The Struggle for Energy

Mon, 26 Jul 2010

by Joey De Keyser

Western analysts are slowly getting accustomed to news articles about Chinese investments in Africa, Southeast Asia and Latin America.

However, eyebrows are raised when information on firms from China sitting on Europe’s doorstep filters through. Recently, businessmen from Beijing have had their eye on South-east Europe. With considerable ceremony, they knocked on the door called Greece, where vice-premier Zhang Dejiang signed several investment agreements, pouring billions of euros into telecom, logistic, aviation and shipping projects. More and more, the Balkan energy sectors become an area of special attention for Chinese investors.

Good prospects for energy projects in South-east Europe are manifold. Markets still need to be privatised and consumption is about to blossom. The expected energy needs for the coming years show a considerable upward trend. Plug-sockets emerge in places they never existed before. Since 2006, all non-EU Balkan countries have joined an Energy Community, which lays down EU energy legislation on its members, making it possible for them to participate in the EU energy market. Thanks to this community system, Greece, Romania and Bulgaria have more options to link their electricity and gas networks to central and Western Europe. This is not only beneficial to these states, but also to the general entrepreneurial spirit. Chinese investors realise this and see their initiatives in the Balkan region, with its insufficient generation and transmission capacity, as a first step to come onto the Western European market. Bosnia and Serbia are already familiar surroundings. China National Electric Equipment Corporation has ambitious plans to also provide Romania with a thermoelectric power plant. And in Bulgaria, two Chinese companies seized the opportunity to invest tax-free (due to high local unemployment) in solar panels.

Because of the financial crisis, European electricity companies exercise restraint and are on the verge of losing ground in this potentially large power market. Italy’s Enel and Germany’s E.ON have shelved their plans to build new power plants in Romania. The Czech CEZ, ranked among the largest power utilities in Europe, even called off an agreement to build a 400 megawatt gas-fired power plant located at Galati due to unforeseen costs. Admittedly, the Balkan environment is not very investor-friendly yet. Regulatory uncertainty puts off European firms. However, Chinese investors have more financial muscle and according to scholarly research are culturally more inclined to take risks. Furthermore, Chinese companies do not lose their head in this trickier environment.

These new market players do not only change the economic dynamics, they also influence the world of politics. Within the framework of the EU Partnership and Cooperation Agreement with China, it is obvious that the governments of Sofia and Bucharest will not be inclined to endorse decisions which are detrimental to the interests of Beijing. The investments in the periphery of Europe by the predominantly state-owned energy firms give China an indirect say in European matters. Feeling China breathing down their neck, ‘friendly nations’ become rather hesitant when faced with Commission requests to introduce new anti-dumping measures.

To avoid the division of Union members, the time has come to develop a real common energy policy, similar to the European Coal and Steel Community signed in Paris in 1951. Instead of each country going its own way, further integration is needed with regard to cross-border connections and investments, diversified energy production, and common energy purchases. Is the EU Energy Community, proposed by EP President Jerzy Buzek, the key to a strong, solidary energy strategy that integrates rather then alienates the Balkan market? Let us hope the answer is “Yes”.