Part Ii Spatial Conditions in the Danube Space

PART II

SPATIAL CONDITIONS IN THE DANUBE SPACE

47 48 CONTENT

PART II: SPATIAL CONDITIONS IN THE DANUBE SPACE 47

4. DEMOGRAPHIC STRUCTURES AND DYNAMICS WITHIN THE DANUBE SPACE 53 4.1 Demographic Structure 53 (1) Population numbers cover a wide range 53 (2) Age structures tell different stories 54 (3) Ethnic homogeneity 59 4.2 Demographic Dynamics 60 (4) Divergent trends in East and West 60 (5) Substantial changes taking place with demographic determinants 61 (6) Population forecasts show no surprising results 65 (7) Significant changes in the patterns of international migration in the past decades 65 (8) Divergent patterns of international migration among the core countries 66 (9) Rural-urban flows dominate internal migration 68 (10) Cross-border migration is driven by economic reasons 69 (11) Brain drain and crowding out effects as major threats 70

5. SETTLEMENT STRUCTURES 73 5.1 Population Density 73 (12) Danube Space's periphery is more densely populated than the core area 73 5.2 Settlement Structure 74 (13) Major agglomerations 79 (14) Urban industrialisation in most of the CEECs 79 (15) Suburbanisation as a new trend in the CEECs 80 (16) Rural regions under stress 80

6. THE REGIONAL DYNAMICS OF TRANSITION 83 6.1 The Driving Forces of Regional Development 83 (17) Elements of economic transformation 83 (18) Three stages of transformation 86 (19) Adaptability on the regional scale 86 (20) Decisive determinants for the performance of "regions in transition" 87 (21) Recent trends in Foreign Direct Investment 88 (22) Where to the money goes 90

49 (23) Research and development determines future perspectives 90 (24) Regional R&D policies require networking 92 6.2 Structural Change in the Transition Process 93 (25) Trends in agriculture point out two groups of countries 94 (26) Land use patterns hint at divergent issues 97 (27) Land restitution, privatisation and investment 97 (28) Specific developments of the industrial sector 102 (29) Transformation of industry in the Core Countries 103 (30) High spatial concentration of heavy industry and mining 105 (31) Regional survey of main industries 107 (32) Services, the main driver of transformation 108 (33) Banking and insurance of utmost importance for further investment 109 (34) Tourism: considerable change with respect to markets and tourist flows 110 (35) Regional survey of tourism 112

7. REGIONAL DISPARITIES AND THEIR EVOLUTION 115 7.1 The Level of Economic Activity 115 (36) GDP differences between the Danube Space core countries still large 115 (37) Welfare gap is smaller than indicated by exchange rate based GDP 115 7.2 Regional Development Patterns 121 (38) Regional disparities expected to grow in transition countries 121 (39) Capital regions dominate economic development 125 7.3 Regional Disparities in the Core Countries 126 (40) Regional GDP data still not fully reliable 126 (41) Comparatively large but decreasing disparities in Austria 127 (42) Bulgaria: capital with the lowest growth potential of all Danube Space capitals 128 (43) A unique position for Prague 129 (44) Western Regions of Hungary most favoured 130 (45) Romania's large regions show little variation of growth 131 (46) Very strong west-east gradient in the Slovak Republic 133 (47) Quite small disparities on regional level III in Slovenia 133

8. LABOUR MARKETS AND UNEMPLOYMENT 135 (48) A number of data-related problems 135 (49) Major improvements concerning comparability: the Labour Force Survey 136

50 8.1 Employment 136 (50) Employment by sectors shows increasing shares of services 138 8.2 Unemployment 140 (51) Basic features of regional unemployment 143 (52) Youth unemployment ... 144 (53) ... as well as long term unemployment on the rise 144

9. THE ACCESSIBILITY OF THE REGIONS 149 9.1 Accessibility on the European Scale 149 (54) Potential impacts of the TINA-networks on accessibility 150 9.2 Road Networks 155 9.3 Railway Networks 156

10. ENVIRONMENTAL ENDOWMENTS OF THE REGIONS 159 10.1 Diversity of Environments 159 10.2 Natural Heritage Highlights - Biodiversity and Habitats 160 10.3 Water Resources 165 (55) Divergent patterns of sources, availability and dependencies 165 10.4 Legacies of the Socialist Era and the Risks During the Period of Economic Transition 170 (56) Air pollution 170 (57) Contaminated land 170 (58) Water pollution 171 (59) No adequate waste disposal infrastructure 171 (60) Nuclear reactor safety still doubtful 171 10.5 Risks during Economic Transition 172 (61) The transition increases pressure on certain natural endowments 172 (62) Regional survey on environmental risks 173

11. ENERGY INFRASTRUCTURE NETWORKS 175 11.1 Towards Sustainability 175 (63) Danube Space major trends (1985 to 1996) 175 (64) Energy supply 176 (65) Contribution of Nuclear Power 178 11.2 Main Characteristics of the Grids 183 (66) Electricity grid - network connections 183 (67) Gas grid - network connections 183 (68) The Transgas pipeline system 184

51 11.3 Improving a Location's Economic Advantage 184 (69) Electricity: high level of connections, further investment in supply quality 184 (70) Gas infrastructure: certain adverse primary effects, overall favourable secondary effects 185 (71) Closure of mines and oil fields: a significant social issue 185 11.4 Regional Impacts of Short and Mid-term Investments 186 (72) Electricity interconnections and regional impacts 186 (73) New gas infrastructure 188

52 TABLES

Table 10 Population in the Danube Space 1996 53 Table 11 Urban and Rural Population in the Core Countries of the Danube Space 74 Table 12 Total Foreign Direct Investment in the Core Countries 1994-1997 89 Table 13 Foreign Direct Investment Stock 1994, 1997 89 Table 14 Structure of Production - Share of Sectoral Gross Value Added 1990, 1995 93 Table 15 Main Agricultural Issues by Countries 100 Table 16 Examples of Concentrations of Heavy Industry and Mining 106 Table 17 Main Tourist Indicators for the Core Countries 111 Table 18 Indicators of Standard of Living 116 Table 19 Typology of Regions under Transformation 122 Table 20 Economic Position of the Capitals 126 Table 21 Austria: Regional GDP per Capita in PPPs on NUTS II Level 128 Table 22 Bulgaria: Regional GDP per Capita (1993-1995) on the Level II - PPPs 128 Table 23 Czech Republic: Regional GDP per Capita on the Level II (1993, 1996) - in PPPs 129 Table 24 Czech Republic: Regional GDP for the new Regions 2000 on the Level III (1993, 1995) - in PPPs 130 Table 25 Hungary: Regional GDP per Capita on the Level II (1994, 1996) - in PPPs 131 Table 26 Romania: Regional GDPs on the Level II (1993-1996) - in PPPs 132 Table 27 Slovak Republic: Regional GDP on Level II (1996,1997) - in PPPs 133 Table 28 Slovenia: Regional GDP on Level III (1996) - in PPPs 134 Table 29 State and Development of the Private Sector in 1994 137 Table 30 Shares of the Main Economic Sectors 1990-1996 139 Table 31 Labour Force and Economic Activity Rates in '000's 139 Table 32 Labour Market Issues in the Core Countries 145 Table 33 Railway Transport in the Core Countries - Main Issues by Countries 157 Table 34 International Designated Areas and National Parks in Danube Space Core Countries 161

53 FIGURES

Map 12 Age Structure 1995: 0-14 years 55 Map 13 Age Structure 1995: older than 60 years 57 Map 14 Population Change 1990-1996 63 Map 15 Population: Structure and Density 1996 75 Map 16 Spatial Distribution of Population 77 Map 17 Land Use by NUTS II Regions in the Core Countries 95 Map 18 Gross Domestic Product (GDP) 1996 117 Figure 1 GDP per Capita in PPPs in the Danube Space Core Countries 119 Figure 2 Development of Real GDP in the Danube Space (1989 = 100) 120 Map 19 Typology of Regions under Transition 123 Map 20 Unemployment Rate 141 Map 21 Accessibility of Agglomerations 151 Map 22 Accessibility of Population 153 Map 23 Protected Areas in the Danube Space 163 Map 24 The Main Rivers of the Danube Basin 167 Figure 3 Energy Production and Consumption in the Core Countries 1994 177 Map 25 Electricity Production in the Core Countries 179 Map 26 Nuclear Power Plants in the Danube Space 181

54 11. ENERGY INFRASTRUCTURE NETWORKS

11.1 Towards Sustainability

The Socialist legacy of energy infrastructure in the Danube Space can be summarised as one of inefficient energy supply and use, where market economic principles were not the guiding factor in planning and policy decisions. The development and use of domestic resources and imports from Russia were core strategies, leading many Danube Space countries to depend on

Russian imports. Finally, the electricity grids offered electricity supply of lower quality (in terms of frequency fluctuations, etc.) than the EU's UCPTE (Union for the Co-ordination of Production and Transmission of Electricity) grid, and transmission and distribution losses were higher.

In the transition period following 1989, the energy supply and use situation has changed dramatically: energy demand has been falling; energy efficiency has been rising; use of domestic resources has been falling; the role of imports becoming more important; prices of fuels rising to become more cost reflective; and more international joint ventures have been created outside of the traditional Russia - Danube Space collaboration. The major trends are presented:

(63) Danube Space major trends (1985 to 1996)

■ There was a common downward trend in both gross inland energy consumption and energy production over the period 1989 to 1995 which is closely linked to the economic downturn.

■ Final energy demand fell, leading to reduced use of coal and lignite, but with rise in use of natural gas in most Danube Space countries, controversy continues over role of nuclear power and how to address dependency.

■ Energy intensity has improved considerably, though it is still far below EU standards.

■ CO2 emissions were reduced by 16% between 1990 and 1995, but increased by 7% in 1996, reflecting the restructuring of the economy under pressure in the early 1990's, and renewed growth in the second half of the decade.

■ Hot spots of social concern arise where coal production is reduced and adjoining heavy industries are also declining.

179 ■ Energy import dependency increased, as domestic coal production declined, import infrastructure developed, and more market economy-based decision rules were applied.

■ The electricity grid in the Danube Space countries are being interconnected with the EU's UCPTE grid, transmission trade links are being upgraded, quality of supply is being improved, and transmission and distribution networks upgraded through new lines and rehabilitation, leading to reduced transmission and distribution losses, with fewer "brown-outs".

■ Gas transmission and storage infrastructure being developed offering more countries the use of natural gas with a subsequent increased investment in national and local gas distribution networks, with the subsequent displacement of other fuels, and new opportunities for household and industry use.

■ Transport sector modes shifted towards the greater use of individual cars with consequences on fuel use, and environmental and social impacts of increased traffic intensity.

■ The trade-off between concern for nuclear safety and the need for domestic electricity generation capacity continues to raise controversy. The solution(s) to the debate will have significant impacts on the economies around the nuclear power plant.

(64) Energy supply

Large variations of energy consumption and efficiency have been observed in the Danube Space, as in the whole CEEC, since the beginning of the economic and structural reforms. Before the start of its economic restructuring, the Danube Space countries had one of the highest energy intensities in the world. This situation resulted from policies in which domestic energy prices were kept below world market prices. The artificially low energy prices encouraged the development of an industrial structure based on energy-intensive industries (steel, aluminium, cement, chemicals) that used energy very inefficiently.

Energy intensity (or energy use per output) in the Danube Space has improved significantly in some countries - especially in the Czech Republic and Bulgaria - in recent years. Major improvements have been seen in the Czech Republic and slightly less in Bulgaria and Romania, although Romania was more deeply affected by the economic crisis. Energy intensity, however, rebounded by 3% in 1996, due to new economic growth outweighing energy efficiency gains. There are still considerable opportunities for efficiency gains, as intensities remain, on average, below EU levels. Significant collaboration between Danube Space countries and EU governments and industry and international funding agencies exists in the field of power plant rehabilitation, new power plant construction (notably based on natural gas). Improvement would make the Danube Space industry more competitive, and this would improve its ability to cope with the rigours of joining the EU internal market in due course. This

180 is likely to develop further over the next decade as joint implementation becomes more widespread and the EU's interest in collaboration on reducing greenhouse gases increases.

Figure 3 Energy Production and Consumption in the Core Countries 1994

50 Production 40 Consumption 30

mn. tonnes of coal equivalents 10

0 Austria Bulgaria Czech Hungary Romania Slovak Slovenia Republic Republic

Source: Statistical Yearbook 1997

Reliance on domestic supplies and Russian exports increased in recent years. The Danube Space countries have been net importers of crude oil and natural gas, mainly from the former USSR (Union of Socialist Soviet Republics). Total oil imports represented 68% of total oil requirements in 1996, which marked a slight decrease from 1994 when imports constituted 78% of oil requirements. This has come to the benefit of the gas industry, since gas imports increased substantially in 1995 and 1996. As regional resources of hydrocarbons remain quite limited, any increase in oil or gas consumption in the future will be covered by additional imports. Imports of Russian natural gas dominate the Danube Space's total supply, comprising 60% of consumption, though some countries have made attempts to diversify supplies. Hungary receives a small amount of gas from Western suppliers (Ruhrgas). Poland and the Czech Republic have also actively explored alternative suppliers, but have yet to cut its dependency on Russian gas. On the other side, Gazprom was negotiating to improve its participation in Eastern European companies. It was already the case of Bulgaria where a joint venture, Topenergy, was responsible for importing Russian gas to Bulgaria. The Slovak Gas

181 Company formed a joined venture with Gazprom to increase the level of co-operation between the two countries on gas deliveries and transit.

(65) Contribution of Nuclear Power

During the 80's the contribution of nuclear power to TPES (Total Primary Energy Supply) as a percentage of fuel mix has increased significantly, from 9% in 1985 to 15% in 1995. Nuclear power generates between 10% and 45% of electricity in the Danube Space countries. Nuclear electricity has been, on a variable cost basis, cheaper than other options, and consequently used in preference to coal, oil and gas (i.e. it is a base load generation option). The demand for electricity dropped significantly during the late 1980's due to the industrial decline that most former Communist regimes in the Danube Space were experiencing at the time. As a result of this industrial decline, an overabundance of electricity was being produced.

The high dependence of the Danube Space countries on nuclear power is a source of a number of environmental and economic concerns. International nuclear safety co-operation programmes, including EU co-operation programmes have served as an important driving force behind improved performance and increased operational safety. However, given recent international trends to phase out nuclear power (notably the recent German policy to abandon nuclear power), it is necessary for future EU regional development policies to promote and support a progressive reduction in the Danube Space's reliance on nuclear energy.

To address the EU concern about the safety of nuclear energy production, as the Soviet- designed nuclear installations do not generally meet Western safety standards, the EU has allocated a total of about ECU 1 billion since 1991 to improving the safety of some fifty nuclear power stations in Central and Eastern Europe that were built using Soviet technology. The Chernobyl reactor, in Ukraine, is a clear priority for co-operation in the short-term. The EU will allocate ECU 50 million until the end of December 2005 for the Chernobyl Shelter Fund. The fund was constituted at the end of 1997 under the management of the European Bank for Reconstruction and Development (EBRD) in order to implement a project to transform the existing concrete sarcophagus around Chernobyl NPP's (Nuclear Power Plant) reactor Unit 4, which was damaged in the April 1986 explosion, into a safe and environmentally stable system. In the medium term, plans to further develop nuclear power in the Danube Space are a cause of environmental concerns and may not receive EU support. The EBRD is still considering the release of a loan worth 190 million USD for the completion of two Soviet-designed 1,000 Megawatt VVER (Light-Water Moderated Reactor) nuclear plants, Chmel'nitskij 2 and Rovne 4, in north-eastern Ukraine. The EBRD suspects that the project may not meet its own criteria on safety and that there is insufficient consultation with the local and regional population. By year 2010, many NPPs in the Danube Space will be under decommissioning. This raises the issue of how to meet future energy demand increases, induced by economic development.

182 11.2 Main Characteristics of the Grids

(66) Electricity grid - network connections

The CENTREL (Central European Power Association) system (Poland, Czech Republic, Slovak Republic, Hungary), previously separated from the West European network UCPTE (Union for the Co-ordination of Production and Transmission of Electricity), was connected synchronously to the UCPTE system at the end of 1995. The resulting interconnected network, known as TESIS (Trans European Synchronously Interconnected System) now covers most of mainland of Europe (CEC, 1997a). Furthermore, since October 1996, a portion of the Ukrainian network has been operating within TESIS, on a trial basis. Slovenia has been connected to the UCPTE network since 1975, when it was still a part of the former Yugoslavia.

A group of countries, such as Bulgaria, Romania, Greece, Albania and a part of the network of former Yugoslavia are interconnected on a regional scale but are not connected to the UCPTE network. The missing link needed to integrate all Danube Space national grids to TESIS is the interconnection between Romania and Hungary (especially Arad-Sándorfalva line). The interconnections of electricity grid systems of Albania, Bulgaria and Romania with TESIS is feasible, but significant investments are needed to improve generation networks and protection systems, particularly within Romania. These investments should allow for increased trade in electricity and therefore lead to greater stability and security of the electricity supply. Potential regional implications could include on the one hand, direct impact of construction of interconnectors, and high voltage lines inlandscapes of natural and cultural importance. On the other hand, indirect impacts might be the construction or closure of a plant given the change in foreign capacity available to meet domestic demand, or given the changes in domestic capacity that could be used for (in part) export purposes.

(67) Gas grid - network connections

The Danube Space does not have an integrated natural gas market, though this is developing with increasing transmission capacity, increased cross-border connection, increased stability in the system due to expanding underground storage capacity, and the further development of domestic gas distribution networks. Currently, the Danube Space is crossed by two main gas pipelines, which are nevertheless isolated:

187 ■ a gas pipeline transporting gas from Russia through Ukraine, Slovak Republic, Czech Republic, and Austria,

■ a pipeline transports gas from the Russian Federation to Turkey, crossing Moldova, Romania, Bulgaria. In 1992, the gas delivering quantity was 40 BCM/year, while the contracted quantity for 2010 is expected to rise to 45 BCM/year (BCM: Billions of Cubic Metres).

(68) The Transgas pipeline system

There is one international pipeline system that transports gas to Western Europe through the Czech Republic: the Transgas system. The total volume of gas transported through the former Czech and Slovak Federal Republic, including both transit gas and supply to the domestic market, was 68 BCM in 1991 and 71 BCM in 1992. The Transgas pipeline system's working capacity was 73 BCM in 1993 for both the Czech and Slovak Republics. The capacity of the Czech part of the system alone is approximately 46 BCM. A new pipeline is under construction to provide an additional 11.2 BCM/year capacity to meet the requirements of contracts entered into with Wintershall and VNG. It will run from the Czech border with Slovak Republic to Hora Svaté Kateriny along the route of Transgas I. This work, along with related control systems, was intended to be completed by 1999. Although there is some spare capacity in the Transgas system on an annual basis, in winter, peak demand periods require the utilisation of almost all capacities.

11.3 Improving a Location's Economic Advantage

(69) Electricity: high level of connections, further investment in supply quality

Levels of connections to the electricity grid in the Danube Space are at EU levels, with most of the population connected to the grid. Therefore, there are no issues of a need for rural electrification that are typical regional development issues in many countries. This is a positive aspect of the locational quality in the Danube Space, marred slightly by the lower quality of electricity supply (in terms of range of voltage fluctuations), though this latter issue has been the focus of considerable investment over the last years, particularly in the ex-CENTREL states.

The electricity distribution and transmission sectors of the economy are significant employers within the Danube Space, as the electricity companies have been national concerns. Currently, there are efforts underway in many of the Danube Space countries to turn the national electricity monopolies into more competitive market economic sectors that can in due course compete within the broadened EU market. Some rationalisation has started to take place, with companies being split and competition gradually being introduced, and pressures on employment levels also starting to mount. The ensuing unemployment will have significant

188 local economic and locational quality implications unless appropriate retraining and social policies are put into place.

The improvement of the quality of supply of electricity, through the increased availability of uninterrupted and stable electricity supply, will support location quality, and allow the development of certain industries sensitive to electricity supply quality.

(70) Gas infrastructure: certain adverse primary effects, overall favourable secondary effects

The development of the gas transmission infrastructure increases the accessibility of industry and the domestic sector to gas, with significant potential for locational quality improvements, notably where coal and oil directly provide much of the heating and process energy. In residential areas, where gas heating has replaces wood, coal or oil, indoor air pollution can be significantly reduced. The installation of gas domestic heating also improves the level of (individual) control of heating, a key weakness of the district heating networks in place within many of the urban centres in the Danube Space countries. This can be expected to create significant energy savings and environmental benefits.

Where the new gas transmission pipelines lead to significant local and multi-regional development of gas distribution infrastructures (e.g. across FYROM), the construction of the pipelines will create negative locational impacts. This would occur - through the disruption due to work to traffic patterns, social stress through noise and disturbance of works, as well as pose potential damage to cultural and environmental heritage areas where no appropriate safeguards are in place. Local economic gain through construction activities, and the increased opportunities in employment within industries encouraged by the availability of gas (especially gas heating and electricity generation activities) improve the economic attractiveness of a location.

(71) Closure of mines and oil fields: a significant social issue

The move to a market economy in the Danube Space countries has, together with reduced overall demand for energy, led to significant pressures on reducing mining activities, especially low-performing mines. Given that many settlements have been built around mono-industry cores, such as coal and lignite mining, those areas facing mine closure are facing particularly difficult socio-economic consequences. This affects not only those directly employed in the mines, but also those employed in associated and supporting industries (the knock-on effect). In some areas (e.g. the Jiu valley in Romania) mine closure creates severe consequences for local employment as well as for other areas of the economy.

At first glance, the environment profits very often from reduced production. Coal washing activities have historically caused great pollution problems, and rivers which carried the burden

189 of these activities are now regenerating. Yet all the environmental impacts of coal pit closure are not positive. There is currently not enough money available to ensure appropriate mine closure programmes, and mine area rehabilitation (e.g. conversion back to green field sites). The impacts from significant risk of contamination of groundwater and changes in groundwater levels due to water pumping impacts need to be addressed in these areas.

11.4 Regional Impacts of Short and Mid-term Investments

Opportunities for investment are numerous in activities such as electrical cross-border interconnectors, upgrading the electrical transmission and distribution networks, generation capacity, gas transmission pipelines, gas distribution networks and gas storage facilities.

(72) Electricity interconnections and regional impacts

Regarding priority new projects, the following electricity projects are of particular concern for the Danube Space and need to integrate the region's national electricity networks to the UCPTE system:

■ 400 kV interconnection line between Arad (Romania) and Sándorfalva (Hungary);

■ installation of out-of-step relay protection, automatic synchronisation and fault recorder devices on the following 400 kV tie-lines:

- Blagoevgrad (Bulgaria) - Thessaloniki (Greece)

- Sofia West (Bulgaria) - Ninsk (FR Yugoslavia)

- Kozloduj (Bulgaria) - Tînţareni (Romania)

■ Maritsa East 3 (Bulgaria) - Babaeski (Turkey);

■ Dobrogea (Bulgaria) - Vulkanešty (Moldova).

Projects which would be less mature but useful to integrate the region's national electricity networks with the UCPTE system and to develop regional inter-operability, include:

■ 400 kV interconnection line Oradea (Romania) - Békéscsaba (Hungary);

■ 400 kV interconnection line Elbasani (Albania) - Podgrotica (Federal Republic of Yugoslavia);

■ 400 kV transmission line Vrutok (FYROM) - Burelli (Albania);

190 ■ upgrading the interconnection line Bitola (FYROM) - Amideo (Greece) to 400 kV;

■ 400 kV interconnection line between Greece and Bulgaria: either - Philippi (Greece) - Plovdiv (Bulgaria) or Philippi (Greece) - Maritsa 3 (Bulgaria);

■ 400 kV transmission line between Štip (FYROM) and Blagoevgrad (Bulgaria).

Some of these, and others are developed on a national and bilateral basis, while others are developed with support from the EU as part of the Trans-European Energy Networks (TEENs).

National investments include:

■ Slovenia plans to construct an additional transmission line to Hungary along a transit corridor.

■ The Slovak Republic is planning to erect a 400 kV electricity link with Austria (between Stupava and Vienna) and Hungary (between Moldava and Sajoivanks), and a further connection with Poland (IEA, 1997).

Since the publication of the TEEN guidelines (1995) and their updates, a number of trans- European energy network projects have been identified as projects of mutual EU-third countries interest. Amongst these, the following concern the Danube Space and are more likely to be implemented:

■ EU-Belarus-Russia-Ukraine: development of connections and interface between the (extended) UCPTE network and the networks of third countries in Eastern Europe, including the relocation of the HV-DC (High Voltage Direct Current Conversion Stations) conversion stations operating previously between Austria and Hungary, Austria and the Czech Republic and Germany and the Czech Republic.

■ Greece-Balkan Countries: strengthening of connections between Greece and, respectively, Albania, Bulgaria and ex-Yugoslavia, including the restoration of the connection with the North of ex-Yugoslavia and the UCPTE network.

There will likely be significant investments in increasing the efficiency of transmission and distribution over the foreseeable future, though increased investment in new capacity for transmission and distribution (apart from cross-border) is less likely in the next few years given the adequacy of current capacity. Electricity generation is going to be characterised by the closure of "dirty" inefficient plants, rehabilitation of some existing plant, and selective new constructions based on gas availability.

The greater interconnection of the grid in the Danube Space and the EU grid will lead to greater stability of the wider European grid and more trade in the future, allowing for a reduced need of new generation capacities, and a more effective use of existing generation capacities. However, there is a need for greater investment in transmission and distribution lines if they are

191 to be used more. This will support the increasing inter-linkage of the Danube Space and EU economies and their economic strength.

192 (73) New gas infrastructure

Key levels of gas infrastructure development within the Danube Space, will include:

■ developments of trans-national gas pipelines to augment and diversify the source of natural gas imports, including increased delivery to Danube Space countries,

■ developments of the gas storage capacity, and

■ developments of gas distribution systems.

The development of the international gas pipelines is of great importance to the development of the Danube Space. In the next ten to twenty years significant potential and grounds for investments in large-scale pipelines in the region will continue to exist. The first phase, including the Oder crossing, has been completed, while the Polish section (610 kms) is expected to be built in the period between 1995-2005. A large project consists in upgrading the existing Transgas interconnection system for an investment estimated in 2,000-3,000 MECU. This project will result in an increased capacity for the Czech Republic and Slovak gas systems with an implementation time-scale of 2005-2010. These developments have both direct and indirect impacts on the Danube Space. On the one hand, the infrastructure construction may have adverse impacts on landscapes of natural and heritage importance. On the other hand, new gas infrastructure will offer a further source of energy to help in the energy security of the region. Finally, positive environmental impacts may occur where the use of gas displaces more polluting fuels, and will contribute to CO2 emissions reductions, as illustrated by the fact that the rebound of energy consumption observed in 1995 has been mainly covered to natural gas.

Expanding gas storage in the Danube Space will offer the Danube Space countries improved security of supply of gas, addressing energy security needs. The capacity in these countries will also improve the security within the EU. Storage facilities currently exist in all of the Danube Space core countries.

Furthermore, the development of gas distribution networks will have some fundamental regional development aspects, not just through the construction activities, but also through the impacts on fuel choice and related economic activities.

Investments in each of these domains, and notably the first two, are beyond the capacity of the domestic gas companies to champion alone. International co-operation, notably with Gazprom of Russia for the former is required. International funding and donor agency support, and involvement of international gas and electricity companies are being and will be required to be engaged to meet the challenges ahead. Furthermore, price liberalisation is required so that prices reflect the costs of production and the appropriate signals are given to energy users. The increase in revenue from energy sales will be needed to ensure the further investment in

193 the energy infrastructure. However, this price of liberalisation will need to be carried out with some sensitivity to the impacts of fuel consumption among lower income groups. Without measures in place to address these issues, significant social pressures may arise.

194