Janez Kopač, Director of the Energy Community Secretariat

November 12, 2014

On 30th of September, Serbia will host 6th Oil Forum of Energy Community, could you give us some insight into the key messages of this event. The focus of the Forum will be legislation on maintaining minimum stocks of crude oil and/or petroleum products (Directive 2009/119/EC) adopted in October 2012. The Energy Community members are now under a legally binding obligation to establish emergency oil stocks by 1st January 2023 at the latest. Despite that the deadline seems far away, this will not be an easy task. Here I would like to emphasize Serbia’s efforts to establish the legal framework for compliance with the oil stockholding directive which could serve as a model that could be followed by the other Energy Community members. The oil dimension in the Energy Community as part of overall security of energy supply will be another important topic at this Forum. The European Commission will outline the latest work on energy security and its response to the current geopolitical environment and the EU´s import dependence.  The International Energy Agency will provide a general guide to the existing emergency stockholding system for countries considering the introduction of new stockholding systems or changes to their existing emergency stocks.

Private investment has remained far below the levels hoped for when establishing the Energy Community. We are most happy with NIS as the leader in investments in Serbia
Of great interest will be the presentation of the latest outcome of the First Tender for Award of the Hydrocarbons Production Concession Contract for offshore licensing in Montenegro. Could you tell us something about the announced reform of the Energy Community - the Energy Community Treaty envisaged formal boundaries of its existence (10 years), but there is overwhelming wish expressed to extend its duration. How do you see future role of the Energy Community? Do you anticipate any effect on the role of Serbia as a Contracting Party and, naturally, will it influence NIS as the biggest energy company in our country? The existence of the Energy Community has been prolonged till 2026 last year but I am confident that it will last much longer, given that the organisation has evolved into a powerful international energy policy instrument. Last year a High Level Reflection Group under the chairmanship of Prof Buzek, former President of the European Parliament, was established. It was mandated to suggest needed adaptations and changes to the scope of the Energy Communityacquis. The Group recommended that the current acquis should be widened to include additional rules on competition, state aid and public procurement in the energy sector and new environmental acquis. Moreover, Energy Community institutions should be better linked to EU energy institutions created by the Third Energy Package – ACER, ENTSO-E and ENTSO-G. At the same time, the Group concluded that EU rules need to be better adapted to the socio-economic situation of the participating non-EU countries. It also recommended strengthening and expanding Title IV of the Treaty, which allows for designing true pan-European energy governance. The Group recommended the introduction of risk mitigation schemes for investments, such as an Energy Community Risk Enhancement Facility providing investment guarantees or insurance products and an entity allowing for demand aggregation for imported gas. Today's imperfect enforcement mechanisms are one of the major obstacles to the success of the Community. The Group proposed for the currently week dispute settlement procedure to be gradually replaced by a Court of Justice and financial sanctions to be introduced, as in the EU. Moreover, the court should also be accessible directly by individuals and companies.Having access to a vigorous and independent judicial system is also fundamental for investors. These are only a few of the suggestions of the Group. Of course they will be widely discussed and hopefully also adopted in 2015.
EU acquis is only a piece of paper if the companies do not respect it in practice. Therefore every government has to cooperate with the companies on its territory to successfully finalize the accession process
From current debates in EU on Energy and climate policy framework, it is evident that some of the policy implementation areas will need to be reviewed. What are your expectations and will those reviews have an effect on the Energy Community strategy? EU climate policy is currently not part of Energy Community acquis but Serbia, as an EU accession country, will have to respect it sooner or later. In the energy area we can witness two major developments. More ambitious goals in energy policy will most probably trigger amendments to the Energy Efficiency Directive which is expected to soon become part of the Energy Community acquis. The other major change can be expected in theapproach to renewable energy sources. There, a policy, less generous than nowadays, will have to be created for a post 2020 period. Of course this will influence also Energy Community members. For Serbia, an orientation towards diversification of gas supply might also be important. The EU wants to be less dependent on Russian gas since this is beneficial for consumers and helps to stabilize supply. In Serbia’s official positions,we haven’t seen a serious wish to do something similar yet. How would you assess the level of investments reached so far in the countries that are the Contracting Parties of the Energy Community and in Serbia in particular? How important is the role of companies like NIS who is the leader in investments in Serbia? Private investment has remained far below the levels hoped for when establishing the Energy Community. Besides incorporating EU legislation, the Treaty establishing the Energy Community does not offer any specific instruments which could help promote investments. We are most happy with NIS as the leader in investmentsin Serbia. This is of utmost importance for the oil sector and for the entire energy sector as well. Most of the Energy Community members are characterized by a risk profile that is incompatible with attracting significant streams of private international capital. This is additionally constrained both in total amounts and by lending rules of the international financial organizations-IFIs (no 100% financing of a project by one IFI, “sound banking practice”, etc).
The existence of the Energy Community has been prolongedtill 2026 last year but I am confident that it will lastmuch longer, given that the organisation has evolved into apowerful international energy policy instrument
Prof Buzek’s group suggested more solutions. Two of them are crucial.Firstly, more funding should be made available in bilateral as well as multilateral support from international financial institutions (such as the World Bank etc.) and European Union for technical assistance as well as for investments (at least for Projects of Energy Community Interest). Funding should be conditional on compliance with Energy Community obligations.Secondly, the establishment of an Energy Community Risk Enhancement Facility (ECREF) is suggested, to address risks such as breach of contract by public bodies, retroactive measures, discriminatory taxation, payment default by public entities, and similar risks which are a strong deterrent to both lenders and investors, and are difficult to mitigate effectively. You are aware that Serbia has already started its accession negotiations with the EU. How is Energy Community supporting that process? Where do you see possible challenges for a company like NIS in this process? And a particular question - do you have any specific recommendations to the Serbian government when it comes to the involvement of the business in this process? The Energy Community is a waiting room for every EU accession country in the field of energy. This is why accession countries are much better prepared in the energy sector than in many others. The Secretariat is also an important advisor to the members of the Community in the negotiation process and sometimes even an attorney. Cooperation with industry is crucial. EU acquis is only a piece of paper if the companies do not respect it in practice. Therefore every government has to cooperate with the companies on its territory to successfully finalize the accession process. From your experience, what do the countries find to be the most difficult accession requirement to fulfil (Energy related)? How can companies like NIS help and support the process? Every country has its own peculiarity. I think that in Serbia most problematic will be its gas sector with company Srbijagas and all its problems. Srbijagas and Yugorosgas do not comply with unbundling requirements of the Second Energy Package, let alone the Third Package.
The Energy Community is a waiting room for every EU accession country in the field of energy. This is why accession countries are much better prepared in the energy sector than in many others
Energy Community Secretariat in cooperation with EURELECTRIC coordinated efforts to supply aid in equipment and material to network operators in the flooded regions. What are your estimates for the situation at the moment, should we expect some serious electricity shortages this winter? Without a major gas crisis and under normal weather conditions, I don’t believe there will be shortages. But scarcity of electricity will raise the price. The Energy Community is an international organisation dealing with energy policy. The organisation was founded by the Treaty establishing the Energy Community signed in October 2005 in Athens, Greece. It entered into force in July 2006. The Parties to the Treaty are the European Union and eight Contracting Parties from South East Europe and the Black Sea region. The Energy Community Secretariat has its seat in Vienna, Austria. The Energy Community’s mission is to extend the EU internal energy market to South East Europe and beyondon the basis of a legally binding framework. The overall objective of the Energy Community Treaty is to create astable regulatory and market framework in order to: • Attract investment in power generation and networks to ensure stable and continuous energy supply thatis essential for economic development and social stability; • Create an integrated energy market allowing for cross-border energy trade and integration with the EU market; • Enhance the security of supply; • Improve the environmental situation in relation with energy supply in the region; and • Enhance competition at regional level and exploit economies of scale.