Original publication: December 2015
Authors: Kovacevic Aleksandar, Pagella Paolo, Business Integration Partners SPA
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This study is aimed at describing the socio-economic situation and the state of play of energy, transport and tourism linkages in the Adriatic and Ionian Region. It identifies development gaps between EU Member States and non-EU countries that participate in the European Union Strategy for the AIR. It also identifies risks and opportunities of the EU Strategy for Adriatic-Ionian Region and outlines the critical importance of these opportunities for the economic development of the AIR.
The European Union Strategy for the Adriatic and Ionian Region (EUSAIR) provides an exceptional framework for energy, transport and tourism policy innovation across the region. A new approach to these policies is required to pursue more coherent, resilient and integrated development across the region, as well as between the region and the rest of Europe. EUSAIR is a platform that has already attracted a spectrum of players from governments, local institutions, civil society, commercial interests and academia; it therefore allows policy innovation and coordination with existing EU initiatives and projects that are under implementation or are being planned across the region.
EU Member States that are part of the region consistently score better than the rest of the region in Human Development Index, Global Innovation Index, and both energy efficiency and carbon intensity of GDP. Scores in the Corruption Perception Index and Economic Freedom Index, as well as competitiveness indexes, are mixed. This indicates the ongoing harmonisation process of the non-EU countries with the EU acquis and with liberalisation and market opening policies. However, non-EU countries lag behind in physical openness and in use of infrastructure for trade. Physical openness emerges as a critical obstacle to development. In this context, the effective use of existing infrastructure prevails as the most critical prerequisite for securing investment in new infrastructure.
The Adriatic and Ionian Region (AIR/Region) has been heavily affected by the global economic crisis. This is accompanied by a long-term and fundamental decline in the competitiveness of the Region’s main industries; oil refining, commodities and conventional energy. However, new opportunities are emerging in the areas of renewable energy, services (container transport, tourism) and other complex strategic investments. Unfortunately, existing strategies and policies remain focused on the preservation of the status quo in the futile expectation that ‘business as usual’ will resume in the future.
Energy infrastructure is becoming increasingly obsolete due to changes in supply and demand patterns, growing international competition and the evolution of environmental regulations and policy. All existing oil refineries in the region are at risk of closure, with many already shut down. This will eventually result in the crude oil pipeline and terminal infrastructure becoming obsolete. All solid fuel thermal power plants in the Balkan Peninsula are at risk of closure due to obsolete technology and environmental regulations.
The previous equilibrium of precipitation and geography which created optimal conditions for the hydropower and forestry industries in the Balkan Peninsula has been lost during the last 25 years owing to conflicts and post-conflict hardship, with significant forest deterioration occurring during this period. As a consequence, the region is increasingly exposed to the risks of floods, landslides and economic losses.
Structural changes in energy supply during the period 1991-2001 (unprecedented growth of the fuel wood share in the energy mix) which persist to this day have created massive fuel poverty and poverty risks across the Balkan region. Widespread fuel poverty limits economic development potential and creates further social and political risks. The very low efficiency of district heating systems and the high cost and low security of supplies of natural gas extend the risk of fuel poverty to the urban population.
Although security of supply of natural gas is discussed at the highest political levels, the proposed remedies evolve around alternative sources of supply and additional infrastructure. However, the existing use of gas in the Balkan area is obsolete. The most effective remedy is energy efficiency. New infrastructure may also be considered in the context of the emergence of new commercial gas demand.
Growth in container transport provides opportunities for commercial development and international trade. Energy efficiency is a prerequisite for competitive positioning in the global marketplace. Container traffic needs to increase volume and decrease unit costs. A large container hub on the Danube is required to facilitate redistribution of container traffic inland and allow for volume increases. However, factors such as lack of strategic development and lack of integration between transport modes, in particular in Belgrade, are resulting in the further deterioration of critical transport facilities.
There is a lack of intermodal integration in the Balkan area. Only Athens airport has a rail link. No single cruise port is adequately linked with railway and airport infrastructure. The Port of Belgrade is disconnected from airports, motorways and main railway lines. River navigation on the Danube is not properly integrated with river-to-sea navigation and there is minimal container turnover in that natural hub. Critical obstacles to the efficient navigation of the lower Danube have persisted since 1946, when the Danube Convention was originally signed. Furthermore, there is a lack of harmonisation with EU inland waterway regulations and no comprehensive platform to facilitate effective navigation of the Danube–Dnieper-Black Sea and Central Asia route.
The AIR is not competitive in conventional energy resources. It is exposed to problems of security of energy supply and security of transport flows. On the contrary, it is well endowed with renewable energies (geothermal, hydro, biomass, solar and wind); well beyond European per capita norms, thanks to the availability of resources and the low population density and low level of economic activity.
Consequently, the AIR emerges as an area with significant potential to contribute to European renewable energy and decarbonisation objectives. Improved use of existing hydro power, expansion of solar, wind, geothermal and hydro energy, better use of available power transmission infrastructure across the Balkan Peninsula and strategic improvements in energy efficiency could provide the rest of Europe with new decarbonisation opportunities. This should be accompanied by the decarbonisation of transport services.
This will require market integration within the Region and between the Region and the rest of Europe. Integration between Balkan and Italian power markets is critical, and will provide benefits for both sides if accompanied by true liberalisation of capacity trade. For this to accomplish its full potential, Serbia and Romania should be encouraged to open their existing interconnection at the Iron Gates on the Danube to trading in order to enable a massive increase in transit capacity over existing overhead lines in the Balkan area. ‘A nonintegrated power industry would be a luxury, which this part of Europe could hardly afford’ (Han, 1956). The EUSAIR provides an appropriate cooperation framework to address economic risks, climate change-related challenges, and fragmentation of resources and transport infrastructure. It provides an economic development opportunity with more potential than economic groupings that separate Italy from the rest of the Region. There are complementarities and synergies that offer interesting, though unconventional, development potentials for all countries in the AIR.
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