The Warsaw Voice » Business » Monthly - September 30, 2015
Central Europe Energy Partners
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North-South Corridor: How to Make it Happen
A report entitled Making it happen. Paving the way for the Central European North-South infrastructure Corridor was presented Sept. 8 at the Economic Forum in Krynica, southern Poland. The analysis by consultants Roland Berger – with a contribution by Central Europe Energy Partners (CEEP) experts – outlines the enormous political, economic and social benefits that this much-needed energy infrastructure would bring to the whole continent. The discussion after the presentation of the report was both lively and inspiring.

The paper was presented by CEEP’s Pawe│ Olechnowicz, who chaired the session, and Bogdan Janicki. Olechnowicz underlined that the previous report on the North-South Corridor, prepared by CEEP and the Atlantic Council, had been thoroughly discussed across EU institutions. “We are now going beyond reaffirming the sound political rationale of the corridor, and are setting out to answer a fundamental question: how can we make it happen? To facilitate an understanding of how critical parts of the corridor can be financed and eventually implemented, we have reviewed the projects’ technical and financial characteristics, as well as the merits of their underlying business cases,” said Olechnowicz.

Janicki stressed that the report’s proposed roadmap is both ambitious and doable. “We look at projects that are affordable and provide a guarantee of increasing the region’s security, while bringing it closer to the more affluent EU-15 countries,” Janicki said. “The vast gap in GDP between member states requires measures to facilitate energy trade as soon as possible. We believe that key parts of the corridor have a chance of being completed by the end of this decade. However, they should be built 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, so that they are built on a market-based business case,” Janicki added.

Both Mirek Topolanek, a former Czech prime minister, and Janusz Steinhoff, a former Polish deputy prime minister and economy minister, stressed that investments in infrastructure should integrate Europe, politically and economically. For that reason, they should be carried out in line with the EU’s priorities, which include strengthening the strategic North-South axis, rather than in a way that threatens the continent’s integrity. In this context, the Nord Stream 2 gas pipeline project that is to run beneath the Baltic Sea from Russia to Europe was mentioned. According to panelists, instead of increasing Europe’s security, lowering energy prices, and providing more supply options, that project could strengthen the historically dominant supplier, as well as endangering the five pillars of the Energy Union.

The North-South Corridor would establish a gas transmission network of pipelines and interconnectors from the Baltic to the Adriatic Sea. It would also extend existing oil pipelines and establish a new link, enabling the transport of crude oil via the Baltic and the Adriatic to every country in Central Europe. “Connecting our Baltic terminal, scheduled to be commissioned this year, with ports on the Adriatic and the Black Sea may become an important building block for the integration of European oil markets. It would improve security and the competitiveness of supply, and enable the introduction of regional emergency procedures,” said Marcin Moskalewicz, CEO of PERN Przyja╝˝, Poland’s national crude oil pipelines operator.

Panelists also emphasized the role of new electricity interconnections, such as LitPol Link and NordBalt, in changing the status of EU member states from energy islands to energy hubs. “We are finalizing this process in the Baltic states, which benefits the whole region through more diversification and better security of supply,” said Daivis Virbickas, CEO of Litgrid, the Lithuanian electricity transmission system operator.

“This is especially relevant in terms of the current geopolitical situation east of the European Union, and the lack of reliable power generation sources. As the European Energy Union vision is based on interdependencies, strategic regional cooperation is crucial. I’m sure that LitPol Link and NordBalt will lay the foundations for deeper market integration,” Virbickas added.

The debate painted a realistic picture of commercial options and private-sector involvement in North-South Corridor projects. Some of these, which are critical for security of supply, but feature a less favorable business case, will require support from public budgets—for instance, the Connecting Europe Facility. “The increase in tariffs, due to the investments related to the corridor, should be limited to the level of benefits they will bring for customers in a particular country,” said Henryk Majchrzak, CEO of Polish grid operator PSE.

“One of the challenges here is the rising share of renewable energy in the European energy balance, as it determines the choice of technologies, particularly for transmission corridors planned in Europe,” Majchrzak added.

After its successful launch in Krynica, the report on the North-South Corridor will be made available across the European Union’s institutions and the member states’ capitals. Implementing key components of the corridor before the end of the decade will require all interested parties – including the European Commission and national governments – not only to have strong convictions, but also to undertake concrete steps in order to make projects actually happen. This will demand regional coordination, regulatory frameworks and putting funding commitments into place.