ECONOMY

Serb power prices up

BELGRADE (Reuters) – Serbia yesterday said a new energy regulator would be launched in 2006, putting an end to decades of cheap electricity long seen by the nation as a public right in a socialist state, not a commodity in a market economy. «In the course of 2006, the Energy Agency will become fully operational and that will lead to some market liberalization,» said Predrag Grujicic, the adviser to the energy minister. «It may not sound exciting, but it will signal a serious reform,» he told a news conference. The regulator is one of many measures necessary before Serbia’s market is harmonized with others in the Balkans. Albania, Bosnia, Bulgaria, Croatia, the Former Yugoslav Republic of Macedonia, Romania and Serbia-Montenegro signed an Energy Community Treaty last month in Athens, aiming to create a common market operating in line with the European Union’s energy regulations. The treaty aims to boost competition and interconnection, ultimately wooing investment to a unified market. NATO bombs in 1999 topped up the damage of a decade of sanctions, isolation, neglect and mismanagement to Serbia’s power infrastructure. The sector so far relies mainly on foreign loans and donations. Experts agree that investors will not come as long as pricing is artificially low as in the former Yugoslavia. «The price issue is a very limiting factor for investment,» Deputy Energy Minister Aleksandar Vlajcic said. «The regulator will be obliged to use a cost-reflecting methodology in setting electricity prices,» he said. In theory, that should put an end to controlled pricing. In practice, the political fallout of public unrest in a country with a $250 average monthly wage means the government is reserving the final say on proposed price levels. Serbia’s power monopoly EPS now sells one kilowatt-hour (kwh) at 3.4 cents, the lowest level in the region. The Energy Ministry says 5.0 cents/kwh would be sufficient to cover production costs and invest in new capacities. But with inflation already at 18 percent, price hikes are being opposed by the Finance Ministry, which says EPS should fix its balance sheet through restructuring, not price hikes. EPS, which has cut its workforce by a third over the last four years, warned it could not sustain surging consumption, and needed hikes to urge people to economize.