EU membership delay a threat to energy sector
By : Greg Goodale
A delay in Poland's accession to the European Union (EU) past 2003 could spell disaster for the liberalization of the energy market, said Jan Buczkowski, chairman of the Polish Power Exchange (GE), prior to this Friday's negotiations on the EU energy chapter.
He said a change in the date of Poland's EU entry would stall the process of converting fixed long-term contracts between generators and the Polish Power Grid (PSE) into a compensation payment system necessary to increase competition on the domestic electricity market.
"The longer the delay, the worse for us and the worse for the energy sector," Buczkowski said. "When I worked for the treasury, all privatization work and work linked to the building of the market was done under the assumption that we would be in the EU on Jan. 1, 2003."
The replacement of long-term contracts with a system of compensation payments is one of the main reforms necessary to bring Poland in line with EU directives. The system aims to increase the competitiveness of power stations that produce electricity at far higher costs than Western plants because of crippling loan repayments that were essential for modernization in the 1990s. Rather than guarantee a price for each plant, the PSE will now use the market average and balance prices between cheaper and more expensive producers.
According to Olgierd Szlapczynski, director of the Energy Regulation Office (URE), retail electricity prices have risen constantly under long-term contracts because of the loan repayment system, with companies shifting costs onto the consumer. He said prices had increased at a slower rate this year, but are set to rise again as power stations struggle to meet their credit obligations.
"At the moment, from the point of view of the end user, the regulation of the energy market in Poland means nothing more than increasing energy prices," Szlapczynski said. "We expect that when the energy sector becomes competitive, energy prices will go down." Szlapczynski said that with the overcapacity of the Polish energy sector, the country is not threatened by energy shortages of the kind experienced after the liberalization of the California market in the United States. "We don't feel threatened by this in Poland as we have 30% overproduction in the energy sector," he said.
Szlapczynski is unhappy with the progress toward a liberalized power market based on an EU-style compensation system.
"None of the parties that should be interested in the activation of the compensation system show much determination, therefore its introduction is drawing out," he said.
Buczkowski said power generators used to long-term contracts will be unable to compete on price when EU accession gives European generators access to the Polish market. "If we enter the EU in 2003 without resolving the problem of long-term contracts, the plants that currently work under long-term contracts and have prices higher than the national average would fold instantly on entering a competitive market," he said.
Long-term contracts were first introduced in 1994 to provide investment-starved power stations the capital to upgrade production facilities and introduce ecological measures. Many contracts were signed between power stations and the PSE for up to 30 years. By guaranteeing a fixed price for electricity set at a level designed to cover costs, the contracts guaranteed a steady income for power stations. This income allowed them to obtain bank loans for modernization.
Some 70% of electricity in Poland is still not produced on a competitive market and long-term contracts have helped them continue to operating, despite inefficiencies.
