ECONOMIC GROWTH IN SE EUROPE WILL SUFFER AS ENERGY SHORTAGES HIT,EXPERTS WARN

SARAJEVO, Bosnia (June 25,2008) - Southeast Europe will face a severe electricity shortage in coming years that could cause economic growth in the region to slow significantly, leading energy experts warned.

They blamed government subsidies,which have kept electricity prices artificially low,for the soaring growth in consumption, while little has been done to step up production or offer alternative sources of energy.

Studies by KPMG, a leading financial management consultancy, and the European Stability Initiative, an independent research institute based in Berlin, found that significant investments would be needed in energy generation and infrastructure in Southeast Europe in coming years to overcome decades of neglect.

Currently, half-a-dozen power plants are being built or expanded in Bosnia,Bulgaria, Romania and Slovenia. But even if they all come on line as planned by 2015, their combined output will be less than half the anticipated growth in consumption.

The €800 million ($1.2 billion) Stanari thermal power plant in Bosnia is the first new generating facility in the southeastern Europe in three decades. It will have an installed capacity of 420 megawatts.

Analysts say annual growth of energy consumption in the southeastern Europe, comprising a dozen countries with a combined population of 73 million people,averages nearly four percent, pushed up by strong economic growth and improving living standards.

But the region has a combined installed electrical power of about 76 gigawatts, barely enough to fulfill current requirements.

"The stability of electrical supply in the region is becoming dangerously overstressed," said Sijka Pistolova, the editor of the Balkan Energy Observer, a trade publication.

She said that the immediate reason for this was the closure last year of two units of Bulgaria's nuclear plant at Kozlodui — as part of that nation's requirements to join the European Union.

Until then, Bulgaria could always make up for shortages elsewhere. Although Romania's Cernavoda nuclear plant is being expanded, it will not be able to compensate for that loss, she said.

The region has large unexploited hydropower potential and the largest lignite coal reserves in Europe.

But Pistolova noted that a general lack of investment and the damage caused by the Yugoslav wars in the 1990s , which destroyed large parts of the transmission grids ,had disrupted investment in power generation.

Within 2-3 years, this could result in daily, hours-long power cuts in some countries, she warned. Nations like Albania, Macedonia and Greece already barely meet their needs.

A possible remedy for future shortfalls could be to increase imports from countries which have large surpluses, such as Russia. But analysts noted that this too would require investments in transmission grids from the east.

The European Union has been reluctant to help develop such infrastructure, fearing it would lead to increased energy dependence on Russia.
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