Energy Sector

Regional Energy Indicators:
Electricity Generation (TWh) 440.7
Electricity Consumption (TWh) 411.3

Energy Consumption per Capita (kgoe/cap) 1786
Energy Import Dependence (%) 61%
CO2 Emissions per Capita (kg CO2/cap) 5231
Note: kgoe – kg oil equivalent

The Energy Community and the Balkans: Interview with Mr Slavtcho Neykov Editor’s Note: The Energy Community Treaty was initiated by the European Union and entered into force in 2006 with the objective of supporting the countries that are EU candidates and potential candidates to implement the EU internal energy market legislative framework. Its long-term goal is to create a regulatory and market framework in these countries that will offer their populations more secure, reliable and affordable access to energy. Most of the Contracting Parties of the Energy Community Treaty, and one of its Observers, Turkey, are in Southeast Europe. This creates a special relationship between the Energy Community and the Balkans. The Energy Community officially celebrated at the end October 2011 its first 5 years of activity. In this context, energy editor Vlad Popovici recently sought out the views of Mr. Slavtcho Neykov, Director of the Energy Community Secretariat since 2006.

Mr. Slavtcho Neykov has been previously involved with various energy policy institutions since 1992, with a focus on developing and implementing the relevant EU energy policies. He has successfully completed energy policy mandates in Bulgaria for the Energy Committee of Bulgaria, the State Agency on Energy and Energy Resources, the State Energy Regulatory Commission, the Ministry of Energy and Energy Resources and the Ministry of Economy and Energy. He was also active as an expert in the Negotiations Department of the Energy Charter Secretariat in Brussels, Belgium.


Vlad Popovici: Mr. Neykov, thank you very much for speaking with us today. What is the mission and the main objectives of the Energy Community?

Slavtcho Neykov: The Energy Community extends the EU internal energy market into non-EU countries on the ground of a legally binding framework. The point of departure is an international treaty signed by the European Union, on the one hand, and by nine neighboring Contracting Parties (Albania, Bosnia & Herzegovina, Croatia, the Republic of Macedonia, Moldova, Montenegro, Serbia, Ukraine and the United Nations Interim Administration Mission in Kosovo) on the other.

The best approach to solving Balkan countries’ energy challenges, according to Mr Neykov, “is the regional one- and the key issue here is investment.”

The Treaty provides a stable investment environment based on the rule of law, and ties the Contracting Parties together with the European Union. Through its actions, the Energy Community contributes to security of supply in wider Europe.

In simple terms, the Energy Community’s ultimate goal is to guarantee that all European citizens enjoy better, more reliable and affordable energy.

VP: How is the Energy Community accomplishing these objectives?

SN: In a recent communication, the European Commission referred to the Energy Community as a success story. Here are some of the elements that contribute to this success.

One, our work is based on a clear, binding legal framework with fixed deadlines. Furthermore, we do not apply all the EU energy acquis. Presently, the Energy Community Treaty acquis consists of about 25 legal documents.

Two, we apply a holistic approach: we do not just focus on market liberalization, but also on investments, environment, energy efficiency, capacity building and social dialogue.

Third, the process is backed up by a solid institutional framework. In fact, the Energy Community’s institutions mirror those of the European Union/

Fourth, the Energy Community Secretariat is managing the daily activity. It has a double role of supporting and monitoring the implementation of the Treaty.

Fifth, the Treaty entails a built-in enforcement mechanism. The dispute settlement in the Treaty procedure is particularly important as it promotes business in the energy sector.

And sixth, there is a paramount link to the European Union enlargement process through the annual progress reports.

VP: Does the Energy Community have any tools for the financial assistance of energy sector projects in the Contracting Party countries?

SN: The Energy Community does not finance projects, but has an important facilitation role. We work with a donor community that consists of leading international financial institutions (IFI). Our aim is that the donors coordinate their actions in the Energy Community countries. The European Commission chairs the donors’ community.

VP: Looking back to the first five years of activity of the Energy Community, what are, in your opinion, its most significant accomplishments?

SN: Looking back over the last five years, I see a very positive change in the way the Energy Community is perceived by the Contracting Parties. Today the Contracting Parties take a greater ownership of the process. I am glad to note that there are more and more initiatives that originate from the Parties. We have more and more debates on energy topics that are relevant for the regional development. Finally, there is less tension when national interests are discussed. This allows progress to be made through a collective effort based on solidarity.

The second significant accomplishment is how the Energy Community is now perceived by other European Union institutions. Being referred to as a success story or as a model for regional cooperation is indeed something of which we are very proud. Moreover, we are pleased to see that some processes and approaches used in the Energy Community are now considered within other cooperation initiatives of the European Union such as INOGATE or the Eastern Partnership.

The third very important accomplishment is the expansion of the geographical and legislative coverage of the Energy Community.

VP: Most of the Contracting Parties of the Energy Community Treaty, as well as some of the EU Participants and one of its Observers, Turkey, are in Southeast Europe. This creates a special relationship between the Energy Community and the Balkans. What is the impact of this special relationship on the activity of the Energy Community?

SN: What you are referring to is primarily reflected in the Contracting Parties’ relations with the European Union. The Energy Community Treaty was created based on the Stability Pact process.

Croatia has recently successfully concluded its accession negotiations. The other six Parties in the Balkans are either candidates or potential candidates to become EU members. This means each Party has agreements with the EU on medium term and short term policy objectives. As you know the EU scrutinizes the progress on regularly basis. And this is where we have the link. The Energy Community assesses the implementation of the Treaty and the findings are reflected in the EU’s annual progress reports.

VP: Does the Energy Community have any specific regional objectives for the Balkans? What is in your view the added value of the Energy Community in the region and for the individual countries?

SN: The Energy Community Treaty is fundamentally a regional project. Its ultimate aim is to create a pan-European energy market. We already have two very concrete projects in South East Europe, namely the creation of the Energy Community Gas Ring and the Coordinated Auction Office in South East Europe.

The Gas Ring concept connects the seven South East European markets via a pipeline network. It takes into account the needs of the region with regards to electricity demand and generation capacity, existing or planned regional pipelines, as well as LNG terminals and storage facilities that could be connected to the Gas Ring. The idea is that all the gas infrastructure projects in the region will become in the future part of the ring.

The Coordinated Auction Office is a regional project in the electricity sector with two main objectives – the harmonization of congestion management methods and the optimization of cross border capacity allocation. At the centre of the project stands a supranational auction office on electricity. Its task is to manage the incoming capacity bids and to optimize the allocation of respective cross-border capacities. We have agreed on most of the technicalities and are now about to establish a project team.

VP: Who are your main partners in the Balkans and how involved are they in the cooperation with the Energy Community?

SN: The Energy Community’s key stakeholders are the national governments. Usually the main partners are the government ministries in charge of the energy sector. We also have a separate Energy Community Regulatory Board in the Secretariat. In this case, the relevant national regulatory authorities are the main partners.

Within our institutional setting we have four forums focused on electricity, gas, oil and social topics. Additionally, an investment related conference is organized annually. The forums represent the broadest representation platform. In addition to the governmental institutions and regulatory authorities, the forums bring together the power utilities, business, banks, donors and academia.

VP: Following the model of the Strategy for the Baltic Sea Region, its first macro-regional cooperation strategy launched in 2009, the European Union Commission adopted in December 2010 the Strategy for the Danube Region. Some of the Danube countries have specifically requested in their national contribution documents that the Energy Community be one of the implementing institutions of the Danube Region Strategy. Do you see any synergies between the EU Danube Region Strategy and the Energy Community? Has the Energy Community been involved in the initial implementation stages of the Danube Region Strategy?

SN: The Energy Community Secretariat has very close working ties with the Vienna Economic Forum, one of the initiators of the strategy for the Danube region. However, the European Commission is actively coordinating the implementation of the new strategy.

VP: The Energy Community Investment Conference, held in Vienna in May 2011, called for the creation of an Energy Community Investment Task Force that would prepare a Regional Power Development Strategy. What is the update on the creation of the Task Force and the timeline for the Strategy?

SN: The idea of having a Regional Energy Strategy was launched by Serbia – I want to underline this fact as it is a strong example of the Contracting Parties taking ownership of the Energy Community process. The establishment of the task force was endorsed by the Energy Community Ministerial Council in October 2011. Its mandate is to draft a comprehensive Regional Energy Strategy. The ministers agreed that the strategy is to include a special part on Regional Power Development and Investment Plan aimed at promoting investments in the electricity sector.

The composition of the task force is quite unique. In addition to the representatives of the national ministries, the European Union, the donor community and the Energy Community Investors Advisory Panel are participating as well. The first meeting of the Task Force is due to take place on 12 December 2011. The plan is that the Task Force will present the draft strategy at the next Ministerial Council in the fall of 2012.

VP: The Participants, Contracting Parties or Observers of the Energy Community Treaty are also Members or Observers of the Energy Charter Treaty and Conference, which include also most of the main energy exporters to Europe, such as Russia or Algeria. Is there any cooperation between the Energy Community and the Energy Charter?

SN: Yes, it is true that most of our stakeholders are members of both organizations. However, at this point there are is no current cooperation between the Energy Community and the Energy Charter. This is due mainly to the different objectives of the two organizations. We apply legally binding rules, which are part of the EU acquis while the Charter operates based on the World Trade Organization (WTO) requirements, but mostly formulated as soft law obligations.

On the other hand, we work quite closely with the International Energy Agency in Paris as well as with several Vienna-based organizations that have competences in the energy field, such as OSCE, UNIDO, the IAEA and so on.

VP: The European Commission proposed in October 2011 a 50 billion euro infrastructure package that will have an energy infrastructure component as well and the creation of a new Connecting Europe Facility that would allow the EU, for the very first time, to finance not only the feasibility studies for infrastructure projects, but their construction as well. If the infrastructure package is adopted, what will be the involvement of the Energy Community?

SN: The Connecting Europe Facility is a European Commission initiative so, by default, the focus is on the EU Member States. However, after having read the Proposal for a regulation on guidelines for trans-European energy infrastructure (COM(2011) 658 final) [.PDF],  I see strong signals for cooperation with the Energy Community.  The preamble says “The Union should facilitate infrastructure projects linking the Union’s energy networks with third country networks, in particular in neighbouring countries and in countries, with which the Union has established specific energy cooperation.”

It is important to point out that the Commission is already very much involved in promoting our infrastructural priority projects. It was the Commission’s idea to identify and focus on several priority projects, both in areas of gas and electricity, and in the region covered by the Energy Community. We have defined a set of selection criteria, focusing on projects that enhance security of supply of the entire region.

I am sure that the Commission will inform the Contracting Parties about the proposed guidelines in more detail. We will follow their guidance on this issue. It can well be that a discussion on streamlining our selection criteria with the new Commission’s guidelines will evolve.

VP: The energy sector in the Balkans faces significant challenges, such as: increasing energy import dependence; obsolete power and heat generation assets; decaying or non-existent energy transportation infrastructure; limited inter-country energy network connections; aging power and heat distribution networks; relatively inefficient energy use, and ever-present energy poverty. What are, in your view, the main energy priorities for the region for the next five years?

SN: The approach, which in my view gives answers to all these challenges, is the regional one – and the key issue here is investment. Combined efforts in the development of the projects, objective analysis of options that serve regional purposes, and – last but not least – adequate and timely implementation by all Contracting Parties of the EU energy acquis as per the Energy Community Treaty, will provide an effective framework for investments in the energy sector. The Contracting Parties understand quite well that the individual markets are very small to attract investors and that therefore they must work together.

VP: Mr. Neykov, thank you very much for your time, I really appreciated getting your insights today.

SN: Thank you.

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