Energy Issues in Central and Eastern Europe: Considerations for International Financial Institutions

This paper reviews the main institutional, economic, and technical issues related to energy sector rehabilitation and development which the countries of Central and Eastern Europe face in the process of economic transformation. These issues concern the institutional weaknesses at the sectoral, subsectoral, and enterprise levels; remaining inadequacies in energy pricing; high energy intensity, low energy efficiency, and the related environmental degradation; and excessive dependence on energy imports from the former USSR. The Governments of the region are determined to introduce the reforms necessary for viable energy development. This is bound to be a substantial task that requires a coherent strategy with consistent policies and institutional measures. The most important ones are: establishing a pro-competition regulatory framework; restructuring energy enterprises, and enhancing the role of the private sector; setting energy prices that reflect economic costs; enhancing energy efficiency and environmental management of energy operations; improving the productivity of energy subsectors and enterprises through rehabilitation and technical modernization; and redirecting energy trade. Energy demand in the region may regain 1990-91 levels by the end of this decade. Nevertheless, investment requirements for rehabilitation and expansion over the next decade may total US$120-150 bn (in 1991 prices and exchange rates) for the region as a whole, which cannot be met without considerable international financial assistance.