The energy sector is an integral part of the ASEAN Economic Community (AEC). The AEC aims to transform ASEAN into a stable, secure, prosperous, rules-based, competitive, resilient, and integrated economic community by 2015.[①] The ASEAN Vision 2020[②] envisions a clean and green ASEAN with fully established mechanisms for sustainable development to ensure the protection of the environment, the sustainability of its natural resources, and a high quality of life for its people. Such a vision was incarnated at the Bali Summit in October 2003 as the AEC by 2020.[③] The adoption of the AEC Blueprint by the ASEAN Heads of State/Government in November 2007 expedited the implementation of the AEC to 2015.Energy is closely related to three of the four pillar under the AEC: energy commodities are products that will be freely moved in the “single market and production base” (pillar 1); a competitive energy sector is an indispensable part of  “the competitive ASEAN” (pillar 2); and access to electricity is a key towards “equitable economic development” (pillar 3).[④]

ASEAN Power Grid (APG) and Trans ASEAN Gas Pipeline (TAGP) are the two flagship programs for the ASEAN energy cooperation. The energy policy agenda of the AEC is designed to ensure a secure and reliable supply of energy that includes bio-fuels, as well as expediting the development of the APG and the TAGP. The development of APG and TAGP would allow for the optimisation of regional energy resources, ensure sustainable energy development by mitigating GHG (greenhouse gas) emissions and strengthen renewable energy development and cooperation.[⑤] Given the importance of the energy sector and the two programs in the AEC blueprint, the progress of the energy sector toward is crucial for achieving the AEC.

The purpose of this paper is to access the progress of APG and TAGP development against the targets set by the AEC Blueprint and its action plan so as to put forward recommendations that facilitate the timely and practical implementation of the AEC by 2015 and beyond.

This paper is organised as follows. After the introduction, Section 2 presents the vision and action plan and their related institutional aspects for the two flagship energy infrastructure programmes in the AEC. Section 3 presents the status and assessments of the two programs. R recommendations are discussed in Section 4. The last section concludes the paper.

I. Vision and Plan of Energy Cooperation

According to the ASEAN Blueprint,[⑥] APG aims to promote more efficient, economic, and secure operation of power systems through harmonious development of national power networks in ASEAN by region-wide interconnections; To optimize the use of energy resources in the region by sharing the benefits; and to reduce capital required for generation capacity expansion. TAGP aims to connect various gas fields in the region such as in the Andaman Sea, the Gulf of Thailand, and the South China Sea to ensure the reliability of gas supply for ASEAN Member States (AMSs) and to encourage the use of environmentally friendly fuel.

Although the AEC Blueprint clearly states the two programs, it does not have a detailed action plan for them. Instead, the action plan for the energy section, including the two programs, is collectively documented in the sequential ASEAN Plan of Action on Energy Cooperation (APAEC).[⑦] Under the current APAEC (2010–2015), there are seven energy cooperation areas being pursued in ASEAN to ensure greater energy security and the sustainability of ASEAN 2010–2015. Vision and plan for APG and TAGP that specified by the AEC Blueprint and the APAEC 2010-2015 are as following.

1.1 APG

APG has been developed over a long period. ASEAN made the first big push to develop a regional power grid in 1981, when it set up its forum of HAPUA to study interconnection and other specific projects. These included cooperation on electricity generation sources (i.e., hydro, nuclear, and geothermal sources) and utility operations such as computer applications, electrical interconnections, R&D, engineering, training, rural and urban electrification, and standardisation. The establishment of HAPUA served as a basis for the formation of the 1982 ASEAN Cooperation Project on Interconnection. Since then, HAPUA gradually firmed up the plan for the APG.

The eventual establishment of the APG was planned in the APAEC 1999–2004. By 1999, HAPUA had identified 14 interconnection projects, including the existing interconnections of Thailand–Laos PDR and Peninsular Malaysia – Singapore.[⑧] In the updated report of the ASEAN Interconnection Master Plan Study (AIMS II) that was finalised in 2010, 16 interconnection systems were identified to have been developed under the APG programme. The East Sabah (Malaysia) – East Kalimantan (Indonesia) interconnection system and the Sumatra–Singapore interconnection system are two new systems in the AIMS II. Meanwhile, the Sarawak–Sabah–Brunei interconnection system was modified by dropping the Sabah–Brunei line.

Both AIMS and AIMS II divide the APG into three sub-systems,[⑨] namely:

•System A (Upper West System), consisting of ASEAN countries under the Greater Mekong Sub-region (GMS) including Cambodia, Laos PDR, Myanmar, Thailand and Vietnam.
•System B (Lower West System), consisting of countries under the IMT (Indonesia, Malaysia and Thailand) and IMS Growth Triangle Sub-region, Indonesia (Sumatra, Batam), Malaysia (Peninsular andSingapore).
•System C (East System), consisting of countries under the BIMP/EAGA Sub-region, including Brunei, Malaysia (Sabah, Sarawak), Indonesia (West Kalimantan), and the Philippines.

The possibility of integrating these three sub-systems into a single APG was assessed as part of the consideration for the upgrading of the 300MW Thailand– Peninsular Malaysia HVDC Link and the power trade of the Bakun Hydroelectric Project between Sarawak and Peninsular Malaysia.

However, the plan for the APG in APAEC 2010–2015 deviates from that in the AEC Blueprint. In the AEC Blueprint, the APG should be realised by 2015 with appropriate institutional and implementing arrangements as support (Table 1).

However, in the reality, HAPUA adopted a gradual and incremental strategy: power connections will be initially bilateral, then gradually expanding to a sub-regional basis and finally to a totally integrated Southeast Asian power grid system. The APAEC 2010–2015 Program No.1 was developed to be as aplan to facilitate and expedite the implementation of the ASEAN Interconnection Master Plan and to further harmonise the technical standards and operating procedures, as well as the regulatory and policy frameworks among the AMSs. The current focus is on infrastructure development and many interconnection projects are scheduled to be completed after 2015 (Table 2). Even these plans are materialized, it is likely to be just a few interconnected ASEAN national power grids, which offer bilateral exchange of electricity and emergency backup. There is no clear vision about whether the APG should be an integrated and harmonised ASEAN single grid, or a few heterogeneous national grids that are linked by an ASEAN region-wide backbone power grid.




1.2 TAGP

The germination of the TAGP goes back as far as 1994 when ASEAN commissioned a regional study on the master plan for natural gas development and utilisation.[⑩] The study showed that trade in gas by pipeline could bring high returns on investment and recommended a trans-ASEAN gas transmission network of 8,000 to 10,000 kilometres be constructed from 2000 to 2020.Once realised, the TAGP would have the potential of linking almost 80% of ASEAN region’s total gas reserves and the distribution of gas made possible through the TAGP would reduce the region’s dependence on crude oil.[11] In July 1999, the Senior Officials’ Meeting on Energy and the 17th ASEAN Energy Ministers’ Meeting (EMM) approved a plan of action to establish the TAGP and to incorporate it as part of the APAEC1999–2004.

In October 2000, ASCOPE, the spearheaded of TAGP, finalised the TAGP Masterplan, which serves as the blueprint in undertaking the gas pipeline projects in the region. The TAGP Masterplan puts forward the view that TAGP realisation is premised on an evolutionary process: the cross-border gas pipelines, mostly implemented as bilateral arrangements, would evolve to become an integrated regional TAGP. Initially, the TAGP Masterplan identified seven interconnections, in addition to existing connections. Later, those existing connections were included in the updated/2008 TAGP Masterplan, along with the other connections, bringing the total number of connections under the TAGP to 16.

The East Natuna gas field is important for the TAGP because 4 of the 16 TAGP major links are those from East Natuna and its reserves amount to over 40 trillion cubic feet (TCF). In the 2008 TAGP Masterplan, four pipeline connections will be constructed after the field is producing. These are: East Natuna, Indonesia – JDA – Erawan, Thailand (~ 1,500km); East Natuna, Indonesia – Kerteh, Malaysia (~600km); East Natuna, Indonesia – Java, Indonesia (~1,400km); and East Natuna, Indonesia – Vietnam (~900km).[12] The Commencement of Date (COD) of the four pipelines will be approximately seven years from the East Natuna gas supply sanction. There was a fifth link connecting East Natuna with the Philippines (East Natuna–Indonesia–Brunei Darussalam–Sabah–Malaysia–Palawan), but this was deferred in view of the commercial viability and other economic considerations in establishing the interconnection for the Philippines leg. It was also in the plan to link the East Natuna gas field with the West Natuna field, which has pipeline connections in operation to Singapore and the Duyong gas field of Malaysia.[13]

Similar to the case of APG, the progress schedule for TAGP in the APAEC 2010-2015 deviates from the AEC Blueprint. The AEC Blueprint emphasises the realisation of the TAGP by 2015.The priority actions for the different periods to 2015 are shown in Table 3 below.



However, the target stated by ASCOPE/APAEC 2010-2015 was to have the TAGP backbone in place by 2015, via commercial bilateral connections within AMSs. Those network by 2015 is neither optimal nor operation. Actually, the AIMS II did not study the least cost options for generating electricity.[14] Beyond 2015, the ASCOPE TAGP task force will continue its current work on the required framework where the entire network could be optimised for gas trading beyond bilateral interconnections.

1.3 Institutional Infrastructure

In addition to constructing the infrastructure, ASEAN cooperation on the APG and TAGP also involves institutional components such as a regulatory framework and the harmonisation of regulations. This is necessary to promote regional energy security and development, including the regional power interconnection. Without an institutional infrastructure and cooperation, known as soft infrastructure, the regional energy network will not function and thus it should be viewed as important as the physical infrastructure.
The harmonisation of legal, regulatory, and institutional systems for bilateral and cross-border power interconnection and trade will be particularly important for the cross-border transmission of electricity and gas, which is the aim of APG and TAGP. For the APG, the institutional issues include harmonisation in technical standard codes and guidelines, legal and regulatory frameworks, financing modalities, development of a plan for private sector participation, and development of the guideline/mechanism to implement the recommendations in the ASEAN Interconnection Master Plan. Most of these are in the early stages of development, such as the preparation of concept papers or TORs. For TAGP, the institutional issues, such as the gas transit principles, unbundling costs issues, and the gas swapping mechanism remain unaddressed.

II. The Reality

2.1 Status of APG

The APG has 5 out of its 16 interconnection systems in operation by the end of 2013 (Table 4). At the 8th APG Consultative Council (APGCC) Meeting in June 2011, the Commercial Operation Date (COD) was revised and the revised schedule showed only four interconnection lines which will be in operation by 2015.The remaining systems are scheduled to be completed after 2015 (Table 2).

One reason that the plans for the APG lag behind the AEC’s target of realising it by 2015 is that many APG projects currently lack economic viability. Another reason could be that there are many institutional barriers in moving towards the APG. These barriers include: licensing requirements, the expropriation of assets, and contractual confidentiality, if justified; consumer protection and safety standards, including grid codes; anti-competitive practices; third party access;[15] investment recovery; and information access.[16] It also could due to a general reason that is a lack of political trust among ASEAM countries, which will prevent a high interdependence of power grids.[17] In addressing those challenges and barriers, the ASEAN Energy Regulatory Network (AERN) have been tasked to access the regulatory framework for trade, investment, and cross-border transmission of AGP.



The institutional infrastructure is seriously lagging behind the targets and the progress is slower than that of the physical infrastructure. Institutional support such as the removal of barriers to interconnection; cross-border trade and investment; the harmonisation of legal, regulatory, and technical standards are only in the preparation phase for study (TOR preparation. Even when the studies on harmonization have been concluded, the actual activities of harmonization have to be initiated later, which unfortunately has not been planned.

The overall assessment of the strategies to accelerate the development of the APG showed that a considerable amount of work still needs to be done on both the physical and institutional aspects and more on the latter because it has lagged behind schedule.

2.2 Status of the TAGP

The overall assessment of TAGP is that the physical part is more advanced than the institutional part, both of which are not ready for a real regional wide free flow of electricity and gas. Therefore, the main concern must be to speed up the adoption of principles, mechanisms, and the harmonisation of the institutional, regulatory, technical, commercial, and safety issues in cross-border trade of electricity and natural gas.

To date, there are 11 bilateral gas pipeline interconnections total at 3020 km in operation. Although only 3,300km of TAGP pipeline connections will be in operation by 2015, these existing pipelines will form the TAGP backbone in the eastern part of ASEAN. It is already possible to transmit gas from Myanmar to Vietnam or even to Indonesia. It is also possible for Singapore to export gas from its LNG imports to Thailand through the existing pipeline connection. The remaining planned pipelines depend on the development of the East Natuna gas field in Indonesia, which has been delayed in the development because the resources are too expensive to exploit due to a high CO2 content. It is expected that the East Natuna field will start producing in 2020.

Even if the East Natuna field can be put into operation, the gaps between demand and indigenous supply in ASEAN are still large and becoming larger, due to the increasingly rapid depletion of indigenous reserves.[18]Unfortunately, no new significant gas reserve have been discovered since year 2000, leaving East Natuna as the single largest gas resource in the region. Therefore, in the future, TAGP may have little indigenous gas supply.

Considering the increasing gaps between demand and indigenous supply in ASEAN, in the updated 2008 TAGP Masterplan, the gas connectivity has been expanded to include LNG regasification terminals as an alternative to gas pipelines. Indonesia, Singapore, Malaysia, Thailand, and Vietnam, have had, or have initiated the construction of LNG regasification terminals to bring gas from outside the ASEAN region. Under this scenario, TAGP will not be very interesting. Instead, interconnections between LNG terminals will be more important. Such interconnections do not necessarily need to be physical (permanent), since they can be achieved through altering the destinations of LNG tanks.

The bilateral pipeline interconnections have yet to be optimised for the benefit of the region. In addition, those LNG receiving/regasification terminals, which are planned, imply that the vision of TAGP must be changed. In addition, strategic buffer management should be a part of the new vision. Fortunately, the TAGP MOU is broad enough to include the LNG cooperation and strategic buffer management and does not need modification.

From the institutional perspective, ASEAN is now focusing more on Gas Transit Cooperation, joint LNG procurement and Gas & LNG Swapping programs.[19] ASEAN is also in the process of resolving the legal and regulatory framework for cross-border gas pipeline transportation and LNG terminals.

Even this natural gas to be transported across the region, there are many barriers and challenges that must be overcome in order for the TAGP to be functional. A number of institutional issues such as the open access system, harmonisation of gas quality specifications, gas transit principles(transport of gas involving three or more countries), gas swapping mechanism, safety, government support, and business models need to be developed when the time comes to transport gas in the most economical and efficient manner. The Updated TAGP Conceptual Master Plan, finalised in December 2008,coversthose institutional issues, as well as dispute resolution mechanisms, the structure of the gas industry in an ‘open access’ environment but progress is limited.

Many of these challenges are at national level. For example, a national legal framework on natural gas transmission and distribution is still being worked out in most AMSs. Another issue is legislation concerning energy and the environment differs greatly between the AMSs and prevent free movement of natural gas. There are also insufficient mechanisms in place to handle disputes relating to gas pipeline/LNG utilisation in most AMSs.

To address these challenges, clear and transparent national regulatory frameworks for natural gas transmission, investment, market access, etc., should be established. AMSs’ capacity for formulating regulatory frameworks for the gas swapping mechanism needs to be enhanced. Private sector participation is necessary. Furtherwork is also needed to enhance ASCOPE exploration and production activities in exploring not only conventional natural gas resources but alsonon-conventional including CBM (Coal Bed Methane) resources, which are abundant in Indonesia and Vietnam.

III. Policy Implications

It has to be practical when implementing the energy sector plans in the AEC. To facilitate the implementation of AEC, we propose that ASEAN do the following.

3.1 Update Plans for APG and TAGP Timely

Both APG and TAGP face fundamental challenges. For the APG, the primary question would be, who will build the interconnections? For commercialisation reasons, some links may not be attractive to private investors. It also may not be attractive to some governments. However, even when all the planned projects are completed, the APG is still a collection of bilateral interconnections, while not a regional power grid. For TAGP, the primary question is development for whom? Since indigenous supply is limited and LNG regasification terminals are surging, TAGP needs to be re-justified.

Therefore, it is necessary to review and update the existing plans for APG and TAGP taking into consideration of the economic and financial constraints, the changing situation in political terms, and technical developments. Changes in technical aspects, such as the demand for and the shrinking supply of natural gas, and changes in political aspects, such as the emergence of Myanmar as a potential supplier for gas, should be closely monitored in order to modify the plans for the institutional and physical infrastructure. Technically, the dynamics in non-conventional energy sources, such as coal bed methane and shale oil and gas, may also change the previous cooperation plans on infrastructure.

For TAGP, the vision needs to be redefined from pipeline extension to other forms of interconnections, in order to consider LNG and offer better flexibility of gas supply. For APG, it is necessary to define a clear vision of an ASEAN power grid with a necessary roadmap. Achieving such a regional power grid will be a long process and needs political trust to be in place and the energy security paradigm changed from national to regional.

The economic feasibility of projects should be added to the planning of AEC in the future. Without economic viability, it is difficult to secure financial viability. Governments can adapt policies to alter their commercial attractiveness of these two programs to some extent by providing fiscal and financial incentives. In addition, market instruments, such as removal of fossil fuel subsidies and the development of bio-fuels markets, should be considered.

3.2 Advance both Physical and Institutional Infrastructure

APG, and TAGP are indispensable for the regional optimisation of energy resources and should be boosted with further efforts. The development of the physical infrastructure is the leading indicator and key measure for advancing regional integration and AEC building. Whenever possible and desirable, the planned physical infrastructure should be expedited.

The institutional frameworks should match the development of the physical infrastructure for APG and TAGP to function well. The main reason for the slow progress of the institutional infrastructure could be that countries are subject to behind-the-border barriers, removal of which requires changes in national institutional frameworks. It may also need AMSs to change their energy policy, such as energy security policy. These changes are often politically sensitive. Consequently, AMSs are required to apply more effort in this area than for what is needed for the physical infrastructure.

ASMs need to address the needs for institutional infrastructure at both the national and regional levels. Further formulation of institutional and contractual arrangements for cross-border trade must be in place and include the proper provisions on taxation, cross-border issues (trade, tariffs, grid maintenance, etc.) and investment, and third party access. For TAGP, gas transit principles and gas specifications, swapping mechanisms for LNG cargos, emerging response mechanism are necessary to be established. The establishment of regional gas trading hub would be able to facilitate regional wide trading.

The AMSs can gradually harmonise the regulatory and technical standards in energy, such as electricity and gas, through regional agreements. It is desirable to harmonise technical specifications for the APG to internationally recognised standards in terms of design and construction standards, system operations and maintenance codes, guidelines, safety and environment, and measurement standards. A set of mutually agreed upon and harmonised standards can initially be implemented in the more developed markets and then extended to other markets over time.

3.3 Facilitate Investment and Participation of the Private Sector

The private sector has to play a leading role in the building of the physical infrastructure. However, since energy cooperation may produce regional public goods, there must be a sharing of the costs by AMSs, some kind of regional collective funds are desirable. These regional funds can work as partner and seed funding, which may be expanded in the future to compensate for externalities

Public and private partnership is another way to address the shortage of investment. Through PPP framework can play a significant role in improving the economic viability of physical infrastructure projects through attracting private capital investment, increase efficiency and use available resources more effectively; and reforming sectors via a reallocation of roles, incentives, and accountability.[20] However, the legal protection of investor funding is not clear in some AMSs and thus there is a reluctance from the private sector to invest and a deregulated market has not yet been created in most AMSs. Thus, there will be issues to be addressed in terms of introducing an effective regulatory framework and mechanism for raising capital for the development of these interconnection systems.

3.4 Coordinate and Monitor Project Development among AMSs

The regional plans and agreements should be reflected in the individual AMSs’ domestic policies and planning. The AMSs should ensure that infrastructures within their boundaries are constructed and operating. The agreements of regional cooperation should be implemented through either binding agreements or peer reviews. The implementation of cooperation plans should be monitored to ensure that they are realised. If there is a lack of economic attractiveness for the infrastructure, the governments of AMSs should intervene individually or collectively to attract private investors. ASEAN’s role would be to ensure the cooperation and coordination of its members’ infrastructure projects and their linkages, and to remove the economic and political barriers to such cooperation.

To facilitate the cooperation and create actions so that information will be delivered in various directions (bottom-up/top-down/parallel) accurately and in a timely manner, eliminating communication barriers among sectoral bodies, working groups and senior officials, etc., is necessary. Monitoring and assessing the progress of energy cooperation should be conducted regularly to inform policy makers on the progress and may create peer pressure for national governments to executive their actions plans according to .schedule.

IV. Concluding Remarks

The progress of the energy sector seems unable to keep pace with the acceleration of AEC.The current working plans for the energy infrastructure are not sufficient for achieving the vision of APG and TAGP that are stated in the AEC Blueprint. Even all the action plan are realized, it is still not possible to trade electricity and natural at regional-wide because APG will not be ready and TAGP, although technically ready, has no indigenous natural to be transported. Another key reason is that the progress in terms of institutional infrastructure are lagged behind that of the physical infrastructure and regional-wide trade is not feasible even assuming the physical networks are completed. Therefore, major works for APG and TAGP will be left for the next stage (beyond 2015) of AEC building.

For the future AEC building, development of the physical infrastructure should be continuously moving forward. The development plan for infrastructure, however, needs to be reviewed and revised periodically, taking into account of economic principles, technical changes, and market instruments. Institutional infrastructure should be accelerated to keep pace with the physical infrastructure.

Private sector participation is required to address the shortage of funding. Some mechanisms, such as BOT (build-operate-transfer) and PPP (public private partnership)may be used by the government to facilitate the private investment.

The coordination of policy in promoting potential interconnection projects among the related member economies and implementation of regional plans at each member country will be important for tackling the barriers that hinder the achievement of APG and TAGP. Regional monitoring can be used to push AMSs to fulfil their commitments.

Source of documents： Global Review