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'Iran gas will be cheapest for India'

The pipeline from Iran can bring gas to Mumbai at a cost one-third cheaper than closest alternative, says WB.

world Updated: Apr 03, 2007 13:56 IST

A World Bank analysis shows that the proposed pipeline from Iran could bring gas to Mumbai at a cost one-third cheaper than the closest alternative, according to a top bank official.

And Bangladesh should sell gas to India for the benefit of the entire region.

Such economic home truths could be used to counter political opposition to development projects like that of the US to the Iran gas pipeline, Praful Patel, World Bank vice-president for the South Asia region, said at press briefing here on Monday.

Similarly, Bangladesh should allow India to use its gas for the benefit of the region as any value addition by Dhaka itself would not be cost effective, he said on the eve of the April 3-4 SAARC Summit in New Delhi, where India will take over the rotating chairmanship.

Citing such examples Patel said there are clear signs that policymakers and the private sector in South Asia are pushing for closer regional integration as an unprecedented growth, averaging close to 6 per cent per year since the 1990s, has created a new momentum for it.

Regional cooperation, he said "can be a very effective tool in increasing trade, relieving energy shortages, improving connectivity, increasing investment, and promoting peace and stability."

According to a recent World Bank study, South Asia is the least integrated region in the world. Intra-regional trade is less than 2 per cent of GDP, compared to more than 20 per cent for East Asia.

Annual trade between India and Pakistan, the bulk of which is routed through Dubai, is currently estimated at US$1 billion, but could be as great as $9 billion.

In addition, cross-border investments, and the flow of ideas, crudely measured by the cross-border movement of people or the number of telephone calls, are all low for South Asia.

Patel said, "Starting from such a low base, greater integration among South Asian countries could bring huge benefits to its people. Intra-regional trade in South Asia can increase to $20 billion by 2010 if trade barriers are lifted.

Benefits from energy trade can also be huge. Nepal has the potential to produce more than 40,000 megawatts of hydro power, most of which could be exported to India, generating $6-10 billion per year of revenues to Nepal.

"The more the public in the region are aware of these forgone benefits, the more likely they are to demand greater openness," he said.

Although South Asia has significantly reduced import tariffs, the cost of trading across borders is one of the highest in the world.

Crossings between India and Bangladesh are so heavily congested that queues often exceed 1,000 trucks on the Indian side with the result that crossing time can take 99 hours instead of 21 hours without delay.

Trade can more than double if appropriate regional agreements on roads, rail, air, and shipping are put in place enabling seamless movement, he said.

Shantayanan Devarajan, World Bank chief economist for the South Asia region, said regional cooperation will play a crucial role in meeting the infrastructure needs of the region.

"Better trade facilitation would reduce substantially the transactions costs of intra-regional trade. But streamlining transport and trade systems is also needed to facilitate interregional trade.

"Many of the region's competitors have dramatically reduced customs and port clearance times. South Asia risks being left behind."

Firm level surveys of the investment climate have identified infrastructure, particularly power, as a major constraint to growth in South Asia. It lags most other regions in terms of trade in electricity and gas.

Only India, Bhutan, and Nepal currently trade electricity. Bangladesh is endowed with natural gas reserves, but gas trade is constrained by the region's inadequate infrastructure and political misconceptions.

Pakistan and Afghanistan can play an important role as transit states for the rest of South Asia, as they provide the best route for access to Central Asia's energy.

"South Asian countries need to diversify the forms of energy and their sources of supply rather than focusing on the costly goal of full national energy self-sufficiency," Devarajan said.

Several lagging parts of South Asia are border economies. They suffer from the disabilities typically associated with land-locked countries or geographical isolation.

Examples include northeast India, northwest Pakistan, northern Bangladesh, and parts of Nepal and Afghanistan.

Typically, these sub-regions have poor connectivity with the markets within the country and with the neighbouring countries.

Regional cooperation, especially in transport and trade facilitation, can transform these regions from being land-locked to land-linked, Devarajan said.