1. Energy & Competitiveness Twist Throughout Western Balkans Aleksandar Kovacevic Senior Visiting Research Fellow Oxford Institute for Energy Studies

2. Western Balkans: Energy and Competitiveness Twist Overview Governance –Natural resource (& transit) rents –Barriers to entry –Access to international markets Supply –Energy cost and energy efficiency –Adequacy and security of supply Demand –Domestic aggregate demand and its –Seasonal character

4. Concerns and Objectives Security of Supply Energy supply to selected social clusters Social affordability Budget revenues Natural Resource Rents Transit fees and rents

5. Key Energy Challenges: 1.Capacity building and policy formulation 2.Energy market reform and regulation 3.Energy security 4.Energy Efficiency 5.Environmental policy and climate change 6.Energy Poverty 7.Energy cooperation and trade 8.Oil and transportation in Southeast Europe

6. Western Balkans Region

7. Economic Overview

8. Energy Overview

9. Energy Indicators

10. Some Comparisons

11. New HV links support potentially lucrative electricity trade with the rest of Europe enhancing notion of opportunity costs but doing little about market access and lowering barriers to entry

12. Access to international natural gas markets brings potential to lower barriers to entry to power markets and remove rents thus improving quality of governance Source: Aleksandar Kovacevic, "Potential Contribution of Natural Gas to Sustainable Development in South Eastern Europe", Oxford Institute for Energy Studies, 2007 http://www.oxfordenergy.org/pdfs/NG17.pdf http://www.oxfordenergy.org/pdfs/NG17.pdf

13. Tightening electricity supply situation

14. Power markets structure demonstrates poor diversification of generation portfolio

15. SEE lignite industry in the European context

16. Commitment to Environmental Remediation

17. While about 1/3 of electricity is generated from hydro sources, that are unpredictable and getting more volatile Source: EPCG

18. Secondary adjustments of industrial output

19. Energy supply situation High-risk portfolio Inadequate security of supply with high probability for further deterioration Natural resource rent management facilitates economic performance demonstrating character of governance –Example: subsidized cost of district heating services delivered to urban areas supporting low labor costs of skilled work Further deterioration likely to reveal high cost nature of energy supply and eliminate remaining traces of competitiveness Investment projects promoted by Governments not likely to affect the difficult trend

20. Fuel wood is fuel of choice for more than half of households while the reduction of heated space is common practice (Serbia and Kosovo examples) Source: UNDP Survey, 2004 / 2007 Kosovo heating strategy

21. Demand Side Effects High energy intensity associated with very high unit energy cost and ex-economy nature of fuel supply Current or latent high energy costs affect aggregate demand and its orientation toward imported consumer goods Contributes to seasonal character of demand and low utilization of infrastructure Supports further devastation of human capital In search for active public policy

22. Energy and poverty: Concept of Affordable Energy Total social costs of energy that could be covered by productivity gains facilitated by suitable and secure energy supply In a way that the people could conduct economic activity to support Appropriate standard of living for themselves and their families within A healthy environment