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Belarus CEM DiscussionsBelarus CEM DiscussionsEnergy SectorEnergy Sector

Stable sector structure and governance over the past decade together with recent macro economic performance of Belarus economy and its energy sector create favorable conditions for embarking on sector structural and institutional reforms that are crucially needed for supporting further economic growth of the country

 Minsk, June 29, 2005

ECSIE

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Content

Energy Sector SWOT analysis

Progress achieved so far

Challenges facing the sector

Proposed policy measures to address the challenges

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Energy Sector SWOT AnalysisStrengths

Location as a transit country Geographical proximity to its primary energy

supplier Extensive wood resources Established electricity network Established gas transmission network

Export refining capacity

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Energy Sector SWOT AnalysisEnergy Sector SWOT AnalysisWeaknessesWeaknesses

Limited indigenous energy resources High dependence on imported energy Very heavy dependence on Russia as a supplier

of primary energy Aging physical infrastructure Limited oil and gas storage A weak legislative and regulatory framework

Limited commercial focus

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Energy Sector SWOT AnalysisOpportunities

Increased production of domestic resources (primarily wood)

Diversification of energy supply sources Expanded transit activities and increased

transit revenues Increased security of domestic supply as a

result of expanded storage facilities Private sector participation

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Energy Sector SWOT AnalysisThreats

Disruption in energy supplies from Russia (particularly gas)

Higher energy import costs Deterioration in service quality Further deterioration of the domestic

infrastructure Pressures on fiscal revenue streams as a result

of explicit and implicit subsidies

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Progress Achieved so far

Payments to Russia for imported gas and electricity

reached 100%

Electricity and gas monetary collections from end

consumers are close to 100%

Electricity and gas tariffs approach cost recovery

Electricity and gas tariff misbalancing is being

eliminated

Technical state of sector assets is good as

compared to FSU countries

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Challenges facing the Energy Sector

1. Reducing risks associated with the excessive energy dependence on Russia

2. Further strengthening the creditworthiness of sector companies

3. Maximizing benefits associated with Belarus role as energy transit country

4. Protecting interests of the sector stakeholders

5. Attracting financing to the sector

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Challenge 1Reducing Energy Dependence on Russia

Proposed policy measures: Increasing use of indigenous resources,

namely peat and wood

Further improving energy efficiency of the

economy

Diversifying electricity import

Performing as a good transit country

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Challenge 2Ensuring Creditworthiness of Sector Utilities

Proposed policy measures Phasing-out implicit subsidies through

introduction of cost-recovery tariffs for all

categories of consumers and full bill collection

Restructuring both internal and external debt

obligations

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Challenge 3 Maximizing Benefits from Energy Transit

Proposed policy measures Consistently perform as a reliable transit

country Ensure required financing via:

Securing commercial borrowing (barriers: corporate governance and disclosure standards required by lenders)

Entering in JV or consortium arrangement with Russia and eventually with its European gas customer(s)

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Challenge 4Protecting interests of sector stakeholders

Proposed policy measures

Setting up a proper regulatory framework

through establishing a dedicated regulatory

body and investing in its capacity building

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Challenge 5Attracting Financing to the Sector

Proposed policy measures Further strengthening the financial viability of

sector utilities

Unbundling of VINCs

Introducing the disclosure and corporate

governance principles

Developing PPP