Excellencies, Ladies and Gentlemen,

Dear Senior Advisors, dear Friends,

First of all, let me thank my friends from the Austrian Federal Ministry of the Economy and Labour, in particular Director General, Dr. Bruno Zluwa, for the excellent hospitality we are receiving here in Vienna. Austria, which became last year a full-fledged member of the Athens process, has already been called by the alphabetical order to hold the presidency of the process in this semester. I understand that it is also considering favourably the idea of hosting its future secretariat.

I would like to thank also particularly Mr. Daniel Calleja, Head of the Cabinet of Mrs. Loyola de Palacio, Vice President of the Commission, whose presence illustrates the strong support Mrs. de Palacio gives to our initiative.

This is indeed the third time that the Senior Advisers of the Prime Ministers of the countries concerned meet, under the co-chairmanship of Mr. Calleja, to assess the political implications of the establishment of a South Eastern European Regional Energy Market and of its incorporation into the EU single energy market. When we met for the first time, in June last year, not far from here in the prestigious Austrian Parliament building, we took the decision to transform the political commitments taken by your countries in the first Athens Memorandum of Understanding (MoU) signed on 15 November 2002 into a legally binding document. We felt this was necessary to provide greater legal certainty and to attract private investment greatly needed to modernise or replace obsolete equipments in the region’s energy sector. Furthermore, among the various options presented to us by the European Commission for this transformation, we decided to explore more specifically the option of a multilateral agreement among the countries of the region with the participation of the European Community, represented by the Commission. This was not the easiest option but this was the option which appeared deliver more fully the legal and political benefits we were looking for.

Our second meeting in Sofia in October last year enabled us to confirm our choice for this option, to solve a few issues linked to this choice and to sustain our political consensus to move in the direction of the painful but necessary reforms.

Since then, a second MoU was signed in Athens on 8 December 2003, incorporating gas into the Athens process. Our initiative has also adopted a new name, the Energy Community of South Eastern Europe (ECSEE), reflecting better the ambitious character of our initiative aiming at creating not only a regional market but a genuine community of countries sharing their energy potential and submitting it to common rules.

Last month, the Council of the European Union authorised the Commission to open negotiations, on behalf of the European Community, on an agreement between the European Community and your countries with the view to establish an Energy Community of SEE. The Commission has put a draft text on the table and negotiations on this text started yesterday here in Vienna in the framework of the Permanent High Level Group.

To day, what I would like to do is to address with you what I see as the more political implications of this new phase, particularly as concerns the provisions of the draft treaty, which are politically more sensitive, and as concerns the schedule of the negotiations, which, hopefully, should be concluded by the end of this year. I would like also to discuss with you how we should handle the environmental challenges associated with the introduction of the EU standards and how we can anticipate and mitigate the social consequences of greater financial discipline and of the inevitable restructuring of the enterprises in the energy sector, which will be perceived as associated with the establishment of the ECSEE.

I am grateful to the European Commission, in particular DG TREN, which has been the driving force of our initiative and which has produced both the draft text of the treaty and a very important Discussion and Consultation note, which sets out a draft strategy that could accompany the legal agreement. This note indicates the complementary issues that need to be resolved, in particular payments reform and transparent pricing policies, phasing and transitional measures for the electricity and gas networks. These two documents are open for discussion and I understand that the Commission is really keen to receive your comments and suggestions to ensure that the pace and sequencing of the reforms are really adapted to the specific circumstances of each of your countries. Indeed, what is needed is a strategy for the long term and the regulations and the institutions we are building should be designed to provide a lasting underpinning to your national markets as well as to the ECSEE.

I would like also to congratulate you for the efforts and the accomplishments of your countries under the Athens process over the last two years. When I look at the latest benchmarking exercise, I realise that some objectives, such as having cross-border trades in electricity for eligible customers by mid-2005, were perhaps too optimistic. Nevertheless we would not have reached the point where we are now, if we had started at a slower pace. The negotiation of the treaty gives an opportunity to define a more realistic timeframe for the fulfilment of the various commitments but of course, this should not provide an excuse to postpone reforms, which are inevitable.

An important point is that you have to work together in defining a reasonable schedule and also help each other in complying with it. One of the originalities of the Athens process resides indeed in a process of peer review, which establishes solidarity among your countries as each of them has an interest in the progress of the others.

Another point is that whatever you have to do for the Athens process and to comply with your future treaty obligations is fully consistent with your objective of joining as soon as possible the EU. Bulgaria and Romania ,who have completed Chapter 14 of their accession negotiations ,can testify to this. The Thessaloniki Summit of last year confirmed the perspective of EU membership of the Western Balkans countries when they would satisfy the Copenhagen criteria.

However the originality of ECSEE is that it substitutes to the vertical country by country approach , which could still take many years, an horizontal sectoral approach , which provides to most of you a unique opportunity to become much sooner part of the EU single market as far as the crucial energy sector is concerned. As I have said before , the proposed treaty is a unique political chance for the region. In the same way the European Coal and Steel Community, launched by Robert Schumann and Jean Monnet in 1950 cemented the reconciliation between France and Germany and was a prelude to the Treaty of Rome of 1957 establishing the European Economic Community, the proposed treaty establishing the ECSEE could consolidate reconciliation in the region and provide a powerful driver towards a more comprehensive economic and political integration of the whole of SEE into the European Union.

  Other crucial benefits are (i) that a regional market underpinned by a legally binding treaty greatly enhances the attractiveness of the sector for international investors, (ii) that a regional approach greatly reduces the magnitude of the investments required to modernise the sector; and (iii) that this approach makes possible a better coordination of the technical and financial assistance provided by the international financial institutions and of the bilateral donors.

At the end of this month, the Prime Ministers of SEE will be invited by the Austrian Chancellor to a meeting in Salzburg. I will also be present and I would be pleased to reiterate these points and to report on the outcome of our meeting of today. The Salzburg meeting could provide the Prime Ministers with an opportunity to convey, through a joint letter or otherwise, a message to the outgoing and incoming Presidents of the European Commission about the importance they attach to the negotiations of the ECSEE treaty and the support they expect from the Commission in achieving the timely and successful completion of the negotiations as well as in terms of the enhanced technical and financial assistance they need to make the ECSEE a success.

We face, as you know a change in the European Commission. A new President has been nominated by the European Council: his appointment has to be approved by the European Parliament. Nominees will then be submitted by the EU member states to him and the new Commission will enter in function on the 1rst of November this year. I am prepared to bring my contribution towards sustaining the commitment of the European Commission to the timely completion of the ECSEE treaty negotiations throughout this delicate transition period.

Let me now touch briefly on the environmental dimension of the ECSEE treaty. There is no doubt that the ECSEE Treaty will need to include environmental commitments and timetables with a binding legal force but it is also clear that transition periods tailored to the specific circumstances of each SEE country will need to be negotiated. This is an area where special assistance is needed from the international community and where specific financing mechanisms such as those related to the fulfilment of the Kyoto Protocol should be set up. Let us not forget the crucial contribution that energy efficiency can make to the fulfilment of the environmental standards. National policies are crucial in bringing about the right signals and motivations to change consumer attitudes and encourage market transformation.

Special attention must also be given to the social impact of the necessary reforms of the energy sector. Tariffs need to be set at levels that ensure full cost recovery. Financial discipline on the part of all customers, public and private, corporate and households must improve. This raises the issue of affordability for vulnerable social groups. This issue may be addressed either through focused transfers or through a block tariff, allowing a set amount of energy consumption by households to be priced at a lower level, with the marginal price applying above that amount. Another delicate issue concerns the consequences of the anticipated restructuring in the coal mining and electricity sectors on employment. Measures to mitigate such social costs have to be properly planned, among others trough retraining and regional development programmes.

Having in mind the various dimensions of our initiative - political, economic, social and environmental -, we have to look ahead and to think about an appropriate involvement of the Parliaments of your countries, as well as the civil society, in particular the social partners. Indeed the treaty you are negotiating will have to be ratified. We should ensure that these key actors are properly briefed and that we can benefit from their views. Therefore I am supporting the proposal by the Romanian Chairmanship-in-office of the SEECP to organise in Bucharest in early October, i.e. before we embark on the last round of negotiations, a two-day conference on this subject with key Parliamentarians from the ECSEE countries and with social partners and other representatives of civil society. Your views on the programme of this conference and on the selection of its participants would be highly appreciated.

Once more, let me wish you very productive discussions to day as well as my full support for your efforts.

I thank you for your attention.