Regional Energy Market

Industry Roundtable on the Electricity Market in South Eastern Europe
Conclusions

The Industry Roundtable on the Electricity Market in South Eastern Europe, organised jointly by the European Commission and the Stability Pact for South Eastern Europe and generously hosted by the Czech Government in Prague, provided the private sector participants with an opportunity to familiarise themselves with the efforts underway towards the establishment of a Regional Electricity Market (REM) and its integration into the Internal Electricity Market of the European Union (the Athens Process). Attention was given to the design options for the REM, the building of regulatory capacity and the strengthening of the transmission system. The USAID described its technical assistance to the on-going reform processes. The EIB and the EBRD provided information on the SEE power and energy projects they are currently financing or which are in their ”pipeline”. The Secretary General of the European Federation of Energy Traders explained the conditions needed to develop wholesale trading in SEE as a key step for building an efficient SEE electricity market. A representative of Electrabel drew lessons from his Group’s investment experience in other transition countries, in particular Poland. A representative of the Czech Skoda Group outlined also his company’s experience.

The private sector participants expressed appreciation for the vision and the efforts underway to create a regional electricity market in SEE and to introduce the principles of the European Electricity Directive.

At the same time, some of them felt that the timeframe envisaged for the liberalisation of the market and the establishment of a functioning independent regulatory framework was overoptimistic, given the lack of human resources, entrenched interests and the difficulties in changing current mentalities.

A key issue was whether investments that would be undertaken could provide the appropriate balance of financial return and acceptable risk for private energy companies. Several participants indicated that the levels of credit risk, political risk or regulatory risk entailed by such investments were currently still too high and expressed interest in the ways in which international institutions (e.g. EIB, EBRD, IFC and MIGA) could help to mitigate them.

Tarification was seen as a key issue. No investments would take place unless tariffs could be raised and sustained in real terms to ensure full cost recovery. In this area, concern was expressed about the affordability of higher tariffs for significant parts of the population that are below the poverty line. Energy reform must ensure both economic viability and social sustainability. Interest was expressed about the results of a study on affordability commissioned by the EBRD.

Last but not least, the situation of the current, mostly state-owned and not yet unbundled, power utilities in the SEE countries was discussed. Participants felt that the managers of these utilities had to be won over to the reform process. A way out had to be presented to them, minimising the cost of restructuring and demonstrating, that the restructuring process was also creating winners and not only losers. To overcome the resistance of entrenched interests, a global approach had to be favoured, combining the efforts of the public and the private actors. Management contracts and twinning experiences could be useful interim steps.

It was decided that the Prague Industry Roundtable would be the starting point for broader co-operation between the public sector and interested parties in the international energy sector. This would facilitate the success of the Athens process through enhanced private sector trading, investment and technical assistance in the SEE electricity sector. Another Roundtable would be organised in the autumn of 2003. In addition to the representatives of multinational enterprises active in the energy sector, Chief Executive Officers and/or Senior Managers of major SEE electricity generation, transmission and distribution companies would be invited to this second Roundtable.

Bernard Snoy
Director, WT II
Stability Pact for South Eastern Europe