“POLITICAL AND ECONOMIC ACHIEVEMENTS IN SOUTH-EASTERN EUROPE”

1. Brief outline of major milestones in the political and economic developments in South-Eastern Europe

2. The Energy Community Treaty

The creation of the Energy Community Treaty in SEE is the outcome of the so-called “Athens Process” for regional energy co-operation. This process was launched by the European Commission with the support of the Stability Pact in November 2002 with the signature of a Memorandum of Understanding on Electricity, extended later by a second Memorandum of Understanding on Gas in December 2003. The Stability Pact complemented the Commission’s leadership by generating political consensus among the SEE countries and also promoting the process to the international business community.

The process received a significant boost through the physical reconnection of the SEE grids to the UCTE network in October 2004. The Treaty has been signed by the SEE Governments on 25 October 2005, but will only enter into force upon ratification by the European Community and least six Contracting Parties from South Eastern Europe according to their national ratification procedures. This is expected to happen at the beginning of September 2006.

The overall purpose of the Treaty is to create a stable and reliable supply of energy in the countries of South Eastern Europe. This will serve as a catalyst for sustainable economic development and social stability in the region.

To achieve this purpose, three issues needs to be addressed:

· Firstly, we must restore the old local infrastructure that suffered for years from inadequate maintenance and was further damaged by the conflicts in the nineties.

· Secondly, we have to meet huge investment needs in a context of limited borrowing capacity of these countries, competing demands for other infrastructure projects and decreasing donors’ grants. Therefore we believe that regional co-operation will be the best way reduce costs and improve efficiency.

· Thirdly, an energy community provides an important geo-political opportunity to diversify supply routes for different forms of energy and reduce reliance on one or two sources of supply

Then come the political goals of the Treaty, The first one is to formalise the commitment of these countries to regional cooperation, including mutual assistance in case of disruption events. The second goal consists in integrating the energy market of SEE countries into EU’s internal market in a key economic sector before their accession to the European Union. This is why many people compared this Treaty to the European Coal and Steel Community Treaty that paved the way for the European Community.

The Energy Community also provides a good example of successful transfer of ownership. The Treaty has created a set of institutions: the Energy Community Secretariat in Vienna, the Ministerial Council, the Permanent High Level Group and the Regulatory Board which are overseeing and contributing to the implementation of the Treaty. All the institutions comprise ministers and high level civil servants of the Region. The Energy Community Secretariat is now fully operational and its current Director of is a Bulgarian citizen, Mr Slavtcho Neykov.

What are the prospects?

The Energy Community presents tremendous business opportunities as well as challenges. Investment needs have been estimated to EUR 20 billions over the next 15 years. Thanks to the joint action of the international community and the governments in the region, the stage is being set for an attractive investment climate for power generation, transmission and distribution. will have the opportunity tomorrow to elaborate on the conditions needed for the implementation of the Treaty.

Regarding the challenges, I would like to point to two issues.

Firstly, it will require first a lot of political courage from the leaders in the region. The restructuring of the energy industry and the opening-up to competition will result in job losses that will be later compensated by creation of new jobs in other industries (Eg: export-led SMEs). In addition, to make the restructured companies profitable, operators will have to raise consumption tariffs and devise systematic billing and payment collection policies. Affordability studies will hep to identify those who will struggle to pay their energy bills and the local governments will have to provide financial assistance to the most vulnerable groups.

Secondly, Treaty sets very ambitious targets. The countries are committed to a rapid timetable for restructuring a state-owned industry, implement new regulatory frameworks and attract investment. All that requires a lot of work.

I have no doubt that we will overcome together these challenges while stimulating the European economy.