The Pull of the Communist Energy System

The role of the state in the energy system in Central Europe is fraught with historical ups and downs. Under Communism the energy system represented progress and equality with the Capitalist West. There is no doubt the energy system from gas transmission to electricity generation and transmission in all the former Soviet Union and its satellites was efficient. The energy system lends itself well to five year plans.

Last week I was in Bulgaria doing research on energy prices and the relaitons between Russia and Bulgaria (I’ll be having a lot more on this topic in future posts). I met with many renowned experts, including Bulgarian Atanas Professor Tassev, who has advised many governments and international organizations, including the World Bank. Atanas Georgiev and I sat in his office while he smoked away at his cigar. There are many old school habits that still persist the further east you go.

Professor Tassev is no doubt one of the leading experts on European energy, even if his spoken English is challenged. So I’m grateful to Professor Georgiev for translating for me. In the discussion over Russia Professor Tassev said, “When geopolitics talks, the politics shut up. And when the politics talks the economy suffers.” With this statement he gets to the heart of the energy debate between the EU and Russia.

The debate over energy is more than just everyday politics, it is about geopolitics which exist in a different realm. Our discussion was in the context of building a new nuclear power plant at Belene, Bulgaria. Russia was meant to build it, but Bulgaria backed out causing high tension between the two states.

Politicians act to influence economic development. The political strategy for the energy sector, whether in America (see my PhD thesis) or in Europe, is to provide electricity at the lowest price. Action will be taken over the choice of technology that fulfills the strongest social goals. In the case of Germany, ‘green’ goals are/were prioritized over upfront costs. In the CEE region, the price of electricity in the short term drives political decision making. Thus political interference in the regulatory pricing process.

Geopolitics is for the long-term. The long-term goals for energy technologies come in the form of nuclear reactors and gas transmission pipelines that span continents. Cheap and competitive electricity and gas today, must be preserved for those politicians that value the most energy costs. Open competitive and transparent markets, as those valued by the EU, provide no assurance on short-term or long-term price. Politicians involved in the economy fiddle with the elements necessary for economic growth. The energy sector is the backbone for any growing or declining economy, so there can be a convergence of domestic politics and international geopolitics in choosing energy technologies.

Russia posses both the technological know-how and natural resources to back up its geopolitical and political aims. These aims coincide with the domestic agenda of CEE politicians. Going forward economic growth in the CEE region is dependent on assurances and predictability in the price of energy. Price is seen by politicians in the CEE region as a competitive advantage against those EU countries with competitive and environmentally aware energy markets.

The Soviet Union modernized the energy infrastructure at a price each country could afford. Integration of these countries occurred through the energy infrastructure. A dependency built up over these years. For countries like Bulgaria and Hungary, turning away from Russia and this historical relationship becomes fraught with an inability of politicians to influence their economies. While a lack of engagement may be good for the economies, it is not good for the politicians. And this is where we have a stalemate between integrating into the EU’s interdependent energy system, and Russia’s dependent energy system.