Republic of Bulgaria Ministry of Foreign A airs N DOCENDO DIPLOMATIC DISCIMUS INSTITUTE

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Energy Diplomacy

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FOREIGN AFFAIRS RESEARCH PAPERS May 2016 8 Contents

Introduction: Energy Diplomacy and the Challenging Dynamics of the Global Energy Security Dr. Lachezar Matev...... 2

Governing the differences in the European Energy Union: EU, regional and na- tional energy policies Jacques de Jong, Thomas Pellerin-Carlin, Jean-Arnold Vinois...... 13

The Energy Union and natural gas industry going into the heart of the Balkans Pavlin Stoyanoff...... 41

On the European Energy Security in the context of the refugees’ crisis Slavcho Neykov...... 54

Where Does the EU Stand Today in Meeting its Members Energy Supply Security? Prof. Nurşin Ateşoğlu Güney...... 65

Opportunities for Bulgaria according to the Energy Union strategy Atanas Georgiev...... 75

Along the Energy Streams: Geostrategic Competition in South East Europe Martin Vladimirov...... 84

Challenges facing Gazprom and the Russian natural gas policy Dr. Yanko Yanakiev...... 97

The Future of Energy: Predictions and Challenges H.E. Ali Asghar Soltanieh ...... 109 Introduction: Energy Diplomacy and the Challenging Dynamics ... Introduction: Energy Diplomacy and the Challenging Dynamics of the Global Energy Security

Dr. Lachezar Matev

The launch of this new edition of the Foreign Affairs Research Papers is a persuasive example of the Diplomatic Institute’s (DI) strong commitment to topical problems like energy security and energy diplomacy. It is once again an evidence of Institute’s consistent approach to the examination of fundamental foreign policy issues of particular significance drawing in leading national and international expertise to all forms of their activity. More than 5 years of unswerving work and several publications on the topic, in which policy to tackle climate change, sustainable energy policy and energy diplomacy has been in the focus of the DI thematic and organisational work, leave no doubt that the subject remains one of the key priorities in its activity. The launch of this paper presents a good opportunity to commend the team for its relentless work, perseverance, innovation, and perspective-thinking in this sphere. More importantly, the DI has already managed to propel this topic and to bring it to the forefront of attention in their collaboration with the administration, businesses and academia both in Bulgaria and abroad, taking the issue to the core of their common agenda. 2015 marked a significant expansion in the scope, geography and forms of their cooperation and organised events. In particular it is worth mentioning the ambition to raise the awareness of the energy security agenda and the importance of energy diplomacy, as well as the political and expert levels of ongoing events with such a focus. Among them are several international programmes, covering the countries from South Eastern Europe and Ukraine. Perhaps the culmination of this approach was the Conference on Energy Security and Energy infrastructure in SEE, organised in collaboration with the Energy Management Institute and attended by participants from more than 30 countries from Europe, Asia, Africa and South America1. The forum was addressed by, among others, the Vice President of the European Commission for the Energy Union Mr. Maroš Šefčovič, the Prime minister of Bulgaria Mr. Boyko Borisov, the President in office of the Energy Community and Minister of Energy and Industry of the Republic of Albania Mr. Damian Gjiknury, the Secretary General of the Regional Cooperation Council Mr. Goran Svilanović, , the Advisor to the Vice President of the Islamic Republic of Iran, EBRD, World Bank, Euroelectric, Eurogas, business representatives etc. There was a principle agreement resulting from the conference debate on the necessity of strengthening the strategic guidance on energy diplomacy and closer cooperation in the region reconciling interests of the individual players2.

1 http://conference-bg.com/, last accessed on 18.12.2015 2 Key messages from the conference, http://www.emi-bg.com/en/index.php?id=873,last accessed on 18.12.2015 2 Introduction: Energy Diplomacy and the Challenging Dynamics ...

Some important factors defining the changing energy environment The dynamic changes in the global energy environment bring in serious geopolitical challenges to the agenda of all states, regional organisations, and entities worldwide. The energy domain is highly topical given the EU’s dedicated drive to establish an Energy Union and the emphasis on energy security in view of persisting global and regional dynamics and instability: the Syria war, the mounting refugee crisis, the asymmetric threats and terrorist attacks on energy infrastructure as a reminder of unrelenting geopolitical challenges. Likewise ongoing indiscriminate attacks and atrocities perpetrated by ISIL/Da'esh in Syria and Iraq and the expanding geography of its actions; the tensions in the larger Middle East; Ukraine and the continuing slump in oil prices and global oil oversupply all point to the importance of shaping a robust energy security policy. Adding to this the current volatile energy-pricing environment, Iran’s anticipated return to the energy markets after the July UNSC resolution3 on lifting of sanctions, the global concern for the development of feasible alternatives and the need to promote further carbon-free solutions give good reason for the continuing presence of energy security high on the agenda as key policy issue. The complexity of the energy security problems is undergoing dramatic changes corresponding to the political and economic processes on a global scale and to the risks management challenges. I have argued in previous publications4 for the evident need to broaden the energy security concept and to develop a wider vision, as well as for the policymakers to adopt a consistent strategic approach to this issue. It is notable to witness that many of these have found their incarnation in the global climate deal reached in December in Paris. As the largest source of greenhouse-gas (GHG) emissions, the energy sector must be at the heart of global action to tackle climate change. The COP215 deal is a unique historic peak of diplomacy, including energy diplomacy. The UNSG defined the new climate change agreement as a ”monumental triumph”6, as an agreement that demonstrates solidarity and “is ambitious, flexible, credible and durable.” The urgency of the risks and need for this brand new attitude and action, found its synthesized description in the US President’s address to the delegates: “We are the first generation to feel climate change and the last that can do something about it.” 7 It is a common understanding that the December COP21 Paris agreement8 sets a long-term vision for sustainable development while sending a strong message to businesses and policy-makers placing clean energy on an irreversible pathway

3 http://www.un.org/press/en/2015/sc11974.doc.htm, last accessed 18.12.2015 4 Matev,L. (2013) Energy Diplomacy, Foreign Affairs research papers 5, p.4-8 5 United Nations Framework Convention on Climate Change, Conference of the Parties 21,(alsoUN Climate Change Conference Paris 2015 ), http://www.un.org/sustainabledevelopment/cop21/ 6 http://www.un.org/sustainabledevelopment/blog/2015/12/un-chief-hails-new-climate-change- agreement-as-monumental-triumph/, last accessed 18.12.2015 7 COP21: Full speech by Barack Obama at the opening of UN Climate Conference in Paris, http://www. ibtimes.co.uk/cop21-full-speech-by-barack-obama-opening-un-climate-conference-paris-1531251, last accessed 18.12.2015 8 The agreement text, https://unfccc.int/resource/docs/2015/cop21/eng/l09.pdf 3 Introduction: Energy Diplomacy and the Challenging Dynamics ... and creating the framework for a global energy transition. The sustainable climate and energy policy of the EU and its leading role were a guiding force for many of the changes in the global energy framework. The European Union has played a key role in brokering the Paris historic agreement, where 195 countries, parties to UNCCC, adopted the first-ever universal, legally binding global climate deal9. The ambitious and balanced agreement, the first major multilateral deal of the 21st century, sets out a global action plan to put the world on track to avoid dangerous climate change by limiting global warming to well below 2°C. It is extremely important that the aspiration for a more ambitious goal has been kept in the agreement with the promise to endeavour to limit global temperatures increase to 1.5C. Very important for the success were the targets of the biggest polluters and the breakthrough agreement between the United States and China, who announced plans to jointly perform emissions reduction policies. The USA put forward the unconditional target to reduce economy wide emissions by 26% to 28% below 2005 domestically. China has set a target to reduce carbon intensity by 60% to 65% by 2030 below 2005 levels, increase the share of non-fossil primary energy to 20%, and increase the forest stock and peak by 2030 or earlier. EU commitments were setting again the highest standards, in accordance with its 2030 Climate and Energy Framework. The EU committed to a binding, economy- wide target goal to reduce GSG emissions by at least 40% below 1990 levels by 2030, and to achieve at least a 27% share of renewable energy consumption and at least 27% energy savings compared with the business-as-usual scenario. These commitments aim to help the EU achieve a more competitive, secure and sustainable energy system and to meet its long-term 2050 greenhouse gas reductions target. Although the Paris Pact is not Legally Binding in all its content, because the national pledges by countries to cut emissions remained voluntary, 188 countries submitted their Intended Nationally Determined Contributions (INDCs) – commitment covering around 95% of global emissions in 2010 (excluding LULUCF)10 and 98% of global population. It is unprecedented and more than a promising achievement. On April 22 next year in New York, the countries will begin the signing process of the document agreed in Paris, and the general expectation is that none of the participating countries would face legislative problems at home that make their promised emissions reductions pledges undeliverable. The IEA November 2015 World Energy Outlook (WEO) confirms there are multiple changes in global energy dynamics and an energy sector transition is in progress in many parts of the world11. US Clean Power Plan and China’s newly announced carbon trading scheme due to take effect in 2017 are among the most recent policies to support the transition. Such role had the installation of a record high renewables capacity in the power sector in 2014 which positioned renewables as the second-largest source of electricity, behind coal. Energy 9 http://ec.europa.eu/clima/policies/international/negotiations/paris/index_en.htm, last accessed 18.12.2015 10 https://unfccc.int/land_use_and_climate_change/lulucf/items/3060.php, last accessed 18.12.2015 11 World Energy Outlook 2015 Factsheet, http://www.worldenergyoutlook.org/weo2015/ 4 Introduction: Energy Diplomacy and the Challenging Dynamics ... efficiency improvements limited the growth in final energy demand in 2014 to only one-third of the calculated without them level12. There is another significant factor of change in the IEA policy drawing the attention to the importance of long term game changers. Breaking with the tradition, the new IEA Executive Director Dr. Birol made China and India his first official travel destination, thus highlighting the critical importance of these countries for the international energy system. Opening the IEA to the world’s emerging energy powers, including China and India, which are the two largest contributors to the growing global energy demand, and making them full participants in the work of the IEA is a key component of his vision for modernising the Agency. Significant developments in energy geopolitics and energy security, as well as in their global and regional projections have been driven by the crude oil prices that slumped below $30 reaching a 12-year bottom. Oil prices are continuing their downward plunge as an oversupplied global market and persistent uncertainties over China’s growth, aggravated by the volatile behaviour of equity markets, set unfavorable prospects for a reverse trend and project oil’s gloomy start into 2016. In its latest monthly report the US Energy Information Administration said low prices would see US crude oil production fall by 7 per cent this year, the first annual decline since 2008. There are concerns that prices could fall to levels that would make it economic-viable to store oil on tankers for a longer run. Many big banks, among them Morgan Stanley, Citigroup, Goldman Sachs, and Bank of America have joined an increasing number of voices predicting crude prices projection down to levels of $20 a barrel. The slump of international oil prices with almost 70% since June 2014, has been one of the major drivers of gas prices during last year, owing to the continuing indexation to oil in some long- term gas supply contracts, both pipeline and LNG. The top oil-producing countries, as one might expect, face difficult times ahead as oil prices remain restrained. If lower prices prevail for a protracted period, they could daunt the bulk of energy efficiency investments redirecting them towards a less efficient and less climate- friendly ones that lead to higher long-term emissions. Given BMI's Oil & Gas analysis forecast, that prices would not recover their previous highs over at least the next three years, government responses will be key to long-term economic performance13. The importance of gas for the energy security in Europe and the SEE region The articles presented in this publication pay significant attention to the role of gas for the energy security in Europe and the SEE region. The EU is the biggest importer of natural gas in the world with imports reaching 66% of its consumption. In its Energy security strategy14 and following stress-tests the EU identified the

12 Ibid 13 http://your.bmiresearch.com/rs/403-TUY- 955/images/Living_With_Lower_Oil_Prices_Policy_Re- sponse_Is_Key.pdf?mkt_tok=3RkMMJWWfF9wsRokua3AcO%2FhmjTEU5z17%2B4kXKC3gIkz2E- Fye%2BLIHETpodcMTsNrMr%2FYDBceEJhqyQJxPr3BLNMNzsBkRhjnDQ%3D%3D 14 European Energy Security Strategy [COM(2014)330], http://eur-lex.europa.eu/legal-content/EN/TXT/ PDF/?uri=CELEX:52014DC0330&from=EN, last accessed on 22.11.2015 5 Introduction: Energy Diplomacy and the Challenging Dynamics ... vulnerabilities of the European energy system, including separate regions and countries and has set specific guidance and targets for a concrete action that has laid the fundament for the Energy Union strategy. Among the major vulnerabilities is the existence of energy islands, exposure to external energy shocks and high dependency on a single supplier. The Baltic, Central and South Eastern Europe were identified as the most vulnerable regions considering dependence to one single supplier - Russia, exposure to supply disruption, prices up to 40% higher than those in Western Europe, underdevelopment of infrastructure and connectivity. As a matter of fact, closer analysis explicitly shows that the most vulnerable are all the countries from the fifth enlargement of the EU. The Atlantic Council identified this fact as an “incomplete integration” in a report “Completing Europe: From the North-South Corridor to Energy, Transportation, and Telecommunications Union”. This joint report with the Central and Eastern Europe Development Institute was presented at the Atlantic Council Economic and Energy Summit in Istanbul in November 201415. It is worth mentioning that the countries in CEE and SEE regions, identifying the existing energy security problems much earlier than the strategy, have been looking for a common approach to a solution, in which the energy diplomacy had a leading role. At a meeting in Budapest of the Foreign Ministers from Vishegrad countries (V4), Bulgaria, Greece and Romania, held in February 2014, the Hungarian V4 Presidency launched the idea for the creation of an intra EU Aegean-Baltic/South- North Gas Corridor. The concept proposed the necessary steps for strengthening the regional gas connections network in Central East and South East Europe in order to ensure diversification and security of gas supplies. The ministers expressed general agreement on the importance of building the missing interconnectors and infrastructure between the countries together with secure options for access to the LNG as opportunities for cooperation and promoting genuine gas-to-gas competition and competitive gas prices for the consumers. It was followed by consultations and an expert level meeting in Sofia of representatives from the Foreign and Energy Ministries, national gas companies and TSOs under the auspice of the Bulgarian Foreign Minister. It was a very practical endeavour regarding the further collaboration with the European Commission on the specific targets and projects successively set in the EU strategies for these regions and countries. Recently the gas markets have been undergoing important changes. There was a significant reduction of the prices reflecting the drop in the oil markets, which led even Gazprom prices to levels below the spot ones. After years of reduced gas consumption in Europe, due to the pace of the economic recovery and decreased use of gas for power generation, demand is now recovering with expected over 3% increase compared to 2014. IEA, BP, Exxon Mobile and the majority of experts project that the European gas import needs will continue to grow gradually in the long term. The tendency marked by the cheaper coal, that accompanied the “shale

15 Atlantic Council, Completing Europe-From the North-South Corridor to Energy, Transportation, and Telecommunications Union, http://www.atlanticcouncil.org/publications/reports/completing-eu- rope-from-the-north-south-corridor-to-energy-transportation-and-telecommunications-union, last accessed on 22.11.2015 6 Introduction: Energy Diplomacy and the Challenging Dynamics ... revolution” and distorted the market by displacing the gas from power generation, seems to has shown signs of reversal bringing gas back into the equation. A substantial increase of LNG is expected in the gas markets. According to the statistics traded gas supply by pipeline declines as a share of consumption while in contrast the share of LNG grows twice as fast as the total trade on annual basis16. Against this background the long awaited US LNG is about to reach the markets. Ten years after the shale revolution kicked off in Texas converting it into a “game changer”, the first US LNG supplies are expected in early 2016, bringing substantial new volumes to the international gas markets. All those diplomats and members of the administration from the EU countries, who as part of the European energy diplomacy participated in the process of lobbying the US administration to authorize LNG export to Europe, look forward to the first US LNG exports with anticipatory delight. The lobbying for US gas exports to Europe has been in the centre of the CSEE and the Baltic States diplomatic services sustained efforts. Among them are to be noted the collaboration with the LNG Allies17, a number of conferences, presentations, demarches to the US Administration and legislative institutions, including the submission of written and verbal testimonies. I would like to emphasize in particular the significance of a multipurpose lobbing event held in the framework of the conference “American Energy Prowess in a Strategic Foreign Policy Perspective”, organised by the Atlantic Council and the Hungarian V4 Presidency18 at the brink of the Atlantic Council Foreign Ministers 2014 meeting. The underlying aim of the conference was to foster a sense of common purpose among the V4 and the wider CSEE region countries and to strengthen the transatlantic dialogue on energy. The first day presentations and the discussion on the demand-side perspective of the European energy market and security, contributed significantly to gaining a better understanding of the energy security challenges Europe faces and the role the United States can play. The next day at the US Congress, the Congressional component19 of the conference included remarks by the Chairman of the Energy and Commerce Committee as well as by a large number of congressmen, who expressed their commitment to make US LNG exports a bipartisan issue, to promote the geopolitical benefits of US LNG exports and amend the Natural Gas Act in order to advance the approval of LNG export licenses. Apart from this, the EU diplomats approached the Senate and the US administration. On the heels of the conference, the Senate Energy and Natural Resources Committee held a staff briefing on “Energy Security in Central and South Eastern Europe” where the energy special envoys of Bulgaria, Romania, Hungary and Slovakia talked about energy diversification and the role US LNG exports could play 16 BP, (February 2015). Energy Outlook 2035 booklet, p.59 17 LNG Allies is a Washington based nonprofit organization and advocacy coalition committed to cre- ating a more liquid global natural gas marketplace, expanding fuel diversity, and enhancing energy security 18 Atlantic Council, Conference “American Energy Prowess in a Strategic Foreign Policy Perspective”, http://www.atlanticcouncil.org/events/upcoming-events/detail/american-energy-prowess-in-a-stra- tegic-foreign-policy-perspective, last accessed on 22.11.2015 19 Website of the Hungarian Embassy in Washington, http://washington.kormany.hu/v-4-presiden- cy-transatlantic-energy-security, last accessed on 18.12.201 7 Introduction: Energy Diplomacy and the Challenging Dynamics ... in changing the current energy market in the region20. The same topic was on the agenda of their following meetings also with the Chairman of the Senate Energy Committee, who has been an outspoken supporter of natural gas exports, and with Senior Officials of the US department of State Bureau for Energy Resources. Energy diplomacy also played a vital role in bringing significant suppliers and investors to the SEE region. Such was the case with Chenier Energy, the first US exporter of LNG, where the Bulgarian diplomatic service organised the initial visit of the company’s top management and facilitated the regular contacts and work with the relevant administrative institutions and companies from the sector. Thanks to the positive development of the global LNG market the EU has a major opportunity to improve its energy security and its competitiveness. The outlook for a significant (50%) expansion in global supply over the next few years, bringing in liquidity, flexibility and consequently lower prices, presents a major chance for the EU. Europe's overall LNG import capacity is significant, although with considerable regional disparities regarding access to LNG. It is very important that the Commission’s anticipated LNG strategy, announced with the launch of the Energy Union concept, sets priority targets that could improve access of all Member States to LNG as an alternative source of gas. This will ensure achieving a key objective of the EU's Energy Union strategy- all Member States to have access to liquid gas markets and diversified sources of supply. The European Union and the global energy security agenda The EU has been systematically focusing the attention of the political and economic debate on this theme, and is among the leading international entities setting up the global agenda, the standards, and the open dialogue related to the energy security and climate change. The topic has been at the heart of decision- making and top political level discussions. The EU energy strategy and priority actions, concerning the energy as a key to Europe's future growth and prosperity, have been consistently implemented through the individual policies, modified and further developed within the institutional framework and in an open dialogue with the civil society. They all have focused on sustainable economic growth, employment and promoting Europe's competitiveness. The last year brought to live “epoch-making decisions"21 like the Framework Energy Union strategy, the 2030 climate and energy framework and a number of important accompanying documents and decisions. The State of the Energy Union showed progress made since the Energy Union Framework Strategy was adopted. The Strategy has set a fundamental transformation of the EU's energy market, reforming and reorganising for energy that is integrated, interconnected, affordable, resilient, secure and increasingly clean22. Moreover this strategy is considered to have added a fifth freedom to the four fundamental freedoms of free movement in Europe – the free movement of energy in Europe23.

20 Ibid 21 http://ec.europa.eu/news/2015/03/20150320_en.htm, last accessed on 18.12.2015 22 Ibid 23 Ibid 8 Introduction: Energy Diplomacy and the Challenging Dynamics ...

The targets in the new 2030 Framework, including EU-wide targets and policy objectives for the period between 2020 and 2030, aim to help the EU achieve a more competitive, secure and sustainable energy system and to meet its long-term 2050 greenhouse gas reductions ambitions. The EU strategy sends a strong signal to the market, encouraging private investment in new pipelines, electricity networks, and low-carbon technology. The targets are based on a thorough economic analysis that measures how to cost-effectively achieve decarbonisation by 2050. The three main objectives of the Energy Union strategy for sustainability, supply security and competitiveness are to be set in binding EU instruments that are being prepared for launch in early 2016. EC will present the Security of Gas Supply Regulation, Liquefied natural gas (LNG) and gas storage strategy. Apart from this, EC will present the first strategy towards a smart, efficient and sustainable heating and cooling sector, which accounts for 50% of the EU energy consumption. The latter will be a direct response to the commitments taken ahead of the COP21 focusing on removing barriers to decarbonisation in buildings and industry, with an emphasis on increased energy efficiency and use of renewables as an imperative of the energy security. The regional dimension in SEE and Bulgaria The Framework Energy Union strategy puts a special accent on the need for considerable development of the regional cooperation as an important step towards the integrated energy market. This new momentum in the EU concept allows policy-makers and academics to rethink the very controversial challenge of managing the governance of the energy policies in the EU and their articulation between EU, regional and national competences24. And this is yet another domain where energy diplomacy is essential. This new regional aspect for the EU Energy Union strategy is relevantly reflected in this publication. All the dimensions of the EU policy and strategy, including its regional SEE and Black Sea vectors, as well as possible developments in the Bulgarian energy sector are extensively analised in the new edition presented to your attention. Regional competencies and approaches, subject to a special focus in the Energy Union strategy, have been in the core of Bulgaria’s understanding and policies pursued consistently at highest political level since the first gas crisis in Europe. The priority and efforts of the Bulgarian Government aimed at the creation of an integrated, liquefied, competitive regional market for gas and electricity with the neigbouring countries. An important step in this direction was the decision to set up a High Level Working Group for Central and South Eastern European gas connectivity in February 2015 in Sofia signed by 10 parties (Austria, Bulgaria, Croatia, Greece, Hungary, Italy, Romania, Slovakia and Slovenia and the EU). The task of the group is to coordinate efforts in order to facilitate cross-border and trans- European projects that diversify gas supplies to the region, as well as to implement harmonised rules. In July 2015 the High Level Group agreed a Memorandum of Understanding and an Action Plan25 to boost the security of energy supply and

24 The first article in this edition makes a comprehensive analysis on the topic of energy policy governance 25 https://ec.europa.eu/energy/sites/ener/files/documents/CESEC%20MoU_signatured.pdf, last accessed 9 Introduction: Energy Diplomacy and the Challenging Dynamics ... create a connected and competitive energy market in the region. As an EU Member State Bulgaria consistently works with the other MS on the realisation of the Union’s integrated sustainable climate and energy policy, recently incarnated in the strategic goal for the creation of the Energy Union. It is a challenge for all of us, members of the EU and the Energy Community, demanding a concerted effort for establishing an integrated internal energy market, expanding and modernizing the existing energy infrastructure. In line with the Energy Union strategy and in particular after the Paris COP 21 agreement, it is equally challenging to pursue sustainable low carbon economy and technologies, transition towards more sustainable mix and model of consumption, increasing energy efficiency and share of the renewable energy, developing competitive energy market and securing the energy needs and protecting the interests of the consumers. As mentioned above Bulgaria is strongly committed to diversification, development of the infrastructure and the integration of energy markets in South East Europe. Country’s dedicated support for the Southern Gas Corridor (SGC) and for all important EU infrastructural projects on the list of Projects of Common Interest (PCI)26 in the region, including the "Vertical Gas Corridor"27 connecting Greece, Bulgaria and Romania (cluster interconnection between Greece, Bulgaria and Romania, and necessary reinforcements in Bulgaria), interconnectors with Serbia and Turkey, is a clear proof of its firm devotion to the idea. The commitment of the Bulgarian Government to Energy Security found its conspicuous proof in Recently Created National Energy Security Council to the Council of Ministers led by Deputy PM and vice chaired by the Foreign Minister and Minister of Energy. Also in this aspect we should consider the active role of the country in a number of initiatives for gas connectivity in the region, including the idea for a regional gas hub in Bulgaria. The importance of the topic is clearly showcased by the fact, that it is high on the agenda of the Bulgarian SEECP Chairmanship and its priorities28, a process which for the countries in the region is a key to regional cooperation over the past 20 years. What the SEE region needs is concerted effort and connectivity. A better coordination between EU Member States, Energy Community members and our neigbours29 including a more precise judgment of common risks, possible crises and available resources would help to increase the security of supply and reduce the costs for the consumers. Putting into practice all the projects from the November 2015 PCI list from Priority Corridor North-South Gas Interconnections in Central Eastern and South Eastern Europe ('NSI East Gas') is decisive for the energy security of the SEE. Linking 18.12.2015 26 ANNEX 1, Union list of projects of common interest, C(2015) 8052 final, Brussels, 18.11.2015,https:// ec.europa.eu/energy/sites/ener/files/documents/5_2%20PCI%20annex.pdf, last accessed on 18.12.2015 27 https://www.me.government.bg/en/news/vertical-gas-corridor-completely-corresponds-to-the-eu-ai m-to-achieve-energy-security-and-diversific-2015.html, last accessed 18.12.2015 28 http://www.mfa.bg/SEECP/index.php/About_SEECP, last accessed 18.12.2015 29 Turkey is an observer to the Energy Community, but is a key player for the energy security of SEE and Europe and a major diversification route for the Southern Gas corridor 10 Introduction: Energy Diplomacy and the Challenging Dynamics ...

SGC with Bulgaria via the strategic Interconnector with Greece (IGB) and then via the rest of interconnectors towards Central Europe and then to “BEMIP Gas”30, would provide a much needed refocusing on the more immediate and accessible options, on developing market opportunities, as well as on the development and implementation of joint strategies based on shared government. Together with all other projects, namely: LNG terminal in northern Greece, storage capacity increase in Bulgaria and Romania, the "ROHUAT/BRUA" bidirectional transmission corridor (Bulgaria — Romania — Hungary — Austria), "Eastring" Pipeline system from Bulgaria to Slovakia it opens ground for a coherent regional effort to jointly address energy security challenges and offers a practical platform to redesign the energy security strategic paradigm of the SEE countries and their response to the challenges in the gas sector. The resolve of the Commission to address these particular problems and to support the integration of the Central and South-Eastern European gas markets and diversifying gas suppliers, sources and routes is decisive for its accomplishment. The November 2015 list of PCIs is a clear proof of the Commission commitment to the SEE progress31. Putting into practice the priority projects in the region covering the above infrastructure together with the exploration of the indigenous resources in the Black sea natural gas fields and the creation of LNG terminals with corresponding pipeline systems for access to new supply sources as soon as possible is a must. These steps could unleash the potential of the region because in parallel with the vulnerabilities the SEE region has a huge diversification potential, which is key strategic one for Europe – the Southern wing of Europe is the strategic perspective route for diversification and gateway for additional supply namely from Azerbaijan and other third countries from the Caspian Region, the Eastern Mediterranean and the Middle East. Thanks to the geographical location the countries in the region are natural connection route to the Central and North -Western Europe, where the energy demand is significant. To this new edition of Energy diplomacy have contributed internationally recognized experts from foreign policy and energy research and management institutions, academy, NGO. Among them are Jacques Delors Institute Paris, Clingendael International Energy Programme (CIEP) Energy Management Institute Sofia, Istanbul and Sofia Universities, Centre for the Study of Democracy. A special contribution to it is also the presentation by the Advisor to the Vice President of the Islamic Republic of Iran. The diverse geographical, professional and institutional background of the authors reflected the Diplomatic Institute’s idea to give the floor for the expression of a variety of personal views and opinions, based on well-founded and articulated arguments that in general do not coincide with the official government positions. It is important to emphasize that the articles address significant topics like

30 ANNEX 1, Union list of projects of common interest, C(2015) 8052 final, Brussels, 18.11.2015,p,12-16, https://ec.europa.eu/energy/sites/ener/files/documents/5_2%20PCI%20annex.pdf, last accessed on 18.12.2015 31 Ibid 11 Introduction: Energy Diplomacy and the Challenging Dynamics ... the European Energy Union with all its pillars and dimensions. They develop on governance, balances and regulation on global and regional level, as well as on the approaches to the regional and interaction with national. The volume offers a number of important viewpoints on EU energy security, and its most vulnerable region SEE, from the perspective of some key existing and potential energy players for the EU and SEE like Russia, Turkey, Iran. Specific accent is put on Bulgaria. There is a very interesting analysis on the association between two problems dominating recent EU political agenda, migration to Europe and energy security, with concrete proposals for action addressed to Brussels and the Member States. Without any doubt, these articles are highly analytical, innovative and critical, and are valuable input to the further development of the debate on the energy diplomacy theory and practice, as well as to the mediation between all stakeholders and participants on national and international level.

Dr. Lachezar Matev is Ambassador at Large for Energy Security at the Ministry of Foreign Affairs of Bulgaria as of May 2013. Previous positions: Ambassador at the MFA – Strategic and Security Policy Matters Directorate, Ambassador Extraordinary and Plenipotentiary to the UK, Permanent Representative of Bulgaria to the International Maritime Organisation, Head of the Bulgarian delegation to UNDP Executive Board. Career record with the diplomatic service since 1982 includes postings to Prague, Madrid, London. Important period of his career was devoted to the European Integration. For 5 years he was been Member of the Bulgarian EU Accession Negotiations Team, responsible for all infrastructure chapters – energy, environment, transport, regional development and social cohesion. While at the MFA, in his personal capacity worked as National Coordinator for a number of national and regional projects related to National Capacity Building, External Resource Management and Transition to Market Economy. He was also Co-founder and Managing Director of “International Business Development“ magazine, Managing Director of VECCO Ltd (Member of the USA Marketing Association) and EXCEL Trade Agency, Board Member of Higher Education Council, Member of Chatham House. Dr. Matev was the first Bulgarian to become a Freeman of the City of London. 12 Governing the differences in the European Energy Union: EU, regional and national ... Governing the differences in the European Energy Union: EU, regional and national energy policies

Jacques de Jong Thomas Pellerin-Carlin Jean-Arnold Vinois

Seen from the European point of view, energy should have always been a catalyst for common actions bythe Member States. The 1951 Coal and Steel Treaty, resulting from the Schuman Declaration and the 1957 Euratom Treaty are there to show that if there was something to govern together, it was energy. Many arguments have been exchanged about this mantra since the late 1950’s, when the first idea was suggested to create “une politique de l’énergie communautaire” (i.e. an energy policy for the European community) and the three executive bodies of the three Treaties were asked to come forward with an outline. This failed however due to large differences of opinions and interests between the (then) 6 Member States. It took about 50 years before, finally, the EU was able to agree in March 2007 on an “Energy Policy for Europe”, covering the three basic objectives for energy policy, i.e. supply security, sustainability and competitiveness. This decision was taken at the highest political level and could be considered as a turning point. 1 Shortly after that, Member States recognised the energy domain as part of the new EU Treaties, confirming however that energy is still a sover-eign issue for them, while some aspects have to be governed together, or vice-versa. The fact is now that energy is a shared competence to be exerted at EU and national levels (Article 194 of the Treaty on the Functioning of the European Union) with subsidiarity as a general principle. The combination of the two levels is a very complicated one, even more so as several Member States and their (often state owned) energy companies are still denying the European dimension, making their national energy markets immune from “foreign” intervention. Therefore energy remains a very politically charged sector, where the principles of free movement of goods and services that are at the roots of the common market, are still challenged in potential supply short- falls. Governance has thus a particular meaning in the field of energy. It therefore needs a clear articulation for effectively managing the energy policy objectives at the European, regional2 national and local levels to provide for the energy needs of consumers, and hence the voters, at an affordable price with a clear willing-ness to reduce the energy’s environmental and climate impacts. The new momentum for the EU Energy Union concept, proposed by the European Commission as one of its top priorities3 allows policy-makers and academics to rethink the very controversial challenge of managing the governance of the energy

1 European Council, March 2007 conclusion 2 Throughout this paper, the word ‘regional’ will be used in the sense of a region composed by several states, e.g. France, Germany, Belgium, Luxembourg and the Netherlands. 3 European Commission, “Energy Union Package Communication”, European Commission, 25 February 13 Governing the differences in the European Energy Union: EU, regional and national ... policies in the EU and their articulation between EU and national competences. The more so as the Energy Union concept brings in new governance levels by allowing and promoting regional approaches limited to a more or less large group of Member states. Implementation of the 2007 policy decision has brought a number of flaws, especially with regard to the balance between the EU-level and the national levels. The more specific policy implementing instruments were developed in a somewhat uncoordinated way leading to a number of inconsistencies. Coordination was not always visible or even fully lacking. The recent example of the 2011 decision by the German government, unilaterally and without any prior consultation of its neighbours/partners, to phase out nuclear power plants at an accelerated pace, highlighted the failure of the EU energy policy governance model. Other Member States have also taken unilateral decisions affecting their neighbours without any consultation before and after the 2011 German one, but none with the comparable and direct cross-border impacts. These examples underline the direct contradiction between the national sover-eignty on the fuel mix and the development of a single energy market which appeared as a major weakness of and an immediate jeopardy to the internal market. The discussion to reconsider the global governance balance deserves a new impetus. 4 In this paper some ideas are offered, with a special focus on the regional approaches. The paper discusses the relation between the four levels (EU, regions -understood as being made of several Member States-, national, sub-national inter- regional level), globally indicating what really requires decisions and actions by the EU and consequently indicating what should be seen as national competences at this moment. It is understood that the balance between the EU and national levels is likely to continue to evolve depending on events and political will. Who should be governing what at regional levels then will be a relatively new terrain, because of the differences that exist between the various regional approaches. Some are directly coming from and mandated by EU regulation, others are fully bottom-up initiatives from Member States themselves. Some are based on clear initiatives from the European Commission, whereas in others the role of the Commission is nothing more than that of a (silent) observer. The paper underlines the necessity that all regional approaches do require some kind of an overall EU oversight. To make such analysis, we will examine successively the four levels identified: European, regional, national and sub-national inter-regional to assess their respective functions and their articulation. 1. Governing the Energy Union from the European level In the field of energy, the European Council defines the main lines of actions that the European Commission has to translate into legal instruments. 5 However, the role of the Commission is threefold as it is responsible for (1) initiating legislative and non-legislative proposals, (2) ensuring the implementation of legislation and (3)

4 See as an example of the present discussion, the conclusions of the Energy Council of October 2015 5 Such process is not particular to the field of energy policy. It is indeed present in other key policy areas, such as eurozone & financial policy with the construction of the EU banking union that started after the June 2012 European Council Conclusions 14 Governing the differences in the European Energy Union: EU, regional and national ... facilitating policy through dialogue, financing etc. These roles could result in a number of actions, such as: • Proposing EU legislation, generally subject to a co-decision by the Council and the European Parliament, wherever and whenever needed, both in terms of nationally to be implemented Directives and directly applicable regulations or mandated decisions. This whole legislative process is usually preceded by vari-ous sets of Communications or Recommendations or other non-binding documents, as well as impact assessments. • Ensuring compliance with the Treaties and derived legislations: infringement procedures against Member States delaying, badly implementing or not implementing directives, State aid and competition cases etc. • Acting as a facilitator, usually less known, is maybe the most important role of the Commission in order to bring Member States and stakeholders together to design common solutions and to enhance their cooperation. There is today no question anymore about the establishment by the European Council of the main lines and strategies of energy policy for the Union. The “usual’ three objectives of sustainability, supply security and competitiveness will have, in whatever order, to find their way in binding EU instruments, be they directives or regulations, the latter becoming more the rules once the details have to be set. The 2020 climate & energy package example is maybe the most recent expression, to be followed by the new 2030 package. These binding instruments may be accompanied by sets of global and general guidelines to member states regarding their national energy policies, including on the fuel mix, energy supply and resource development and on energy efficiency and energy saving. National plans for renewable and for energy efficiency had to be drawn by each Member State to comply with the respective directives and to be submitted to the European Commission which could make comments and suggest amendments. The 2020 climate & energy package, adopted in 2007, included the third internal market directives and regula-tions 6 setting for instance the Agency for the Cooperation of Energy Regulators (ACER) or giving the European Network of Transmission System Operators (ENTSO) a major role in drafting the network codes7 In addi-tion, the binding Directives on Renewable Energy Sources (RES) deployments8 and energy-efficiency9 and the extensive legislation on the Emissions Trading Scheme (ETS)10 and non-ETS sectors are completing the rather impressive set of legal energy texts to date. The 2010 regulation on security of gas supply, following the 2009 Ukrainian-Russian crisis, the 2012 energy efficiency directive and the 2013 regulation on Trans-European energy networks are more or less all resulting from 6 The third package is made of 2 directives and 3 regulations. Cf. footnote n°21. 7 The network codes are a specific set of rules that aim at harmonizing the European electricity market. Drafted by ENTSO-E for electricity and ENTSO-G for gas, each code is then submit- ted to the European Commission, and then goes through the so-called ‘comitology process’, meaning that Member States retain the right to veto a code if they so decide. 8 European Union, Directive 2009/28/EC on the promotion of the use of energy from renewa- ble sources. 9 European Union, Directive 2012/27/EU on energy efficiency. 10 European Union, Directive 2009/29/EC to improve and extend the greenhouse gas emission allowance trading scheme of the Community 15 Governing the differences in the European Energy Union: EU, regional and national ... the 2020 climate & energy package. They are in practical terms further supported by the EU rules for competition in the energy market. The October 2014 European Council conclusions on the 2030 package are now translated into new proposals of the Commission in the fields of ETS, renewable and energy efficiency. While the target to reduce EU territorial greenhouse gas emis-sions by 40% by 2030 is legally binding at both EU and national levels, the target of 27% of renewables in the energy mix by 2030 is legally binding at the EU level but non-binding for the Member States, and the energy efficiency target (27% by 2030) is purely indicative. For these two latter targets, the question remains how to ensure that they will be met. While for the 2020 binding national targets, each Member State had to set up a national plan to be monitored by the European Commission, the new EU targets require also a new gover-nance between the EU and national levels to ensure that targets will be met. The Commission has not yet defined the terms of the cooperation to be established but it should come with proposals within the coming months, based on the Conclusions of the Energy Council of the fall of 2015. In February 2015, in line with the July 2014 programme of its President, the Commission came with the new “Energy Union” concept, where energy and climate policies are put in a more global and holistic frame, encom-passing climate, environment, foreign trade and relations, industry, agriculture, social, finances, transport, research and innovation etc. But, above all, the Energy Union is about pooling all the EU resources to opti- mise the energy security and the internal market working. The further facilitating and monitoring of the overall consistencies at EU-levels requires an effective overall governance in the decision-making machin-ery. Discussions and negotiations at Council and European Parliament levels may justify further institutional arrangements and working procedures for the Energy and other Councils and organs via joint meetings and appropriate procedures. The example is already given by the Commission itself as it created a Vice-President responsible for the Energy Union, having authority to coordinate several Commissioners such as those in charge of energy and climate, transport, growth and research. The idea is clearly to change the “silo” mental-ity dominating the energy sector at all levels, like in other sectors. The Energy Union is also reflecting the tensions between the EU energy policy and the national sovereignties on the fuel mix choices. When more room is to be “allowed” for the national policy domains (and we will come to that later in this paper), a mechanism of assessing and monitoring national policy developments at EU level is needed. This could be further strengthened when peer reviews between the MSs would be part of this. Lessons could be learnt from other EU policy domains (e.g. the Economic and Monetary Union’s ‘European Semester’) and the energy policy review process in the IEA. The new approach of the European Commission to send the Vice-President responsible for the Energy Union to tour all Member States and to make with each of them a SWOT assessment is a novelty, and it should help to establish a more accurate State of the Energy Union that the Commission committed itself to deliver every year, starting at the end of 2015. It could be wise, in the near future, to create a kind of peer review of the national energy policies in relation with the established EU objectives, with a team of national experts piloted by the Commission, as part of the State of the 16 Governing the differences in the European Energy Union: EU, regional and national ...

Energy Union. This would help to create mutual trust and common understanding, as well as to highlight best practices. Then there is the institutional set-up for the internal energy market which is a particular case for decisions at EU level as well. It’s about the role and mandate of ACER and the ENTSOs. When the role of ACER is to be expanded, as is now suggested clearly by the Commission in its July 2015 consultation papers, the governance of ACER needs to be further assessed, questioning the existing role of the National Regulatory Authorities (NRAs) themselves. ACER’s role may also need to be adapted to the growing cross-border activities. One of the most challenging new element in EU energy policy making appears to be the facilitating and/or promoting of regional approaches to energy policy implementation and energy market integration, especially for gas and electricity. This may require setting general guidelines at EU level in order to maintain and safeguard compliance with the internal market and the global EU policy strategy. A more fundamental discussion would probably be needed to decide which regional approaches and solutions, including specific piloting examples, could develop into an EU-wide target model or should be accepted as particular stand-alone solutions, such as -maybe- a North Sea energy grid. A flexible approach is required, taking into account the specificities of the case and the objectives pursued. This question is not new as it has been raised since 2005 when the regional initiatives driven by the regula-tors, and now by ACER, were established in execution of the directives on electricity and gas of the second and later the third internal market packages. In addition, since 2013 we have seen a new governance developing to identify projects of common interest (PCIs)11, established by the 2013 infrastructure regulation.12 Regional groups were set up to identify the projects, selected from the TYNDP prepared by the ENTSOs, which should be agreed by the Member States, the regulators and the TSOs promoting the project. For the first time, PCIs are identified in a multilateral process ensuring the full support of all concerned by each project. This is now a well-organised process, with the second PCI list being expected by the end of 2015. Furthermore mention should be made of the Memoranda of Understanding (MoUs) concluded in 2015 between Member States themselves (see below under II.B.2) and between them and the Commission, such as the new BEMIP, South West Europe, and CESEC (see Part II). They reveal the new favour given to voluntary but well framed cooperation in the field of infrastructures and further aspects of energy policy. In a more general way the organisation and facilitation of stakeholder’s inputs in the decision-making process, including the role of the Energy Fora (Madrid on gas13, Florence on electricity14, Berlin on fuel mix15, London on citizens/consumers16,

11 Those PCIs are mainly cross-border infrastructure projects concerning at least two Member States. 12 European Union, Regulation 347/2013, on guidelines for trans-European energy infrastructure. 13 More information on the Madrid Forum can be find on the European Commission’s website. 14 More information on the European Electricity Regulatory Forum can be find on the European University Institute’s website 15 More information on the Berlin Energy Forum can be find on the European Commission’s website. 16 More information on the London Citizens’ Energy Forum can be find on the European Commission’s website 17 Governing the differences in the European Energy Union: EU, regional and national ...

Prague/Bratislava for nuclear energy17 and the newly created Copenhagen forum on infrastructure), is also a matter for EU levels, in order to steer European wide debates with all stakeholders including the Member States and the national regulatory authorities. Whether these fora should all be main-tained or should be consolidated is also a question to be raised as the Energy Union is about eliminating the silos. An alternative could be to organise fora to discuss how energy should best serve customers while being climate friendly: we could imagine a forum on transport and mobility, another one on heating and cooling and a last one on electricity. The optimal fuel mix and infrastructure aspects should be integrated in each one of these three fora. Another option could be a single plenary Energy Forum working with subgroups on the vari-ous issues and reporting to the plenary. Finally, there is also the need to think about the way developments at regional and local levels are promoted as a tool for decentralised energy projects, where the role of the Covenant of Mayors18 being signed by more than 6000 entities of all sizes committing themselves to the 2020 objectives, should be underlined. Effective policy-exchanges and best practices between regions and decentralised (local) levels should be an important element of these. In other words, the top down approach of the EU and the States and the bottom up initiatives of local authorities and civil society should be able to meet, to produce the best possible results and to reach the objectives of the Energy Union. Probably, it is now up to the European level to review and monitor European energy markets, progress towards the objectives set by the European Council, security of supply levels etc., with developing effective tools for assessing them. ACER has already to report yearly on the develop ment of the internal market and the implementation of PCIs but the great num ber of separate reporting and monitoring reports required by various EU instru ments calls for the organisation of a full and independent EU energy information service, following the model of the US Energy Information Administration model. In this respect, the State of the Energy Union proposed by the Commission to be issued every year is a first step in the direction of a more comprehensive, holistic and authoritative information on progress made. 2. The Regional level: when several Member States cooperate The regional level has traditionally been seen as an interesting intermediate step towards the creation of a sin-gle European market. Neighbouring countries have more to share than the European Union as a whole which may seem too abstract. The 2004 EU enlargement has reinforced this trend with Western European countries taking regional initiatives to go faster or further than the de iure situation. Clearly Eastern European coun-tries have also felt the need to work at regional level to address the new challenges coming with their mem-bership of the Union. In this section, we are making a distinction between the regional initiatives mandated by EU legislation, the initiatives from the Member States themselves, and the initiatives directly driven by the European Commission.

17 More information on the European Nuclear Energy Forum can be find on the European Commission’s website. 18 More information on the Covenant of mayors can be found on their website. 18 Governing the differences in the European Energy Union: EU, regional and national ...

2.1 Regional cooperation mandated by the EU legislator Three legal instruments adopted since 2009 mandated, or even obliged, the regional cooperation and are now implemented. 2.1.1 The third internal electricity and gas market package of 200919 Article 6 of the electricity directive 2009/72 and Articles 6 and 7 of the gas directive 2009/73 provided for the promotion of regional cooperation as follows: “Member States as well as the regulatory authorities shall coop-erate with each other for the purpose of integrating their national markets at one and more regional levels, as a first step towards the creation of a fully liberalised internal market”. As a result, regional initiatives that were already driven by the regulators, and later by ACER, received a stronger focus and setting with more or less successful results. Seven electricity regions have been created as well as three gas regions.

Figure 1. The seven electricity regions

19 The Third internal electricity and gas market package is composed by: European Union, Directive 2009/72/EC, concerning common rules for the internal market in electricity, European Union, Directive 2009/73/EC, concerning common rules for the internal market in natural gas, European Union, Regulation 714/2009 on conditions for access to the network for cross-border exchanges in electricity, European Union, Regulation 715/2009 on conditions for access to the natural gas transmission networks, European Union, regulation 713/2009 establishing an Agency for the Cooperation of Energy regulators 19 Governing the differences in the European Energy Union: EU, regional and national ...

Figure 2. The three gas regions

The Commission assessed these regional initiatives in 201020 and suggested some improvements, including a role for national governments, however without a follow-up. ACER is reporting annually on their activities. They are seen more as an opportunity for regulators to enhance their cooperation in the implementation of the third package than as a strong driver of the energy policy, as the Member States were not interested to allow regulators to go beyond their competences. 2.1.2. The EU Regulation 994/2010 concerning measures to safeguard security of gas supply21 This Regulation resulted from the 2009 gas crisis22 and provided for an effective regional cooperation on the risk assessment, the preventive action plans, the emergency plans and the construction of gas infrastructure. The Regulation is based on the voluntary and flexible cooperation of Member States but its Annex 4 lists a number of regions which would be particularly suitable for an in-depth cooperation regarding the risk assess-ment and the plans. An example of such cooperation can be seen with the three Baltic States joining efforts for a common risk assessment and common plans. The assessment of the implementation of this Regulation, made by the Commission in November 2014, suggests a reinforcement of the cooperation process.

20 European Commission, The Future Role of Regional Initiatives, COM(2010) 721 final, Brussels 21 European Union, Regulation 994/2010 concerning measures to safeguard security of gas supply 22 Sami Andoura, ‘Energy solidarity in Europe: from independence to interdependence’, Jacques Delors Institute, Report n°99, July 2013, p. 37 20 Governing the differences in the European Energy Union: EU, regional and national ...

2.1.3. The EU Regulation 347/2013 on guidelines for trans- European energy infrastructure23 As already mentioned, this Regulation goes further in setting up Regional Groups for each of the priority cor-ridors identified (see Article 3 and Annex III point 1 of the Regulation). For electricity and gas, the core mem-bership of these groups consists of representatives of Member States and the NRAs, project promoters (mainly TSOs) and the Commission. The ENTSOs and ACER are also invited to participate. Other stakeholders may be invited as needed, such as the Energy Community Secretariat for the Central Eastern and South-Eastern Europe or Norway in the groups covering the Baltic Sea Region in gas and the Northern Sea Region in electric-ity. These Regional groups are tasked with the identification of the projects of common interest, which may be a necessary condition to obtain EU financing from the Connecting Europe Facility and from other EU instru-ments. They have to find a consensus on the regional list of projects which is seen as a guarantee that cross-border projects will be supported equally by all countries concerned.

2.2. Regional cooperation initiated by the Member States 2.2.1. The Pentalateral Energy Forum (PLEF)24 The PLEF is the framework for regional cooperation in Central Western Europe (BENELUX-DE-FR-AT-CH) focusing on electricity market integration and security of supply. It is since 2007 a formalized cooperation, including a secretarial support from the Benelux. Governments, TSOs and NRAs are working together. They agreed and implemented successfully various phases of market coupling that became the target model for the whole of the EU market. In June 2015 they agreed on an extended working agenda, further fostering mar-ket integration (common capacity calculation, building a cross-border intraday market) and system flexibil-ity (regionally integrated balancing markets, virtually real time trading, increasing demand responsiveness). New issues are coming on security of supply (common vision on addressing adequacy assessment method- ologies, regional reliability standards and cross-border participation in capacity mechanisms). They agreed also to improve cooperation between neighbours on main decisions in national energy policies and to identify options for increasing cooperation between the Penta TSOs. The PLEF is also supported by a separate Penta Expert Panel where think-tanks and academia are involved. So far, the European Commission is only a (silent) observer in the process.

23 European Union, Regulation 347/2013 on guidelines for trans-European energy infrastructure. 24 More information on the PLEF can be found on the Benelux Union website 21 Governing the differences in the European Energy Union: EU, regional and national ...

Figure 3. Members of the Pentalateral energy forum

2.2.2. The 8th June 2015 Luxembourg Joint Declaration for Regional Cooperation on Security of Electricity Supply (the so- called Baake-group)25 This is a new set-up where Germany and its electrical neighbours are cooperating. Its informal name, Baake-group, derives from the family name of Rainer Baake, the current German Secretary of State for Economic Affairs and Energy. In their 8 June 2015 Ministerial declaration (signed by Austria, Belgium, Czech Republic, Denmark, France, Germany, Luxembourg, Netherlands, Poland, Sweden as EU Member States plus Switzerland and Norway) these countries, while recognising the national energy mix paradigm, agreed to intensify their regional cooperation towards further EU market integration with a number of common approaches (“no regrets”). These included cooperation on national energy policies with potential transnational effects, a com-mon methodology for generation adequacy assessments, fostering coordinated market integration of RES with different flexibility options and balancing responsibilities for all sources. In addition they agreed not to restrict cross-border trade in times of high prices reflecting scarcity, nor to introduce price caps. In political terms this would create

25 Its informal name, Baake-group, derives from the family name of Rainer Baake, the current German Secretary of State for Economic Affairs and Energy. More information can be found on the German Federal Ministry for Economic Affairs and Energy’s website 22 Governing the differences in the European Energy Union: EU, regional and national ... a further interesting geographical broadening of the already existing PLEF- process. The signatories invite other European states to join this declaration. It now remains to be seen how these “no regrets” approaches will be implemented. The European Commission is not part of this Declaration.

Figure 4. Members of the “Baake-group”

2.2.3. The Nordic Action Group on Climate and Energy26 As part of the wider scope of the Nordic Cooperation, the Action Group is focusing on four main “pillars”: the adoption of common (low-carbon) energy policies, the promotion of Nordic market design solutions across the EU, the devising of common incentives for the deployment of low-carbon technologies and the intensified cooperation of the Nordic renewable energy industry. The recent bilateral Swedish-Norwegian mechanism for developing RES is a concrete outcome.

26 The Nordic action group on climate and energy was initiated by a Swedish think tank Global utmaning (i.e. “Global Challenge”). More information on the group can be found on Global Utmaning’s website. 23 Governing the differences in the European Energy Union: EU, regional and national ...

Figure 5. Members of the Nordic action group on climate and energy

2.2.4. The Visegrad 427 Using an historic framing, this group aims for regional energy policy cooperation and market integration. It emerged from the Russia-Ukraine-EU gas crises of 2006 and 2009, the former affecting Poland and the latter hitting the Czech Republic, Slovakia and Hungary hard. This resulted in discussions about essential gas infra- structure investment in the region and, more broadly, about the need for a Visegrad 4 gas target model (com-patible with EU framework legislation). The V4 initiative is unique because it combines a longstanding political cooperation within the V4 with energy market cooperation. It is however lacking concrete implementation. It is also interesting to note that in the recent years Bulgaria and Romania have been invited to participate to energy discussions in a group called V4+.

27 More information can be found on Visegrad 4’s road map for a regional gas market 24 Governing the differences in the European Energy Union: EU, regional and national ...

Figure 6. Members of the Visegrad 4

2.2.5. The North Seas countries offshore grid initiative (NS-COGI)28 Since a political declaration of December 2009, NS -COGI is a regional cooperation of 10 countries (Belgium, Denmark, France, Germany, Ireland, Luxembourg, Netherlands, Sweden and United Kingdom plus Norway) around the North Sea looking for options of a coordinated development of an offshore electricity grid in the greater North Sea area. It seeks to maximize the efficient and economic use of the renewable energy resources as well as infrastructure investments. This cooperation, formalized by a 2010 MoU, supported by the energy ministries, the NRAs, the TSOs and, in this case also, the European Commission. To date the work consists mainly of studies on grid configuration, market and regulatory designs and cost allocations. Concrete deci-sions have not yet been made, but relevant inputs have been given to the wider EU and ENTSO-E network developing plan processes. A stronger political focus, both at national levels and from the European level, is still lacking, mainly due to different timing and policy perceptions from governments and TSOs. From aca-demic institutions a call is coming for a more specific legal and regulatory system for the North Sea Grid as such (see section 2.5 below)

28 More information on NS-COGI can be found on the Benelux Union’s website. 25 Governing the differences in the European Energy Union: EU, regional and national ...

Figure 7. Members of the The North Seas countriesoffshore grid initiative (NS-COGI)

2.3. Regional cooperation driven by the European Commission 2.3.1. The Baltic energy market interconnection plan (BEMIP)29 The first major initiative, taken at the highest EU level, was the Baltic Energy Market Interconnection Plan, launched in 2008 by the European Commission together with Denmark, Sweden, Poland, Finland, Estonia, Latvia, Lithuania and Germany, with Norway as an observer. The MoU required the establishment of a road-map for the Baltic States to implement the internal market rules and the identification of the infrastructures needed to connect them to the rest of the region. Working groups were established for electricity and gas, with the national administrations, the NRAs, the TSOs and with market players as needed, all under high-level political supervision. The BEMIP process has been very fruitful with the participation of the three Baltic States to the NordPool market coupling, the creation of new cross border interconnectors between Finland and Estonia (Estlink 1 and 2), Latvia and Lithuania, Lithuania and Sweden (Nordbalt) and Poland (Litpollink), all being operational by the end of 2015. Gas discussions were however frustrated by the single supplier monopolising the whole Baltic market. The situation may improve with the new LNG terminal now operational in Lithuania, the decision for

29 More information on the BEMIP can be found on the European Commission’s website 26 Governing the differences in the European Energy Union: EU, regional and national ... the new gas-interconnector between Poland and Lithuania (GIPL) and the pos- sible Baltic Connector linking Finland to Estonia. BEMIP has been instrumental in ending the isolation of the region from the EU internal market. Its scope has been revisited in July 2015 to extend it to the wider energy policies, including energy efficiency, renewable etc...30

Figure 8. Members and observers of the Baltic energy market interconnection plan

2.3.2. The Madrid Declaration of 4 March 2015 and the High Level Group on Interconnections for South-West Europe31 The relative isolation of the Iberian Peninsula from the internal market has always been a major argument for setting interconnection targets at EU-level, such as the 10% electricity interconnection target by 2020. In the past a number of initiatives, including at the EU-level, were taken to promote interconnectors through the Pyrenees Mountains. With the new 15% interconnection target as

30 See the new MoU, signed on 8 June 2015 31 More information on this High Level Group can be found on the European Commission’s website 27 Governing the differences in the European Energy Union: EU, regional and national ... part of the 2030 framework agreement, it was recently decided to come with the highest-level political initiative, leading to the Madrid Declaration of 4 March 201532 by France, Spain and Portugal and the European Commission. The new regional High Level Group for South-West Europe will have to prepare by December 2015 an Implementation Plan33 for electric-ity realizing the Biscay Bay Project and two lines through the Pyrenees, and for gas the Eastern axis allowing bidirectional flows between the Iberian Peninsula and the French gas systems (the MIDCAT project) and the third interconnection point between Portugal and Spain. It should be noted that via these high-level initiatives the already existing projects for the creation of a single Iberian market (the Mibel-project) will get a new push..

Figure 9. States part of the Madrid declaration

2.3.3. The Central and South Eastern European Gas Connectivity (CESEC) initiative34 Regional cooperation in South East Europe was very difficult to materialize. The new CESEC initiative may be seen as a response to the Russian decision 32 See the text of the Madrid Declaration 33 See the current draft for MoU 34 More information on the CESEC can be found on the European Commission’s website. 28 Governing the differences in the European Energy Union: EU, regional and national ...

(December 2014) to abandon the South Stream gas project. The latter painful experience stressed the need to work on cost-effective solutions based on regional cooperation and solidarity in the CESEC region to increase integration and provide real diversification of gas supplies. A High Level Group was established with 9 Member States (Austria, Bulgaria, Croatia, Greece, Hungary, Italy, Romania, Slovakia and Slovenia) leading to a MoU35 and an Action Plan signed on 10 July 2015. The MoU was joined by 6 Energy Community contracting parties (Albania, Bosnia and Herzegovina, FYROM, Moldova, Serbia and Ukraine) and 2 observers (Montenegro and Kosovo). Cyprus is currently not a member of the CESEC, which is surprising given the gas potential situated in the Eastern-Mediterranean, close to Cyprus. The Action Plan identifies 7 priority projects needed to enable access to three different sources of gas, one of which being LNG, and 3 other projects subject to market developments. It will examine the financing aspects, together with EIB and EBRD, and last but not least address the market integration challenges. It should be noted that this regional initiative, so far focusing on gas only, could give a wider opportunity for expanding energy policy cooperation in the region, including on electricity and renewable energy.

Figure 10. Members of the Central and south eastern gas connectivity initiative

35 The MoU can be fond here. 29 Governing the differences in the European Energy Union: EU, regional and national ... 2015 CENTRAL AND CONNECTIVITY EUROPEAN GAS SOUTH EASTERN Member States Supporter BA, BG, EL, AL, AT, MD, IT, HR, HU, RS, SI, MK, RO, SK, UA Gas 192 (members: Yes MK, AL, BA, MD, observers: RS, UA; XK ) ME, - - 2015 EUROPE GROUP ON INTERCON HIGH LEVEL SOUTH-WEST SOUTH-WEST NECTIONS FOR Member States & MemberStates Com European mission Co-initiator ES, FR, PT Electricity & Gas 123 No - - 2008 PLAN CONNECTION MARKET INTER BALTIC ENERGY BALTIC European Com European mission Initiator DK,DE, FI, LT, EE, PL, SE LV, Electricity & Gas (extended to July from energy 2015) 155 Only as observer (NO)

- 2010 INITIATIVE COUNTRIES COUNTRIES NORTH SEAS OFFSHORE GRID Member States Member States, ENTSO-E & TSOs, Com European mission Co-initiator DK, DE, BE, FR, IE, UK, SE NL, NO, LU, Electricity 365 (NO) Yes 2012 FORUM VISEGRAD 4 GAS Member States Absent PL, SK CZ, HU, Gas 64 No 2012 ENERGY GROUP ON CLIMATE AND CLIMATE NORDIC ACTION Global utmaning (a Think Swedish Tank) Unknown SE DK, FI, NO, Energy 26 (NO) Yes 2015 BAAKE-GROUP Germany Absent CH, CZ, DE, BE, AT, NL, DK, FR, LU, PL, SE NO, Electricity 259 & NO) (CH Yes 2007 FORUM PENTALATERAL PENTALATERAL Member States observerSilent CH, DE, BE, AT, NL DK, FR, LU, Electricity 190 (CH) Yes creation

Source: Jacques Delors Jacques Institute Source: Initiator the European Role for Commission Member Countries concerned Topics population Estimated (millions concerned of of inhabitants participating country) Includes non-EU Member State Date of formal Date Table 1 Table summarizing the key elements of the eight regional cooperations summarizing the key 1 Table Table 30 Governing the differences in the European Energy Union: EU, regional and national ...

2.4. Scope and limits of these regional initiatives Figure 11. Membership overlap of the eight analysed regional energy initiatives

Legend: Grey: member of one cooperation, Light Brown: 2 cooperations, Bordeau: 3 cooperations, Black: 4 cooperations

Apart from Cyprus and Malta, all EU Member States are member of at least one of the cooperation we have just analysed. For four of them (i.e. France, Germany, Denemark and Sweden), they are even members of four distinct cooperations. Against this background, it goes without saying that any regional approach (that is a limited number of Member States and other European States acting together in a regional setting), being formalised or not, bottoming-up or topping- down, with or without direct involvement of the European Commission, should develop within the wider and global context of the EU-rules and policy setting. This broad policy base will have to be leading for all of the regional levels. And a flexible and efficient EU governance mechanism should be developed to safe-guard this. 31 Governing the differences in the European Energy Union: EU, regional and national ...

Flexible and efficient, that is almost self-evident. But this does not have to mean that any regional model always will have to fit in a broader EU-model, should it exist. Within the global EU policy context, regional models should be allowed to differ, as the various examples mentioned above demonstrate. Market conditions and supply options, RES- possibilities and infrastructures, demand characteristics and climate and geography may be quite different throughout the European Union which has wide varieties of condi tions, cultures and history, which includes both the good and the less good under standing between neighbours. The fact that the Penta-model for electricity market coupling is becoming the European target model may be more an exception than a rule. When the policy conditions and principles are the same, the implementing devices could and should be allowed to be different, in accordance with the sub-sidiarity principle of the Treaty. It may be useful to remind that this principle means that “in areas which do not fall within its exclusive com-petence, the Union shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States, either at central level or at regional and local level, but can rather, by reason of the scale or effects of the proposed action, be better achieved at the Union level.” (Article 5.3 first paragraph of the Treaty on the European Union). While being a shared competence between EU and the Member States, energy is clearly an area where a lot has to be set at European level to ensure the free movement of electricity and gas and to facilitate their transmission as well as to optimise the resources and infrastructures available for the benefits of all. Cross-border issues are numerous and have to be framed at European level while a lot of issues related to the implementation fall on the national, regional and local levels. And the balance between all these levels remains a permanent challenge for any regulator and surely for the European legislator being the Council and the European Parliament acting in co -decision. The more the market will be integrated at the European level and the more the competence will fall with the EU level, with the need to redefine the balance between the various levels. In other words, the frontiers between the European and the other levels will vary continuously. For instance, it could mean that some regions, made of several countries, may continue to opt for a bottom-up approach, minimising the role of the European level, whereas other regions might only make headway with a strong top-down model and a more or less leading role from the European Commission. And within these two “extremes”, any in-between solution could be a sensible one as well. In any case, one thing is sure: the rules set by the EU legislator have to be complied with and the Commission as guardian of the Treaty has to ensure that this is the case. Ensuring a level playing field for all participants to the market is a key principle of the European Union. Free riding and specific national solutions designed for the national champions are not allowed. Therefore, regional approaches under flexible and efficient EU-oversight with a menu of ex-ante and ex-post assessments could form the basis for the governance model of the Energy Union philosophy. The question remains whether such a model should be translated in an EU Regulation in order to set the rules and limits clear. Depending on the subject matters themselves, an expanded mandate for ACER could also be part of this model. The 32 Governing the differences in the European Energy Union: EU, regional and national ... impact assessment of such a Regulation might however be politically very difficult and complex to undertake. Market designs and (detailed) region-specific regulation in a cross-border context, both at policy and regula-tory levels in order to facilitate seamless trade-patterns in energy-products and services, is one example of regional rules that would require some kind of (ex-ante) oversight from the EU. Assessing common generation and system adequacies and developing measures to correct inadequacies wherever necessary may be another one. The necessary regional cross-border specific regulatory designs may also fall in this category as they would need some kind of regional regulatory governance, preferably to be organised by ACER with even ACER setting the “regional rules”. On the other hand, more voluntary approaches between (bordering) MSs to discuss and coordinate national policy implementations would less require some form of EU-oversight and that this could be organised on an ex-post basis. They could include regional approaches on RES-planning, maybe with regional (indicative?) tar-gets and monitoring , joint/regional support schemes (including with cross-border access), cross-border RES projects, using the PCI- model with some kind of cross-border CBAs36 And then finally in this context, the more political idea of coordinating national energy policies and fuel-mix options should be mentioned, to be based on ex ante info-sharing of new policy approaches and instruments. The Baake-group approach could be such a mechanism, with possibilities for further harmonising policies and instruments if politically desired and feasible. What is probably the most important is that Member States are speaking to each other more systematically and are willing to act together on common issues. Up to now, it is the lack of dialogue at the political level and the resulting lack of mutual trust which have led to detrimental national initiatives in the European market. 2.5. The North Sea as a “casus aparte”? North Sea energy is a long standing story in the field of oil and gas where a number of interconnectors and infrastructures are crossing the North Sea, each one with its own relevant policy and regulatory design, usu-ally based on bilateral relations of countries concerned. Harvesting the wind potential brings a new challenge, especially since the increasing generating capacities that are projected or anticipated could be approached on an integrated basis, including connecting generators directly to existing or newly built interconnectors, instead of a single one-by-one on-shore connection. Infrastructure interconnection models could also play a role in the further on-shore market integration devel-opments, connecting the whole NS-area with the NW-EU power market. This would give the whole area also a strategic policy dimension that goes beyond the harvesting of wind energy only. This element could bring another political dimension to the NS-COGI process. NS-COGI to date is still more an intergovernmental study-group from the

36 Ecofys, Driving regional cooperation forward in a 2030 renewable energy framework, 15 September 2015 33 Governing the differences in the European Energy Union: EU, regional and national ...

Member States, the NRAs and the TSOs than a common action group. Several pleas are made to give the whole process a wider political setting and focus. Some would argue that the different regulatory designs and support schemes of the NS-countries, including the EU regulatory framework, are a barrier for enhancing this wider cooperation. It may be useful to explore the possibility to set up a separate legal instrument, allowing specific solutions and arrangements. This could make the NS-energy development a “casus aparte”, allowing efficient harvesting of the large off-shore wind energy potential, that will be critical for meeting the EUs ambitious energy policy objectives. The North Sea could well be a laboratory for innovative regional solutions or enhanced co -operations aiming at solving very specific problems like the creation of an integrated regional grid serving a dozen of countries. The time is ripe to raise the level of ambitions and to champion such a regional cooperation. Whether a specific structure like a Joint Undertaking (foreseen by the Treaty on the Functioning of the European Union in its arti-cle 187 to facilitate technological development) is required or whether it would be sufficient for the European Commission to be the facilitator of an in- depth cooperation of all parties concerned remains an open question today. But at the end an international binding agreement might be necessary to frame legally the project. 3. The National and subnational levels The development of the internal market means in principle a lesser role for the national level. However, in the field of energy, it remains very significant, with some remains of the long-standing “prérogative régalienne” which is the privilege of sovereign states. On the other hand, one should realise that the developping internal energy market will make national policy initiatives more effective. 3.1. The reserved areas Public and/or private ownership issues in energy-networks or the energy- industry is a national prerogative37 , of course always within the general rules of the EU-treaty (non-discrimination and competition policy). Energy taxation is a de facto national prerogative, at least as long as unanimity is required to adopt any EU legislation. This may gradually change, however, because there are a number of compelling arguments to use energy taxation more as an instrument for energy policy and less for budgetary reasons, meaning that an energy legal basis using qualified majority voting could be used, instead of the taxation legal basis that requires unanimity. National sovereignty is unchallenged concerning the decision to explore and exploit, and at what pace, national energy resources. This does not prevent the exploitation of national energy resources, once decided, to fall under EU rules (licensing, environmental rules etc.). For instance, any EU Member States is free to 37 Article 345 of the Treaty on the Functioning of the European Union 34 Governing the differences in the European Energy Union: EU, regional and national ... authorize or ban the exploitation of shale gas, but if an EU Member States decides to exploit shale gas, then it needs to respect EU rules regarding, for instance, environmental protection in terms of water pollu tion. The issue of ban of export of such national resources, in the name of security of supply, remains an interesting debate in some countries, although once exploited such resources should be subject to freedom of movement. The most sensitive national policy domain in energy remains the decision on the national energy mix. This is rather surprising as all energy sources, be they fossil or renewable, are one way or the other part of EU energy policies. There is one exception which seems to justify this rule and that is the “nuclear issue”. The Euratom treaty, part of the “acquis communautaire”, commits the Member States to promote nuclear energy for peace-ful purposes, but as long as Member States, that are using the nuclear option or not using it, are confronting each other for political reasons, a rational discussion at EU level on the energy mix is one “dead-on-arrival”. But here again, one should be aware of the impact of cross-border developments, both physically and economi-cally, leading to a diminishing effectiveness of national policies on the overall fuel mix. When cross-border markets and industries are integrating and EU-policies regarding the roles of individual energy-sources are further developing, including their potential regional implications, a “national fuel mix policy” will more and more lose its meaning. In practice, the present flows of electricity throughout Europe occurs without consid-eration for the energy sources and this is a physical law that human-made law may not amend, unless all elec-tricity connections between EU Member States are entirely shut down. 3.2. The gas and electricity retail markets The question is today open whether the subsidiarity principle mentioned above could and should lead to lim-iting the EU’s role in regulating energy retail markets and leave it as a national policy issue, even more so as retail markets do not generally have the cross-border characteristics and importance that wholesale markets have, as long as the retail prices are not regulated. The reality is that regulated prices is the rule in many Member States today, with the non-innocent effect of protecting the incumbents against new entrants and of removing any price signal allowing for a more efficient use of energy or for future investments to be made. This is in itself already an issue requiring amending national retail tariff structures. The question is whether it is sufficient to have an EU Directive requiring that all consumers have the right to choose their supplier anywhere in the EU and that they need to have effective arrangements for consumer protection, supply switching procedures, mechanisms for dispute settlement and complaints and for vulnerable consumers. Among consumers, there are the busiess customers and new service providers like aggregators willing to act crossborders. Then, to the question is to know to what extent should the detailed ‘how and what’ be left to national regulation and be subject to the effective supervision by the NRA’s, provided their independence and sufficient resources to do so are guaranteed. The scope of the EU regulation needs to be redefined in the light of the most recent developments 35 Governing the differences in the European Energy Union: EU, regional and national ... regarding demand side management or flexibility. If the rules are clear it does not mean that if there is a bordering issue in bordering regions, it could not be effectively settled between the bor-dering national or even subnational authorities. And when markets are facing barriers for new entrants (from inside or outside the country), there must be a robust remedy system to apply directly the EU market rules as well as the general competition rules. The first recourse there is the national regulator, and then the national courts. Should a need of interpretation of EU rules arise, it should be referred to the European Court of Justice which can deliver a preliminary ruling. It does make sense however to compare, monitor, discuss and learn from NRAs best practices. This is the now usual task of the Council of European Energy Regulators (CEER) that has already in its mission statement to empower all consumers and to foster competition. And ACER has to report yearly on the implementation of the market rules in all Member States based on the NRA’s reports. While they have been largely left outside the third internal market package, the retail markets remain a sensi- tive point of further discussion. The recent consultation paper of the Commission on the market design and on a new deal for energy consumers identifies many issues related to the retail market which seem to require a European framework against which the retail markets should develop.

Figure 12. Overview of regulated electricity prices in the EU (in 2013)

% households with % of households Households SME’s regulated price with social tariffs*** AT No - - No BE Yes* 8,4% 8,4% No BG Yes 100,0% 0,0% No GR - CZ No - - No CY Yes 100,0% 3,4% Yes DK Yes 80,0% 0,0% No EE Yes 100,0% 0,0% Yes FI No - - No FR Yes 93,0% 3,9% Yes DE No - - No UK Yes** 89,8% 0,0% Yes** EL Yes 99,9% 4,4% Yes HU Yes 98,3% 0,0% Yes IE No - - No IT Yes 80,0% 3,3% Yes LT Yes 100,0% 0,0% No LY Yes 97,3% 9,7% No LV No - - No MT Yes 100,0% 12,4% Yes NL No - - No PL Yes 99,5% 0,0% No PT Yes 90,2% 1,4% No RO Yes 100,0% 13,3% Yes SK Yes 100,0% 0,0% Yes SI No - - No ES Yes 59,4% 9,5% Yes SE No - - No *BE household with special needs only have regulated prices; **UK: prices are regulated for households (90%) and SME’s in the Northern Ireland only; *** Households with social tariffs are part of the regulated segment. The definition of touseholds with special needs varies across Member States. Source: ACER/CEER (2013), European Commission services 36 Governing the differences in the European Energy Union: EU, regional and national ...

3.3. The decentralised energy production Policy development and implementation with regard to local and decentralized sustainable energy supply options always have site-specific elements. Heat- markets and smart energy services require tailor-made solu-tions. They are all areas for national and subnational policy, subject to the general framework and objectives set at EU level, as expressed by the European Council and translated into binding instruments, such as the reduction of GHG, the promotion of renewable and energy efficiency. Introducing, for instance, real-time pric-ing in order to expedite the increasing shares of variable RES in the systems and the netting and/ or banking of individually or collectively produced renewable sources of electricity are part of that. From decentralised perspectives, discussions will have to follow on where to put the balance between the regulated and non-regu-lated segments in the value chain, including issues on system reliability and generation adequacy. Enhancing the roles of the Distribution System Operators (DSOs), in accordance with the general EU market rules, includ-ing the possibility of specific well-defined pilots with exemptions do not need a more specific EU regulation. Where cross- border issues are at stake, a regional approach (again) could well be the best way out, be it a cooperation between national or subnational authorities. 3.4. Infrastructure development Energy efficiency, energy saving, energy intensity, and energy conservation are policy headings that will always be an important part of national energy policy, although it does not mean that Member States should not be FREE seeking an improvement of their national situation. Indeed, the most recent debates on energy efficiency at EU level highlighted the need to act to moderate demand as it would enhance the security of supply of everyone and the EU as a whole. Applying the spirit of solidarity to this action means that should you count on your neighbours in case of scarcity, it supposes that you are not com placent with your own obligations. Solidarity is not free riding. In this respect the level of energy efficiency within the EU varies considerably and requires each Member State to address seriously the issue. Member states have all their different approaches, based on the different energy demand structures. Sometimes quan-titative targets are used as a policy-focus, with complex statistical calculations and interpretations which are far from being harmonised at EU level. Global energy demand or energy efficiency targeting at national levels remains difficult to monitor and assess, a reason too often invoked to refuse any common EU discipline. National approaches could be effective, where energy-intensity or energy productivity is used as a relevant indicator, even allowing some cross-border elements. The internal market as a leading paradigm justifies fully setting harmonised energy efficiency norms and standards for all sorts of tradable appliances at the wide EU-level. The Ecodesign-model38 is a successful example for this. In contrast with this market, the building stocks are not traded, including houses, apartment-

38 European Union, Directive 2009/125/EC establishing a framework for the setting of ecodesign require- ments for energy-related products 37 Governing the differences in the European Energy Union: EU, regional and national ... buildings and all other sorts of estate and fixed assets, industrial installations, also when they are generating steam and electricity or processing fuels, setting energy efficiency standards and policies in these domains seems more efficient if it is done at national levels. However, setting energy performance benchmarks for buildings at EU level, as it has been decided in 201039 , is also meaningful not only to improve the quality of con-struction materials EU-wide but also to make everyone aware of the importance of energy efficient buildings as buildings represent more than 40% of the EU energy consumption. It makes sense in addition to organise at EU-level a process of sharing information and best practices, even helping and facilitating national capitals to make the relevant choices. And EU has been particularly active in the recent years to promote new financing means to accelerate the process of modernisation of buildings and of financing efficiency. Structural funds, specific funds and EIB are spending more and more to this effect. Energy efficiency should also be part of the agenda discussed at the Interreg- levels such as the Covenant of Mayors and their Smart Cities projects. Considering also that the wider civil societies and all sorts of local communities and cooperatives are becoming directly involved in decentralised energy and electricity, policy- making and policy-governance will become more and more important. This process could potentially lead to a fundamental shift in the prevailing business models in the energy sector, and is therefore in line with the fun-damental transformation of the energy sector that is also mentioned as a policy objective in the Energy Union. Careful and effective monitoring and assessing these developments at EU-level is therefore a relevant feature and could also be part of the independent EU Energy Information Service, mentioned earlier in this paper. 3.6. The sub-national inter-regional levels At the level of sub-national regions, cities and local communities, many things are happening as they also wish to develop their own sustainability agendas. Some of these regions are also extending in a cross-border con-text, where borders are not physical geographical barriers. Some instances of cooperation are well known: the DE/NL/B area around Maastricht, the FR/DE Alsace-Rhine region, the NL/DE Eems area etc. Agenda set-ting and developing in these areas is based on the respective national instruments and their possible exten-sions to the wider regional levels. Sub-national Inter-regional-levels could further require tailor -made solu-tions and approaches. Exchanges of information and best practices should take place. The existing platform of the Covenant of mayors is one example, but others may be developed as well. The European Commission may facilitate these exchanges, even helping and promoting specific and detailed sub-national interregional cross- border solutions and support, allowing also free-zone pilots where necessary. These could include specific RES-projects, energy-saving and heat-infrastructures, setting up specific funding, managing and governance models, including for inter- DSO projects. This is particularly the task of the regional development policy of the EU which provides for several instruments including financial ones, to steer such inter-regional cooperation.

39 European Union, Directive 2010/31/EU on the energy performance of buildings. e 38 Governing the differences in the European Energy Union: EU, regional and national ...

CONCLUSIONS The energy sector is evolving fast, with a new definition of the roles for all the players and particularly the cus-tomers, and with the technological development in the form of new sources of energy and intelligent devices at all levels. The old paradigm of a supplier driving the whole supply chain to the customer is being replaced by a multipli-cation of suppliers, infrastructure managers at multinational, national and regional levels and customers who are also becoming producers. Between centralisation and decentralisation of production, new players are coming in the market to provide new services helping to make the best possible use of energy. Matching supply and demand in real time remains the rule of the game but the process is changing. Security of supply is not anymore a narrow national concept justifying all kinds of short-term measures and denying the European reality which is one of interdependence as the increase of cross-border flows of electricity and gas demonstrates. In addition combining the strengths of each and every Member State is the best way to mitigate the weaknesses of each one and to reinforce all. This is where citizens may expect the word “solidarity” to be meaningful. Finally, climate objectives which are common to all of us are putting more constraints on the energy sector which has to cope with its modernisation and the objectives set at higher level. These changes and constraints are also offering loads of opportunities to the economy. More than ever, the role of each level, European, national, regional and local is being questioned to assess the most effective way to regulate and accompany the process of modernisation of the energy sector with a for-ward looking climate policy. This paper discussed the various elements to be taken into account, in the light of the last ten years devel-opment of the EU energy and climate policy and it analysed the most recent trends as expressed under the Energy Union project launched by the European Commission in February 2015. This paper was particularly inspired by the numerous initiatives taken in 2015 by groups of Member States with or without the involvement of the Commission to address common issues, usually in the field of cross-border and regional infrastructures development or even in the more controversial area of energy policy defi-nition, including energy mix. These initiatives can only be welcomed as they express the new awareness of the Member States to act together and to share common solutions to common problems. These initiatives have to respect the EU rules but should not be prevented to go beyond the existing rules and to design and test new solutions, provided they remain in line with the EU framework. For instance, defining common methodolo-gies for the generation adequacy or for energy efficiency assessment can only be beneficial for all the other Member States. Inter-governmental arrangements can serve as pilots for further integration of the energy pol-icies and become models for further binding EU rules, should 39 Governing the differences in the European Energy Union: EU, regional and national ... they prove helpful. The Community method, that implies a key role given to the Commission, the Member States (via the Council) and the European Parliament, should of course remain the rule when designing rules for the whole EU. Articulating the European, national, regional and local levels in the field of energy is a crucial undertaking which requires that the right channels of information between these levels are used to ensure the best pos-sible exchange of information and mutually reinforcing measures. EU is there to create a coherent regulatory framework, setting the scene within which the national, regional and local levels may implement the most appropriate policies and measures according to their specificities. To achieve our energy and climate objectives, which are now set by the European Council, requires the mobili-sation of all political authorities, at all levels, together with all the players including the citizens/consumers. The task is sufficiently important and ambitious to be as exciting as challenging. It is more than ever time to work all together in the same direction, in a pragmatic and efficient way.

Jacques de Jong is Senior Fellow in the Clingendael International Energy Programme (CIEP) - The Hague. Thomas Pellerin-Carlin is Research fellow at the Jacques Delors Institute. Jean-Arnold Vinois is Adviser on the Energy Union to the Jacques Delors Institute. 40 The Energy Union and natural gas industry going into the heart of the Balkans... The Energy Union and natural gas industry going into the heart of the Balkans

Pavlin Stoyanoff

The European Union’s history lasts now for more than 65 years. It has been undergoing stormy times alternating with blooming periods of peaceful enrichment of the spirits and bodies. Having grown from 6 to 28 members, the Union strives to keep unite, integrated, recognisable as a single organism, while giving all the credit to its natural diversity. Now and ever, the EU’s agenda has always had as principal points the synergy between energy and economic progress. By promoting sustainable development for the whole, how does the Union policies and aims imprint on different regions and separate countries? How have we started from coal and steel, to end up mainly talking about climate change and gas? Is the small member’s view the same as on the big picture? THE EUROPEAN UNION – FROM ENERGY TO SYNERGY As the European Union official site puts it:The “ European Union [was] set up with the aim of ending the frequent and bloody wars between neighbours, which culminated in the Second World War”. Is it not that sixty-six years later the EU’s primary aim has already shifted to improvement of its citizens’ life, not just saving it? If this is true, then the deed of the EU founding fathers was greater than life. And the European Union today is “determined to promote economic and social progress for [its] peoples”. Or at least just yesterday that seemed to be the main course of travel, before the events that started troubling Europe in 2015… The rise of the European Union has always been incremental. This could be well the reason of its so far successful story. It was not an “all-in-one” shot blasting off all available munitions. The EU has been growing step by step, its edifice is being erected brick by brick, its rooms and halls are designed meticulously one by one, each having a dedicated purpose and a unique atmosphere. On each day of its life the time for Europe seems always turbulent. Decisions are taken slowly, institutions’ work is blocked for months by an abstaining member state (eg the Empty Chair Crisis from 1965, followed by the European scepticism period of the 70’s-80’s), the fundamental treaties are being updated after intense debates, strong words and following a lot of compromises. Some projects fail too (eg the failed European Constitution). Anyhow, despite all the hurdles the family keeps growing, the legal and political base gets richer and, for the believers, probably more stable. Certainly, if it falls apart, it would hurt a lot... In 1950 the first six central European states which founded the European Coal and Steel Community laid down the basis for integrity around primary then energy sources. The joint control over the mineral sources then necessary for sustaining a “war state” had to be a guarantee for peace. However, the enthusiasm about “getting together all the way” was almost immediately cooled down. The European Defence Community did not happen. 41 The Energy Union and natural gas industry going into the heart of the Balkans...

The idea for European political community appeared as a programme but was still premature. And that was like a sign and is still a good lesson to invoke as to how the “European federation” could develop, and has been actually developing since then. The “failure”, back then in the previous century’s 50’s, of the defence and a formalised political community did not discourage Europe. The continued integration materialised again through “tangible” matters - the European Economic Community and the European Atomic Energy Community. The base laid down in 1950 proved itself stable and was fortified by the two new communities. The integration was ongoing. The beginning of the EU was all about economics and energy. The politics of the member states have been gravitating towards one another bound by the economic and energy communities. More than half a century later, the European citizens have their fundamental rights (incorporated in the Charter of Fundamental Rights of the European Union). However, only now the citizens of the European Union have received the fundamental right of energy, with the idea about the Energy Union.

THE ENERGY UNION – ANOTHER STEP TOWARDS STRONGER INTEGRATION In 2009 the EU introduced the Third Energy Package. The main aim was closer, if not full, integration of the EU electricity and gas markets. For that purpose, a cluster of improved norms were introduced which the member states had to quickly implement in their legal systems. That predominantly concerned the unbundling of transmission and distribution systems operators from the functions of production and supply, legal guarantees for access, transparency, increased competition, security of supply to households and other private households and other vulnerable consumers, scrutinising regulator’s functions, and many other legal statuses and principles. Some years later, Europe realised that the results sought by legal norms are imperfect without the corporeal support. Ideas are latent without the body. The body, ie the energy infrastructure in the EU, appeared to be in bad health, especially in certain critical regions. For example, according to the European Commission’s press release of 25 February 2015, Cyprus, Romania, Estonia, Ireland, Italy, Lithuania, Latvia, Malta, Poland, Portugal, Spain and the United Kingdom do not meet the EU's minimum interconnection target – that at least 10% of installed electricity production capacity be able to “cross borders”. On the natural gas side, Bulgaria, Slovakia, Estonia, Finland, Latvia, and Lithuania are dependent on one single external supplier for all their gas imports. Among other reasons, the latter is often due to a single-choice destination of the available gas infrastructures. A non-integrated, or insufficiently integrated European energy infrastructure could not perform as a playground of the great ideas set behind the Third Energy Package. In cases of a crisis of supply, troubled countries should be able to be supported by other EU member states. This is a solution embedded in the Third Energy 42 The Energy Union and natural gas industry going into the heart of the Balkans...

Package. In practice this has proven impossible to many countries which are not well connected with the systems of their neighbours. This happened to Bulgaria in the 2009 gas crisis, just a few months before the Third Energy Package came live. And yet, seven years later Bulgaria is still one of the EU countries reported by the Commission to be dependent on one single external supplier for all its gas imports. Six years later Bulgaria not only failed to finish, but it barely has factually started the realisation of the long-ago announced gas-interconnector projects with its neighbours. This is just an example. Here came the idea about the Energy Union. It was announced by the European Commission in February 2015. One may see that Europe has recognised the need to take care of the body. It has also realised that the good body-building needs some food and blood (figuratively), ie financing. Means are already provided by the European Investment Bank, the Connecting Europe Facility, the European Structural and Investment Funds. The above funding options are to be looked upon in the context of the declared principles that: “In an Energy Union, citizens are at the core. The prices they pay should be affordable and competitive. Energy should be secure and sustainable, with more competition and choice for every consumer”. Energy prices are crucial economic elements in the less advanced of the EU countries. Governments are aware that significant increases of end prices usually bring social tension. Anyhow, the Commission acknowledges that the main portion of financial means should still come from the private sector. That is, through the fees paid by the infrastructure users, while it is natural such fees to be then transferred to the end consumers. The European Commission considers that only a small number of projects would actually need grants under the Connecting Europe Facility. These will be projects that are not commercially viable but are still assessed as to provide the security of supply, solidarity or technological innovation. The Connecting Europe Facility is already available and is restricted to projects that have been classified by the European Commission as projects of common interest. It is true that not all contemplated projects of the countries on the Balkans are included in the Union list of projects of common interest. There is consistency – among others, one can always find in the list high-voltage electricity interconnection projects and the Southern Gas Corridor. The list does not include purely internal projects that would not contribute to the cross-border integrity of the systems. The above statement of the Commission about the envisaged ways for financing the Energy Union basically means that the member states should fine-tune their energy economies to be able to complete a larger number of projects. In any case, Balkan countries should try to benefit from this new strategic EU route and perform the planned cross-border infrastructural projects – gas interconnectors, gas storage capacities, gas hubs, improvement of the electricity network, smart grids. Regional electricity and gas exchange markets are also a requisite to sustainable energy economics. Lack of financing is on many occasions the blamed insurmountable wall preventing such projects to transform from words to actions. One should not ignore though that the political negligence reinforces in crucial points this invisible 43 The Energy Union and natural gas industry going into the heart of the Balkans... wall. Europe is a “high-class” society in many aspects, and often EU politicians are ready to procure well priced goods to its citizens. While the highly appreciated values of Europe seem to be a comparatively smaller problem to Western countries, Central and Eastern European states succumbed on many occasions to the burden of new requirements and targets. Such were the renewables for example, which put in a fair trouble many of the Eastern and Southern states in Europe, and send others to deep thoughts and reluctance to “go for it, big-time”. Even Germany accounted many mistakes made while implementing the RES targets. But this does not stop Europe from its manifested goals: “the EU has the world's most ambitious commitments on climate change”, the European Commission reaffirms. And as a new image of the ambitions, the European Union brings upfront the new perception of energy efficiency as an energy source - another concept declared to be one of the pillars of the Energy Union. At what pace and price to society will technology do progress in order to materialise the desire, energy efficiency to compete with generation capacities? Supporters would say that it does not matter as future savings and para-monetary benefits will make up for all losses. The question then is what will the European citizens be actually paying for? Clean environment, uninterrupted access to energy, freedom… For the people, the Energy Union should “allow a free flow of energy across borders and a secure supply in every EU country, for every citizen”. From a higher political point of view, the integrated energy system in the EU should bring national and economic security to the states and people – independence, and sustainability – it should last. In fact the European Union should find all kinds of means to preserve itself, as its integrity seems to be challenged on a daily basis by external and internal well-wishers. Each organism needs sufficient amount of energy to keep the matter that builds it bound. And with the increase of the matter’s mass, the whole organism needs more energy flowing through to keep it as one. In this context an Energy Union seems to be the right recipe for preserving the European Union still shining as a stable constellation on the dome of nations. However, the theory still needs the right formula to mature. The energy is now praised as a fifth freedom – energy will freely flow, protected by the EU law, across borders together with people, goods, services and capital. The question whether energy is not already a service or goods and why it should be called a “third thing”, unknown so far, probably does not need an answer. Along with the de facto infrastructural obstacle facing the free flow of energy, currently comprehended, it shall be considered that we are talking about one of the most heavily regulated economic sectors in each country. Energy is always immanent to national security. It is characterised by its natural monopolies and frequent suspicions in dominant position abuse. This means a lot of work for the national regulators as well as for the competition protection authorities. The European Commission appeals for enforcing the independence of regulators. And this seems a great problem on the Balkans and in the countries from the former Eastern Bloc. When energy is such a sensitive factor in the society, capable of affecting every single citizen in each country, it appears a strong political leverage. In this context, it 44 The Energy Union and natural gas industry going into the heart of the Balkans... is a luxury for some governments to readily obey the independence of the national energy regulators, usually appointed by the governing forces anyway. Hence, here we have the outlines of the yet vague idea of a European energy regulator. Will all member states, and to what extent, be ready to share their prerogatives (sovereignty) in this highly sensitive political and economic sphere with the EU institutions? There is already quite some opposition to the whole idea of an Energy Union. At the same time, small countries should see a chance to release some burden by sharing with the EU institutions the responsibility for solving some of their biggest issues. The tolerance of some rather conservative groups of EU politics towards an “EU energy regulator” could logically be expected not to go further than just vesting some high level general powers to such a central body. Is it too daring to think about national price regulations at EU level? First step seems to be made exactly to that direction. At the EU summit of 19 March 2015, the leaders of 28 EU member states discussed a proposal to give the EU Commission a central role in vetting and approving gas supply contracts across the EU. If adopted, the proposal would empower the European Commission to oversee gas supply agreements before they are entered into by the parties. Thus, the Commission would be able to block such commercial agreements if it considers that the gas prices are unfair or if any of the contractual provisions are incompliant with EU law. The target of such policy seems to be companies importing gas in Europe, which must comply with competition regulations in Europe. This action, conceived at the dawn of the officially announced Energy Union, already faces negative definitions such as ‘damage to national democracies’ etc. However, it is a sign that there is strong will the Energy Union to actually happen. The history of the European Communities has proven that great changes take a huge amount of effort, time and determination to be accomplished. A lot of brave ideas also undergo substantial alterations from the initial concept to the final product before winning the animating consensus. The European Constitution is, for example, a project so altered that it actually was left behind as such. Nevertheless, a synergetic union, literally, would most hopefully bring more to the EU citizens and to strengthening the coherence of the European Union than just a document even if called ‘Constitution’. One of the legal pillars of the European Union is the ‘solidarity clause’: each member state relying on its neighbours for energy supply. And solidarity is needed also at the outset of this challenging EU project in order to achieve solidarity as an outcome. Solidarity is now sought in the natural gas and electricity security of each EU country. Electricity and natural gas become the veins of the future Europe. Let us focus on natural gas. WHY NATURAL GAS? In the EU, natural gas takes a second place as a primary energy source, having a share of 23%, which makes it the second most used primary energy source after petroleum and petroleum products. Within the last about 20 years, natural gas in a joint effort with the renewables have succeeded to send the share of solid 45 The Energy Union and natural gas industry going into the heart of the Balkans... fuels from second to third place in Europe, decreasing their share in the gross inland consumption about 1.3 times. The use of the still leading primary sources – petroleum and products, has also decreased about 1.2 times. This energy mix ratio is different from the global energy consumption, where solid fuels are still more used than gas. We see how Europe is innovative here compared to the rest of the world. Anyway, why does Europe talk about natural gas so much? Many European countries have relied since quite some time on natural gas in their economies and social welfare. Such countries are major consumers of gas and their economies naturally need this source to avoid downfalls (eg Italy, the UK, Hungary, the Netherlands). On the contrary, many other EU countries have historically used mainly other sources for heating/cooling, electricity and transport – coal, nuclear, renewables (such as France, Austria, Sweden, Estonia, Cyprus, Malta, Portugal, Finland, Bulgaria, etc.). Why do these countries need natural gas? As seen, coal’s popularity has been in decline in Europe since many years now – the UK took the lead here to give up large scale coal use as much as possible after its economy had previously boomed in the industrial revolution based on the British coal. For other countries, such as Bulgaria, Estonia, Cyprus, Hungary, Malta, Luxemburg etc., coal or other solid fuels are still the dominant solution. They are cheaper for such countries and, very important, available. However, an extensive coal use may not be expected to last long in the context of the EU environmental targets, or at least not without high purification and greenhouse gas capture and storage technologies. The latter means increase of the cost to use coal, which could level it up with other sources. This means competition between the different energy sources gets real even in countries still not well gas supplied. Therefore nowadays, when the care about the environment becomes a highest priority for the densely populated continent, Europe looks more and more for cleaner sources. The nuclear energy is very efficient. It has no greenhouse gas footprint. Nuclear waste storage has always been an issue too, but somehow not so widely discussed. Environmentalists have been raising voices against nuclear power, but have not managed to make Europe take an anti-nuclear position as a principle. However, the world saw a remarkable upturn of the opinions towards the nuclear energy after the Fukushima disaster. Germany declared it was going to give up its nuclear power generation by 2022. Quite a dramatic decision of the strongest EU economy, but it seems feasible to a country like Germany. Anyway, nuclear might still be the future with the tons of knowledge about the elements generated every day from the research centres, such as CERN. Renewables is the dreamt alternative that Europe has been striving towards since many years now. The idealistic picture of clean energy generation, without greenhouse gas emissions, without waste, might be neatly placed in any national gallery together with the impressionists from the 19th century. However, “going green” has not been an easy task so far. Many countries faced various technical, financial, legal or political problems with their incentives to the renewables. Spain, the Czech Republic, Bulgaria, even Germany realised that the process could not 46 The Energy Union and natural gas industry going into the heart of the Balkans... go as smooth as planned. Incentive promises are being retrieved, investors feel somehow cheated. Some of the countries face now international arbitration claims, others keep struggling internally to keep all projects live. Anyway, the EU accounts for a success of its renewable story. The countries’ latest progress reports towards the interim targets show a close match. 25 EU member states meet their 2013/2014 targets. The target for 2020 is 20% share of the renewables in the gross final energy consumption for all Europe, and the European politicians appear relaxed that the target will be achieved. A new aim is already agreed for 2030 - at least 27% of the final energy consumption in the EU as a whole shall be from renewable sources. However, renewables cannot ensure a stable and balanced energy system for the moment. Not until effective energy storage technologies are developed at economically justifiable cost and smart grids get very smart. Not only Europe, but the whole world talks more and more about stepping away from the fossil fuels. However, pragmatists see that, although not impossible, the moment to move to fully emission-free economies is still to wait for a while. And natural gas becomes a crucial intermediary between the fossil fuels era and the desired clean energy times. Why natural gas is still not stigmatised? In terms of energy efficiency, natural gas suppliers always manifest how much more energy efficient is natural gas compared to electricity. It is represented how huge percentage (about 70%) of the total amount of fuels used in producing, generating and transmitting electricity is lost by the time that electricity reaches a customer. By contrast, producing and delivering natural gas directly loses only about 10 percent of its usable energy. At the same time, natural gas seems to be the cleanest available fossil fuel. CO2 emissions are almost half less than from anthracite coal, and about 1.4 times less than the emissions from diesel fuel and heating oil. That is why a cleaner and still sustainable economy for many countries might mean energy switching from coal and heavy oil to natural gas. For other countries, which historically have hugely relied on natural gas, securing the necessary gas supplies at a certain level would just mean preserving the internal economic and social stability. Natural gas is among the most used fuels worldwide – still keeping up a share of about 21.5% of the global inland gross consumption. Petroleum and petroleum products still have the lead with about 31%, followed by solid fuels. Natural gas consumption has increased about twice since 1995. This tendency says a lot. So far the production of gas keeps the same pace as its use. Does it mean that the industry produces just enough for the demand, or it means that the world would consume as much gas as produced? In any case, the world’s energy and economics seem highly dependent on gas. Therefore, the world, and Europe of course, recognises the huge importance of the sustainable gas supplies. Further, Europe understands that sources are not the only element of the formula to be taken care of. Infrastructure and internal integrity are now vital. Europe wants to be “energised” as a single body. Basically, natural gas supplies and electricity security are crucial for Europe. Therefore it is not surprising that today Europe has focused on developing and 47 The Energy Union and natural gas industry going into the heart of the Balkans... upgrading its common electricity and gas infrastructure as a new basic pillar in the European mansion, thus creating an Energy Union. SOURCES AND ROUTES OF NATURAL GAS TO EUROPE. In the Energy Union Strategy (called “Framework Strategy for a Resilient Energy Union with a Forward-Looking Climate Change Policy”), the European Commission states that: “To ensure the diversification in gas supplies, work on the Southern Gas Corridor must be intensified to enable Central Asian countries to export their gas to Europe. In Northern Europe, the establishment of liquid gas hubs with multiple suppliers is greatly enhancing supply security. This example should be followed in Central and Eastern Europe, and in the Mediterranean area, where a Mediterranean gas hub is in the making.” In connection with the Strategy, the Commission has adopted a list of projects of common interest (PCI) to be updated every two years with the projects that are of importance for the completing of the European internal energy market and the set goals. Currently, there are 77 gas projects listed as PCI. The gas PCI passing through Bulgaria are the Bulgaria-Serbia (IBS) and Greece- Bulgaria (IGB) interconnectors which will expand the existing transmission capacity and diversify the gas supply. Increasing the gas storage capacity of the country is also included. One of the projects is for the necessary rehabilitation, modernization and expansion of the Bulgarian transmission system where the maximum EU financial assistance shall be in the amount of EUR 850,000. As going forward with the implementation of the PCI, in the end of 2015 the Commission reported that the interconnector agreement between Poland and Lithuania has been signed. It is expected the pipeline to be completed in the end of 2019. In the beginning of 2016 the EU countries agreed to the proposal of the Commission to invest EUR 217 million in key trans-European energy infrastructure projects. The funding will be split between 15 projects nine of which are in the gas sector. However, where does gas flow to Europe from? With the increase of the natural gas demand and consumption in Europe the last 20 years, the import dependency of Europe has also been increasing. Currently it is about 65% for EU-28. 39% of the natural gas imports come from Russia, about 30% - from Norway, and then followed by Algeria and others. As a matter of fact, Russian imports of crude oil and solid fuels are also dominant for the EU. Currently Europe has focused on the new Southern Gas Corridor, which must secure natural gas from the Caspian Region. Many of the PCIs in South-East Europe aim at constructing infrastructure serving this new route. THE BLACK SEA - REGIONAL POTENTIAL AND OPERATIONS Narrowing the scope of interest to the South-East region, one observes 48 The Energy Union and natural gas industry going into the heart of the Balkans... that the Black Sea has become a fascinating new venture for upstream oil and gas in the recent years. Especially after the slight disappointment or cooling off from the shale gas enthusiasm in European and region. Nowadays we see many majors coming to the Black Sea, regional conferences being held often; and governments promoting their policies through investments in oil and gas exploration. Out of all the Black Sea countries, Romania appears to make the most progress in developing its potential. Romania’s huge Domino-1 find in the Neptun block, which could hold up to 84 bcm, is the largest discovery in the Black Sea to date. Lukoil also announced a large discovery of a gas field offshore last year. To state the obvious - the Black Sea is very important for Romania. Thanks to these activities the country was able to cut imports from Russia by 61% in 2014. Turkey has the largest area in the Black Sea. Reportedly the country may hope for up to 10 billion barrels of oil, but still this needs to translate into actual production. Shell just recently drilled a well in their block in Turkey and everybody is expecting announcement of results soon. Turkey’s priorities recently have been transporting and trading oil and gas rather than extracting it, but the country does not give up its Black Sea operations. Talking about Black Sea, one shall not miss Russia. It has a considerable potential in the region, but so far it has been distracted by other global strategic projects. Sanctions, pipeline projects, LNG focus and some incidents have been departing Russia from production of oil and gas in the Black Sea. However, the Tuapse Trough acreage off the Krasnodar Region still seems like a promising project. Ukraine was not so energetic in exploring its Black Sea blocks in the past because the steady supply from Russia did not call for a desperate need to diversify. However, Russian supply is not so reliable now and Ukraine will need to look more deeply into its own potential. However, the country’s problems with oil and gas are complex. The location of its offshore deposits is in conflict zones. The development the Skifska field was stopped by the Crimean crisis, the considerable reserves around the Kerch Strait are in a similar situation. Not to miss anyone from the Black Sea group, we should also mention Georgia. It has always been a transit country for oil and gas rather than a producer. This does not seem to change any time soon, unless some unknown treasure is not lying under Georgia’s waters. And finally, we get to Bulgaria. BULGARIA’S OIL AND GAS POTENTIAL Bulgaria should definitely play its role in keeping up the electricity and gas infrastructure necessary for fulfilling the EU goals for energy integrity. It has its PCIs approved and it just needs to rally get on it. However, Bulgaria hopes to also become an oil and gas producing country, and that would really launch the country into a new orbit. It has completed last 49 The Energy Union and natural gas industry going into the heart of the Balkans... year its latest tendering round for two offshore oil and gas exploration blocks – Teres (4,032 sq.km.) and Silistar (6,893 sq.km). The Government may account for at least fifty percent success of the initiative – Silistar Block was awarded to the oil major Shell, while Teres got no interest for the moment. So now there are already two offshore blocks held by major oil companies - Total, in consortium with OMV and Repsol, operates Han Asparuh Block, and Shell is now awarded Silistar Block. One could raise the question what Bulgaria’s overall perspective to its upstream oil and gas development is. Is the State focused on becoming an oil and gas producing country, or its current endeavours are just a tiny piece of its economic development, provoked by the currently “trendy” interest in the Black Sea as a new venture? To start with, how new is Bulgaria to the upstream oil and gas? The first mining law of the country was adopted in 1891. Experts consider 1936 as the year when oil and gas exploration started in Bulgaria. In 1951 the first oil discovery was made in Tiulenovo, onshore near the sea coast in Northeast Bulgaria. Offshore exploration started in 1960, but the drilling of a first offshore well had to wait until 1985. Since then about 25 wells have been spud in the Bulgarian Black Sea (compared to over 1,000 of at least 1000 m depth onshore). Around the 90s of the past century, local production of hydrocarbons significantly decreased, slowing down along with many other industries of Bulgaria in that period. Out of the depleted onshore gas field in Chiren the State has constructed a gas storage facility which is still operational, although needing an upgrade. In 1998 Melrose Resources plc (acquired by Petroceltic International plc in 2012) took the lead to the new wave of oil and gas exploration and production in Bulgaria. This time the focus was offshore. In 2001 it was granted its first extraction licence (concession) within the exploration Galata Block. This first is now almost depleted and could be converted into gas storage with expected capacity of 1.8 bcm (ie at least twice the capacity of the Chiren storage). Up to now, the company has been granted three more extraction licences within the exploration Galata Block. In pick production times Melrose / Petroceltic was supplying more than 15% of Bulgaria’s annual gas consumption. A huge project for Bulgaria seems to be the exploration of the deep offshore Han Asparuh Block, area of 14,220 sq.km.), granted in 2012 to the group of Total, OMV and Repsol. In 2013-2014 OMV completed the largest seismic campaign ever done in the Black Sea. Currently the operator Total is preparing the execution of the first exploration well. In that context, Shell just joined the party. Is this steady development a sign for a long-term success story for the State? In view of the slowly decreasing production in Galata, a new discovery and support to further exploration could play a crucial role. Is there an expectation for a new discovery then? Geologically, the State sees good potential for its offshore blocks. First, it is known that OMV explored a part of the Han Asparuh block in 2003 and identified a few potential structures. The most commented one is the Polshkov High. OMV left the block to return 50 The Energy Union and natural gas industry going into the heart of the Balkans... back there in 2012 in joint operations with Total and Repsol. Around the same time Romania announced a big natural gas finding in Neptune Block, which is adjacent to Han Asparuh, and is held jointly by the Romanian OMV Petrom and the American ExxonMobil. The first reserves estimates announced were of 42 to 84 bcm. Just recently, Lukoil, PanAtlantic and Romgaz announced new gas discovery, estimated to exceed 30 bcm (to be further assessed and confirmed) again in Romania, Trident Block. This Romanian discovery coincides again with the new offshore tender is Bulgaria. The major Shell tendered for and won the Silistar Block, offering an initial exploration programme estimated at about EUR 18,6 million and including new 3D and 2D seismic acquisition. Shell is a company already present in the Black Sea since 2011, currently holding exploration blocks in Turkey and Bulgaria, and had previously explored in Ukraine and Romania. It already drilled a well in the Turkish License Block 3920, part of the Western Black Sea acreage, which is close to the Silistar area All these news and the presence of major oil and gas companies in the region give big hopes to all Black Sea countries, including Bulgaria, for a larger share in the oil and gas production at least on a regional level. For these countries, most of them still highly dependent on imports, local production of primary energy sources is strategic and could give a strong impetus to their economies if the opportunity is grasped and used wisely. Bulgaria has reasons to dedicate certain amount of attention and resources in this sector. Compared to some of the neighbouring countries Bulgaria has engaged with just a part of its potential for offshore exploration and production. To get to a discovery, the State should stimulate the investments in the sector. For instance, Romanian investments in up-stream oil and gas have made it one of the EU countries with best rating for energy independence. It had to import only 12% of its domestic gas demand in 2013. Further, Romania’s natural gas production in 2013 was 11 bcm, which ranks it first as a gas producer in Central and Eastern Europe (CEE). Unlike Romania, which explores almost its entire shelf and exclusive economic zone in the Black Sea, Bulgaria still has little knowledge of its real opportunities for oil and gas production. Even a simple geophysical exploration programme (one excluding drilling activities) can make a big difference in terms of awareness of the opportunities for development. Therefore Bulgaria must attract investments in prospecting and exploration, step by step, in order to get a comprehensive picture of its geological capacity. In any case, an investment is made only when there is a good perspective for return. The perspective becomes economically viable upon a discovery, but before the final mathematics, other basic conditions must be secured. The “geological and technical” reasons for investment need to be first backed up (or vice versa…) by political support, as the State is the exclusive owner of Bulgaria’s mineral resources in situ (before extraction). A good sign to investors is that oil and gas exploration has been included as a priority focus in the Bulgarian Energy Strategy until 2020. In affirmation of this manifestation, Bulgaria has 51 The Energy Union and natural gas industry going into the heart of the Balkans... launched 11 tenders for the grant of exploration licences in the past 6 years (according to the register for granted permissions of the Ministry of Energy). Some have not been fully successful. Others were stopped due to the fracturing ban in the country. However, the Government seems to learn from mistakes. Silistar Block was first granted in 2011 to a local company which was proven in court to lack the necessary financial and technical resource to carry out the activities. The second attempt has so far proven successful, at least in terms of due legal procedure and attracted players. The Bulgarian Government should keep of a well-functioning, practical, consistent and stable legal and administrative environment. In order to preserve current and attract new investors, the country should have a predictable and understandable legal framework. Sudden and impractical changes in legislation discourage foreign investors. The venture seems then at a too high risk. Further, administrative capacity should be developed and maintained. A very important step was made in 2010 when the Ministry of Energy was charged with the governance of the sector as a one-stop centralised public authority for mining in Bulgaria. Since then, the number of exploration and production mining projects has visibly increased. This shows a positive trend and the approach shall be sustained. However, the oil and gas sector, especially in offshore, is highly technological and very dynamic. When one adds the demanding concerns of environmental protection and health and safety of people, the knowledge and preparedness of the regulator are really a fundamental prerequisite. This means that regulators shall be on their A level at all times. So when one has a stable and sophisticated legal environment, knowledgeable regulator, smooth administrative channels of communication, determined State policies, and adds to that a viable discovery, or two, one may end up with having a real “oil and gas country”. What should “oil and gas country” mean? Let’s start from the example that is the nearest in territory and, probably in time, to Bulgaria. First, one may see the major oil and gas suppliers and service companies now established in Romania for years already. Establishment includes not only administrative and logistic bases, but production facilities too. This makes Romania a platzdarm for such companies’ access to the region. Romania has converted the Petroleum and Gas Institute into Oil and Gas University of Ploiesti, educating almost 10,000 students every year. Graduates are ready to participate in the oil and gas sector of the country, so there is less need of “import” of experts. There is fair enough specialized administrative workforce. The University of Ploiesti collaborates with the Romanian Association of the Drilling Contractors (with more than 50 member-companies from around the world) for the preparation and certification of qualified personnel. The developing industry brings new opportunities to young people in the country and is a strong impetus to the local economy. Not least, an industry can never be successful without reinvestment of the 52 The Energy Union and natural gas industry going into the heart of the Balkans... profit. Going from the nearest to probably the most outstanding example, we see how Norway has laid down its pension policy. Norwegian State deposits the surplus wealth produced by the oil and gas sector into The Government Pension Fund (previously named as The Petroleum Fund of Norway). Thus it shares the benefits from the development of the sector. The Fund is mainly supplied by the surplus generated by the petroleum sector, including taxes, payments for licences to explore and dividends from the partly state-owned Statoil. Nowadays the fund is the largest in Europe and it’s said to be the largest stock holder in Europe. Internationally, it invests about 60 % of its portfolio in equities on the international stock market, 35% in fixed income instruments and up to 5 % in real estate. By July this year its value was NOK 7.0 trillion, making the fund seem enormous for the relatively small population of the country. In this context Norway illustrates that the development of the oil and gas sector can enhance not only the investments in the country and its energy independence but also be of great benefit to the society. If Bulgaria invests enough in the exploration of its oil and gas potential and develops a stable legal frame and consistent strategy for the sector, it cannot only become an oil and gas country, but can also improve the quality of life of the society if the profits from the sector are fairly shared. And at the end of the day, that is where the whole story about economics, energy and unions starts from and goes to – making countries prosperous and striving for “economic and social progress for their peoples”.

Pavlin Stoyanoff is Senior Associate in the CMS Sofia Energy, Projects and Construction (EPC), Public Procurement and PPP team. He joined CMS Sofia in early 2008, immediately after obtaining his LL.M. from Sofia University “St. KlimentOhridski” in Bulgaria. He mainly works on energy and projects matters, oil and gas and mining, public and private procurement, public-private partnerships. He advises clients in all sectors of the industry on underground resources exploration and production, concessions, permits and licensing, disputes, negotiations with private parties and administrative and governmental institutions, commercial contracts, international supply of goods, environmental and industry regulations, law of the seas, EU law matters. His experience in the energy sector includes advising clients such as a consortium of major oil and gas exploration companies, Melrose Resources, Petroceltic, eCORP, PEOS (Switzerland), Marine Resources (a subsidiary of Rompetrol), GestampEolica, Contour Global, BNK, Talisman, SDN and Alaska Metals. He also advised the Bulgarian Oil & Gas Association on drafting the new oil & gas legislation in Bulgaria. Pavlin has advised clients on organising and conduct of public procurement procedures as contacting authorities and tenderers for public contracts in the sectors of projects and infrastructure, construction, oil and gas, international supply of goods, IT systems, energy etc. He obtained a Diploma in “Introduction to English and European Union Law” from the University of Cambridge in 2008 and has been a member of the Bulgarian Bar Association since 2009. 53 On the European Energy Security in the context of the refugees’ crisis On the European Energy Security in the context of the refugees’ crisis

Slavtcho Neykov

INTRODUCTION The current article aims at outlining some key problems of the refugees’ flow towards Europe in the context of its energy security1. Although at this stage there are more indirect signs on potential dangers, discussion of the issue even in relation to preventive measures is considered necessary. The reference to the right terminology (refugees, economic or political immigrants etc.) is irrelevant to the topic as the emphasis is related to the challenges which the huge flow of people poses towards energy security regardless their legal status. The politicians claim Europe is at the verge of huge problems as a result of the refugees’ crisis. In fact, no one needs any longer to wait for the political assessment on the topic – not only due to the fact that at European level the politicians themselves look confused and without clear understanding on what is going on and on the needed common steps, but also as the public trust seems quite challenged. It is more than sufficient to look at the media as to notice the different political dimensions of these conflicts. Thus, the situation at European level – even as it currently stands – has contributed to something, which unfortunately is already rather a status quo than reflecting dynamics. For a start, this is the fact that the evident political crisis, caused by the refugees, gave burst to numerous meetings, consultations, decisions etc. at national, regional, European and world level – and the outcome of these seems more than helpless as at this stage there is no common decision with long lasting effect in place. The other pole of this strongly visible element is the fact that national level individual decisions are not only more visible, but already seem to be more expected by the population. From the EU perspective itself, this crisis has even more complicated outlook. The debate on the threat of BREXIT, partially linked also to the refugees’ problem, is something everybody also got used to; further, it is worth recalling the GREXIT story etc. And all these bring a set of additional problems for the EU – further to the familiar talk about Europe at two speeds (which according to some analysts are already three)2, the split within the EU on the ground of the positions in the context of the refugees’ topic gave vivid illustration about conflicts due to different positions, which sadly deepen. Unfortunately, this whole set of open issues within and around the EU might affect its energy security, adding new problems in addition to those, which are already well known and which continue to be subject of extensive debate both on strategic and operational level.

1 All views are strictly personal. Comments and grounded different opinions are most welcome. 2 See e.g. https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1748.en.pdf?- 261495337f2a28835aee744cb3cc046a 54 On the European Energy Security in the context of the refugees’ crisis

OUTLINING THE ISSUE AND ITS SOUTH-EAST EUROPEAN DIMENSION The extensive EU level discussions and formal positions related to energy security have been formalized in abundance of official documents and substantial amount of legislation. This approach is particularly visible within the last five to six years, which, however, have their genesis and back-up in earlier times. Thus, after introducing a special article on energy policy via the Lisbon Treaty3, there was a set of additional key documents, reflecting the official EU position e.g. the EU energy security strategy4 and the accompanying in-depth study on the topic5, the Energy Union package6, the 2015 Council conclusions on energy diplomacy7 etc. etc. However, in general all these and other documents – when discussing the energy security - have as key focus mostly the issue of security of supply. In this context it is reasonable to recall that the energy security is much broader as a scope as – aside the security of supply – it includes also the security of demand and technical and policy aspects via the topic of the infrastructure security. Theoretically, the latter point seems to be mostly relevant in the context of the increased potential for problems while considering the refugees’ issue. However, putting it this way requires some clarifications - particularly on two major interlinked topics, which are clearly noted in the current paper. On the one side, it is without any doubt that most of the people who have decided to come to Europe are looking for better life for them and their families; for some of them this move might be literally a question of life or death as they have escaped from war situations in their countries. On the other side the problems, which require more attention with the refugees’ flow in the energy context, existed also before the refugees, but now they are potentially increased and might influence not one but many countries. Therefore, stronger common precaution and cooperation among states and under EU umbrella is absolutely necessary. This is particularly clear via the fact that the available mechanisms for control evidently do not allow effective clarity on who has come with the refugees’ flow and with what purposes. The initial understanding “Wir shaffen das”8, which referred not only to Germany as a major target for the refugees, but also to the EU as a whole, was gradually replaced by literally physical construction of a new Mauer9 – this time, however, it is at European level but with strong individual additives. Besides, the situation is strongly complicated by the fact that most of these people show no ID documents, which in many cases brings the authorities to a situation in which they 3 See Article 176A, respectively Article 194 of the TFEU. 4 http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:52014DC0330&qid=1407855611566 5 https://ec.europa.eu/energy/sites/ener/files/documents/20140528_energy_security_study.pdf 6 See e.g. https://ec.europa.eu/energy/en/publications/energy-union-package ; http://ec.europa.eu/ priorities/energy-union-and-climate_en etc. 7 http://data.consilium.europa.eu/doc/document/ST-10995-2015-INIT/en/pdf 8 “We shall manage” (in German). See for more details e.g. http://www.independent.co.uk/news/ world/europe/refugee-crisis-germany-turning-its-back-on-asylum-seekers-with-border-controls- cash-seizures-and-a6829801.html ; http://www.zeit.de/2015/38/angela-merkel-fluechtlinge-krisen- kanzlerin/seite-4 and many others. 9 The Berlin Wall (German) 55 On the European Energy Security in the context of the refugees’ crisis should rely very much on oral claims when it comes to identification10. In practical terms, the infrastructure security topic has been also subject to extensive analysis at EU level – but under completely different circumstances i.e. when the refugees’ issue was not overwhelming at all. It will be fair to say that certainly the concern for the security of the energy infrastructure should not be linked only to the refugees. However, one can easily claim that it strongly deepens as the lack of effective control over the enormous amount of these people is visible even for issues, which should be tackled in much more organized manner e.g. justified access to EU territory, personal identification etc. And it is here the time to point out a key concern. Unfortunately, Europe has already quite an experience, related to attacks against people, which actively started in parallel with the refugees’ problem. One should have no whatever doubts that - in case of lack of effective prevention - next targets might be also elements of major infrastructure, including such related to energy. In fact, these already started – let me recall the blast on the Baku-Tbilisi-Erzurum pipeline in August 201511. Although in this case direct link between the refugees’ problem and the energy security could not be made on the ground of concrete arguments, it provides sufficient background for realistic considerations on potential dangers. This blast is also worth of being mentioned as the pipeline is considered to be a part of the Southern Gas Corridor, on which EU relies very much in the context of its future gas supplies. Thus, although this blast, which has been clearly referred to as a form of sabotage, took place thousands of kilometers from Europe, it is a good example how such kind of attacks might affect the energy security of countries, which are further away. Therefore, despite this distance issue, Europe should not consider this and eventual other similar cases being irrelevant to the European energy security. On the contrary – it should be prepared for accurate reaction if such cases occur. And this readiness should concern not only real life situations, but should also encompass relevant preventive steps for reaction. On this ground, the potential for energy terrorism should be considered as a reality, which might be behind the door. However, this is not the only problem, which the intensive refugees’ flow brings with. There are sufficient arguments to consider also the potential pressure in the context other forms of illegal behaviour towards the existing energy networks – metal thefts in particular. Again, this should not be linked only to the refugees’ issue but clearly the danger increases substantially with the refugees’ flow. Thus, it seems wise to ask whether Europe is ready to meet such challenges. This question comes with few others. Such additional questions are whether this is an issue to be dealt only by the European Union? What is the coordination in place – both within EU and between EU and other countries? Is there sufficient analytical work behind? What are the available mechanisms and have these been tested under the recent conditions etc.? The available answers do not seem to be many at this stage. The general refugee issue sets up a specific scene, concerning how to deal with the huge human flow

10 See e.g. https://www.washingtonpost.com/world/europe/migrants-are-disguising-themselves-as- syrians-to-gain-entry-to-europe/2015/09/22/827c6026-5bd8-11e5-8475-781cc9851652_story.html 11 http://www.azernews.az/oil_and_gas/87147.html and many more. 56 On the European Energy Security in the context of the refugees’ crisis towards Europe – and the political behaviour continues to demonstrate lack of effective political level coordination. Aside this, major topics, related e.g. to the way the EU functions under this type of pressure become more and more visible. However, these strategic directions of thinking should not cover some operational problems, which might hit strongly just when being mostly unexpected. Certainly, one should not underestimate the activities of the relevant specialized institutions at state level - these do their job when it comes to the national level security; the insufficient steps in this relation look to be rather in the field of the public common efforts at EU and European level. While the countries deal with the problem on individual ground, they should consider also the available common mechanisms for effective protection of the energy infrastructure and where necessary – to amend it as to achieve the needed improvements. Specific part of the puzzle in this aspect is South – East Europe (SEE). Compared to the rest of the European continent, several countries in SEE are geographically the European gate for the refugees (Greece and Turkey); others are strongly affected (Bulgaria, Republic of Macedonia and Serbia). In addition, some of these countries are EU member states, others are not – and this influences not only the decision making process, but also the frame of the shared policy objectives. Thus, from the perspective of the discussed topic, the issue has pragmatic impetus on how the actual challenges, related to the refugees’ flow are not only practically met but also via what frame these are analyzed – this is again linked to the EU membership, which goes with rights and obligations along concrete frame. The major reasoning to recall the specific SEE dimension is the fact that there seems to be a factual rather than formal contradiction of the perception of the energy sector within the different parts of Europe. Although via the Energy Community12 the energy development objectives and key rules are legally the same, the energy security concerns have absolutely different dimensions – and this is due to complex set of reasons (incl. inter alia the rate of energy dependence on imports, energy poverty, status of interconnections etc.). Thus, SEE is much more vulnerable to energy crisis than Central and Western Europe. The political and policy developments only reconfirm this fact – in principle, the energy security issue looks completely different e.g. in Brussels, Kiev and Sofia. From these perspectives, it is more than evident that some countries in SEE, regardless their legal status in the frame of the EU, are also much more vulnerable in the context of the energy security when it comes to the dangers, linked with the refugees’ flow. Further, these potential dangers would have much bigger effect on the other countries in the region than in the rest of Europe. There other specific aspects, related to the topic from SEE perspective – some of these will be elaborated in brief further. A LOOK AT THE THEORY – POLICY AND LEGISLATIVE PERSPECTIVE When looking at the issue about the potential dangers, coming with the refugees in the energy security context, which demand stronger and upgraded approach, one of the first thoughts is linked to terrorism. In fact, references to energy terrorism are not new – there have been already such concerns, expressed earlier and related to potential “epidemic of energy 12 Via the Energy Community process countries, which are not EU member states, have committed to im- plement EU law on a mandatory basis. For more details see www.energy-community.org . 57 On the European Energy Security in the context of the refugees’ crisis terrorism”13. However, from today’s perspective the reason to come back to the topic definitely seem to be many more. In the EU context the protection of critical energy infrastructure has been raised clearly as an issue several times. One of the best summaries has been made in the 2014 Energy Security Strategy, which states few important points on the matter14: On the one side, the EU has already started to develop specific policy steps as to address the physical protection of critical infrastructure against threats, hazards etc.; The IT security requires particular attention etc. One specific issue, raised by the Strategy, is worth recalling explicitly. The European Commission underlines the necessity for launching a wider debate on the protection of strategic energy infrastructure such as gas and electricity transmission systems, which should address also “the control of strategic infrastructure by non- EU entities … from key supplier countries….”15. Although not clearly mentioned, this part of the text of the document makes it clear that it refers to Russia and maybe some other countries. The document indicates also the EC summary on the needed actions by the Commission itself into two major tasks i.e.: To review the existing mechanisms to safeguard security of energy supply and propose their reinforcement, where necessary, together with measures for the protection of strategic energy infrastructures and To propose to Member States and industry new contingency coordination mechanisms and plans to deliver energy to countries in times of need, based on risk assessments (energy security stress tests); in this direction, the immediate focus of attention should be towards the eastern border of the EU. Concrete actions have been undertaken by EC along these tasks within short time frame – particularly related to potential gas disruption. The findings were reflected in a report from October 2014, concerning the preparedness for possible supply problems16. The indicated methodology in this document refers to potential disruption of the Ukrainian gas transit route as well as all Russian gas flows to Europe for periods of one month and six months. However, again the emphasis is on the security of the gas supply as such and not on the reasons, which might cause problems. Thus, the document does not contain explicitly any references to terrorism or to necessity of stronger measures in the context of the refugees’ issue – this is certainly understandable as at that time the problem did not exist at such a magnitude as now. Nevertheless, the proposed major tasks sound viable and up- to-date in this context as well – but as of today the necessity to give them also such content seems definitely evident.

13 See Luft, G, Korrin, A (editors) - “Energy Security Challenges for the 21st Century” a Reference Handbook, 2009; available on https://books.google.bg/books?id=9qRzCgAAQBAJ&pg=PA25&lpg=PA25&dq=ba- ku-tbilisi-erzurum+exposure&source=bl&ots=vxqB5cU9jj&sig=1N4u2NVDGZe7Orf0Jw3XU899fx- g&hl=en&sa=X&ved=0CD4Q6AEwBWoVChMI4pKW4PDhxwIVSpcaCh3OGQia#v=onepage&q&f=- false 14 See COM (2014) 330 final, p.6 -http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX - :52014DC0330&from=EN 15 Ibid. 16 https://ec.europa.eu/energy/sites/ener/files/documents/2014_stresstests_com_en_0.pdf 58 On the European Energy Security in the context of the refugees’ crisis

In fact, more justified reflections on EU level in this direction were justified to appear around the end of 2015. However, if one looks e.g. at the November 2015 assessment of the Energy Union developments17, it is easy to note that the reflection is shy and rather indirect. Although there is a separate item on energy security, solidarity and trust, the focus is again mostly on security of supply accompanied by familiar statements related to solidarity and transparency. Anyhow, it is underlined that by the end of 2016 there will be revision of the framework, concerning both electricity and gas supply, which should better address inter alia cross-border solutions in case of emergencies. This in advance announcement by the Commission on upcoming activities should be adequately considered by the member states, which could raise contemporary security concerns also via the refugees’ related challenges. As illustrated, both the Energy Security Strategy and the Energy Union package refer to infrastructure security, although from specific angle. However, the issue has been well elaborated earlier both on policy and legislative level, although at stage when there was no refugee issue. In December 2006 the European Commission launched its Communication on an European Programme for Critical Infrastructure Protection18, the approach towards which was updated in 201319. The reference to this document, which recognizes the fight against terrorism as a priority (item 2.2.) is important as it is one of the bases for a concrete legislative act on the issue from 2008 – this is Directive 2008/114/EC on the identification and designation of European critical infrastructures and the assessment of the need to improve their protection20. This was, however, preceded by another set of activities with particular reference to terrorism – despite these are relevantly recent, they need to be reassessed from nowadays perspective. Thus, in June 2004 the European Council asked for the preparation of an overall strategy to protect critical infrastructure 21. This was followed by a special October 2004 Communication of the Commission on critical infrastructure protection in the fight against terrorism22 and by Council conclusions on “Prevention, Preparedness and Response to Terrorist Attacks23 etc. If eleven years ago, when prepared, the starting point of the document i.e. that “The potential for catastrophic terrorist attacks that affect critical infrastructures is increasing” (p.1) has sounded rather theoretically, from today’s perspective it rings much more down-to-earth; therefore, it seems strange that the topic has not found sufficient attention at EU level via formal decisions yet.

17 18 COM (2006) 786 final - http://eur-lex.europa.eu/legal-content/EN/TXT/DOC/?uri=CELEX:52006D- C0786&from=EN 19 See http://ec.europa.eu/energy/sites/ener/files/documents/20130828_epcip_commission_staff_ working_document.pdf 20 Directive 2008/114/EC - http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=O- J:L:2008:345:0075:0082:EN:PDF 21 See the Conclusions (inter alia items 13 and 19) at http://www.consilium.europa.eu/uedocs/cmsUp- load/81742.pdf 22 COM (2004) 702 finalhttp://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:52004DC0702 23 http://www.consilium.europa.eu/uedocs/cmsUpload/conclusions_on_prevention15232.04.pdf 59 On the European Energy Security in the context of the refugees’ crisis

Another element of this communication, which is worth recalling due to its contemporary sound, is the definition of critical infrastructures – it was later accepted also in the legislation (see Article 2 of Directive 114 from 2008, mentioned above). These have been determined as consisting of “those physical and information technology facilities, networks, services and assets which, if disrupted or destroyed, would have a serious impact on the health, safety, security or economic well-being of citizens or the effective functioning of governments in the Member States… ..”(Item 3.1.). Energy installations and networks (including electrical power, oil and gas production, storage facilities and refineries, transmission and distribution system) are explicitly referred to as belonging to critical infrastructure. Based on this, it is clear that the rapidly changing situation in Europe demands adequate operational steps within the strategically outlined guidelines, which might be also subject to review where necessary. When it comes to the legislative framework, the necessity seems to be rather at the level of the implementation review. The mechanisms, envisaged in Directive 2008/114/EC on the identification and designation of European critical infrastructures and the assessment of the need to improve their protection, sets a sound system of steps, which, however, need to be re-checked and tested in the current situation as soon as possible. On this ground, update of the framework at EU level might be also considered. This should concern not only the European critical infrastructure, but also the availability in real terms of updated operator security plans, the relevant communication formats, incl. e.g. the security liaison officers in place24 etc. The latter issue has clear practical role; however, in SEE the changes within the administration with the changes of the governments seem to be quite common. Therefore, it is reasonable to have a review of the existing mechanisms and relevant staff in place in due time. Besides, a systematized approach requires also envisaging effective system of regular training – particularly at regional level. As mentioned above, the 2014 Energy Security Strategy refers to the role of non-EU entities in the context of the control of strategic infrastructure. Therefore, when it comes to the policy level issue, the changes should concern both the focus of attention and the level of involvement of the concerned countries, including those, which have very important role for the energy security in Europe as a whole and in SEE in particular. In this group one should also consider more actively the participation of countries, which are neither EU nor Energy Community members – this refers to Turkey and Russia. In addition to the geographical and overall economic considerations, there is one other important reason for their inclusion in this context, which is particularly valid for Russia. Russian companies have substantial technological and ownership stand and influence in the energy sector – especially in SEE. In practical terms this refers to all key subsectors – electricity, oil and gas – and concerns production capacities (including nuclear power plants and oil refineries), the supply (mainly gas and nuclear fuel) and networks (inter alia with major influence over transit). Thus, these companies (and Russia respectively) have their self-standing interest in the safe operation of the energy infrastructure and respectively – in its adequate protection. From this perspective, the interests of the 24 See Articles 5 and 6 of Directive 2008/114/EC. 60 On the European Energy Security in the context of the refugees’ crisis

EU and Russia fully coincide – and this is in addition to the security of supply issue and the linked infrastructure security, which from the angle of EU – Russia relations is linked mostly to gas. Thus, in addition to all other steps, it is high time that the effective restoration of the EU – Russia energy dialogue should be duly considered. And this should be done not only for the sake of both sides – in reality, this dialogue affects not only EU and Russia, but very strongly affects SEE. Therefore, from the point of view of the energy sector the improvement of the relations with Russia is important not only in the context of security of supply, but also for the infrastructure security challenges. The practice of the earlier effective communication between EU and Russia in the energy field (which unfortunately at this stage is strongly limited) included inter alia also the so called early warning mechanism25. Certainly, this need for cooperation within improved communication brings inter alia the issue about adequate decisions towards the current sanctions’ approach. From the point of view of the energy policy dimension – particularly in the context of SEE and in relation to the needed cooperation - these sanctions look hardly proactive from the perspective of todays’ challenges. In this context, it is positive that EU has formulated at highest level for reframing of the EU – Russia relationship in the energy field “when the conditions are proper” as specified by the Council of Ministers in its Conclusions from 20 July 2015, focusing on energy diplomacy26 - and hopefully this will be soon. Aside the needed cooperation, there is also a set of other financial and political consequences of this contradiction between EU and Russia, which have concrete and in some cases substantial dimensions for some of the countries in SEE – both EU and non-EU members. Further to the infrastructure security challenges, linked to terrorism and mentioned above, there are several other points, which should be recalled in the context of the refugees’ flow, which can affect the energy infrastructure security. One of these is the serious potential of the increase of metal thefts. In fact, the metal theft issue does not concern only the energy sector. It is equally relevant to the transport sector (particularly for the railways), but also to the telecommunications. The problem has become so huge that a Metal Theft Coalition has been established, which raised its voice for European level actions27. The coalition includes eleven organizations, representing huge number of stakeholders from several continents, but mostly from Europe. Certainly, the refugees’ flow creates realistic possibilities for further increase of this problem; although it will be wrong to in whatever way link it only to refugees as this issue persistently exists for many years well before Europe faced the current

25 Details on the EU-Russia energy dialogue are available at https://ec.europa.eu/energy/en/topics/in- ternational-cooperation/russia 26 See item 4 of the Council Conclusions at http://data.consilium.europa.eu/doc/document/ST-10995- 2015-INIT/en/pdf 27 The Coalition includes EURELECTRIC, the Community of European Railway and Infrastructure Com- panies, the European Metal Trade and Recycling Federation, the Worldwide Railway Organization et.; See Joint Call for Actions from May 2015 at http://www.cer.be/sites/default/files/press-release/ Metal%20Theft%20joint%20coalition%20statement.pdf 61 On the European Energy Security in the context of the refugees’ crisis refugees’ flow. Nevertheless, the topic should not be underestimated at all in this new context due to several reasons - some of these are also valid for the existence of the massive metal theft issue prior to the intensive refugees’ march towards Europe, but it highly realistic to expect their rise within the current situation. Thus, it is reasonable that intensive analysis of the topic continues also in this context. When it comes to the justification of the need to consider the metal theft increase, the first reasoning is linked to the refugees’ needs for easily acquired means of existence. Let’s recall that the number of refugees, who have been or will be accommodated by the social systems of the countries, where they reside temporarily or will reside permanently, will be limited. In fact, many European countries not only clearly stated this, but also undertook concrete measures as to limit even the theoretical opportunities for such kind of social support. This refers both to countries like the UK, Austria, Germany etc., which are aimed at by refugees as final destinations, and to transit countries like Bulgaria, Republic of Macedonia, Greece etc. Further, the implementation of the social coverage takes time. In parallel, the refugees have had to meet substantial financial needs till arriving in Europe. Thus, their financial needs will grow. On the other side, the chance for the refugees to find quickly employment in the relevant countries while meeting formal legal requirements is practically abstract. As mentioned earlier, it has been extensively claimed that most of them have no documents to prove their identification; further, there is a set of national level limitations concerning employment etc. Thus, the steps towards illegal activities, which can bring rapid financial benefit, are not so big and not so many. Certainly, metal theft is one of the suitable formats due to objective abundance of opportunities, minimum necessity of skills, lack of whatever language barriers etc. One should not underestimate also the fact of the possibilities for cross border illegal activities, related to metal thefts, which might increase in the context of the refugees’ phenomenon, particularly within the Schengen area. Last but not least – an advantage for those, who commit metal thefts, is the fact that – if caught - they are usually punished on the ground of the value of what has been stolen and not on the ground of the real damages the crime has caused. Due to these reasons, the countries, affected by the refugees’ movement should particularly observe the trends in relation to metal thefts. Anyhow, as the issue jumps beyond national borders in many aspects, there is strong need for action at EU level – and this is also one of the clear requests and proposals, made by the Metal Theft Coalition. The refugees’ challenge requires additional attention as a minimum further to preventive operational activities and more serious strategic consideration. CONCLUDING WITH FEW PROPOSALS The refugees’ issue is relatively new when it comes to its analysis on the ground of the current level of people’s flow. Thus, when the topic about energy security is being analyzed in this context, any general conclusions might be too premature. However, it is absolutely needed to recall that the refugees’ related problems might easily include real threats for the energy security – in particular when it comes to 62 On the European Energy Security in the context of the refugees’ crisis the energy infrastructure. Both increased danger of terrorism and metal thefts could be elements of this threat, although they have existed earlier. Nevertheless, from today’s perspective they have new dimension, linked to arrival of huge masses of people, most of whom not only have different overall perception of the European social and legal order, but also do not have clear legal status on the European territory. These facts once again underline the necessity of more structured and up-to- date efforts at European level as to face the current realities, linked to the energy infrastructure security, which – without any doubt – is part of the overall social security in the refugees’ context. The emphasis on the need of European (rather than EU) efforts is considered important as the energy infrastructure security is a common challenge both for EU and non-EU countries, linked by common interests in the energy field. Certainly, the earlier considerations and policy and legislative elaborations on the topic (particularly within the EU framework) are now an advantage, but these need to be updated. Such an approach presupposes several substantial starting points. Firstly, there is a clear need to reconsider the priorities as well as their scope – so far, when it comes to energy security, the key focus has always been on the security of supply. The experience has proved that for quite some time this has never been a substantial issue, which is certainly also due to the involved efforts. The security of the energy infrastructure should receive also much stronger attention both at policy and legislative level as there is no recent strategic update in this relation. Secondly, the challenges in the energy field, looked at via the refugees’ problem, should be put on the table at highest policy and political level with no bashfulness and as soon as possible. And choosing words for political correctness would be hardly the best approach in this context. The topic is relatively new as the refugees’ situation itself; however, it is very complex to be easily underestimated. The potential for real challenges in this direction grows very quickly and in parallel to the process, in which the European countries and the EU are looking for operational solutions of more principle issues. In fact, this potential has been sensed under other circumstances and respectively reflected in official EU strategic and legislative documents, but from today’s point of view the challenges are bigger and much more realistic. Thirdly - as preventive measure - there is a need for testing the common cooperation approach within the EU and at European level along the established cooperation formats, while in parallel their improvement is considered. Fourthly – in this context SEE should be subject to special additional attention within the general considerations as - due to geographical and existing energy policy related situations – it has specific stand both in the context of the refugees’ flow and its energy sector. The concrete approach should also note the relations between SEE and Russia in the energy field – this should be considered in the context of the EU-Russia relations as well. The solidarity, which is considered to be one of the key characteristics of the EU, presupposes such support as the countries in SEE are in fact most vulnerable to the indicated challenges. And the support should concern both the EU and non- 63 On the European Energy Security in the context of the refugees’ crisis

EU countries in the region – the existing legal formats of cooperation between the EU and these countries provide sufficient background as possibilities both on multilateral and bilateral level. Finally, the concerns, which the refugees’ flow in Europe bring in the context of the energy security, once again underline that there is a structured need for collective responsibility on the basis of up-to-date realistic approach, as any problems in this direction easily overcome both political and geographical borders.

Slavtcho Neykov is Chairman of the Board of Managers of the Energy Management Institute. He has more than 23 years non-interrupted experience in the energy sector, including as Secretary General of the Bulgarian Ministry of Energy, Commissioner in the State Energy Regulatory Commission, expert at the Energy Charter Secretariat in Brussels and a Director of the Energy Community Secretariat in Vienna. Further to his experience as a state and international official, he has been on the board of managers of several energy companies and a Deputy CEO and Head of Office for the Relations with the EU of “Naftoindustria” Serbia. Prior to his involvement in the energy sector, he has worked as a state prosecutor and a legal advisor. In addition to a law degree from the Sofia University, Mr. Neykov has completed two years postgraduate studies on International Economic Relations and Foreign Economic Activities. He also holds Master of Arts in European Integration from the University of Limerick in Ireland. At the end of 2014, Mr. Neykov was elected as Chairman of the Board of Managers of the Energy Management Institute. 64 Where Does the EU Stand Today in Meeting its Members Energy Supply Security? Where Does the EU Stand Today in Meeting its Members Energy Supply Security?

Prof. Nurşin Ateşoğlu Güney

In the post-Cold war era, with the rise of new security risks and threats, the definition of energy security has naturally expanded. The definition of energy security can no longer be narrowed to the issues of geo-politics, natural disasters or accidents as it was in the past. What is more concerning is that, incidents that have the capacity to disrupt the flow of oil and gas are no longer the concern of one particular country but have become a worldwide concern potentially affecting every nation regardless of their various security complexes. According to common understanding critical energy infrastructure (CEI) is defined as ‘those assets if undelivered [are expected to make significant] impact on energy security and energy supply, as well as the overall social and economic well-being of the nation. Such assets include physical energy facilities, energy supply chain, information technologies and communication networks that make up an energy system’1. CEI assets in general can be destroyed or degraded by both natural and human initiated threats. Any disruption of a single sector of CEI whether stemming from terrorist attack, natural disaster or man-made damage is likely to have a cascading effect on any individual country’s energy system that is both complex and interconnected2. A reliable and integrated working system of CEI is a must for any country to assure its overall energy policy objectives as well as its economic well-being. Therefore, the protection of CEI networks has gained significant importance in today’s world, not only to achieve the standards of a well-functioning 3economy together with strengthened energy supply security but also as the fundamental conditions of market integration where consumers can have access to new technologies.4 The issue of energy security has, since the oil embargo in 1973, been defined as the assurance of an undisrupted flow of oil. As a result of various incidents new elements have been added to this classical definition. Prior to the 9/11 terrorist attacks the security of energy was mainly concerned with threats from geopolitics, accidents and natural disasters. There are now several different definitions related to the term energy security. One of the main turning points in the issue of energy supply security occurred during the 1973 OPEC oil crisis. Since then energy security has been defined as the attainment of conditions of uninterrupted flow of oil at a reasonable price with the further condition that 1 ‘Energy: Critical Energy Infrastucture Protection and Resilience’, Australian Government: Department of Industry, Innovation and Science, http://www.industry.gov.au/Energy/EnergySecurity/Critical-Ener- gy-Infrastructure/Pages/default.aspx, last visited 20 August 2015. 2 Jose M. Yusta, Gabriel J Correa and Roberta Lacal-Arantegui, ‘Methologies and Applications for Critical Infrastructure Protection: State-of-Art’, Energy Policy, 2011, p. 6100. 3 International Energy Agencies, ‘‘Energy Security’’, http://www.iea.org/topics/energysecurity/, last visi- ted 22 November 2015. 4 Ibid. 65 Where Does the EU Stand Today in Meeting its Members Energy Supply Security? the supply of energy would be environmentally friendly. For instance, IEA has defined ‘energy security as the attainment of a condition of an uninterrupted availability of energy sources at an affordable price’5. This traditional definition is mostly concerned with energy prices. However, since the 70s this definition has incorporated new concepts like price stability, diversification of energy sources, energy storage, economic investments, political and military power balance, geopolitics, homeland security, energy efficiency, energy markets and sustainability and such.6 Moreover, starting from the late 20th century, states all around the globe have become more concerned with environmental issues regarding energy security. When the problem of attaining and guaranteeing energy supply security for Europe due to the erupting crisis between the Russian and Ukraine especially after 2000s becomes an issue of great concern, the EU Commission efforts in this regard were intensified. This search for the solutions to the EU’s gas needs in Europe led to the drafting of the 2006 Green Paper7 followed by both the 2014 EU Energy Security Strategy Report8 and the declaration of the Energy Union in 2015. Securing gas supplies in a timely way has become an increasing priority for the EU in general and EU Commission in particular in the last decade. The reasons behind the EU concerns are many. First, the reality of declining homogenous gas production coinciding with Europe’s growing import dependency from abroad and disruptions that are emanating from Russia and the Maghreb became an important in the EU assessments. The radical geo-political shifts that occurred after the outbreak of the Arab awakening which resulted in greater uncertainty and instability in the Middle East was another factor behind these disruptions. The other concern was the 2014 Ukrainian crisis that resulted in the annexation of Crimea by the Russian Federation and precipitated the serious dispute between Moscow and Brussels. Naturally, the continuing cold relations between the EU and Russia have revived the Commission’s past and current efforts to overcome the Union’s dependency on gas supplies from Russia. All in all, these challenges that coincide with the present-day problems of both (i) the current domestic energy prices, (i) the already existing problems predating the integrated common European gas market and the present disappointing attempts to reduce the EU’s dependency on fossil fuels could not replace the overwhelming reality of the central role of gas within the framework of Europe’s energy supply security realm. EU’s energy security problems in 2015 stem from two main sources. First, the incomplete integration of the European common energy market and the incomplete energy strategies continue to be a problem for countries in the some parts of the continent. Most of the EU countries in the eastern and southern parts of Europe are still dependent on Russian gas supplies. Secondly, various gas disruptions that have faced Brussels, whether originating from the Russian-

5 Ibid. 6 Ibid. 7 European Union, Green Paper-Towards a European Strategy for the Security of Energy Supply, http:// eur-lex.europa.eu/legal-content/EN/TXT/?uri=URISERV:l27062, last visited 11 Sepetember 2015. 8 European Commission (2014) European Energy Security Strategy, http://ec.europa.eu/energy/en/topi- cs/energy-strategy/energy-security-strategy, last visited 23 November 2015. 66 Where Does the EU Stand Today in Meeting its Members Energy Supply Security?

Ukrainian crises or from other suppliers’ in the Middle East, have had a negative impact on both the procurement and sustainability of the EU’s energy supply security. Most of the eastern and southern European sensitivities to the issue of energy security supply are still valid and this situation is negatively affecting the EU’s general energy security strategy. Therefore the emphasis in this paper is on establishing the best alternative amongst the Union’s options to overcome its dependency on Russian gas in the short term. Hence, attention will first be given to the determination of where the EU currently stands in the application of its energy security and how far the Union is from the application of its Energy Union strategy. Introduction Relations between the West and the Russian Federation became extremely tense following the annexation of Crimea by Moscow and the situation has yet to improve. Currently, one third of the gas consumed in the EU today comes from domestic resources while the remainder needs to be imported from four external gas sources. At the moment 30 percent of Europe’s gas supply comes from Russia, 23 percent is from Norway and 8 percent crosses the Mediterranean from Algeria. The EU supply of natural gas has so far been transported from these three resource countries by various pipelines. Gas from Qatar, the fourth LNG source, provides 4 percent of the EU gas needs. The energy supply security across Europe has improved in general since 2009 and from the perspective of energy security developments Europe has observably overcome the previous East-West divide. Most countries located in this geographical region are making real progress in this regard. As a result, it is no surprise that the countries geographically situated in northwest region of Europe have become almost immune from any likely gas interruptions that may come from Russia. On the other hand, the North-South gap in overall energy supply security still remains real and in effect. The energy supply security of the EU once again became significant following Crimea’s annexation in 2014 and then again in response to Russian’s hybridization of war mostly in the eastern parts of the Ukraine. The international community has witnessed how Russia, in retaliation, responded to the EU/USA sanctions following the annexation of Crimea. Moscow initially declared the postponement of South Stream and then employed the various instruments at her disposal to divide the 28 members of the EU especially in regard to the energy issues in the Western Balkans. Under the current deteriorated relations between the West and the Russian Federation, and due to the continuing geo-political competition between the two sides, the south- eastern countries because of their vulnerabilities in the field of energy supply security were destabilized along these competitive geo-political parameters. The good news is that the EU Commission and High Representative has very recently welcomed the EU Energy Diplomacy Action Plan9 that aims to bring new synergies to all EU partners in order that both the diversification of energy resource countries and the network of supply routes could be facilitated at the same time. This Energy

9 ‘EU Adopts Energy Diplomacy Action Plan’, WAM: Emirates News Agency, 21 07 2015, https://www. wam.ae/en/news/international/1395283514991.html, last visited 22 September 2015. 67 Where Does the EU Stand Today in Meeting its Members Energy Supply Security?

Action Plan, which aims to diversify Europe’s energy supply options, has naturally called for EU diplomatic support to focus on the various sources that are located in the vicinity of the EU borders or beyond. Hence, the EU Energy Diplomacy Action Plan, in the face of EU’s current and future gas demand, has identified the Southern Gas Corridor (SGC), which could be supplied by resources from the Southern Caucus, Central Asia, and the East-Mediterranean region, including the wider Middle East. It also identifies other possibilities, including countries with LNG energy sources, such as the Americas, Africa, and Australia as potential opportunities10. Certainly, this diversification effort in Europe is not a new approach and it does not seem to be the final one. The Union’s previous efforts to limit the EU’s dependence on Russia as a gas supplier goes back to the 2006 Green Paper11 where Brussels identified the SGC as an important diversification route and also listed more or less the same group of source countries/suppliers, with the exception of the LNG ones, as well as the same routes that are now emphasized by the EU Energy Diplomacy Action Plan. Can Southern Gas Corridor be a remedy for reducing EU’s reliance on Russian gas supplies? Energy experts in general are today convinced that EU will continue to be dependent on Russian gas imports until the mid-2020s12. This continuing energy dependency on Russia became a great concern among the 28 member countries, especially following the 2014 Ukrainian crisis and since then the search for alternative means to overcome this dependency has become one of the most urgent priorities of the Union. On the eve of the Ukrainian crisis many energy experts had already raised the question of whether EU could stand firm and overcome the negative repercussions of further Russian gas cuts, especially in the coming winter of 2015. In this regard I have provided an alternative approach in my article ‘Where Does the EU Stand in Energy Dependence on Russia after the Ukrainian Crisis: Are there Any Alternatives at Hand?’ in Perceptions where I argued that the EU should be concentrating on accelerating its own common energy market needs approach while simultaneously strengthening the SGC by identifying means of enlarging its capacity, as these are the best available options13. The EU Energy Security Strategy report of June 2014 has in fact provided a clear road map for the Europeans to follow both in the short to medium and long term periods. For this reason, this report can be considered a comprehensive guide in this sense. Following the report, the Energy Union,14 established in

10 Ibid. 11 ‘A European Strategy for Sustainable…’, Ibid. 12 David Koranyi, ‘The Southern Gas Corridor: Europe’s Lifeline?’, IAE Working Papers 14 , 7 April 2014, https://www.ciaonet.org/attachments/25862/uploads, Last visited 10 November 2015. 13 Nurşin Ateşoğlu Güney, ‘Where Does the EU Stand Energy Dependence on Russia after the Ukranian Crisis: Are there Any alternatives at Hand?’ in guest editor of Nursin.A Guney of Perceptions, Vol: XIX, No: 3, Autumn 2014, pp.15-31. 14 ‘Energy Union: Making Energy More Secure, Affordable and Sustainable’, European Commission,http:// ec.europa.eu/priorities/energy-union/index_en.htm, last visited 1 November 2015. 68 Where Does the EU Stand Today in Meeting its Members Energy Supply Security?

February 2015 as a complementary strategy, aims to hone the Union’s overall attempts at securing and guaranteeing the energy supply. The 2014 annexation of the Crimea by Russia and the Union’s continuing reliance on Russia for energy was the motivation in the preparation of this crucial EU strategy. The European Council in March 2015 declared its commitment to build an Energy Union with a forward-looking climate policy on the basis of the Commission’s framework strategy. Accordingly, the EU has in fact underlined the five priority of dimensions of the Union as; (i) energy security, solidarity and trust, (ii) a fully integrated European energy market, (iii) energy efficiency contributing to moderation of demand, (iv) decarbonizing the economy, and (v) research, innovation and competitiveness15. What is more important than any pessimistic expectations of Russian gas cuts in the winter of 2015 is that the forecasts for the security of Europe’s energy supply security were in general quite positive. On the other hand, the current situation in the EU as a whole seems far from assuring an overall reduction in the reliance on Russian gas supplies at least until the end of the next decade. The main reason behind this situation is of course the reality of the various conditions in each country in terms of their domestic natural resource basis and the varying degrees to which they depend on Russian gas imports. The major Western EU nations, particularly those that are geographically located in northwestern parts of the continent, are today at less risk than they were in 2009 as they have already achieved greater diversification of their gas supply and have also built large LNG ports to procure gas from Norway, Algeria and such. Germany for instance can access gas supplies directly from Russia via the Nord Stream pipeline16 and this situation makes her less likely to be caught in a row with Russia and suffer another gas cut like other EU members. Unlike Germany’s situation, there are still EU members that continue to rely on Gazprom as a single source provider, supplying 80- 100 percent of their gas demands. This situation gives Moscow special gas export monopoly status and many EU member states, particularly those in Eastern Europe still feel the scars from Russia’s gas cuts in 2006-2009. Currently, one third of the EU’s gas imports still come from Russia but more importantly half of Europe’s imports from Moscow flow through the Ukraine. As it was observed during the 2006, 2009 and 2014 Ukrainian crises, this supply route is always going to be a potential hostage to politics. This summer, when Gazprom once again stopped the gas sales to Kiev due to a price dispute, there was great concern, especially among the Eastern European member states. These Eastern European countries were unable to relax, even after the agreement, which resumed gas supplies to Kiev was signed by the diplomats of EU, Russia and Ukraine17. This deal now appears to secure the needed gas supplies to both Europe and the Ukraine and in time for the 2015 increase in winter consumption. That is why the EU energy Chief Guenther Oettinger has said that this deal could be a sign of a hope that the tensions in relations between Brussels and Moscow 15 Ibid. 16 Christian Oliver and Henry Foy, ‘Can Europe Wean itself off Russian Gas?’, Financial Times, 14 October 2014, http://www.ft.com/intl/cms/s/0/0078c61c-52d5-11e4-a236-00144feab7de.html#axzz3qn- mqnfpx, last visited 20 September 2015. 17 Ibid. 69 Where Does the EU Stand Today in Meeting its Members Energy Supply Security? will ease some time in the future18. However, the existing strategic calculus of European security does not seem to provide the constructive elements that are needed to feed this kind of a positive expectation. The memories of 2006 and 2009 Russian gas cuts and how they suffered are still fresh in the minds of the people of Eastern Europe. The good news is that for this winter at least these countries are free of their vulnerabilities in the face of a new Russian gas cut due to the positive effects of several factors like the Kiev gas agreement, the mild winter conditions. However, this temporary reprieve does not change the reality that the EU will continue to rely on supplies of gas from Russia until at least the end of the next decade. Before, addressing what short run measures the EU could take to avoid this vulnerability of her own in the face of its reliance of gas supplies from Russia in this paper, it would be highly appropriate to talk about the EU’s present energy supply security position. Has EU after the Ukrainian crisis of 2014 managed to safeguard its energy supply security? In the field of European energy security, several things have radically changed since the 2009 Ukrainian crisis. Firstly, with the initiation of its Third Energy Package the EU has achieved a major step in the direction of a rather controversial but effective liberalization of its gas market. Brussels through this approach has tried to create just and competitive conditions of the European hydro-carbon market so that all consumers can benefit. Russia, because of the implication of this new principle, cannot both own and control pipelines on European territory.19 Secondly, so as to revive the efforts towards a common integrated gas market in line with the stated aims of both the Energy Union as well as the EU Energy Security Strategy report of June 2014, the EU has achieved several important milestones, although though they can be still considered limited in scope. For instance, in the last decade there has been progress in the construction of various interconnectors (Interconnector Bulgaria-Romania: IBR, Interconnector Greece-Bulgaria: IGB, Interconnector Turkey-Bulgaria: ITB, Interconnector Bulgaria-Serbia: IBS). With this infrastructure development the Union has now taken a significant step in the creation of a more resilient European gas supply system. Lithuania, which was once considered to be an energy island because of its 100 percent dependence on Russian gas, now has several alternatives before her. Consequently, Vilnius after obtaining a floating LNG import terminal at the port of Klaipeda has now ended Russia’s Gazprom supply monopoly and remedied Lithuania’s overall isolation from the global gas markets. The Lithuanian government is now not only more able to meet the required gas demands of its 3 million citizens but is also capable of supplying LNG to its Baltic neighbors in Latvia and Estonia. What is more important is that

18 ‘Russia-Ukraine Gas Deal Secures EU Winter Supply’, BBC , 31 October 2014, http://www.bbc.com/news/ business-29842505, last visited 27 September 2015. 19 ‘Why Europe no Longer Fears the Russian Gasman?’, Economist, 12 January 2015, http://www.eco- nomist.com/blogs/economist-explains/2015/01/economist-explains-2, last visited on 12 September 2015. 70 Where Does the EU Stand Today in Meeting its Members Energy Supply Security? this new Lithuanian terminal is expected to serve and fulfill about 90 percent of the gas supply to three Baltic states in times of urgency.20 This means that the Baltic States are now gradually approaching freedom from the Russian gas grip. Similarly, the first gas interconnector that will be constructed between Poland and Lithuania also aims to achieve the same goal, namely ending the long lasting isolation of the Baltic Sea region. Since one of the central elements of the EU’s Energy Union policy is bridging the missing links in the energy infrastructure, the signing of the Gas Interconnector Poland-Lithuania (GIPL) is a step in the right direction21. Moreover, when the EU succeeded in finalizing the new deal between the Ukraine and Russia which assured the flow of gas for at least for the first quarter of 2015, some of the present pressure on many European states in terms of guaranteeing their gas supply security strategies was relieved. Additionally, Kiev’s current increased gas import coming from the west has further comforted the Ukraine for the immediate future. Furthermore, the mild conditions of the winter of 2014 resulted in both low consumption of gas and enabled the high storage of gas that has helped EU states build up a first line of defense in the face of a potential Russian gas cut in the winter of 2015.22 The final result is that, under the current conditions any attempt by Moscow to cut the gas to Europe is expected to have only a moderate impact on the security of Europe’s supply. Another important inspiring initiative that is expected to make an improvement in the future of energy supply security of Europe is the recent High Level Group work that took place under auspices of the EU Commission’s Central Eastern and South-Eastern European Gas Connectivity group which was established in February 2015. The aim of this initiative is to speed up the integration of energy markets across the 28 member states of the EU.23 The High Level Group, so as to enable bi-directional gas flows in three infrastructure corridors is divided into three technical sub-groups (South-East: between the Aegean and Ionian Seas and Ukraine, Central-East: between the Black Sea and Central Europe, Adriatic: between Adriatic Sea-Ukraine)24. Additionally, there are two more factors that are playing a crucial role at present in lessening the weight of EU’s hydro-carbon dependency on Russia for the coming winter of 2015. Under the current global energy market conditions, the price of crude oil per barrel is now at below 45 dollars. Russia, after its annexation of Crimea was forced to face several economic hardships; firstly it had to face the drastic fall in the 20 Nerijus Adomaitis, ‘We Can Survive without Russian Gas Now, Says Lithuania’s President’, Reuters, 21 October 2014, http://www.reuters.com/article/2014/10/21/us-ukraine-crisis-lithuania-gas-i dUSKC- N0IA1 WW20141021#PQMtzS0IkeLM8AdC.97, last visited 17 October 2015. 21 ‘First Gas Interconnector Poland-Lithuania Ends Energy Isolation of the Baltics,’ European Comission - Press Release, 15 October 2015, http://europa.eu/rapid/press-release_IP-15-5844_en.htm, last visted 17 October 2015. 22 ‘Why Europe no Longer Fears…,’ibid. 23 ‘Central Eastern and South Eastern European Countries Join Forces to Create an Integrated Gas Market’, European Commission, 10 July 2015, https://ec.europa.eu/energy/en/news/central-eas- tern-and-south-eastern-european-countries-join-forces-create-integrated-gas-market, last visited 29 October 2015. 24 ‘Central and South Eastern Europe Gas Connectivity’, Energy, European Commission, https://ec.europa. eu/energy/en/topics/infrastructure/central-and-south-eastern-europe-gas-connectivity, last visited 10 October 2015. 71 Where Does the EU Stand Today in Meeting its Members Energy Supply Security? price of oil and then it had to accommodate the negative domestic impacts of Western sanctions that resulted in the devaluation of the ruble. Consequently, Moscow’s economy especially in the last few years has been badly hurt. As a result, under the present conditions no one in the international community is expecting Russia to impose gas cuts unless Moscow decides to penalize Europe politically and even in this situation the duration of gas cuts are not expected to be too long. Furthermore, another reason why Russia may be reluctant to impose gas cuts this winter is related to Moscow’s current need to secure its credibility as a gas supplier within the existing European gas market. Although Russia has for some time been working on diverting its gas pipelines routes towards Asia through various projects, the current weight of return from the recently signed gas deal with China, which is worth of 400 billion dollars, is still not expected to compensate Moscow for the current European market income share25. Moreover, if Russia insists on using its gas supply as a foreign policy tool whether to deter or assure European support on any particular international issue, this can be expected to give way two crucial results. According to one scenario Russia may lose her credibility as a supplier of gas in the gas markets but in the other case Moscow, because of her unwanted stand may well force the Europeans to fuel switch. In the event of either of these situations, it is the Russians that are most likely to lose. It is true that Russian credibility is already at stake after the Ukrainian crisis of 2014; hence due to the many reasons given here, Putin’s Russia is most likely to operate in a self-restrained manner at least for some time within the present contours of the European regional energy market. When one takes into account the current complex conditions of the European energy market it is possible to predict that as gas supplier under the current constraints, Putin’s Russia is most likely to lessen its acts of irrationality. This situation is not going to change significantly as long as the complex gas interdependency between Brussels and Moscow continues into the 2020s. Conclusion In the aftermath of the Ukrainian crisis of 2014, the EU assessed the challenges before its energy supply security and accordingly decided to launch key measures like the European Energy Security 2014 report and the 2015 its Energy Union. As a result, the EU seems likely to be in a position to overcome any likely energy security disruptions that might arise from the Russian gas cuts in the coming winter. Most of the major western nations are currently at lower risk then in the past due to their success in achieving greater diversity and larger LNG ports. On the other hand the problems experienced by some of the eastern and southern European countries in the past are still a concern because the Union has not yet succeed in establishing the planned integrated common European energy market evenly across of all its 28 members. The progress that has been made so far in these eastern and south-eastern areas has been slow and has become

25 Ulson Gunnar, ‘Global Geopolitics and the Russia-China Gas Deal of the Century’, Global Resaer- ch, 22 May 2014, http://www.globalresearch.ca/global-geopolitics-and-the-russia-china-gas-de- al-of-the-century/5383286, last visited 3 November 2014. 72 Where Does the EU Stand Today in Meeting its Members Energy Supply Security? complicated. What is more important is that the current tense relations between the West and Russia seem to be feeding more instability to the main contours of the southern-eastern Europe’s energy supply security matrix and hence because of this uncertainty some of the alternative options for gas supplies have now become irrelevant. What is more striking, since the announcement of Nord Stream II on June 2015, this issue is certainly dividing the EU members about the implication of the Union’s general energy security policy. While Germany and Austria are voicing support over expansion of Nord Stream gas pipeline, Brussels and especially countries - Poland, Slovakia and Ukraine are concerned that they will be facing a loss in transit fees from delivering gas to Europe through the current pipelines-from east Europe are objecting to it. So far, starting with 2006 Green Paper has searched ways of overcoming EU’s dependency on gas supplies mostly from Russia. However, Europeans have not yet succeeded to manage energy security collectively and so far have pursued half measures instead. While currently facing one of the most difficult and complex soft and hard security challenges in the post-cold war period, the EU and EU Commission are trying to address the challenge of energy supply security by concentrating on several options. The latest effort in the EU is the Energy Union is an ambitious imitative in overcoming the Union’s vulnerable regions to Russian gas monopoly-especially eastern and southern Europe-via using the means of diversification. It is good that the document has now emphasized the strength of diversification and made certain that the Union will develop a strategic energy partnership with both production/source countries as well as transit countries in this process. South-east Europe in actuality is an important region for the security of energy flows from Central Asia and the Middle East to Europe. Since in the EU’s Energy Union one of the main contours is defined as ensuring security of supplies, competitiveness and sustainability the 28 members of the Union should give priority of building a sustainable and diversified energy system. Currently, it is true that the EU and EU Commission are trying to address the challenge of energy supply security by concentrating on several options. In this context, cooperation is the key necessity in the implication of Brussels’ energy policy. So as to wither the existing energy islands EU need to speak with one voice. The recent achievements in the Baltic region in this regard are a promising exercise. Similarly, so as to overcome most of the countries’ dependency on the Russian gas supplies so as to fasten diversification from abroad a well-balanced national transit system in certain countries in this part of the Europe these systems should be connected with available underground gas storage capacity. Moreover, Europe in order to diversify it gas supplies from abroad other than pipelines option in the future is needed to expand the capacity of its port terminals to accept liquefied natural gas26. In February 2015, the EU Commission has described the rationale for a European Energy Union. The aim behind this initiative was directly associated with two decades long the aim of diversifying EU’s gas away from Russia and

26 Petr Polak, ‘Europe’s Low Energy: The Promise and Perils of the Energy Union’, Foreign Affairs, 9 Septem- ber 2015, https://www.foreignaffairs.com/articles/western-europe/2015-09-09/europes-low-energy, last visited 22 September 2015. 73 Where Does the EU Stand Today in Meeting its Members Energy Supply Security? thereby the Union by this way has aim to boost its energy security. So, it is no coincidence that EU in its Energy Union strategy have underlined the importance of the Union’s need of collaboration with both gas producing countries like Azerbaijan, Kazakhstan, Turkmenistan together with transit countries like Turkey.27 In our opinion, the EU, in order to reduce its dependency on Russian gas supplies should start by accelerating its own common energy market needs approach by increasing the availability of the number of interconnectors, reverse flows and so on while strengthening the Southern Gas corridor and enlarging its capacity. All in all, the Southern Gas Corridor –including TANAP, TAP, ITGI, IGB, ITB-currently seems to be the best available diversification option before the EU that it can benefit from it before the end of 2020.

27 Chi-kong Chyong, Louisa Slavkova and Vesella Tcherneva’, ‘ Europe’s Alternatives to Russian Gas’, Euro- pean Council on Foreign Relations’, 9 April, 2015, http://www.ecfr.eu/article/commentary_europes_al- ternatives_to_russian_gas311666, last visited on 23 October 2015.

Prof. Nurşin Ateşoğlu Güney is Head of International Relations Department at Yildiz Technical University, Istanbul, Republic of Turkey . Prof. Guney is also security and nuclear energy fellow at the Wise Men Center for Strategic Studies (BILGESAM). She contributes to BİLGESAM every month by writing one analysis on security related matters. She has extensively published on Middle East, security studies, American foreign and security policies, EU, NATO and arms control and disarmament issues as well as on energy issues. She is the member of IISS. Some of her selected publications include; Contentious Issues of Security and the Future of Turkey (ed), Asghgate Publications, Great Britain, January 2007. ‘Special ıssue Issue for European Security (Taylor&Francis ,2008). ‘Turkish Nuclear Security after Iranian Nuclearization’, Contemporary Security Policy, Vol. 33/3, December 2012. NurşinAteşoğluGüney (Quest editor and contributor) ‘Today’s Emergent Geo-politics and the Day after: What’s Next in Energy Security? and ‘Where Does EU Stand in Energy Dependence on Russia After the Ukranian Crisis: Are there any Alternatives at Hand?’ Perceptions, SAM: Center for Strategic Research, Vol: XIX, Autumn 2014. 74 Opportunities for Bulgaria according to the Energy Union strategy Opportunities for Bulgaria according to the Energy Union strategy

Atanas Georgiev

Abstract The Energy Union Strategy, announced by the Vice-President of the European Commission Maros Sefcovic on February 25, 2015, makes us ask ourselves what does it mean for Bulgaria and how we could be part of the change instead of just following it. Sefcovic himself defined it as the “the most ambitious European energy project since the Coal and Steel Community”1. Introduction The Energy Union Strategy notes, that “energy islands” still exist and many national markets in Europe are not well connected with the neighboring countries, which increases consumers’ costs and poses a risk for energy security. The Energy Union Strategy promises also financing of energy projects. Some of them have to improve the connections of Bulgaria to the gas and electricity grids in the region. However, the document explicitly states, that the provision of these funds will be related to compliance with the European rules and most of all, with the full implementation of the Third Energy Package – in the parts related to unbundling of the national transmission operators and the independence of the regulatory authorities. This poses new tasks for the national governments. The application of “island” strategies and the pressure on independent regulators will not be a winning strategy, if the goal is to finance new energy investments. The Energy Union Strategy The long-expected Framework strategy for an Energy Union was announced by the Vice-President of the European Commission Maros Sefcovic on February 25, 20152. Inside the document package, the European Commission team presented the main proposed measures for increasing the level of cooperation in energy inside the Union, as well as the main challenges for the member-states. The new Strategy defines 5 main dimensions of the future Energy Union: 1. Energy security, solidarity and trust; 2. A fully integrated European energy market; 3. Energy efficiency contributing to moderation of demand; 4. Decarbonising the economy, and 5. Research, Innovation and Competitiveness 1 European Commission, „Energy Union: secure, sustainable, competitive, affordable energy for every Eu- ropean“, http://europa.eu/rapid/press-release_IP-15-4497_en.htm, last checked on 24.11.2015 2 European Commission, Energy Union Package, COM(2015) 80 final, 2015, http://ec.europa.eu/priori- ties/energy-union/, last checked on 24.11.2015 75 Opportunities for Bulgaria according to the Energy Union strategy

The Energy Union vision includes the following aspects: - Energy Union where Member States see that they depend on each other to deliver secure energy to their citizens, based on true solidarity and trust; • Energy Union that speaks with one voice in global affairs; • an integrated continent-wide energy system where energy flows freely across borders, based on competition and the best possible use of resources, and with effective regulation of energy markets at EU level where necessary; • Energy Union as a sustainable, low-carbon and climate-friendly economy that is designed to last; • strong, innovative and competitive European companies that develop the industrial products and technology needed to deliver energy efficiency and low carbon technologies inside and outside Europe, • European labor force with the skills to build and manage the energy system of tomorrow; • investor confidence through price signals that reflect long term needs and policy objectives; • Energy Union with citizens at its core, where citizens take ownership of the energy transition, benefit from new technologies to reduce their bills, participate actively in the market, and where vulnerable consumers are protected.

The main challenge for the implementation of this vision will be in the forming of specific policies, which do not disregard some aspects because of other aspects. Some of these counterpoints appeared in the current energy policy and they still do not have sustainable solutions, i.e. the industrial energy consumption in terms of a low-carbon energy production or the balance between national and European regulations in a way, which guarantees the sovereignty of the member-states according to the Lisbon Treaty. The concerns regarding the energy consumption and the prices of energy resources have been shared at the highest level by the former President of the European Commission, Mr. José Manuel Barroso, who said on May 22, 20133, that the competitiveness of the European economy is threatened by the increasing prices of energy resources in Europe, especially in comparison to the energy prices in USA. According to the data, presented by Barroso, the prices of natural gas for industrial consumers in the EU have increased by 35% for the period 2005-2012, while in the USA they have fallen with the staggering 66%. The statistics for the industrial consumers of electricity in the EU shows an increase with 38%, while in the USA the prices in the same period have fallen by 4%. Also, the question of the possibilities to utilize the new vision is still open, because many of the member-states have not yet fully implemented the requirements of the current European policies – for instance regarding the Third Energy Package and the Energy/Climate Package. Is it possible to reach a second level of energy cooperation in the EU, without having implemented all the current

3 José Manuel Barroso, Energy priorities for Europe, http://ec.europa.eu/europe2020/pdf/energy3_ en.pdf, last checked on 24.11.2015 76 Opportunities for Bulgaria according to the Energy Union strategy requirements? The report of GD Energy from the end of 2014 for the state of the EU Energy Markets4 shows, that their level in some member-states is not satisfactory and there are considerable delays. Some of these conclusions have been accented in the Energy Union Strategy as well. It points out, that in practice, there are 28 national regulatory regimes in the EU and the household consumers do not have enough choice for alternative suppliers; in addition, the energy infrastructure is old and is not adapted to the higher production of RES; also, there are “energy islands” as a result of the bad interconnectivity between the national markets. In essence, the strategical document is rather a road-map for the implementation of reforms in the European energy sector. The problems that have been pointed our should be solved through the implementation of 15 measures, that have been proposed for discussion to the member-states in the formats of the European Council and the European Parliament, so that some of them could be followed by real legislative changes – new directives and regulations, which will allow the implementation of the sub-sets of goals. The 15 specific measured in this action plan are: 1. Full implementation and strict enforcement of existing energy and related legislation; 2. Diversification of gas supplies and more resilience to supply disruptions; 3. Intergovernmental agreements should comply fully with EU legislation and be more transparent; 4. The right infrastructure is a precondition for completing the energy market, integrating renewables and security of supply; 5. Creating a seamless internal energy market that benefits citizens, ensuring security of supply, integrating renewables in the market and remedying the currently uncoordinated development of capacity mechanisms in Member States call for a review of the current market design; 6. The regulatory framework has to be further developed to deliver a seamless internal energy market to citizens and companies; 7. Regional approaches to market integration as an important part of the move towards a fully integrated EU-wide energy market; 8. Greater transparency on energy costs and prices as well as on the level of public support will enhance market integration and identify actions that distort the internal market; 9. Reaching at least 27% energy savings by 2030; 10. Retrofitting existing buildings to make them energy efficient and making full use of sustainable space heating and cooling will reduce the EU's energy import bills, reinforce energy security and cut energy costs for households and businesses; 11. Speed up energy efficiency and decarbonization in the transport sector, its progressive switch to alternative fuels and the integration of the energy and

4 European Commission, EU Energy Markets in 2014, COM (2014) 634 final, 13 October 2014, http:// ec.europa.eu/energy/sites/ener/files/documents/2014_energy_market_en_0.pdf, last checked on 24.11.2015 77 Opportunities for Bulgaria according to the Energy Union strategy

transport systems; 12. The EU agreed a climate and energy framework for 2030 at the October European Council. This now needs to be implemented. The EU will provide an ambitious contribution to the international climate negotiations; 13. The EU has agreed the target of at least 27% at EU level for renewable energy by 2030; 14. The EU needs to develop a forward-looking, energy and climate-related R&I strategy to maintain European technological leadership and expand export opportunities; 15. The EU will use all external policy instruments to ensure that a strong, united EU engages constructively with its partners and speaks with one voice on energy and climate. Vision and implementation The term “Energy Union” has been introduced for the first time by the current President of the European Council Donald Tusk, while he was still Prime Minister of Poland5. According to the initial idea of Tusk, announce in the end of March 2014, the Energy Union had to demonstrate more solidarity among the member-states in the field of energy, and this included 6 dimensions: 1. Creation of an effective gas solidarity mechanism in case of supply crises. 2. Increased financing from the European Union’s (EU) funds of infrastructure ensuring energy solidarity, in particular in the east of the EU – even up to 75% of projects’ value. 3. Collective energy purchasing. 4. Rehabilitation of coal as a source of energy. 5. Shale gas extraction. 6. Radical diversification of gas supply to the EU. Actually, the idea of more “union” in the energy sector has not been first introduced by the Polish Prime Minister, but he was the first one to give it a name: “Energy Union”. There are three base documents regarding this concept, that have been published in the last 5 years by the Notre Europe institute of Jacques Delors, who initiated the discussion about the “European Energy Community”: • „Towards a European Energy Community: A Policy Proposal“ 6 in March 2010; • „Energy Solidarity in Europe: from Independence to Interdependence” in 2013; • „From the European Energy Community to the Energy Union - A new Policy Proposal“7 in January 2015.

5 Premier.Gov.Pl (official website of the Polish Prime Minister, Donald Tusk on the Polish project of the European Energy Union, 2014, https://www.premier.gov.pl/en/news/news/donald-tusk-on-the-polish- project-of-the-european-energy-union.html, last checked on 24.11.2015 6 Sami Andoura, Leigh Hancher, Marc van der Woude, „Towards a European Energy Community: A Poli- cy Proposal“, Notre Europe, 2010, www.institutdelors.eu/media/etud76-energy-en.pdf, last checked on 24.11.2015 7 Sami Andoura, Jean-Arnold Vinois, Jacques Delors, „From the European Energy Community to the Ener- gy Union - A new Policy Proposal“, Notre Europe, 2015, www.delorsinstitute.eu/media/energyunion-an- douravinois-jdi-jan15.pdf, last checked on 24.11.2015 78 Opportunities for Bulgaria according to the Energy Union strategy

The team, which prepared the three documents, is headed by the former President of the European Commission – Jacques Delors, and shows a specific vision for the European energy sector. During the term of Delors in 1986-1992 the initial push for liberalization of the Internal Energy Market through the First Energy Package of legislative changes. One of the followers of his vision is the current President of the European Commission – Jean-Claude Juncker. During his Opening statement in the European Parliament plenary session on July 15, 2014, he pointed out: “Allow me to pay homage to Jacques Delors, a great President of the European Commission. True, not everyone can be a Delors, but he is my teacher and my friend, and his work will inspire me every day.”8. Part of the conclusions of the first document, prepared by the Delors’ team in 2010, are that the energy sector is one of the few in which the integration between member-states has diminished in the last 60 years, at least in terms of vision. Since the foundation of the EU with the EU with the Coal and Steel Community and the signing of Euratom, the national priorities in terms of energy mix, structure of the national markets and their integration and more and more diverse. The attempt of the Lisbon Treaty to stop this process was not successful as well. The analysis of this first Delors report was presented in Bulgaria by the author of the current article with the main conclusion that instead of becoming an integrated continent, in terms of energy Europe starts to look more and more as an archipelago of islands9. This is exactly one of the conclusions in the Energy Union Strategy from February 2015 – that there are still “energy islands” in Europe, which have a low level of interconnectivity with their neighbors. The change in the geopolitical situation in 2014-2015, combined with the look on the past events in the period 2010-2015, pose a new accent on the European energy community. The new vision, presented in 2015 under the title “European Energy Union” by the example of Donald Tusk, does not give the option of a “two- speed” Europe in terms of energy. As the authors themselves note, this new report explores the European energy policy in the period 2007-2014 and includes the new package Energy/Climate for the period until 2030 as well as 30 evaluations of the strengths and weaknesses in this policy. The last 3 of them give the main conclusions regarding the needed future actions: - The fragmentation of the system – „ Although much has been achieved in the last decade, it has not removed the fragmentation of the system… National solutions have proven inadequate and have increased the risk of diverging and conflicting responses to common challenges… The adequate EU gov- ernance to deal with the lack of coordination and cooperation between EU member states and stakeholders is missing…“ - The risk of muddling through – „… it remains to be seen how far EU member states and stakeholders are actually ready to move forward together in a qual- itative leap past the notion of national energy independence and truly em-

8 Jean-Claude Juncker, „A new start for Europe. Opening statement in the European Parliament ple- nary session“, 2014, http://europa.eu/rapid/press-release_SPEECH-14-567_en.htm, last checked on 24.11.2015 9 Atanas Georgiev, „Regulatory aspects of the European Energy Community“, Energy Diplomacy. Foreign Affairs Research Papers 5, Diplomatic Institute. Ministry of Foreign Affairs, 2013, page 58-65 79 Opportunities for Bulgaria according to the Energy Union strategy

brace their de facto interdependence in a common European energy policy.“ - An historic European convergence of national energy profiles and systems – „ The EU energy policy is now half way between national policies mainly driven by national considerations and a common energy policy based on integrated energy markets. This is the side of the coin that needs to be emphasized …“ The pragmatic evaluation of the Energy Union The most pragmatic evaluation of the proposed strategy was given by the European Council on March 19, 201510. This is the politicians’ evaluation regarding the applicability of the proposed strategy, as some of it cools of the initial enthusiasm regarding the key reforms. The official communication of the European Council also notes the specific areas, which will get attention with priority. Thus, the initially announced priorities of the Energy Union Strategy get more pragmatic dimensions and meet the wanted with the real/possible in the current political situation in the EU. The critical analysis could point out the following difference between the strategy and the European Council decision: • The initial idea about combined purchases of natural gas (promoted for the first time by Donald Tusk) gets more specific dimensions and would be valid only on a voluntary principle, without having all countries under this model; • The Internal Energy Market and its development would be achieved mainly through infrastructure investments instead of a single European energy regulatory authority; • The structure of the energy mix stays as a national prerogative, instead of a common European one; • The Energy Union will be achieved through evolutionary, instead of revolutionary measures, with all the advantages and all the disadvantages of this approach.

This “fine tuning” of the Energy Union Strategy at first look is a small change in comparison to the initially defined priorities, but actually limits the scope of the proposed changes. If we get back to the analyses from the last several years, we have to note, that the evaluation of the “two-speed” Europe in the energy sector is still valid. Some member-states have quite better energy grids connectivity to their neighbors. The level of usage of low-carbon energy is quite different, as it depends on the share (and existence) of nuclear energy as well as on the level of using RES. The connections and contracts with other countries also vary significantly when we move on the West-to-East axis. The same is valid for the natural gas prices as well. Under these conditions, it is quite understandable why there is (or is not) a will from some of the member-states to start significant changes in the diverse aspects of the Energy Union. The well-understood benefits

10 Европейски съвет, „Conclusions of the European Council on an Energy Union“, 19 March 2015, http://www.consilium.europa.eu/en/meetings/european-council/2015/03/19-20/, last checked on 24.11.2015 80 Opportunities for Bulgaria according to the Energy Union strategy are still less than the well-understood costs, or at least so it seems in this point of time. Bulgaria – short-term solutions or long-term stability? The most significant matter regarding the national energy sector of Bulgaria is what would be the immediate and the long-term effects from the adoption of the Energy Union vision. And what actions should be taken by the country so that it could improve the state of the economy and its position in the European Union. According to the author of the current article, the country should refrain from short-term solutions that endanger the long-term integration of the Bulgarian energy market into the European one. The temptation to solve the current challenges is great and is caused by the amassing of many disbalances during the last ten years. The experience until now shows, that the over-regulation and the micro- management of disbalances could lead only to the generation of new disbalances. There is no regulatory authority in the world, which could regulate almost in “real time” all aspects of the complex relations in the electricity system. This is one of the reasons for the liberalization in wholesale markets – thus freeing regulators from the untypical obligation to regulate the price of energy from different sources and letting them regulate mainly the prices of natural-monopoly services – the transmission and access in transmission and distribution energy grids. Something that is even more disastrous is the trend to change energy legislation “piece-by-piece”, in order to solve short-term problems to the detriment of the long-term stability in the sector. Following this logic, the author of the current article would not make an attempt to propose solutions to the short-term challenges in the Bulgarian energy market, but will present the opportunities to take mid-term and long- term decisions, according to the Energy Union Strategies. 1) Energy poverty More than two thirds of the Bulgarian households have difficulties in paying their winter heating bills, which makes Bulgaria number one in energy poverty in the EU. No government in the last 10 years has allowed the national energy regulatory authority to equalize energy prices with the costs for providing these public services. Under the framework of the Energy Union Strategy, Bulgaria has to look for possibilities to solve this problem with the following instruments: • increasing the budget costs for energy-poor households – not only through consumption subsidies, but also through subsidies for energy- saving investments; • investments through the strategic energy funds of the EU in energy services, which will ensure new employment in the poorest regions of Bulgaria; • removing the cross-subsidies in energy pricing. 81 Opportunities for Bulgaria according to the Energy Union strategy

2) Energy efficiency According to Eurostat data, the Bulgarian economy is more than 4 times more energy intensive, based on the “ton oil equivalent for 1000 EUR of GDP” indicator. The new Energy Union Strategy proposes new possibilities for overcoming this challenge through investments in innovations, technologies, and solutions. Energy efficiency could also be improved through some of these measures: • increasing the share of natural gas usage by households, business, and public institutions after the diversification of gas supplies and after ensuring more competitive prices; • satisfying part of the final energy consumption of households, business, and public institutions through installations for direct use of energy from RES for heating and cooling purposes; • investments in private and public buildings for the improvement of their energy efficiency through the EU funds and through debt financing. 3) Regional energy infrastructure Some of the possibilities, that the Energy Union may provide, are: • financial support for the gas interconnectors to neighboring countries with accent on the Interconnector Greece-Bulgaria and the projects with regional and European significance: TANAP, TAP, South/Turkish Stream, the future LNG_terminal near Kavala, etc.; • financial support for electricity grids, which could allow greater export of electricity toward the Turkish and the Greek market, toward the Western Balkans (and from there – to Italy), and toward Central Europe. 4) Institutionalization and knowledge As some of the visionaries of the European energy policy have noted, the Energy Union will need new institutions in order to be filled with content. Us- ing the example of Slovenia, where the Agency for the Cooperation of Energy Regulators (ACER) is based, Bulgaria could propose to be the institutional center of the future Energy Union. In addition to its proximity to the main current and future suppliers (other parties such as Russia, the Caspian Region, the Middle East, the Eastern Mediterranean, etc.), Bulgaria could also propose the possibil- ity to develop the Energy Union from the location, where currently we have the worst results in terms of gas interconnectivity, energy poverty, energy efficiency, and regulatory independence. Such step could show also the European Commis- sion’s decisiveness to find a sustainable model for the development of the Energy Union exactly from the place, where it is most needed. Specific measures in this directions could be: • founding an institutional center of the Energy Union in Sofia (or in Varna, where many energy companies and projects are present); • founding of a local academic and research center with educational programs in energy regulation and energy sector management;

82 Opportunities for Bulgaria according to the Energy Union strategy

• creating formats for cooperation between the countries in the EU, the countries from the Energy Community in South East Europe, and the countries in neighboring regions (Black Sea, Caspian, East-Mediterranean, Middle East, etc.). Conclusion The implementation of even a small part of the latter actions would provide undeniable advantages to Bulgaria during the future development of the Energy Union. Even if the country is lagging behind regarding the 20/20/20 targets and the Third Energy Package, our country could demonstrate not only its will to implement the current goals, but also its ambitions to be a regional and a European leader in the implementation of the European Energy Union vision. The overlooking of this opportunity to declare a regional leadership position could lead not only to the filling of this institutional “vacuum” by other neighboring EU member-states, but also to less possibilities for cooperation in the framework of the Energy Union. During the next decades, when energy islands will become less and will gradually disappear, “island strategies” have to be replaced by cooperation strategies.

Atanas Georgiev is Publisher and Chief Editor of “Utilities” Magazine and Publics.bg. He is Assistant Professor in the Faculty of Economics and Business Administration of Sofia University, Bulgaria, where he teaches Regulatory Economics and Utilities Management to grad students and is responsible for the curriculum of the master program “Economics and Management in Energy, Infrastructure, and Utilities”. Atanas has also been a lecturer in the “Energy Diplomacy” courses, organized by the Diplomatic Institute of the Bulgarian Ministry of Foreign Affairs. He is the publisher and chief editor of the Bulgarian “Utilities” magazine and the online portal Publics. bg, as well as a frequent author of articles in other energy-related publications. His article “New opportunities for Bulgaria according to the Energy Union Strategy” was recently honored with the first prize in the annual “IlkoEskenazi” economics awards. Atanas graduated from the “Economics and Management in Infrastructure, Energy, and Utilities” program at Sofia University and later visited trainings on Global Energy Security as part of an IVLP program of the State Department (USA), Energy Diplomacy at ADA University (Baku, Azerbaijan), Shale Gas Development in the University of Pittsburgh (Pennsylvania, USA), Energy Pricing in the Public Utilities Research Center (Florida, USA), EU Energy Law at the Florence School of Regulation (Italy), Infrastructure Economics at the Turin School of Local Regulation (Italy), Energy Security at the Masaryk University (Czech Republic), etc. Atanas Georgiev is member of the International Association for Energy Economics and of the Scientific Committee at the Turin School of Local Regulation.

83 Along the Energy Streams: Geostrategic Competition in South East Europe Along the Energy Streams: Geostrategic Competition in South East Europe

Martin Vladimirov

Overview The unfolding of the Ukrainian crisis has starkly demonstrated how Russia has managed to leverage the energy dependency of its neighbors in Europe. The crisis has also demonstrated the lack of progress in the efforts of international organizations such as the EU and NATO reducing energy security risks and improving diversification efforts1. One area, which needs significant reinvigoration of the energy security dialogue, is South East Europe (SEE) and the Black Sea region. As an area of immense geostrategic importance in regards to competition of major energy infrastructure projects linking oil & gas producing countries with consumers in the European Union and beyond, the two regions have become vital for maintaining the energy security in Europe in the future. The SEE and Black Sea regions host several major pipeline and other energy projects that aim to diminish the import dependence of many Central and Eastern European countries on one energy source. Meanwhile, Russia has stepped up efforts in promoting its own version of diversification, this time of transit routes circumventing Ukraine and capturing an even larger market share in Central and South East Europe. With a varying degree of willingness, the SEE countries subscribed to the Gazprom-led South Stream project from its very beginning despite the high cost of the pipeline and the lack of control governments had on its parameters. Moreover, South Stream did not fulfill the strategic goal of the countries of the region to diversify their energy supply away from the dependence on a single gas source2. The main narrative used to justify the project has been its importance for increasing energy security and bringing about economic growth and foreign investment. While the first claim has had some validity as indeed South Stream removes part of the transit risk, the second objective seemed very dubious considering the financial conditions offered to governments when joining the project. Moreover, the transit exposure risk would have been just replaced with the long-term danger of Russia using the pipeline as a political tool turning it on and off depending on the political stance of the current government. In pushing through the project, Gazprom concluded intergovernmental agreements (IGAs) with Bulgaria, Serbia, Hungary, Croatia, Slovenia and Austria, in which the gas giant had insisted to have an at least 50% share (51% in the case of Serbia) and to ban a third-party access to the pipeline capacity. Both conditions violate the EU’s Third Energy Liberalization package, requiring energy

1 Vladimirov, M. EU and NATO's role in tackling energy security and state capture risks in Europe. Policy Brief, No47, Center for the Study of Democracy, February, 2015 2 Vladimirov, Martin, and Ruslan Stefanov. 2014. "South Stream at the Crossroad of Energy Security and State Capture Risks." SüdosteuropaMitteilungen 54-71 84 Along the Energy Streams: Geostrategic Competition in South East Europe infrastructure to be unbundled, meaning that the ownership of the gas production and transmission capacities should be separated. Despite heavy lobbying of South Stream’s onshore project, the European Commission (EC) never granted a priority status to the pipeline, which would have exempted South Stream from the Energy package. Also, the deterioration of EU- Russian relations following the annexation of Crimea and the intensification of the conflict in eastern Ukraine, left negotiations on South Stream in a dead-end. After significant pressure from the EC, Bulgaria, which had been a vocal proponent of the project, decided to suspend its implementation in August, 2014. Then, in late October Serbia’s PM, another strong ally of Gazprom, gave clear signals that the government will not go on with the project without the consent of the EU. Not coincidentally, his statements came at the backdrop of an EU accession progress report saying that Serbia’s participation in South Stream could harm the country’s prospects of joining the Union. Italy, which has adhered to the project from its very beginning with the Italian energy company, ENI, having 20% share in the Black Sea offshore part of the pipeline, and whose subsidiary, Saipem, was contracted to build it, has shown on a number of occasions in 2014 that it does not believe in the project’s economic feasibility. When Russia’s President Vladimir Putin gave his speech in Ankara in early December, 2014, announcing the suspension of the project, it seemed that only Hungary had remained fully sided with Gazprom.

Table 1. Comparative Costs for European Pipelines Project Country/Project Diameter Cost (mn euros/km) South Stream Russia, South Stream 1420 7.4 OPAL Germany, Nord Stream 1420 2.1 NEL Germany, Nord Stream 1420 2.3 Gazelle Czech Republic, Nord Stream 1420 2.4 Source: Center for the Study of Democracy However, South Stream’s suspension was a heavy shock to the SEE region. Not least because it came a bit over an year after the final decision of the Caspian Shah Deniz gas field development consortium to pick the Trans-Adriatic Pipeline (TAP) over Nabucco as the priority route for sending natural gas to Europe starting in 2019. TAP with its meager 10 billion cubic meters (bcm) of initial capacity passing through Greece, Albania and ending in Italy, would not serve the strategic vision of the EU for significant diversification of the gas supply of Central and Southeast Europe. Only Bulgaria would be able to immediately start receiving a contracted 1 bcm via a planned Bulgaria-Greece Interconnector (IBG) but even this project has stalled for the moment. The countries in the region have largely accepted the Shah Deniz Consortium’s decision not to select the Nabucco pipeline as a proof of the failure of the EC to secure their basic energy security needs and above all the access to alternative resources supply. This act has induced some frustration in the 85 Along the Energy Streams: Geostrategic Competition in South East Europe region for lasting dependence on the existing gas exporter – Gazprom at least in the short term. It seems that the selection of TAP over Nabucco West is indicative of a broader trade-off, in which South Stream scraps the southern leg of the pipeline, which allows TAP to be the only gas link between Greece and Italy, in exchange for the Consortium’s dropping of the alternative Nabucco West route. Such an agreement was meant to effectively put an end to the Nabucco West project forcing the shareholders to write off substantial losses well in excess of 100 million euro, leaving a yawning gap for alternative gas supplies in SEE and CEE. The choice of TAP coincided with the buying by Azeri national oil company, SOCAR, of the Greek gas transmission company, DESFA. Gazprom, which also took part in the bid, at the final stage decided to withdraw from the competition. The latter raised concerns that there has been a behind-the-scenes market-sharing agreement between the members of the Shah Deniz consortium and Gazprom3. The goal is that the Shah Deniz partners will not promote a competitive pipeline to the Russian-led South Stream, and Gazprom will not meddle in Greece’s natural gas market. Energy Security after South Stream After the alleged end of South Stream, no definite alternative to the current supply route through Ukraine has emerged yet. In order to stem the appeal of alternative energy security solutions, Gazprom has offered a yet another energy project narrative at the same time as the decision for the halt of the South Stream pipeline. Gazprom and the state-owned Turkish energy company, BOTAS, signed a Memorandum of Understanding for the construction of an underwater Black Sea pipeline parallel to the existing Blue Stream pipeline and with the same entry point4. The newly-dubbed Turkish Stream would have the same pipeline capacity of 63 bcm per year, and would involve the construction of four lines. From the entry point on the Turkish Black Sea coast, Gazprom has expressed commitment to build new pipeline infrastructure linking Turkish Stream with Bulgaria via the TransBalkan Pipeline or to a gas distribution hub on the border with Greece. Out of the 63-bcm planned capacity, 14 bcm have been earmarked for the Turkish market substituting the existing gas supply to Turkey transiting Ukraine, while the rest could be transported in reverse along the TransBalkan pipeline or via a new pipeline infrastructure built from the Greek-Turkish border5. Since the launch of the Turkish Stream project idea, Gazprom has maintained that it is up to the European consumers to construct the necessary pipeline infrastructure to connect with natural gas hub to be formed on the Greek-Turkish border as the Russian state-owned company announced plans to divert the gas transit through Ukraine to the newly-built Turkish Stream. The EU has not provided Gazprom with a definitive response. However, the Russian argument can potentially contradict the contractual obligations Gazprom has under its long-term, bilateral

3 CSD (2014), “Energy Sector Governance and Energy (In)Security in Bulgaria” 4 Gazprom Press Release, http://www.gazprom.com/press/news/2014/december/article208505/ 5 TassAgency. (01.12.2014). Миллер: Москва и Анкара договорились о строительстве морского газопровода в Турцию. News accessed at http://itar-tass.com/ekonomika/1615321 on 19th April, 2015. 86 Along the Energy Streams: Geostrategic Competition in South East Europe gas sales agreements to provide uninterruptable gas supply to its European clients. The latter will remain the dominant contractual framework between Gazprom and European companies until the later part of the 2020s. Hence, it is highly unlikely that the EU will back down on Gazprom’s demands for a cross-European commitment for the construction of a new pipeline infrastructure. In the end, a wait-and-see approach was the modus vivendi for Europe during the development of the South Stream project. A similar strategy is likely to be adopted in the Turkish Stream talks. In addition, it is unclear whether Turkey would be willing to follow through with a project that will further deepen its dependence on Russian gas supply (currently at around 60% of its gas consumption needs)6. Its energy policy up to now has been based on the conviction that energy security can be achieved only through the gas supply diversification from as many sources as available. The Turkish Stream makes sense to Ankara only in the framework of a second line on the functioning Blue Stream under the Black Sea, so that Turkey weans itself off the transit risk of importing Russian gas via the Trans-Balkan pipeline originating in Ukraine. In addition to the economic and energy security reasoning for the reluctance of the Turkish government to commit to the Gazprom-led pipeline, the Turkish Stream project had been hindered by the growing divergence between the geopolitical interests of the two countries in Syria and the broader Middle East. The Turkish policy of ensuring financial and arms support for Sunni rebel groups in Syria since 2011 has run astray with the Russian efforts to prop up the regime of the Syrian president, Bashar Assad. The culmination of the growing competition for influence in Syria amid the civil conflict culminated with the downing of a Russian jet fighter on 24th November by a Turkish F-16. This is likely not only to freeze the advance of the Turkish Stream project but might push Ankara to accelerate its efforts of diversifying natural gas supply by expanding imports from Iran, Iraqi Kurdistan and from Azerbaijan following the launch of the second phase of the giant Caspian Shah Deniz field. Competition for Energy and Political Influence For the last 10 years, the energy competition in the region between the EU and the US, on the one side, and Russia, on the other, had been defined by the energy competition along the Southern Gas Corridor. Until the financial crisis, the competing energy projects lived in peaceful coexistence backed by the rising hunger for energy in Europe. The expectations were that the EU will be able to absorb all of the new export capacity coming online in the early 2010s. The situation was starkly reversed in 2009 when the natural gas consumption in the EU began falling. The trend has not been reverse yet due to low industrial output combined with high gas prices under long-term oil-indexed contracts that prompted utilities to switch to cheaper US coal for their primary energy needs. Additionally, the increased investment in renewable energy and energy efficiency have accelerated the process of fuel replacement in the power generation sector.In a market glut and in an environment of long-term contracts, no investment appetite for new large-scale pipeline projects could be mustered.

6 Turkey Country Brief, US Energy Information Administration (EIA) 87 Along the Energy Streams: Geostrategic Competition in South East Europe

Not surprisingly, the scale back destroyed any real prospect for a giant 31- bcm Nabucco pipeline, whose viability was questionable in the first place due to a number of geopolitical and technical concerns. Similarly, South Stream’s attractiveness began to fade away despite being on the top of the agenda of many Central and Eastern European countries after the gas supply halt in January 2009 that revealed the vulnerability of the region to the transit through Ukraine. Even if it would have been successful, consumers would have been underutilizing the South Stream pipeline capacity as the project had had to supply natural gas markets in Southeast Europe, where demand for gas is low, as well as Italy, Germany and Austria, which are highly liquid and diversified gas market7. In addition, at the projected cost of around $40 billion, the project would have been very expensive even for Gazprom. Despite the economic prerequisites for the failure of the pipeline projects, their political motivations used to override any rational claims. For the EU, Nabucco had the vital goal of diversifying the gas supply to Central and Eastern Europe amid the imminent potential that Europe will become increasingly dependent on energy imports as its domestic production falls. The diversification rationale became ever more visible after the Ukrainian gas crises in 2006 and 2009 when the three- decade long model of supply security no longer was taken for granted by energy consumers in Europe. Even before the transit disputes with Ukraine, Russia had overestimated its ability to leverage the gas dependence of European countries to dictate contractual terms (take-or-pay and oil-indexation) in an environment of rising supply of alternative natural gas sources and the rapid increase of crude oil prices that ultimately also drove gas prices up. Faced with growing competition from alternative gas sources from Norway and Qatar, Gazprom sought to preserve the current contractual framework that would have allowed the company the steady rise of gas revenue as Europe becomes more and more dependent on imports. An emanation for this model has been South East Europe where Gazprom has almost full natural gas monopoly. Although the share of the natural gas consumption in the overall energy demand of the region is low (between around 10% in Serbia to close to 40% in Croatia), Russia has translated its market share in political influence through the pricing of the gas. As a key input for industrial producers and district central heating utilities, natural gas is still perceived as a strategic commodity by governments in the region. Russia has often traded gas price cuts for the purchase of valuable assets in the energy, banking and the telecommunications sector. Russian resurgent economic power combined with old time security networks and skillful use of traditional soft power appeal has created weak links across the countries of the region. Gas has been the weapon of choice all along. Serbia depends on 82% for its gas consumption on Russian imports. Russian firms are funding large-scale infrastructure and utilities projects. The Russian Railways company is spending nearly €750 billion to upgrade Serbian rail lines, and Lukoil now owns 79.5% of Beopetrol, a Serbian gas station chain. Belgrade sold a

7 Vladimirov, Martin, and Ruslan Stefanov. 2014. "South Stream at the Crossroad of Energy Security and State Capture Risks." Südosteuropa Mitteilungen 54-71. 88 Along the Energy Streams: Geostrategic Competition in South East Europe controlling stake in its national oil and gas company NIS to a Gazprom subsidiary and committed to constructing its portion of Gazprom’s South Stream pipeline against an EU’s memorandum. At the end of 2012, the Bulgarian government traded its active participation in the then-alive South Stream project for a gas price cut of 20% but still continued to pay one of the highest gas prices in the EU. This is hardly surprising as the country is almost 93% dependent on the Russian gas imports at the end of 2014 and 100% dependent on crude oil8. Bulgarian politicians accused Russia of sponsoring financing anti-shale and energy protests to keep Bulgaria dependent on Russian gas. Correspondingly, the Bulgarian parliament passed a moratorium on shale gas exploration in the country although the EIA estimates that the country holds close to half a trillion cubic meters in shale gas reserves. The US oil major, Chevron, which held an exploration license left the country in 2014 after it became clear that the government is not planning to lift the moratorium any time soon9. The US major has similarly decided to abandon exploration efforts in Romania and Poland in 2015 marking the end of the first wave of optimism about shale gas exploration in the CEE. All countries in the region share similar vulnerabilities - the overreliance on one energy source, the lack of adequate measures for supply diversification and limited involvement in the development of the domestic energy production.

Table 2. Russia’s role in the SEE and Black Sea Energy Markets (2012/2013 data) Average Gas Share of Total Gas Gas Import Share of Russia in Price ($ per Country Russia in gas Consumption Dependency gas consumption 1000 cubic imports (bcm) meters) * Slovenia 100% 60.20% 60.20% 0.87 485 Greece 100% 55.60% 55.60% 3.6 476 Bulgaria 90.00% 100% 90% 2.6 417 Hungary 78.20% 100% 78.20% 8.6 435 Romania 24.30% 100% 24.3% 12.5 399 Turkey 99.00% 56% 56.0% 45.6 406 Macedonia 100.00% 100% 100.0% 0.16 460 Serbia 82.40% 100% 82.4% 2.91 457 Croatia 40% 100% 40% 3.25 Spot** Average 84% 84% 68% 8.9 441.8

*This is the average import gas price for 2012/2013 ** Croatia currently delivers its gas imports from domestic production and the spot markets in Austria and Hungary. Source: BP, Eurogas, CSD, European Geopolitical Forum 8 Based on data from the state-owned gas wholesale supplier, Bulgargaz 9 Smallteacher, Richard (2014). Chevron Cancels Bulgaria Fracking, Shell Postpones Ukraine Plans. Corp- Watch accessed at http://www.corpwatch.org/article.php?id=15959 89 Along the Energy Streams: Geostrategic Competition in South East Europe

On average, the share of Russian gas in the total consumption of the countries in the CEE and Black Sea regions has hovered around 68% in 2013. However, natural gas dependence in terms of share of total imports is even more alarming at 84%. The majority of Russian gas supply to the SEE region flow through two pipelines transiting Ukraine. In March 2013, the dependency on Ukraine as a transit route reached 82% for the whole Central and Eastern European countries. Meanwhile, Austria, Bulgaria, Croatia, Hungary, Romania, Slovakia and Slovenia remain 100% dependent on the Ukrainian transit route for gas imports. In case of a natural gas crisis similar to the one in 2009, the region will be severely exposed to supply disruptions, heating shortages and fuel deficits for industrial consumers. The response to the 2009 crisis was mixed with some countries using swap deals for importing Norwegian and Algerian gas, while others changing to heavy fuel for heating or increasing their domestic production. Overall, the region was unprepared to sustain the cut in gas supply in the long term as the capacity of underground gas storage facilities was not enough to handle a winter gas demand. Similarly, the crisis proved that the gas interconnectors linking the different national grids in the EU are underdeveloped preventing countries from balancing their markets. Five years later, with the exception of Croatia, which commissioned the Croatia-Hungary interconnector in 2011, the region has done little to improve its preparedness.

Figure 1 Gas Supply Security – SEE as the big outlier

40,00 35,50 35,00 33,00

30,00 28,00

23,80 25,00 22,00 21,50 21,80

20,00

15,00 12,00 12,00 12,00 11,80 11,00 10,00 9,00 9,00 6,80 10,00 7,08 6,50 6,30 6,10 5,30 5,30 3,30 5,00 5,00 3,00 3,10 2,90 2,00 1,80 2,20 2,20 0,70 0,50 0,00

Gas storage facilities bcm3 Gas delivered from Gasprom, bcm3 ING import terminal, bcm3

Source: Center for the Study of Democracy

Moldova, Bulgaria and the countries in the Western Balkans (with the exception of Slovenia, Serbia and Croatia with limited access to Hungarian and Austrian gas supply) will be hit hard as they are almost fully dependent on Russia, have limited 90 Along the Energy Streams: Geostrategic Competition in South East Europe production capacity and have not developed their gas storage infrastructure10. While, the good news is that the economy of these countries is relatively less dependent on natural gas - for example natural gas constitutes only 14% of the primary energy consumption in Bulgaria - switching to alternative fuels is both very polluting and costly11. Instead of searching for alternatives that improve their energy security risks, many of the countries in the region decided to bandwagon with Russia on the newly-announced Turkish Stream. The foreign ministers of Greece, Macedonia, Serbia and Hungary met in early April, 2015 to discuss their participation in the Gazprom-led project. The idea is to build a pipeline from the gas hub on the Turkish-Greek border and passing through Macedonia, Serbia and finally reaching Hungary. Considering the current state of energy infrastructure in the region, this idea seems more like another pipe dream, rather than a real new alternative. Searching for Alternatives Despite the collapse of the Nabucco pipeline idea, there is however ample ground to believe that this could be an opportunity for the region to boost its energy security position. Rather than investing in romantic visions such as large- scale, international pipelines, the SEE countries could be forced to focus on existing yet overlooked until recently more pragmatic, low cost and meaningful alternative options for achieving greater resource diversification, market flexibility and real convergence within the larger EU and global gas market framework. One major alternative that has triggered a sequence of events at regional and EU level, is the North-South Gas Corridor, linking the Baltic Sea with the Mediterranean via a serious of regional interconnectors. The project idea was co- launched by the Visegrad 4 Group of countries (Hungary, Slovakia, Czech Republic and Poland), which have already built a network of interconnectors coupling their gas markets,and the main gas markets in SEE including Bulgaria, Romania and Greece. The V4 initiative, which was developed in detail during a meeting in Sofia in April 2014, aims to integrate LNG facilities at entry points on the Baltic and Mediterranean Sea for alternative gas supplies to the region. Hence, the corridor will create the necessary conditions for the integrating of regional markets and for blending existing and potential EU, US, Russian, Caspian, Middle Eastern, Mediterranean and other global market resources in a more competitive mix offering lower energy and gas prices to industrial and individual consumers in the CEE and SEE regions. Existing LNG terminals in the region and planned new ones such as in the Gulf of Saros (Turkey), Alexandroupolis-Kavala (Greece) and Kirk (Croatia) could significantly boost the resource diversification entry points; enhance gas market integration and gas demand in the region. The North-South gas corridor could not only boost the energy security of South East Europe, but would also improve the overall connectivity of the EU. The immediate beneficiary is the effective 10 COM(2014) 654. Communication from the Commission to the European Parliament and the Councilon the short term resilience of the European gas system: Preparedness for a possible disruption of supplies from the East during the fall and winter of 2014/2015 11 Data on natural gas consumption is sources from the Bulgarian National Statistical Institute (NSI) 91 Along the Energy Streams: Geostrategic Competition in South East Europe completion of the European energy market, which can access a variety of energy sources to be distributed among consumers at competitive prices. Of course, we have to be realistic. The LNG gas would not necessarily contribute in the short term to a significant reduction in gas prices but would enhance the security of supply, promote energy source diversification hence independence and improve the economics of new and existing projects in interconnectors, gas storage and pipeline transport. Even without full physical gas market integration a coordinated use of the free capacities at LNG terminals for direct or virtual gas swaps in the region could trigger immediate diversification of gas supplies even before the completion of planned interconnectors and the physical entry of alternative gas supplies.

Table 3. Potential LNG options in SEE and the Mediterranean Regions

Unused Owner/ Capacity Year of Supply Name capacity Status Participant (bcm/y) completion contract (bcm/y) company Marmara Nigeria, Ereğlisi 8,2 3-5 Operational 1994 BOTAS Algeria, Qatar (Turkey) (spot) Nigeria, Aliağa 6 3 Operational 2006 BOTAS Algeria, Qatar (Turkey) (spot) Revithoussa 5,2 3-4 Operational 1999 DEPA Qatar,Algeria (Greece) Qatar Revigo (Italy) 8 N/A Operational 2009 Qatar Petroleum Algeria Plinacro Krk (Croatia) 5 N/A Planned 2018 and Qatar (RWE) (potentially) BOTAS/Qatar Qatar Saros terminal 6 N/A Planned 2017 petroleum (potentially) Qatar, Algeria Kavala 3-5 N/A Planned 2017 DEPA and Nigeria (Greece) (potentially) Świnoujście 5 N/A Planned 2015 GAZ-system Qatar (Poland) Source: Center for the Study of Democracy

At present the potential for increased gas flows and demand in the SEE and CEE regions using available and planned interconnectors could be estimated at 14-16 bcm. Given the modest volumes contracted by Bulgargaz, DEPA and other traders of Shah Deniz – 2 gas – altogether 10 billion cubic meters, the room for unmet demand and free market niches for new suppliers, including LNG gas should not be overlooked. The European Energy Union, whose agenda is to invest in gas 92 Along the Energy Streams: Geostrategic Competition in South East Europe connectivity and market liberalization, should also facilitate the entry of newcomers, the implementation of a lower-cost and more immediate diversification strategy of the region. An emerging jointly operated regional gas system will feature single/multi entry/ exit points and offer shared “one-stop-shop” reference points and administrative services, align national regulatory response and help offer single transport package deals to current and new gas (including LNG) suppliers, wholesalers (gas exchanges – hubs) and retailers. Such a systemic intergovernmental and corporate networking in the energy and gas sector would boost the regional gas network value by enhancing the resilience of national gas markets to market turbulence, boost the natural gas resource base, demand levels and the role of natural gas in national economies. This Soviet era inherited fragmentation of regional gas market anchored on a bilateral dependencies and single monopoly supplier has until recently thwarted regional cooperation limiting the leverage of each SEE country when negotiating “at par” with Gazprom and other international majors with interests in the region. The enhanced market integration will also tackle the associated risk of energy poverty, so prevalent through the Balkans. Limited gasification and high import gas prices have pushed people to rely ever more on solid fuels and electricity for their heating and cooking needs. Subsidized power tariffs create market distortions that hurt the financial situation of state-owned energy enterprises and lead to unsustainable consumption patterns. In Bulgaria, the coupling between low income and high power consumption led in late 2012 to a surge in utilities’ bills that brought thousands to the streets, ultimately toppling the government. Similar events are visible in Bosnia, Albania and Macedonia, among others. Bad governance and prevalence of populist decision-making in the energy sector have made governments vulnerable and reform process increasingly unattractive. Balancing costs and prices, securing gas market liquidity and meeting demand amidst growing security risks, climate change policy constraints and induced liberalized markets gravity all tend to underpin the call for joint action in the SEE region on new options for alternative gas supplies and enhanced market integration. As with South Stream, the SEE countries are not likely to address their further energy needs by mirroring Russian and big energy companies’ “grand” project behavioral pattern but instead focus on smaller steps, better balanced on cost-benefit criteria investments, on networking and economically viable projects fostering market convergence and opening access to new alternative suppliers, including from indigenous oil and gas production and from external sources. Regional market integration and LNG options While the CEE region has made a critical step towards integrating its natural gas systems by constructing bi-directional interconnectors, the SEE countries still have a lot on their plate. However, progress in visible, Romania and Croatia linked their gas systems with Hungary, hence allowing natural gas from the gas hubs in Central Europe to flow south. The most important gas interconnector Komotini (Greece) – Stara Zagora (Bulgaria) is planned to be completed in 2018 93 Along the Energy Streams: Geostrategic Competition in South East Europe and is expected to have a capacity of between 3-5 bcm/y. The additional Bulgaria – Turkey (ITB) interconnection with reversal flow is still at pre-commissioning stage due to the lack of understanding between the respected governments on the main characteristics of the deal. Nonetheless, both the Greece-Bulgaria and Bulgaria- Turkey interconnectors can be the building blocks to a much more sophisticated transport corridor bringing natural gas to the Balkan region. In the Western Balkans, there are a number of interconnectors planned but activity on them has been slow partly due to lack of financing but partly also by the third-party interests that prefer to preserve the status-quo of Russian gas monopoly. There are two planned interconnectors between Croatia and Serbia, while another three gas links are under study between Bosnia and Herzegovina and Croatia. Slovenia is working with Italy and Austria on a trilateral interconnector that would boost the access of the Western Balkans to liquid gas spot markets such as the Baumgarten gas hub near Vienna. The largest project is the Ionian Adriatic Pipeline (IAP), which is estimated to cost EUR 580 million and to have a capacity of 5 bcm/y. While the Slovenian-Austrian and the Croatian-Hungary pipelines aim to tap the potential new Northern gas sources, the IAP aims to connect with the Trans Adriatic Pipeline (TAP), and hence receive natural gas from Azerbaijan. The IAP will also connect the Adria LNG facility at Krk. In late 2014, the Krk development company opened a feasibility study and was included in the EU list of project of common interest (PCI), which are eligible to receive investment assistance from the Union. The obvious new supplier that should fill up the Balkan interconnectors is Azerbaijan via the Trans-Anatolian pipeline (TANAP) passing through Turkey. However, the rapid build-up of LNG receiving infrastructure along the Mediterranean coast including in Turkey, Greece, Croatia and Italy may allow for the market entry of supplies from Qatar, which can be competitive in the long term both with the traditional Russian supply and with the Caspian gas from Shah Deniz II. Recent research done by Russian experts on the LNG global market refers to the likelihood of over 100 million metric tons of LNG gas by after 2020 not being able to find a buyer in Asia and being redirected to Europe, following an expected dramatic increase in US, Canadian and Australian LNG exports (altogether exceeding 300 million metric tons per annum)12. Interconnecting the South East European countries’ gas markets with the global LNG gas could prove instrumental for balancing internal gas markets and securing optimal mix (volume and price wise) and in meeting EU targets for energy independence and resource diversification. The use of LNG terminals could have an immediate effect on SEE gas markets in southern corridor both in terms of physical gas flows and allowing for direct or virtual gas swaps with Russian gas. This applies to all existing LNG terminals on the SEE radar for potential consideration including: • LNG Terminal in Marmara Ereglisi - Tekirdag (Turkey), operated by Botas, • LNG terminal in Revithoussa (Greece), operated by DESFA (SOCAR owned) and • Rovigo (Italy), operated by Qatar Terminal.

12 RBKDaily (24.10.2013), Опоздали на праздник: Рискует ли Россияпотерятьстарыегазовыерынк и, не найдяновых?.accessedathttp://rbcdaily.ru/magazine/trends/562949989343802 94 Along the Energy Streams: Geostrategic Competition in South East Europe

• LNG terminal in the island of Krk (planned). Along the North-South Corridor, SEE alternative supply could be further enhanced by the completion of the Klaipeda Floating LNG terminal off the coast of Lithuania. With a projected regasification capacity of around 3 billion cubic meters, Klaipeda will not only improve Lithuania’s immediate energy security, but will also diversify the energy supply of the whole Baltic region. The main supplier will be Norway, which will be selling LNG volumes at spot prices reducing the impact of paying high oil-indexed natural gas volumes from Gazprom. The latter already decreased the price of its exports to Lithuania by 20% in May, 2014 in anticipation of the new market dynamics13. Another LNG terminal at the Polish port of Świnoujście to be commissioned by the end of 2015 could further buttress the viability of the North-South corridor bringing up to 5 bcm per annum of Qatari LNG. Although the project had experienced cost spikes and the supply contracts will be based on oil-indexation, the alternative route will provide Central Europe an outlet to global gas markets that are bound to become much more competitive in the next decade. Conclusions and Policy Recommendations Amidst the crisis in Eastern Ukraine, the new EU members and the Southeast Europe and Black Sea region countries are not prepared to adequately deal with a new energy crisis, as EU stress tests published in 2014 have shown. The lack of an EU Common Energy Policy, the failure of the energy dialogue with Russia, and the governance deficits in the energy sector are among the key energy security risks in the SEE and Black Sea regions. The high energy import prices and the over- dependence on one energy source and one transit route for imports of gas and oil are among the factors that influence energy security levels the most. The EU should revamp significantly its focus on energy security and step up efforts to set up the European energy union. In this respect, there are many challenges the EU faces in establishing the energy union this policy direction is irreversible, especially if the energy interests of countries in the SEE and Black Sea regions are defended. The main challenges include: the huge need of investment resources; the need for cross-border connections the different levels of energy poverty and hence ability to pay in member-states, etc. Policy Recommendations Improving the energy security and the governance of the energy sector in the CEE and Black Sea regions entails, at a minimum, the implementation of the following actions: • Enhancement of EU efforts to form an energy policy based on a common mechanism for energy trade bargaining. • Expansion of the regional natural gas and power interconnectors in Europe increasing the liquidity and competitiveness of the market. • Construction of new gas storage facilities and the expansion of existing ones in Central and Eastern Europe.

13 Hovland, Kjetil (28.05.2014). Gas Terminal Plans Helped Lithuania Negotiate Lower Price From Gazprom. The Wall Street Journal, accessed at http://www.wsj.com/articles/gas-terminal-plans-helped-lithua- nia-negotiate-lower-price-from-gazprom-1401188154 95 Along the Energy Streams: Geostrategic Competition in South East Europe

• Natural gas diversification away from pipeline trade, and development of LNG capacity to tap world markets. • Improving overall governance of the energy sector of CEE and SEE member- states and candidate countries through the introduction of transparent regulation and management of the state-owned companies and competitive public procurement processes. • Consider all options for Introducing shale gas exploration under scrutinized procedures, in line with the highest EU environmental standards. • Introduce prioritization and selection of large investments projects in the decision-making process, based on clear and transparent procedures and fact-based analyses, synchronized with the EU priorities. • CEE and SEE governments should focus on energy poverty reduction and energy efficiency improvement, while leaving large scale infrastructure projects to be decided at EU level.

Martin Vladimirov is Analyst, Economic Programat the Center for the Study of Democracy. His work at the Center focuses on an analysis of the energy security in Europe and on the Balkans, macroeconomic competitiveness, political risk, alternative energy technologies and stability of financial markets. He has been working in energy and political analysis for the last three years both academically and professionally. He worked as an energy analyst for The Oil and Gas Year, which produces in-depth overviews of the energy sectors of the major oil and gas producers around the world. In his capacity of an analyst, he discusses all relevant issues in the energy supply chain for a specific country. He completed two annual oil & gas reports for Kazakhstan, Azerbaijan and most recently Saudi Arabia. Previously, he worked as an energy and economic analyst for CEE Market Watch, where he was producing short intra-daily analysis of economic and energy issues for Iran and Central Asia. Meanwhile, he has been a remote political risk analyst for IHS writing assessment briefs for Bulgaria, the Balkans, South Caucasus and Central Asia. During his studies at SAIS, Mr. Vladimirov taught seminars in theory of international security under Dr. Marco Cesa. Martin Vladimirov has also worked as an independent energy consultant on several projects for international oil companies on the topics of natural gas in the GCC and MENA countries. He is also an affiliated expert at the European Geopolitical Forum in Brussels. Martin has a Master of Arts in International Affairs (MAIA) from the School of Advanced International Studies (SAIS) at Johns Hopkins University, where he specialized in energy resources and the environment, and B.A. in Economics and Political Science from Adelphi University in New York. He has several academic publications and has written also for energy magazines including for the Petroleum Economist.

96 Challenges facing Gazprom and the Russian natural gas policy Challenges facing Gazprom and the Russian natural gas policy

Dr. Yanko Yanakiev

The factors bearing upon the development of the Russian natural gas policy are closely connected with the dynamic processes evolving on the international energy markets, the fluctuations of the crude oil prices, the cyclical changes in the extraction of natural gas, and the trends of supply and demand on the regional gas markets. These processes have been the result of the “shale gas revolution” in the United States, the improvement of the LNG transportation and conservation tech- nology, the development of world economy, the Chinese economy growth rates, the EU energy market liberalization policy and the development of renewable en- ergy sources, etc. Over the past few years, there has been a trend towards a more bitter competition between the leading natural gas producers in their endeavors to establish new alliances. This is bound to lead to the creation of a new world nat- ural gas market, which will integrate the three large regional gas markets in North America, Europe and Asia. Development of a Russian domestic natural gas market In the context of the Russian domestic natural gas market, Gazprom has been conceding positions under the pressure of the so called “independent producers”. The company has been having serious problems in the extraction of natural gas and has been lagging behind the other gas market players in terms of efficiency and profitability.Gazprom operates only 5% of the highly profitable gas fields, 53% of the averagely profitable fields, 28% of the lowly profitable ones, and 14% of the loss incurring natural gas fields. In the period2013-2014 1, this entailed a 40 bcm drop in the natural gas supplies on the Russian domestic market. The price increases on the Russian domestic gas market resulted in heavier in- vestments in the extraction of natural gas by the “independent producers”. Over the past few years, there have been a number of take-over, acquisition, and asset barter transactions which have set up and consolidated an oligopolistic market structure with Gazprom, Novatek, Rosneft, and Lukoil as leading participants. The current Gazprom market strategy seems to be ineffective under the new condition while, on the other hand, Novatek and Rosneft have managed to avail themselves of the new situation by increasing their market share and strengthening their mar- ket positions. The current state of affairs, along with these companies’ medium term plans to boost the extraction of natural gas are going to provoke an inevitable conflict in the use of the gas transportation network. In addition, this carries a risk to the very functioning of the natural gas sector. Given the economic recession and the stagnation of domestic demand, this is 1 National Energy Security Fund, Тhe internal gas market: how to get out of the model of “Bermuda Trian- gle” , the expert- analytical report , M. 2015 . ФНЭБ, Внутренный рынок газа: как выйти из модели „Бермудского треугольника“, экспертно-аналитический доклад, М. 2015. 97 Challenges facing Gazprom and the Russian natural gas policy going to reduce the market share of Gazprom. In actual fact, the Gazprom compa- ny is no longer in a position to compete for new domestic gas users. It has an annu- al reserve capacity to extract over 100 bcm of natural gas for the domestic market even if it continues to export the maximum quantities contracted with Ukraine, as well as with some European and CIS countries.2 Currently, this capacity is used to compensate for the seasonal irregularities in the domestic natural gas consump- tion. However, any further encouragement of, or increases in the extraction and the supplies of natural gas on the part of the “independent producers” could cause further irregularities in the extraction of natural gas on the part of Gazprom. The other Russian natural gas producers have the potential to increase their natural gas extraction quantities as they sell their raw material to “solvent” users, including the largest companies in the energy sector, in the steel and the chemical industry. In contrast to these companies, Gazprom has to perform some important social functions involving the gasification of the individual regions. The pressure exerted by the independent companies is expected to increase, which is inevitably going to result, in the medium term, in equalization of the gas transportation tariff rates. One has to also bear in mind that these independent companies have the ambition to not only get access to the Gazprom natural gas transportation systems, but to also acquire the right to use for their exports the main natural gas pipelines. The Western sanctions make it difficult, or even impossible, for the Russian en- ergy companies to attract foreign investors or to use Western technologies in the development of the shelf fields or in the exploitation of resources that are difficult to extract. Moreover, the relatively low oil prices constitute a serious challenge to the Russian natural gas sector which makes it difficult for this sector to function effectively under the conditions of bitter market and price competition. The new situation has compelled the gas companies to re-examine their investment pro- grams, as well as to reconsider their short and medium term natural gas extraction plans. The Gazprom policy on the European natural gas market Under the new conditions, the Gazprom plans to develop the European gas market have turned out to be too ambitious3. The dynamic changes in the declin- ing demand, as well as the ever growing competition, have reinforced the prob- ability that the Gazprom company might lose a portion of its market share and might incur financial losses as a result of its unprofitable supplies4. The gradual future integration of the European energy markets is going to make it impossible for Gazprom to continue with its price discrimination policy that has been selling selectively, at a discount, to some of its users. In actual fact, Gazprom has reconsid- ered all its natural gas supply contracts with the European users or, more particu-

2 IBID. 3 http://www.gazprom.ru/f/posts/96/642868/stat_report_rus.pdf 4 European Gas Market: Lost Illusions and Humble Hopes, the research team of Energy Institute of the Higher School of Economics and Energy Research Institute, Russian Academy of Sciences under the gen- eral editorship V. Kulagin, T. Mitrova, M.2015.]Б. Кулагин, T. Митрова T., Газовият пазар в Европа: изгубени илюзии и плахи надежди, M.2015. Кулагин В., Митрова Т., Газовый рынок Европы: утраченные иллюзии и робкие надежды, Институт энергетики НИУ ВШЭ/ИНЭИ РАН, М.2015. 98 Challenges facing Gazprom and the Russian natural gas policy larly: the indexation of the supply portions exceeding the take-or-pay volumes in relation to the spot prices (15% of the contracted annual volumes); the reduction of the take-or-pay element in all contracts; and the temporary individual discounts on the price contracted (in 2011). The above market challenges that Gazprom is faced up with, along with the exacerbated political contradictions between Russia and the West, have made the company reconsider its own business model and introduce a new corporate man- agement concept, which takes into account Gazprom’s own production inefficiency and financial vulnerability. The EU member-states’ firm position on the implementa- tion of the Third Energy Package with respect to the South Stream project and the anti-monopoly investigation that was launched against Gazprom have additionally complicated and made futureless the current company’s strategy to collect revenues along the whole supply chain – from the point of extraction to the end users. From a geopolitical perspective, this has reduced to a certain extent Kremlin’s ability to use Gazprom as a pressure tool in the future. In the short term, the company’s main objective is to preserve its market share on the European market while seeking to acquire [new] market positions on the Asian market and trying to streamline domes- tically both its business model, as well as its production indicators. In order to be able to preserve its market share in Europe, Gazprom will have to preserve the volumes it has been selling on the market, including by starting to sell at spot prices. In the short term, the company is first going to try and maximize its ex- port volumes to Europe. In the autumn of 2014, Gazprom reduced its supply volumes with respect to a number of European countries to the minimum volumes specified in the relevant contracts. This was done with a view to counteract the reversible sup- plies to Ukraine delivered by Hungary, Slovakia, and Poland. Notwithstanding the use of this instrument, the company could not stop the reversible deliveries to Ukraine; however, it managed to demonstrate that Europe was not in a position to guarantee its own gas balance without the Russian natural gas, in general, and without the min- imum contracted volumes, in particular. On the other hand, the company’s aggressive policy towards Ukraine has de- prived Gazprom of one of its large natural gas users. In the period 2010-2013, the company used to sell to Ukraine an annual amount of some 30-35 billion cubic me- ters5. Later on, in 2014-2015, Ukraine managed to radically reduce the natural gas amounts it was buying from Russia by using the reversible deliveries mechanism, which included “virtual reverse”, as well. It was in this way that Kiev managed to strengthen its positions in its negotiations with Moscow for the supply of Russian natural gas, without being constantly threatened that the transit deliveries to the EU member-states were going to be disrupted. Gazprom and the Nord Stream 2 pipeline project The Gazprom company could have preserved and possibly increased its mar- ket share in Europe by expanding and doubling the capacity of the Nord Stream 2 pipeline project, however, in a more foreseeable political environment and a lower level of influence on the part of the political factors. The leading EU member-states

5 http://www.gazpromquestions.ru/foreign-markets/ 99 Challenges facing Gazprom and the Russian natural gas policy have not been unanimous in their support for the establishment of a European Gas Union. The majority of the European gas companies belonging to some leading EU member-states, such as Germany, France and Italy, have had reservations about the setting-up of such a union. The governments of these states are in a delicate situation because, if the European Commission gets empowered to regulate the natural gas market within the EU territory, it will also be in a position to exercise control over the activity of the individual national gas players by deciding, at its own discretion, which particular projects are going to be implemented. In addition, these decisions might be also influenced by some political considerations, corpora- tive lobbyism or corporate interests. We, however, cannot preclude the possibility that, in the future, the Nord Stream 2 pipeline project might also be used for the transportation of natural gas extract- ed by the Western companies within the Russian territory by virtue of asset swap transactions. This project is profitable for the Western companies that participate in the consortium engaged in the construction of the underwater section of the gas pipeline. The terms of the gas pipeline construction and operation are similar to the terms of the Nord Stream 1 pipeline project. Gazprom guarantees return on in- vestment, as well as the profit resulting from the pipeline operation during the life cycle of the gas pipeline project. These companies’ profits will also be guaranteed even if the pipeline is not used for gas transportation purposes. Any natural gas transported in this manner could be purchased at a virtual point in the Baltic Sea in the form of a virtual gas hub where the natural gas is going to be received and further transmitted. It is in this way that Germany is going to receive, on its own territory, natural gas belonging to the European gas traders. On account of the company’s long-term bilateral cooperation with the leading Western companies, Gazprom has already made some concessions trying to re- solve the most pressing problems related to its natural gas prices, to which these companies have been making claims, and even with respect to the claims incor- porated into the anti-monopoly investigation initiated by the European Commis- sion against this company. Anyway, irrespective of the political situation and of the complicated relations between the EU and Russia, some leading Western gas companies, such as OMV, Е.ОN, and RWE (through its gas subsidiary companies) continue to maintain intensive contacts with Gazprom. The conception of new natural gas transportation projects from Russia to Eu- rope along some new tracks alternative to the Ukrainian route has been pursuing some political objectives designed to produce a propaganda effect, as well as to arouse mistrust among the European partners whose interests differ as regards the implementation of the individual projects. This approach employed by Moscow leaves some room for diplomatic maneuvers and entails a more flexible position for Kremlin in its negotiations with the EU on issues related to the cooperation in the energy sector and, more particularly, in the natural gas field. Gazprom’s Eastern vector and the company’s joint projects with China Russia does not have a wide choice of markets for the supply of its natural gas as the fully solvent users of Russian natural gas in its closest geographical proximity 100 Challenges facing Gazprom and the Russian natural gas policy are Europe, the CIS countries, Turkey, and China. There have been some prognostications and plans about fast increases in the natural gas demand in China; however, due to the impeded economic growth of this country these prognostications have not come true. In the mean time, Japan has declared that it is going to resume the operation of its nuclear power plants. As a result of the Western sanctions imposed on Russia and, due to Gazprom’s problems on the European gas market, the political leadership in Moscow has tak- en some steps to divert the Russian natural gas exports to Asia, аs opposed to the country’s traditional gas markets in Europe. In turn, China interpreted these steps as geopolitical actions rather than as new economic opportunities. China has never sought any political effect of its relations with Moscow, neither has it demonstrated openly its convergence with Russia because of its apprehensions about a possible violation of the existing balance in its economic and political ties with the Unit- ed States. Beijing has recommended to its financial institutions and commercial companies to restrict their investments in any Russian energy projects of dubious economic profitability or in projects where the selected equipment suppliers are not Chinese subcontractors. It will be difficult forGazprom to use the traditional scheme of the so called “ad- vance credits” against the delivery of energy resources with respect to the “Power of Siberia” and the “Altai” projects. The Chinese banks that have been invited to fund these projects have some reservations about their profitability, as well as about the long period of return on investment. The evaluation made by some Russian inde- pendent experts of the Feasibility Study of the “Power of Siberia” project indicates that this project is problematic not only in terms of its profitability but also in terms of its plans for the extraction of natural gas6. Also dubious are the effectiveness of the regional gasification policy and the social benefits of the implementation of this project. At issue is the question whether Gazprom’s actual costs of the con- struction of the entire gas transportation infrastructure could be fully recovered, as well as whether the gas fields could be operated “properly” on the basis of the advance payments that have been promised by China. The relations between Moscow and Beijing can be viewed as a relationship searching for new markets and new alternatives for the Russian energy resources, as well as an attempt to create a new geopolitical center in world politics. This has also been the Russian strategic response to the European pressure exerted upon Gazprom following the Ukrainian gas crises and the EU energy policy towards a reduction in the dependency upon the Russian natural gas. Gazprom on the gas markets of the SEE countries The countries of South-Eastern Europe have been an attractive market for Gazprom due to their potential to boost the natural gas demand, as well as to the relatively higher natural gas prices as compared to the ones in Southern, Western, and Central Europe. This has been due to the lack of a well-developed gas infra-

6 Крутихин М., Восточный вектор Газпрома, презентация, „Нефтегазовый диалог“, ИМЭМО РАН, 2014. Виж също http://neftianka.ru «Экспортные и магистральные газопроводы. Кому это надо?». M. Krutihin, presentation Eastern gas vector Gazprom, The Forum «Oil & Gas dialogue» IMEMO, RAS, 2014; http://neftianka.ru Gas trunkline. Who needs it?, 2015 101 Challenges facing Gazprom and the Russian natural gas policy structure, coupled with the lack of any alternative natural gas sources or gas supply routes. The results of the stress-test published by the European Commission show quite unambiguously the vulnerability of Bulgaria, Macedonia, Bosnia and Herze- govina, Serbia, Kosovo, and, to a lesser degree, Hungary and Rumania, should the Russian natural gas supplies be disrupted7. In the region of Central and Eastern Europe, some new market niches have ap- peared on the horizon for the sale of significant quantities of natural gas coming from alternative gas suppliers with a view to attaining acceptable levels of depen- dency upon Gazprom. It has been the main objective of Gazprom to preserve, if possible, its monopoly position and its high prices on the SEE gas markets, to delay, as much as possible, the liberalization of the gas markets in the SEE countries, and to thwart the penetration of any alternative and competitive natural gas flows from the South or the South-East. There have been some schemes for a controllable and “purposefully directed” diversification wherebyGazprom should “give up”, quite controllably, some of its shares to related strategic European partners in order to prevent the penetration of any external gas players into this region8. There have been no significant changes in the natural gas map of South-East- ern Europe because some key projects, such as the South Stream and the Nab- ucco pipelines, were either terminated or reformatted. After diverting the South Stream pipeline project to Turkey, the model of the natural gas supply system in South-Eastern Europe remained largely undetermined, except for the gas supplies coming from Azerbaijan via the TANAP and the TAP pipelines. Irrespective of the general agreements concluded for the construction of interconnectors between Turkey and Bulgaria, Greece and Bulgaria, Bulgaria and Rumania, and Bulgaria and Serbia, the implementation of these projects has been too slow. The actual diver- sification of both the suppliers and the gas transportation routes for the delivery of natural gas to the SEE countries through the implementation of the TANAP and the TAP projects has to be bound with a radical change in the orientation of the current natural gas flows in these countries. It will also have to provide competitive conditions for the transit transportation of natural gas to the large European mar- kets. However, in the event of introducing some new regulations making it possible for all the natural gas flows that have reached Turkey and Greece to be channeled via the TAP pipeline across Italy towards Western Europe, the SEE countries might find themselves in a losing position again. The SEE gas markets should be inte- grated with the gas markets of the neighboring European countries, which calls for well-coordinated actions on the part of all SEE countries in support of a market structural reform so that we could finally have a [brand] new and integrated natural gas market system. In the medium term, especially if some new natural gas fields are discovered in the Eastern Mediterranean and if the gas industry in Iran and Iraqi Kurdistan develops satisfactorily, the competition for market access and the guaranteed sales are going to assume the leading role. Inevitably, this is going to result in a fight for guaranteeing free capacities in the transit infrastructure along

7 Preparedness for a possible disruption of supplies from the East during the fall and winter of 2014/2015. https://ec.europa.eu/energy/sites/ener/files/documents/2014_stresstests_com_en.pdf 8 Vassilev, I. The political and market footprint in the new natural gas field recently discovered by „Eni“. The Manager Magazine, 08.09.2015. 102 Challenges facing Gazprom and the Russian natural gas policy the Southern gas corridor towards South-Eastern and Central Europe. The South Stream pipeline project and Gazprom’s new strategy The decision to terminate the South Stream project fits perfectly in with the Kremlin’s course of “mobilization policy” (in domestic politics and domestic econ- omy), as well as with Moscow’s foreign political course of diversifying the relations with some leading countries, political and economic blocks. With a view to assert- ing Russia’s geopolitical interests, Moscow has also demonstrated a more categor- ical approach to the EU and the US declaring that, notwithstanding the economic sanction, Russia is going to find a way to put the country’s energy interests into effect. By declaring its intention to divert the Russian power recourses to some other parts of the world, the Kremlin has used, for the first time, such a high tone with respect to the Russian natural gas supplies in Europe. The economic sanctions im- posed by the West managed to spur Russia into action. The country first tightened, as a priority, its political and energy alliance with China and then, by announcing its Turkish Stream initiative, it reaffirmed its “Eurasian matrix” foreign policy that had already been launched by the Kremlin. This series of consistent steps has further confirmed the general trend of the Russian energy policy towards Europe, as well as the diversion of this energy policy vector from the West to the East. The announcement made by the Russian President on December 1, 2014, put an end to one of the most ambitious Russian geopolitical projects of the recent decade which had absorbed an awful lot of political, diplomatic, and financial re- sources. The direct investments made in the South Stream project thus far, within the Russian territory alone, are estimated at over $ 5 billion and there will be no return on a considerable part of this investment. The South Stream pipeline project was terminated by the Russian party without any legal formalization that is required by the effective European legislation. Some accusations were thrown against the Bulgarian party, which had been prompted by the desire to find an excuse for the failure of the Russian attempts to undermine the terms of the Third Energy Package. By freezing officially the South Stream pipe- line project and by diverting its attention to the Turkish Stream initiative, Moscow demonstrated its desire to impose its own model of relations on some EU, SEE, and Central Asian states. The Kremlin availed itself of its own leverage and monopoly position with respect to its natural gas supplies to the Balkan and the SEE region thus continuing its intention to confront with one another particular EU mem- ber-states by launching officially, and quite provocatively, its Turkish Stream and Tesla pipeline initiatives. The Turkish Stream pipeline project After terminating the South Stream pipeline project, the Russian party had to specify an alternative route for the Russian natural gas exported to Europe, differ- ent from the one traversing Ukraine. This route had to be minimally dependent upon the EU. By announcing its intention to install a new gas pipeline capacity oriented to Turkey, Russia made it clear that it was not going to let the issue re- 103 Challenges facing Gazprom and the Russian natural gas policy lated to the Kiev monopoly position with respect to the transit transportation of Russian natural gas to Europe to become a pressing problem again. The launch of the Turkish Stream pipeline project did not help Russia to attain its main objective to transport natural gas to the EU without using the services of a transit country. In addition, the new project did not fit in with the Russian “diversification policy” that had turned into a question of present interest following the imposition of sanc- tions and demonstrated via the agreements concluded with China. After December 1, 2014, Russia began reiterating in its announcements when the implementation of this project was going to start. These announcements were made by government agencies on varied administrative levels mainly for propa- ganda purposes. Irrespective of Moscow’s broadly propagated intentions to im- plement quickly the Turkish Stream pipeline project, in reality, the Russian party did not manage to secure sufficient political support to execute its plan which -in volved an entire substitution of the South Stream pipeline project. There was no economic, financial or commercial model for the Turkish Stream pipeline project. In addition, Gazprom’s main problem was related to the lack of support on the part of the large natural gas users in the SEE countries, Italy, and Austria, nor were there any investors to fund the project implementation. Moscow’s political moves, along with Kremlin’s negotiations with Turkey and Greece, did not produce any tangi- ble results in terms of economic parameters of, or investment support for, these projects. Turkey is deeply concerned about the Russian intentions to install the gas distribution hub on the Greek territory. On the other hand, Ankara has been trying to get an authorization to install another gas distribution hub on its own territory preventing in this way Gazprom’s entire control over the natural gas flows, as well as the installation of a gas hub on Greek territory. After having abandoned the South Stream pipeline project and, as a result of the difficulties involved in the promotion of its substitute – the Turkish Stream pipeline project, Moscow has continued with its targeted policy and purposeful propaganda aimed at discrediting the Ukrainian route that used to supply Rus- sian natural gas to Europe. In mid 2015, Gazprom managed to activate its relations with a number of European companies and EU governments in relation to all pos- sible Russian gas transportation projects to Europe that were alternative to the Ukrainian gas transportation system. The Gazprom company has been exploring in detail all possibilities for incorporating, to a larger extent, the Russian “Southern” projects into the alternative natural gas supply projects initiated by the Central and the Eastern European countries. Gazprom’s [current] priorities include: cooperation with the leading European gas companies with respect to the Turkish Stream and the Greek Stream projects, revitalization of the ITGI (Poseidon) project, the OMV new Nabucco proposal, the Eastring project initiated by Slovakia and supported by the European Commission, and the Nord Stream 2 pipeline project. The Tesla project The termination of the South Stream project and the initiation of the Turkish Stream project have brought about radical changes in the political situation on the Balkan Peninsula. Within a fairly short time, Moscow managed to secure the 104 Challenges facing Gazprom and the Russian natural gas policy political support of Budapest, Belgrade, Skopje, and Athens for the construction of a brand new natural gas infrastructure from the Turkish-Greek border. The politi- cal and intergovernmental steps that were taken with respect to the Tesla pipeline project are indicative of the Russian demonstrative policy aimed at introducing new dividing lines, at re-formatting the relations between the Balkan countries, and at disintegrating the European Union. On a bilateral basis, Russia has been striving to achieve sustainable political and economic rapprochement with Greece, Serbia, Macedonia, Hungary, and Turkey, as well as to strengthen its influence in the Balkan region by isolating Bulgaria and Rumania. The Bulgarian natural gas hub As a framework concept, the Targeted Model of the EU gas market summarizes all its functional elements and rules and has as its major objective to divide the gas market into several zones. These zones are going to be based on the “input-output” principle and are not going to coincide with the national gas markets. Each and every one of these zones should be equipped with a gas hub. The capacities at the input should be booked in advance irrespective of the output capacities while the multidirectional and the excessive infrastructure should make it possible to deliver, quite freely, the natural gas to the individual users, as well as to divert it among the individual zones. The Targeted Model requires that each and every zone should have a minimum of three natural gas supply sources, market deconcentration, and supply guarantees. The 2005 revision of the Targeted Model introduced some new criteria oriented towards the development of short-term trading on the spot mar- ket, including forward and futures transactions. In addition to the idea of the gas interconnectors that have to be built on the Bulgarian territory, which idea had been put forward before the European Com- mission, in December 2014, Bulgaria came up with yet another idea to install a gas hub within its own territory for the purpose of organizing a gas market on the input-output principle. The gas hub (with the working name “Balkan”) is going to rely on natural gas supplies from the TANAP pipeline (as an element of the South- ern Gas Corridor). The hub will have to be physically installed at a particular point within the region of the city of Varna where the gas pipelines of a couple of natural gas producers converge. This is going to ensure transit transportation of significant quantities of natural gas while, at the same time, the Varna point could be also used for the organization of a gas trading venue (hub) where all the market players could participate in the natural gas transactions. The “Balkan” gas hub project is also going to rely on Bulgarian own natural gas extracted from the Black Sea gas fields named “Khan Asparuh”, “Silistar”, and “Theres”, as well as on some natural gas quantities extracted in the gas fields of neighboring Rumanian. The output points are going to be through the interconnectors9. In addition, the natural gas supplies will also be guaranteed by some additional quantities coming from the gas storage in Chiren whose capacity is going to be extended from 500 million m3 to 1 bcm. The

9 Gegov, G. “Bulgartransgas EAD projects: current status, strategic importance and future prospects”. A presentation made at the annual regional forum on “Natural gas: infrastructure, markets, and services”. Sofia, 13.11.2015. 105 Challenges facing Gazprom and the Russian natural gas policy first phase of the extension project is already under way. The Bulgarian gas hub conception incorporates several projects10. The first one involves the construction of a new infrastructure consisting of 844 km Dn 1200 gas pipelines between the city of Varna and the town of Oryahovo. This new infrastruc- ture is going to ensure an additional capacity of 42,6 billion m3, along with two new compressor stations with a total installed capacity of 265 МW, which is going to secure the needed transportation pressure. The project is expected to be imple- mented in two stages by the end of 2020 and the relevant investment amounts to EUR 2,1 billion. The second project is expected to modernize the existing transit gas transportation network via the construction of 50 km DN 1200 looping be- tween the town of Provadiya and the village of Roupcha, to replace 20 км (2х10 км) of the existing Dn 1000 gas pipelines between the Strandja complex and the Turkish border, and to increase the capacity of the Strandja complex by 10 МW. This is going to assure a new annual capacity of 6 billion m3 in the direction of Turkey. The total investment amounts to EUR 103 million while the individual projects are going to be implemented by 2022. An important element of this project involves the modernization of the national Northern Semi-Ring gas transportation network by constructing 383 Dn 700 kilometers between the Valchi Dol complex and Novi Iskar. The implementation of this project is going to secure a new output capaci- ty of 4 billion m3 in the direction of Serbia via the Bulgaria-Serbia interconnector (IBS), of Rumania – via the Bulgaria-Rumania interconnector (IBR), and the under- ground gas storage (UGS) Chiren for transmission with withdrawal and injection of up to 500 million m3. All this is going to fully realize Bulgaria’s ambition to become a significant gas distribution center (natural gas hub) in South-Eastern Europe. This idea was initially neglected on the grounds that it was a desperate re- sponse to the Russian termination of the South Stream pipeline project and substi- tuting it for the Turkish Stream pipeline project, as well as this country’s attempts to remain in the big gas game on the Balkan Peninsula. The project was officially presented, for the first time, in early February, 2015, in Sofia during the first meet- ing of the High Level Group for the Construction of Gas Interconnectors in Central and South-Eastern Europe, which the EU had specially set up for the purpose. The gas hub idea was presented as an element of the already existing plans to integrate the SEE region into the EU natural gas market. In November 2015, the Bulgarian project was officially announced by the European Commission as a project of key significance for the establishment of the single European energy market, which is supposed to be carried out with the help of yet another 200 projects of common interest to the EU. The implementation of this project is going to help Bulgaria become an ele- ment of a much larger natural gas distribution hub; however, the realization of this hub is going to depend on the implementation of some other projects, as well as on the attraction of natural gas flows from some neighboring countries, e.g. Turkey and Greece. In this context, the Balkan countries will have to join efforts in order to be able to carry into effect the setting-up of a common Balkan gas hub as the gas supply diversification via the gas interconnectors is going to settle only temporar-

10 IBID. 106 Challenges facing Gazprom and the Russian natural gas policy ily these countries’ domestic problems while, on the other hand, the dependency on Gazprom will remain. Therefore, we will have to find an optimum solution by not only opening up the currently isolated Bulgarian gas market to the natural gas traders but also by trying to fit in with the consumption trends and dynamism in the end user countries. Conclusion Gazprom is in a crisis situation for which reason it takes some time to react to the new trends and to the fast changes taking place on the natural gas markets. The Gazprom company has invested considerable financial resources in the opera- tion of its natural gas extraction capacities and in the transportation of the extract- ed natural gas to Europe; however, most of the company’s efforts have been to no avail. These investments could be redeemed only in case of increased demand, as well as of successfully dealing with the competition of all other gas suppliers. Gaz- prom has high production costs, coupled with a complicated investment mission to develop the Eastern gas vector and to gasify the regions. In the medium term, this brings into question the effectiveness of the company’s monopoly from both an economic and a political perspective. Bearing in mind the company’s long-term contracts concluded with some large European energy companies, it is highly improbable that these contracts will be ignored regardless of the political and economic sanctions imposed by the EU. The current assumptions that, in the medium term, the supplies of West-Siberian gas to Europe are going to be substituted directly and will be diverted to China are groundless. The relations between the EU and Russia in the gas field have been changing from a strategic partnership to an ordinary commercial interaction. There has been a growing possibility that the EU countries might diversify their natural gas sup- plies and thus reduce their import dependency on Russia; however, the options of this diversification are limited and could lead to increases in the purchased natural gas prices. In all scenarios, Russia is going to remain the key natural gas supplier on the European market. In the context of the new EU regulations, the vertical integration strategy and the natural gas suppliers’ acquisition of infrastructure and downstream assets are no longer relevant. The EU has been introducing a new architecture of a single nat- ural gas market by erasing the national borders, by installing sufficient infrastruc- ture capacities, and by reinforcing the role of the supranational regulators. Spot trading is becoming a principal pricing mechanism on the European market; how- ever, it is still strongly dependent on the terms of the long-term contracts. Gazprom could entirely abandon the Ukrainian transit route without construct- ing any new alternative capacities only if the demand for natural gas on the Euro- pean market goes considerably down and, as a result, the exported volumes get contracted. The termination of the South Stream project and its substitution for the Turkish Stream project did not produce the political effect that had been sought by Moscow. Nor did it set the preconditions for a genuine diversification and substitu- tion of the Ukrainian gas transportation system. The alternative version involving 107 Challenges facing Gazprom and the Russian natural gas policy the construction of an annual 15-17 bcm capacity pipeline aimed to bring to a min- imum the losses incurred by the termination of the South Stream pipeline project is too adventurous in nature and does not fit in with Moscow’s strategic objectives as regards its South-oriented exports to Europe. It will be difficult to decide to re- vive the South Stream pipeline project without any serious political compromises between Brussels and Moscow, including in the context of a possible resolution to the Ukrainian crisis. The implementation of the gas hub project on the Bulgarian territory is going to involve the construction of an open gas transportation infrastructure, which is expected to increase the natural gas quantities transported via Bulgaria to the ma- jor gas users in Central and Southern Europe.

References: National Energy Security Fund. “ФНЭБ, Внутренный рынок газа: как выйти из модели „Бермудского треугольника”. Экспертно-аналитический доклад, М. 2015. “The European Gas Market: Lost Illusions and Humble Hopes”. Research team of the Energy Institute of the Higher School of Economics and Energy Research Insti- tute, Russian Academy of Sciences under the general editorship of V. Kulagin and T. Mitrova, M. 2015. M. Krutihin. Presentation entitled “Eastern gas vector Gazprom”. The “Oil & Gas dialogue” Forum, IMEMO, RAS, 2014. M. Krutihin, Presentation entitled “Eastern gas vector Gazprom”. The “Oil & Gas dialogue” Forum, IMEMO, RAS, 2014; http://neftianka.ru Gas trunkline. Who needs it?, 2015 , at: http://neftianka.ru/livestream/. Preparedness for a possible disruption of supplies from the East during the fall and winter of 2014/2015. October, 2014. https://ec.europa.eu/energy/sites/ener/ files/documents/2014_stresstests_com_en.pdf Vassilev, I. “The political and market footprint on the new natural gas field discov- ered recently by „Eni“. The Manager Magazine, 08.09.2015. Gegov, G. “Bulgartransgas EAD projects: current status, strategic importance and future prospects”. A presentation made at the annual regional forum on “Natural gas: infrastructure, markets, and services”. Sofia,13.11.2015. 8. www.gazprom.ru

Yanko Yanakiev has a PhD in economics. He has been an executive director of the International Informatization Academy’s Bulgarian office and has worked, afterwards, for the Foreign Economic Policy Directorate of the Bulgarian Ministry of Economy and Energy. In 2007, Mr. Yanakiev finished the basic course for junior diplomats organized by the Diplomatic Institute of the Bulgarian Ministry of Foreign Affairs. He has post-graduate degrees from St. Petersburg and from Brussels. In 2008-2012 and 2013-2015, Mr. Yanakiev was deputy head, as well as head, of the Commercial and Economic Service of the Bulgarian embassy in the Russian Federation. As a diplomat, he was in charge of bilateral cooperation in the energy sector and was a member of the “Infrastructure” working group within the framework of the energy dialogue between the EU and Russia. Currently, Mr. Yanakiev works as an energy consultant. 108 The Future of Energy: Predictions and Challenges

CONFERENCE “ENERGY SECURITY AND ENERGY INFRASTRUCTURE IN SOUTH EAST EUROPE” 15-16 September 2015, Sofia, the Royal Ballroom, Sofia Hotel Balkan The Future of Energy: Predictions and Challenges

By H.E. Ali Asghar Soltanieh, with cooperation of Mr. Rezaeian and Mr. Pishdast

Abstract It is anticipated that the growth rate of electricity consumption is 4.2 and 2.7 in the developing countries and the world, respectively. On the other hand, it is predicted that by 2040, natural gas, nuclear and renewables are expected to deliver more than 70 percent of the world’s electricity. There are different challenges related to the future of energy such as environmental aspects, economical aspects, safety, reliability, and security. Based on the IEA definition, energy security is the uninterrupted availability of energy sources at an affordable price. In this paper, expected demand and supply of energy according to the results of studies are reviewed and challenges of different energy sources are mentioned. It is emphasized that international cooperation is needed to resolve the main challenges such as energy security. Introduction Based on the important role of energy, there are different studies which are related to prediction of the future of energy in the world. There is a gap between energy supply and demand with clean, reliable and inexpensive energy. Growing concerns over energy security and the threat of climate change have all stimulated investment in the development of alternatives to conventional sources such as fossils. For the promise of an alternative energy source to be achieved, it must be supplied in the timeframe needed, in the volume needed, and at a reasonable cost. Despite its growth, the renewable energy sources still have some major hurdles to jump before it could replace fossil fuels. In case of nuclear energy, despite its huge utility and advantages however the disposal of the generated radioactive waste remains a concern for society. Energy Demand One of the main subjects of the energy-related studies is energy consumption. Based on the result of these studies, from 2000 to 2010 total world primary energy demand grew by 26%. For the period 2010 to 2035 it is projected to grow by 45%. Over the next few decades, population and income growth are expected to create new demands for energy. In 2012, 42% of primary energy used was converted into electricity. As it is shown in figure 1, electricity consumption raised by more than 4 109 The Future of Energy: Predictions and Challenges times during 2011 to 2035. Electricity demand is increasing twice as fast as overall energy use. Increased demand is most dramatic in Asia, projected to average 4.0% or 3.6% per year respectively to 2035. The International Energy Agency (IEA) estimates that by 2030 an additional 1.7 billion people will have gained access to electricity, and the number of people who lack electricity will have dropped from 1.3 billion to just under 1 billion, or about 10 percent of the population.

Figure 1: The projected energy consumption World marketed energy consumption 1990-2035 (quadrillion Btu)

800 739 687 700 639 590 600 543 495 500 406 374 400 355

300

200

100

0 1990 1995 2000 2007 2015 2020 2025 2030 2035 About half of the projected global growth in electricity demand through 2040 is from the industrial sector. Strong growth also will be seen in the residential/ commercial sector, as rising living standards reflect greater electricity consumption. The growth rates of electricity in different regions are presented in table 1. It is anticipated that the growth rate of electricity consumption is 4.2 and 2.7 in the developing countries and the world, respectively.

Table1: Anticipated growth of electricity1 (billion kWe-h)

REGION GROWTH RATE 1999 2020 (billion kWe-h) % Industrialized 7,500 10,900 1,8 (US) 3,200 4,800 1,9 FSU 1,500 2,100 1,8 Developing 3,900 9,200 4,2 Total World 12,800 22,200 2,7

1 The Future of Nuclear Power, MIT Study, 2009. 110 The Future of Energy: Predictions and Challenges

Energy Supply The need for electricity drives a growing demand for electricity generation, with thousands of new power plants needed across the world over the coming decades. It is predicted that by 2040, natural gas, nuclear and renewables are expected to deliver more than 70 percent of the world’s electricity. The IEA outlook for production of electricity by different sources is shown in figure 3. Based on figure 3, renewable energy sources are expected to meet only a small part of total energy demand to 2030.

Figure 3: Global production of electricity by energy source

Needless to say that there are other studies which predict renewable energies, especially wind and solar, will have more portion than that illustrated in figure 3. Although wind and solar each are expected to exceed global nuclear capacity by 2040, installed capacity does not tell the whole story about how much electricity will actually be generated. Because nuclear is a “base load” technology, its capacity will generate electricity about 80 to 85 percent of the time. Wind and solar, however, have much lower effective capacity utilization levels because they are intermittent sources. As a result, even by 2040, wind and solar each will meet far less electricity demand than nuclear power. With 434 nuclear power reactors in operation worldwide, the total generating capacity of nuclear energy was 371.7 Gigawatts‑electric (GW(e)) at the end of 2013. In total, 72 reactors were under construction at the end of 2013, the highest number since 1989. Of these, 48 were in Asia, which remains the center of near and long term growth prospects. Of the 30 countries currently using nuclear power, 25 are either expanding or planning to expand their fleet. The utility of nuclear power plants in South East Europe including in Bulgaria with a combined capacity of 3,760 MW and covering about 40% of country's energy demand

111 The Future of Energy: Predictions and Challenges is a clear indication of key role of nuclear energy in the future. According to the 2013 International Atomic Energy Agency (IAEA) projections2 for 2030, the world’s nuclear power generation capacity is expected to grow by 17% in the low case and by 94% in the high case. Based on the above statistics and realities on the ground, Iranian parliament has approved the production of 20,000 MWe by nuclear power plants. Energy Sources Challenges As shown in figure 3, the most important energy sources in the future are fossil fuels, solar, wind, nuclear, and hydro. Each energy sources have own advantages and disadvantages which are summarized in table 2. They face different challenges which could affect the predicted portion of them in the future supply of energy. Instability of oil prices, growing concerns over energy security and the threat of climate change have all stimulated investment in the development of alternatives to conventional sources such as fossils. The requirements for sustainable energy sources are minimal pollution, controlled waste stream, ample fuel supply, mature technology proven in large-scale deployment, affordable cost, and proven safety record.

Table 2: Summary of main advantages and disadvantages of different energy sources

Energy Main advantages Main disadvantages source • Very large amounts • Burning any fossil fuel produces carbon of electricity can be dioxide, which contributes to the generated in one place "greenhouse effect", warming the earth • Easy availability • Burning fossil fuel produces sulphur • Generate electricity dioxide, a gas that contributes to acid Fossil reliably over long periods rain fuel of time • Oil drilling endangers the environment • A fossil-fuelled power and ecosystem station can be built almost • Finite resources anywhere • Instability in the price of fuels leading to unstable generation costs • No waste or pollution • Expensive to build solar power stations • Can be used where there • Solar cells cost a great deal compared is no easy way to get to the amount of electricity they electricity produce Solar • Handy for low-power uses • The output of solar panels is reliant on such as solar powered the strength of the sunshine, which garden lights and battery depends on the time of day and the chargers amount of cloud cover

112 2 IAEA Annual Report, 2013. The Future of Energy: Predictions and Challenges

• No waste or greenhouse • The wind is not always predictable gases • Electricity generation from wind • A good method of turbines varies with the wind speed, supplying energy to and if that wind is too weak or too remote areas strong no electricity is produced at all, So do not produce electricity Wind predictably or consistently • Expensive • Can kill birds - migrating flocks tend to like strong winds • Can affect television reception if you live nearby • Noisy • Does not produce smoke • It is difficult to dispose of the waste or carbon dioxide, so it • High capital costs does not contribute to the • Have a long construction period. greenhouse effect • Have safety, security, and safeguard • Produces huge amounts issues of energy from small amounts of fuel • Low fuel and operating costs • High capacity factors and Nuclear long life time (60-year lifetime) • Nuclear power plants can generate electricity for many months at a time, without interruption • Nuclear power is reliable, so produces electricity predictably and consistently • Does not produce smoke • The dams are expensive to build or carbon dioxide • Building a large dam will flood a very • No waste or pollution large area upstream, this destroys produced animal habitats • Much more reliable than • Only available where there is moving wind or solar power water Hydro • Water can be stored above • Water quality and quantity the dam ready to cope downstream can be affected, which with peaks in demand can have an impact on plant life • Electricity can be • It disrupts fish migration patterns generated constantly • The number of sites suitable for new dams is limited 113 The Future of Energy: Predictions and Challenges

Energy security It is very clear that energy security is one of the main concerns of not only energy consumers but also suppliers and even transporters. The IEA defines energy security as “the uninterrupted availability of energy sources at an affordable price”. Energy security has many dimensions: long-term energy security mainly deals with timely investments to supply energy in line with economic developments and sustainable environmental needs. Short-term energy security focuses on the ability of the energy system to react promptly to sudden changes within the supply- demand balance.

There are different drivers governing the secure supply of energy such as diversification of generation capacity, prices, availability of infrastructure expertise, politically motivated threats and so on. A well-balanced energy system, comprising various power generation technologies, and with suitable capacity, enables the advantages of each to be maximized, allows prices to remain reasonably stable, and ensures a continuing supply to the consumer.The provision of affordable energy to the consumer is dependent on the cost of generation, transmission and distribution. The interruption of supply networks can negatively impact prices and create economic difficulties for countries exposed by over-reliance on one energy source. Sustained price rises and short-term spikes in oil, gas or electricity can trigger inflation and recession. Significant investment is needed to meet the forecast growth in energy demand. The availability of that investment – particularly problematic in many developing countries – will be a significant factor over coming years. Energy must be readily available, and thus the ease and safety with which fuels and electricity can be transported is a key driver for energy security. To achieve a diverse energy mix, countries must have access to different energy sources, requiring both infrastructure and expertise, whether in generation technologies, fuel handling, access to delivery systems such as pipelines, ports or electricity interconnections and transmission lines. The interconnection of energy systems, particularly electricity, must also be considered in terms of security. A limited market or connection increases the risk of supply disruption by reducing the options available to meet demand. Diversification in the uses of fuels may also be important for energy security3. The energy supply system can be vulnerable to disruptions caused by political motivations, regional conflicts, and the last but not the least the terrorist armed attacks as well as cyber-attacks. Conclusion Concerns over energy security are growing, given the fact that we are witnessing terrorist and sabotage activities in different part of the world, which could affect the energy security in the world. Enhancement of security in different part of the world would certainly contribute to energy security. Therefore international cooperation on resolution of regional and international security is vital.

3 World Coal Association (WCA), http://www.worldcoal.org 114 The Future of Energy: Predictions and Challenges

On the other hand, instability of the price of energy, in particular oil, will have impact energy security, assurance for consumptions and therefore sustainable development. OPEC is facing a problem due to lack of full cooperation of couple of members, especially Saudi Arabia, normally not respecting the quota approved by ministerial meetings of OPEC. The Islamic Republic of Iran as a responsible member of OPEC is always supporting stable market which protects suppliers and consumers. In this context, the Islamic Republic of Iran, as one of the main supplier of oil and gas, is always calling for uninterrupted energy supply and depolitization of global energy policies in order to promote energy security. Future reliable and sustainable energy requires international cooperation specifically between industrial and developing countries, suppliers and consumers. Energy supply which is vital for a prosperous life of people all over the world is thus a global concern. The relevant international organizations such as the IAE, IAEA, OPEC, GECF, have to coordinate more with the aim of resolving energy crisis and assured future energy. The last but not the least, energy and economic crisis would certainly have impacts on social welfare which endangers the livelihood of low income countries, in specific, which undoubtedly have serious impact on peace and security in the world.

H.E. Ali Asghar Soltanieh is Advisor to the Vice President of the Islamic Republic of Iran. In the period from 1980 to 1990 Ambassador Soltanieh was Director of the Nuclear Research Centre to the Atomic Energy Organization of Islamic Republic of Iran (AEOI). During this period he was also Resident Representative of Iran to the International Atomic Energy Agency (IAEA). After 1990 he became director of both Education and Manpower Mobilization Department of the AEOI and the Nuclear Engineering Department of the Organization. From 1996 to 1999 Ambassador Soltanieh was an Advisor to the Foreign Minister of the Islamic Republic and Secretary of the National Authority of the Chemical Weapons Convention. From 1999 to 2002 he became Ambassador and Deputy Permanent Representative of Iran to the United Nations and other international organizations in Geneva. During this period he was also a Chief Negotiator for the Additional Protocol to the Biological Weapons Convention. After the end of his mandate he became Deputy Director-General for International Political Affairs in the Ministry of Foreign Affairs of Iran during which period he was a Member of the negotiating team in the talks between Iran and the group EU3 on the Iranian Nuclear Program. Since 2006 he became Ambassador Extraordinary and Plenipotentiary of Iran to the International Atomic Energy Agency and Permanent Representative to the United Nations and other international organizations in Vienna, including OPEC and OPEC Fund. During this assignment he took various positions such as President of the Industrial United Nations Development Board; Vice President of several annual sessions of the General Conference of IAEA; Chairman of the Asian Group in the UN in Vienna etc. Currently he is Advisor to the Vice President of the Islamic Republic of Iran and Head of the Iranian Atomic Energy Organization Mr. Ali Akbar Salehi. Ambassador Ali Asghar Soltanieh is an Associate Professor in Nuclear Physics as well as Disarmament and International Security at the Faculties of Science and International Relations in various universities respectively. He has published several papers on the topics related with the nuclear energy, nuclear arms control and nonproliferation. In his capacity of academic, diplomat and negotiator, he took part as a speaker in numerous international forums and work closely with the relevant international scientific and technical organizations such as UN, IAEA, OPCW, and others. 115 The DIPLOMATIC INSTITUTE to the Minister of Foreign Affairs of the Republic of Bulgaria was created on 23 September 2003 pursuant to a Decree of the Council of Ministers. Its status and functions were regulated by the Diplomatic Service Act adopted by the National Assembly on 13 September 2007. The Diplomatic Institute (DI) strives to guarantee high-level expertise and skills of the junior and senior diplomats and staff of the Foreign Service and state administration. In this, it introduces and applies up-to-date professional standards of education and training. It promotes exchange of experience and good practices among generations of Bulgarian diplomats thereby aiming at continuity in the Bulgarian Foreign Service. Its work meets the high demands and professional expectations pursuant to Bulgaria’s membership in EU and NATO, and displays perseverance and continuity that will allow the Bulgarian diplomatic profession to take the place it deserves in the large Euro-Atlantic diplomatic family. In its work, the Diplomatic Institute is supported by two Consultative Councils, national and international. The National Consultative Council, which is approved by the Minister of Foreign Affairs, convenes twice a year and the meetings are organised and chaired by the Director of the Bulgarian Diplomatic Institute. TRAINING PROGRAMMES The training programmes offered by the Diplomatic Institute aim at improving the expertise of the Bulgarian state administration. Special focus is put on the diplomatic and consular staff, and on state employees posted abroad. DI also offers training programmes for foreign diplomats that attract substantial international attendance, and is open to all interested in acquiring the skills and knowledge needed in the diplomatic profession. The DI-organised training programmes meet all demands of modern diplomacy and use the good practices of DI counterparts from all over the world. To respond to the need of high-quality training, DI focuses on inter-active sessions, which have been assessed by the students as exceptionally useful for their future employment. Bulgarian and foreign career diplomats, university lecturers and other highly qualified experts teach at the DI. The latter thus provides the benefit of a broad range of opinions and approaches.

Basic Course in Diplomacy for young diplomats at the very start of their career and for interns working in the Foreign Service as attachés. It is held once in the year, and spreads over a period of 12 to 14 weeks, offering thematic modules on a wide variety of subjects. The graduates need to write a thesis on a topic of their expertise and defend their views before a committee appointed by the Ministry of Foreign Affairs. The aim is to provide substantial foundation knowledge and skills to help the students in their future diplomatic career.

Intensive Diplomatic Course for members of the state administration. For a month, they are offered lectures and interactive seminars/exercises in all fields of international relations and diplomacy. The course also takes place once a year. 116 Diplomats, academic teachers and experts share their theoretical and practical experience.

Specialized Course in Diplomacy for Third and Second Secretary ranks. The course offers individual modules flexibly organized at different periods throughout the year so as to fit into the students’ schedules. The focus falls on providing the Bulgarian diplomats with in-depth knowledge by means of interactive lectures, discussions and exercises led by senior lecturers with considerable experience in international relations.

Consular Diplomatic Course is offering qualification to the Bulgarian consular employees throughout the world, and the consular staff in the MFA departments. Training lasts for a month and mainly consists of practical seminars dealing with daily issues in the work of consular services. The course is obligatory for all MFA employees that would be posted in the Bulgarian consular services abroad.

Diplomacy and Regional Security Course a specialized course for diplomatic staff whose tasks will be directly related to the military aspect of international relations. Training lasts for a month, takes place once a year and covers discussions, interactive seminars and lectures on the crossing points of diplomatic and military service. For a week, training sessions are in English for the benefit of students from Southeast Europe, the Black Sea- and Caucuses Region, and EU member countries.

Energy Diplomacy Course is a one-week course with international participation for members of the Bulgarian state administration and diplomats and state administration employees from Southeastern Europe, the Black Sea- and Caucuses Region, and EU member countries, as well as for representatives of the business and the non-governmental sectors, who are dealing with energy related issues. The goal of the seminar is to contribute to the establishment and securing the energy relations between the represented institutions and to provide a platform for free dialog among the participants. Also included in the programme is a trip to the “Kozloduy” Nuclear Power Plant.

Economic Diplomacy Course where students attend lectures on economic and financial topics of current interest. Teaching at this course are well-known Bulgarian lecturers and analysts, diplomats, NGO-representatives. This is a one- week course which takes place once a year.

Environmental Diplomacy Course is with thematic coverage, which includes an introduction to environmental diplomacy, analysis of international climate change negotiations, review of international legal systems for environmental protection, overview of the main aspects of international environmental security, etc. The training also includes practical exercise in the field of multilateral water diplomacy. 117 Public Diplomacy Course for the members of the Foreign Service who are interested in acquiring better qualifications in their own field of work. This, too, is a one-week course taking place once a year. Major aspects of public diplomacy, its subject-matter and instruments, and positive foreign experience are the topics of the discourse.

Development Cooperation Course is a specialized training course for the members of the inter-ministerial working group for cooperation in development. Training promotes better coordination and synchronization of the policy for development of the various state administration departments. The course is jointly organized with Clindgendael, the Netherlands Institute of International Relations.

Training of foreign diplomats programme, based on the experience accumulated by DI in the organization of these courses, and through its contacts with lecturers on international relations. The foreign diplomats training courses cover a range of topics meeting the needs of the state which has required such training. The courses are in English.

Winter school on diplomacy. The idea was launched in 2005 when a course for junior diplomats was set for the countries of Southeast Europe and in the Black- Sea region. Nowadays, the Winter school also enjoys attendance by students from EU member countries and EU structures. The course is of a weekly duration, takes place once a year and offers a series of lectures, discussions and presentations on specific subjects, which allow for an exchange of opinions and contacts among young diplomats.

Foreign language training. The obvious need to have linguistic skills and improve their knowledge of foreign languages has compelled DI to organize language courses for the Foreign Service members. A wide range of language courses is on offer, with a specific focus on English, French, German, Spanish, Russian and Italian. Training is done in cooperation with the Cultural Institutes of the respective countries based in Sofia, or with the leading university language departments.

External participants are admitted to all types of training and courses organized by the Diplomatic Institute with the exception of the courses in: Specialized diplomacy, Consular diplomacy, “Policy of Development”, Winter school on diplomacy and Foreign language courses. Fees apply.

PUBLIC POLICIES AND COOPERATION The Diplomatic Institute has a multifaceted public activity to popularize its initiatives and to enhance its role in professional diplomatic qualification, as well as to set up positive attitudes to the diplomatic profession and to the foreign policy of the Republic of Bulgaria. 118 Public lectures. In its strive to contribute to the public debate on topical foreign policy issues, DI organizes, on an annual basis, series of free public lectures open to all. Speakers are prominent public figures, leading politicians and diplomats whose expertise and strategic vision on sensitive issues will enrich the Bulgarian and international political and diplomatic theory and practice.

Forums. Cоnferences. Essay competitions. DI is organizer, as well as active participant in numerous forums, conferences and round table discussions, as well as in many other events relating to important issues of the Bulgarian foreign policy and the Bulgarian Foreign Service. It interacts actively with universities and schools, also through its “Open Doors” programme. It also organizes, on an annual basis, national competitions of essays on topical foreign policy issues.

Research programme. Lead strategic task of the Diplomatic Institute is to provide synthesized, thorough and detailed materials on various topics. Fulfilling this responsibility we issue series of analysis on foreign policy. The Institute provides informational and analytical materials on the topics of international relations and security for the needs of the MFA, and series of textbooks, contributing to the increase of civil servant competence. Since 2013 the Institute conducts national contests for applied research projects with the participation of various experts from the MFA system.

Publishing. Since 2008, DI has published the “Diplomacy” magazine for political analyses. It comes out twice a year in Bulgarian and English and targets a wide variety of readers, from MFA employees (incl. the Bulgarian diplomatic missions abroad) to state agencies, the members of the Diplomatic corps accredited to Bulgaria, civil and non-governmental organizations, higher education schools, media and individual representatives of public opinion. DI publishes text books and study accessories, compendiums of presentations from forums and conferences and books by prominent Bulgarian and foreign political figures and diplomats. Since November 2013 Diplomacy Journal which combines the works of diplomats, authors, interpreters, editors of other thematic journals on international relations and journalists is now not only available in paper edition, but online as well on http://diplomacy.bg.

Library. To assist its activities and programmes, DI manages a public library, which collects processes and offers literature on issues of international relations, European integration, security, international organizations, diplomacy, law, history, sociology, political sciences, economy etc. The library boasts of 5,000 titles, a substantial part of them in English, French, German, Russian and other languages. By a decision of the MFA board of the summer of 2010, DI was put in charge of all books of the Ministry, the number of which amounts to 60,000 in over 20 foreign languages. To visit the Library, one should make a preliminary appointment at +359 (0)2 948 2147. 119 Internship programme: through it, DI aims at attracting Bulgarians studying at home and abroad to the intriguing world of international relations and diplomacy. The programme strives to assist the participants in obtaining specific practical skills and experience in real-term work. Applications for the internship programme need to be sent to the DI director at: [email protected] complete with a CV, a letter of motivation and an application letter addressed to the DI Director.

Internet site: The Diplomatic Institute maintains an Internet site in Bulgarian, English and French.

CONTACTS: Ministry of Foreign Affairs of the Republic of Bulgaria Bulgarian Diplomatic Institute Sofia 1040 2 “Al. Zhendov” str. http://bdi.mfa.government.bg e-mail: [email protected] tel.: +359 2 807 6440; +359 2 971 2517; fax: +359 2 870 1051 Facebook: Bulgarian Diplomatic Institute ISBN 978-619-7200-07-2 120 Republic of Bulgaria Ministry of Foreign A airs N DOCENDO DIPLOMATIC DISCIMUS INSTITUTE

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