subject to ratification by the ASEAN Member Countries. 2. The Instruments of Ratification shall be deposited with the Secretary General of the ASEAN Secretariat who shall promptly inform each ASEAN Member Country of such deposit. 3. This Agreement shall enter into force on the thirtieth day after the deposit of the sixth Instrument of Ratification. 4. No reservations may be made to this Agreement either at the time of signature or ratification.

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5. Any amendment to the provisions of this Agreement shall be effected by consent of all the ASEAN Member Countries. 6. This Agreement shall be deposited with the Secretary General of the ASEAN Secretariat who shall promptly furnish a certified copy thereof to each ASEAN Member Country.

IN WITNESS THEREOF, the undersigned, being duly authorized thereto by their respective Governments, have signed this Agreement. DONE in Manila, Philippines, this 24th day of June 1986, in seven copies in the English language.

For the Government of Negara Brunei Darussalam: (signed) H.R.H. PRINCE MOHAMED BOLKIAH Minister for Foreign Affairs

For the Government of the Republic of Indonesia: (signed) PROF. DR. MOCHTAR KUSUMAATMADJA Minister for Foreign Affairs

For the Government of Malaysia: (signed) TENGKU AHMAD RITHAUDDIN Minister for Foreign Affairs

Appendix: Agreement on ASEAN Energy Cooperation

For the Government of the Republic of the Philippines: (signed) SALVADOR H. LAUREL Vice-President and Minister for Foreign Affairs

For the Government of the Republic of Singapore: (signed) S. DHAN ABALAN Minister for Foreign Affairs

For the Government of the Kingdom of Thailand: (signed) DR. ARUN PANUPONG Deputy Minister for Foreign Affairs

171

Glossary

An italicized term mentioned within a definition is also defined elsewhere in this list. Please see Chapter III for more definitions. ASCOPE - ASEAN Council on Petroleum. Btu - British thermal unit. A unit of energy; it is no longer in common usage. Calorie - See ENERGY. Capacity - The amount of power a generator can produce, or a transmission line can carry. If a generator can be operated twenty-four hours a day all year round, the maximum annual energy production is equal to its nameplate or rated output Capacity x number of hours in a year. In actual practice, a generator can not be run continuously due to regular maintenance requirements, variability of demand, and unforeseen outages. The ratio of actual to maximum energy production per year is called load factor. For a hydroelectric power project, capacity is measured in MW and energy delivered in one year

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is measured in GWh (= Capacity x Load Factor x 8, 760 h in a year). See also ENERGY and POWER. Celsius - A unit of temperature (formerly Centigrade). COIME - Committee on Industry, Minerals, and Energy. COST - Committee on Science and Technology. Cost-benefit analysis - See SOCIAL BENEFIT-COST ANALYSIS. DES - Directorate of Electricity Services (Brunei). Direct benefit - That benefit accruing to the owner or investor of a project. Direct benefits and direct costs are those reflected in the private accounts of the owner; indirect benefits and indirect costs are those external to a project accounting system. Indirect effects are those felt by private entities other than the owner/investor of a project. Direct cost - See DIRECT BENEFIT. Distribution line - See TRANSMISSION LINE. Economic reserve - See RESERVE. Economically mineable reserve - See RESERVE. EGAT - Electricity Generating Authority of Thailand. EHV -Extra high voltage (500 kV and higher). EIA or Environmental Impact Assessment - A process of anticipating, describing (or quantifying if feasible), and evaluating (assessing social desirability/undesirability) of the complete range of consequences of a specific project. The Environmental Impact Statement is a decision document resulting from an EIA. It becomes part of an expanded project feasibility study that allows a broader information base for making decisions on whether or not to go ahead with the project, or what modifications to incorporate in a project. EIS - Environment Impact Statement. See EIA. Electricity - A loose layman term interchangeably used to mean either electrical energy or electrical power. Energy and power are two entirely different quantities. Electric energy is a secondary or derived form of energy. It is an intermediate good. See ENERGY and POWER. Energy- The capacity to do work. Power is the time rate of doing work. Therefore energy is power multiplied by time. Kilowatt (kW) and megawatt (MW) are measures of power. Kilo\