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MEMO/05/397

Brussels, 25 October 2005

An integrated market for electricity and gas across 34 European Countries

The Energy Community Treaty that was signed in Athens on 25 October represents the achievement of the largest internal market for electricity and gas in the world, with effectively 34 participating parties: the 25 European Union Member States and Croatia, Bosnia and Herzegovina, Serbia, Montenegro, Albania, the Former Yugoslav Republic of Macedonia, Romania, Bulgaria, and UNMIK Kosovo. Negotiations with Turkey are ongoing. Moldova, Ukraine and Norway have applied to join, but for the moment are observers. The signing of the treaty is the conclusion of the Athens process which started in 2002 when the European Commission brought forward proposals for the creation of a regional electricity market in South East Europe.

Why is the Commission spearheading this process and this treaty?

Firstly, improving the balance between energy supply and demand is crucial to improve and sustain economic development in South Eastern Europe. This requires a strong legal commitment by the countries of the region towards market oriented reforms, regional integration and sustainable development, and investment security. This will offer significant advantages both in terms of improved utilisation of existing supply and production capacities, but also in fostering more cooperation and integration in the region, which would result in economic growth, stability and investment.

Secondly, the security of supply of the European Union is based on diversifying supply of gas and electricity and in being politically able to counter threats to energy disruption in the European Union. By connecting this strategic area with the internal energy market, we assist in assuring both the European Union’s security of supply and that of the region.

Thirdly, the destruction of the energy infrastructure in the region during the wars of the 1990s and the economic fall-out following the break up of the East-West divide have had tremendous and bad effects on the security of private citizens in this region. Mortality rates have increased, woods have been deforested and established patterns of trade disrupted, impoverishing the local population. The citizens of this part of Europe deserve a higher standard of energy infrastructure.

The Energy Community Treaty

The Energy Community Treaty was consciously modelled on the European Coal and Steel Community that is the basis of the European Union. The Treaty seeks to allow the partners of post-war South East Europe to agree on one area of policy and then to develop in common a shared outlook. The Energy Community Treaty is a key element of the EU strategy in South East Europe and an effective pre-accession tool as it aims to extend the benefits of the Internal Energy market before the partners of the region may become members of the European Union. Likewise, it asks not for commitments to do things in the future, but for each of the partners to do things now.

The European Union is in the process of rapidly completing the internal electricity and gas markets. There are strong arguments for extending the internal electricity and gas markets outside the borders of the European Union, but the creation of a level playing field and equivalent environmental and safety standards is a central element for a wider European electricity and gas market to function effectively. The process of inclusion of such countries goes considerably beyond simple questions of open trade between the European Union and its neighbours under more general international trade obligations. It involves the active creation of a real integrated market, free of any barriers. Practically, in South East Europe that means creating a local regional market and designing it so that it seamlessly will fit into the general framework of the European Union’s Internal Energy Market.

The reason why the Energy Community Treaty has three operational parts:

  • Firstly, the treaty will extend the application of the energy, environmental, renewables, competition and other parts of the acquis communautaire (legislation and rules decided at EU level). This will create a level playing field, though there will have to be credible, effective and policed transition dates.
  • Secondly, the treaty will create regional mechanisms that extend into the European Union to allow for deeper integration of local energy markets. This will for example mean enabling regulation allowing for accelerated infrastructure development, in particular for gas pipelines (especially new connections to the Caspian Sea and the Middle East).
  • Given that the idea of a common energy market is central to the Energy Community, there is agreement to work toward common policies for external trade, mutual assistance and the removal of internal energy market barriers.

The Athens Process

The European Commission brought forward proposals for the creation of a regional electricity market in South East Europe (SEE) in March 2002 with the aim of eventually creating a regional electricity market. By November 2002, a Memorandum of Understanding (“The Athens Memorandum”) was signed at the Athens Ministerial by all the parties with the Commission and the Stability Pact acting as sponsors. The Commission also agreed on a common strategy paper with all international donors active on a regional basis. The approach was extended to gas in 2003. The Athens Process resulted in the Energy Community Treaty of 2005, which takes previous political commitments and makes them legal ones.

The Athens Process and the Energy Community Treaty provide that the partners will:

  • implement electricity and gas tariff reform plans;
  • implement all necessary technical standards, such as grid codes, accounting systems and information exchange for the operation of the grid;
  • implement effective third party access to infrastructure;
  • create National Regulatory Authorities and transmission system operators;
  • develop local solutions to pressing problems of regulation, energy poverty and social equity;: and
  • implement the gas and electricity directives.

To guide this process, the following market development coordination and validation structure has been put in place by the Energy Community Treaty:

The Ministerial Council, which takes place every six months with the participation of the Ministers of Energy of the member countries and the Commissioner for Energy, in order to take the strategic decisions and give directions to the Treaty or to formally adopt or endorse secondary legislation. The Presidency of this Council rotates on a six monthly basis.

The Permanent High Level Group, which is composed of representatives of the Ministers of Energy of the Member Partners of the Energy Community Treaty and the European Commission. The group is convened, when necessary, on the initiative of either the Commission or the country holding the Presidency at the time, in order to prepare the Ministerial Council and to ensure the follow – up of its decisions. The Commission co-chairs this group along with the President in Office.

The Treaty Secretariat – The Secretariat will have its seat in Vienna and will be the central co-ordinating body for the Treaty, having an important initiating role in developing the Treaty and in making use of the secondary law provisions of the Treaty. It will also be responsible for co-ordinating international donors, in validating work and in proposing technical, legal and regulatory developments.

The Energy Community Regulatory Board in Athens – This Board, which will have its base in Athens, will consider issues of regulatory co-operation and may develop into a regulatory decision making body and/or a dispute settlement mechanism. The European Commission considers its role as central to the operation of the enlarged market and thinks that its first supranational regulatory body could develop into a model for other parts of the world.

The Electricity and Gas Forum

The Forum comprises representatives of the European Commission, governments, regulators and transmission system operators of the countries of South East Europe, the Council of European Energy Regulators (CEER), the European Transmission System Operators (ETSO), the Union for the Co-ordination of Transmission for Electricity (UCTE), representatives of donors, electricity producing companies, and consumers. The Forum is co-chaired by the European Commission and a representative of the president in office. It meets in Athens.

The Gas Forum will perform the same role in the gas sector and a similar process is envisaged for oil.

With respect to issues of the Regional Gas Market in South East Europe, these will be dealt under the Gas Forum. It is expected to start work in December 2005. It will create a regional plan for the creation of a gas market.

This regional plan will have the following objectives:

  • to implement national gas market reform in all signatory countries
  • to implement international best practice in the wholesale gas markets and to facilitate cross-border trade
  • to create regional and national gas markets, in part to reduce the environmental impact of existing thermal plants; and,
  • to secure supplies for the region and the EU through the creation of a seamless integrated market between Vienna and Ankara.

The European Commission’s role

In support of the process, the Commission will be providing impartial secretariat support and will help to build the mechanisms necessary for the smooth operation of the Regional Energy Market Development. In addition, the Commission intends to:

  • Undertake a benchmarking exercise annually to verify conformity to the Electricity Directive and its derivative legislation, norms and standards, and will also consult relevant bodies with regard to technical standards;
  • The Commission has undertaken an electricity infrastructure prioritization exercise (in cooperation with World Bank) and will do the same in gas. The identification and prioritization of projects will have a regional focus and was conducted by the Commission in conjunction with the Permanent High Level Group and the donors; and
  • Promote dialogue between donors and recipients, in its role as coordinator of donors (as mandated by the Istanbul Conclusions of the Stability Pact 2001).

The International Donors Group

Supporting this process are the regional level donors. The Athens Donors are chaired by the European Commission following the Istanbul Conference of the Stability Pact in 2001, and the present members are:

International Donors

  • The European Commission
  • The World Bank
  • The European Bank for Reconstruction and Development (EBRD)
  • The European Investment Bank (EIB)
  • USA – The United States Agency for International Development (USAID)
  • Canada – The Canadian Agency for International Development (CIDA)
  • International Energy Agency (IEA)
  • Italy, France, Germany, Switzerland and Greece. The UK is associated through the work of the EBRD.

The Commission co-ordinates its own state and regional initiatives at the multinational and bilateral level. Amongst the European Union Member States, Germany, France, Italy and Greece are actively working with the Commission. The adhering countries and the donor community work together with responsible organizations such as the Council of European Energy Regulators (CEER), the European Transmission System Operators (ETSO), the Union for the Co-ordination of Transmission for Electricity (UCTE), and the Energy Regulators Regional Association (ERRA) to achieve our common objective. The Donors have agreed on a strategy paper on the regional electricity market in South East Europe and its integration into the European Union Internal Electricity Market, on 15 November, 2002. It provides the road-map for developing the electricity market in South East Europe.

The World Bank has announced a special fund for the development of the Energy Community Treaty with an initial value of $ 1 billion, which may be replenished. The World Bank is working on a similar fund for gas.


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