EBRD says Balkan countries must raise electricity tariffs

BELGRADE – The European Bank for Reconstruction and Development (EBRD) said yesterday that power prices in Southeast Europe, especially in the Balkans, must increase to make the sector more attractive to investors. The EBRD head for power and energy utilities said the governments also had to work hard to restructure and upgrade their power systems to become part of an integrated electricity market expected in Southeastern Europe by 2005 and eventually join the European Union power market. «It is an absolute recommendation for the entire region to hike electricity prices,» Director Anthony Marsh told Reuters. He was speaking a day after EBRD granted a 60-million-euro ($70.13 million) loan to Serbia’s power firm Elektroprivreda Srbije EPS to help it boost its output and efficiency. Electricity prices in Southeast Europe currently range from 3-7 euro cents per kilowatt hour, Marsh said, adding the prices had to be raised to cover production costs, which they still do not do in some countries, such as Serbia. Marsh said funds could only come from private investors, as the entire region has been starved of investment for the last 10-15 years and post-communist governments are still struggling with meager budgets. «But they will not do it until tariffs increase and until it becomes worthwhile to invest in the sector,» Marsh said. EBRD is aware that price hikes could create problems for the poor but the key is to have social safety nets in place. «This either through appropriate tariffs mechanisms or through direct grants to help the poor,» Marsh said. «But people will accept paying the higher price when they see a significant improvement in quality and reliability of supply,» he added. Marsh said Serbia was a good example because increase in prices since the 2000 ouster of Slobodan Milosevic, who kept them low to buy social peace, helped EPS along with foreign aid to overhaul its depleted system and secure regular supply. He recalled a difficult winter in Serbia three years ago when power cuts exceeded 10 hours a day. It is also important to have an independent regulatory agency, free of political influence, that would consider an appropriate tariff level for the entire country and all of the users, Marsh said. «This is the next step Serbia and Montenegro must make.» EBRD sees the accession to the EU to be a catalyst for the changes in the power sector in post-communist economies. «Most things Romania and Bulgaria do is driven by EU accession,» Marsh said, adding that reform was lagging in all states. A depressed global power market with hardly any investors left is another problem regional governments must face. Investors from the United States, Marsh said, were focusing on the domestic market while those from the EU were cutting back significantly. «Those left require a stable environment, an independent regulator and cost reflective tariffs.» He said Balkan states’ governments should utilize the momentum of the EU focusing on the region and its energy sector. «If the EU is pushing for something, like regional interconnection, it usually comes with grants to help move these things forward.»