1. Tariff reform and social assistance Zbigniew Kominek European Bank for Reconstruction and Development Athens, June 2007

2. Importance of tariff reforms Removal of soft budget constraints and subsidies to increase transparency, accountability and efficiency of supply Cost-recovery and long-term sustainability of energy sector Demand side incentives to reduce consumption to an effective level (tariffs should correspond to supply costs for all user groups)

3. Impact on affordability Energy was heavily subsidised in the former socialist economies These subsidies are disappearing in the region in the process of transition towards market economy Many low income households are now facing energy bills that they cannot afford The EBRD commissioned 2003 regional study on power sector affordability indicated a lack of adequate social safety mechanisms in the SEE region to deal with energy poverty

4. Energy Poverty is related to Household Resources –Targeted subsidies Energy Prices –Lifeline (block) tariffs Energy Efficiency –Targeted programs Addressing affordability constraints Energy Efficiency Energy Prices Household Resources

5. Affordability of electricity in SEE Simplified: Consumption is constant (No income effect, no price effect) and no differentiation in LRMC 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% Croatia Romania FBiH (EPBIH) RS (EPRS) FBiH (EPHZHB) FYR Macedonia Serbia Moldova Bulgaria Albania % of average household resources spent on average consumption at 6.5 €cents /kWh

6. Income inequality issues FYR Macedonia

7. Vulnerable social groups FYR Macedonia

8. Ways out The Macedonian study identified the following instruments –Heat and power subsidy schemes for vulnerable groups –A block tariff combined with a targeted lifeline tariff –Installation of meters –Development of long-term affordable heat strategies including extension of district heating supply –Establishment of an energy efficiency fund targeted towards poor families

9. Dialogue between stakeholders The problem affects all: consumers, electricity companies and government Solutions can only be found when all parties work together Appropriate consultations and constructive involvement of investors is essential

10. Contact at the EBRD Zbigniew Kominek Senior Economist Tel:+44 20 7338 7381 Fax:+44 20 7338 6110 Email:kominekz@ebrd.comkominekz@ebrd.com Website:www.ebrd.com