Electric dreams
EU leaders have roundly endorsed a plan to liberalize the bloc's gas and electricity markets by July 2007 as part of a new energy strategy for Europe. However, experts say that the Polish government is almost totally unprepared to implement the unified strategy that is so loudly called for in Brussels, and which seems to come into direct conflict with its own policy for the future of the country's energy sector.
Although Europe's new energy strategy is still in its infancy, the cornerstone has been laid and the main objectives are clear. The EU aims at full liberalization of the energy market by mid-2007, the creation of 'interconnectors', and the diversification of gas sources, for example by building liquefied natural gas (LNG) and overseas terminals.
"The completion of the internal market, the fight against climate change, and security of supply are common energy challenges that call for common solutions. It is time for a new European energy policy," EU Energy Commissioner Andris Piebalgs said.
Strategy split
Poles became very eager to develop and implement a pan-European energy policy after Russian Gazprom cut gas supplies to Ukraine at the beginning of the year. However, while Polish politicians have been quick to call for the policy in Brussels, their colleagues on the home front have done little to prepare the domestic sector for the necessary changes.
"The last government action regarding any kind of energy-sector regulation was taken on January 4, 2005. Since then, up to the present negotiations on energy policy Prime Minister Marcinkiewicz is having with the unions, nothing has been done," says Andrzej Froński, deputy CEO of the Kraków Institute of Gas and Oil.
National agenda
The current government has, in fact, prepared a strategy for Poland's electro-energy sector. Called the National Energy Agenda and created after weeks of consultation with unions and entrepreneurs, the plan, according to experts, actually has little to do with the EU's goals. In the agenda, the government enigmatically writes that it wishes to "liberalize or consolidate" the market. At present, it seems to have chosen the latter.
On March 28, as part of the National Energy Agenda, Prime Minister Marcinkiewicz announced the creation of a company called the Polish Energy Group (PGE). The plan calls for the creation of the PGE through the consolidation of state-owned electric companies, resulting in a megacorporation designed to expand abroad and secure energy sources for the state. The project is to be funded by the taxpayer.
How this strategy fits in line with the EU's call for the liberalization of member states' energy markets is unclear. Poland's market remains highly state-influenced - just two major power companies (GZE and Stoen) and a handful of heat and power plants have been privatized since 1989. Still, some experts say more electro-energy privatization is inevitable.
"Power seller Energa, and three further heat and power plants will be privatized sooner or later," the CEO of the Union of Private Energy Entrepreneurs, Przemysław Chojnowski, says. "The problem is, it's likely to be later rather than sooner, and for sure not before July 1, 2007."
Just a pipe dream?
Poland's dominant gas company, Polish Oil and Gas (PGNiG), recently announced plans to buy gas from North Africa, and to increase domestic extraction from the current 4.5 billion cubic tonnes to 8.5 billion by 2008. This is good news, because there is general agreement that Poland needs more gas and that it also needs to diversify its sources.
However, the EU wants a free gas market, and PGNiG is 85-percent state-owned. Outside of the acrimonious resignation in January of the company's former CEO and one of his deputies - for whom no replacements have yet been found - little has been done to change the company's structure.
The market will not wait for the government to take the necessary steps. According to PricewaterhouseCoopers' 'Power Deals' report, gas-sector companies in Europe will merge and markets like Poland will have to open up to remain competitive.
Proxy of the board at PGNiG, Bartłomiej Pawlak, also thinks the market is changing: "The position of competitors in Poland is growing. This is now only among suppliers of big commercial clients. Next year it will be possible in the case of the whole market."
Another problem lies in infrastructure. In order to meet the EU's requirements Poland will have to renovate existing pipelines and build three new ones. Such an investment will cost billions. Gaz System, a fully state-owned company which gets its assets from PGNiG, manages Poland's gas infrastructure and will be responsible for modernization and building new pipelines.
No cash flow
But currently Gaz System does not have the money. The company needs to invest billions of złoty during the next three years and so far it has gathered less than zł.400 million. It might get more, if PGNiG gives it more. Pawlak says that PGNiG is likely to provide extra financing: "If they tell us they need a reasonable amount more, we would probably consider giving them more. Probably this investment would take another three years. If all factors remain as they are today, we will be able to finance this investment."
However, according to Gaz System, the company plans to spend zł.170 million of its own funds not on building new pipelines or even renovating existing ones, but on the modernization of its IT system. The rest - zł.225 million, or even the additional zł.500 million it might get - will not be enough to reconstruct existing pipelines, not to mention building new ones.
Legal turkeys
The government's difficulties in the energy sector don't end with a lack of strategy. Recently it has been unable to develop effective acts of law. One example is the National Agenda of Rights Distribution for Carbon Dioxide Emissions, an act which was passed at the end of 2005. It is meant to cover the years 2005-2007 and should regulate the right to trade in carbon-dioxide emission allocations. However, the bill omits to say when Polish companies will be able to buy and sell such rights.
Another issue involves the definition of 'renewable energy sources'. There is no legal definition in Poland, with the result that each of the various laws relating to the subject uses a different definition.
"Every Polish act related to renewable energy creates its own definition and standards in this domain. The definitions are often inconsistent, and differ from the description used by the EU," says Jan Norwisz from the AGH University of Science and Technology in Kraków. The EU agenda states that by 2007 renewable sources should cover 15 percent of a state's energy supply.
Too little too late
What will be the economic repercussions of the Polish government not being ready for mid-2007 energy market liberalization? The Kraków Institute of Gas and Oil's Froński has one answer. "Poland will not be ready to liberalize its market in 2007. It won't even be ready in 2009.
"In Poland people often say that 'it'll be all right, one way or another.' And that's what's going to happen, I suppose, because way too little has been done during the past few years and now it's already too late to meet European conditions."
