Electricity Markets in Eastern Europe
By Sam Vaknin
Author of "Malignant Self Love - Narcissism Revisited"
Russia's lower house, the Duma, debated, in November 29, 2002 a far
reaching reform in the bloated and inefficient electricity
generation sector. Worried by resurging inflation, the Russian
government scrapped its plan to allow the Federal Energy Commission
to fix tariffs for gas, power, and railways. A Commission spokesman
complained to Moscow Times that government officials have overridden
its authority to regulate the prices of natural monopolies. It
threatened to take the matter to court.
Electricity throughout the former Soviet bloc is heavily subsidized.
Governments are reluctant to raise prices to realistic levels lest
they incur the wrath of their impoverished subjects and reignite
dormant inflation. Fuel prices, government taxes, and variable
costs, such as labor, have been rising steeply in the last decade
but the electricity behemoths' ability to amend their tariffs to
reflect these is politically curbed.
The Russian Unified Energy Systems electricity monopoly was allowed
to up its prices in 2002 by a mere 14 percent - barely the rate of
Russian inflation. Its chances to attract the $50 billion in
investments it says it needs in the forthcoming 10 years are slim as
long as it continues to charge its customers - both wholesale and
retail - a fraction of the cost of electricity its West European
counterparts charge theirs. A restructuring plan, approved by the
government in May 2001, is going nowhere. The sale of loss making
generating plants - even at bargain basement prices and to insiders - is impossible without a massive - and massively unpopular - boost
to electricity prices.
Vociferous protests in Croatia in October 2002 forced the government
to shelf a scheduled 9 percent hike in the price of electricity for
domestic consumption. The IMF is displeased with the government's
stranglehold over the energy sector and is pushing for
liberalization. Slovakia's news agency, TASR, reported in November
2002 that thousands of members of the Trade Unions Confederation
demonstrated in Bratislava against proposed budget cuts and
increases in regulated prices, including electricity's.
Still, consumers will not be able to buck the trend forever. Even
the rich countries of the region are facing already unsustainable
electricity subsidy bills. The Slovenian news agency, STA, reported
on November 14, 2002 that Slovenian producers of electricity and
natural gas warned that - once the domestic market opens to foreign
competition in January 2003 - they will be at a disadvantage due to
the unrealistic electricity "price model". In hindsight, this proved
to be wrong.
Yet, liberalization and privatization have acquired a bad name after
the debacles in California and elsewhere in the world. Moreover,
electricity generation depends on a free market in fuels - a rarity
in central and eastern Europe. Prices cannot rise above the increase
in net disposable income.
As infrastructure crumbles, replacement costs soar. The Albanian
Daily News reported that in the 12 months to September 2002,
Albania's electricity self-sufficiency decreased from 66 percent to
46 percent. Power cuts of up to 18 hours a day are not rare. The
same applies to Kosovo, where an electric storm demolished the local
generation plant in July 2002, and to Montenegro.
The dependence of many countries in transition on decrepit and
antiquated nuclear power plants causes friction with the European
Union. Austria and the Czech Republic have clashed over the much- disputed Temelin facility. Croatia and Slovenia are locked in a
bitter dispute over their shared ownership of the Krsko nuclear
plant.
Lithuania derives 78 percent of its power the atomic way. Slovakia
gets 53 percent of its electricity from its reactors, Ukraine - 46
percent, Bulgaria, in the throes of a controversial plan to
modernize its nuclear works in Kozloduy, 42 percent, Hungary and
Slovenia - 39 percent.
Nor can pure market mechanisms solve the problem. Late in 2001,
hundreds of Romas, having been cut off the grid for unpaid bills,
demonstrated in Plovdiv and in Lom, Bulgaria. Remote and rural areas
are poorly catered to even by state-owned utilities, let alone by
privatized ones.In December 2001, the Romanian government
restructured Electrica, an electricity utility, but wisely retained
ownership of the long-distance distribution network.
Bulgaria is emerging as an energy hub. The cabinet is drafting a
bill which calls for far-reaching liberalization. Subsidies for both
electricity and heating would be phased out by 2006. The country is
refurbishing its thermal power generation plants with an aim to
reduce its dependence on oil, gas and coal imports from Russia and
Ukraine.
Bulgaria is slated to establish a regional energy distribution
coordination centre under the auspices of the Stability Pact.
Bulgaria covers 40-50 percent of southeast Europe's entire
electricity deficit every winter. It also exports electricity to
Turkey and even to Romania. Italy and Greece are negotiating a
transit agreement which will permit the former to import Bulgarian
electricity through the latter's territory.
Bulgaria is not the only exporter. Romania, Croatia and even Bosnia
sell power. In local terms, the market is sizable. Serbia's annual
electricity import bill amounts to $100 million. In 2001, Bulgaria's
exports to Turkey, Greece and Yugoslavia reached $150 million. The
annual figure is much higher since 2002. Romania doubled its
electricity exports - mostly to Yugoslavia and Greece - during the
first half of 2002 to $48 million.
Aware of this, the World Bank has recently increased the amount of
money allocated to energy projects. In Albania alone, it has
earmarked $16m to reconstruct three hydropower plants and another $1
million to install electricity meters in Shkoder, in the north. Even
the pariah Republika Srpska, the Serb part of Bosnia-Herzegovina,
stands to get $90 million to construct an electricity grid.
Multilateral funds will not be enough, though. Private capital is
essential. In mid-2002, Macedonia has retained Austria's Meinl Bank
to act as consultant and prepare within 11 months a sales strategy
for the its national electricity company ESM. That won't be easy.
The utility is in horrendous shape having served as the outgoing
coalition's agency of patronage and cash cow. The country was
reduced to importing more than one ninth of its consumption from
Bulgaria. Indeed, real no progress was made by July 2005.
The more venal and xenophobic the political class, the less welcome
are foreign investors. The Moldovan government seeks to annul the
sale, in 2000, of three electricity distribution companies to Union
Fenosa, a Spanish energy group. The World Bank is furious. Moldovan
announcements of massive exports of electricity to Romania were
greeted with derision by the alleged client.
Private investors, though, seem to have lost their appetite for
bloated state monopolies. According to Albania's Ministry of
Industry and Energy, even a giant like General Electric prefers to
build 10 small thermal power plants in the country's larger cities.
Other investors are interested in 23 hydropower plants about to be
privatized.
Some utilities choose to tap the capital markets. Romania's
Hidroelectrica launched a Eurobond issue of more than 120 million
euros to improve hydropower equipment. Parex Bank and the Baltic
investment company, Suprema, organized a consortium to lend $25
million to reconstruct one of Riga's thermoelectric power stations.
Electricity is no longer merely a national affair, but, rather, a
regional one. A memorandum regarding the establishment of a
southeast European energy market and its ultimate integration with
the European Union's was signed In mid-November 2002 in Athens by
ministers from Albania, Bosnia-Herzegovina, Bulgaria, Croatia,
Greece, Macedonia, Romania and Yugoslavia. These represent a market
with more than 55 million consumers who will be able to buy power
directly from generating utilities by 2005, pledged the document. As
it turned out, another pipe dream.
But this touches upon a second conundrum. Households and firms don't
pay their bills. The threat of widespread social unrest prevents the
utilities from cutting them off. Better metering is one solution.
The InvestRomania business daily reports that the national
electricity company, Transelectrica, backed by the European Bank for
Reconstruction and Development, signed a $20 million contract with
the Swiss firm Landis&Gyr to install remote counters of wholesale
electricity. The hope is that with resumed growth and rising incomes
this problem will vanish together with the currently common
blackouts and brownouts.
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AUTHOR BIO (must be included with the article)
Sam Vaknin ( http://samvak.tripod.com ) is the author of Malignant
Self Love - Narcissism Revisited and After the Rain - How the West
Lost the East. He served as a columnist for Central Europe Review,
PopMatters, Bellaonline, and eBookWeb, a United Press International
(UPI) Senior Business Correspondent, and the editor of mental health
and Central East Europe categories in The Open Directory and
Suite101.
Until recently, he served as the Economic Advisor to the Government
of Macedonia.
Visit Sam's Web site at http://samvak.tripod.com
