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To promote a self-sufficient energy related regional cooperative bloc, the key lies in putting in place a joint policy for exploration and usage of raw material resources. Photo: AFP
To promote a self-sufficient energy related regional cooperative bloc, the key lies in putting in place a joint policy for exploration and usage of raw material resources. Photo: AFP

Re-energizing Saarc

An integrated approach to raw material and energy security could be the base to build vibrant regional cooperation in South Asia

The symbolism—the presence of leadership of South Asian Association for Regional Cooperation (Saarc) countries at the swearing in of Prime Minister Narendra Modi—and the substance—the President’s statement on an impending National Energy Policy—could be combined to set the stage for an Integrated Raw Material Policy (IRMP) for the Saarc region.

With rising raw material costs and huge trade deficits among Saarc members, an integrated approach to raw material and consequently energy security could well be the base to build the edifice of vibrant regional cooperation.

Not only can an IRMP facilitate smooth trade of raw materials, it can create an effective mechanism to benchmark the prices of raw materials, and establish a framework for exploration rights for member countries in collaboration with the local governments and/or public entities.

Indeed, carried out properly, member countries can also explore infrastructure building opportunities in the form of heavy industries in return for raw materials, especially in countries such as Afghanistan which is now becoming an important raw material source and is seeking infrastructure growth.

To promote a self-sufficient energy related regional cooperative bloc, the key lies in putting in place a joint policy for exploration and usage of raw material resources. This will be of particular relevance for Afghanistan and Bangladesh which have an abundance of unexploited natural resources.

Ideally, the IRMP should attempt to diversify sources of critical raw materials such as crude oil, coal and iron ore to mitigate the risks associated with overdependence on regions such as the Middle East (for security concerns) and Venezuela (because of cost ineffectiveness).

For instance, to access distant energy markets such as Venezuela, it will be advantageous for the region to pool its petroleum procurement and transport arrangements and negotiate competitive prices for large collective purchases.

With the longest history of producing and utilizing coal, India can initiate the sharing of coal-based thermal power generation technology with other Saarc members, especially with Bangladesh and Pakistan being serious about utilizing their coal reserves.

The IRMP can also support coal sourcing from outside the Saarc region by establishing international price benchmarks and signing long-term collective contracts with drawing rights to each member for domestic use or internal exports to other Saarc countries on a differential price basis.

Iron ore among the Saarc member nations still remains unexplored, except for India which has mined a good part of its potential iron ore both for domestic use and exports. The need to explore and optimize use of the iron-ore deposits makes for a strong case of having an integrated raw material policy to cover iron-ore.

Since crude oil prices are outside the purview of most Saarc countries, the best options here are exploration of member countries’ own resources and building of strategic reserves in each member country to pool in the resources explored and imported to mitigate future risks and price volatility.

It may also be the right time to invite Myanmar to become a member of Saarc.

Myanmar, which sits as the gateway between South and South-East Asia, has been a producer of oil and gas for the past 25 years. Its reserves, especially gas reserves, will prompt competition amongst foreign producers for exploration in the coming years, thus possibly unlocking further reserves. As it is, Asian companies are in a strong position to maintain their “first mover advantage" in Myanmar’s oil and gas sector.

Afghanistan also has 3.8 billion barrels of oil between Balkh and Jowzjan provinces in the north. This is an enormous amount for a country that only consumes a fraction of these reserves.

Members who wish to continue importing crude and petroleum products from the international market based on the spot requirements of their refineries can also route their requirements through the IRMP by listing their crude requirement, and hence take a call option on the spot rates available for bulk cargoes as a trading block.

The IRMP can be based on the principles of overall reciprocity and mutuality of advantages in such a way as to benefit equitably all member states, taking into account their respective levels of economic and industrial development.

The special needs of least-developed contracting states must be clearly recognized by adopting concrete preferential measures in their favour on a non-equitable reciprocal basis.

Finally, what will be needed is a proper governance structure. To create that, Article 8 of the South Asian Free Trade Agreement can be extended to the IRMP. It will include harmonization of product standards, reciprocal recognition of tests, simplification of customs procedures, ease of transit facilities, removal of investment barriers, platforms for macroeconomic consultations, rules for fair competition and promotion of venture capital.

Haseeb A. Drabu is an economist, and writes on monetary and macroeconomic matters from the perspective of policy and practice.

To read Drabu’s earlier columns, go to www.livemint.com/methodandmanner-

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