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Former U.S.S.R.: East Urged To Open Energy Sector

Washington, 21 November 1996 (RFE/RL) -- A top U.S. energy expert said today that the world's energy use will rise dramatically over the next decades, and he urged Eastern countries to meet their growing energy needs by opening their energy sectors to more private investment.

David Jhirad, deputy assistant secretary for International Energy Policy at the U.S. Department of Energy, said Wednesday in Washington that over the next three to four decades developing countries worldwide will consume almost twice the amount of electrical energy they produce today.

Most of the growing consumption will be in Asia, where industrial activity is expanding rapidly. But he said that energy use in Central and Eastern Europe and the former Soviet Union will also rise, with electricity demand in the former Soviet Union alone increasing 17 percent during the next 15 years.

Jhirad said that to supply the power they will need, the countries of Central and Eastern Europe and the former Soviet Union will have to invest some $200 billion a decade over the next 30 to 40 years in new energy production. He said most of the need is for rehabilitating existing plants with modern technology capable of providing energy at lower costs and without damaging the environment. He said there also will be a need to build new power plants.

But the energy official warned that the state energy monopolies which exist today in many countries with previously command economies will not be able to afford such large investments in new power production by themselves. He said they will have to attract private sector involvement -- both internationally and nationally -- by opening up their monopolies and providing proper conditions for private investment.

Jhirad said that many countries in Central and Eastern Europe and the former Soviet Union cannot attract the private sector participation they will need with the investment climate they offer today. He said to attract investment capital, governments will first have to minimize the risks for investors.

The U.S. official said many countries still must guarantee what he called "an appropriate political and regulatory climate" which reduces arbitrary intervention by the government, and provide "a transparent business environment" which minimizes corruption. He did not specify which countries still need to fulfill these conditions.

Jhirad also recommended that governments with transition markets pass legislation assuring that development companies from abroad will equitably share the risk, cost, and revenues of oil and gas production and power generation. He said that in the former Soviet Union to date there has not been an attractive climate for power developers to help build a plant "because the legal structures aren't there in the case of a dispute." He noted developers often are asked to sell power to the state or to a state-run utility, but without assurances from the central government that it will pay if the buyer defaults.

The energy expert said that former Socialist governments should look at models of how the world's most developed markets have increased their energy sector through private sector investments. He said among the successful models are Britain and Norway's development of the oil-rich North Sea region.

Jhirad said that many countries in the former Soviet Union have the potential to build strong indigenous energy industries which can attract the capital they need.

He said the former Soviet Union has the world's largest reserves of natural gas, and very impressive gas turbine technology. This creates an opportunity for joint ventures in the field.

Jhirad made the remarks at a meeting of private sector energy development companies discussing problems and opportunities in the global energy market during the coming decades.