Janez Kopač, the Director of the Secretariat of Energy Community of Southeastern Europe, Price is not the sole factor

13. April 2013. / Uncategorized

The ultimate common goal is the integration of the region into the internal energy market of the EU. – The applicable Law on Energy is a relatively good framework, with which we can start and we expect that the Government of Serbia and EPS will take a full advantage of the legal and regulatory opportunities.

„Electric Power Industry of Serbia“  is among the largest electric power companies in the Balkans and this, from the regional perspective, shows the place and role of providing the secure supply of the electricity. The position of the company also shows how important it is to provide the sustainable business, development and managing of its resources in the market environment – says, in the interview for our paper, Janez Kopač, the Director of the Secretariat of Energy Community of South East Europe.

Our interlocutor believes that for the consumers in the region of the Western Balkans, it is important to have the sustainable resources for the access to all the regional capacities, as well as the capacities of EPS. This is one of the reasons why the EC insists on further development of all market instruments that may get these potential markets closer to the consumers, both in Serbia and in the region.

How Energy Community sees the previous steps and the development of the energy market in Serbia in the future? Has the liberalization started?  
For the liberalization of the electricity market in Serbia and elsewhere, it is essential to develop all the necessary conditions, so that the new suppliers enter the market for the supply of the end beneficiary and be each other’s competition. If everything, in the domain of energy supply in Serbia begins and ends with EPS, how can we expect to progress quickly?  The liberalization has just started.

What is necessary to be done in the future?
Our first advice is to complete the process of functions separation (production, operation of the distribution system and supply services). The equally important is to determine the energy products in the production corpus that can be offered on the market – including the domestic companies for the electricity supply. It is necessary to restructure their business in order to begin with the sale of these products under the market i.e. unregulated conditions. Only when we understand this, the future deregulation can follow up an efficient market opening. It is important to understand the need to loosen the capacity concentration and functions of EPS and absolute dominance in the electricity market in Serbia.
However, it’s fair to note that this requires a lot of structural measures that should be adopted by the Serbian Government and regulatory authorities in Serbia. These measures are specifically related to the legal environment, protection of the destitutes, development of the operational platform for commerce, efficient payment mechanisms… The applicable Law on Energy is a relatively good framework with which we can start and we expect that the Serbian Government and EPS will fully utilize legal and regulatory opportunities and make the most of the structural reforms of EPS.
Ministry of Energy and EPS are the partners in the European Community in the implementation of the EU policies and standards.  Do you think that this is an important experience for the future restructuring of EPS?
EU policies have been taken as a role model for the framework of the European Community in the field of the primary and secondary legislation, the labor system and the development of the market instruments and investment environment. The reason for this common and strong interest of our Contracting parties to join the EU, which includes the implementation of the same policies, is our contribution to achieving this in a way that will bring the efficient regional solutions fast, efficiently and with coordination.  Ultimate common goal is the regional integration in the EU internal energy market.
This also applies to the structural reforms of EPS. There is a minimum of mandatory standards that should be applied and that come from EU legislation, as many other rules, practical solutions and common models, if we want to have a stable market. Energy Community, from its point of view, is a proven partner to Serbian Ministry of Energy and EPS for each applicable assistance required, as well as for monitoring of reforms and promotion of all positive developments that are achieved.

 How and should Serbia protect the destitutes in a process where the electricity bill has to be on the regular market level?  

You cannot count on the unlimited guaranties on the level of consumer prices, without taking the market into account. Sooner or later, one way or another, someone will have to pay the difference. Our policy is to promote the development of the solvent market platform for setting the referent market price, gradual deregulation to support the entry of the competition and maintain the market solvency measures to eliminate the potential malpractice of the market. Prices for consumers should absorb the costs of trade products (energy, power) and regulated services. Though still developing, the operational market of such prices may not be drastically above the minimum of the sustainability. Lacking such products and discrepancies or market malpractice usually result in the price increase.  We should bear in mind that the expensive energy is the one that we need, but we do not have. The protection of the vulnerable categories of consumers is crucial for the politics to get the social support, but there are a few prerequisites. The consumers have to be identified (by name and address, not by the consumer category) and there is no justification for subsidizing the buyers who are able to pay the economic price. What’s more, the protection must be funded outside the scheme of regulated market and cross-subsidies are not allowed. And finally, all of this should be accompanied by the adequate support to the demand management, such as the recommendations for saving energy, fuel switching and energy efficiency program.
How to secure the safety of investments and increase the investments into the energy sector in Serbia and the region?  Is the price the main factor?
Investments in energy sector have already been significantly delayed, the energy deficit is becoming crucial and already has a negative influence on prices. The governments have recognized the development of the favorable investment environment as a serious task. Serbia is among the ambitious countries that actively participate in EC initiatives for the investment development in energy sector such as Energy Strategy EC and criteria development and a list of the projects of interest for Energy Community that will be forwarded for further consideration and support from financial institutions in order to meet the conditions required for realization. However, this is not enough. The investment environment consists of a broader set of the requirements. Prices, especially prices for the consumers are very important and their durability has a direct impact on the investment risk assessment. The predictability and the reliability of the environment are equally important. The legal and regulatory framework should be well developed and implemented, the access to market and infrastructure should be easy and affordable, market data should be available and comprehensive, administrative procedures simple and transparent. All this work is ongoing in Serbia and we are at your disposal to assist in policy development, as necessary. However, no matter how we will assess this progress in our report, investors have the final say.

How can the renewable energy investments make progress?

We encourage the direct private investments and joint venture projects which are undertaken on the Government initiative. Investments in renewable energy are among such projects. There is an obligation of the EC, which has been taken through the EU legal framework, for the goals in terms of percentage of the renewables in the final energy consumption up to 2020.  Serbia has a specific goal. However, that is not sufficient.  Support schemes should be gradually adjusted to a sustainable level; requirements related to network security impose the technical restrictions on the level of variability and the rate for possible new capacities, the needs for project management for the development of the effective administrative instruments. Price is the factor, but not the only one.

When we take into account the low level of energy efficiency of the entire region, what is the task of Serbian companies and what should the national energy companies do in order to improve the situation?
Energy companies can, and I advise them to do that, if they haven’t already done that, enter all the actual costs, including the confirmed costs in the ultimate cost of providing energy services. The reality will emerge and send all the basic signals for the efficient use of energy. Wide acceptance of energy treatment as a commodity is of a primary importance. In addition, energy companies should try to reduce the technical losses and eliminate the commercial losses (energy theft), if there is any, to invest in improving collection rates and get rid of rescheduling debt. Reducing operating costs, including the potential large number of the employees, selection of the secondary activities, should be the other internal reserve. Achieved financial results should then be used for technical and technological consolidation. Of course, these are examples from the textbook, and they are proven as well. The question of the possible restructuring of the industry in the context of energy intensity is one of the strategic government tasks and requires serious analysis. The EC has developed serious activities in the field of energy efficiency in the recent years and Serbia is an active participant, since the authorities are certainly aware of the policy recommendations resulting therefrom. One general paragraph, which I would like to point out, is the use of electricity for heating in the households. The amount of energy used is significant; the costs can hardly be economically justified in terms of sustainability and social impact is enormous. These aspects, all together, result in insurmountable obstacle to the liberalization process and we believe that the government of each member of the EC should, with its policy, include the consideration in the direction of the potential replacement of the electricity for heating purposes, wherever it is possible.

Possibility of promotion

How do you see the opportunity of Serbia during the EC presidency this year?
Serbia has always been among the more active and respectable Contracting parties of the EC. The period of Serbian presidency is the opportunity for Serbia to promote its progress regarding the energy reforms and its potential as a leader and an investment partner. With Zorana Mihajlović, Minister of Energy, we talked about a number of events that will happen in 2013 in Serbia, including the meeting of Council of Ministers of the EC on October 17th.

Ambitious plans

How do you rate the efforts that Serbia is making to comply with the process of European policy to achieve the planned activities up to 2020?
In general, we can estimate that Serbia is currently among the more ambitious Contracting parties for achieving the objectives of EU policy, with great potentials. It is our interest and we believe that the reforms will keep on going in that direction and that we will overcome the remaining obstacles.

Mutual interests

How do you see the future of the projects of the new power plants and strategic partnerships which was initiated by “Electric Power Industry of Serbia” ?
Private investors are coming into Serbia, as elsewhere, with the requirements and the expectations. It is up to the Government and EPS to see what their priorities are and to make the opportunity for possible agreement. As we see it, “strategic” stays strategic as long as it meets the interests of both sides and we believe that there is a serious potential in the existing partnerships of EPS. Our strategic interest as EC is to support the all viable options to develop the functional regional energy market and improve the conditions of safe energy supply of all consumers.

Source; EPS KWh

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