Tomaž Orešič
energetski blog / energy blog

The promised land of South-Eastern Europe!?

When browsing through significant European energy utilities’ strategic market orientation, even by the largest and most powerful ones, we can notice one common point to all of them: expansion to the of South-East European markets. The same holds true for the majority of the Slovenian most important energy companies, like HSE; Istrabenz Gorenje Energetski Sistemi (IGES) and Petrol. What is so attractive in these markets? Does energy and resources’ direction into these markets really assure the desired future profits?

The South-Eastern Europe, which, in terms of energy, comprises the territory expanding from Slovenia to Bulgaria and from Hungary to Greece, is the region believed to be severely lacking energy, with consecutively highest energy prices in Europe. The state-owned utilities prevail in the region, only for a few exceptions in Hungary, Romania, Bulgaria, Greece and Macedonia. Except from some energy surpluses in Bosnia, Romania and Bulgaria, all other countries are suffering from energy shortages and therefore depend upon imports. In the last decade only Greece has considerably increased its production capacities (2.400 MW), Hungary, Slovenia and Croatia only a bit, whereas the installed power of energy facilities in Romania and Bulgaria has actually decreased.

There presently are certain investment intentions and activities planned, which are, due to different reasons, often very distant in terms of time. As early as in 2008 the common energy deficit in the region will reach ca. 12 TWh, which is comparable to the whole amount of Slovenian consumption. The situation is most probably not to improve in the next years, on the contrary, with electricity consumption increase and facilities’ replacement needed, we can only expect a few of more important new facilities to be built.

The key reason for delay and low investment activities to build new generation capacities takes its source mostly in current structures of the most Utilities and significant delay in the functioning of the internal electricity markets, including the price disproportions.

Due to the delay in the last two decades, the electricity consumption increase, the unreliable operations as well as the low and inefficient electricity production, posse a need to replacement certain number of old thermal power plants. Quite so, the future investment activities will be limited due to the lack of sources, experts for planning and construction of new power plants as well as equipment supply.

So where can major opportunities and traps for investors and participants in the electricity regional market be found? Concerning prices, the situation in the region is rather complicated, including Slovenia. Beside the abovementioned high wholesale market prices, the non-market mechanisms in certain market segment sales (mostly households), impose the problem. The preservation of quasi regular prices in most countries, non-transparency as well as selectively creating opportunity loss in state-owned utilities has long term harmful consequences. Firstly, the utilities do not conduct their business in market terms and do not maximise their revenues and profits. Consequently, in comparison to the ‘market’ utilities these companies are less capable in terms of investment, can hardly be competitive in international projects and they lose valuable time as they should quickly and sometimes even aggressively enter new investment projects. So in the mid-term, the regional utilities, which have not entirely passed over to completely market basics and have not endorsed the creation of profit as their basic mission, will not be able to compete against the stronger companies concerning new investments, acquisitions and tenders. They will end up being taken over by stronger and more successful utilities. Secondly, such business environment does not assure the right investment incentives for new projects. The non-market mechanism does not contribute to development of the real competition and long-term positive effects for consumers.

In some countries of the South-eastern Europe we can nevertheless notice some shifting towards more positive investment climate, including cooperative support of national authorities at permit and licence acquisitions, concession contracts etc. I can as well set out certain investment projects in Bulgaria, Bosnia and Herzegovina, Romania and Macedonia, whereas the signs of positive investment climate has also been indicated in Montenegro and Albania.

And these are exactly the opportunities for Slovene energy utilities, which will need to compete with foreign competition in these markets. Only business expansion and growth can enable long-term success and existence of Slovenian companies. Additionally, more entrepreneurial freedom, positive cooperation and overcoming of personal issues and narrow-mindedness will be needed as well. The 50% purchase in Bolgaria by HSE and IGES’ projects on the Neretva river are important steps, however, clearer long-term positioning of Slovenian companies in the region will demand even more aggressive approach.

Tomaz Oresic