Engergy Politics ( Burma-Myanmar )

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No. 45, July 2007

Energy Politics

India-Bangladesh-Myanmar Relations

IPCS

SPECIAL

REPORT

INSTITUTE OF PEACE AND CONFLICT STUDIES

B 7/3 Safdarjung Enclave, New Delhi110029, INDIATel: 91-1151652556-9; Fax: 91-11-51652560

Email: [email protected]; Web: www.ipcs.org

Srinjoy Bose


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Energy PoliticsIndia-Bangladesh-Myanmar Relations

Srinjoy Bose, Research Officer, IPCS

India is highly dependent on oil imports,and approximately 70 per cent of Indiasoil is imported. By 2020 India is expectedto import 80 per cent of its energy needs.Expecting an exponential growth in itsenergy demands from an expandingeconomy India has been trying hard tosecure hydrocarbon energy supplies.Amongst other options, India has beenlooking eastwards to the extensive natural-

gas reserves of Bangladesh and Myanmar,which have become vital for Indiaseconomic growth. The geographicproximity of Bangladesh and Myanmar toIndia makes the import of gas not justconvenient, but an economically attractiveproposition. In addition, the energy needsof eastern India, particularly thenortheastern states, would be better servedby gas from Myanmar and Bangladeshrather than from reserves in Iran and otherdistant fields.

INDIA-BANGLADESH ENERGY POLITICS

Bangladesh has significant gas reservesthat India could tap into to meet its energyrequirements. As of January 2006,Bangladesh reportedly has five trillioncubic feet (tcf) of estimated natural gasreserves. To encourage natural gasexploration, the government opened thenatural gas sector to foreign investments in

1993 and today foreign companiesproduce 501 million cubic feet per day(MMcf/d) of natural gas from four gasfields. The leading foreign producer isChevron (previously Unocal), whichproduces 331 MMcf/d from the Jalalabadand Moulavibazar fields in Sylhet district.

The issue of gas exportation to India wasfirst raised by Unocal which had submitteda gas pipeline proposal to the governmentof Bangladesh, which included theconstruction of an 847 mile- (1,363km-)long pipeline from northeastern

Bangladesh (from the Unocal-developedgas field, Bibiyana) to New Delhi. Unocalproposed to export 3.65 tcf of natural gasover a period of twenty years. Accordingto Unocal projections, the government ofBangladesh could have received anestimated US$3.7 billion (approximately200 billion Bangladeshi Taka) in revenuesand tax receipts.

However, the export of gas to India,including the proposed (now almostshelved) Myanmar-Bangladesh-Indiatransnational gas-pipeline project, is apolitically sensitive issue in Dhaka. Internalopinion in Bangladesh is divided over thequantum of gas available for domesticconsumption and exports. Indian observersbelieve the transnational project has thepotential to mitigate domestic opposition inBangladesh towards export of gas toIndia. They also hope Bangladesh will

someday supply its own gas to India byjoining an existing transnational pipeline.1Conversely, any bilateral (even trilateral)contract/agreement with India continues tocome under opposition attack beingportrayed as selling Bangladeshs intereststo India. Sreeradha Datta argues

1

Interview with Sreeradha Datta, Research Fellow,Institute for Defense Studies and Analyses, NewDelhi, India, 18 June 2007.

If India wants Bangladesh to

deliver on the proposedMyanmar-Bangladesh-India

gas pipeline project, it should

be willing to grant trade

concessions to Bangladesh by

lifting such barriers


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IPCS SPECIAL REPORTNo 45, July 2007

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Bangladesh is concerned that India is tryingto extend its influence, including economicinterests, into Bangladesh.2 Adding to thisargument, M K Dhar, a former Indianintelligence officer opines that Islamist

forces in Bangladesh wary of Indiasintentions are against any policy,especially of an economic nature, thatwould benefit India. He argues,Bangladeshi policy-makers will not grantIndia rights of passage for a transnationalpipeline because such a decision/policywill be blocked by Jamaat-influencedsenior military and political officials.3

In addition, Bangladesh has been claimingthat non-tariff barriers block access of

Bangladeshi products, not only to theIndian market, but also to Nepal. Atpresent, Bangladeshs trade deficit withIndia exceeds US$2 billion and despitebeing urged by Bangladesh, which hasreduced its tariffs, Indian authorities havenot taken take any steps to reduce theirexisting tariff structure. If India wantsBangladesh to deliver on the proposedMyanmar-Bangladesh-India gas pipelineproject, it should be willing to grant trade

concessions to Bangladesh by lifting suchbarriers.4 Bangladesh has said that it willconsider allowing a pipeline originatingfrom Myanmar if India allows Dhaka afree trade corridor to Nepal andaccompanying trade benefits. It has alsoasked India to remove barriers that exist intrade between the two countries. A sectionin Bangladesh also wants India to allowpurchase of cheap hydropower fromBhutan and Nepal so that the gas reserves

of Bangladesh could be conserved.

These conditions have further complicatednegotiations over the laying of thepipeline, as free transnational movementthrough the sensitive Siliguri Corridor isnot acceptable to India. Bangladesh is fully

2Ibid.

3 Interview with M K Dhar, IPS (Retd), New Delhi,India, 13 June 2007.

4 Interview with Datta, n. 1.

aware of this situation. An Indiangovernment statement has this to say aboutthe politicization of the gas issue implied inthe Bangladeshi demands, Bangladesh[has] shown a lack of commitment in

entering into a treaty for providing atransit route [for] Indian goods, includingthe Myanmar-India gas pipeline, throughtheir land, forcing India to consider othercircuitous and uneconomical options.5

However, it now appears that the military-backed Interim Government of Bangladeshhas shown an inclination to improverelations with India. On the eve of a visitby External Affairs Minister, PranabMukherjee, in January 2007, theBangladeshi Foreign Affairs Advisor,Iftekhar Ahmed Chowdhury, informed the

media, Let me say unequivocally that thiscaretaker government wishes to placeBangladeshs relations with India on a firmfooting so that future governments of bothcountries can build on the progress wemake.6 Specifically, with regard to the

5 Siddharth Srivastava, India grapples with energyissues, 24 March 2007, Asia Times Online,http://www.gasandoil.com/GOC/news/nts71589.htm, accessed on 13 June 2007.

6 Anand Kumar, Bangladesh: Visit of Indian ForeignMinister Gives Fresh Impetus to Bilateral Relations,Bangladesh Monitor Paper No. 8, South Asia

By establishing long-term,

energy-driven, bilateral

cooperation India seeks to

consolidate its ties with the

Burmese military junta. By

offering attractive energy

deals, India aims to increase

its presence in Myanmar and

thereby counter the Chinese

threat


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Energy Politics: India-Bangladesh-Myanmar Relations

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transnational pipeline project, the ForeignAffairs Advisor told reporters, afterreturning from a recent visit to Myanmar:We are ready to negotiate for allowingthe pipeline if Myanmar sells gas and India

agrees to buyWell obtain best possibleadvantage through negotiations well getrevenue.7

Bangladesh stands to benefit in a numberof ways by construction of the Myanmar-Bangladesh-India gas pipeline. Theseinclude:-

1. Revenue earnings of an estimatedUS$100 million per annum by grantinga right of passage to the pipeline, and

on account of wheeling charges for thegas transmission through Bangladesh;an investment of about US$150 millioninside Bangladesh for the pipelineconstruction.

2. A pipeline would also ensure the futureenergy security of Bangladesh in theevent of exhaustion of Bangladeshsgas resources, the country would beable to import gas from Myanmar from

the latters huge natural gas reserves.

Analyses Group, 26 February 2007,http://www.saag.org/%5Cpapers22%5Cpaper2151.html, accessed on 15 June 2007.

7 Dhaka to resume talks on tri-nation gas pipeline,New Age, 1 May 2007,

http://www.newagebd.com/2007/may/01/front.html, accessed on 20 June 2007.

INDIA-MYANMAR ENERGY POLITICS

Myanmar has the worlds tenth largest andSoutheast Asias largest gas reserves,

estimated at more than 90 tcf with expertssaying the country has sufficient reservesfor more than 30 years.8

In 2006, India lost a potential tri-nationaldeal when Myanmar declined gas supplyto the Myanmar-Bangladesh-Indiapipeline. Instead, Yangon (the then capitalof Myanmar) signed an agreement with theHong Kong-listed Petrochina, under whichMyanmars Ministry of Energy agreed tosell 6.5 tcf from A-1 block (Rakhine

coastline) reserve via an overland pipelineto China for a period of 30 years.9

Much of the urgency behind Indias currentdrive to secure and diversify its sources ofoil and natural gas is due to the fear offalling behind China. In fact, Indian oil andgas companies have been repeatedlyoutbid by Chinese firms in recent deals. Inthe last three years, Indias Oil andNatural Gas Corporation Videsh Limited

(OVL) has been trumped by Chinese firmsin Kazakhstan, Ecuador and Angola.

Moreover, as many observers argue, theMyanmar option should be seen within thecontext of increased Chinese political andmilitary presence in that country. Byestablishing long-term, energy-driven,bilateral cooperation India seeks toconsolidate its ties with the Burmese

8 United States Geological Survey, 2005 MineralsYearbook: Burma, June 2007, p. 7.1, available athttp://minerals.usgs.gov/minerals/pubs/country/2005/bmmyb05.pdf, accessed on 10 July 2007;Year 2007: MPRL and China Heighten BurmasEnergy Sector, The Shwe Gas Bulletin, Vol. 2, Issue7, February 2007, available athttp://www.ibiblio.org/obl/docs4/SGB02-07.pdf,accessed on 10 June 2007.9 Anand Kumar, Myanmar-Petrochina Agreement:A Setback to Indias Quest for Energy Security,Paper No. 1681, South Asia Analysis Group, 19January 2006,

http://www.saag.org/papers17/paper1681.html,accessed on 15 June 2007.

As far as incentives are

concerned, India may opt to

increase the amount of transit

fees to Bangladesh to secure

the latters cooperation, as in

the case of the Iran-Pakistan-

India gas-pipeline project


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military junta. By offering attractiveenergy deals, India aims to increase itspresence in Myanmar and thereby counterthe Chinese threat.

From Indias perspective, however, theabove-mentioned proposal to transportgas from Myanmar by a pipeline throughBangladesh had to be shelved because ofunreasonable demands from Bangladeshand because Myanmar opted to sell its gasto China instead.

It must be noted that the India-Myanmardeal with its US$1 billion, 950 kmMyanmar-Bangladesh-India gas pipelineat stake fell through (at least for the

time-being) at the same time that Chinawas raising its presence in Myanmar. Threestate-owned Chinese companies arepresently exploring in off-shore blocksawarded to them by Myanmars Ministryof Energy in the Arakan area: the ChinaNational Petroleum Corporation (CNPC),the China Petroleum and ChemicalCorporation (SINOPEC) and the ChinaNational Offshore Oil Corporation(CNOOC).10

These failures prompted the IndianExternal Affairs Minister, PranabMukherjee, to raise the pipeline issueduring his recent visit to Myanmar inJanuary 2007. Myanmar says it remainswilling to supply gas to the proposed tri-nation gas pipeline from other gas blocks ifBangladesh and India succeeded in ironingout their political and economic differences.

The Myanmar authorities have conveyedthis message also to Mohona HoldingsLimited, a Bangladeshi company that in1997 initiated the project to carry naturalgas from Myanmar through Bangladesh toIndia. As mentioned previously, on 1 May2007, Bangladesh Foreign Affairs AdviserIftekhar Ahmed Chowdhury re-launchedthe project stating that his country agreed

10 Gas and oil from Africa and the Middle East willpass through Myanmar, AsiaNews.it, 4 May 2007,

http://www.asianews.it/index.php?l=en&art=9167&theme=1&size=A, accessed on 25 June 2007.

to negotiate for allowing the pipeline ifMyanmar sells gas and India agrees tobuy.11 The pipeline would cost US$1

billion, and it is estimated that India wouldpay Bangladesh US$100-120 million toallow right of passage.12

Even if the project materializes its cost willincrease. If the Myanmar authorities wantto sell gas to India, 150km of additionalpipeline will have to be built to reach thegas to India. The earlier project wasdesigned to bring gas to India fromMyanmars A-1 block, which is closer to

Teknaf in Bangladesh. At present, theavailable gas is farther away in the A-2block. Myanmar has also served notice toIndia that in case of further delay it mightfinalize similar deals with South Korea,Thailand or even Japan. China in any caseis always willing to buy more.

11 See n. 7.

12 Gas and oil from Africa and the Middle East willpass through Myanmar, n. 10.

if Bangladesh continues to

thwart Indias bid to secure

energy from Myanmar, then,India should, without further

delay, implement the more

expensive option of importing

gas through a direct 1,575km

pipeline from Sittwe port in

Myanmar through Aizwal,

Silchar-Guahawti-Siliguri (in

Assam and West Bengal) to

Gaya in Bihar, linking it to theHaldia-Jagdishpur oil

pipeline


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CONCLUSION

By failing to resolve the Indo-Bangladeshpolitical stalemate, India risks losing out toChinese firms (and other energy-hungry

nations in Southeast Asia). Therefore, Indianofficials should weigh and reconsider theprospects of accepting (or rejecting)Bangladeshs demands. With regard to theBangladeshi trade deficit, the lifting oftrade barriers will not cost the Indianexchequer much; in fact in the long-run, itmay help cement prospects of greaterbilateral cooperation, particularlyconcerning security issues. Given thatNepal buys electricity from India, Indianofficials deem Bangladesh demands for

access to Nepalese electricity suppliesabsurd; however, if India is to secureBangladeshs cooperation, Indian officialsmust meet their counterparts to address thisissue. As far as incentives are concerned,India may opt to increase the amount oftransit fees to Bangladesh to secure thelatters cooperation, as in the case of theIran-Pakistan-India gas-pipeline project.

Conversely, if Bangladesh continues to

thwart Indias bid to secure energy fromMyanmar, then, India should, withoutfurther delay, implement the moreexpensive option of importing gas througha direct 1,575km pipeline from Sittwe portin Myanmar through Aizwal, Silchar-Guahawti-Siliguri (in Assam and WestBengal) to Gaya in Bihar, linking it to theHaldia-Jagdishpur oil pipeline.

Whether it exports or not, Bangladesh is

going to run out of natural gas supplieswithin, at most, fifty years. Regionalcooperation is a major component of anefficient allocation of resources, as manyenergy resources yield optimal benefitswhen exploited by two or more countriesbased on their respective comparativeadvantage in gas production, processing,marketing and distribution. Effective andappropriate regional cooperation couldthus be one possible means to ensure long-term energy security for the South Asian

region in general and Bangladesh inparticular. If Bangladesh were to

cooperate with India, it would not onlylead to the realization of a South Asianenergy grid, but also facilitate multilateralcooperation between countries at theregional levels.

A gas-pipeline network in South Asia wouldalso allow Bangladesh to import futuresupplies from member countries. It istherefore in Bangladeshs long-terminterests to actively situate itself in theemerging South Asian (and SoutheastAsian) energy grid as a supplier, deliveryagent, and consumer.

Finally, taking a cue from the Iran-Pakistan-India gas pipeline project,Bangladesh should carefully study thePakistani motive/rationale in granting Indiaaccess to Irans gas reserves. Like Pakistan,Bangladesh must realize that there aremany economic benefits of a transnational

pipeline including increased investment,employment generation, and accretion ofrevenue.

Like Pakistan, Bangladesh

must realize that there are

many economic benefits of a

transnational pipeline

including increased

investment, employment

generation, and accretion of

revenue

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Engergy Politics ( Burma-Myanmar )