On 27 October 2014 the Center for Study of Democracy and the Southeast Leadership for Development and Integrity (SELDI) organized an international conference on Energy Security and State Capture Risks in Europe with the support of NATO’s Public Diplomacy Department and DG Enlargement. The event served as a platform for discussion of the main problems of the common European energy security amidst the continuing conflict in eastern Ukraine and state capture as a specific security risk factor for the countries of Southeast Europe.
Dr. Ognian Shentov, Chairman of the Center for the Study of Democracy, opened the conference by highlighting the importance of emerging security threats. He underlined that energy security remains one of the most acute risks for Central and Eastern Europe and the Black Sea regions. He pointed out that Russia has used a mixture of corruption and geopolitical pressure to sway governments in the region, including those of some NATO members, to adopt policies that are not consistent with their national energy and security strategy but benefit foreign private and state interests. Dr. Shentov stressed the importance of the Energy Union initiative as a tool for guaranteeing uninterrupted energy resource imports on reasonable prices. At the same time he noted that state capture in many of the countries of Southeast Europe is the key security risk factor, and achieving energy security often is much more a matter of dealing with national governance problems than geopolitical concerns.
Dr. Velizar Shalamanov, Minister of Defense of the Republic of Bulgaria, stressed the importance of energy security for preserving sovereignty. He proceeded to explain that the dependence on foreign countries in any economic sector whether it is energy or defense undermines the countries’ ability to manage the impact of supply disruptions. Russia’s forceful annexation of Crimea in March gave NATO a new impetus to return to its original role – ensuring the collective security of its members. In this respect, he concluded that the long-term resolution of the conflict in Ukraine cannot be limited to a peace agreement in Eastern Ukraine but should include a broader effort to stabilize the Russia-EU energy dialogue without compromising the economic development of Ukraine.
1st panel: The Energy Security and Good Governance Policy Framework in Europe after the NATO Newport Summit
Mr. Michael Ruehle, Head of the Energy Security Section in the Emerging Security Challenges Division, NATO commented that the Ukrainian crisis showed the continuing importance of the Black Sea region in ensuring Europe’s energy security. Mr. Ruehle indicated that even though NATO is a military alliance, it could cooperate with the EU on solving some of the most critical energy security risks for its member-states. One way NATO can facilitate dialogue is by implementing solidarity-building measures in times of energy crises. Mr. Ruehle stressed that NATO members have pledged to increase the alliance’s role and competence in energy security issues, but reminded that it is still the prerogative of member-states to guarantee the security of their critical energy infrastructure including pipelines, oil and gas fields and refineries. He noted that NATO has already devised a Strategic Concept following the Bucharest Summit for prevention of energy security risks and is going to work for enhancing its coordination efforts with the EU. One area of immediate cooperation among NATO‘s member states is on energy efficiency in the military, where energy savings could significantly optimize costs’ operations.
Dr. Frank Umbach, Director of the European Centre for Energy and Resource Security, presented his report titled Good Governance and the Example of the South Stream Gas Pipeline Project. His presentation highlighted an interesting new trend of decreasing importance of Russian gas for Europe’s consumption profile by 2050. He provided an overview of the latest trends related to global gas markets underlining the growing use of LNG and the shale gas revolution in the US. He warned that Europe’s lack of strategic policy for shale gas exploration will likely weigh on Europe’s future economic competitiveness. Dr. Umbach discussed the controversies and state capture risks related to the South Stream project in the light of how governments and institutions implement policies related to reduction of energy security risks.
Mr. Adam Janczak, Deputy Director of the EU Economic Department in the Polish Ministry of Foreign Affairs, presented Poland’s plan for an Energy Union for Europe. He described in details the 6-pillar structure of the proposal, and highlighted the third pillar, which focuses on strengthening the bargaining power of Member States vis-à-vis the external energy suppliers. According to Mr. Janczak, the goal will be for the European Commission to provide direct support during the negotiations of intergovernmental agreements (IGAs) and ex ante verification of the contracts. Mr. Janczak quoted estimates that the welfare loss for the EU due to gas market inefficiency could reach EUR 30 billion per year, most of which is borne by customers in the CEE region.
Ambassador Ilian Vassilev moderated the first panel. He noted that with the decline of Russia’s ability to exert military pressure, Moscow would try to expand its presence in the banking and energy sector in the region. Russia’s strategy has been somewhat successful because the economic crisis in Europe provided the necessary environment for the growth of bilateral relations between countries in the CEE region and Russia. To overcome the threats to the regional energy security, the EU should promote more practical approaches to common external energy strategy.
2nd panel: Energy Security and State Capture Risks in Europe: Measuring and Governance
Dr. Andrej Nosko, Program Manager at the Open Society Think Tank Fund in Hungary, presented his views on the Measuring and Governance of Energy Security and State Capture Risks in Europe. He noted that there are many definitions of energy security, but no agreement on what the concept means. Mr. Nosko outlined the main dilemma policy-makers face when dealing with energy security namely which two of the three conflicting elements of energy security to prioritise – efficiency, affordability, sustainability. Governments can choose to follow only two out of three policy priorities. By making this choice, there will always be losers in the process. In this dilemma Eastern European countries have been unable to prioritize energy security issues partially due to state capture risks, related to non-transparent policy initiatives that do not benefit the public good but the vested interests of third parties.
Mr. Andrea Ricci, Director of the Institute of Studies for the Integration of Systems in Italy, pointed out the key Good Governance and Social Sustainability Indicators of Energy Systems. Ricci outlined the two main characteristics of good governance – effectiveness and coherence. In order to reach these goals, three main pillars have to be built, including openness of EU institutions, participation throughout the policy chain, and accountability of legislative and executive processes. Mr. Ricci explained that to him a captured state equals governance failure. He believes that the way forward depends on the systematic development of both participatory decision-making mechanisms and awareness of the socio-economic impacts of energy strategies, as well as on alignment of social costs and indicators to economic and environmental state of the art, backed by an EU-wide energy dialogue.
Mr. Martin Jirusek, Researcher at the Masaryk University in the Czech Republic, discussed the Operational and Behavioral Characteristics of Key Energy Companies in Central and Eastern Europe. He made an overview of the energy relations between Russia and the countries in the region. In his view, Gazprom’s export policy is determined by two sometimes mutually exclusive approaches – strategic and market-oriented. The strategic approach is characterized by misusing energy as a political tool, while the market approach responds to the structure of gas supply that each country has. According to Mr. Jirusek, there are clear signs that Gazprom favors the strategic approach in an attempt to increase its geopolitical influence in the region.
Mr. Ruslan Stefanov, Director of the Economic Program at the Center for the Study of Democracy, moderated the panel. He pointed out the importance of measuring energy security and how it can affect policy-making initiatives. He underlined the cooperation between the Center and the US Institute for 21st Century Energy for the developing an energy security index for Bulgaria, which deepened the understanding of policy-makers about the main vulnerabilities of the sector in the last 20 years. Additionally, Mr. Stefanov emphasized that energy security measurement should be refined and enhanced on EU level, which will help the development of a coherent European strategy that takes into consideration the complexity of contradictory energy security policies.
3rd panel: Countering Energy Security and State Capture Risks
Ms. Leila Bičakčić, Executive Director of the Center for Investigative Reporting in Bosnia and Herzegovina, made a critical overview of BiH and the SEE energy sector. She emphasized the rampant corruption in the sector, which has been thriving on ineffective regulatory environment. She pointed to several case-studies of state capture activities in BiH, which involved companies involved in similar corruption prone deals all over South East Europe.
Dr. Simone Tagliapietra, Researcher at Fondazione ENI Enrico Matte in Italy, focused on EU-Turkey Energy Relations after the Ukraine Crisis. According to him, the Southern Gas Corridor (SGC) is not a realistic project at the moment as Azerbaijan is the only viable supplier of natural gas for a potential pipeline. He considered Iran and Turkmenistan as unlikely options in the near future due to mainly geopolitical concerns. Mr. Tagliapietra believes that the Kurdistan Region of Iraq could become a potential future supplier. Israel is also a potential supplier after the discovery of the giant Leviathan field in the eastern Mediterranean. However, Turkey has been wary of strengthening energy relations between the two countries due to different foreign policy approaches to the Gaza conflict. Mr. Tagliapietra concluded that the successful implementation of the SGC requires an active cooperation between the EU and Turkey on the development of the Kurdish resources and the liberalization of Turkey’s gas market.
Dr. Arno Behrens, Senior Energy and Research Fellow at the Centre for European Policy Studies in Belgium, presented different approaches to Countering Energy Security Risks in Europe. He outlined the security of energy supplies as a multi-faceted concept exposed to a variety of risks including geopolitical, economic, technical, environmental and social. Dr. Behrens expressed his belief that the current natural gas crisis should be used to foster EU-wide policies of supply diversification, improvements in energy efficiency and the development of coordinated common EU energy policy. Dr. Behrens argued that domestic energy production and shale gas opportunities need to be explored further, and EU Member States should start speaking with one voice. He concluded his presentation by emphasizing the key importance of fostering renewable energy production and energy efficiency, which improve both the reliability and sustainability aspects of the energy security situation in the region.
Dr. András Deak, Senior Research Fellow at the Institute of World Economics in Hungary, emphasized the importance of energy affordability measures in the overall energy policy of the countries in Central and Eastern Europe. This is especially true for countries like Bulgaria where affordability is a key prerequisite for the stability of the whole energy system. In this respect, Dr. Deak noted that the development of renewable energy capacity is an important policy measure but a politically-dangerous one. He added that EU funding will be the single most important source for improving the energy security of the region.
Mr. Barış Sanlı, Deputy Director General for Energy Affairs at the Ministry of Energy and Natural Resources of Turkey, said that the short-term energy security of a country is a matter of concrete, practical policies. He noted that energy forecasts do not always match real-life developments. While in 2006 the EU expected that countries will be moving towards a gas-driven economy, the 2009 crisis led to a slump in gas demand, a trend that can continue for a long time. Mr. Sanli argued that some of the most important security of gas supply measures, which need to be implemented, is the building of new gas storages in Turkey and throughout the region, and the establishment of strategic gas reserves that can be tapped into in times of supply crisis. In conclusion, he said that his stance on renewables is that they are improving energy security, but only when sustainable tariffs are in place.
Mr. Traicho Traikov, Minister of Economy, Energy and Tourism of Bulgaria (2009-2012), moderated the panel. In his introductory remarks, he discussed the difficulties he experienced during his negotiations with Gazprom in determining the terms of the new long-term gas supply contract. He underlined the importance of transparency of energy deals for the overall energy security of the region and the improvement of the bargaining position of consumer countries.
4th panel: Public-Private Partnerships for Countering Corruption in the Energy Sector in Southeast Europe and the Black Sea Region
Mr. Radu Cotici, Head of Secretariat of Regional Anti-Corruption Initiative, Bosnia and Herzegovina, introduced the problem of energy sector corruption in the South Eastern Europe and presented the Regional Anticorruption Initiative and its targets for 2014-2015, which included the formulation of transparent rules in energy sector decision-making and public procurement. Mr. Cotici also spoke about the significance of the engagement of civil society in anti-corruption practices. He underlined the importance of civil society anti-corruption reports as tools for unearthing the potential harm of state capture processes to the public interest. He concluded that the civil society should be given a more prominent role in both the monitoring and evaluation of anti-corruption strategies.
Mr. Tomasz Dąborowski, Senior Fellow in the Central European Department at the Centre for Eastern Studies, Poland presented a case study on the Romanian energy sector. He identified the key features of the Romanian energy sector, which is still dominated by state ownership and a regulated wholesale market for electricity. He further provided a detailed overview on the measures that Romania has adopted in order to improve the financial situation of the state-owned energy companies. To solve the problem with the accumulated debt, authorities have increased the capital of the companies.
Ms. Evgenia Gusilov, Director of the Romania Energy Center, Romania presented her research on Energy Security and Corruption with particular focus on the Romanian case. She began her presentation with statistics illustrating the trends in the energy security risks in Romania compared to the average OECD level. According to the data, prior to 2000, energy security risks were higher than in the OECD. However, after 2000 Romania has closed the gap bringing its overall ranking even higher than the OECD average. Ms. Gusilov pointed to statistics on the level of public sector corruption, showing that some progress has been achieved but that the country is facing a lot of transparency issues in public procurement and the efficiency of the institutional framework.
Dr. Athanasios Dagoumas, Special Advisor to the Minister of Energy and Climate Change at the Hellenic Ministry of Energy and Climate Change and a Visiting lecturer in Energy and Resource Economics at the University of Piraeus, Greece presented his research titled Tacking Energy Security and Corruption in the framework of the European Energy policy: The case of Greece. His presentation focused on a case study of fuel smuggling enabled by widespread corruption in the sector. In addition, Dr. Dagoumas presented some of the ways of tackling the country’s energy security risks by doing an overview of the options for diversification of energy routes and resources.
Mr. Munir Podumljak, Executive Director of the Partnership for Social Development, Croatia, presented his research titled Countering corruption in the energy sector – Croatia. He gave the audience an NGO approach on fighting corruption. One of the issues he raised was the significance of public-private partnerships. According to him, the latter approach is not a viable solution for the energy sector because transparency issues prevent partners from understanding the nature of transactions in the sector. In his opinion, the development of renewable energy resources has bred a lot of corruption in the region, and has disproportionately benefited business at the expense of the citizens. Mr. Podumljak concluded his speech with a call for more open and transparent policies, so that people understand how energy prices are determined, and who benefits most in the sector.
Dr. Theresa Sabonis-Helf, Professor at the US National War College, concluded the panel and the conference by elaborating on some of the key messages expressed during the day. She started by saying that energy companies have the responsibility to fulfill some of mankind’s most basic needs. This responsibility gives the energy sector immense power in policy-making, and, thus, making it prone to abuse. She noted that national and European authorities should not only consider the creation and implementation of rules, but should also follow through with specific actions against recurring violations of the law. In addition, Dr. Sabonis-Helf expressed her belief that policy-makers should include domestic exploration and efficiency gains in their toolbox for increasing energy security, and should not rely on populist rhetoric and short-term problem-solving initiatives.