IEA welcomes steps toward reform and integration in the Western Balkans and calls for strengthened institutions, policies and implementation

(Paris) — 26 June 2008

Energy in the Western Balkans: The Path to Reform and Reconstruction emphasises the need for public authorities across the region to press ahead with policies that can deliver sustainable, reliable and efficient energy sectors – and support economic and social development and recovery. This new publication, launched today by the International Energy Agency (IEA) in co-operation with the United Nations Development Programme (UNDP), assesses the energy situation in the Western Balkan countries and the challenges linked to reform and reconstruction.

Energy systems in much of the Western Balkan region are fragile and in need of investment; conflicts over the break-up of the former Yugoslavia in the 1990s left a legacy of damaged infrastructure, weak institutions and mutual mistrust. The 2005 Energy Community Treaty – a framework to which the entire region has subscribed – aims to create an integrated market for electricity and gas that is compatible with the European Union’s internal energy market.

“The overall choice of reform and integration is undoubtedly the right one for the Western Balkans,” commented IEA Executive Director Nobuo Tanaka. “Building on the progress that has already been made, the task now is to ensure that the institutions, strategies and political support are in place to reach these goals throughout the region. This survey highlights the need to strengthen public energy administrations and market institutions, and maps out national and regional policies whose implementation can benefit the people, the economy and the environment in the Western Balkans.”

Energy in the Western Balkans: The Path to Reform and Reconstruction is a comprehensive review of energy policies in Albania, Bosnia and Herzegovina, Croatia, the Former Yugoslav Republic of Macedonia, Montenegro, Serbia and Kosovo. Alongside policy surveys of individual markets at different stages of development, it also includes analysis of cross-cutting themes such as energy co-operation and trade, the links between energy and poverty, and the region’s role in pan-European oil and gas transportation.

While circumstances differ considerably in individual markets, the study identifies some key challenges that are shared to a degree across the region:

  • Building institutional capacity and improving policy formulation: effective public energy administrations and policies, backed up by adequate resources and statistical data, are not fully established in some parts of the region, and the separation of state functions of policy-making, regulation and management of state-owned companies is not complete. Even where institutions and policies are in place, as in Croatia, enforcement remains an issue.
  • Implementing energy market reform and regulation: energy reform and restructuring began later in the Western Balkans than in other parts of Central and Eastern Europe. Robust, competitive market-based frameworks with empowered and independent regulators are essential to attract new investment.
  • Enhancing energy security: many markets rely on a dominant single source of electricity supply (e.g. lignite in Serbia and Kosovo, hydropower in Albania) and on imported oil and gas. Reform and integration can address these vulnerabilities by diversifying the energy mix within the region as well as sources of external supply, promoting energy efficiency and the development of renewable energy sources.
  • Improving energy efficiency: inefficiencies throughout the energy chain contribute to relatively high energy intensities in the Western Balkans, up to 2.5 times higher than the average for OECD Europe. Robust policies and programmes for energy efficiency – backed by adequately funded energy agencies – should be an integral part of strategies for economic development, with public authorities taking the lead in promoting energy efficiency products and technologies.
  • Prioritising environmental and climate change policies: lignite in power generation and unsustainable use of wood for fuel lead to significant impacts on the environment. National environmental action plans, more efficient energy use and a cleaner energy mix – including gas-fired generation, new technologies for lignite power plants, development of renewable energy sources and use of the Kyoto Protocol flexibility mechanisms – can reduce the region’s carbon and pollutant intensities.
  • Tackling energy poverty: an estimated one in six people in the region are exposed to energy poverty, with insufficient energy services to ensure a healthy lifestyle for themselves and their families. Programmes to reduce energy poverty, for example through better building insulation, need to be integrated into energy policy-making. While energy prices should move to reflect costs, targeted support or subsidies can protect vulnerable segments of the population.
  • Facilitating trans-European transportation of oil and gas: the Western Balkans can play an important role in trans-European oil and gas networks, including new supply routes from the Caspian basin and Middle East. In the case of natural gas, access to new sources of supply – whether by pipeline or LNG – and the development of gas distribution networks will be critical to the growth of a competitive regional market.

“There are some encouraging signs of energy reform and reconstruction across the region,” concluded Mr Tanaka, “but also much work to be done to deliver efficient, modernised energy systems that can assist economic development, address energy poverty and reduce the environmental impacts of energy use.”