EU-ASEAN Energy Gap

By Dr. Terry Lacey – Jakarta

While U.K. Prime Minister Gordon Brown and French President Nicholas Sarkozy are pushing for a united front on an aggressive EU economic stimulus and recovery package, Commission President Jose Manuel Barroso knows he must balance fighting recession with ambitious climate change targets and EU political progress.

But the attacks of German Finance Minister Peer Steinbruck on the “breathtaking crass Keynesianism” of the increasingly widely accepted British economic strategy, shows how hard it is to forge EU unity. The 26 EU Member States are demanding forceful leadership to beat recession, but Germany is dragging its feet.

With the U.S. automobile bailout in danger of collapse and the EU divided on its economic recovery plans who should EU companies and workers and their global and Asian partners look to for answers?

There are other areas like EU-ASEAN energy co-operation where the EU also shows a lack of push and continuity, while EU companies need help now to promote green energy exports and EU workers need jobs.

The commitment to fight recession and combat climate change can be combined by continuing to support renewable energy projects in southern countries, as in the ASEAN region, especially in Indonesia with its major power shortages.

It seems crazy that the EU Commission, which actively supported EU green energy technology transfer in Asia and ASEAN since the early 1990s, should abruptly change track and drop such initiatives, just when EU environmental technology suppliers to Asia need all the help they can get, and the Asian economy is leading world demand with its needs to import equipment and know-how.

The complaint from Indonesian and ASEAN developers is not that the EU is pursuing its own self-interest, but that it is failing to do so at a critical time for EU and ASEAN economies.

The EU Commission supported energy and environmental promotion projects in ASEAN and Indonesia from the early 1990’s until 2007, through schemes like Asia-Pro Eco, Asia-Invest, the EU-ASEAN Energy Cooperation Facility, the ASEAN-COGEN III cogeneration program and the Small Project Facilities.

These schemes were widely used by ASEAN regional and Indonesian energy and environmental agencies including the Jakarta-based ASEAN Centre for Energy (ACE), the Singapore based Regional Institute of Environmental Technology (RIET) and ASEAN and Indonesian trades associations, including bilateral trade chambers of France, Germany, the Netherlands and United Kingdom, local partners and NGOs.

Many ASEAN political leaders and senior civil servants assume these projects are still going, but they are not. They have all been closed down.  

The EU pumped over well 60 million euros between 1993 and 2007 into these emerging green markets in Asia and got back well over 200 million euros in orders for technology, know-how and financial services in areas like mini-hydro development, wind farms, plantation biomass cogeneration, landfill and waste to energy projects. 

Now this build-up supporting an emerging market has been abandoned at a time when the new market could be consolidated, bringing orders and jobs to larger EU companies and SMEs.

In 2007 the EU Commission abruptly stopped regional and bilateral direct support for environmental and energy projects in ASEAN and Indonesia, except for a new promotional dissemination scheme called Asia-Switch. This new scheme is not geared to specific project support and needs project preparation, management and networking beyond the capacity of most Indonesian and ASEAN trades associations.

This is a bureaucratic nightmare for over-burdened Asian partner agencies compared to previously more narrow-cast promotion programs which could focus on specific business outputs. Concrete results, concrete equipment orders, concrete jobs. Exactly what the EU public is asking for.

New EU development finance regulations approved since 1999 were to produce a new generation of Development Cooperation Instruments (DCI) to replace programs which have closed down. There is little practical evidence of this in ASEAN, apart from limited scope renewable energy promotion in Thailand.

Part of the problem is that the EU Commission in Indonesia, reflecting an international trend, has switched from a project-based approach to a sector-based approach, for example, with new priorities in the EU-Indonesia Country Strategy for 2007-2013.

This plan theoretically includes development of trade and improvement of the investment climate, and to improve links between EU and Indonesian business communities in key economic sectors. It specifies in classic EU jargon “improvement of sustainable, reliable and affordable access to and use of energy, development of energy efficiency and renewable energy technologies “. This means they should do something about it.

It is already the end of 2008, two years into this seven year plan and there is absolutely no sign of practical concrete measures in Indonesia to implement this plan at the level of specific project support, despite the successful work previously carried out, in Indonesia and ASEAN countries.

So far Indonesian success in financing Renewable Energy and environmental projects (like mini-hydro, wind and biomass-based energy and biofuel projects) has been modest, despite favorable Presidential decrees and some regulatory changes. Unfortunately the dice are still loaded against green energy in Indonesia, not least because the EU has dropped active support for it.

Although the widely perceived problem is lack of finance, the underlying weakness is lack of capacity to prepare good project proposals along with the negative impact of subsidies on fossil fuels and on the price of electricity, rather than the positive incentives to promote green energy which exist in the West.

Whilst EU Member States now carry the burden of support for the growth of EU-ASEAN green energy trade and investment, this abandonment of EU Commission responsibilities is unfair both on ASEAN and Indonesian partners who seek continuity in support for emerging environmental markets, as well as on EU Member States, like Czech Republic, Spain, Slovakia, Hungary and Poland, who can  offer green technologies at modest prices but lack the bilateral export promotion capacity of the larger EU Member States.

EU export promotion agencies will not get new green energy markets in Asia and ASEAN unless others help disseminate information on access to EU technologies, know-how and finance and assist local project developers to prepare project proposals to the stage of bankability.

In this respect the Central American Energy and Environment Partnership (EEP) backed by Finland and Austria is a good recent example of best practice. It has helped fund 178 environmental energy projects in Central America between 2003 and 2008, backed by only 8 million euros of seed money from Finland, plus another 1.8 million euros from Austria.

The 178 projects were spread between Belize, Costa Rica, Dominican Republic, El Salvador, Guatemala, Nicaragua and Panama, plus regional projects, in support of mini-hydro, solar, wind, biomass, biofuel and biogas projects plus energy efficiency.

This level of output compares well with previous larger and better funded EU energy co-operation programs in Asia, and could provide a model for a lower cost, less bureaucratic approach to support for green energy projects in Indonesia and ASEAN. The model is already being introduced in the Greater Mekong Sub Region and there are plans to extend it to Indonesian provinces.

It is reported the EU may introduce new environmental programs into ASEAN and/or Indonesia by 2010, possibly restoring some capacity to promote specific green energy projects, trade and investment.

Meanwhile EU direct investment in Indonesia fell from 11.7 billion euros in 1997 to 1.7 billion in 2006, while inward investment from both Singapore and Malaysia exceeded the entire EU investment effort in 2006, with both countries mobilizing 2.2 billion euros for Indonesian projects, according to the Jakarta EU Delegation web site, quoting the Indonesian Inward Investment Promotion Agency.

There is a chance the European Commission might support the Finnish EEP program, in Central America or ASEAN, through a new idea called Delegated Cooperation. Veikko Soralahti, Deputy Director for Latin America and the Caribbean in the Finnish Ministry of Foreign Affairs says EU funds would be welcome for this.

There is the possibility that Iceland with its extensive geothermal expertise might join an Indonesian EEP program. Many Icelanders must also be wondering how quickly they can join the Eurozone and the EU, after their desperate financial crisis.

However if Iceland is to join the EU, then better to help resolve Icelandic fears of EU bureaucracy by showing that the EU system, faced with recession and loss of jobs and export orders, can move fast when it needs to do so to fill the gaps in support mechanisms for EU-backed green energy projects in ASEAN countries. Interim measures to back EU-ASEAN environmental trade and investment are needed now, not in two years time.

The EU Commission may have burned its fingers on old fashioned bureaucratic project administration in the European Development Fund in Africa. However the Commission should not use this as an excuse to retreat from projects that do practical things in priority sectors at a time when practical outcomes are needed. 

Some of the EU low budget economic cooperation initiatives in Asia produced good results as did the Finnish environmental support program in Central America. There is no need for the EU Commission, disillusioned with the project approach, to throw out the babies with the bath-water.

If the Commission summons the political will it can reinstate viable low-budget green energy and environmental support programs now, to maintain its credibility with ASEAN and Asian partners, and help beat the EU recession, helping EU companies to get export orders and EU workers to get jobs.

-Dr. Terry Lacey is a development economist who writes from Jakarta, Indonesia, on modernization in the Muslim world, investment and trade relations with the EU and Islamic banking.

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