June 18, 2009 3:00 am

Freeze risks energy future of Europe

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments

A shortage of finance is leading to underinvestment in central and eastern Europe's ageing energy infrastructure, says the European Bank for Reconstruction and Development.

The London based lender said that raises the prospect of severe capacity constraints when growth returns to the region.

Ricardo Puliti, head of energy and natural resources at the EBRD said multilateral lenders such as itself were unable to take up all the slack.

"Lots of projects which we saw coming alive two or three years ago - wind farms, gas generation projects - have had to be put on the back burner because they need financing for seven to 12 years . . . It's not about individual projects but about whole series of projects that have been delayed because of a lack of liquidity, with many not even being brought to the market because it's bad for the balance sheet."

Mr Puliti was speaking after the EBRD announced it was to lend Mol, the Hungarian oil and gas company, Mol€200m (£170m, $277m) to complete the construction of a new gas storage facility in southern Hungary that will be able to supply 45m cubic metres of gas for up to 45 days in the event of a supply stoppage such as the one in January. That resulted from a dispute between Russia and Ukraine and left millions of eastern Europeans without heating during an exceptionally cold winter. The storage facility - able to deliver supplies to Bosnia, Croatia, Romania and Serbia as well as Hungary - should help reduce the region's exposure to disruptions. All Hungary's gas supplies arrive from Russia via Ukraine, so the exposure is particularly acute.

The project in Hungary follows an €70m investment in a gas storage site in Croatia. Similar projects are planned in Serbia, Moldova and Bulgaria.

The EBRD has also financed wind power plants in the region. Mr Puliti said the bank would be "delighted" to help finance a Mol-led project to link up the region's fragmented gas distribution pipeline network.

"We are trying to make sure a lack of investment in energy and natural resources resulting from the current financial conditions won't be a problem when the economy starts again," he told the Financial Times.

The EBRD has doubled its spending on energy projects this year. By the end of June. it will have committed some €1.2bn to the sector in central and eastern Europe, and €1.4bn by year's end, almost double the amount invested last year. In spite of this, shortage of financing was noticeable throughout the sector. "There will be capacity constraints because of underinvestment," Mr Puliti said.

The EBRD has expanded its lending to the region this year to try to soften the impact of the financial crisis. The bank plans to lend a total of €7bn, compared to €5.1bn in 2008, of which about half has been earmarked to smooth strains in the region's stricken financial sector. *Gazprom said yesterday it had asked Belarus to pay $230m (€165m, £140m) of gas debts - a decision that will intensify concern in Europe about possible disruption to Russian gas supplies this summer, writes Isabel Gorst in Moscow .

Pipelines crossing Belarus carry a fifth of Gazprom's gas exports to Europe, forming an important back-up to Ukrainian transit routes.

Gazprom has warned that Naftogaz, Ukraine's state gas company, is insolvent. It threatens to cut supplies if payments are not met.

A trade row between Russia and Belarus appeared to be settled on Wednesday after Russia lifted a ban on dairy imports from Belarus.

Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments
SHARE THIS QUOTE