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The Warsaw Voice » Business » September 30, 2015
Central Europe Energy Partners
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Ambitious but Achievable
September 30, 2015   
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Marcin Bodio, CEO of Central Europe Energy Partners (CEEP), talks to the Voice.

CEEP and Roland Berger have just published a report about a North-South Infrastructure Corridor. Various ambitious political plans are discussed in Europe’s policymaking circles but many of these have little chance of ever becoming reality. How can you ensure that the Corridor doesn’t end up as just another idea that fails to make it off the drawing board?

These days energy security is at the top of the political agenda in Europe. Decision-makers have acknowledged infrastructure investments as a powerful driver of growth and competitiveness. We welcome that situation, although we sometimes hear about plans which are more wishful-thinking rather than a real answer to the challenges we face. That is why, in our analysis, we look at specific energy transmission projects which together constitute the backbone of the North-South Corridor. We review their technical and financial characteristics to facilitate an understanding of how critical parts of the corridor can be financed and eventually implemented.

The roadmap we propose is both ambitious and doable. We believe that key parts of the corridor should and have the chance of being completed by the end of this decade. However, they should be implemented piece by piece, as separate though inter-related projects. This will allow major projects to be based on supply and demand development in relevant markets.

What are the key components of the corridor?

In terms of gas, the corridor would establish a transmission network of pipelines and interconnectors from Poland and Lithuania, through the whole of Central Europe, towards the Adriatic Sea. An LNG facility on the Croatian island of Krk would be one of the keys to success. In the same region, the corridor would also extend existing oil pipelines and establish a new link, enabling the transport of crude oil via the Baltic and Adriatic seas to every single country in Central Europe. As for the electricity sector, the corridor would introduce high-voltage transmission lines to connect the “energy islands” of the Baltic states with the rest of the EU.

Once these projects are completed, we could finally overcome historically rooted biases in cross-border transmission systems. These biases are the legacy of communism, when attempts to integrate infrastructure between the Soviet satellite states were torpedoed in order to increase their dependence on Moscow. A quarter of a century later, countries like Poland and Croatia still lack not only proper infrastructure connections with their neighbors, but also with the western part of the continent. The corridor would change that.

What are the biggest challenges in this project—financial, regulatory or political?

All three are crucial. As for financials, we are painting a realistic picture of commercial options and private-sector involvement. We see a gap between market-based financing potential and the aspirations underlying the corridor. Carrying out key projects through commercial finance alone will be challenging, if not impossible. That’s where we touch on political challenges, as it is only through political endorsement that access to financing by public and international financial institutions is possible. Yet, this endorsement will not happen without dialogue with national regulators and lawmakers in order to create favorable regulatory environments for the corridor.

So what realistic financing options are there? Is the answer in the private sector?

The private sector is definitely one of the answers. Take European transmission system operators, who typically receive returns on their assets via regulated network tariffs levied on consumers. As this mechanism forms the regulatory backbone of energy infrastructure finance in Europe, it is the natural financing environment for building the corridor. Yet there are projects that are critical for security of supplies but feature a less favorable business case. They will surely require support from public budgets—for instance, the Connecting Europe Facility. Both national operators and governments need to undertake a concerted push to bring their projects into the so-called Juncker Plan and to obtain financing through the European Investment Bank.

If the North-South corridor is not completed, what would that mean for Europe?

Without the corridor, we lose the chance for lower energy prices and increased security. While deciding on the location of new investment projects or granting a loan for a project in a particular country, most foreign investors see stable deliveries of energy as crucial. That is why the corridor could provide an effective stimulus to economic growth and represent an important contribution to solving Europe’s current macro-economic challenges.

As for security, we have recently seen several European countries facing difficulties linked to disruptions in gas deliveries. Most of them were in the eastern part of the continent, due to the inherited reliance on the dominant sources of gas deliveries. The situation prompted stoppages in gas-consuming industries, such as major chemical plants. This would not have happened in the kind of well-functioning internal market that we are aiming for. We can easily imagine similar challenges being faced by other parts of the continent. That is why a unified market with proper infrastructure should be a priority for the entire EU.
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