4th Poverty Reduction Strategies Forum Athens, June 27 th , 2007

1. Regional Energy market in Southeast Europe: Prospects and challenges for the SEE countries Michael Thomadakis Vice President Greek Regulatory Authority for Energy, 4th Poverty Reduction Strategies Forum Athens, June 27th, 2007

2. Energy Community (former: of SEE) • The Energy Community Treaty is put into force since July 2006 • The aim is the establishment of a regional market in SEE both in electricity and gas • Main tools will be the existing and the anticipated EU legislation mainly on energy and then on environment and competition • A timetable for the implementation of the aquis communnautaire is established for the non-EU Parties • The Institutional Framework established by the Treaty (Ministerial Council, PHLG, Regulatory Board, Secretariat and the Fora) provides the mechanisms for the regional political and technical cooperation necessary for the success of the Process

3. SEE: A dynamic energy market • SEE countries’ economies are improving, leading to increased energy consumption and thus increased need for energy infrastructure • International Financing Institutions and private investors are providing funds for an increasing number of energy infrastructure projects in many countries and are investigating further options • Energy Traders are becoming increasingly active in many countries • In parallel, most of the countries in the SEE region are EU members or candidate EU members (now or in the near future) • The momentum is there…

4. Recent evolutions in EU • The 7 EU-regions have been defined (Regulation 1228/03) • European Regulators (ERGEG) have launched their Regional Initiatives • Impressive coordination of market approaches among the countries of these regions (and between the regions) is already happening (e.g. Northwest Europe) • Energy Communityis in the core of the External Energy Policy of the EU • The European Commission is already considering the establishment of the SEE as the 8th European Region • The 3rd EU legislative package is expected soon (for the implementation of the new European Energy Policy)

5. The “merging” has started… • Two very important practical steps: • In 2007 a unified ITC mechanism exists throughout Europe including all countries of the Energy Community (ITC: a mechanism where electricity is traded without any other payment for the traders except the tariffs for the use of the networks and the payments for the rights to use the Interconnectors) • Coordinated Capacity Allocation in all borders of the SEE countries: is currently under design and virtual implementation; this will provide the opportunity for the trade of electricity throughout the region at a single step, without the need to go from border to border and from company to company and book capacity on an individual basis

6. What SEE countries need to do… • Realize the changing environment and face the challenges ahead • Believe that all of them are future EU-members • Act as if they were already EU members • Learn from the experience (and the mistakes) of EU members; • Realize that energy market liberalization is a non-reversible process (especially when linked to privatization) • Exploit the existence of investment opportunities (and funds) • Enhance Regional collaboration • Eventually, be an integral part of the EU IEM These need to be addressed with determination by the Governments, the Industry, the decision makers and –eventually- by the consumers

7. Act as if they were already EU members … • ‘…the main and immediate action that is necessary is the full and complete and effective implementation of the second…Electricity Directive…in spirit and not only in letter…’. (For Gas, things are different in the SEE) • Unbundling (twofold value in SEE): • Proper implementation of TPA, proper allocation of costs • Establishment of more attractive entities for the privatization process • Effective Regulation: work in practice, enhance the competencies of national Regulatory authorities and support the ECRB; a lot of work is required in this field by the SEE countries

8. Regional collaboration… • Strike the balance between price regulation (affordability is an extremely important issue for the region) and competition: • Regulators and ECRB could have a very important role in this respect • Transparency is an extremely important issue and SEE countries (and not only them) have to perform very bold steps towards this direction • Market monitoring is also an essential issue which has to be addressed on top of monitoring compliance with legal obligations

9. What others need to do… Others are (mainly) the EC, the Donors and the EU Institutions: • Provide strong political support to the Process • Maintain the financial support (and probably link it with targets arising from the Treaty) • Enhancethe coordination of their efforts • Maintain leadership and provide guidance in a manner compatible with the specificities and the needs of the countries of the SEE region

10. Conclusions… • The ECSEE Process is a unique and challenging approach • It perfectly meets the needs of the International Community and the countries of the region, providing opportunities and enhancing security of energy supply • However, strong efforts are required by all stakeholders, especially following the entry into force of the Treaty • The sooner these opportunities are exploited, the better for the SEE people • It will be a cumbersome and time consuming procedure • Success will depend on the steps taken and interim results • Strong political will and support is required, mainly from the countries of the region themselves