Working Table II: Economy

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Working Table II Economy Sofia, 17 May 2005
Creation of the Energy Community - A Summary
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The Stability Pact is involved in the energy
sector in SEE through its sponsorship of the
Athens Process. The Athens Process, led by the
European Commission, aims at creating an Energy
Community of South Eastern Europe and at
integrating it into the EU internal energy market
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Energy Community in SEE (ECSEE)
Will have as members European Commission,
Austria, Greece, Italy, Hungary, Slovenia SEE
Regional Members Albania, Bosnia Herzegovina,
Bulgaria, Croatia, fYR of Macedonia, Romania,
Serbia Montenegro, Turkey, UNMIK- Kosovo Obser
ver Status Moldova
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The Athens Process or ECSEE (MoUs)

• Involves the adoption by the SEE countries of the
  Acquis communautaire on energy, environment,
  competition and renewables, involving among
  others,
• opening of access for cross-border trades in
  electricity and gas
• the setting up in each country of an
  independent energy regulator
• unbundling of generation, transmission and
  distribution (at least in terms of management)
• compliance with regulations concerning large
  combustion plants, environmental impact
  assessment and sulphur content

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The Athens Process Main Steps towards the Energy
Community

• First MoU on electricity, signed in Athens on 15
  November 2002
• Second MoU signed in Athens on 8 December 2003,
  extending the process to gas.
• Negotiations on legally binding multilateral
  treaty on the Energy Community concluded March
  2005 including EU25.
• Norway is observing the Energy Community since
  April 2005
• Signing expected in summer 2005.

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Draft Treaty establishing the Energy
Community Objectives

• Create a single stable regulatory and market
  framework capable of attracting investment.
• Enhance security of supply.
• Improve the environment situation.
• Develop competition on a broader geographic scale
  and exploit economies of scale.

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Activities of the Energy Community

• Implementation of the Acquis Communautaire.
• Creation of a single mechanism for the
  cross-border transmission and/or operation of
  energy markets.
• Creation of a single energy market in Europe.

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Extension of the Acquis communautaire
The Acquis on energy

• EC Directives 2003/54 and /55 on internal market
  in electricity and natural gas and EC Regulation
  1228/2003 on conditions for access to the network
  for cross border exchanges in electricity.
• Timetable of liberalisation
• 1 January 2008 for all non-household customers
• 1 January 2015 for all customers

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Extension of the Acquis communautaire
The Acquis on Environment

• Each contracting party shall endeavour to
  accede to the Kyoto Protocol and to implement EC
  Directive 96/61 on integrated pollution
  prevention and control.
• Construction and operation of new generating
  plants shall comply with the acquis
• EC Directive 185/337 on assessment of the effect
  of projects on the environment
• EC Directive 1999/32 on the reduction in the
  sulphur content of certain liquid fuels (by
  31/12/2011)
• EC Directive 2001/80 on the limitations of
  emissions of certain pollutants into the air from
  large combustion plants (by 31/12/2017)

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Extension of the Acquis communautaire
Acquis on Competition

• Prohibition of agreement and concerted practices
  having as their object or effect the prevention,
  restriction or distortion of competition.
• Prohibition of abuse of dominant position
• Prohibition of public aid distorting or
  threatening to distort competition.
• Basis of assessment articles 81, 82, 86 and 87
  of the Treaty establishing the EC

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Extension of the Acquis communautaire
Acquis on Renewables

• Each contracting party to provide a plan to
  implement Directives 2001/77 and 2003/30.

Compliance with generally applicable EC standards

• (e.g. technical standards for transmission,
  cross-border connections, system security, etc.)

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Mechanism for Operation of Network Energy Markets

• Single mechanism for the cross-border
  transmission and/or transportation of network
  energy
• Security of supply statements by each party
• Provision of energy to citizens as part of public
  service obligations (e.g. universal provision)
• Tariff reform and affordability
• Compatibility of market designs and mutual
  recognition of licences.
• Measures to foster renewables and energy
  efficiency
• Safeguard measures.

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Creation of Single Energy Markets

• Prohibition of customs duties and quantitative
  restrictions on imports or exports of network
  energy (except on grounds of public policy or
  public security)
• Prohibition of discrimination.
• External Energy Trade Policy (e.g. with respect
  to environmental standards or safe operation of
  the internal energy market)
• Coordination of mutual assistance in the event of
  serious disturbance or external disruption

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Institutions of the Energy Community

• Ministerial Council (rotating)
• Permanent High Level Group (rotating)
• Regulatory Board (Athens)
• Electricity and Gas For a (Athens and Istanbul)
• Secretariat (Vienna)

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Stability Pact Added Value

• 1. Fostering Regional Ownership and Political
  Consensus
• Meetings of Prime Ministers Advisors
• Conferences for SEE Parliamentarians (Bucharest,
  October 2004 Skopje, June 2005)
• Conferences with social partners and NGOs
• Stimulating Private Sector Interest
• Industry Round Tables on Electricity Prague,
  February 2003 Sofia, October 2003.
• Gas Industry Round Table Istanbul June 2005
  (tbc)
• Donors co-ordination in support of EC
  Chairmanship

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Drawing Attention to the Political Significance
of the Energy Community

• A unique political chance for the SEE Region
• Similar to the European Coal and Steel Community
  Treaty of 1951, in terms of consolidation of
  reconciliation and prelude to fuller economic
  integration
• Key step on the way to EU integration,
  particularly for countries that are not yet
  candidates
• Geopolitical importance diversification of
  routes for energy supply to Western Europe

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Economic impact of the Energy Community

• Larger market and predictable regulatory
  environment will attract investment and financing
• Level playing field with fair conditions for all
  groups of market participants
• Increased reliability and security of systems
• Beneficial diversification and environmental
  impact through the development of the market for
  gas.
• Reduction in operation costs and more competitive
  prices

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Economic impact of the Energy Community
(continued)

• Enhanced transparency, accountability and market
  discipline and lower corruption
• Regional framework for determining critical
  investments
• Reduction in overall investment needs thanks to
  enhanced national and regional strategies
• Better integration of economic, energy and social
  policies

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Do not underestimate challenges, in particular
in terms of socio-economic impact

• Cost of institution building requirements
• Impact of tariff reform on affordability
• Impact of restructuring in energy sector
  (including mining) on employment

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Donor and IFI Coordination

• Official coordination by the EC
• Donor and IFI meetings twice a year on regional
  issues, more frequently in some countries e.g.
  Bosnia and Herzegovina
• Donors involved EC, IEA, WB, EBRD, EIB, USAID
  CIDA, Italy, France, Germany, Switzerland, the
  Czech Republic, France and Greece. The UK is
  associated through the work of EBRD
• Last meeting 4 February 2005 in London

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How is progress measured?

• Benchmarking measures reform tasks achieved by
  target deadlines
• Benchmarking is being set up for all countries in
  the market
• Separate benchmarking for
• Ministry of Energy or equivalent
• Regulatory Authority
• Transmission System Operator
• Benchmarks cover
• Legislation existence and appropriateness
• Institutions numbers of staff, qualifications,
  budget, scope of activities
• Performance what has the organisation done since
  it was set up

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What progress has been achieved?

• Nearly all countries have adopted legislation to
  implement Directive 92/96/EC.
• In two steps, they will have implemented
  2003/54/55/EC Directives
• Regulators are in place (some not so
  independent)
• Tirana Declaration on the SEE Regulatory Board
  for Electricity and Gas

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What progress has been achieved? (continued)

• TSOs making progress although still some
  interference in vertically integrated companies
• Institutions will be operational by summer 2005
  in all countries
• Non-household market should gradually be opened
  according to country ability

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Priorities adopted for 2004/2005 as concerns
legal reforms aimed at making energy supply a
fully commercial service

• energy supply must be paid for
• enable denial of supply to those who do not pay
• make theft of energy a criminal offence
• enable speedy recovery of arrears
• ensure sustainability of operators

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Opportunities for the Private Sector

• Extensive National Power Sector Reforms
  Harmonisation are under way
• Progressive Opening of National Markets
• Much larger and diversified Market will soon be
  accessible
• Opportunity for Building larger and more
  efficient Generation Plants
• Opportunity for Building Multinational Portfolios
  of Generation Plants
• Distribution Companies Open for Privatisation
• Opportunities in the gas sector

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More Information from

• Athens Process Newsletterwww.seerecon.org/infrast
  ructure/sectors/energy/newsletters.htm
• Information data base in preparation sponsored by
  Czech Rep. www.seenergy.org
• Stability Pact for South Eastern Europe
  www.stabilitypact.org/energy
• European Commission and World Bank (Joint
  Office/ISG) www.seerecon.org/infrastructure/secto
  rs/energy
• US Agency for International Development on
  Regulationwww.seerem.org or www.erranet.org
• Southeast European Electrical System Technical
  Support Project (Canadian Int. Dev. Agency)
  www.seetec-balkans.org
• Peter Houzer, Expert Working Table II, Stability
  Pact for SEE50, rue Wiertz 1050 Brussels,
  BelgiumTel 32-2-401 87 17, Fax [phone],
  peter.houzer_at_stabilitypact.org