United Nations
Office for the Coordination of Humanitarian Affairs - Belgrade

Review of Urgent Assistance Needs for the Federal Republic of Yugoslavia (Excluding Kosovo)

Winter/Spring 2000/2001

December 5, 2000

This sector represents one of the most important in terms of urgent needs. During the past 10 years in Serbia, the state power industry has gone from a self-sufficient, profitable enterprise to one that can only meet about 75% of basic domestic electricity needs. It generates enough revenue from tariffs to pay only the salaries of its employees, and much of the equipment is aged and in need of repair or replacement due to lack of investment. As a result, the system is now extremely fragile and subject to frequent breakdowns countrywide. The overall deterioration of the economy, price erosion, inadequate management and control, inability to import spare parts, and past politically-based decisions on system operation have all contributed to the problems, leading to a crisis in this sector for the immediate next few months and into the medium term.

The energy sector in Serbia is presently experiencing more serious problems than in Montenegro. In Serbia the sector is made up of three interrelated components:, electricity, oil and gas. All supply energy to priority institutions, collective centres, private households and, when supplies allow, to the sugar and food processing industries. Despite an encouraging donor response for energy needs in Serbia, further basic energy-related inputs are necessary to avert serious shortages for the coming winter, requiring assistance in the amount of US$ 262 million, which is in addition to that already committed. In Montenegro, electrical energy production exceeds normal demand by about 12% (including industrial requirements). Due to possible equipment malfunctions and a decreased coal supply during the winter, Montenegro could experience some problems in meeting total demands during peak periods. Some shortages can be made up from imports, which have been provided from BIH, for which donor funding would be necessary. There are no district heating systems in Montenegro. Though electricity is somewhat relied upon, a recent household study indicated that most households use wood or coal for winter heating.

In Serbia, sixty-six percent of electricity is generated from the thermal power plants in Obrenovac and Kostolac. Hydropower plants are also used. The thermal plants can maintain existing production levels throughout the winter with adequate supplies of coal, if they do not suffer major technical failures. Coal production is expected to decrease due to production problems and inadequate high quality coal reserves. Average domestic demand for electricity exceeds production in Serbia by about 25M KWh per day considering requirements only of priority institutions and private households. In the short-term, this difference must be made up by imports of electricity to avoid major outages.

Commitments for electricity imports by the European Union (30M Euros) and Germany (25M DM) will cover a significant portion Serbia's electricity import requirements for priority institutions, but only into January 2001. To cover needs to the end of March will require an additional expenditure of approximately US$ 52 million. The imports supported by these contributions should generate revenues equivalent to about US$ 5-6 million. The agreement with Germany calls for 10% of revenues generated by that portion of electricity import to go to the pension fund (about US$ 250,000). Proposed changes in the tariff structure could result in additional revenues if implemented in the coming months.

District heating systems supplied by natural gas provide heating to about 25% of Serbia. Russia is delivering to FRY about 3 million cubic meters of gas per day. Under the current agreement, which ends on 31 December, about US$ 15.5 million worth of gas is being provided. An additional US$ 151.5 million worth of gas is required to meet the total winter demand for gas through March 31. Most of the quantities required could be provided from Russia. If the shortage of natural gas persists throughout the winter, many consumers will likely switch to electricity as an alternative source of heating and cooking, thus causing a serious overload in the electricity network. Such overloads are of particular concern since the network operates without reserve capacity and lacks proper protection in case of such overloads.

Serbia needs about 415,000 tons of oil products (195,000 tons of diesel and 220,000 of mazut) for heating of priority institutions and the food processing and agricultural industries to the end of March. Crude oil, which can be used to produce the needed oil products, is again flowing into Serbia through the Adriatic pipeline. The Government has revenues to pay for only a small portion of imports. Most of the fuel requirements of priority institutions will be covered until March 2001, especially through assistance from the European Union which plans fuel deliveries into January. They also will deliver significant amounts of diesel and heating oil directly to coal-fired power plants and mines for use by hospitals, schools and other institutions not heated by gas. A major gap in funding exists to cover food processing and agricultural needs. Of the total requirement for oil products of US$ 108 million, approximately US$ 45 million remains unmet. Since diesel and heating oil can be produced from the local refinery, resulting in significant savings and reduced transport problems for finished products, donors may wish to consider funding crude oil provision rather than refined products. Annex 4 provides details related to substitution of crude for finished oil products).

Spare parts, new equipment and lubricants, costing about US$ 24 million are required urgently, of which about US$ 11 million has been either committed or indicated. For vulnerable households, not served by other heating sources, provision of brown coal for heating is required. Direct support to municipalities along with NGOs, Red Cross and private charitable groups is likely the most efficient means for provision of quantities provided.

Total requirements, domestic production, required imports and assistance needs are given in Table 2 below and in Annex 1 for the period through March 2001. Requirements for April and May were not available. Annex 3 provides further background on the energy sector. A detailed breakdown of information on needs of the energy sector is given in Annex 4. If any of these fuel or electricity requirements are not fully met, the requirements for all other sources of energy will have to be adjusted.

Coordination in this sector is essential. During the winter and spring, OCHA will continue to provide consolidated information and analysis on this sector and facilitate coordination and technical assistance by donors and the government.

While short-term needs are emphasized, the government can also begin to address basic energy sector problems in the coming months. These include restructuring of tariff policy to encourage more efficient energy use and to improve cost recovery, planning for repair and replacement of equipment, planning for supply of fuels for electricity production for the next winter and improved management structure and practices. Technical support from donors in these areas will be crucial.

Table 2 (US$ Millions)

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