Energy Sector Issues and Poverty in Serbia

C E N T E R F OR A D V A N C E D E C ON OMI C S T U DI E S
Energy Sector Issues and Poverty in Serbia

Goran Radosavljevic and Vuk Djokovic

Belgrade, 19 June 2007

1
Main Power Sector Issues in Serbia

After the democratic changes in 2000, Serbia embarked on an ambitious program of
reform and stabilization, which also included the energy sector. However, once set
into motion, the program of restructuring, privatization and liberalization of Serbias
energy sector raised numerous political and social issues. After six years of transition,
the energy sector in Serbia is still in the hands of state-owned companies enjoying a
monopoly in the market (Elektroprivreda Srbije EPS, the national power generation
company; Naftna industrija Srbije NIS, the state-owned oil extraction, refining and
distribution company; Javno preduzee za podzemnu eksploataciju uglja JP PEU,
the state-owned underground coal extraction company; and Srbijagas, the national gas
extraction, processing and distribution company). Yet-to-be answered questions faced
by Serbias elite include: how does one reform these systems should they be
privatized, or should the state keep a dominant share? How should they be
restructured and privatized (should the large systems be sold piecemeal or as wholes;
should they be sold through the stock market or to a strategic partner)? Due to
considerable production inefficiency (obsolete equipment, over-employment,
mismanagement), these companies are increasingly losing step with other European
energy sector companies and are unable monopolies notwithstanding to seriously
get to grips with competition.
Energy prices in the Serbian market are subject to administrative control and are
lower than in neighboring countries. Low final energy prices imply lower income for
energy companies, which are thus unable to secure assets needed for further
investment into fixed assets, modernization, etc. In the early years of transition the
government granted various forms of subsidies to these companies, mainly to cover
their losses and keep up production. Direct subsidies have been cut dramatically over
the past two years; however, any significant investment into this sector is yet to come.
Energy prices have frequently been subject to political manipulation. Although there
were attempts to bring them to an economically viable level (especially true of
electricity prices), energy prices today remain low, mainly in consequence of policies
aiming to manipulate them to control inflation. On the other hand, it is also possible
that low administratively-controlled energy (especially electricity) prices were a
clumsy attempt to affect living standards. According to Serbian Bureau of Statistics
(SBS) data, Serbia had about 220,000 households living below poverty level in 2006.
However, the low energy price is also a form of subsidy to all households, regardless
of whether they are truly at risk or not. If energy prices were brought up to
economically viable level, budget revenue would rise, thereby providing assets
needed for social assistance to the households most at risk.
As for energy producers, current prices are not enough for them to cover all
production costs. Fuels are often of lower quality when compared to European
standards; because of low prices, copious quantities of energy are used Serbias
energy efficiency is the lowest in Europe. Due to the lack of assets for investing in
modernization and increasing capacities, energy companies (NIS, EPS) are becoming
ever less competitive; to ensure sustainable energy supply, the state continues to
subsidize them indirectly.


2
Final Energy Consumption

Serbia imports about half of its annual energy needs. This percentage has grown
substantially over the past several years, mainly due to a rise in the consumption of oil
derivatives and gas, which are in the main imported.
1
Final energy consumption rose
by some 18% in the period 2004-2006 (Table 1). The highest growth has been
recorded in the industry sector (nearly 40%). The revival of industry, following the
privatization of a number of large companies between 2002 and 2004, as well as high
GDP growth over the past several years (6.8% annually between 2004 and 2006),
have been the greatest drivers of this growth in final energy consumption.
2

Table 1: Final Energy Consumption of Economic Sector
2004 2005 2006*
Total (Mtoe) 7.66 8.47 9.02
Industry 27.2% 29.3% 32.2%
Transport 29.4% 27.8% 27.3%
Other Consumers (Househo 43.4% 42.9% 40.3%

Source: Serbian Chamber of Commerce and Industry (PKS).
* Estimate
Note: Mtoe (millions of tones of oil equivalent) is the amount of energy released when one million tons
of crude oil is burnt.

When fuel sources are considered, it can be seen that solid fuel (coal and wood)
consumption has risen by nearly 80% from 2004 to 2006. Gas consumption is also on
the increase (with a 15% rise over the same period). However, liquid fuels and
electricity still command the greatest share in Serbias final energy consumption,
although this is decreasing slightly (from 64% in 2004 to 57.7% in 2006).

Table 2: Final Energy Consumption by Fuel Type
2004 2005 2006*
Total (Mtoe) 7.66 8.47 9.02
Solid fuels 14.1% 20.6% 21.3%
Liquid fuels 36.4% 32.6% 32.6%
Gas 13.8% 13.0% 13.5%
Electricity power 27.6% 26.1% 25.1%
Heat 8.1% 7.7% 7.5%

Source: Serbian Chamber of Commerce and Industry (PKS).
* Estimate

1
Domestic sources cover one-fifth of crude oil consumption and one-tenth of gas consumption.
2
Final energy consumption in the industry sector in 2006 stood at 75% of 1990 levels.

3
Electricity consumption has been growing over the past two years (Table 3), mainly
due to consumption by businesses, which has grown steadily in the period 2001-2006,
which is in accord with the growth of GDP and economic activity in Serbia. On the
other hand, electricity consumption by households has also grown, especially in 2005
and 2006 in relation to 2004.

Table 3: GDP and Electricity Consumption in Serbia, 2001-2006
2001 2002 2003 2004 2005 2006*
GDP, billion euro 13.19 16.81 18.01 19.72 21.11 25.26
Electricity consumption - economy, TWh 10.49 10.68 11.02 11.52 12.11 12.19
Electricity consumption - household,
TWh
13.99 13.74 14.09 13.83 14.41 14.38

Source: SBS, EPS.
Note: Distribution and supply losses, as well as consumption for public lighting, are not included.
* Estimate

Energy Sector Structure in Serbia

The energy sector in Serbia is still in the hands of state-owned companies enjoying a
monopoly in the market. The production, refining and distribution of crude oil and oil
derivatives in Serbia is under the control of state-owned NIS joint stock company.
Crude oil is processed at two Serbian refineries, which have a capacity of about 6
million tons per year capacity utilization being some 60%. Numerous domestic and
foreign companies are involved in retail. However, administrative controls of retail
prices, and the prohibition of the import of oil derivatives, mean there is no real
competition between them. In mid-2001 the Serbian Government passed a decree
3

prohibiting the import of oil derivatives. In other words, all companies in the Serbian
market must purchase their derivatives from NIS. The aim here was to bring oil and
derivative imports under fiscal control, which was in fact achieved,
4
as well as to
secure funding for reconstructing an oil industry mainly oil refineries devastated
by `99 bombing. Crude oil imports were allowed, at a later date, to help dismantle
NISs monopoly, while NIS undertook to refine oil for other parties under the same
conditions.
5
However, producer price, output, and retail price are still set by the state
and NIS, meaning that these measures have failed to cut into NISs monopoly. On the
other hand, NISs factory prices for oil derivatives are among the highest in the
region, while excise duties are among the lowest in Europe (Graph 1), which directly
reduces budget income.

Graph 1. Share of Excise Duties and Taxes in Oil Derivative Retail Prices, 2007

3
Official Gazette of the Republic of Serbia, No. 16/01.
4
The collection of taxes and excise duties on oil derivatives increased tenfold from 2001 to 2003.
5

4
T a x ,

%

o f

t o t a l

p rice
0 . 0
1 0 . 0
2 0 . 0
3 0 . 0
4 0 . 0
5 0 . 0
6 0 . 0
7 0 . 0
8 0 . 0
B u l g a r i a C z e c h
R e p u b l i c
F r ance G e r m a n y G r e e c e Hungary Italy Serbia Slovak
Republic
U n l e a d e d g a s o l i n e Diesel

Source: IEA (2007).

The state continues to indirectly subsidize NIS thought not collecting crude oil
extraction fees. If one takes into account current domestic crude oil production
6
and a
reasonable rate for Serbias conditions of 10-15%, the state would stand to lose
between 30 and 50 million in unpaid fees for the use of domestic crude oil sources.
The current rate of 3% (one of the lowest rates globally) means that the state has been
subsidizing NIS with about 10 million annually only by tolerating non-payment of
extraction fees (okovi, Radosavljevi, 2007).
Serbia annually consumes about 2.2 billion cubic meters of gas, imported from Russia
by Srbijagas. Businesses are the largest consumers; seven companies consume about
47% of Serbias total gas consumption. Gas prices have risen in the past two years
due to rising oil prices in the global market. This fact, coupled with a lack of funding,
has brought about a slowdown and, even, a complete halt in the introduction of gas
distribution systems in Serbia. The relatively high price of gas (relative to that for
solid fuels) some companies have stopped using gas after privatization (e.g. cement
works).
Serbias electricity production is dominated by the combustion of low-grade lignite
coal (mostly obtained from open-pit coal mines) at coal-fired power plants, and, to a
lesser extent, available hydroelectric potentials. According to 2005 data, coal-fired
plants accounted for 65.4% of electricity produced, with gas- or liquid-fuel-fired
plants accounting for 1.6%, and hydroelectric plants for 33%.
7
All production,
distribution, and transport, as well as retail, is handled by EPS, which is 100% state-
owned.

Privatization of the Serbian Oil Company (NIS)

In late 2005, the Serbian Government advertised a competition to select a
privatization advisor, thereby starting the privatization process for the national oil
company. In mid-2006, the privatization advisor proposed, and the Government
accepted, the NIS Privatization Strategy. According to this document, the state would

6
According to NIS data, some 5.2 million barrels of crude oil are extracted in Serbia each year.
7
These relative shares have not changed to any significant degree since 2000.

5
in the first phase sell 25% of its share in NIS to a strategic partner, which would in
return undertake to effect a recapitalization of some $200 - $300 million, raising its
share to 37.5% (the same percentage to be kept by the state). The remaining 25%
would be distributed to employees and the Privatization Registry (6.7% and 18.3%
respectively). The strategic partner would also be given the managing position. The
second phase would see the strategic partner acquire a share of 49% through
recapitalization and purchase of shares from employees, while the state would keep
the remaining 51%; this would mean the end of privatization. It was also planned to
advertise the privatization tender in September 2006, and end the entire privatization
process in early 2007.
The political situation in late 2006 and early 2007 (the adoption of Serbias new
Constitution and the calling of parliamentary elections) halted the privatization of
NIS. It is still unclear whether the tender will, indeed, be advertised by the end of
2007; there are signals that the initial privatization strategy could even be abandoned.
In late 2005 NIS completed the first phase of restructuring. The public enterprise was
transformed into a joint stock company with four branches: one specializing in
extraction of crude oil and gas (NIS-Naftagas); one dealing with the refining and
distribution of oil and derivatives (NIS-Petrol); one handling gas (NIS-TNG); and one
dealing with non-core activities (NIS-Ugostiteljstvo i turizam). It was planned to split
the non-core activities from NIS first, and privatize them separately. Srbijagas, a
company for trading in and processing gas, was also split from NIS.
The privatization of the national oil company has raised numerous issues. First and
foremost, it is not clear what will happen to the decree prohibiting the import of
derivatives, which has been extended to 2010.
8
Any privatization of NIS with the
decree in force would replace the state monopoly with a private one. On the other
hand, if the decree were repealed, and NIS exposed to competition, this would have a
negative effect on its performance, as the company is at present unable to cope with
competition.
Paradoxically, by over-protecting NIS from competition, the decree prohibiting
derivative imports has to some extent even worsened the national companys
situation. The quality of derivatives produced at its refineries is very low, refineries
have not yet been refurbished, pricing policies have resulted in the demise of small
private retailers that had developed during the 1990s, and, finally, its activities have
an adverse impact on the environment, and promote pollution.
The state subsidizes NIS indirectly by tolerating non-payment of fees for the use of
domestic crude oil and allowing higher manufacturing prices for derivatives than
would be economically feasible. Although NISs end-of-year balances do show
profits (some 75 million in 2005, and 80 million in 2006), this is due both to its
monopoly and the indirect subsidies we have mentioned. Again, although the state
budget derives significant gain from NISs revenues, this incentive system
generates inefficiency in production, has an adverse effect on NISs competitiveness,
and results in a very inefficient redistribution system. Due to relatively low inflows
into the budget from the energy sector, the state resorts to other taxes to ensure the

8
In October 2006 an initiative was put forward to introduce customs duties on imported derivatives
and thereby gradually abolish the monopoly by 2012; this legislation, however, has yet to come into
force.

6
budget is balanced (e.g. taxes and social contributions on salaries, standing at 63%,
are the highest in the region). This means that part of the responsibility for funding
the energy sectors inefficiency has been imposed on the population a fact that hits
the poorest households hardest. A CEVES analysis has shown that the inefficiency of
NIS costs Serbias citizens some 300 million each year (Udoviki et al. 2006).

Electric Power System Restructuring

Restructuring of EPS started in early 2005, when the electric power distribution
system was split from EPS; Elektromrea Srbije (EMS, in charge of power grid
infrastructure) was then established as a separate company in June 2005. In early
2006 the number of distribution companies (electricity wholesalers) was cut from 10
to five. In addition to these, EPS still controls electricity production capacities (coal-
fired and hydroelectric plants and heating plants), as well as open-pit and
underground coalmines in the Kolubara and Kostolac basins. EPS has, for the past
seven years, been the greatest beneficiary of foreign donations to Serbia. Since 2001
European Union countries have invested over 400 million into Serbias electric
power system, which has made it possible to revitalize existing EPS capacities and
stabilize coal and electric power production in Serbia.
9
To this should also be added a
further 150 million in direct energy donations (electric power and oil derivatives).
In late October 2005 Serbia signed the Treaty establishing the Energy Community of
South Eastern Europe (ECSEE). In addition to Serbia, the Treaty was also signed by
Montenegro, Albania, Bulgaria, Bosnia-Herzegovina, Romania, Croatia, Macedonia,
the UN Mission in Kosovo (UNMIK), and EU officials. This agreement came into
force on 1 June 2006, and Serbia has committed itself to, among other things,
liberalizing the electric power retail market for all types of consumers. More
precisely, all consumers (except households) must be allowed to become qualified
electric power buyers in the market at the latest by 1 January 2008, with households
being granted the same rights at the latest by 1 January 2015.
The first step towards liberalizing the electric power market was made by opening the
market to certain categories of buyers and granting licenses for trading in electric
power, in early 2007. Large consumer companies (i.e. those whose annual
consumption exceeds 3 GWh per year)
10
may acquire the status of qualified buyer,
and, with it, the ability to purchase electric power in the market from licensed
retailers.
11
There are at present 350 potential qualified buyers (about 21% of Serbias
total electricity consumption), but they continue to purchase their electric power from
EPS, which still enjoys a monopoly both in producing and selling electricity.
12
This
fact notwithstanding, as many as 19 companies have so far been granted licenses to
trade in electricity by the Energy Agency. The question begs itself: why are there so
many electricity traders in a country where the market does not really exist? The

9
orevi: Donacije ustupaju mesto komercijalnim kreditima [Djordjevic: Commercial loans starting
to displace donations], Danas, 30 April 2007.
10
Decision Establishing Minimum Annual Electricity Consumption Levels Required for Acquiring
Qualified Buyer Status, Official Gazette of the Republic of Serbia, No. 114/06.
11
Until 1 January 2007 the minimum requirement for qualified buyer status, granting an entity the
freedom to choose its energy supplier, was set at 25 GWh annually by the Energy Act.
12
Source: Energy Agency of the Republic of Serbia (EARS), www.aers.org.yu.

7
answer is a simple one. Thanks to its position at the crossroads of numerous power
transmission lines, Serbia is a very important transit area for power transmission from
countries with surpluses (Romania, Bulgaria, Bosnia-Herzegovina) to those with
significant power shortfalls (Greece, Macedonia, Albania and Montenegro to the
south; Croatia and Slovenia to the north).
13
Almost all main transmission routes in
South-eastern Europe lead across Serbia; anyone wishing to trade electricity in this
region must transport it across the country. This is what drives electric power traders
to obtain Energy Agency licenses, as Serbian legislation stipulates that only locally-
registered legal entities may transport electricity through Serbia.
The next step towards market liberalization was the establishment of the Energy
Agency under the Energy Act.
14
The Agency is a regulatory body charged with
promoting and directing the development of the energy market on the basis of non-
discrimination and efficient competition; monitoring the implementation of
regulations and rules governing the operation of energy systems; harmonizing
activities of entities involved in energy operations to ensure that customers regularly
receive energy supplies and services, as well to ensure that customers are protected
and granted equal status. One of the Agencys statutory tasks is establishing electric
power prices for tariff buyers, as well as transport and distribution fees. The Agency
has so far drafted several sets of methods for calculating energy distribution and
transport fees, as well as final energy price lists for tariff buyers. In addition, several
dozen licenses for various energy-related activities have also been issued;
requirements for obtaining qualified electric power and gas buyer status have also
been established.
A new tariff system for calculating electric power prices has been announced and is
due to come into force on 1 September 2007. An innovation is the introduction of
three tariff systems (for distribution and transmission, as well as for tariff buyers) to
replace the current single tariff; in addition, prices for qualified buyers are to be set
freely in the market. The new price regulation system will create conditions for
market development, prevent transfer of costs from one activity to another, promote
transparency in energy company operations, and protect customers from abuses of
monopoly.

Restructuring and Privatization of JP PEU

Serbias Energy Development Strategy to 2015 foresees investment of $85 million for
consolidating underground coalmines. These assets are to be directed towards the
purchase of equipment that would make it possible for PEU to increase its production
capacity and close non-viable mines. The strategy also stipulates that the investment
will result in a three-fold increase in production at PEU by 2015. For the past several
years, coal production at PEU has stood at a level of about half a million tons per year
(Table 4); this is mainly made up of high-quality coal types, which have recently been
in increasingly greater demand. Estimates put demand for domestic coal at about 1.3
million tons annually (DMT et al, 2006). In absence of domestic production, demand
is satisfied from export.

13
Tranzit struje mora preko Srbije [Electricity transit must pass trough Serbia], Blic, 3 May 2007.
14

8

Table 4. Coal Supply in Serbia, 2005
Supplier Quantity, mil. t Share, %
J P EPS 2.01 50
J P PEU 0.49 12
Import 1.53 38
Total 4.03 100

Source: Implementation program of the energy sector development strategy of the Republic of Serbia
by 2015 for 2007-2012 period, Government of Serbia.

PEU is currently undergoing restructuring, with its socially-owned equity slated for
privatization. Bearing in mind that the coal production trend at PEU is dropping, as
well as that some mines face exceptionally difficult circumstances (low remaining
coal reserves, obsolete equipment), the results of this process are difficult to foresee.
The uncertainty appears all the greater when one considers social and political factors
in addition to technical and economic ones: underground coalmines, currently
employing about 4,300 people, have great social and economic importance for their
local and regional communities. For instance, production at the Soko mine holds a
20% share in the national income of the Soko Banja municipality. The percentage is
far greater in some other municipalities.
The difficult position of miners is reflected above all in poor working conditions;
relatively high wages in this sector are the result of government subsidies rather than
higher productivity. Some mines have already closed (Aleksinac, for instance). In
2006 one mine was privatized (Kovin); privatization of the entire PEU system is
ongoing.
15
This process has opened several pressing issues: firstly, coalmine
production cannot even cover costs, meaning that the company is operating at an
annual loss of, on average, some 35 million. This is at the same time the only public
enterprise in the energy sector still receiving government subsidies, both directly
(about 60 million from the second half 2003 to the present) and indirectly (through
not being required to pay taxes and employee contributions, mineral ore extraction
fees, etc). On the other hand, these subsidies support the production process, which,
once stopped, can only be restarted with great difficulty.

Renewable Energy Sources

Among the priorities of Serbias energy policy in the near future, as foreseen by the
Energy Development Strategy to 2015, are the New Renewable Energy Source
(NRES) Selective Utilization Programs (NRESs include biomass, geothermal, solar,
and wind power, as well as remaining hydroelectric potentials whose utilization is
technically possible and economically feasible, especially on smaller rivers). Special
Energy-Efficient and Environmentally-Friendly Technology Programs have also been
included in the Strategy (such as new coal, biomass and waste burning solutions,

15
Uskoro privatizacija rudnika Resavica i privatizacija NIS [Resavica mine and NIS to be privatized
soon], Danas, 30 May 2007.

9
technologies for decentralized production of electric power and heat based on natural
gas, and small and mini-hydroelectric plant technology), aiming to cut the
consumption of high-quality imported fuels and produce more electric and heat
power, with a significantly lower adverse environmental impact. The strategy also
foresees that the share of NRESs in total final energy consumption should rise to 1.5
2% from 2006 to 2015. However, not a great deal has been done to implement the
strategy insofar as NRESs are concerned.
In signing the ECSEE Treaty, Serbia undertook, among other things, to adopt EU
Directives aimed at increasing the use of renewable energy sources (RESs).
16
With a
view to this, Serbia is obliged to draft an implementation plan for these directives by
mid-2007.
The Energy Act stipulates a number of measures intended to provide incentives for
the use of RESs. The Ministry of Mining and Energy has drafted bylaws defining
criteria for obtaining the status of preferred energy supplier; these have, however,
not been adopted, since the Energy Act has been amended to create incentives and
require power distribution companies to prioritize electricity obtained from RESs. In
addition, the Energy Act does not recognize biofuels used in motor vehicles as a
separate category, and thus does not include the appropriate frameworks for their use
(i.e. the implementation of Directive 2003/30/EC).
In addition to shortcomings in legislation, Serbia also largely lacks standards (for
equipment, RES extraction procedures, etc) the EU uses. Regulation governing RES
utilization, and plant design and installation, are also absent. Any investors interested
in funding electric power production from RESs have to endure a very complicated
and laborious administrative procedure a major obstacle for investments into this
field.

Energy and Poverty in Serbia

The ongoing process of restructuring, liberalization and privatization of the energy
sector poses two problems for the new Serbian Government. On the one hand, there is
a need to keep energy prices low, as any increase would mean a major blow to living
standards and would promote inflation. On the other, electric power prices must stop
being an instrument of social policy; this would help the entire sector, ensure
investment funding, and provide the necessary energy for unhindered economic
growth.
Final energy prices in Serbia are the lowest in Europe, and are subject to
administrative control. For instance, electric power prices in Serbia are 2 to 3 times
lower than those in the region (Table 5). The low price is used to subsidize both
businesses and households; Serbias households spend some 10% of their annual
income on energy, with poor households spending more than 20%, in spite of low
energy prices (UNDP, 2006). Still, the price of electricity has risen several times over
the past few years, and is now approaching market levels.

16
Directive 2001/77/EC on the promotion of the electricity produced from renewable energy sources in
the internal electricity market and Directive 2003/30/EC on the promotion of the use of biofuels or
other renewable fuels for transport.

10
Serbias primary energy
17
consumption per capita is very low relative to former
transition countries. Thus, for instance, when compared to Hungary, Serbia lags
behind by as much as 45%. In relation to EU25 average the picture is even bleaker,
with Serbia spending 2 to 3 times less.
18
On the other hand, the relation between
energy intensity and GDP in Serbia is about twice as high as in other European
countries. The ratio of primary energy consumption to GDP has dropped from 0.9 to
0.46 toe/$1000 from 2002 to 2006. Consumption, however, remains far above the
EU25 average (0.16), as well as above the average for countries in the region (0.19
0.26).
Most industrial energy is expended as raw material in the production of steel, sugar,
rubber and copper Serbias main exports. The export of agricultural produce is
supported by relatively cheap fuels and fertilizers produced in obsolete and heavily
damaged plants from expensive imported oil and gas. The question begs itself: how
can such an energy-poor country export energy-intensive products? The answer is
simple their production is subsidized by the low price of final energy.

Table 5: Electricity Prices, Households, 2001-2006.
US$ per KWh 2001 2002 2003 2004 2005 2006
Czech Republic 0.060 0.076 0.085 0.097 0.106 0.122
France 0.098 0.105 0.127 0.142 0.142 0.144
Germany 0.124 0.136 0.176 0.198 0.212 n.a.
Greece 0.070 0.077 0.096 0.107 0.112 n.a.
Hungary 0.068 0.080 0.102 0.134 0.146 0.141
Italy 0.148 0.156 0.186 0.191 0.198 n.a.
Poland 0.079 0.084 0.095 0.103 0.121 0.132
Romania 0.050 0.062 0.073 0.091 0.116 n.a.
Serbia* 0.018 n.a. n.a. 0.046 n.a. 0.056
Slovak Republic 0.063 0.067 0.104 0.134 0.141 0.156

Source: EIA, CEVES.
* Estimate

The fact that electric power prices in Serbia have fallen in the past two years relative
to prices of gas and solid fuels has meant that an increasing number of households are
resorting to electric energy for heating. According to EPS estimates, 15% of Serbias
households use electricity for heating; as much as 24% of total electric power
production is used for heating households.
19
Estimates put losses due to the use of
electric power for heating at tens of millions of Euros annually.
20
The losses are
caused by the low degree of coal utilization in electricity production at coal-fired
power plants (as little as 27%), high dissipation in distribution and transmission
(about 22% of total annual net production), as well as low energy efficiency (poor
house insulation, old fittings). For instance, poorly insulated houses in Serbia

17
Energy embodied in natural resources (e.g. coal, crude oil, sunlight, uranium) that has not undergone
any anthropogenic conversions or transformations. www.climatechange.ca.gov/glossary/letter_p.html.
18
Implementation program of the energy sector development strategy of the Republic of Serbia by
2015 for 2007-2012 period, Government of Serbia.
19
Ibid.
20
CEVES estimates that these losses range from 60 to 80 million annually.

11
consume 3-4 times as much energy per square meter as houses in Northern Europe.
Welfare is therefore reduced by several orders of magnitude: in winter, more than half
of the population lives in less square meters per member of household than would be
sufficient for normal family life, or is close to that level (Aleksandar Kovaevi,
2006).
Rising energy prices have a major impact on inflation and the cost of living in Serbia
this issue thus carries significant political and social overtones.
21
Experiences of
countries in the region have shown that privatization and liberalization of national
electric power companies has led to major prices rises, with the population always
shouldering the final burden.
22
Price rises would, therefore, hit the poorest households
hardest. For instance, the first large increase in electricity prices in Serbia, in July
2002, jeopardized small consumers and poor households most, their electricity bills
doubling.
23
On the other hand, due to changes in price calculation, households using
electric power for primary or additional heating received smaller bills. The price hike,
therefore, did not affect all categories of population equally. To dampen the impact of
price rises on the poorest sections of the population, the government introduced
concessions: these categories were exempt from paying the required monthly flat fee,
while those most at risk (the elderly, the disabled, etc) were granted discounts of up to
30%. The concessions were in force for several months only; some 200,000 people
were able to take advantage of them.
According to EPS data, some 300,000 households in Serbia cannot pay their
electricity bills, or have difficulty paying them, despite the current very low prices.
An SBS analysis has shown that an above-average poverty risk is present in
households using solid or liquid fuel for heating (Table 6). Households using solid
fuels have the greatest share in total population structure (60.4%); these account for
most of the poor population (85.4%), and are mostly rural households (Boani et al,
2007).

Table 6: Poverty Indicators by Type of Energy Used for Heating
Type of energy % of poor poverty risk
% of total
population
% in total
number of
poor
Central heating sistem 2.7 -69.8 17.5 5.3
Electricity 3.5 -60.1 7.9 3.2
Solid fuel 12.5 41.4 60.4 85.4
Liquid fuel 13.5 52.9 0.5 0.7
Mixed 4.4 -50.2 6.5 3.3
Gas 2.7 -69.1 7.3 2.3

Source: Poverty in Serbia in 2006, SBS.

Therefore, if energy prices were to rise quickly, it would pose a major threat to living
standards, especially for the categories that are most at risk. On the other hand, energy

21
Energy prices have a direct share of slightly under 20% in the RPI and CPI; with indirect effects, the
figure rises to about 25%. For instance, the May 2007 rise in energy prices had a direct effect on May
inflation growth of 1.2%.
22
See, for example, Bakos (2001) and Nagayama (2007).
23
Od danas u Srbiji struja skuplja 50 posto [Electricity prices to rise by 50% as of today], Danas, 1
July 2002.

12
prices, and primarily electricity prices, need to cease being an instrument of social
policy: this would help the entire sector, provide funding for investment, and ensure
the energy necessary for unimpeded economic growth. This would, in turn, mean
more inflows into the budget, leading to better social programs for the poor. The
whole issue, along with continued restructuring and privatization of energy sector
companies, will be a major challenge to the Serbian Government in the near future.

References:

1. Aleksandar Kovaevi, Energija i siromatvo u Srbiji [Energy and poverty in Serbia],
Nova srpska politika misao asopis za politiku teoriju i drutvena istraivanja,
www.nspm.org.yu.
2. Bakos Gabor (2001) Privatizing and liberalizing electricity, the case of Hungary,
Energy Policy, Vol. 29, pp. 1119-1132.
3. Tranzit struje mora preko Srbije [Electricity transit must pass trough Serbia], Blic, 3
May 2007.
4. Boani Vladan, Mijakovac Nataa, Cvetinovi Gordana and alasan Neeljko (2007)
Siromatvo u Srbiji 2006. [Poverty in Serbia in 2006], SBS
5. EPS e u ekologiju uloiti 1,2 milijarde evra [EPS to invest 1.2 billion into
environmental protection], Danas, 6 April 2007.
6. orevi: Donacije ustupaju mesto komercijalnim kreditima [Djordjevic: Commercial
loans starting to displace donations], Danas, 30 April 2007.
7. Uskoro privatizacija rudnika Resavica i privatizacija NIS [Resavica mine and NIS to be
privatized soon], Danas, 30 May 2007.
8. Od danas u Srbiji struja skuplja 50 posto [Electricity prices in Serbia to rise by 50% as
of today], Dnevnik, 1 July 2002.
9. okovi Vuk and Radosavljevi Goran (2007), Crude oil extraction fees in Serbia: No
adequate national policy so far, Quarterly monitor of economic trends and policies in
Serbia, October-December 2006, pp. 64-70.
10. Energy Information Administration, www.eia.doe.gov.
11. Energy Agency of the Republic of Serbia, www.aers.co.yu.
12. Government of Serbia, Implementation program of the energy sector development
strategy of the Republic of Serbia by 2015 for 2007-2012 period.
13. IEA, Energy Prices and Taxes, International Energy Agency and OECD, pp. xxxviii-xl,
2007.
14. Labor Force Survey, Serbian Bureau of Statistics, 2006.
15. National Energy Efficiency Program, Government of the Republic of Serbia, Ministry of
Mining and Energy.
16. Nagayama Hiroaki, Effects of regulatory reforms in the electricity supply industry on
electricity prices in developing countries, Energy Policy,
doi:10.1016/j.enpol.2006.12.018, 2007.
17. Odluka o utvrivanju minimalne godinje potronje elektrine energije kojom se stie
status kvalifikovanog kupca [Decision Establishing Minimum Annual Electricity
Consumption Levels Required for Acquiring Qualified Buyer Status], Official Gazette of
the Republic of Serbia, No. 114/06.
18. Official Gazette of the Republic of Serbia, No. 84/04.
19. Serbian Chamber of Commerce and Industry, www.pks.co.yu.
20. Udoviki, K, Radosavljevi, G., Djokovi, V (2006), Performance of the Serbian Oil
Company (NIS): How Wide is the Gap Between the Actual and the Possible? Quarterly
Monitor 3, October-December 2005.

13
21. Stuck in the past Energy, Environment and Poverty in Serbia and Montenegro,
UNDP, 2004.
22. Uredba o posebnim uslovima i nainu uvoza i prerade nafte, odnosno naftnih derivata
[Decree on Special Conditions and Manner of Importing and Refining Oil and Oil
Derivatives], Official Gazette of Republic of Serbia, No. 90/03.
23. Uredba o posebnim uslovima i nainu uvoza i prerade nafte, odnosno naftnih derivata
[Decree on Special Conditions and Manner of Importing and Refining Oil and Oil
Derivatives], Official Gazette of Republic of Serbia, No. 16/01.

Energy Sector Issues and Poverty in Serbia

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Energy Sector Issues and Poverty in Serbia

Uploaded by

Copyright:

Available Formats

C E N T E R F OR A D V A N C E D E C ON OMI C S T U DI E S

Energy Sector Issues and Poverty in Serbia

You might also like