IEA Commends Slovak Energy Market Reforms, but Urges Further Action on Energy Security, Efficiency and Market Opening

(Bratislava) — 27 March 2006

“The Slovak Republic has achieved impressive improvements in energy market regulation, energy security and environment - a unique performance in Central and Eastern Europe” said Claude Mandil, Executive Director of the International Energy Agency (IEA), today in Bratislava at the launch of the 2005 Energy Policy Review of the Slovak Republic. He added that “Slovak energy policy now faces new challenges”: Despite its commendable progress, Slovakia’s energy and carbon intensities are higher than in other EU/OECD countries, high import dependency weakens energy security, and EU and international commitments call for more sustained multi-sectoral and coordinated policies.

To meet those challenges, the IEA recommends Slovakia take the following steps to comply with EU and IEA standards and Shared Goals; improve the security of oil and gas supplies including through diversification; enforce an energy efficiency action plan to offset high energy prices and compensate for decommissioning power generating capacity; and effectively open its markets to competition.

Energy security
Slovakia imports over 75% of its energy (EU 15: 60%) and relies predominantly on a single supplier (Russia). “Energy security is a sound policy priority”, Mr. Mandil said. He stated that Slovakia had significantly improved its energy security system based on oil and gas stocks as well as its emergency preparedness. “On the demand side though”, he said, “more can be done to address complex and evolving risks such as the recent oil and gas supply disruptions, and to attain EU and IEA standards”. Hence, it is crucial for Slovakia to diversify its oil and gas supplies and to ensure market and operator transparency, in particular upstream. The IEA welcomes the recent initiative to foster energy security and efficiency as well as oil and gas supply diversification among Visegrad countries, including Slovakia.

Energy efficiency
Slovak energy intensity is still almost twice the OECD Europe average. Combined with higher energy prices, it erodes both business competitiveness and household purchasing power.

Energy policy should be better balanced towards demand side and energy efficiency. A robust energy efficiency action plan with binding objectives, a strong national energy agency and appropriate financial mechanisms can deliver multiple benefits: This would durably diminish the energy burden and dependency, reduce the need to replace decommissioned electricity capacities and enhance environmental performance in a cost-effective way.

Effective market opening
In less than a decade, regulatory reforms and thorough energy company restructuring have transformed Slovak energy markets without disruption to Slovakia’s role as a major energy transit country. Cost reflective pricing has been enforced by an independent energy regulator, thereby attracting significant foreign direct investment.

However, additional reforms are necessary: In order to access the benefits of competition, to provide effective customer choice and to integrate Central European and EU energy markets, Slovakia needs to finalise the unbundling of the gas sector and the privatisation of electricity distribution, eliminate electricity price distortions and ensure fair access to energy facilities including storage. Reforms should be closely monitored by the national energy regulator (URSO) and the Anti-monopoly Office in the face of the strong market power of incumbents.

Nuclear energy, which is dominant in electricity generation, will enter a phase of substantial change with the decommissioning of a second plant in Bohunice, the need for important waste management investments and the privatisation of Slovenské Elektrárne (SE), the operating company, which is planning to complete a new plant in Mochovce. Given these changes, the nuclear sector will require significant additional resources as well as close monitoring by the authorities to oversee safety, financial balance and impact on competition in the electricity market.

“The implementation of these challenging, but necessary reforms require vigorous policies with clear goals, time frames and co-coordinated, independent and robust administrations”, Mr. Mandil concluded. "At all stages, reliable and relevant energy statistics, complying with Eurostat and IEA standards are essential. Consolidating and strengthening already impressive reforms will accelerate Slovakia’s convergence with EU and IEA energy performance levels and contribute to meet the requirements for IEA membership, which we hope will take place in a near future.”

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