Why reform is needed
Poor governance policies in the power sector and the public financing of energy infrastructure in many EBRD countries have failed to support adequate sector development: power infrastructure is ageing and has deteriorated significantly beyond its intended life span. This coupled with decades of sector subsidies has resulted in a highly intensive energy sector, which threatens energy security in the region, discourages investment and contributes to the emission of disproportionate levels of greenhouse gases into the atmosphere. Even in those of the EBRD’s countries of operations with significant oil or gas deposits, governments and businesses have begun to recognise that the inefficient use of energy is not sustainable, undermines firms’ competitiveness on global markets and negatively affects the national investment climate. Investment is essential to the refurbishment, renewal, upgrade and expansion of energy infrastructure and improvement of energy service. The lack of appropriate legal and regulatory measures, however, has led to low levels of investment in the transition economies and insufficient sector performance.
In addition to inefficient processes, the energy sectors of transition countries are characterised by a traditionally low usage of renewable energy sources. An increased focus on energy efficiency and a gradual introduction of cost-reflective tariffs are critical to the transition process and require dedicated policy and regulatory reform.
The LTP's role
The LTP provides technical cooperation assistance to countries which have undertaken reforms in their energy sector or demonstrate a sufficient commitment towards such reform. In particular, the Bank focuses on the main reform components that enable transparency and market competition, such as restructuring of energy utilities, improving regulation, building or enhancing institutional strength and helping to strike the correct balance between public and private participation.
In assisting governments to implement specific reform elements and gradually refine the policy, legal and regulatory framework for the sector the Bank is guided by the best practice principles, such as the need to:
- Introduce clear, coherent and targeted policy on the development of a predictable and transparent legal and regulatory framework for energy sector development;
- Establish a solid institutional framework providing for a sector regulator, ideally independent but at least sufficiently separated from industry and policy-making;
- Ensure that the legislative framework regulating the sector maximises legal certainty and introduces transparency and accountability;
- Ensure commercialisation and corporatisation of state-owned energy companies;
- Where feasible, work towards establishing competition in energy markets through market-opening, gradual liberalisation of electricity markets and a wholesale gas market adequately supported by the regulatory framework;
- Ensure non-discriminatory, third party access to grid networks;
- Eliminate cross-subsidies and promote cost-reflective tariffs, including targeted “safety net” payments for those consumers who are genuinely adversely affected by the tariff adjustments.