Energy: further reform reversals

Details

Structural reform

Energy sector policy has emerged as one of the toughest policy areas in the transition region. The need for enhanced energy efficiency, investment in renewable energy and cost-reflective tariffs is well recognised, but politically difficult to implement, particularly under economic and social pressures. As a result, political interference in the energy sector and reform reversal has become more common. In 2012 there were three downgrades in the electric power sector; in 2013 there have been a further three downgrades – in Albania, Bulgaria and Hungary – and no upgrades.

Albania has been downgraded from 3 to 2+. The country has a history of severe electricity supply problems, including major distribution losses, and the local power company, Korporata Elektroenergjitike Shqiptare sh.a. (KESH), has a poor debt collection record. In 2009 the Czech company CEZ Group acquired a majority stake in KESH with the aim of introducing fresh investment and know-how and tackling these deep-rooted problems. In January 2013 the regulator revoked CEZ's licence on the grounds that the company had caused major power and water shortages in certain regions. CEZ blamed unpaid bills and the prospect of losses due to high import costs and low regulated consumer prices. As of mid-2013 the case has been the subject of arbitration, but this may already have deterred other potential investors.

Bulgaria has been downgraded for the second year in a row, from 3+ to 3. Its energy prices are the lowest in the European Union, but the country is also the poorest EU member in terms of GDP per capita. Price increases introduced in January 2013 led to widespread protests and, ultimately, the removal of the government.¹ As a result of this pressure, the regulator reduced tariffs by 7 per cent in March 2013 and by a further 5 per cent in August. However, this has compounded the problems of electricity distributors, which were already making significant losses, due in part to adverse changes in the way they are compensated for the obligatory purchasing of renewable energy. Overall, there has been a lack of liberalisation and unbundling in the power sector, which has deterred much-needed private investment in energy distribution.

Hungary's downgrade from 4 to 3+ reflects increased government interference, abrupt policy changes and significant tax levies. Under a "Robin Hood tax", some energy companies face a special levy of up to 30 per cent, implying a final corporate tax rate of up to 50 per cent. These measures have seriously affected existing energy companies and may have discouraged international investors.

In the natural resources sector, the transition gap for market-supporting institutions in Montenegro has been lowered from medium to small. This reflects progress in creating the legal framework for the development of a gas market. This is an important step for Montenegro, which has significant potential and is capable of becoming a major regional energy hub in the medium term.²

1. For further analysis, see the EBRD blog entitled "Bulgaria – energy sector economics behind the political turmoil" (March 2013). [back]
2. Other rating changes in the natural resources sector have been prompted by a change in methodology which introduces a separate assessment for the oil and gas and mining sectors. Please refer to the methodological notes in the 2013 Transition Report online for further details. [back]

• Prev
• Next