Energy and Transport in the Serbia Regional Integration

1. Energy and Transport in the Serbia Regional Integration Vision (not a policy recommendation)

2. Critical Importance of Energy and Transport Infrastructure • Realties: Available infrastructure and its economic and structural consequences to potential coordination / integration • Development patterns • Critical requirements to change on-going patterns

3. Theoretical Realties • Land locked country bound to poverty, small volume – high margin market entrants and bad governance. • High capital engagement, low capital utilization, low productivity – high (and growing) costs of end products • Increase in required return on capital, interest rates • Equilibriums formed at expense on public goods • Initiative to eye somebody else public goods • Legal treatment of public goods including: property rights, environment, free markets …

4. Practical Realties • Extraction and burning of lignite facilitate retardation of productivity and competitiveness • Extensive use of fuel wood decreases domestic demand and employment • Low utilization of district heating services adds to capital intensity • Land degradation affects productivity of agriculture and forestry • Lack of access to sea-borne trade due to lack of economy of scale in transport infrastructure and modality fragmentation (Belgrade)

5. Lignite Industry in Serbia 1950 - 2006 Overburden removal in Kolubara open pits 1950 to 2006 in million of cubic meters Lignite extraction in Kolubara open pits 1950 to 2006 in million of cubic meters

6. Serbia economic development was linked to energy security and efficient access to sea • Few years period before the World War I (Danube navigation) • Period between 1921 and 1941 (Danube navigation) • Period from 1956 – 1968 (Danube navigation) • Period January – May 1992 (Danube navigation and intensive use of Belgrade – Bar railway) and vice versa

7. Potential for coordination / integration at domestic and regional scene Basic prerequisites for coordination in longer time perspective: • Enforcement of rules protecting and enhancing public goods • Need of repeated commercial transactions • Low and lowering real (economic and subjective) discount rates or return on capital

8. Development patterns • Increase in lignite extraction, neglect of fuel wood use, increase in heat-only-boiler capacity for district heating at given level of productivity / efficiency • Increase in capital intensity • Cumulation of environmental impacts • Further monopolization of international trade • Further fragmentation of Belgrade transport infrastructure • Change in legal treatment of public goods

9. There is a need for dramatic turn-around in current development patterns and restructuring in infrastructure that would require at least ten years to achieve. Decisions made in next 12-24 months could fundamentally alter capacity for restructuring and set up a scene for next 20-40 years

10. Restructuring focus • Efficiency of energy production and conversion: • Lignite • Fuel wood • Urban heating • Efficiency of transport modality conversions in Belgrade: river-to-sea shipping / inland shipping, railways, trailers, road, air, cycling, walking …

11. Thermal Power Plant Obrenovac B 2x620 MW View from Sava river The most successful plant in the country that might become commercial generator by using 9,5 million tons of lignite, >3 million tons of biomass, >250 000 tons of hard coal and some natural gas to generate 9,5 TWh of electricity during next decades.

12. This reduction in transport capacity does not conform with UN ECE data (1999)

13. Restructuring objectives • Complete adoption and enforcement of internationally recognized rules on public goods (EU acquis, EnCT, EITI) • Increase in utilization rates and productivity of available capital in order to eradicate risks, facilitate more robust poverty reduction and bust domestic demand and employment • Facilitate access to sea-borne trade and regional integration in order to bust volume of commercial transactions and achieve minimal economy of scale

14. Some technical hints: • Change in technology in 60% of available power generation capacity • Change in heat source for ALL district heating systems in the country • Increase in container turnover in Belgrade for 30 times • Reconstruction of roughly 2500 km of railways • Increase in capacity of strategic Danube fleet capacity for at least five times Same or similar technical achievements have been seen during one or another 10 year period in the past.

15. Conclusions • While technical changes are doable, these are fundamental disruption within current set of initiatives • Physical openness is critical determinant of good government • Coordination / integration is desirable but not likely

16. Between 1960s and 1990s: Less energy for better HDI Application of data sets from IEA “World Energy Statistics, 2000 Edition”, UNDP RBEC “Human Development Under Transition”, March 1998 and Survey results to framework diagrams provided by Carlos Suarez in “Energy Needs for Sustainable Human Development”, “Energy as an Instrument for Socio-Economic Development” UNDP, 2002.

17. Rehabilitation / Upgrade Renewable Energy Options and Costs Cofiring

18. Introducing regular railway and waterway urban transport according to 1996/2000 projects while increasing average speed of buses in urban transport from 9 to 18 km/h, restricting car parking is likely to reduce national transport fuels consumption for 15% over next 6 years and provide urban space for 30-fold increase in container turnover