1. 1 Belarus CEM Discussions Energy Sector Stable sector structure and governance over the past decade together with recent macro economic performance of Belarus economy and its energy sector create favorable conditions for embarking on sector structural and institutional reforms that are crucially needed for supporting further economic growth of the country Minsk, June 29, 2005 ECSIE

2. 2 Content Energy Sector SWOT analysis Progress achieved so far Challenges facing the sector Proposed policy measures to address the challenges

3. 3 Energy Sector SWOT Analysis Strengths Location as a transit country Geographical proximity to its primary energy supplier Extensive wood resources Established electricity network Established gas transmission network Export refining capacity

4. 4 Energy Sector SWOT Analysis Weaknesses Limited indigenous energy resources High dependence on imported energy Very heavy dependence on Russia as a supplier of primary energy Aging physical infrastructure Limited oil and gas storage A weak legislative and regulatory framework Limited commercial focus

5. 5 Energy Sector SWOT Analysis Opportunities Increased production of domestic resources (primarily wood) Diversification of energy supply sources Expanded transit activities and increased transit revenues Increased security of domestic supply as a result of expanded storage facilities Private sector participation

6. 6 Energy Sector SWOT Analysis Threats Disruption in energy supplies from Russia (particularly gas) Higher energy import costs Deterioration in service quality Further deterioration of the domestic infrastructure Pressures on fiscal revenue streams as a result of explicit and implicit subsidies

7. 7 Progress Achieved so far Payments to Russia for imported gas and electricity reached 100% Electricity and gas monetary collections from end consumers are close to 100% Electricity and gas tariffs approach cost recovery Electricity and gas tariff misbalancing is being eliminated Technical state of sector assets is good as compared to FSU countries

8. 8 Challenges facing the Energy Sector 1.Reducing risks associated with the excessive energy dependence on Russia 2.Further strengthening the creditworthiness of sector companies 3.Maximizing benefits associated with Belarus role as energy transit country 4.Protecting interests of the sector stakeholders 5.Attracting financing to the sector

9. 9 Challenge 1 Reducing Energy Dependence on Russia Proposed policy measures: Increasing use of indigenous resources, namely peat and wood Further improving energy efficiency of the economy Diversifying electricity import Performing as a good transit country

10. 10 Challenge 2 Ensuring Creditworthiness of Sector Utilities Proposed policy measures Phasing-out implicit subsidies through introduction of cost-recovery tariffs for all categories of consumers and full bill collection Restructuring both internal and external debt obligations

11. 11 Challenge 3 Maximizing Benefits from Energy Transit Proposed policy measures Consistently perform as a reliable transit country Ensure required financing via: Securing commercial borrowing (barriers: corporate governance and disclosure standards required by lenders) Entering in JV or consortium arrangement with Russia and eventually with its European gas customer(s)

12. 12 Challenge 4 Protecting interests of sector stakeholders Proposed policy measures Setting up a proper regulatory framework through establishing a dedicated regulatory body and investing in its capacity building

13. 13 Challenge 5 Attracting Financing to the Sector Proposed policy measures Further strengthening the financial viability of sector utilities Unbundling of VINCs Introducing the disclosure and corporate governance principles Developing PPP