AlbanianEconomy.com » Analysis

EBRD revises down 2009 economic forecasts, sees fragile recovery in 2010

admin — Fri, 16 Oct 2009 20:35:53 +0000

Albania expected to avoid recession

The economies of central and eastern Europe are expected to contract by an average of 6.3 percent in 2009 following steep output declines in the first half of the year. Signs of positive growth in the third quarter of 2009 suggest that the recession is now bottoming out in many countries of the EBRD region. However, any upturn in 2010 is likely to be fragile and patchy.

The EBRD’s Transition Report 2009, which will be published in full next month, points out there are likely to be significant cross-country differences in output growth in 2010, masked by an average growth rate for the region of about 2.5 percent.

“It is also clear that the social costs of the global economic crisis are only likely to be felt in earnest next year, when corporate bankruptcies and unemployment will continue to rise. Growth over the medium term in the EBRD region is also likely to be below the trend experienced over the last decade,” said EBRD Chief Economist Erik Berglof.

Although year on year growth in 2010 is now projected to be higher than the 1-1/2 percent seen in the EBRD’s May forecasts, this mostly reflects the recovery from a deeper than anticipated downturn in the first half of this year, rather than a more vigorous economy during 2010.

Factors restraining growth in 2010 include the subdued pace of export market recovery (particularly in the Euro area) and continuing tight credit conditions, as banks continue gradually to shrink their assets in the region and as lending to households and small firms remains constrained by rising non-performing loans.

The Albanian economy is expected to grow by about 3 per cent in 2009, down from expansion of 6.8 per cent in 2008. Following an expected further decline in the second half of this year, the economy is likely to start recovering in 2010″.

Peter Sanfey, EBRD Lead Economist covering south-eastern Europe, said: “The effect of the global crisis has been modest in Albania, primarily owing to the relative strength of banking system which developed well in recent years and limited exposure of the Albanian economy to international markets. However, growth will be impacted by expected lower exports, remittances and inward investment, and the large current account deficit will remain a big challenge in the coming years. Fiscal restraint may be needed to retain the budgetary balance and commercial banks will need to monitor closely their loan portfolios as the economy adjusts to the post-crisis environment.”

Recovery masks cross-country differences

Economies that continue to face problems in their banking sectors and domestic obstacles to a return of confidence could contract further in 2010 or show only flat growth.

In some countries with hard currency pegs, the need to adjust real exchange rates through prices and wages could also weigh on aggregate demand. So could the need for further fiscal adjustment. This could slow the recovery in countries such as Bulgaria, Latvia, or Lithuania.

The speed of recovery is particularly uncertain in Russia and Kazakhstan, which benefit from stronger fiscal positions, but at the same time suffer from weak banking systems and high non-performing loans and commodity dependence.

The recovery prospects for these countries will depend on the success of the authorities in cleaning up banking systems, as well as the strength of the international recovery, particularly through its impact on commodity prices.

Russia’s economy is expected to shrink by 8.5 percent on a year-on-year basis in 2009, followed by a rebound in late 2009 and growth of about 3 percent in 2010 year-on-year. Kazakhstan will suffer a much milder output decline this year (of about 1.5 percent) but the recovery is expected to be weak, in the order of +1.5 percent.

Relatively faster 2010 growth, in the order of between about 2 and 5 percent is expected in some internationally competitive countries with relatively sound pre-crisis banking systems, such as Albania, Poland, Slovakia, and Slovenia.

Some commodity rich countries including Azerbaijan, Mongolia, Turkmenistan, and Uzbekistan, whose financial systems were smaller and less affected by the crisis, and whose growth is mostly driven by commodities, are also expected to grow faster in 2010, in the order of 5 percent or more.

In Hungary, which was hit particularly hard at the start of the crisis, the crisis has been contained thanks to strong international support as well as sound domestic policies. However, its growth is expected to remain slow in 2010 due to necessary fiscal adjustment and a continued credit crunch. It is expected to show slightly negative growth next year, driven by a weak economy in late 2009 and early 2010.

Albania: Banks Show Major Losses

admin — Wed, 03 Jun 2009 12:14:10 +0000

Tirana | 03 June 2009 | By Gjergj Erebara
Albania’s banking system registered net losses of 869 million leks (6.56 million euro) in April, down from net earnings of 275 million lek in March, data from Albanian Banks Association show.

Looses were mainly the result of massive write-offs, with problematic loans jumping to 8 percent of the total loans portfolio. Loans classified as ‘lost’ jumped up to 8.2 billion lek, (61.7 million euro), up 16 percent from March - 186 per cent increase, year on year.

The banking system in Albania has been very profitable in the last decade. The system is 95 per cent foreign owned.

Lending has been increased by more then 50 per cent year on year since 2005, beginning from a very low base. However, the rapid growth has been a cause of concern for the Central Bank and the International Monetary Fund, IMF, both of whom have pushed to strengthen regulations on risk management. Anticipating looses, Albania’s Central Bank ordered banks to not distribute dividends for the last year’s earnings and temporarily halted loan operations for some.

“Banks will be less profitable this year, but they are still well capitalized,” Central Bank governor Ardian Fullani said in a statement.

“Banks in Albania have been the most profitable financial institutions in Europe,” Elvin Meka, general secretary of the Albanian Banks Association, told Balkan Insight. Their return to equity ratio was worth 20 per cent in 2007 and 15 percent for 2008.

However, the global financial crisis affected the credibility of the banking system in Albania. A bank run in the last quarter of 2008 wiped several hundred million euros of deposits from the banking system. Many experts blame poor lending practices in the past for bad loans, saying that the global financial crisis has only aggravated the situation.

Following the collapse of Lehman Brothers in the US, Albania faced a bank run. Deposits in the banks fell from 700 billion leks (5.7 billion euro) in September 2008, to 638 billion leks, (4.9 billion euros) in February 2009.

The Albanian government also has faced difficulties in refinancing its debt during the past months, but the market showed signs of stabilisation in March. Interest rates for 12-month treasury bills jumped to 9.24 per cent, almost one per cent, within a quarter. Source: Balkaninsight

Serbia Dinar Slide Worries Consumers, Govt

editor — Thu, 29 Jan 2009 15:23:28 +0000

Belgrade | 29 January 2009 | By David Galic

With investors fleeing emerging markets in the aftermath of the global credit crunch, and little light at the end of Serbia’s political tunnel, the dinar currency slid to a new record low of 97.50 to the euro this week, having lost a quarter of its value in four months. Most Serbs, who have fixed salaries in dinars, feel bewildered by the fall of a currency that was considered stable until only a few months ago. Having seen their purchasing power slide as the weak dinar makes imported goods more expensive, they worry about meeting their mortgage payments or being able to repay consumer loans, usually denominated in euros.

“My wage is in dinars, so this is killing me,” Tomislav Tomasevic, a graphic designer in his 20s, told Balkan Insight. “Realistically I have lost more than 10 percent of my pay since I started my job a couple of months ago.”

As part of an inflation-targeting policy which sees a managed float for the dinar, the central bank has been intervening modestly but almost daily, with little effect. It has spent some 300 million euros supporting the dinar in the last month alone, a policy that has landed it in a tug of war between economists and the government.

“The amount of money that can secure the stability of the exchange rate does not exist, because we need an unlimited amount of money which we used to get from selling property and getting into debt,” said economist Ljubomir Madzar. “Everything has its expiration date. Exports must pick up and that is the government’s responsibility. I believe that the NBS cannot effect the trend of the dinar’s fall, even if it spends all of its foreign reserves, it can only contain the swings.”

Milan Kanjevac of the Institute for Market Research said the current exchange rate “is not realistic.”
“The realistic exchange rate is 150 dinars to the euro, and the state and National Bank of Serbia are fighting to decrease it,” Kanjevac said. “I think that the dinar does not have to be defended because that hurts exporters and works in the favor of importers, which damages our local industry.”

Although usually reluctant to meddle into the central bank’s business, the government has pushed the other way, taking the unusual step of counseling that the sinking dinar would do better with more aggressive central bank intervention.

“If I were the governor, I would have intervened more using our hard currency reserves” instead of waiting to see inflows of fresh capital, said Deputy Prime Minister Mladjan Dinkic, himself the predecessor of current central bank governor Radovan Jelasic.
“The governor has been reluctant to spend them, but the reserves are there to be spent in a time of crisis. It is important for the dinar to be stable, and the reserves will be replenished.”

Jelasic has deflected criticism, saying the central bank would continue trying to limit extreme daily swing, but conceding that there is only so much it could do.
“Clearly the market is looking for a new balance,” he told daily Blic “and the central bank needs to weigh up both the issue of the exchange rate and the volume of foreign currency reserves.”

After Dinkic noted that defending a fixed dinar rate would cost “a maximum of 1.3 billion euros”, officials started offering their two cents on how to resolve the crisis.

Some help could come from the inflow of the 400 million euros owed Belgrade by Russia’s Gazpromneft for the sale of a majority stake in state oil monopoly NIS – an amount Energy Minister Petar Skundric said would be paid this week, as opposed to later in the year.

Finance Minister Diana Dragutinovic pointed to the IMF loan cushion and said that if the dinar continued to fall, Belgrade should consider withdrawing from the 402.5 million euro approved by the Fund earlier this month – a loan Serbia said at the time was just precautionary.

Deputy Prime Minister Bozidar Djelic went even further, saying that the government would extend cooperation with the IMF if necessary to boost foreign currency reserves.

“I want to inform you that I have initiated negotiations with our European partners, the European Commission, for receiving macrofinancial support, which means receiving 400 million euros that we can use for the budget as well,” Djelic said. “These funds will be available starting February, and exporters can count on them in these and complicated economic times.”

But analysts said that neither the IMF funds nor the NIS payment would be enough to change the trend, not without steady and regular capital inflows.

“If the supply of foreign currency on the domestic market increases, the dinar could be stable, but for only three to five years,” said Aleksandar Stevanovic of the Center for a Free Market. “For a longer period, we need direct foreign investments and improving the business atmosphere in order for foreigners to bring their money here.”

The timing could hardly be worse, as the global financial crisis means tighter loan conditions that scupper the investment and expansion plans of many firms. As part of its downward revision of most east European countries, the European Bank for Reconstruction and Development also cut its forecast for Serbia’s 2009 growth to 2.0 percent from 3.0 percent in its latest report.

“I am concerned because I don’t know how far it will go and whether we are entering a longer period of insecurity again,” said Ivana Hercigonja, a Belgrade psychologist in her 50s. “The worst thing is that we do not know when it will end. This is not only tied to the situation in Serbia, like it was in the 1990s, the whole world is in crisis.”

Source: Balkan Insight

Winds of Change Blow Past Bosnia

editor — Sun, 28 Dec 2008 19:24:26 +0000

| 08 December 2008 | By Mirsad Bajtarevic in Sarajevo, Sibenik and Vienna

Alija Krha bends his tall, gaunt frame to pick vegetables from his modest garden overlooking Podvelezje, a barren and lonely plateau covered in shrubs and occasional brambles in southern Bosnia and Herzegovina.

One of only three people to return to this desolate area following the 1992-1995 war, the 70-year-old man’s weather-beaten face lights up when the conversation turns to the wind.

“This is great news. Windmills wouldn’t bother anybody here,” he says, when told a Western investor plans to build wind farms on these blustery highlands. “It could help develop this area and convince youngsters to return here and to neighbouring villages.”

But it’s far from certain that wind farms – and the more distant promise of investment – will come. For more than four years, Vjetroenergetika, a local company founded by the Austrian firm Windkraft Simonsfeld GmbH, has been struggling to proceed with a 40 million euro project to build a wind farm at Podvelezje.

Each year has seen new delays and obstructions. “This is a classic example of how not to treat foreign investors,” complains Zejna Sanjevic–Kussmaul, a Vjetroenergetika manager.

Despite steadily rising prices for energy on world markets, and growing interest in environmentally-friendly, clean sources of electricity, the construction of wind farms in Bosnia meets resistance at every turn.

Most of this resistance is passive rather than deliberate, and stems from poorly defined legislation and red tape. It’s also partly from the ignorance of local government officials and from conflicts of interest between would-be investors and the state power companies, who want to control the construction of these facilities and harvest the profits.

The result: Bosnia is missing out on the green revolution in power production that has been sweeping the rest of Europe for the past decade.

The answer is blowing in the wind

Wind farms have become an increasingly familiar part of the landscape in Western Europe for several years now. Throughout the European Union, EU, governments have encouraged the development of alternative, green sources of energy, for their positive environmental impact.

Wind energy has helped many countries meet their obligations under the 1997 Kyoto Protocol. This obliges both developed and so-called transitional economies to cut emissions of greenhouse gases – one of the main factors behind global warming – and develop and use a certain percentage of alternative energy sources. EU member states have agreed wind farms should meet 12 to 14 per cent of total electricity needs by 2020.

Significantly, investments by EU companies in the development of alternative energy sources in other countries are calculated as a part of the balance sheets of their own countries. This explains why an increasing number of European firms are using their expertise to invest in South East Europe.

Faruk Mustovic, author of Wind Farms in Bosnia and a leading local expert, is a committed enthusiast. “Not only do wind turbines not produce CO2 and greenhouse gases but they substitute fossil fuels, effectively reducing emission of greenhouse gases,” he says.

Austria leads the way

Austria, a leader in the field in Europe, uses renewable energy sources for one-quarter of the country’s total electricity consumption. Authorities there have allowed construction of about 900 wind turbines, many located in the fertile flatlands north of Vienna, near the villages of Bruck an der Leith, Parndorf, Neudorf and Zurndorf.

The meadows there teem with wind turbines that soar into the sky like giant sunflowers. Each is an average of 100 metres high with 50-metre-wide three-bladed rotors. Farmers and local wildlife have got used to this exotic intrusion: crops grow as usual and wild animals and birds live all around.

“The only opponents to wind farms in this area are the Viennese who have second homes here and who want to be surrounded by pristine nature on the weekends,” says Gottfried Pschill, an engineer in charge of Energiepark in Bruck an der Leith.

Pschill says the windmills have caused no problems with the local community or with environmentalists. Austria learnt from the mistakes made by Germany which, initially, did not conduct feasibility studies, and allowed the construction of wind farms near important bird-nesting sites and in the flight paths of migrating species.

Austria did not repeat this error. Today, Energiepark and other Austrian companies are financing the construction of wind farms in neighbouring Hungary and Romania.

Not in my village, thanks

Of all the countries in the Western Balkans, Croatia has made most progress in drawing up legislation to allow the introduction of wind farms into the energy system. As a transitional country, the Kyoto Protocol obliges Croatia to work towards generating 5.8 per cent of its electricity from renewable sources by 2010. The two existing wind farms currently produce around 1 per cent of Croatia’s overall energy needs.

It took five years before Croatia had drafted legislation for this purpose, exempting investors from fees for the use of land, for example.

Enersys of Germany has already built a wind farm with 14 turbines in the mountains north of Sibenik, Dalmatia. This wind farm, with a total strength of 11.2 MW, produces 30,000MW/h of electricity per year, which is enough to supply some 10,000 households.

Regional authorities now plan to issue building permits for additional wind turbines across Croatia’s South West. But despite official support, these plans still meet suspicion and resistance from some communities.

Villagers in Bruska, near Benkovac, Dalmatia, fear that proposed wind farms will wreak havoc with a natural landscape that they treasure. “They’ll ruin our pastoral haven and our environment,” laments Nikola Cacic, sitting under a walnut tree in front of his home.

Mate Bulin, an engineer at the Sibenik-Knin District Chamber of Commerce, says he hopes local objections will be overcome through offers of compensation in the form of water supplies or street lighting. Enersys, meanwhile, is voluntarily paying 0.5 per cent of its profits to the city of Sibenik. But some villagers in the areas where wind farms are planned still doubt they will reap any direct benefits from the projects.

Interest flags in Bosnia

While the problems in Croatia mostly stem from local objections, at least the law and administrative procedures regulating wind farms are in place. By comparison, Bosnia’s regulations in this field are still in diapers, says Zeljko Samardzic, manager of the wind farm near Sibenik: “Judging by our experiences in Croatia, things will get going in Bosnia in two years or so.”

“Not even the minimal conditions (for investors) have been met in Bosnia so far,” agrees Tonci Panza, director of Adria Wind Power which operates a wind farm on the Croatian island of Pag.

The first obstacle facing potential investors in Bosnia is the complex administrative setup inherited from the Dayton Peace Accord, which ended the 1992-1995 conflict in the country. This created two semi-independent entities, the Federation and the Republika Srpska. The former comprises ten cantons, each possessing its own mini-government.

The weak, overarching Bosnian state has neither developed an energy strategy nor adopted a specific energy law. The same applies to the assemblies of the two entities.

The power grid in Bosnia is divided along ethnic lines, managed by three different power companies: Elektroprivreda BiH, Elektroprivreda Herceg Bosne and Elektroprivreda Republike Srpske. Each offers different purchase prices for electricity generated from alternative sources.

Because of power grid limitations, the entity governments in 2002 limited the strength of any single alternative energy source to the power grid to only 5 MW. This decision, which has since been rendered redundant by the development of the power grid and alternative energy sources, poses another obstacle to investors, effectively preventing them from building and exploiting more than two 2MW wind turbines.

Other disincentives are slowing the production of alternative energy in Bosnia. Unlike Croatia, it is already energy rich and the only country in the region to export electricity, mainly generated from thermo and hydroelectric power stations.

Moreover, because Kyoto categorised Bosnia as a developing country, as opposed to a transition state like Croatia, Bosnia has no obligations to reduce its emissions of greenhouse gases and is not a party to ANNEX 1 of the Kyoto Protocol. These factors help explain the lack of interest on the part of authorities in alternative energy sources, even though Bosnia has an estimated wind capacity of 1,000 MW. By comparison, Croatia has an estimated capacity of 1,700 MW, while the figure for Serbia is estimated at only 190 MW.

Wind taken out of investors’ sails

Despite the less-than-favourable climate facing foreign investors in Bosnia, several companies in the region have shown interest in exploiting its natural resources, hoping the legislative and institutional framework will improve in the meantime.

Energy 3, a company co-owned by the Slovenian firm E3 and Impro-Impeks of Bosnia, has been planning to build 15 wind turbines in the south of the country with a total capacity of 30MW. Austria’s Vjetroenergetika has developed a similar project for 16 turbines, with an overall capacity of 32 MW.

Both companies received concessions for construction from the government of the Herzegovina-Neretva canton in 2007. Yet, neither signed an agreement to start the implementation of the projects. In both cases, the main obstacle was bank guarantees required from the investors by cantonal authorities.

Bosnian law does not specify what percentage of a project’s total value the bank guarantee needs to cover; consequently, cantonal authorities have been demanding guarantees for the entire value of projects. Bosnia’s leading commercial banks, such as UniCredit Group and Volksbank BH, have confirmed their interest in supporting investments in environmentally sound electricity but say they cannot underwrite total guarantees for projects that cost 40 million euros each.

Esad Humo, economy minister for the Herzegovina-Neretva Canton, says the cantonal authorities are not to blame; the fault lies with companies failing to submit the required documents: “We’re all in favour of foreign investments and new technologies but we cannot take them at their word,” he said. “We must know if they are capable of fulfilling assumed obligations and this is why we need guarantees. I have to protect the interests of the state and abide by the law.”

But the various obligations are often irreconcilable, creating something resembling a Catch 22 situation. While the authorities demand full bank guarantees before they will sign project implementation contracts, the banks require signed implementation contracts before they will issue any guarantees.

Tonci Panza, of Adria Wind Power, notes that Croatia’s authorities have never demanded such bank guarantees, recognising they may not be feasible for expensive development projects.

Some would-be investors in Bosnia hope the situation will improve now that Bosnia has signed the Stabilisation and Association Agreement, SAA, with the European Union. The key trade deal with Brussels was agreed on June 16, 2008. “Bosnia will have to adjust to European Union directives, legislation and new technologies,” Energy 3’s manager, Miralem Campara, says.

But others remain doubtful, suspecting other factors behind government obstructions, such as corruption and conflicts of interest. Some foreign investors, speaking under condition of anonymity, have complained that government representatives have more or less openly sought bribes in order to push through projects.

Aside from corruption, local experts, such as Faruk Mustovic, suspect that Bosnia’s three national electric companies want to maintain an absolute monopoly on power and so block other companies seeking to develop wind power.

Keeping a grip on the supply of power

The case of Ante Andric, a small entrepreneur from Tomislavgrad, in south-western Bosnia, suggests the existing big three energy companies are keen to keep control of the country’s power supplies.

Andric installed a 100 kW wind turbine on his own land three years ago to provide electricity for a small factory producing plastic construction materials. Andric’s wind turbine is connected to the Elektroprivreda Herceg-Bosne system. But he feels the arrangement is far from fair or reciprocal, because he is obliged to give all his surplus electricity for free to the company, while he has to pay for electricity from the grid when he doesn’t have enough wind.

Elektroprivreda Herceg-Bosne says anyone producing their own electricity needs a permit if they wish to sell power to the company. But Andric says this is effectively impossible; the procedure is so complicated that he never even tried to apply.

On the other hand, the experience of companies that have applied to sell power to state companies is not encouraging. Loncar plast and Eurograniti from the town of Posusje, both own two 80 kW wind turbines and applied for permits to sell surplus electricity to Elektroprivreda Herceg-Bosna a year ago. Today, their applications remain bogged down in red tape.

Vlatko Medjugorac, of Elektroprivreda Herceg-Bosne, says the two applicants “failed to submit all the required documentation.” However, representatives of both Loncar plast and Eurograniti have now said they are tired of running in circles and are taking their cases to court.

Elektroprivreda Herceg-Bosne, meanwhile, is preparing to build three wind farm projects on its own, in Livno, Tomislavgrad and Mostar, to produce power by 2010. Elektroprivreda BiH says it supports initiatives to introduce alternative energy sources to its system, but only under the company’s terms and conditions.

Emir Aganovic, executive director for facilities and maintenance in the company, says projects such as those planned for Podvelezje may be implemented “if an acceptable agreement is reached,” with investors.

In such a situation, investors have little choice but to accept the power companies’ terms and offers.

In the cases of Energy 3 and Vjetroenergetika, for example, Elektroprivreda BiH offered to sign agreements in September 2008. The state power company will set up a joint venture with Vjetroenergetika, which will implement the original project, while Energy 3 hands over its entire project to Elektroprivreda BiH.

Despite this one-sided outcome, Campara from Energy 3, said the company was satisfied with the terms of the deal as their costs will be reimbursed and they hope this cooperation with the state power company will place them in a better position to carry out two similar projects planned in the same area.

Bosnia’s third power company, Elektroprivreda Republike Srpske, has decided to delay seeking potential investors in wind farms until it finalises a wind power exploitation feasibility study, expected in 2009.

While investors, governments and three state power companies continue their struggles and manoeuvres to control the future of alternative energy, the inhabitants of Podvelezje are still awaiting their wind turbines.

For them, alternative energy represents the last hope of new jobs and better infrastructure. “I hear they have promised to make a new road, and better power lines, as well as a water supply system,” says Ismet Stranjak, owner of Sunce, a small motel in Podvelezje.

“Nothing has been done here for ages,” he adds. “But God has given us this wind, which in the end may help secure people’s livelihoods in these parts.”

Homestead implies working farms , houses with land and out houses etctc

This article was produced as part of the Balkan Fellowship for Journalistic Excellence, an initiative of the Robert Bosch Stiftung and ERSTE Foundation, in cooperation with the Balkan Investigative Reporting Network

Source: Balkan Insight

Kosovo: Power Games Delay Escape from Poverty

editor — Wed, 24 Dec 2008 12:08:15 +0000

| 08 December 2008 | By Lavdim Hamidi in Pristina, Podujevo, Bujanovac, Skopje and Vienna
At the Dona juices factory in Podujevo, in north-eastern Kosovo, two huge generators roar constantly. Deafened by the noise, employees shout at each other and use signs to communicate as their words cannot be heard.

The owner, Bashkim Osmani, says he has no option but to use the noisy appliances, which have cost him about 90,000 euros to install and run over the past 8 years. That was when he decided to cut supplies from Kosovo’s state power company, KEK, after becoming fed up with power cuts. “If you rely on KEK, it will kill your business,” he says.

Many businessmen share Osmani’s pain in Kosovo, where the lack of an adequate, sustainable power supply is hindering economic growth.

Kosovars face gruelling daily power cuts and in winter, when demand peaks, power is sometimes available for only 2 hours a day.

According to a May 2007 report by the KAF Financial Group, a company contracted by Kosovo’s Ministry of Energy and Mining to research the energy situation, power disruptions cost local businesses an average of about 2,188 euros each per month.

The use of private generators increases the operating costs of most businesses by about 10 per cent, says another 2007 report by the UN Development Programme, UNDP.

Many economists fear that if the power situation remains unchanged, Kosovo will be condemned to remain Europe’s poorest country. According to Kosovo’s Central Bank, the country has a Gross Domestic Product, GDP, per capita of only 1,400 euros. This is extremely low compared to the average GDP per capita in the EU, of about 24,800 euros. In fact, Kosovo is poor even when compared to its neighbours like Macedonia, for example, where GDP per capita is some 6,200 euros.

Kosovo’s economy is growing at only 3.5 per cent annually, whereas Macedonian growth is 5 per cent, and neighbouring Montenegro’s is some 7 per cent.

Not surprisingly, the unemployment level is exceptionally high, at 45 per cent of the working-age population, according to World Bank figures. The Central Bank of Kosovo reports that 28,000 Kosovars turn 18 every year and seek jobs, while the country’s current capacity cannot create more than 6,500 new jobs per year.

Living in the dark

One way to measure the impact of the power cuts on life in Kosovo is to look at satellite images of the country on Google Earth. Taken in winter after dark, and when the power is off, all one can see is a black hole, punctuated by a handful of lights from those lucky enough to own private generators.

Kosovo’s authorities, with the help of international donors, have tried to counter the problem, investing more than a billion euros since the Kosovo conflict ended in 1999. The European Union alone has invested over 400 euros million in energy for Kosovo during this period.

Officials from the European Agency for Reconstruction, EAR, say the main reason for the power shortages is old and outdated infrastructure. Odran Hayes, an EAR official in Pristina, says the EAR made urgent investments in the system after the end of the Kosovo conflict in 1999 – but these did no more than keep the dilapidated system limping along. “Our investments have kept the biggest power plant in the country, Kosovo B, operative, otherwise we would face a total energy collapse,” he said.

But demand for power has grown by leaps and bounds since then, leaving the energy sector in a critical condition. During the cold season, when demand for electricity exceeds 1,000 MWh – far above the 750 MW that local plants produce – KEK has both to import power, which is expensive, and impose severe restrictions.

Households in rural areas suffer the most. With no more than a few hours of power a day, people there feel frustrated and depressed. “It’s a never-ending nightmare,” says Nderim Berisha, from the Kamenica region of eastern Kosovo. “Sometimes we have electricity for only an hour a day!”

The condition in which families like the Berishas live would be inconceivable elsewhere in Europe. In wealthy Austria, for example, constant power is a given. Stephan Zach, of the Austrian EVN power company, says consumers can rely on their power supply almost 100 per cent of the time. EVN is forbidden to cut off power to consumers without due warning except in severe weather conditions, such as thunderstorms.

But even by the lower standards of its Balkan neighbours, Kosovo’s plight is uniquely dismal. Zlatko Popovski, of EVN Macedonia, says Macedonia never experiences nationwide power outages, although the country imports some 30 per cent of its electricity from abroad.

Roland Matous, from the Secretariat of Energy in Vienna, a regulatory body for energy, agrees that Kosovo’s plight is the worst in the Balkans: “Kosovo and Albania are the worst,” he said, “but the latter is in the better position of the two.”

Donors wary of corruption

International donors say their responsibility was to invest in the KEK’s production units with a view to making them functional. Maintenance, they say, is up to KEK, and most experts agree it has failed to properly manage its assets, scaring off potential investors.

Like the German government, Ganimete Huruglica, vice-chair of the German Development Bank in Pristina, KfW, the agency through which Germany invested 67.3 million euros in Kosovo’s energy sector, says Berlin withdrew support from 2003 to 2005, after the authorities failed to maintain the renovated generators.

“It was not justifiable to use German taxpayers’ money to invest in the energy sector when it was clear there would be no maintenance afterwards,” Huruglica said.

However, Germany has resumed its investments in KEK after 2005, mainly because the company has taken action to reduce its debts by forcing more non-paying consumers to clear their bills.

Arben Gjukaj, the acting managing director of KEK, says it is wrong to blame Kosovo’s power problem solely on KEK. He said foreign investments often did not go where they were needed, but where donors wanted them to go, which was not always the same thing.

Gjukaj concedes the energy sector in Kosovo has been mishandled for a decade after 1990, when Serbia stripped Kosovo of its former autonomous status. The company had also to deal with low rates of payment for electricity by consumers. Between 1999-2007 KEK managed to collect only some 50 to 60 per cent of payments, creating a huge debt of 340 million euros.

The annual shortfall in income left KEK unable to maintain the units in which foreign donors had invested. “What we collect from our consumers is still not enough to cover the maintenance of KEK units,” Gjukaj said.

The media in Kosovo blame other factors for the company’s financial losses, however, starting with corruption in the management.

Sources in international organisations in Kosovo dealing with KEK agree. Some claim corruption in the public enterprise begins at the bottom, with bill collectors, and goes all the way to the top. “That’s why the company is bankrupt – and why consumers are reluctant to pay for their energy,” said a foreign official.

Sources within KEK don’t dispute the charges of corruption, saying a number of bill collectors had damaged KEK finances by accepting bribes from consumers to erase their debts, or ‘fix’ their energy metres, so as to conceal the amount of energy they consumed.

A 2006 report by US Agency for International Development, USAID, detailed the illegal methods used by KEK service units. The report, entitled Qualitative Assessment of Preparation for Transition to Local Management within KEK, which we obtained, has never been published. It claims KEK staff illegally classified numerous consumers as ‘passive’ consumers.

The term refers to consumers who use electricity for only short periods each year, usually during holidays spent back home in Kosovo. When they leave Kosovo, these customers are entitled to call on KEK service staff to denominate their units as ‘passive’, after which they stop receiving bills.

According to the USAID report, the number of these so-called passive consumers had grown from 27,000 to more than 100,000 in recent years. “It is believed that more than 70,000 consumers have been fraudulently declared passive by the KEK service unit,” the report stated.

Gjukaj, from the KEK, admitted staff had wrongly declared as ‘passive’ some consumers who had run up huge debts. He also admitted that some staff had changed the energy metres of consumers, installing new ones that were set at zero, as a result of which their previous debts were wiped off.

“There are certainly many active consumers who have been classified as passive,” he said. “Many had debts of over 10,000 euros but had new energy metres installed on their premises and so dispensed with the debt.”

This procedure goes clean against all KEK regulations, which clearly state that a consumer may not be labelled passive if he or she owes money to the company.

KEK officials claim they are fighting back, noting that the company has instituted legal proceedings against 46 employees for theft, bribery or bad management.

But corruption in the KEK does not stop with lowly service engineers and bill collectors. One of the darkest periods in KEK’s turbulent history occurred in 2002, when the company’s international director was arrested. Joe Trutschler, a German who was appointed to head KEK by the UN administration in Kosovo, UNMIK, was arrested by the German authorities for theft.

Trutschler was found guilty of authorising the transfer of €4 million from the company to a private bank account in Gibraltar and is serving a three-and-a-half-year prison sentence. Others say Trutschler was one of many corrupt big fish in the KEK – the only difference being that he was caught.

Why pay when you can steal?

KEK officials claim they invoice far less amounts of energy than they produce and import. Part of the power that is lost, disappears for technical reasons – leaks being inevitable on an old network – but some, they say, is stolen.

KEK’s claims are supported by the USAID report, which estimated the agency was losing about 34 per cent of the energy it produced through a combination of technical losses and theft. “Coupled with a collection rate of only 50 to 60 per cent, KEK is only collecting payments for about 35 per cent of the energy it produced,” the report said.

Another report, compiled by UNDP, identified losses of these kinds as the principal problem facing the energy corporation in Kosovo. The report, Human Development Report in Kosovo 2007, blamed use of faulty metres, improper ‘fixing’ of metres, theft of power through illegal networking, and the refusal of many consumers to pay their bills.

Indeed, KEK statistics show that between 2000-2002 alone, the company lost over 120 million euros. According to the same statistics, the loss is increasing and in 2007 KEK lost some 92.3 million euros.

One way that KEK could avoid energy losses is by implementing the use of digital energy counters. Differing from the current analogue counters which require KEK employees to go from door to door to read metres, the digital counters can be easily controlled remotely. Further more, KEK would be in a position to fully control expenditures and cut off some clients from its power-supplying network.

The Economic Association for Electric Energy distribution, Jugoistok, from Nis in southern Serbia, has gone ahead with this change already and, according to officials, the measure is an effective barrier to thieves.

Burim Latifi, in charge of maintaining energy equipment in Bujanovac, southern Serbia, says the changeover has been useful. The region once lost more energy than any other in the country. Now, according to Latifi, the company receives an alert whenever consumers try to open these devices and meddle with them.

Experts like Matous agree that such a system could be one solution for Kosovo. Indeed, in 2007, the EAR sponsored a project which would enable KEK to keep better track of its clients and their expenditures. Named the Geographic Informative System project, or GIS, it cost the EAR some 158,000 euros.

The core idea of GIS was to provide KEK with geographical maps, supplying the company with more accurate client information such as the region in which they resided and their rate of payment.

Typically, some would say, the project has not been implemented. Blerim Rexha, manager of CSE, the company hired by KEK to implement GIS in Kosovo, said the original plan was to gather the data for each of the 370,000 KEK clients. But only 500 were included in the testing phase.

Rexha, now deputy minister of energy, described the GIS project as a classic example of mismanagement of the energy issue. He recalls that he once asked KEK’s management in 2007 how the project was going. “They told me they stopped the project because the room in which the hardware was being installed was too hot,” he said, adding that it would have cost about 1,500 euros to install air-conditioning for the chamber.

However, Odran Hayes, of EAR, which financed the GIS project, disputes this version of events. He blamed complications over cadastral data for the project’s failure. “KEK needed cadastral data to implement the project,” said Hayes, explaining that EAR was unable to provide KEK with such data and no authority in Kosovo could do it, either.

Holding back the economy

Many stakeholders in Kosovo’s fragile economy describe the energy sector’s condition as critical and as a hindrance to development and job creation.

The KAF Financial Group study claimed the use of generators by private companies led to a potential loss of 3.5 new jobs per company annually.

Erich Lifka, of the Vienna Institute for Economic Promotion, WIFI, says many Austrian companies remain interested in investing in Kosovo due to the relatively low labour cost. But they are holding off due to the energy problem, as well as wider issues concerning the rule of law.

“Last year, KEK lost about 11 million euros from businesses not paying their bills,” Gjukaj said. “In a number of companies, the payment of electricity bills is the lowest priority.” However, he does regret KEK can’t supply power regularly even to those businesses that do pay their bills.

While the KEK management blame individual consumers and businesses for not paying their bills, Bashkim Osmani of Dona juices factory says the energy sector should be servicing the needs of business, not vice-versa. “We live in hope that this situation will improve. We’ve been living in hope all these years, but nothing has changed,” he says.

It looks like Osmani will have to wait a while longer for his hopes to become reality.

Source: Balkan Insight

Balkan Earthquake is Felt Far Away

editor — Mon, 22 Dec 2008 17:28:12 +0000

| 08 December 2008 | By Darko Duridanski in Skopje, Tbilisi, Sukhumi, Vitoria, Bilbao and Pristina

As jubilant Kosovars danced in front of the Newborn statue unveiled in the capital, Pristina, to commemorate their long-awaited independence on February 17, 2008, many political leaders around the world watched the events with different emotions.

Their core concern was that granting independence to a former province could boost secessionist movements the world over, and not turn out to be a sui generis case, as Kosovo’s European backers have insisted.

The debate over the “Kosovo precedent” was revived in August 2008, when Russian forces poured into the breakaway Georgian regions of Abkhazia and South Ossetia. The conflict ended in Russia’s recognition of the enclaves’ independence, and the example of Kosovo as justification for this.

“We argued consistently that it would be impossible to tell the Abkhazians and Ossetians that what was good for the Kosovo Albanians was not good for them,” the Russian President, Dmitry Medvedev, wrote on August 27, 2008, in the Financial Times.

Advocates for the self-determination of various regions and provinces echo those sentiments. Some surveys estimate that there are over 200 secessionist movements worldwide.

Some of the most significant are in Europe. In Britain, there are Scottish and Welsh independence movements and the movement to unite Northern Ireland with the Republic of Ireland. In Spain there are Catalan and Basque independence movements while in Greenland, many seek independence from Denmark. Then, there is the push by Turkish Northern Cyprus and Transdnistria, already de facto independent states, to gain international recognition of their separation from Cyprus and Moldova.

In the Caucasus, outside the aforementioned Georgian enclaves, an unresolved conflict simmers over the ethnic Armenian province of Nagorno Karabakh in Azerbaijan, while secessionist movements are active in the Russian republics of Chechnya and Dagestan. In China, there are the Tibetan and Uygur (Xinjiang) independence movements and in Africa, conflicts continue over the Western Sahara in Morocco, and South Sudan. Kurdish nationalism, meanwhile, involves several states – Turkey, Iraq and Syria.

However, after travelling to two very different lands in which there are strong secessionist movements, Abkhazia and the Basque Country, it seems for the time being, at least, that international fears about the impact of Kosovo’s independence are largely misplaced. Separatists are certainly interested in events in Kosovo and draw courage from them. But there is little evidence that Kosovo’s independence or recognition has significantly boosted their prospects of statehood.

If Kosovo has it, why not Abkhazia?

At the bridge over the river Ingur, the only entry point to Abkhazia from Georgia, stands a monument of a pistol with its barrel tied in a knot. Erected as a symbol of disarmament, it is a small version of the sculpture, Knotted Gun, by the Swedish artist Carl Fredrik Reutersward. It expresses the aspiration of all the residents of this unrecognised country for peace.

But real peace still eludes this troubled land. The battered streets of the capital, Sukhumi, evoke a country that emerged from war yesterday, though the fight against Georgia ended in 1993.

At both ends of the bridge, Russian soldiers – the architects and supporters of Abkhazian independence – wait in white armoured personnel carriers, watching the few people crossing the bridge. They keep the peace along the administrative border with Georgia, albeit to the dismay of the Georgians who do not regard them as honest brokers.

With a population of around 220,000, and recently recognised by Russia, Abkhazia sees Kosovo as a possible role model, despite the fact that Russia, a staunch ally of Serbia, has bitterly opposed Kosovo`s independence, warning it could have a domino effect around the world.

The Abkhazians do not compare their situation directly with Kosovo but use the “double-standards” argument to insist they are entitled to the same treatment. By this, they mean the Western claim that Kosovo’s recognition is a sui generis case, which cannot be applied elsewhere.

Following the break-up of the Soviet Union during which time they were autonomous republics inside Georgia, both Abkhazia and South Ossetia declared independence in 1992, triggering armed conflicts that ended in a Georgian withdrawal. Provisional peace agreements, brokered by Russia, resulted in the deployment of Russian forces along the administrative border with Georgia, enabling these lands to become de facto independent states, though without international recognition.

Kosovo was also an autonomous province until the Serbian leader Slobodan Milosevic stripped it of its autonomous status and incorporated it into Serbia in the early 1990s.

The government suppressed the rights of ethnic Albanians, triggering an armed conflict with a local guerrilla force, the Kosovo Liberation Army. This ended in June 1999 after NATO forced the Serbian police and army to withdraw.

Kosovo then became a UN-administered territory. But, crucially, Western political leaders agreed that any return to Serbian sovereignty was out of the question, prompting rapid recognition of Kosovo’s unilateral declaration of independence from Serbia.

Georgians resent comparison between their struggle to regain control over their lost provinces and Serbian tactics in Kosovo. “The independence of Kosovo has worried us, although these conflicts are different and the reasons behind them are different,” says Alexander Rondeli, of the Georgian Foundation for Strategic and International Studies, in Tbilisi. “In Kosovo we saw the extremist measures of the Serbs towards the Albanians but in Abkhazia the Georgians have been the victims of ethnic cleansing,” he adds, referring to the several hundred thousand Georgian refugees from Abkhazia in the 1990s.

Temur Iakobashvili, Georgia’s Minister of Reintegration, makes the same point. “I don’t see similarities between Kosovo and Abkhazia, these are different conflicts,” he says. “The Kosovars were subject to ethnic cleansing, and here, this is the case with the Georgians, which is a significant factor.”

Diana Chachua, 22, a Georgian refugee from Abkhazia, remembers the day Kosovo proclaimed independence with pain. “I knew it was bound to happen but was still shocked,” she recalls. Georgians rarely travel to Abkhazia these days, she adds. “It is only Abkhazians that travel across the bridge.”

Since Kosovo’s independence, Russia has strengthened its ties with South Ossetia and Abkhazia, abolishing border controls and granting many locals Russian passports. Their currency is the rouble.

Vjacheslav Chirikba, a foreign policy adviser to the Abkhazian President, Sergey Bagapsh, says if Kosovo is entitled to statehood, so is Abkhazia. During the early years of the USSR it was a separate Soviet republic, he notes, and now it meets all the criteria for a recognised state. “Both main factors are met, political and state structure, plus economic sustainability, so where is the problem?” Chirikba asks. “Abkhazia will never be a part of Georgia,” concurs Maxim Gvindzhia, Abkhazian Deputy Foreign Minister. “Independence for us, as in the case of Kosovo, is an issue of self-preservation. Independence is the only guarantee of the preservation of our nation.”

While both Georgians and Abkhazians draw parallels between their situation and Serbia-plus-Kosovo, few outside experts believe events in Kosovo exerted any concrete effect on the Caucasus, or triggered the war in South Ossetia.

The five-day war in South Ossetia started when Georgia tried to retake control of the region on August 8, 2008. The move by Georgia`s president, Mikhail Saakashvili, triggered a fierce military response by Russia which sent troops to Georgia under the pretext of preventing genocide.

Tim Judah, an expert on both the Balkans and the Caucasus, says the conflict was inevitable, regardless of Kosovo’s declaration of independence.

“Even if Kosovo hadn’t existed, the conflict in South Ossetia would not have been avoided,” he says. “Russia is naturally very interested in using Kosovo as an argument. But Russia is not really interested in South Ossetia or Abkhazia, it is more interested in preventing Georgia from joining NATO.”

George Hewitt, Professor of Caucasian languages at the London School of Oriental and African Studies, SOAS, agrees. “I don’t attribute any upsurge in activity here in the Caucasus to what happened in Kosovo,” he says. “Events in South Ossetia can be more readily explained by NATO’s folly in Bucharest,” he adds, referring to the 2008 summit at which Georgia’s appeal for membership was rejected.

A model for the Basques?

While Abkhazians – and Armenians in Nagorny Karabakh – mull the dilemma of enjoying de facto but not de jure independence, the Basques face a very different challenge: how to peacefully convert their existing regional autonomy to full statehood inside a developed Western democracy.

Despite the terrorist attacks launched by the Basque independence movement, ETA, over the past 40 years, most Basque people now see peaceful talks as the only path to independence.

They welcome Kosovo’s independence. Iratze Urizar, who works in Bilbao for an organisation that helps Basques in Spanish jails, says Basque nationalists viewed the events in Kosovo as affirmation of the principle of self-determination. “People here were happy for Kosovo,” she says. “What connects us is the right to self-determination.”

Historically, the Basque Country comprises seven provinces, four in Spain and three in France. Although the nationalist movement is spread over all seven, it is stronger in the three provinces in Spain, Alava, Biscay and Guipuscoa, which form the Basque Autonomous Country.

The autonomous Basque government proposed a referendum that would have paved the way for a referendum on independence, planned for 2010. However, the central government in Madrid strongly opposed the plan and Spain’s highest court in mid-September ruled the referendum unconstitutional. The conflict between Madrid and the Basques over the referendum coincides with a similar conflict over Kosovo: the Basque government supports Kosovo’s independence, while Madrid does not.

According to the Basque President, Juan Jose Ibarretxe, events in Kosovo show the right of nations’ to self-determination cannot now be denied. “The 21st century is the century of identity and nations; it is the century of respect for the will of the people,” he said in February, following Kosovo’s declaration of independence.

A survey by the Basque government claims that 78 per cent of Basques want the referendum to go ahead. They believe the process of self-determination has started, and that there is no turning back.

“In an age of globalisation, small nations must become independent in order to defend their sovereignty,” says Urko Aiartza Azurtza, a lawyer for Batasuna, a hardline Basque nationalist party that the Spanish government has banned. “It’s a process that has started and cannot be stopped.”

The Spanish government, on the other hand, steadfastly refuses to recognise Kosovo’s independence, one of five remaining EU refuseniks – alongside Romania, Slovakia, Greece and Cyprus. The government also denies most Basques support independence, saying only 30 per cent want it.

Aitor Esteban, deputy of the Basque Nationalist Party in the Spanish parliament, is not surprised by Madrid’s position. “It is a contradiction because if Kosovo is indeed an exception or ‘a unique case’, it should not represent a problem,” he says. “But, actually, they [the Spanish government] think this will not be the last such case, and that many other ‘hot’ issues over nationalities will now open up in Western Europe.”

The criteria for statehood is unclear

Back in Kosovo, whose independence had been recognised by 52 states at the time of writing, ordinary people are aware their struggle has stirred hopes among other small nations that feel occupied, repressed or enslaved. “I fully support those initiatives for independence that look to Kosovo, those nations striving for independence that are truly repressed and seek liberation,” says Agon Hamza, a law graduate in Pristina.

But while ordinary people sympathise with liberation movements, Kosovo leaders refuse to let their country become a standard-bearer for other liberation movements. “We have always stressed that Kosovo has special characteristics,” Kosovo’s President, Fatmir Sejdiu, has said. “It is a case sui generis and cannot be used as a precedent for other conflict zones, areas or regions.”

Experts in Kosovo are more nuanced, saying it is hard to define the standards by which a nation has a right to break away and start an independent existence.

One local NGO, the Kosovar Institute for Policy Research and Development, KIPRED, in a study released late last year, lists several criteria. These include borders established in the previous system before the dissolution of the state, the presence of an ethnic minority subjected to ethnic cleansing or serious violation of minority rights, and the existence of democratic structures recognised by the international community.

By applying these tests, Albanians in neighbouring Macedonia, for example, seem unlikely to win their own state. This is despite the existence of a strong secessionist movement dating from the early 1990s, and an armed conflict that erupted in 2001, pitting the security forces against Albanian guerrillas claiming to represent the 25 per cent minority.

Since then, however, Macedonia has moved back from the brink and been praised for its management of minority issues. Following an internationally-brokered peace deal signed in Ohrid in 2001, fighting has ended, minority rights have improved, and the wind’s been taken out of the sails of the separatist campaign.

But while Macedonia no longer sees independence for Kosovo as a direct threat – Skopje recently recognised the Pristina government – there are still fears in Macedonia that an ethnic division of Kosovo (if the Serb-dominated north secedes) could inspire Macedonian Albanians in the west of the country to follow suit.

“In the short term, there is no danger of instability spilling over from Kosovo into Macedonia,” Biljana Vankovska, pofessor of political science and defence at the Cyril and Methodius University in Skopje, says. “But any continued regional fragmentation, such as the division of Kosovo, or the separation of the Republika Srpska from Bosnia, may shift the tectonic plates. Many things will depend on the interests of the US and Russia in the region.”

As a result, Macedonian officials counsel against the redrawing of borders in Kosovo or Bosnia, fearing an impact down the line in Macedonia. After all, Kosovo may once again serve as an alibi.

“The West has demonstrated its ethical foreign policy in Kosovo and today, Russia is doing the same in the Caucasus,” Vankovska notes. “This is leading us into an insecure world in which all issues may be settled on the principle that ‘If this can be done here, why not there as well? Why should we be a minority in your state when you can be minority in ours?’”

Professor Hewitt says in the final analysis such cases cannot be judged solely from the point of view of international law: the moral aspect of the case for independence must be included.

“If a country by its actions loses the moral right to control this or that region, which may or may not be populated by an ethnic minority, then that region or ethnic minority has the right to press its case for self-determination,” he says. “Some laws are there to be broken.”

Source: Balkan Insight

South Stream Turns into Southern Dream

editor — Sat, 20 Dec 2008 20:26:56 +0000

| 08 December 2008 | By Stanimir Vaglenov in Varna, Novi Sad, Ljubljana, Milan and Igoumenitsa
“We have enough ecological problems even now,” says Ivan Gebrev, an hotelier in Pasha Dere, near the Bulgarian Black Sea city of Varna. “If the South Stream pipeline is laid here, it will be the end of our business.”

A day earlier, the beach at Pasha Dere, near where the South Stream gas pipeline is expected to surface, was polluted by a spill. Although it had nothing to do with the South Stream pipeline, Gebrev sees it as ominous. “It’s not the first time this has happened,” he says, gloomily. “But no one is ever fined. Evidently our business is insignificant compared to the so-called strategic interests of the state.”

The object of Gebrev’s ire is a proposed gas pipeline that will transport natural gas from Russia to Italy via Bulgaria, Greece, Serbia, Hungary and Slovenia. The project dates back to June 2007, when the Italian energy company, Eni, signed a memorandum with Russia’s Gazprom.

While South Stream’s fate is discussed between European governments and relevant businesses, communities living along the route are slowly absorbing the implications. Some, like Gebrev, fear environmental damage and the wreckage of their livelihoods. But after traveling 5,000 km along the pipeline route, I discovered most people see it as an economic boon.

The project has strong political as well as economic connotations. For Russia, the driving force, South Stream is a counterweight to the Nabucco pipeline, backed by the United States and European Union, EU. This envisages the delivery of natural gas from the Caspian Sea to Europe, bypassing Russia.

Balkan countries find themselves caught between two geopolitical powers, both applying pressure to steer them towards one or other solution. Many Western experts and some Balkan politicians, too, say Russia has routinely threatened to alter the route to push hesitant governments into line. The current deadline for South Stream to come on stream is 2013-2014, which coincides with the planned launch of Nabucco.

Russia’s invasion of the Georgian province of South Ossetia in August 2008, has dealt another blow to Nabucco, because Georgia forms a key link in the Nabucco chain. Although the Russians were careful not to bomb the pipeline, the conflict exposed its vulnerability. Indeed, some international analysts now argue that the main aim of Moscow’s operation in South Ossetia was not to punish the pro-Western Georgian government of Mikheil Saakashvili for bombing Tskhinvali, but to disrupt America’s and the EU’s preferred alternative pipeline project.

“After the military conflict with Russia, Georgia could not remain on the energy map as a reliable route for oil and gas transit,” Pavel Baev, of the International Peace Research Institute, in Oslo, says.
While the South Stream project, which at the beginning was defined as improbable, seems more and more likely to materialise, ordinary people, politicians and analysts along its route remain immersed in discussions about its benefits and disadvantages.

Bulgaria – Russia ’s Trojan Horse
My journey along the pipeline now took me 500 km west of Varna to Sofia, where the authorities solidly support Russia’s plans. Although the Bulgarian Institute for Market Economy revealed in 2006 that 90 per cent of Bulgaria’s gas supplies already depended on Gazprom, the President, Georgi Purvanov, committed Sofia to participating in South Stream in June 2007 and parliament ratified the agreement in July 2008.

The agreement states that Bulgargaz Holding, the state company established to run the project in Bulgaria, will own 50 per cent of the shares and cover 50 per cent of the costs of the technical and economic research in the country.

Opposition politicians accused the government of betraying the national interest. “This pipeline will be used as a political counter-weight to NATO’s defense shield,” Assen Agov, a deputy for the Democrats for Strong Bulgaria, complained.

Russia has not concealed its view of Bulgaria as a Trojan Horse in the EU. “Due to our traditionally good relationship with Bulgaria, the country is interesting to us as an EU member, and this interest is not solely economic,” the Russian ambassador to Sofia, Vladimir Chizhov, told the Bulgarian weekly Kapital in November 2006, a month before the country joined the EU. “Bulgaria is in a good position to be our special partner, a kind of Trojan Horse of our own in the EU, of course without the negative sense of this metaphor.”

The government, however, remains unapologetic. “If both the South Stream and Nabucco projects materialise, they will transport 62 billion cubic metres of gas every year through Bulgaria, which adds up to 12 per cent of all gas delivered to Europe,” the Minister of Economy and Energy, Petur Dimitrov, says. Unlike Nabucco, he adds, Russia is guaranteeing that the South Stream pipeline will be used to full capacity.

Supporters of the project in Bulgaria estimate an annual profit of more than 300 million euros in transit taxes, which will increase, “If Bulgaria hosts both pipelines; it will receive twice as much in transit taxes, as well as a lower price for the gas it uses, due to the competition,” says Mihail Korchemkin, of the US-based think tank, East European Gas Analysis.

For Vojvodina, its about survival
Some 500 km to the west, opinion in the northern Serbian province of Vojvodina is equally enthusiastic. “People here are poor,” says Vladimir Grigic, a local in Banatski Dvor, 80 km south-east of the provincial capital, Novi Sad. “They hope the project will be good for employment.”

Banatski Dvor is home to Serbia ’s largest gas storage facility, owned by Serbia’s energy company, Naftna Industrija Srbije, NIS. It is expected to become an important part of the South Stream project. At NIS headquarters in Novi Sad, no one is eager to discuss the South Stream in public. But local energy analysts are ready to speak about pros and cons.

“The project would make Serbia less dependent and better able to use its position in the Balkans,” Zorana Mihajlovic Milanovic, a former energy adviser to the government, says. “But the agreement between Russia and Serbia is less beneficial to us than the ones Moscow signed with other countries.”
On September 9, 2008, Serbia’s parliament ratified an agreement with Gazprom by which it acquired a 51 per cent stake in NIS. The Russian company committed itself to paying 400 million euros and investing another 500 million in NIS by 2012. But not everyone is impressed and some major parties describe the deal as unprofitable. The current pro-Western government tried, without success, to renegotiate the conditions.

Following South Stream’s probable route to the west, crossing Croatia, we reach Slovenia, a country without strong ties to Russia. Yet, talks between the two have gone well and the head of Gazprom, Alexey Miller, won the support of Slovenia’s President, Danilo Turk, and former Prime Minister Janez Jansa, “If South Stream passes through Slovenia, it will increase the country’s importance [to the European energy infrastructure],” Manja Vidic, from the Institute for Strategic Studies, says.

Russia’s power of persuasion
From Slovenia, we head to Italy, headquarters of the other main player in the South Stream project, the oil and gas company Eni. From Ljubljana, we take the wrong direction and instead of crossing into Italy, enter the 12-km tunnel ending in Austria.

It appears there are a variety of routes to northern Italy, a fact Gazprom exploits, say some, to bolster cooperation with countries. On April 14 this year, for example, Gazprom’s press service reported a possible new route for the pipeline following disagreements with Austria. Korchemkin, of East European Gas Analysis, says Gazprom’s relations with Austria’s national energy leader, OMV, worsened in January, after the companies signed a cooperation agreement. Gazprom was to receive a 50 per cent stake in the Central European gas hub (Austria’s gas trading floor) in Baumgarten and with OMV would jointly build underground gas depots in Austria and neighbouring countries. However, a dispute erupted over Gazprom’s strategy of increasing direct gas sales to end consumers. “Gazprom discussed a new version of the pipeline route following disagreements with Austria, which denied the Russian company rights to supply gas directly to users in the country,” the Russian daily Nevskoe vremya, reported on April 14, 2008.

Despite speculation that a deal on Austria’s participation in South Stream will soon be closed, it has not been reached yet, and OMV’s press office insists they remain committed to Nabucco.

Bulgaria was prodded into line in July, after Russian media reported the pipeline might circumvent Bulgaria, passing through Turkey and Greece instead. Details of disagreements are vague but a dispute appears to have started between Bulgaria and the local Gazprom subsidiary over ownership of the pipeline in Bulgaria. More recently, in October, there were reports that Gazprom might include Romania in the project and exclude Bulgaria.

Sergei Blagov, an expert from the Jamestown Foundation, reports in Eurasian Daily Monitor on October 21, 2008: “Gazprom is tempting the maximum number of countries, playing them off against one another with the prospect of individual package deals around South Stream.” I sought an interview with Gazprom in Moscow and with the subsidiary in Sofia, Gazpromexport, to clarify its strategy in the Balkans, but my requests were declined.

Meanwhile, in Milan, Eni’s involvement in South Stream does not worry locals at its headquarters in San Donato Milanese. The company is well regarded as an employer. Renata Lunata, a housewife, says: “Eni owns a lot of properties around here and thanks to them we enjoy a good standard of living.”

Eni’s management declined to meet us and instead gave us a joint press release by Eni and Gazprom, underlining the project’s importance. Addressing ecological concerns, the press message stated: “Eni and Gazprom will carry out the project using the most advanced technologies in full respect of the strictest environmental criteria.”
Even the Italian branch of the environmental organisation Greenpeace has no objections to Eni’s South Stream plans. “I don’t think we have an expert engaged with this issue,” a spokeswoman, Maria Carla Guiliano, said.

The only negative comments about Eni’s activities come from green bloggers based in the southern towns of Brindisi and Taranto, where the south sleeve of the pipeline is expected to reach Italy. There, the coast is already polluted, they say. “I am not surprised Eni is so popular in San Donato Milanese, they see only their beautiful offices,” the Taranto blogger, Massimo Gepetto, says, sarcastically. “Those people should come over and see what Eni does with its refineries and pipes.” Gepetto doubts ecological issues, or the strategic alliance with Russia, will rouse much discontent in Italy. “They are simply too big and financially strong and their influence is all around,” says Gepetto.

On a diplomatic level, tension between EU members regarding the project is palpable and while some states have threatened to review their relationship with Russia, its partners in South Stream have retained their friendship with the Kremlin.

Greece, delighted; America less so
Further along, in Greece, we arrive at the port of Igumenitsa, a small town on the west coast of the mainland. Met by milky fog and light clouds turning roseate in the dawn, we spot the dark silhouettes of oil cisterns on the hills around the harbour. This unlovely feature of the Greek landscape is bound to expand if and when South Stream arrives, but there doesn’t appear much concern locally.

“It is strange there was no public debate about the pipeline in Igumenitsa,” Yorgos Karagunis, a local hotelier says. But others say South Stream could help develop the region. “Only few people here have good positions in tourism, so we can’t rely on this alone,” says Sokratis Matreas, a car mechanic.

Athens ratified the South Stream agreement with Russia on September 3, 2008, triggering protests from the opposition but the main left-wing opposition PASOK party supports the project, along with the ruling New Democracy.

Greek enthusiasm, besides further subverting EU hopes of maintaining common policy on energy, perturbs the US. Recently, Matthew Bryza, Deputy Assistant of the Secretary of State, warned Greece it was heading towards total energy dependence on Russia. “Are we worried? No. Are we concerned for our common interest regarding the European gas market? Yes. And Greece is part of this process,” Reuters quoted him as saying.

If Russia’s plans go ahead, by 2014, from east to west and from north to south, the Balkans will be crisscrossed by a new gas infrastructure, exporting Russia’s energy to Europe.

Of course, it remains possible that South Stream will not materialise. According to Korchemkin, “It could be a game, intended to ensure Russia is brought into the Nabucco project.” But, on May 6 2008, the European Commission, EC, categorically excluded the possibility, citing its strategic goal of diversifying energy sources. “It is of great interest to stick to the strategic goal of diversification,” the Commissioner for External Relations and European Neighbourhood Policy, Benita Ferrero-Waldner, said.

She noted that while Russia would remain an important supplier of energy for the EU, other countries with potentially large reserves needed to be developed. On the same day, the EC discussed conditions for increasing gas supplies to the EU with representatives of Egypt, Jordan, Syria, Lebanon, Iraq and Turkey, promoting their role as potential suppliers of the EU-backed Nabucco project.

While American officials are cautious in their public statements, some US commentators openly describe the South Stream pipeline as a threat to Western and US interests. Steve Levine, a former Wall Street Journal correspondent and author of a book on Caspian Sea energy, The Oil and the Glory, told Radio Free Europe on September 2, 2008, that the US needed to lean harder on Serbia, Hungary and the rest. Levine said the West ought to “tell Russia we’re going to keep these [pipelines] on hold till we get a couple of things.” But, he added: “The problem is the West doesn’t know what it wants.”

Source: Balkan Insight

Nuclear Power: Curse or Opportunity?

editor — Wed, 17 Dec 2008 23:41:48 +0000

Balkan states are gambling on the nuclear option as the best way to reduce the energy shortage but whether the risks pay off remains to be seen.

By Magda Munteanu in Cernavoda, Belene and Olkiluoto

The three guards stand at the gate in the 40°C afternoon heat, ignoring the bustle around them. Grim-looking barbed wire coils round the top of the tall fence, as if designed to stop convicts escaping from prison.

Seen from a distance, the nuclear plant at Cernavoda, in eastern Romania, looks peaceful and unremarkable. The five round reactor buildings stand in a row along the banks of the Danube. There is little indication the tall fence separates the two operating nuclear reactors from a 4 billion euros project that is about to begin.

After several security controls, long passageways that require password access and checks for radiation levels, we reach the heart of the plant. This is the control room. Only two men, the chief operator and the shift leader, are in charge of this windowless chamber housing dozens of items of wardrobe-sized equipment, each of which monitors various activities within the plant.

“For eight hours we don’t know if it’s raining or snowing outside,” says Alexandru Ionescu, of his shift in the control room. After four years of training, Ionescu is now chief operator, though it will take another two years of training on the job before he becomes shift leader and ‘supreme leader’ of the plant during the night shift, when the management is not there.

Romania has taken a big gamble with the plant at Cernavoda, which currently covers 18 per cent of its total energy needs. The country almost doubled its output of nuclear energy last year, when it opened its second 700 MW reactor. Its’ plans are now even bolder. By 2014, at the earliest, it wants to put into operation two of the five nuclear units whose construction began under the communist regime.

“People in Cernavoda can hardly wait for the building to begin. It is their bread and butter,” says Lucian Anghel, chief inspector at the National Agency for Employment, in the nearby port of Constanta. When the second reactor was finished last year, he said, many people in the area who worked in transport, construction, cleaning or renting apartments, lost their jobs.

Local people don’t seem to care much about the disaster caused by the Chernobyl nuclear plant in Ukraine in 1986, when a reactor exploded and the radioactive core was released into the atmosphere, killing 30 people instantly and contaminating untold thousands of others in Ukraine and in the neighboring countries, Romania included.

Two decades later, the possibility of such an accident seems far away and several Central and Eastern European countries now find themselves involved in large projects for the construction of nuclear units.

If these projects become reality, the region will be able to generate more stable, low-cost energy, which will be needed to cover the ongoing energy shortage in countries such as Greece, Macedonia and Albania.

An unexpected renaissance

Only a decade ago, few analysts could have anticipated that these countries would be developing nuclear plants, worth more than 13 billion euros in total.

Back in the 1980s and 1990s, chastened by popular hostility to nuclear power, and fear of Chernobyl-style accidents, European politicians decided nuclear energy was a wild card that caused more problems than it solved.

The pace of nuclear power construction slowed abruptly. During the last 12 years, only six new units were put into operation in Europe: in the Czech Republic, Slovakia and Romania. In several countries, power stations were switched off because they were too old including Bulgaria, Lithuania, Germany, Spain, Sweden and Britain.

But attitudes are changing and many politicians see nuclear power as a golden opportunity. “We are now witnessing a renaissance in nuclear energy,” says Santiago San Antonio, director general at the European Atomic Forum, FORATOM.

New reactors are being constructed in Finland and France, while others, such as Romania, Bulgaria, Lithuania and Slovakia, are making plans. “I don’t think these units are enough. We need more,” adds San Antonio.

According to the International Energy Agency, IEA, 439 commercial nuclear power plants are now in operation worldwide, while 36 are under construction, representing a 9 per cent increase.

In Europe, the existing nuclear plants produce 35 per cent of the region’s energy. But, as energy consumption could almost double by 2030, their number needs to be increased if this percentage is to be maintained. It is estimated that more than 20 new reactors could be built in Europe by 2030. At the end of last year, the European Union countries operated 146 reactors, about one third of the units in the world.

Europe, however, cannot address the growth in energy demand without simultaneously addressing two major related issues.

The first is the need to move to low-carbon energy sources in order to reduce the environmental impact of industries and to slow climate change. The target of keeping global warming below 2°C this century is very tough, and the energy sector will have to play an important role if it is to be achieved.

However, powerful environmental lobbies in Europe remain broadly opposed to the nuclear option, in spite of the promise of low CO² emissions. “Nuclear energy is definitely no answer to climate change and remains a risky technology,” maintains Georg Maue, representative of the climate division within the German Ministry of Environment.

Jan Haverkamp, a Greenpeace energy campaigner from Brussels, agrees: when it comes to arresting climate change, nuclear power is more a barrier than part of a solution. Besides, he says, “nuclear power poses an insoluble waste problem for us, which could result in more catastrophes like Chernobyl.”

The second major issue for Europe is the need to reduce dependence on imported oil from the Middle East and imported natural gas from Russia. “In the longer term, nuclear energy addresses both these issues,” says Jeremy Gordon, writer and analyst for the World Nuclear Association, a London-based global, private-sector organization.

In a desperate attempt to achieve greater energy security, European countries are now seeking other sources of renewable energies, such as wind or solar energy, as part of a long term solution. But, for the short and medium term, governments are turning to formerly-despised nuclear energy.

According to Alan McDonald department of nuclear energy at the International Atomic Energy Agency, IAEA, nuclear energy could be especially appropriate for countries “where energy demand growth is rapid, alternative resources are scarce, energy supply security is a priority and reducing air pollution is mandated.”

If such criteria were formerly applied mainly to countries in the Far East and South Asia, they now extend to Europe and North America, too.

Not so simple in Finland

Building nuclear power plants after a two-decade break is a tough job, as Finland has learned to its cost. Technology has moved on in the meantime, as have safety requirements. A specialised workforce is no longer easily available, management may have lost its skills and prices have sky rocketed.

As a result of a combination of all these problems, the new Finnish nuclear power plant at Olkiluoto, on the Baltic shore, the first such project to be launched after a 20-year gap, has exceeded its budget by 25 per cent and is now more than two years overdue.

“Ever since the beginning, the schedule has been delayed. Of course, I was worried,” says Jarmo Tanhua, president and CEO of Teollisuuden Voima Oyi, the company operating the two existing nuclear units at Olkiluoto with an individual capacity of 860 MW.

A single-lane road leading through the thick pine forest to Olkiluoto ends suddenly at the gate of the plant, in front of the two huge nuclear blocks painted in the classic cherry colour of the region. The platform of the nuclear factory looks like a giant anthill. More than 3,200 people are working round the clock here to build one of the world’s largest nuclear units, with a capacity of 1,600 MW.

“It is tougher than I expected,” one Polish worker says, while carrying some materials. Cranes surround the reactor building, which will be more than 60 metres high, and the smell of hot iron floats in the air.

When building work began in 2003, it was thought the reactor would cost 3 billion euros and become operational in 2009. Latest estimates, however, put the cost at more than 4.5 billion euros, while the deadline has been pushed back to 2011.

“Some of the difficulties experienced at Olkiluoto are linked to the fact that this reactor is the first of its kind,” says Julien Duperray, spokesman of the French company, Areva, which is in charge of the project.

But Greenpeace’s Havercamp insists the problems are more fundamental: “The project in Finland is a construction disaster,” he argues. In his view, the desire to complete the project as soon as possible means safety prescriptions have been sacrificed and the only reason construction continues is because it is difficult to stop such large projects, once begun.

Being slow starters may help

Countries with ongoing nuclear projects are carefully monitoring the experience of the Finns, who have practically been forced to recreate the basis for the nuclear industry.

The most advanced project currently underway is the 1,600 MW reactor that Areva is building at Flamanville, in western France. Work officially started in late 2007, but “it is very likely to follow the same route as that at Olkiluoto”, says Havercamp.

More than 30 nuclear units are about to be built worldwide during the next years, according to the IAEA, mostly in the fast-developing Asian economies of China and India, and in Russia and the US.

The Balkan countries have not yet started any new nuclear construction projects but are in the process of obtaining financing and building permits. The process promises to be difficult. The Slovak government recently asked the Slovak company Slovenske Elektrarne, which plans to build a third and fourth unit at the Mochovce power plant, each with a capacity of 440 MW, to conduct a full environmental impact assessment as a pre-condition for receiving an operational license.

In Bulgaria, where the European Union forced the authorities, a few years ago, to shut down four of six reactors at Kozloduy, the amount of power produced by nuclear energy has fallen from 42 per cent of the country’s needs to 32 per cent.

However, Bulgaria is now planning to increase this percentage by building two additional units of 1,000 MW each at Belene, on the Danube, in a project estimated at 4 billion euros. The first reactor could become operational as soon as 2013.

“We cannot guarantee that we won’t have problems regarding workers and building materials but so far we are on track,” says Vasil Bandov, site manager at the Belene nuclear power plant.

The nuclear project at Belene started in 1985 but was abandoned in 1992, due to the democratic changes in the country and the risks it implied. The skeleton of the reactor building stands alone on the plant site, surrounded by a fence meant to keep out curious visitors.

If Bulgaria’s state National Electric Company manages to find the money for 51 per cent of the 4 billion euros project by next spring, the old reactor building will be demolished and construction will start from zero. Atomstroyexport of Russia and Areva have already been selected to build the reactors and RWE from Germany was preferred, in October, to invest in the project and own 49 per cent of the plant.

But Greenpeace is as unimpressed by this project as it is by the new plant under construction in Finland.

“The Belene project will be built in an area that suffered greatly in the 1977 earthquake,” warns Haverkamp, referring to the quake that killed more than 100 people in the Bulgarian town of Svishtov, some 200 km away from Belene. He says the project is already three times more expensive than parliament initially agreed in 2003 and will end up costing more than 7 billion euros.

Romania is experiencing similar cost-related problems with its nuclear plant. The two 700 MW nuclear units were initially estimated, in 2006, at 2.3 billion euros, but more recent official estimates put the price at 4 billion euros. If costs of raw materials and equipment continue to grow at the same rate, it is unlikely this figure will be the final one.

“By the end of December we have to reach an agreement with the investors,” says Teodor Chirica, general director at Nuclearelectrica, the state-owned company that will own 51 per cent of the project, the same percentage as the state in Bulgaria. The difference is that the rest of the shares will be split among six international investors.

One advantage for the Balkan states when it comes to constructing nuclear plans is that they will benefit from the experience that construction companies such as Areva have accumulated while working on other nuclear units.

This potentially means fewer problems regarding authorisations and safety regulations. But the large number of projects that may end up being built in the region almost at the same time will create new problems of their own, an obvious one being a shortage of qualified workers.

“As soon as the contract with the investors is signed, we will start hiring people and train them,” says Ionescu from the Cernavoda plant. For the second nuclear unit, which became operational in 2007, the recruitment process had begun years in advance.

The success of the nuclear projects in Central and Eastern Europe, and the degree to which they will address Europe’s growing energy demands, depends now on their ability to attract financing and to keep the construction on track.

Source: Balkan Insight

Enel to Transfer its Investments in Albania

editor — Wed, 17 Dec 2008 10:15:24 +0000

Tirana, Dec. 17, 2008 (AENews) – Italian energy giant Enel intends to cancel its projected investments in Italy and to transfer them to Albania, in order to bypass environmental costs, newsitaliapress.it reported on Tuesday.

Local politician from the Veneto region in Italian north-east, Renzo Marangon, said in a press release that he was informed about the possible abandon of a 2 billion Euro worth project in Porto Tolle in North-East of Italy, after that a court ordered Enel to improve its technology and to reduce pollution, something that would rise the cost of investment.

“I have been informed that Enel CEO, Fulvio Conti, have communicated with Italian Prime Minister Silvio Berlusconi and Albanian Sali Berisha, about the possibility to transfer in Albania this investment”, Renzo Marangon said in a press release. Mr. Marangon is concerned about the loose of business and jobs for his region.

On December 3 2007, Enel’s CEO Fulvio Conti and the Albanian Minister of Economy, Trade and Energy Genc Ruli signed a memorandum of understanding for the development of the Albanian energy sector. Under the agreement the company committed to the development of a 1,300 MW coal-fired plant and the construction of a power interconnection line with Italy.

However, environmental groups charge that Albania does need such large power plants and they are being built without informing the public fairly on their environmental impact.

“At one meeting that Enel held with local villagers to discuss the environmental impact, they spoke in English,” Xhemal Mato, head of Albania’s Environmental League told Balkan Insight.

According to Mato, with the plants Albania will move from having 98 percent of its power generation carbon emission free, to roughly 40 per cent.

“The only reason Enel is coming to Albania is that they cannot pollute at home,” he added.

According to the regional environmental organization South East Europe Development Watch, SEEDW, ENEL it’s relying on Albania’s developing country status under the Kyoto Protocol, to promote a series of carbon-heavy power generation facilities.

: The chequered history of the Durres coal-fired thermo-power plant, instigated by the Albanian Ministry of Economy, Trade and Energy and eyed by the Italian energy company Enel, illustrates how a country in transition has chosen to deal with the legacy of an obsolete energy strategy, a chaotic political culture and dominant foreign investors,” notes SEEDW.

Over the past two years, Albania has been hit by an acute energy crisis, with regular power cuts throughout the country, including the capital Tirana.

Almost all of Albania’s domestically-produced electricity is generated by hydro-power plants, which are badly affected by droughts, but even when rain is plentiful, the obsolete distribution grid causes major problems.

International organisations that monitor the Albanian economy, including the International Monetary Fund and the World Bank, have expressed concern that the energy crisis could have an adverse effect on the country’s robust economic growth, which has been averaging close to 6 percent per annum since 2006.

Energy Challenge Leaves Balkans Divided

editor — Wed, 17 Dec 2008 07:46:59 +0000

Experts say the cure for the region’s energy woes lies in price rises, market liberalization and the adoption of common approaches but governments don’t get it

By Gjergj Erebara in Tirana, Skopje, Sofia, Belgrade, Podgorica and Sarajevo

Shpetim Nazarko, boss of a printing press in Tirana, Albania, shivers at the first sign of winter. It’s not just the first cold wind that makes him tremble but fears for the future of his business. “Last year, the energy crisis brought me to the brink of bankruptcy,” he says.

As temperatures drop in Albania, electricity consumption in the country grows. But the system cannot cope with the additional strain, resulting in frequent power cuts.

Businessmen like Nazarko have to turn on private generators if they want to keep the lights on and machines working. But running an oil-fired generator is extremely expensive. “I usually spend 500 euros per month on electricity bills,” Nazarko explains. “But when the power is off for up to four hours a day, I can end up paying as much as 50 euro more every day for oil.”

Albania’s energy crisis began in the late 1990s – the result of underinvestment and fast-growing consumption. It is not the only country in the Western Balkans facing this predicament: Kosovo and Macedonia are also in difficulties when it comes to power.

A steady growth in demand has turned all countries in the region into net importers of electricity with the exception of Romania and Bulgaria; a dependency on foreign imports leaves them vulnerable to shortages.

To counter growing problems over power, governments would like to invest more money in new power generators and transmitters but they lack the funds to do so.

Experts say the only solution is to raise electricity prices and to make transmitting capacities accessible across the region, freeing up money to invest in new power sources. But they fear this will not happen, mainly because governments worry about the social and political repercussions of price rises.

In a region where electricity theft is rampant and a large part of the population lives under the UN poverty threshold of 2 dollars per day, hefty electricity price hikes are often seen by governments as political suicide. Experts also complain that electricity traders are manipulating the market, making wholesale prices more expensive than in Western Europe.

A fast-approaching crisis

The Balkans has always been a poor region and in the communist era private consumption of power was low. Few households possessed many electric appliances, keeping demand for energy minimal. Heavy industry accounted for the lion’s share of consumption.

But after the fall of the Berlin Wall and the collapse of the region’s communist regimes, governments embarked slowly on a transition towards market economies and the paradigm shifted.

The region’s electricity grid, however, has not caught up with the profound changes of the last two decades. Investment has been minimal both in local electricity grids and in international transmission lines. As a result, they cannot meet the growing appetite for imported electricity.

Political leaders and experts expect an energy crunch to occur in the next few years. “We know a major crisis will reach our region by 2012,” Angel Marin, Vice-President of Bulgaria, said in 2007, at a summit of Balkan leaders in Macedonia.

Although governments in former Yugoslavia and Greece are credited with having done a good job in moving towards privatisation of utility companies, this has not been matched by investment in production.

Experts estimate that Balkan countries need to invest more than 15 billion euros in new power sources and inter-connection lines to avoid ever worsening electricity shortages. But this will not be forthcoming while the price of electricity in the region remains only half that of Western Europe where consumers pay an average of 16.3 euro cents per kWh, while those in the Balkans pays less than 7 euro cents.

Per capita income in the Western Balkans ranges between 20 to 40 per cent of the European Union average, which makes it difficult for governments to raise electricity prices without a considerable social impact.

In 2007, Albania’s state-owned power corporation, KESH, ran at a loss of over 200 million euros, roughly 2.5 per cent of Albania’s GDP, mostly due to imports. Macedonia’s EVN, the largest private operator of the electricity distribution system in the country, also registered a large financial deficit as a result of the high price of imported power.

Experts blame the lack of major investment in the sector over the last two decades on the artificially low price structure. The money required to invest in new power sources cannot be covered with the current low price of electricity for consumers.

Even in Greece, the richest country in the region, the national power company PPC SA experienced difficulties last summer and came close to imposing power cuts when a jump in demand exceeded the maximum capacity.

Is Serbia abusing its position?

One oft-cited reason for the energy crisis in the region is the lack of inter-connecting power lines across the Balkans and the overload of the lines linking the area to Central Europe.

The centre of the Balkan electricity transmission lines lies in Serbia. Eight inter-connection lines link Serbia with six neighbouring countries of Croatia, Bosnia, Montenegro, Macedonia, Bulgaria and Kosovo (the latter is not recognized by Serbia as a country).

“It is unimaginable to trade energy in the Balkans without using the lines passing through Serbia,” Sokol Spahiu, sales chief for KESH, says. “Everybody aiming to do so must employ somebody speaking Serbian.”

But several neighbouring states accuse Serbia of using its strategic position at the heart of the Balkan power grid to charge inflated prices. “We paid Serbia 70 to 80 euros per megawatt, while the price in Germany fluctuated between 50 to 55 euros,” Bosnia’s electricity transmission operator complained in its 2007 report.

Most companies trading in electricity in the Balkans are also owned by Serbs, who benefit from insider information of the transmitting capacities of Serbia’s interconnection lines. Serbia’s near-monopoly in this trade has created resentment. The media in Bosnia, Montenegro and Albania regularly attack their own governments for not working harder to escape from Serbian control when it comes to energy.

However, the companies claim they are simply doing business, and many experts confirm this: “We do not control electricity trading in South East Europe, nor is such control possible,” said Nenad Savic, a spokeperson for the Serbian electricity trader, EFT.

“All transmission capacities used by market participants in Serbia, as well as in other countries in the region, are allocated in advance through auctions and such a system eliminates all possibility of abuse,” he added.

“This is simply business,” says Ymer Balla, head of the Electricity Transmission Operator in Albania. “In times of crisis, we have received help from Serbia.”

Forget cooperation, we’d rather compete

Meanwhile, experts argue that politicians are not studying the crisis from the most intelligent perspective; instead of creating a common market in power that would benefit everyone, they have engaged in a race to build up their own, national power assets.

A common market would provide equal access to electricity companies to transmitting lines across the region.

As evidence of this, they point to Bulgaria, Rumania and Croatia, which are all planning to build their own nuclear power plants. Similarly, Greece, Macedonia and Serbia hope to use Russian gas for their own new thermal power plants.

Kosovo hopes to attract foreign investment in order to build its own big coal thermal power station, while Albania has issued concessions for two hydroelectric power plants. Macedonia, Croatia and Albania, meanwhile, intend to build new transmission lines in order to reduce their energy dependency on Serbia.

These projects compete on costs and there may not be space for all of them. Some could turn into bottomless wells financially, and undermine the process of liberalization.

Those behind the new national energy projects disagree, naturally. “Our own investment may become redundant if Bulgaria builds nuclear plants, but looking at the speed of the rise in consumption, I believe there is space for both projects,” says Agim Gjinali, head of a US Exim Bank-supported 3 billion euros project that aims to build gas-fuelled power stations in south-western Albania.

Some energy executives believe the lack of transmission capacity is not, in fact, the real problem, and that some of the proposed investments in building new power lines are unnecessary. “Our inter-connection lines were built to be used only in times of crisis,” Ivan Aylov, head of the transmission operator in Bulgaria, says, explaining that often their electricity transmitting capacities are not being used.

“There are transmission lines in the Balkans that are not being used,” echoes Lubos Pavlas, manager of CEZ Bulgaria EAD. “The problem is not technical or economic. It is political.”

Theoretically, Balkan power lines must be made accessible to all and tariffs for energy transmission are set at between 0.5 to 5 euros per MW. But these regulations, set by the 2005 regional Athens agreement, also state that inter-connection lines can be put out to auction if and when demand exceeds capacity. This clause has prompted all countries to open or enter auctions for these lines, despite the lack of transparency related to excess capacity.

Srdjan Dajic a lawyer for the Electric Power Industry of Serbia, the national inter-connection lines operator, said that information on public tenders for electricity transmission lines “falls under the domain of business secrets.”

Since there is no public information on the actual free capacity on transmission lines, governments auction the lines through tenders and the transmission tariffs for electricity widely exceed the agreed tariff, increasing the price of electricity imports.

In 2007, an auction for the use of the inter-connection line between Romania and Serbia, for example, ended up with an agreed price of 22 euros per MW, while the normal transmission tariff should not exceed 5 euros per MW.

Electricity sold by CEZ of the Czech Republic to Romania for 40 euros per MW was later resold by electricity traders in the Greek stock market for 80 euros to 90 per MW. The practice is known as ‘kilowatt laundering’ a term, analogous to money laundering, coined to describe the process of obscuring the true origins of specific quantities of electricity being sold on the energy market.

Because CEZ did not have access to transimission lines to sell its electricity to Greece directly, it’s electrcity would be resold by a middleman, the electricity trader, who would make a hefty profit in the process.

The Vienna-based Energy Community Secretariat, in charge of the liberalization of the Balkan energy market, agrees that transmission capacities in the region are not sufficiently transparent and are not being made accessible to all operators.

“Market liberalisation is the only way to attract foreign investments because the national markets are too small to entice them,” says Robert Matous, an expert for the Secretariat. Energy executives agree but warn of continuing political obstacles.

“The integration of regional markets is technically possible but the harmonisation of laws in all countries is a much more complex process and it will need a long time to be accomplished,” adds Ivan Aylov.

Don’t expect improvement without price rises

Experts believe another move needed to ease the crisis is price increase. This would help regional power companies to cover production costs and so ease the conditions for the buying and selling of electricity.

But governments are unwilling to risk popular wrath by taking such a controversial step. Gjergj Bojaxhi, head of KESH, says private investors are willing to invest in the region but are put off by the determination of governments to keep down consumer electricity prices. “There is a regulatory risk facing foreign investors,” he notes.

Albania’s government, for example, insists it is committed to liberalisation of energy and to privatisation of the energy distribution sector. However, the tender for privatisation was postponed twice in first three quarters of 2008.

In 2001, a World Bank-sponsored study concluded that proper maintenance and management of a national utility company in Albania would require income of 4 cents for every kW sold. But the Albanian Energy Regulatory Agency set a maximum quota for distributors of only 1.5 cents per kW.

Experts long doubted the power company would ever find a private buyer under such disadvantageous terms, and it was only on September 29, 2008 that the Albanian Distribution Company, OSSH, was finally sold to Czech CEZ for 102 million euros. Significantly, a condition for the sale was that CEZ would not put up consumer prices in 2009, during the run-up to the 2010 general elections.

In Macedonia and Bulgaria, where distribution companies are already privatised, the problem is similar. The regulatory authorities, though theoretically independent, refuse to allow price rises, whatever damage this inflicts on the private power companies. In Macedonia, electricity distribution is controlled by the Austrian company EVN, while in Bulgaria the market is divided between the Italian ENEL, the Czech company CEZ and EVN. “If the price doesn’t increase, we can’t invest and the quality of our services will deteriorate,” Lubos Pavlas of CEZ Bulgaria warns.

A degraded energy grid entails costs to businesses and consumers alike. Regional economies have enjoyed rising growth rates in recent years, lifting hundreds of thousands of people out of poverty. But this process could stall or even be reversed without a resolution of the region’s energy problems.

“The energy crisis presents a great danger for Albania,” the IMF said in September 2007. “It affects all medium-term economic indexes and could create a hole in the budget.” According to the country’s own finance ministry, power shortages in 2006 cost Albania 1 per cent of its GDP growth.

Back in Tirana, Shpetim Nazarko, the printer, is resigned to the prospect of his printing press machinery continually stopping and starting as the lights go on and off. His clients, mainly companies that need packaging materials, must put up with delayed deliveries and with enforced changes to their own timetables. “It’s the economy in its entirety that suffers from the energy crisis,” Nazarko says.

AlbanianEconomy.com » Analysis

EBRD revises down 2009 economic forecasts, sees fragile recovery in 2010

Other Articles

Albania: Banks Show Major Losses

Other Articles

Serbia Dinar Slide Worries Consumers, Govt

Other Articles

Winds of Change Blow Past Bosnia

Other Articles

Kosovo: Power Games Delay Escape from Poverty

Other Articles

Balkan Earthquake is Felt Far Away

Other Articles

South Stream Turns into Southern Dream

Other Articles

Nuclear Power: Curse or Opportunity?

Other Articles

Enel to Transfer its Investments in Albania

Other Articles

Energy Challenge Leaves Balkans Divided

Other Articles