1. OHR/OECD Conference on Regulatory Governance and Network Industries OHR/OECD Conference on Regulatory Governance and Network Industries Sarajevo, April 19 2002 SESSION II: Economic Regulation and Network Industries Policy and Regulation: Key Aspects of Energy Markets Reforms in Transition Economies Emmanuel Bergasse International Energy Agency/OECD

2. Presentation Map I. Energy Market Reforms in Central Europe: a decade of experience II. Southeast Europe perspectives III. Conclusions

3. I. Energy Market Reforms in Central Europe: a decade of experience Goal: decentralised and market based energy system bringing overall economic benefits Integrated approach: Separate State role on policy (Ministry), regulation (regulator) and operation/ownership of energy companies Sequencing of reforms & transition Means: Policy/strategy, institutional and regulatory framework to support market based operation

4. Energy Policy Foundation Goal: Policy definition and institutional set-up Why? infrastructure need medium/long term guidelines and overall co-ordination How? Policy paper with objectives/priorities and missions of state bodies Who? Energy Department of Economy/Industry, Parliament Eg: Czech Energy Policy (2000)

5. Regulation: Market Basis Goal: a regulated energy market How? Energy Law sets market regulation (licensing, pricing, control of services) enforced by an independent regulator Who? Government and Parliament (energy Law), Ministry (secondary regulation) and regulator Eg.: Polish Energy Law (1997)

6. Operation of Energy Services Goal: decentralised and efficient market operators How? Restructuring: good governance, corporisation, customer orientated strategy; Privatisation to strategic investors when conditions for competition met Who? Ministry of Econ./industry for reforms; Min. of Finance for privatisation Eg.: Polish power sector

7. Energy Demand & Environment Goals: integrated policy on energy & its impacts; reduce demand and pollution cost reduction How? Demand side and environment strategy management Who? Energy and environment agency Eg.: Energy Centre Hungary

8. Performance of Reforms in CE Energy policies consistent with EU & IEA standards Regulation aligned with EU Directives Energy companies at international level and in part privatised Energy intensity and pollution reduced Hungary and Czech Rep. IEA members, 1 st wave of EU accession countries

9. Energy Intensity in the Czech Rep. & Hungary (Impacts of Policy Mix: price adjustment, investment, tax incentives, closure of obsolete units ) 1973-2010 (Toe per thousand US$ at 1990 prices and purchasing power parities)

10. II. Southeast Europe Perspectives Similarities/differences SEE & CE of early 90s: = Economic system transition, low energy efficiency, prices below cost, power overcapacity, high environmental impact # post-war reconstruction, industry collapse, political instabilities

11. Reform Progress Energy policy: limited advancement, Bulgaria-1998 & Croatia-1999 Regulation: some reforms (tariff adjustment) but no overall legal framework. Energy Law in Bulgaria-1999 & Croatia2001 Energy sector restructuring: first steps (corporatisation) Demand management-environment: low progress

12. Regional Co-operation Clear need for regional approach-convergence of energy policies: Supply complementarities Networks interconnection Transit projects Effective Regional Energy Market (REM) if viable markets and legal compatibility between electric systems

13. III. Concluding remarks 10 years experience in CE proved importance of: Policy foundation for objectives and institutional responsibilities Clear market rules enforced by an independent and competent regulator Restructuring of energy companies to market conditions & international standards

14. IEA Contribution on Policy Web site: http://www.iea.org/about/nmccee.htm Contact: Emmanuel Bergasse, Administrator for Central and Southeast Europe email: emmanuel.bergasse@iea.org Fax: 33 1 40 57 65 79