ECONOMIC INTEGRATION AND ENERGY COOPERATION IN ASEAN
H.E. Ong Keng Yong
Secretary-General of ASEAN
Keynote Speech at the Eighth Gas Information Exchange (GASEX 2004)
Singapore, 1 June 2004
The ASEAN economy is poised for sustained growth. The region’s economy is expected to continue its upswing and will expand at six per cent or more in 2004. The growth is likely to be a broad-based one, with both domestic and external demand providing the impetus for expansion.
ASEAN Economic Integration
The key to ASEAN’s economic competitiveness and future growth is economic integration. Thus, we aim to establish an ASEAN Economic Community (AEC) by the year 2020, when ASEAN will be a single market and production base, with free flow of goods, services and investment and freer flow of capital. The ASEAN Leaders reiterated this at their Bali Summit in October 2003. They adopted the landmark Bali Concord II in which the AEC, the ASEAN Security Community and the ASEAN Socio-Cultural Community are affirmed as the three key pillars supporting the ASEAN Community.
ASEAN is formulating detailed medium to long-term programs and activities for achieving the AEC. Let me provide you an update on the work in this area.
In April this year, the ASEAN Economic and Investment Ministers met in Sentosa (Singapore) to review the progress made in the implementation of various initiatives mandated by the ASEAN Leaders to strengthen the AEC.
The Ministers endorsed a plan for finalising the roadmaps for the integration of 11 priority sectors which ASEAN enjoys competitive advantage. These 11 priority sectors are automotive, wood-based products, air travel and tourism, electronics, rubber-based products, textile and apparels, agro-based products, fisheries, information and communications technology (ICT) and healthcare. The Ministers agreed to sign the legally-binding agreements to implement the measures to integrate the 11 priority sectors at the forthcoming 10th ASEAN Summit in Vientiane.
An important issue in an economically-integrated ASEAN is how to settle differences and disputes in implementing the economic agreements. Hence, the Ministers endorsed the provisions for establishing the ASEAN Dispute Settlement Mechanism (DSM). Senior officials will progress this further by allocating resources to set up the necessary structure and system for the DSM.
The Ministers also decided to recommend to their Leaders to go for a free trade agreement (FTA) with Australia and New Zealand. Already, through bold, pragmatic and unified strategies, ASEAN has established strong economic linkages with major trading partners like China, India, Japan and the Republic of Korea. Undoubtedly, these closer economic partnerships which could end up as FTAs will boost market access for ASEAN exports and provide businesses with greater choice of capital and intermediate products.
The Ministers also signed a protocol to further reduce tariffs under the ASEAN Industrial Cooperation Scheme (AICO), which encourages production sharing across member countries. The Protocol provided for new preferential tariff rates to be given to new approved AICO projects: zero percent for Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia and Singapore; 0-1 percent for the Philippines; 0-3 percent for Thailand; and maximum of 5 percent for Myanmar and Vietnam. As of 20 January 2004, 172 applications were received, of which 118 application have been approved. Based on the data provided at the time of application, these approved AICO arrangements are expected to generate annual transactions of over US$ 1.2 billion.
Under the ASEAN Framework Agreement on Services (AFAS), the ASEAN market for services is also being liberalized and integrated, with several sectors at various stage of negotiation.
Another important area of ASEAN cooperation is binding ASEAN closer as a region through integrated and efficient infrastructural linkages for transportation, telecommunications and energy. Concrete measures are taken towards the realization of the ASEAN Highway and Singapore-Kunming Rail Link (SKRL). ASEAN transport facilitation agreements covering transit and inter-state transport of goods, as well as multimodal transport operations, to support AFTA and improve transport logistics in the region are being implemented. An ASEAN action plan for open-sky arrangement is being formulated. The ASEAN Power Grid and the Trans-ASEAN Gas Pipeline Networks are being institutionalized. In the implementation of e-ASEAN Agreement, concrete steps are being taken in advancing ICT market integration and trade facilitation, promoting universal access to ICT infrastructure and services, developing ICT skills and competencies and creating a more secure cyberspace in ASEAN.
I recognise that there are many obstacles remaining, not least the concern over the diverse historical experiences, legal systems, cultural backgrounds and economic development. There is also a sense of frustration among decision-makers in public and private sectors over the slowness in harmonising the mental and operational maps. I feel optimistic because there is a growing convergence of strategic interests. We need to keep our focus on the positives, the possibilities and the potential of ASEAN economic integration.
ASEAN Energy Cooperation
Moving on to ASEAN energy cooperation, we have to do three things. First, ASEAN must invest more on energy infrastructures. Energy determines the quality of our daily lives and drives economic development. Energy consumption is rising with population growth. ASEAN already has more than 520 million people and this figure increases a few percentage points annually.
Growing energy demand calls for new investments in energy production and infrastructural development in order to secure adequate and stable supply of energy. Access to adequate, affordable energy is essential to eradicate poverty, improve human welfare and increase living standards. One United Nations study points out that the productivity of one-third of global population is compromised by lack of access to commercial energy and another third suffers economic hardship and insecurity due to unreliable energy supplies. The lack of access to modern and sustainable energy is a major cause of environmental degradation in vast areas of the developing world, and a major impediment to sustainable development.
Second, ASEAN must reduce its dependence on imported energy, particularly oil.
One prevalent impediment to economic growth is high oil prices. High oil prices will damage exporting economies. It will directly add to production costs and inflation, besides leading to instability in financial markets and exacerbate economic slowdowns in major economies. One study estimates that a US$ 35 per barrel of oil lasting a year would shave 0.8% off Asia’s GDP growth. The Philippines and Thailand will have a corresponding 1.60% and 1.75% cut in GDP.
Natural gas is fast emerging as a viable alternative fuel, especially in complying with more stringent national and global policies on environmental protection and preservation. Natural gas is available in a number of ASEAN member countries such as Brunei Darussalam, Indonesia, Malaysia, Myanmar, the Philippines, Thailand and Viet Nam. They have made considerable efforts to develop the natural gas industry. The use of natural gas has become an important component of the strategy for energy self-sufficiency and fuel diversification.
The good news is that natural gas has become the main fuel for power generation. Most ASEAN power plants now use natural gas to generate power, with about 60% in Myanmar and Singapore and about 70-75% in Malaysia and Thailand. ASEAN’s proven gas reserves, at current usage rates, are expected to last for 50 years, and to about 130 years, if the probable reserves are added. In contrast, ASEAN oil reserves are depleting.
Third, ASEAN must carry out more cross-border trade in energy. Cross-border trade in energy, particularly gas and electricity, over interconnections offers significant benefits both in terms of security, flexibility and quality of energy supply and greater competition.
The interconnection of national gas pipelines, through the Trans-ASEAN Gas Pipeline (TAGP) Project, will enhance and ensure the availability and accessibility of energy in the region. Gas interconnections will bring about affordable and accessible gas to industries, businesses and households across the whole of ASEAN. Availability and access to natural gas will surely contribute to improving productivity, and lead to changes in the quality of life, social behaviors and lifestyles.
ASEAN is also pursuing 11 bilateral power interconnection projects under the ASEAN Power Grid Project, to optimize the exploitation of regional energy resources. Five of these power interconnections will be operational for the period 2005-2010. The ASEAN Power Grid Project will result in cheaper electricity for all ASEAN countries, ensure sustainability of energy resources and contribute to energy efficiency.
Interconnected electricity networks add strength to ASEAN’s economic integration. Interconnected networks can provide those countries with abundant natural resources but with little requirement for electric supply to generate income from their surplus power. On the other hand, countries with high power demand can meet their electricity shortfalls with power imports from neighboring countries at reasonable prices. Interconnection will reduce national investment in power reserves to meet peak demand, provide a more reliable supply of electricity and increase consumers’ access to electricity.
At the ASEAN Secretariat, we will soon carry out a study on regional electricity trading, aimed to promote greater understanding on the concept of electricity trading in ASEAN, its challenges, opportunities and options, as well as guide the formulation of common policy for regional power interconnection and trade. However, much work on cross-border energy infrastructures still needs to be done. Investment for energy infrastructures is huge. ASEAN requires US$ 100 billion to meet the increasing electricity demand, and US$ 7 billion for the gas pipeline networks.
Conclusion
In conclusion, the economic outlook for ASEAN is bright and the goals of the AEC shall be within reach. This will mean stronger energy demand in ASEAN, which in turn will expose it to greater energy dependency.
To sustain its economic competitiveness and to ensure continued social development, ASEAN needs to pool its energy resources and to collectively explore new and alternative sources of energy supply without delay. This is especially urgent now, as global prices of conventional fuels such as oil are sky-rocketing.
ASEAN is putting in place a set of regional policy frameworks to guide its energy cooperation and development. Collectively, ASEAN member countries are developing the necessary trade, legal, fiscal and policy frameworks towards the realization of the trans-ASEAN energy grid to meet the long-term energy requirements in the ASEAN region. All this will contribute to the creation of a favorable environment for energy investment and trading.
But public effort alone will not be sufficient. Greater private sector participation is critical to ensure the success of these regional initiatives. ASEAN will continue to promote private-sector involvement and implement policies and reforms that are required to create a more responsive and enabling environment.
I personally believe that the potential of an economically integrated ASEAN is huge and the one thing we should do is to exert leadership to tap this vast reservoir of opportunities. ASEAN Leaders have done so with the Bali Concord II. We hope business leaders like yourselves will help to drive the initiative faster with more infrastructural investment, regional production capacity and energy trade.
I am glad that GASEX 2004 is being held at this opportune time. Energy creates strong interdependencies among countries, as well as among public and private sectors. We should exchange information and knowledge to get more mutual benefits from the interlocking relationships. I find the theme of the conference, namely, convergence and connectivity most relevant. Ultimately, without a vibrant energy sector, we will all be adversely affected and poorer!
Thank you.