Impact of Energy on Stability and Economic Development in the Region

1. Impact of Energy on Stability and Economic Development in the Region Dr. Robert F. Ichord, Jr.Chief, Energy and InfrastructureBureau for Europe and EurasiaUS Agency for International DevelopmentWashington, D.C. 20523 Remarks to Black Sea Energy ConferenceBucharest, April 3, 2006

2. Headline Theme of Energy Security • Global, Regional and National Dimensions; Black Sea region is significant in terms of the intersection of these dimensions. • Cooperation is vital among countries committed to free market principles to overcome disruptions and supply constraints; • Diversification of Supplies and Reduction in Import Dependence are important approaches to enhancing energy security; • Commercial decisions must drive process since options may not always be feasible or economically justified, especially in the short and medium term; • Governments and regulators play critical role in establishing transparent regulatory and commercial law frameworks for these ventures; • Countries in their energy strategies need to consider industrial competitiveness as well as environmental, social and other factors; • Improvement of Customer Service is important objective

3. EU Gas Imports, Import Capacity and Projected Imports T E N-Energy- I n v e s t: Study on Energy Infrastructure Costs and Investments between 1996 and 2013 (medium-term) and further to 2023 (long-term) on the Trans-European Energy Network and its Connection to Neighbouring Regions CESI, ITT, ME, RAMBØLL October 2005

4. Improved Customer Service • Fundamental to the reform and design of national and regional energy markets is the impact on the consumer • Price is a critical factor but quality of service is increasingly important in today’s electronic societies • Modernization of energy systems to meet the needs of consumers in various sectors of the economy is a significant challenge for countries of the Black Sea Region. • Development of larger markets and harmonized regulatory frameworks can stimulate investment and trade benefits. • Focus on three important ingredients to improving customer service: affordability, reliability, and transparency

5. Competition Economic Efficiency Social Responsibility Competition based on market forces may help improve the affordability of energy services. US and European experience has shown the competitive model for network industries can benefit consumers. Improved economic efficiency of the energy companies can reduce costs of production, transport and delivery to consumers. Benefits from a regional trading and dispatching system that can utilize the diversify of sources in an economically efficient manner Higher oil and gas prices in the region, while promoting greater end-use efficiency, are putting strains on industries, municipalities and government systems to help vulnerable and low income groups ---------------------------Affordability------------------------------

9. Security of Supply Technical Efficiency Environmental Sustainability Close relationship between reliability and security of supply. Blackouts in Europe and US in last several years has galvanized concern over security of large integrated systems and the critical tele-information systems on which they depend. Regional grids can be strengthened to facilitate reliability through better frequency control and enhanced ancillary services management. Reducing transmission and distribution system losses and improved technical efficiency is also a priority for the Black Sea region. Reliability requires investment and the existence of management and financial systems that can properly procure and implement the modernization programs. Privatization as well as IFI financing is critical to improving managerial capacity as well as mobilizing needed investments. Environmental factors can affect reliability. The variation in the availability of hydro resources is important in the Black Sea region. This variability can have a significant impact on costs of generation and requirements for imports in a number of countries. The advancement in nuclear safety is also significant in ensuring good capacity utilization of these major base-load units. ----------------------------- Reliability------------------------------

10. Corporate Governance Accountability Regulatory Effectiveness Improved financial management and release of information to public and markets on energy company operations. Increased openness of Government, Regulators and utilities to consumers. Procedures adopted for public hearings, reporting, licensing and penalties, and dispute resolution. Enhanced role for competent and independent energy regulators to protect public interest and ensure financially sound energy utilities. ----------------------------Transparency---------------------------

11. USAID Regional Activities • Energy Regulators Regional Association (ERRA): development of competent regulators and staff and exchange of information and best practices. (US National Association of Utility Commissioners (NARUC) in collaboration with CEER) • Support to Energy Community for Southeast Europe (ECSEE): Assistance for regulatory development and implementation of Energy Community Regulatory Board, market design and monitoring, transmission planning, and energy efficiency and affordability. • Black Sea Regional Electricity Transmission Planning Project: regional utility collaboration, chaired by Transelectrica, to develop regional analyses of transmission system development potentials and investment priorities to increase reliability and facilitate expanded trade and power exchange. ( US Energy Association in collaboration with donors, IFIs and BSEC.) • Urban Heating and Affordability Review and Investment Strategy (Alliance to Save Energy in collaboration with UNECE and IEA) • Proposal to Congress in FY07 Budget for New Regional Energy Security Project

12. Kurskaya N Voronzeska Rzeszow North Ukrainskya Hmelnicka Zakhidnoukrainska V Kapushani Mukachevo Donbas Peremoga Mukachevo Pivdenukrainska Shahti Tiszaloek Kisavarda Amrosivka Sajoszeged T 15 Albertirsa Rosiori Sandorfalva Arad Vulcanesti Centralna P . de Fier Isalnita Djerdap Isaccea Tintareni Psou 750 kV Sofia w . Enguri Bzibi Nis Kozloduy 500 kV Blagoevgrad Dobrudja Varna Hamitabat Maritsa East 400 kV Babaeski Thessaloniki 220 kV Hakkari Khoy Birecik PS 3 Kesek Halep Talashkino Belarus Vitebsk Smolenskaya Beloruskaya Mazir Roslavl Gomelj Krichev Black Sea Region Existing Interconnection Lines Shostka Russia Kurskaya Chernobil Chernigov Belgorod . Ukraine Poland Sumi Pivnichna Shebekino Valujki Losevo . Dnestrovska Zmievska Slovakia Balti Pivdena Kotovsk M o l d a v i a Novocherskaya Rabnita Hungary Usatov CERS Moldova N . Odeskaya Romania L E G E N D : Arciz Serbia Black Sea Bulgaria Georgia Gardabani Batumi Macedonia Gumri Azerbaijan Hopa Alaverdi Kars Armenia Babek Igdir Greece 330 kV D . Beyazit Turkey Bazargan Iran 150 kV Iraq Syria