In January 2010, India and Bangladesh agreed to cooperate in the energy sector to tackle the looming energy crisis. This development is significant as co-operation in the past has been constrained by political mistrust and public misconceptions. Cooperation in the energy sector is crucial for Bangladesh given that the demand for natural gas and electricity in the country has already outstripped the supply. Also, the proximity and dominant position of India in the region will open up energy trade and facilitate new investments in the energy sector for Bangladesh.

Talks are underway to set up a 130 km power transmission link connecting Behrampur in India and Bheramara in Bangladesh. India will supply 250 MW of power out of its central share of 15%; an additional 200 MW will be supplied based on the power requirements of Bangladesh. A joint venture has been initiated between India�€™s state-owned National Thermal Power Cooperation and the Bangladesh Power Development Board to set up a coal-fired power plant in Khulna district in Bangladesh. In addition, the proposed 1320 MW power plant will transfer back the excess power generated to India through the transmission link that will be set up by Power Grid Corporation of India Limited.

Another significant development has been in the natural gas sector. Last year, Bangladesh agreed to allow the passage of the Myanmar-Bangladesh-India tri-nation pipeline through its territory. Enabling regional gas trade will prove beneficial for Bangladesh as the present gas production has been unable to meet the demand. With more than 80% of the power generated in the country dependent on the natural gas supply, the reduction or the complete stoppage of gas supplied to some power plants has hindered them from operating at their optimum capacity. 

Overall, the demand for natural gas exceeded the supply by around 12% in 2009-10. The demand for gas to generate power has been growing at the rate of around 11.5% per year since 2005. At the current rate of gas production and with the projected demand growth rate, the country will face acute gas shortage as early as 2013, if reserves are not augmented through new discoveries or import. In the past, shortfalls in supply have hindered development of new power projects. Recently, India has proposed a plan to set up a liquefied natural gas terminal in Bangladesh in a joint venture with a power generation capacity of around 1,000 MW. This would open up the natural gas sector to India�€™s private sector, which would ensure large scale investments in intensifying inland and off-shore exploration in Bangladesh. 

A glance at the energy co-operation in the region reveals that countries such as Nepal and Bhutan have interconnected their power grids at various points with India. However, the national power grid in Bangladesh remains isolated from its neighbors. Trans-national power grid connectivity with India will open up the possibility for power trade with Nepal and Bhutan.

For India, an economically strong, secular and democratic Bangladesh is crucial, given the likelihood of migration as a result of climate change in the future. The economic benefits accrued from tackling the energy crisis could prove useful in minimizing cross border migration in the future.

Geographically, Bangladesh dominates the lines of communication with the north-eastern states of India. Interconnecting the national grids in India and Bangladesh will enable transfer of economically viable power to various energy starved parts of Assam, Mizoram, Tripura and other north-eastern states in India. 

On the other hand, the installed power generation capacity in the western region of Bangladesh is very low. At present, the western region imports electricity from the eastern part of Bangladesh. Failure to transfer adequate power has led to severe load shedding in this region and has hampered both industrial and agricultural production. The economies of scales can be fully realised by importing power from India into the western region in Bangladesh rather than by installing new power generation capacity to meet the demand. This will also substantially bring down the power tariffs in the region. 

To sum up, interconnecting the national grids in Bangladesh and India will serve as an important prerequisite for energy trading in the region. In addition to substantially enhancing the energy security for both Bangladesh and India, it would lead to increase in competition among producers in the energy sector that would ensure economic and wider distribution of power to the consumers in the region. More importantly, greater efficiency and economy could be achieved in the energy sector through interconnecting national grids in India, Bangladesh, Nepal and Bhutan.

The ongoing bilateral talks in the power sector indicate the willingness of the two countries to secure enduring relations in the energy sector. However, effective implementation and sustained cooperation at the regional level is also required to ensure long term energy security in the region.