Addressing national constraints, energy pricing and subsidies in joining AEMI


The analysis in this chapter focuses on national constraints, which have been divided into two main parts, i.e., institutional challenges, especially energy pricing policy, and infrastructure constraints in the case of the ASEAN Power Grid (APG) and Trans-ASEAN Gas Pipeline (TAGP).

There are four main findings.

First, the exit strategy for energy subsidies has not been discussed in depth at ASEAN Ministers of Energy Meetings (AMEM). As a result, most of ASEAN members are still providing varying levels of energy subsidies. This condition conflicts with the ASEAN Energy Market Integration (AEMI) objectives because subsidies for fossil fuels not only cause over-consumption of such fuels but also reduce the incentives for investment in energy efficiency and renewable energy.

Second, there is still high national resistance to conducting institutional reform of the energy market. For example in the case of Indonesia, removing fuel subsidy needs approval from the parliament.

Third, APG can be well developed if each country does its best to

  • develop grid connections close to its borders,
  • harmonize technical standards,
  • minimize the environmental impact, and
  • reduce transmission and distribution loss. However, concern remains over the sustainability of power trading if a country cannot increase its national capacity.

Fourth, while investing in pipelines is an important part of supporting the TAGP, it is also important to prepare a trading hub, promote a competitive natural gas market and develop the national network of gas infrastructure. The new focus of TAGP has also changed in order to provide more space for LNG trading and providing strategic buffer management of gas.

AEMI has six major roles to play in measuring national constraints.

First, AEMI can encourage countries to eliminate fossil fuel subsidies, thus ensuring that countries share the responsibility for promoting a more competitive and efficient energy market.

Second, AEMI can prepare specific procedures or criteria to be followed before countries decide to provide energy subsidies.

Third, AEMI can promote innovative financing that can promote infrastructure connectivity in the context of ASEAN+3.

Fourth, AEMI can provide alternative solutions to allow more flexible ways of promoting energy trading.  This is an important aspect of creating shortcuts in dealing with infrastructure constraints such as LNG trading, as proposed by the ASEAN Council on Petroleum (ASCOPE).

Five, AEMI needs to promote and develop energy education in assessing the linkages between economies, energy and the environment. This can help to develop awareness of the need to measure national constraints such as subsidy, energy infrastructure, energy efficiency and conservation.

Finally, as a part of energy education, and due to the fact that benefits and challenges of energy market integration will be distributed unequally across the ASEAN members, it will be necessary to bridge the gap in understanding the benefits of AEMI. Overall, the authors suggest developing an energy security framework for analyzing the correlation between national interest and AEMI interests. It is noted in this chapter that there are two possibilities for investigating the relationship between national constraints and regional objectives. If common interest at the national level is similar to that at the regional level, national constraints should disappear. However, if common interest at the national level conflicts with that at the regional level, national constraints will remain.

Maxensius Tri Sambodo (lead)Researcher, Indonesian Institute of Sciences (LIPI), Economic Research Center, Indonesia

Adoracion Navarro, Senior Research Fellow, the Philippine Institute for Development Studies (PIDS), Philippines

Tran Van Binh, Chairman, Bach Khoa Technology Investment and Development Co., Hanoi University of Science and Technology, and ex-Dean, Faculty of Economics and Management, Hanoi University of Science and Technology, Viet Nam

(September 2013)

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