Zorana Mihajlović Ph.D., Deputy Prime Minister And Minister Of Mining And Energy Of The Republic Of Serbia

When geopolitical conditions shift and the world economy is hit by serious tremors, countries that are much more developed and better regulated than Serbia also find themselves confronted by big problems. While we solve short-term problems, we mustn’t lose sight of the deep and lasting changes to the energy sector, and that’s energy transition

According to everything we’ve done this year to secure energy reserves, the state of production and the situation when it comes to imports, I believe we will succeed in having enough of everything during the winter period. Under the current circumstances, having a secure supply of energy and energy products is a success ~ says Serbian Deputy Prime Minister and Minister of Mining and Energy Zorana Mihajlović Ph.D., answering the question that concerns us all, at least in the short term, about how will we handle the coming winter. However, this is also part of her answer to a much broader question about the ability of the Government of the Republic of Serbia to deal with problems that it has not previously faced.

How difficult is it today to handle the problems imposed on the Serbian government by the global crisis, inflation and political tensions that have their own repercussions, first and foremost in the energy sector?

All the governments that I’ve been part of have had a vision, but we’ve also faced serious challenges that made it necessary for us to undertake enormous work and have commitment, to act quickly and adapt to events that impact the whole world and couldn’t have been predicted by anyone. This year is indeed particularly challenging, first and foremost due to the consequences of Russia’s attack on Ukraine and the deepening of the energy crisis, but it cannot be said that some previous years were easy. We faced a difficult situation with public finances in 2012 and struggled with the flooding of May 2014 and their consequences shortly after the formation of the government.

Over the next few years, we regulated public finances and achieved stable economic growth, alongside increasing investments, employment and living standards. Then came the coronavirus pandemic, which caused economies around the entire world to slow down. Global energy problems started as of last year, with rising prices of electricity and energy products on the market during the pandemic recovery period, after which came the war between Russia and Ukraine. Things haven’t been easy all these years, but I don’t believe anything is difficult when you work for the sake of your country and people.

When geopolitical conditions shift and the world economy is hit by serious tremors, countries that are much more developed and better organised than Serbia also find themselves confronted by big problems. While we solve short-term problems, such as providing energy and energy sources for the coming winter, we mustn’t lose sight of the deep and lasting changes to the energy sector, and that is energy transition. Of course, a prerequisite for dealing with all these challenges and continuing development is to preserve peace and stability – not only in Serbia, but also throughout the region, because it is only if we are stable as a region that we can advance in the same direction – towards development, connection and a better life for citizens – and that Serbia can achieve its goals.

What would you single out as the Government of Serbia’s strategic measures contributing to the maintaining of macroeconomic stability, price stability and the supply of energy?

The Government’s responsibility can be seen in every difficult situation or crisis, as can be seen now, when we are confronted by an energy crisis. It is sufficient to recall everything that was done by the state when we were combating the pandemic and what it did to ensure that we were able to jointly overcome both the health crisis and its economic consequences. It is the same case now, when we are doing everything to enable households and the economy to have enough electricity, at acceptable prices, as well as sufficient quantities of gas and petroleum derivatives. On the one hand, the costs of purchasing electricity are enormous during this time of record prices on the market. Likewise, EPS [Public Enterprise Electric Power Industry of Serbia] has been allowed to import coal due to its own production being insufficient. And these costs have only had a minor impact on increasing the prices paid by households and businesses. From October last year until this day, we’ve spent almost two billion euros on imports of electricity and gas. It will be necessary to import even more electricity during the coming winter, equating to approximately 15 or 20 per cent of total consumption, and that means billions of euros according to current prices.

We should bear in mind that it isn’t possible to precisely predict everything that could possibly happen in a crisis, such as whether the transit of some energy products will be halted and other unilateral moves made. Europe is also on the brink of nuclear war, and that’s something we must be aware of

The main concern in the gas sector is safeguarding supplies, which we’ve largely succeeded in doing through the three-year contract with Russia’s Gazprom, filling the Serbian part of the Banatski Dvor storage facility and also storing gas for Serbia’s needs in Hungary. Over the long term, particularly important for securing supplies is the construction of the Niš-Dimitrovgrad gas pipeline, via which we will be able to start supplying gas from the Caspian Sea region, primarily from Azerbaijan, as of next autumn, and thus we will be able to meet at least 40 per cent of our needs from alternative suppliers. When it comes to petroleum products, the main goal of safeguarding the supply of the domestic market even under the conditions of EU sanctions against the Russian Federation has been achieved, while the state also intervened when it comes to the prices of petroleum products. As a Ministry, we also engaged in solving the problem related to supplies and prices of fuel pellets, in the knowledge that we can’t allow the large number of households that use fuel pellets or firewood to switch to electricity during the winter due to a lack of these energy sources, because that would prove disastrous to the level of electricity consumption and the energy balance.

What are the short- and long-term options for Serbia to be better prepared for these kinds of energy challenges?

In times of crisis, we respond to unfolding events, but crises cannot define strategies. I would remind you that Serbia’s energy turnaround started well before the energy crisis, with the adoption of a new legal framework, including the first distinct law on the use of renewables and the new Law on Energy Efficiency and the Rational Use of Energy. It is precisely these two laws that are crucial to our energy transition and proved very important for initiating energy sector changes. On the one hand, we need to reduce the irrational consumption of energy, while, on the other hand, we need to safeguard the energy supply under the conditions of energy transition.

This implies constructing the large pumped storage hydropower plants Đerdap 3 and Bistrica, as well as new investments in RES, primarily the use of solar and wind energy. It’s a great pity that we’re only launching many projects now, because our energy security would be completely different today if our energy industry hadn’t been “slumbering” for many years, and I would remind you that no new major power plant has been built in Serbia for 30 years. That’s why investments must be much more effective, not only when it comes to building new energy production capacities, but rather also when it comes to investing in the development of the transmission and distribution network, as it is unacceptable, for instance, for the implementing of high voltage projects to take almost a decade. Our goal is to be connected to our neighbours both in gas supplies and the transmission network, because we can only have energy security by being connected. In addition to the gas interconnector with Bulgaria, the construction of which is underway, we are also preparing for the construction of the interconnector with North Macedonia, while interconnections with Romania and Bosnia- Herzegovina are also planned and we will also discuss this issue with Croatia.

Many investors have selected Serbia as a place to invest in production due to competitive prices of electricity. How interested is Serbia in preserving this image, particularly when it comes to green transition?

The price of energy, alongside macroeconomic stability, infrastructure quality and the speed of issuing permits, represents an important element when it comes to investors deciding where to invest. We took important strides in terms of improving infrastructure and the speed of issuing building permits in the ministry that I previously headed, such as with the introduction of e-permits, which had a significant impact on improving the environment for doing business in Serbia. However, we must take care to ensure that the price of energy is sustainable for the economy, citizens and the power system. Serbia doesn’t have competitive electricity prices, but rather prices that are too low from the perspective of the functioning of the system as a whole. The low price of electricity is one of the reasons we have excessive consumption of electricity for the purposes of heating, despite there being other ways to obtain heating energy. This is something we will have to discuss when the crisis abates, because price parity is important for the stability of the entire system and is an important instrument in conducting energy policy.

How prepared are we for such a transition institutionally, organisationally and logistically?

The key question for energy transition isn’t how prepared we are for it, but rather what kind of energy system we want and whether we are ready to change. Countries that embarked on the energy transition process long before Serbia also started from positions that weren’t ideal, but they started nonetheless, and that’s why they’re in a better position than us today when it comes to energy security and the decarbonisation of the energy sector.

All the governments that I’ve been part of have had a vision, but we’ve also faced serious challenges that made it necessary for us to undertake enormous work and have commitment, to act quickly and adapt to events that impact the whole world and couldn’t have been predicted by anyone

There was a lot of resistance to even initiating the energy transition process in Serbia, and that could be seen during the previous years when energy in Serbia was “sleeping” as the whole world was changing. We still have them today, primarily in public enterprises, even though it is completely clear that rejecting changes leads to a loss of competitiveness and makes it more difficult to realise energy security, not to mention the ramifications for the environment and human health. With the signing of the Paris Climate Accords and the Sofia Declaration on the Green Agenda for the Western Balkans, Serbia made a clear decision regarding its own development path when it comes to the energy sector, which means that we have sufficient energy and secure supplies, while simultaneously preserving the environment and ensuring that we have clean rivers, land and air. That pathway is referred to as the Green Agenda and represents a potential new growth model that should bring new investments, jobs and modern technologies, and this is not about any kind of “shock therapy”, but rather the preparing and step-by-step implementing of a turnaround in energy over the course of several decades.

To what extent is the current situation, which sees us confronting numerous challenges, favourable for realising energy efficiency improvement plans?

Crises generally reveal pre-existing problems, which is also the case with the irrational consumption of energy that is costly for all of us. Serbia currently consumes about four times as much energy as the EU average to create the same unit of GDP, and almost twice as much heating energy per square metre in households. This would be a problem even if we didn’t have an energy crisis, and under current conditions savings represent an important resource to ensure we have enough energy. Today, when many other countries are also insisting on making energy savings, it can be seen how right we were as a Ministry when we launched the national energy rehabilitation programme and began subsidising households, together with local governments, in replacing windows and doors, improving insulation or replacing boilers. We also included the installing of solar panels in the programme, i.e., we provided subsidies for households wanting to become electricity consumers-producers. The installed capacity of customer-producer power plants stands at approximately 3.8 MW, and that figure is almost 10 times higher when we include requests submitted to EDS by households and businesses. More than 25,000 households are included in the programme to increase energy efficiency in the first year and – in cooperation with the World Bank and the EBRD – around 70 million euros has been secured for the project’s continuation, which we expect to encompass more than 100,000 households.