All countries in the Black Sea region need state and private investments in energy infrastructure to solve a number of problems such as the need to increase energy production in response to growing energy demand, overcoming external energy dependence, diversification of energy supplies, and environmental protection, Corporate Commercial Bank Chairman of the Supervisory Board Tzvetan Vassilev told New Europe.
The top banker, who later took part in the Black Sea Energy and Economic Forum in Istanbul on 17-18 November was organised by the Atlantic Council’s Patriciu Eurasia Center, noted that in times of global hardship, co-operation within the Black Sea region can be a driver of economic growth and development.
Asked by New Europe in which areas opportunities lie, the banker called for efforts to build a single energy market, which will result in growing energy production, diversification of energy supply and transport routes, increasing revenues, attracting higher investments, and enhancing the competitiveness of the energy sectors in the Black Sea region. All this would inevitably lead to increased economic growth.
He also highlighted harmonisation of national energy laws and strengthening trade relations between countries, as well as the elimination of barriers to trade; co-operation in the field of security to create favourable investment conditions; preventing or limiting capital outflows from the region and fostering banking sector integration; co-operation in the field of environmental protection; and building an institutional framework which provides incentives for intra-regional investments and strengthens the power of the Organisation of the Black Sea Economic Co-operation and the Black Sea Trade and Development Bank.
Vassilev also said that unresolved war conflicts, efforts of some countries in the region to reinforce their role as monopolists on the energy market, and concerns of some countries that deeper integration could threaten their national sovereignty are the main challenges to co-operation and integration in the region.
Vassilev stressed that the active role of the state entails providing tax reliefs, funding and other legal and political initiatives regarding the energy sector. “There is growing consensus among the Black Sea countries that these problems can be solved effectively only through the establishment of a stable, integrated energy market. The first step towards the creation of such a market is the investment in joint infrastructure projects,” he said.
Vassilev noted that the main challenge facing the countries from the Black Sea region is growing energy consumption, which is at the core of an ever increasing need for investments in their energy sectors. Investments in all levels of the supply chain are critical for ensuring sustainable energy supply. As concerns the petroleum industry, in particular, this includes exploration, extraction, transportation, refining and distribution of the refined products to the end users.
“Russia and Azerbaijan are the driving forces of the Black Sea region petroleum industry. They act as a magnet for foreign investments in this area as they are the leading producers and the main exporters of crude oil in the region,” Vassilev said.
The investment climate improvements in Russia since 2000, achieved mainly through new regulatory instruments and fixed tax rates, have brought to the country international investors such as ExxonMobil, British Petroleum, and Conoco Philips. What is more, Russia is one of the few countries in the Black Sea region which continues to implement substantial investment programmes in its oil and petrochemical industries.
The significant investments in Azerbaijan’s oil sector have boosted the economy of the country. The “Contract of the Century”, allowing major international companies to develop of the Azeri, Chirag, Guneshli oil fields, resulted in double-digit growth of Azerbaijani gross domestic product. This illustrates how the combination of natural resource endowments of a country and significant investments in its energy production sector can foster economic growth, even in a relatively small economy, Vassilev said.
The other countries in the region are highly dependent on oil imports, which make the creation of alternative crude oil transportation routes their main priority. Among them, Turkey intends to become a key regional energy hub and invests heavily in transportation and shipment of crude oil, as well as in the construction of new petroleum refineries (as in the case with Ceyhan). This in turn will boost domestic production and decrease import dependence.
Vassilev said that the growing demand for natural gas, combined with the increasing importance of the resource for the countries from the Black Sea region, will attract more and more investments in the gas market over the coming years, distributed in two directions – exploration and development of new gas fields and construction of transport infrastructure, such as the EU Southern Gas Corridor and South Stream Pipeline. The majority of these investments will be concentrated in Russia and Azerbaijan – the main producers and exporters of natural gas in the region. While Russia invests heavily in keeping its leading position, the EU perceives Azerbaijan as the main alternative to Russian gas supplies for the European market and large investments will be made in the development of gas reserves in the country.
In view of the substantial coal reserves available in the Black Sea region, the main priorities of the countries are the following: encouraging investment in the mining sector in order to increase production and the share of coal in the energy mix, reducing dependence on imports, improving quality and implementing technologies for environmental protection. Main investments are expected in Ukraine, Russia and Turkey, Vassilev said.
In response to growing electricity demand, net electricity generation has been rising, both at regional and international level. In order to meet domestic demand for energy at reasonable prices, ensure sustainable development of the electricity market, and fulfil their environmental commitments, prompted by climate change, countries from the region have to improve security of domestic power generation and open up energy markets to competition. It is only through the liberalization of energy markets that the Black Sea states can attract the investments necessary for the modernization and refurbishment of the inefficient and, in many cases, obsolete power infrastructure. It is expected that the share of nuclear power in the total power mix of the Black Sea countries will increase in the long term, as at least half of the countries in the region are planning to refurbish the existing power plants or to build new ones (Russia, Ukraine, Bulgaria, Romania, Armenia and Turkey).
The Black Sea countries have great potential for development of renewable energy sources (RES), Vassilev said. Government incentives promoting renewable power generation, such as preferential tariffs and guaranteed purchase of renewable electricity, are among the key drivers of investor interest of both local and foreign companies on the RES market. The countries with the greatest potential for attracting investments in the field of hydropower are Turkey and Georgia; in solar energy – Greece and Bulgaria; in biomass – Ukraine, Bulgaria, Russia and Romania; in wind energy – Turkey, Greece, Bulgaria and Romania.
“The strategic geographic location of Bulgaria makes it one of the key players in the realization of a number of large-scale energy projects in the Black Sea region. The country has the potential to become an energy ‘corridor’ for the European market and an important energy hub of the Balkan Peninsula, by virtue of the oil and gas pipelines which are projected (the EU Southern Gas Corridor, South Stream Pipeline),” Vassilev said.
Some of the main prospects for investments in Bulgaria’s energy sector include construction of Belene Nuclear Power Plant, implementation of clean coal technologies and RES development. The growing interdependence between producing, consuming and transit countries in the Black Sea region requires sharing of responsibilities and strengthening partnerships among them. The concept of economic integration of the countries in the region is attractive and widely supported by the Black Sea countries themselves, and by the European Union and the United States, as well. A possible future integration of the energy markets in the region would have positive multidimensional consequences, such as rising energy production, diversification of energy supply and transport routes, increasing revenues, attracting higher investments, and enhancing the competitiveness of the energy sectors in the Black Sea region. All this would inevitably lead to increased economic growth.
The creation of a single energy market in the region entails harmonization of national energy laws, strengthening trade relations between the countries, identifying existing barriers to trade and investment in the sector and seeking opportunities to remove or reduce them. The implementation of large-scale energy projects and the establishment of a common energy market will play a crucial role for the achievement of social cohesion and economic integration of the Black Sea region.
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