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THE WORLD BANK East Asia and Pacific Region POWER TRADE IN GREATER MEKONG SUBREGION

THE WORLD BANK East Asia and Pacific Region POWER TRADE IN GREATER MEKONG SUBREGION. Outline. Why a regional electricity market in the GMS? Background on GMS power trade World Bank's strategy for support to GMS power trade Overview of the proposed GMS power trade project.

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THE WORLD BANK East Asia and Pacific Region POWER TRADE IN GREATER MEKONG SUBREGION

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  1. THE WORLD BANKEast Asia and Pacific RegionPOWER TRADE INGREATER MEKONG SUBREGION

  2. Outline • Why a regional electricity market in the GMS? • Background on GMS power trade • World Bank's strategy for support to GMS power trade • Overview of the proposed GMS power trade project

  3. Why a regional electricity market in the GMS? Three key factors provide the rationale for power trade in the GMS and the ultimate development of an integrated network, with its attendant economic and technical benefits: (i) Imbalance between potential power generation resources and forecasted demand within the GMS countries; (ii) Availability of economic and sustainable power generation resources in the resource-rich countries that justifies export; and • Proximity and peculiar congruity of the GMS countries, which make economic cross-country power interconnections and trade feasible.

  4. Background to GMS power trade • Power trade in the GMS originated in 1971 when Lao PDR and Thailand entered into a PPA for export of power Lao PDR to northeastern Thailand. • Apart from large scale power trade between Lao PDR and Thailand, all six GMS countries engaged in modest cross-border exchanges for supply to border towns of neighbors and for cross-border hydropower development. • 1990 onwards, bilateral power trade gained impetus with the signing of several MOUs between governments across the GMS and growing investor interest in cross-border generation investments. • In 1992, Cambodia, Lao People's Democratic Republic, Myanmar, Thailand, Vietnam and Yunnan province of the People's Republic of China (PRC) agreed to pursue a program of regional cooperation to foster economic and social development, with the support of the Asian Development Bank (ADB). Guangxi Zhuang Autonomous Region of PRC joined this initiative, known as the GMS Program, in 2004.

  5. Background (continued) • GMS Electric Power Forum, convening all six governments, was formed in 1992, and has met regularly since its establishment • In 1993, the Experts Group on Power Interconnection and Trade was endorsed as the central coordinating entity for the GMS. • Intergovernmental Agreement on Regional Power Trade (IGA) was signed and ratified, which was accepted as the overall framework for development of the regional market structure. • Supported by ADB, WB, and bilateral donors from countries such as Australia, France, Japan and Sweden, there is now a strong impetus toward developing the GMS power trade market.

  6. Intergovernmental Agreement on Regional Power Trade • The Intergovernmental Agreement on Regional Power Trade (IGA), signed in November 2002, and ratified by all respective parliaments by 2005, sets the overall framework for development of the regional market structure. • Key objectives of IGA are: (i) cost minimization in planning and operation of power systems; (ii) full cost recovery and equitable sharing of benefits of investments; and (iii) provision of reliable and economic electricity to all. • In this context, IGA emphasizes: (i) cooperation and mutual benefit; (ii) gradualism in development of regional trade; and (iii) environmentally sustainable development. • Responsibility for policy direction and supervision of progress under IGA was assigned to relevant ministers in each GMS country.

  7. RPTCC • IGA stipulated the establishment of the Regional Power Trade Coordination Committee (RPTCC), as the high level body responsible for actively coordinating and guiding the market’s development. • Six meetings held so far - China (2004), Thailand, Laos, Myanmar (2005), and Cambodia and China (2006). • The RPTCC was tasked with determining the initial steps to establish and implement regional power trading arrangements, including: • specifying basic rules for bilateral power trading among Parties as a first step towards regional power trading; • providing a recommendation for the overall policy and day-to-day management of regional power trade; • establishing the short, medium and longer initiatives which need to be pursued on a priority basis in order to achieve the objectives of regional power trade within a specified timetable; and • identifying necessary steps for expanding the scope of regional power trade.

  8. GMS REM Implementation • Evolution of the GMS Regional Electricity Market is envisaged in four broad stages of development , and ultimately achieving a competitive market, as outlined in a 2004 study sponsored by the ADB. • Each stage would have its own technical and commercial operating agreement for implementation and operation of regional power trade. • At present, there is consensus that, while a full-fledged power market could be 10-15 years away, transmission interconnection and generation capacity need to be built up gradually, starting on a bilateral basis.

  9. Issues and Challenges Key challenges and issues to be addressed include: (1) Achieving regional integrated planning, (2) Interconnecting disparate power systems, (3) Undertaking the necessary regulatory reforms, (4) Furthering sector reforms, (5) Implementing organizations and rules for market operation, (6) Consistency of bilateral transactions with regional market needs, (7) Developing consensus and ensuring sustainability, and (8) Developing an agreed implementation road map.

  10. Bank support for GMS power trade • In close cooperation with ADB and other development partners, the Bank has been continually involved in supporting GMS countries individually and at a regional level. • The Bank has had a long history of supporting individual GMS countries, through energy policy dialogue, technical assistance and financing • Since the first RPTCC meeting of July 2004, RPTCC members and the donors have welcomed Bank’s participation and active role, and expect its continued involvement. • With support from Japan Policy and Human Resources Development (PHRD) grants, the Bank has contributed to pertinent analytical work. • Leveraging its experience in helping develop regional power markets in other regions, the Bank presented a workshop on international experiences in the most recent RPTCC meeting. • The Bank has an unprecedented opportunity to assist GMS countries in ensuring the development of an economically, technically, institutionally, environmentally, and socially sustainable regional electricity market.

  11. Key principles of WB support to GMS power trade WB support to GMS power trade would be based on these key principles: • Overcoming obstacles facing the development of an economically, technically, institutionally, environmentally and socially sustainable regional electricity market; • Fostering a regional integrated planning culture based on consensus, that ensures (i) optimal development of the region’s resources; and (ii) consistency of bilateral national transactions with ultimate market goals; • Ensuring the application of sound principles in development of market infrastructure, its institutions and its operating rules and regulations; • Supporting, in early years, initiatives and investments in bilateral trade, through: • Large power transfers between countries (such as China-Thailand, China-Vietnam, Laos-Thailand, Laos-Vietnam); and • More modest power transfers between the contiguous borders (such as Laos-Cambodia, Vietnam-Cambodia) which would bring in tremendous benefits of economic electricity in the recipient border areas.

  12. Lessons from similar initiatives In the recent years, the Bank has financed three regional electricity market projects: • West Africa Power Pool (WAPP) – June 2005; • Energy Community of South East Europe (ECSEE) – December 2004; and • South Africa Power Market – October 2003. Some key lessons from experience, reflected in the Bank’s current approach, are: • Political consensus among regional member countries to establish a regional electricity market, and conversion of that consensus into a political instrument is essential for guiding implementation. • Multilateral financing support and access to global knowledge helps bring about political consensus. • A clear vision, a road map for implementation, and alignment of investments to the road map is necessary for catalyzing support among market participants. • Technical assistance and institutional development support are critical for helping countries design an appropriate market and implementation program. • Strengthening implementation capacity, and simplified project designs for expediting investments required to support trading is essential for achieving results on the ground.

  13. World Bank Strategy for Supporting GMS Power Trade • Policy/Institutional Support • TA to RPTCC • TA at regional and country level • Support to power sector development Institutional and Physical Infrastructure Framework Current: Bilateral Power Trade Medium Term: Long Term: Regional Power Regional Power Grid Market • Investment Support • Preparation and financing of transmission investment for cross-border power trade and generation investments, as needed. • Design and implementation of load dispatch centers

  14. Proposed World Bank Strategy (1/2) A two-pronged approach for support to GMS: Policy/ Institutional Support and Investment Support. A) Policy / Institutional Support • Providing independent advice and relevant technical assistance (TA) to the RPTCC on: • Developing good practice guidelines for bilateral arrangements; • Developing principles regarding ownership, benefits estimation and benefits-sharing of trans-boundary transmission lines; • Supporting power sectors of individual countries; • Providing key technical inputs towards: (i) fostering a culture of regional planning; (ii) feasibility study for bulk power transfers between countries; and (iii) development, along with ADB, of a Road Map and delineating the activities to be undertaken at various stages. • Going forward, the emphasis of Bank’s policy/institutional support would be on implementing the IGA vision, while ensuring gradual yet sustained progress towards realization of the objective of each stage of development.

  15. Proposed World Bank Strategy (2/2) B) Investment Support • The Bank would explore possibilities of co-financing with other international and regional financial institutions, bilateral agencies, and commercial banks. • The Bank investments in the GMS countries are potentially envisaged for the following areas: • Cross-border power exchanges; • Regional bulk power transmission systems; • In-country HV and EHV infrastructure to support regional power trade; • Economically, environmentally and socially sustainable generation options; and • Design and implementation of load dispatch centers (LDCs) to facilitate countries’ participation in regional power trade.

  16. Proposed GMS Power Trade Project • As part of the approach discussed, the Bank will be providing investment support, to finance the following: • Two cross-border transmission lines between Cambodia and Western Vietnam, and Southern Laos and Northern Cambodia; • A transmission link in Lao PDR that would interconnect Thailand, Laos and Cambodia in southern Lao PDR around 2010; and • A modern load dispatch center in Lao PDR to facilitate the country’s participation in regional power trade.

  17. THANK YOU

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