Bernard Snoy, Director,

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SEECP Conference for Parliamentarians, Social
Partners and NGOs Bucharest, 11-12 October 2004
Creation of the Energy Community of South
Eastern Europe
Bernard Snoy, Director, Working Table II
Economic Reconstruction, Development and
Cooperation -
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What is the Stability Pact for South Eastern
Europe?
. Adopted on 10 June 1999 in Cologne . Provides
framework for co-ordination of over 40 countries
and organisations . Political instrument for
long-term conflict prevention . Aims to
strengthen peace, democracy and economic
prosperity in South Eastern Europe (SEE) .
Stability Pact Beneficiaries
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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 to its
integration into the EU internal energy market
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Potential Regional Electricity Markets within the
EU
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Energy Community of South East Europe
Will have as members EU Member States Austria,
Greece, Hungary, Italy and
Slovenia Regional Members Albania, Bosnia
Herzegovina, Bulgaria, Croatie, FYRoM,
Romania, Serbia Montenegro,
Turkey, UNMIK-Kosovo Observer
Status Moldova
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Why is SEE Region important?

• Reconstruction and transition after war
• Next stage of EU expansion
• Diversification of routes for energy supply to
  Western Europe

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The Athens Process or ECSEE

• Involves the adoption by the SEE countries of the
  EU Electricity, Gas and Environmental Directives,
  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)
• comply with regulations concerning large
  combustion plants, environmental impact
  assessment and sulphur content

8
The Athens Process aims at creating a Energy
Community SEE Three steps
Inclusion of Gas Market at 8th December 2003
ministerial meeting
First Athens Memorandum of Understanding on
electricitywas signed in 15th Nov 2002 in Athens
UCTE
DK
Non UCTE
UPS
NL
PL
SynchronousBorders
D
B
UA
L
CZ
I zone
SK
REMmember
MD
A
F
CH
HU
RO
SLO
REMobserver
HR
II zone
BIH
SaM
BIH
BG
P
I
E
MK
AL
GR
TK
Negotiations on Int. legally binding agreement
started in July 2004
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Objectives of the ECSEE

• 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
• Greater efficiency and more competitive prices

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Objectives of the ECSEE (continued)

• Enhanced transparency, greater 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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Time Scale and Requirements

• Athens Nov 2002 MoU requirements
• National legislation, following Electricity
  Directive, to create regulatory commission, and
  transmission system operator, by June 2003
• Opening of the market to all non-domestic
  consumers by June 2005
• Athens Dec 2003 MoU requirements
• National legislation, following Directives on
  electricity, gas, and environment, by 1 July 2005
• Strategy for establishing the market by June 2004
• Monitoring of progress in June 2004 and annually
  thereafter (benchmarking)
• Implementation dates (e.g. for full market
  opening) for SEE may be later than the dates
  applying to Member States

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How does the EU work with SEE countries on the
ECSEE?

• DG Transport and Energy works of the European
  Commission has been leading the Athens process
  and ensures currently its Secretariat.
• Ministerial Council once a year
• Permanent High Level Group (PHLG) (Ministries of
  Energy) meetings 3-4 times a year
• Meetings of Regulators quarterly (SEEER)
• Meetings of TSOs quarterly (SETSO)
• Athens Forum twice a year (PHLG/SEEER/SETSO)
• President of the Athens Process rotates round
  countries of region every six months (in the
  first half of 2004 Albania, currently Austria)
• Working language is English
• Only a single State level organisation can
  participate from each country

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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 eg
  Bosnia and Herzegovina
• Donors involved EC, WB, EBRD, EIB, USAID CIDA,
  IES, Italy, France, Germany, Switzerland, the
  Czech Republic, France and Greece. The UK is
  associated through the work of EBRD
• Last meeting 2 June in Athens during the 3rd
  Energy Week

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ECSEE Treaty

• Will replace 2003 Athens MoUs with legally
  binding conditions and timetable for full market
  opening
• Will include regional regulatory authority
• Will cover relations regarding import from third
  countries
• Negotiations started on 14 July in Permanent High
  Level Group
• Meeting of Prime Ministers Advisors on 15 July
• Second negotiating session on 22 September
• Signing expected at the end of this year or early
  in 2005

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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
  2003/53/54/EC Directives
• Regulators are in place (some not so
  independent)
• Tirana Declaration on the SEE Regulators Board
  for Electricity and Gas
• 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 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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The Key Importance of the Sequencing of Reforms

• Privatising the energy sector in transition
  countries in advance of policy development and
  proper regulation poses great risks to efficiency
  gains, consumer welfare and the political
  acceptance of reforms.
• Proper sequencing involves
• Formulation of energy policies and rules for
  implementing them, giving special attention to
  energy efficiency and demand-side co-operation.
• Establishing appropriate legislative and
  regulatory framework
• Preparing for privatisation through
  commercialisation

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Current Situation

• Cooperation between countries as well as with
  EU
• sharing of informations, experiences, problems
  etc.
• learning
• Countries in the region are at different stages
• Advanced (Romania, Bulgaria, Turkey, Croatia)
• Medium (Albania, FYROM, Serbia, UNMIK-Kosovo,
  Bosnia Herzegovina, Montenegro)
• Electricity reasonable progress, gas still at
  beginning

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Investment Requirements

• Electricity
• Investment requirements estimated between 20
  40 billion.
• Significant reduction if a regional approach
  prevails.
• Generation Investment study (GIS) ongoing
• Needs to include Austria, Greece, Italy,
  Slovenia and Turkey
• Needs updated energy demand forecasts
• Has to lead to optimisation at regional level
• Gas
• Evaluation of all three possible route in
  region (T-B-R-H, T-G- FYROM-S-C-S-A, T-G-I)
• Dependent on energy demand forecasts
• Initial investment requirements in the range of
  2 to 5 billion

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UCTE resynchronisation

• A crucial step for the creation of a Regional
  Electricity Market is to allow better electricity
  exchanges
• Region is already interconnected but requires
  replacements for missing HV transmission lines in
  BiH
• Funding was delayed due to lack of reform in BiH,
  but is now going ahead with World Bank Power III
  project
• Resynchronisation is due in the second half of
  2004
• Cross border trading mechanisms are already set
  up
• BiH will be able to export more electricity
• More income for BiH

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• Grid Configuration for re-synchronization
• Three main connections (from the global UCTE
  point of view)
• Interconnections of regional interest
• Lines not completed

1.
2.
3.
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• Scenarios Analysis and Simulation Results
• Energy Exchanges Between Countries under Scenario
  2 --- 2010 (GWh)

850
3756
970
78
1972
779
524
5068
2628
1752
25
336
2189
1356
2
8214
4361
731
880
2365
3293
1243
658
344
3363
1680
1737
546
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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

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Recent Studies Initiatives

• EBRD Affordability Study
• SECI Transmission Planning Project
• Kreditanstalt für Wiederaufbau, Decon, Swedpower
  Regional Study of Electricity Supply and Demand
  in SEE
• Southeast European Electrical System Technical
  Support Project (SEETEC/CIDA)
• EU CARDS programme
• World Bank Adaptable Programmatic Loans (APLs)

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Forthcoming Studies Initiatives

• Balkans Infrastructure Development Facility (BID
  Facility)
• Italian Regional Fund for infrastructure in SEE
  (to be set up further Venice meeting of October
  2003)
• European Commission / World Bank Generation
  Investment Study (GIS)
• USAID social safety net
• Bilateral programmes and projects

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Next Steps

• 11-12 October SEECP Conference in Bucharest for
  Parliamentarians, Social Partners and NGOs
• 26-29 October Energy Week in Athens
• New negotiating session probably in November
• December Ministerial Conference
• ECSEE Treaty signing in late 2004/early 2005

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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