The Balkans energy community aims, well in advance of accession to the European Union, to link the fractured region’s power supply with Western European networks.
The political map of Europe these days looks very blue. Most of it (discounting Russia) is part of the European Union (EU) and those countries that have yet to join are increasingly the odd men out.
The European Commission and its fellow EU institutions are keen on some of these countries becoming members and less keen on others, but the countries that are almost destined to join the EU (if they want to) are those surrounded by EU territory.
That map shows a sizeable bloc of such countries in southeast Europe – much of the former Yugoslavia, and Albania. Brussels is already talking to all of them about future membership, which should come in the next decade or so.
But for the Commission, as far as energy relations is concerned, this is too slow. With security of energy supply being a priority for the EU, along with the wish to create a unified cross-border marketplace for electricity and gas, the EU has, as far as the energy sector is concerned, extended its hand early to these seven countries.
Albania, Bosnia & Herzegovina, Croatia, Macedonia, Montenegro, Serbia, and Kosovo (at the time of writing still not recognised as an independent state by seven EU member states) have all joined an ‘Energy Community’, which came into being in 2006; (Bulgaria and Romania were members, but are now fully integrated within the EU).
Its aim is to ensure that these non-EU neighbours adopt EU energy legislation within their own borders, making it possible for them to participate in the EU energy market. This would also help EU members to their south and east, such as Greece, Bulgaria and Romania, link their electricity and gas networks, via these Balkans states to central and western Europe. There is also, of course, Turkey. A vitally important strategic link between Europe and the vast oil and gas reserves of the Caucasus, Caspian and central Asia, and via the pan-Arab pipeline to Egypt, Turkey is also potentially an important supplier of electricity to the EU – regardless of whether it achieves its aim of joining it.
Forging the Energy Community will help these cross-border trades happen. Partly, this is a matter of legal and administrative systems. For countries to trade electricity, they need to have assurances that one customer will not be unfairly favoured over another. The community, by providing the legal basis, gives that assurance.
Turning back the clock
In relation to countries of the former Yugoslav, the community system would have the effect of turning the clock back to when their electricity system was more united, linked to those of other communist countries through its associate membership of COMECON, the USSR-dominated economic bloc, which promoted cross-border power supplies.
This unity was disrupted by the 1989 revolutions, the fall of communism and the resulting wars that dismantled Yugoslavia. A memorandum issued by the Energy Community says: ‘The conflicts of the 1990s led to the disintegration of a unified energy system that stretched from the Adriatic to the Black and Aegean Seas. What was once a single system is now a patchwork of several.’ However, these countries are small, and “regardless of the frontiers drawn on maps since the conflict erupted, the separate entities still rely on each other for the smooth functioning of their power supplies.’ Hence the energy community is designed to allow member countries to ‘co-operate on rebuilding…energy networks, ensure the stability vital for investment, and create the conditions in which its economies can be rebuilt effectively.’ The organisation aims at ‘improved utilisation of existing supply and production capacities as well as optimising future investments’, and – looking ahead – ‘will also support the integration of the region into the internal energy market of the European Union.’
So, this is an ambitious project. How does it work? And what will it achieve?
Necessary steps
The foundation of the community is the harmonisation of its members’ energy laws with each other and with those of the European Union. By ratifying the community treaty, its participating countries agreed to implement the keystones of the single EU electricity market: the electricity directive (2003/54/EC); the cross-border electricity exchanges regulation (1228/2003/EC); and the 2005 directive on security of electricity supplies and securing investment (2005/89/EC). Members had until July 2007 to implement the 2003 laws and have until December 2009 to write the 2005 directive into their national statutes. The Energy Community treaty insists that the supporting countries must open their electricity markets to free cross-border competition for non-household customers by January 2008 and to all domestic consumers by January 2015. Also, importantly the signatory countries have agreed to abide by the EU’s tough competition laws that ban cartels and abuses of dominant positions, and tightly limit national subsidies as regards the energy sector. They also agreed to implement the 2001/77/EC directive on promoting renewable energy sources.
As well as these structural reforms, the community insists that the Balkans countries also implement some EU environmental law some important to the power sector. These include the 2003/35/EC and 85/337/EEC directives on environmental impact assessments and the 2001/80/EC directive on limiting pollutants from large combustion plants, although for this law, the Balkans community countries have until December 2017 to ensure that their power plants meet its standards.
These commitments are overseen and administered by a complex series of institutions headed by a Ministerial Council established to make sure that these promises are kept. It also has the authority to make additional rules for treaty signatories and provide general policy guidelines. It contains one representative for each Balkan member country, and two EU representatives; it must meet at least every six months.
This is effectively the community’s legislative body, and works with a lower level ‘permanent high level group’ of senior officials: one from each Balkan energy community county and two from the EU. This mirrors the EU Council of Ministers, which works with committees of permanent representatives (COREPER) on different issues. A memorandum notes that ‘the PHLG is more closely involved in the Energy Community’s day-to-day work’, meeting four times a year. It is charged with preparing the work of the Ministerial Council; approving technical assistance requests made by international aid organisations, financial institutions and bilateral donors who support the energy sector in the Balkans; drafting reports on how the member countries are implementing their treaty obligations; and issuing detailed rules when given authority by the council. There is also an Energy Community Regulatory Board (ECRB), which has a similar role, although it will concentrate on technical rather than political matters. Its members are representatives of member countries’ national energy regulators and the EU. This board is supposed to advise the Ministerial Council on the details of statutory, technical and regulatory rules; issue recommendations on cross-border disputes involving two or more signatory country regulators; and also issue detailed rules upon instructions from the council. It is supposed to meet four times-a-year.
And there is also a more informal body, the Electricity Forum, which advises the Energy Community about industry-related issues. Chaired by an EU representative, it should include experts from the Balkans’ power industry, regulators, industry representative groups and consumers, adopting recommendations by consensus for forwarding to the high level group.
To help co-ordinate all this work, the Energy Community employs a small 16 member secretariat in Vienna, Austria, also charged with reviewing and monitoring the implementation of the treaty.
Settling disputes
An important area of all these institutions’ work will be overseeing disputes in implementation of the treaty’s rules, especially as regards the allocation of cross-border electricity transmission capacity, and resolving disputes that might arise among member countries and over this and other energy issues. The secretariat recently secured agreement over a disputes settlement mechanism. Here, the secretariat has similar authority to the European Commission in terms of breaches of EU law – it decides whether there is a case to answer after receiving a complaint, and asks the accused party to remedy any alleged breach. Where it refuses, or the case is urgent, it can be brought before the council, which can rule, after receiving an opinion from an advisory committee. Any persistent refusal of a country to abide by such a ruling can be punished by a suspension of voting rights in Energy Community institutions and being excluded from its meetings.
T & D infrastructure
So, the rules of the game have been established, and that is all well and good. But liberalising and unifying the power systems of the Balkans will be ineffective if there is insufficient generation and transmission capacity, especially regarding cross-border interconnections. In this regard, the Energy Community’s work on generating investment finance for the region’s electricity sector is absolutely crucial.
Last December the Ministerial Council approved a list of priority projects in energy infrastructure, based on proposals made by electricity generation and transmission companies (and gas companies) in the region. These included the construction of a new 400 kV transmission interconnection line between Tirana, Albania and Podgorica, Montenegro; building a new 172 MW hydro-power plant at Glavaticevo, in Bosnia & Herzegovina; and many many more. The bottom line is that much work needs to be done and this is reflected in the size of the financial institutions that have been approached: the European Investment Bank (EIB), Germany’s Kredit für Wiederaufbau Development Bank, the World Bank, and the European Commission (regarding its new Infrastructure Projects Facility). They have the financial muscle to make a real difference to the power production and transmission of south-eastern Europe and beyond.
Keith Nuthall
