THE WORLD BANKTHE WORLD BANKEast Asia and Pacific RegionEast Asia and Pacific Region

POWER TRADE INPOWER TRADE INGREATER MEKONG GREATER MEKONG

SUBREGIONSUBREGION

OutlineOutline

Why a regional electricity market in the GMS? Why a regional electricity market in the GMS?

Background on GMS power tradeBackground on GMS power trade

World Bank's strategy for support to GMS World Bank's strategy for support to GMS

power tradepower trade

Overview of the proposed GMS power trade Overview of the proposed GMS power trade

projectproject

Why a regional electricity market Why a regional electricity market in the GMS?in the GMS?

Three key factors provide the rationale for power Three key factors provide the rationale for power trade in the GMS and the ultimate development of trade in the GMS and the ultimate development of an integrated network, with its attendant economic an integrated network, with its attendant economic and technical benefits: and technical benefits:

(i)(i) Imbalance between potential power generation Imbalance between potential power generation resources and forecasted demand within the GMS resources and forecasted demand within the GMS countries;countries;

(ii)(ii) Availability of economic and sustainable power Availability of economic and sustainable power generation resources in the resource-rich countries that generation resources in the resource-rich countries that justifies export; and justifies export; and

(iii)(iii) Proximity and peculiar congruity of the GMS countries, Proximity and peculiar congruity of the GMS countries, which make economic cross-country power which make economic cross-country power interconnections and trade feasible.interconnections and trade feasible.

Background to GMS power tradeBackground to GMS power trade Power trade in the GMS Power trade in the GMS originated in 1971originated in 1971 when Lao PDR and when Lao PDR and

Thailand entered into a PPA for export of power Lao PDR to Thailand entered into a PPA for export of power Lao PDR to northeastern Thailand. northeastern Thailand.

Apart from large scale power trade between Lao PDR and Thailand, Apart from large scale power trade between Lao PDR and Thailand, all six GMS countries engaged in all six GMS countries engaged in modest cross-border exchangesmodest cross-border exchanges for supply to border towns of neighbors and for cross-border for supply to border towns of neighbors and for cross-border hydropower development.hydropower development.

1990 onwards,1990 onwards, bilateral power trade gained impetus with the bilateral power trade gained impetus with the signing of several MOUs between governments across the GMS and signing of several MOUs between governments across the GMS and growing investor interest in cross-border generation investments.growing investor interest in cross-border generation investments.

In 1992In 1992, Cambodia, Lao People's Democratic Republic, Myanmar, , Cambodia, Lao People's Democratic Republic, Myanmar, Thailand, Vietnam and Yunnan province of the People's Republic of Thailand, Vietnam and Yunnan province of the People's Republic of China (PRC) agreed to pursue a program of regional cooperation to China (PRC) agreed to pursue a program of regional cooperation to foster economic and social development, with the support of the foster economic and social development, with the support of the Asian Development Bank (ADB). Guangxi Zhuang Autonomous Region Asian Development Bank (ADB). Guangxi Zhuang Autonomous Region of PRC joined this initiative, known as of PRC joined this initiative, known as the GMS Programthe GMS Program, in 2004., in 2004.

Background (Background (continuedcontinued)) GMS Electric Power Forum, convening all six GMS Electric Power Forum, convening all six

governments, was formed in 1992, and has met governments, was formed in 1992, and has met regularly since its establishment regularly since its establishment

In 1993, the Experts Group on Power In 1993, the Experts Group on Power Interconnection and Trade was endorsed as the Interconnection and Trade was endorsed as the central coordinating entity for the GMS.central coordinating entity for the GMS.

Intergovernmental Agreement on Regional Power Intergovernmental Agreement on Regional Power Trade (IGA) was signed and ratified, which was Trade (IGA) was signed and ratified, which was accepted as the overall framework for development accepted as the overall framework for development of the regional market structure. of the regional market structure.

Supported by ADB, WB, and bilateral donors from Supported by ADB, WB, and bilateral donors from countries such as Australia, France, Japan and countries such as Australia, France, Japan and Sweden, there is now a strong impetus toward Sweden, there is now a strong impetus toward developing the GMS power trade market.developing the GMS power trade market.

Intergovernmental Agreement on Regional Intergovernmental Agreement on Regional Power Trade Power Trade

TheThe Intergovernmental Agreement on Regional Intergovernmental Agreement on Regional Power Trade (IGA),Power Trade (IGA), signed in November 2002, and signed in November 2002, and ratified by all respective parliaments by 2005, sets the ratified by all respective parliaments by 2005, sets the overall framework for development of the regional overall framework for development of the regional market structure. market structure.

Key objectives of IGA are: Key objectives of IGA are: (i) cost minimization in planning and operation of power systems; (i) cost minimization in planning and operation of power systems; (ii) full cost recovery and equitable sharing of benefits of (ii) full cost recovery and equitable sharing of benefits of

investments; and investments; and (iii) provision of reliable and economic electricity to all. (iii) provision of reliable and economic electricity to all.

In this context, IGA emphasizes: In this context, IGA emphasizes: (i) cooperation and mutual benefit; (i) cooperation and mutual benefit; (ii) gradualism in development of regional trade; and (ii) gradualism in development of regional trade; and (iii) environmentally sustainable development.(iii) environmentally sustainable development.

Responsibility for policy direction and supervision of Responsibility for policy direction and supervision of progress under IGA was assigned to relevant ministers in progress under IGA was assigned to relevant ministers in each GMS country.each GMS country.

RPTCCRPTCC IGA stipulated the establishment of the IGA stipulated the establishment of the Regional Power Regional Power Trade Coordination Committee (RPTCC), Trade Coordination Committee (RPTCC), as the high as the high level body responsible for actively coordinating and guiding level body responsible for actively coordinating and guiding the market’s development. the market’s development. Six meetings held so far - China (2004), Thailand, Laos, Six meetings held so far - China (2004), Thailand, Laos, Myanmar (2005), and Cambodia and China (2006). Myanmar (2005), and Cambodia and China (2006). The RPTCC was tasked with determining The RPTCC was tasked with determining the initial steps to the initial steps to establish and implement regional power trading establish and implement regional power trading arrangements, including:arrangements, including:

specifying basic rules for bilateral power trading among Parties specifying basic rules for bilateral power trading among Parties as a first step towards regional power trading; as a first step towards regional power trading; providing a recommendation for the overall policy and day-to-providing a recommendation for the overall policy and day-to-day management of regional power trade; day management of regional power trade; establishing the short, medium and longer initiatives which need establishing the short, medium and longer initiatives which need to be pursued on a priority basis in order to achieve the objectives to be pursued on a priority basis in order to achieve the objectives of regional power trade within a specified timetable; and of regional power trade within a specified timetable; and identifying necessary steps for expanding the scope of regional identifying necessary steps for expanding the scope of regional power trade.power trade.

GMS REM ImplementationGMS REM Implementation Evolution of the GMS Regional Electricity Evolution of the GMS Regional Electricity

Market is envisaged in four broad stages of Market is envisaged in four broad stages of development , and ultimately achieving a development , and ultimately achieving a competitive market, as outlined in a 2004 competitive market, as outlined in a 2004 study sponsored by the ADB. study sponsored by the ADB.

Each stage would have its own technical and Each stage would have its own technical and commercial operating agreement for commercial operating agreement for implementation and operation of regional implementation and operation of regional power trade. power trade.

At present, there is consensus that, while a At present, there is consensus that, while a full-fledged power market could be 10-15 full-fledged power market could be 10-15 years away, transmission interconnection and years away, transmission interconnection and generation capacity need to be built up generation capacity need to be built up gradually, starting on a bilateral basis. gradually, starting on a bilateral basis.

Issues and ChallengesIssues and Challenges

Key challenges and issues to be addressed include:Key challenges and issues to be addressed include:

(1) Achieving regional integrated planning,(1) Achieving regional integrated planning,

(2) Interconnecting disparate power systems, (2) Interconnecting disparate power systems,

(3) Undertaking the necessary regulatory reforms,(3) Undertaking the necessary regulatory reforms,

(4) Furthering sector reforms,(4) Furthering sector reforms,

(5) Implementing organizations and rules for market (5) Implementing organizations and rules for market operation,operation,

(6) Consistency of bilateral transactions with (6) Consistency of bilateral transactions with regional market needs,regional market needs,

(7) Developing consensus and ensuring (7) Developing consensus and ensuring sustainability, andsustainability, and

(8) Developing an agreed implementation road map.(8) Developing an agreed implementation road map.

Bank support for GMS power tradeBank support for GMS power trade

In close cooperation with ADB and other development In close cooperation with ADB and other development partners, the Bank has been continually involved in partners, the Bank has been continually involved in supporting GMS countries individually and at a regional supporting GMS countries individually and at a regional level. level. The Bank has had a long history of supporting individual GMS The Bank has had a long history of supporting individual GMS

countries, through energy policy dialogue, technical countries, through energy policy dialogue, technical assistance and financing assistance and financing

Since the first RPTCC meeting of July 2004, RPTCC members Since the first RPTCC meeting of July 2004, RPTCC members and the donors have welcomed Bank’s participation and active and the donors have welcomed Bank’s participation and active role, and expect its continued involvement. role, and expect its continued involvement.

With support from Japan Policy and Human Resources With support from Japan Policy and Human Resources Development (PHRD) grants, the Bank has contributed to Development (PHRD) grants, the Bank has contributed to pertinent analytical work.pertinent analytical work.

Leveraging its experience in helping develop regional power Leveraging its experience in helping develop regional power markets in other regions, the Bank presented a workshop on markets in other regions, the Bank presented a workshop on international experiences in the most recent RPTCC meeting.international experiences in the most recent RPTCC meeting.

The Bank has an unprecedented opportunity to assist GMS The Bank has an unprecedented opportunity to assist GMS countries in ensuring the development of an economically, countries in ensuring the development of an economically, technically, institutionally, environmentally, and socially technically, institutionally, environmentally, and socially sustainable regional electricity market.sustainable regional electricity market.

Key principles of WB support to GMS Key principles of WB support to GMS power tradepower trade

WB support to GMS power trade would be based on these key WB support to GMS power trade would be based on these key principles:principles: Overcoming obstacles facing the development of an Overcoming obstacles facing the development of an economically, technically, institutionally, environmentally and economically, technically, institutionally, environmentally and socially sustainable regional electricity market; socially sustainable regional electricity market; Fostering a regional integrated planning culture based on Fostering a regional integrated planning culture based on consensus, that ensures (i) optimal development of the region’s consensus, that ensures (i) optimal development of the region’s resources; and (ii) consistency of bilateral national resources; and (ii) consistency of bilateral national transactions with ultimate market goals;transactions with ultimate market goals; Ensuring the application of sound principles in development Ensuring the application of sound principles in development of market infrastructure, its institutions and its operating rules of market infrastructure, its institutions and its operating rules and regulations; and regulations; Supporting, in early years, initiatives and investments in Supporting, in early years, initiatives and investments in bilateral trade, through: bilateral trade, through:

Large power transfers between countries (such as China-Large power transfers between countries (such as China-Thailand, China-Vietnam, Laos-Thailand, Laos-Vietnam); and Thailand, China-Vietnam, Laos-Thailand, Laos-Vietnam); and More modest power transfers between the contiguous borders More modest power transfers between the contiguous borders (such as Laos-Cambodia, Vietnam-Cambodia) which would bring (such as Laos-Cambodia, Vietnam-Cambodia) which would bring in tremendous benefits of economic electricity in the recipient in tremendous benefits of economic electricity in the recipient border areas.border areas.

Lessons from similar Lessons from similar initiativesinitiativesIn the recent years, the Bank has financed three regional electricity In the recent years, the Bank has financed three regional electricity

market projects: market projects: West Africa Power Pool (WAPP) – June 2005; West Africa Power Pool (WAPP) – June 2005; Energy Community of South East Europe (ECSEE) – December 2004; Energy Community of South East Europe (ECSEE) – December 2004;

and and South Africa Power Market – October 2003. South Africa Power Market – October 2003.

Some key lessons from experience, reflected in the Bank’s current Some key lessons from experience, reflected in the Bank’s current approach, are:approach, are: Political consensusPolitical consensus among regional member countries to establish a among regional member countries to establish a regional electricity market, and conversion of that consensus into a regional electricity market, and conversion of that consensus into a political instrument is essential for guiding implementation. political instrument is essential for guiding implementation. Multilateral financing support and access to global knowledgeMultilateral financing support and access to global knowledge helps bring about political consensus.helps bring about political consensus. A clear visionA clear vision, a road map for implementation, and alignment of , a road map for implementation, and alignment of investments to the road map is necessary for catalyzing support among investments to the road map is necessary for catalyzing support among market participants. market participants. Technical assistance and institutional developmentTechnical assistance and institutional development support are support are critical for helping countries design an appropriate market and critical for helping countries design an appropriate market and implementation program.implementation program. Strengthening implementation capacityStrengthening implementation capacity, and simplified project , and simplified project designs for expediting investments required to support trading is designs for expediting investments required to support trading is essential for achieving results on the ground.essential for achieving results on the ground.

World Bank Strategy for World Bank Strategy for Supporting Supporting

GMS Power TradeGMS Power Trade

Institutional and Physical Infrastructure Framework

Long Term: Regional Power

Market

Medium Term: Regional Power

Grid

Policy/Institutional Support•TA to RPTCC•TA at regional and country level•Support to power sector development

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

Current:

Bilateral Power Trade

Proposed World Bank Strategy Proposed World Bank Strategy (1/2)(1/2)

A two-pronged approach for support to GMS: A two-pronged approach for support to GMS: Policy/ Institutional Support and Investment Support.Policy/ Institutional Support and Investment Support.

A) Policy / Institutional SupportA) Policy / Institutional Support Providing independent advice and relevant technical Providing independent advice and relevant technical assistance (TA) to the RPTCC on: assistance (TA) to the RPTCC on:

Developing good practice guidelines for bilateral arrangements; Developing good practice guidelines for bilateral arrangements; Developing principles regarding ownership, benefits estimation and Developing principles regarding ownership, benefits estimation and benefits-sharing of trans-boundary transmission lines;benefits-sharing of trans-boundary transmission lines;

Supporting power sectors of individual countries;Supporting power sectors of individual countries; Providing key technical inputs towards: (i) fostering a Providing key technical inputs towards: (i) fostering a culture of regional planning; (ii) feasibility study for bulk culture of regional planning; (ii) feasibility study for bulk power transfers between countries; and (iii) development, power transfers between countries; and (iii) development, along with ADB, of a Road Map and delineating the along with ADB, of a Road Map and delineating the activities to be undertaken at various stages.activities to be undertaken at various stages.

Going forward, the emphasis of Bank’s Going forward, the emphasis of Bank’s policy/institutional support would be on implementing policy/institutional support would be on implementing the IGA vision, while ensuring gradual yet sustained the IGA vision, while ensuring gradual yet sustained progress towards realization of the objective of each progress towards realization of the objective of each stage of development.stage of development.

Proposed World Bank Strategy Proposed World Bank Strategy (2/2)(2/2)

B) Investment SupportB) Investment SupportThe Bank would explore possibilities of co-financing The Bank would explore possibilities of co-financing with other international and regional financial with other international and regional financial institutions, bilateral agencies, and commercial banks. institutions, bilateral agencies, and commercial banks. The Bank investments in the GMS countries are The Bank investments in the GMS countries are potentially envisaged for the following areas:potentially envisaged for the following areas:

Cross-border power exchanges;Cross-border power exchanges; Regional bulk power transmission systems;Regional bulk power transmission systems; In-country HV and EHV infrastructure to support regional In-country HV and EHV infrastructure to support regional power trade;power trade; Economically, environmentally and socially sustainable Economically, environmentally and socially sustainable generation options; andgeneration options; and Design and implementation of load dispatch centers (LDCs) Design and implementation of load dispatch centers (LDCs) to facilitate countries’ participation in regional power trade.to facilitate countries’ participation in regional power trade.

Proposed GMS Power Trade Proposed GMS Power Trade ProjectProject

As part of the approach discussed, the Bank As part of the approach discussed, the Bank will be providing investment support, to finance will be providing investment support, to finance the following:the following:

Two cross-border transmission lines between Two cross-border transmission lines between Cambodia and Western Vietnam, and Southern Cambodia and Western Vietnam, and Southern Laos and Northern Cambodia; Laos and Northern Cambodia; A transmission link in Lao PDR that would A transmission link in Lao PDR that would interconnect Thailand, Laos and Cambodia in interconnect Thailand, Laos and Cambodia in southern Lao PDR around 2010; and southern Lao PDR around 2010; and A modern load dispatch center in Lao PDR to A modern load dispatch center in Lao PDR to facilitate the country’s participation in regional facilitate the country’s participation in regional power trade.power trade.

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