Lights,Out,the,Balkans,Intervi business, insurance Lights Out in the Balkans - Interview with Aleksandar Dimish

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Conducted: September 2007Until recently and for four years, Aleksandar Dimishkovski  worked as a business and finance correspondent in Macedonia's best-selling daily newspaper, "Dnevnik". In the past year, he also served as a personal advisor to the general manager of a foreign-owned company that has established its network in Macedonia. He is known as a market analyst and a business consultant and has recently founded "BID Consulting". Q: Has the electricity grid throughout the Balkans and in Macedonia in particular improved or deteriorated in the last ten years? How did privatization and restructuring influence each of the components in the chain from electricity generation to the end consumer? AD: The electricity grid throughout the Balkans at this point doesn't differ a lot from the time when socialistic regimes ruled this part of the world. Considering the time frame, surely it is not correct to say that the investments done to increase the quality of the electricity grids and especially in the cross-country transmission grids were satisfactory. There was some increase of inter-transmission capacity, but not enough to ensure the transmission of the demanded quantities of electricity. The quality of the national electric grids varies from country to country but is commonly low. Macedonia for instance, has network losses of more than 30 percent annually, which is around five times the average in the European Union (EU) countries.On the other hand, the investments in electricity generation pretty much changed the picture in the Balkans regarding which country now has enough quantities of electricity from domestic production, which country is able to export and which country is an electricity importer. What is common to the majority of the countries in the Balkans now is the fact that they all are importers of electricity, with the exceptions of Romania and Bulgaria. These two countries have done a lot to ensure their position in the Balkans energy market, even through a privatization process, although at this point it may not seem so evident, especially in the case of Bulgaria, because of the shut down of two reactors in the nuclear power plant Kozloduy. Nevertheless, both countries - now EU members - are still investing billions in new electricity generation facilities and they will likely secure the lead on the electricity export side. However, this is not the case with the countries of the former Yugoslavia. Most of them managed to finish the necessary privatization and reforms, but they all seem to have forgotten about the importance of investments in production. That contributed to the current state of things where the majority of the countries in the Balkans are importers. Albania and Greece followed the same tendency not to invest, and after 15 years they are still lacking investments in electricity generation, which is demonstrated by the increase in the imported quantities of electricity.The biggest paradox is that in most countries there are still incredibly low prices of electricity, which are a by-product of omnipresent subsidies. These prices can't be supported by any economic or commercial reason, the social aspect notwithstanding. 3. You are predicting a crisis in electricity generation and provision in Macedonia this coming winter 2007. Can you explain what is this gloomy scenario based on? AD: It is based mainly on the dearth of electricity in the whole region. At this point, Macedonia imports around 30 percent of the quantities needed to satisfy consumption. And with the present level of expected domestic production, there surely will be a gap between demand and supply. This is especially so because of the fact that in Macedonia, during the winter months, the level of consumption is almost twice as big as in the summer months. In fact, because of draught and other summer-related problems, the water potential for generation of electricity via hydro power plants at the moment is at very low level, lower than 20 percent.Another problem is the steady growth in consumption. Macedonia has one of the highest rates of growth of electricity consumption in the whole region. And the predictions are that in the medium term, growth will constantly and drastically accelerate.  What adds fuel to the fire is the present situation in the entire region. Albania faced and faces a major energy crisis. Greece is constantly increasing the its imported quantities of electricity. In the wake of the closure of two reactors Kozloduy in January 2006, there simply isn't enough electricity to go round. The whole region is facing an energy crisis. Bulgaria, which was one of the biggest exporters of electricity in Europe, has recently started to import it! The Balkans lacks electricity generation facilities. In such a constellation it is normal for electricity prices to increase. Bearing in mind the fact that in many countries electricity prices are still heavily subsidized, it is normal to expect problems, even from the macroeconomic point of view. Macedonia is maybe in the worst position at the moment. Its market is too small to be interesting for the big European energy "players" and it is not financially powerful, compared to the other countries in the region. So, Macedonia is unable either to invest in the expansion of its electricity generation or to buy and import electricity. 4. Is hydroelectric power the solution? What about alternative sources (wind, solar, nuclear)? Will the construction of additional plants solve the problem in the short term? Is microgeneration a viable option?  AD: Hydroelectric power is a definite possibility but only in the long term. It takes a while for a hydro power plant to be built and become operational, at least three to five years, depending on its size. In fact it may be the best solution, because Macedonia now uses around 30 percent of its hydro potential for electricity generation. Unfortunately, it can't be used as core energy. It is too dependant on external influences and factors, such as the weather. If a dry season occurs, than the whole system is at risk. But it can and it must be used more than the present level of usage. Wind and the solar energy are good options as well. Nevertheless, they are also merely supplements to the basic energy market. Nuclear energy on the other hand, is out of the question for many reasons, even from a legal point of view. The Macedonian parliament has passed a declaration that forbids the use of a nuclear energy for electricity generation on Macedonian territory. Besides that, the geographic conditions are very inappropriate for building a nuclear power plant. Even the cooling of a nuclear reactor could be a problem, because it requires a lot of water. The best solution is to have combined production. As a base or core energy, we could use thermal power plants as the situation is now. They run on coal extracted from Macedonian territory. This, in conjunction with the use of natural gas for electricity production could secure Macedonia's energy needs in the next 50 years. Understandably, this has to be combined with the deployment of renewable sources of energy on both the micro and on macro level. In any case, the construction of additional plants can't be a short term solution, because it takes time for a power plant to be built. For instance: LNG (natural gas) power plants require the shortest construction time, yet even this process usually takes at least two years.     5. Electricity in Macedonia and throughout the region is heavily subsidized. Do you foresee a reduction in this state support? AD: Unfortunately, subsidies are one of the biggest reasons for the upcoming energy crisis. Because of the low price, there simply wasn't any money for investments in electricity generation, although in the price structure there is a part that supposedly should be spent on investments. Even now, the price that households pay for electricity and even the price for industry are lower than they should be. Nevertheless, with the signing of the Athens Memorandum, and the creation of the Energy Community, Macedonia is obliged to liberalize the energy market, with a view towards achieving the market conditions present in the EU zone. So, subsidies will very soon be out. The qualified consumers – industrial facilities - will be forced to secure their own deals for electricity supply in the open market, starting from January 2008. It is predicted that the total liberalization of the electricity market will be in place at the beginning of 2015, at which time even households will choose from whom to buy their electricity. At this point, the organizational structure of the electricity market in the country is not well prepared for these processes, and this could contribute towards some delay in the liberalization process. But it is inescapable and with the aspirations of Macedonia to become a member of the EU, the sooner they are implemented, the better it is for the integration process as well.  6. Can you describe the structure of the electricity export market in the region? Who is exporting, who is importing, and who are likely to become net exporters and net importers in the foreseeable future? AD: That's an easy one. Almost all the countries of the Balkans are net importers, except Romania and Bulgaria. Recently, even Bulgaria started to import small quantities. But, these two countries had invested enough to secure their future as exporters of electricity. For instance, Bulgaria is rushing to build a second nuclear power plant in Belene, near the border with Romania, which should be finished in around five years. Romania too, started the construction of another nuclear power plant.As to the rest of the Balkan countries, there are some signs of positive change, but it is still unclear, who, when and if some of the countries would be able to become net exporters of electricity. If we exclude Albania whose system is pretty much based on hydroelectric power, the other countries are quite similar. The majority have coal-fuelled electricity production as core energy. This is made possible by their sizes- most of these countries have small territories - and by the unused potential in many of them. Still, at this point, it seems like in the near future, we shouldn't expect any drastic changes in the electricity production field in the Balkans. And even if something does change, it is likely to be negligible, both from the energetic point of view, as well as the financial one.