Introduction

It is well documented that energy supply constraints in India and Bangladesh have been impeding the economic growth of these countries. Both nations have been experiencing acute power shortages and both, but especially India, are expecting a steady demand for power and hydrocarbon resources in the near future. With an installed capacity of 123 GW, India faces an electricity shortage of 8 per cent and a peak demand shortage of 11.6 per cent (KPMG 2007). Estimates predict that the fast growing Indian economy might face a shortfall of over 34,000 MW power in the year 2012 (South Asia Regional Initiative for Energy [SARI] 2006). Bangladesh, one of the least per capita energy users in the world, expects a rise in power demand at the rate of 10 per cent or more per year (Rasheed 2007). According to World Bank estimates, the economy of Bangladesh loses US$1 billion annually due to unreliable electricity supply which, in turn, results in a 0.5 per cent reduction in its annual GDP growth (quoted in SARI 2006, and Tamim and Gulen 2004). The energy demand in India and Bangladesh, the world's second and seventh most populous countries respectively, is growing in line with their higher economic growth, steady population growth, and rapid paced urbanization.

However, the existing low stock of domestic hydrocarbons, conventional, and other renewable energy resources have serious supply constraints in the medium to long term in both countries. Consequently, energy security 3 has of late become a major concern both for New Delhi and Dhaka. New Delhi's concern for energy security is so imperative that energy issues are influencing the country's foreign policy formulation considerably. India's age-old priority of swadeshi or “self-sufficiency” is no longer a feasible goal and regulating relations with states that can provide the badly needed gas and oil is seen as central to India's new foreign policy (Lall 2006).