The EU-EFIGE/Bruegel-unicredit dataset. Bruegel Working Paper 2012/13, October 2012

This paper describes the EU-EFIGE/Bruegel-UniCredit dataset (in short the EFIGE dataset), a database recently collected within the EFIGE project (European Firms in a Global Economy: internal policies for external competitiveness) supported by the Directorate General Research of the European Commission through its 7th Framework Programme and coordinated by Bruegel. • The database, for the first time in Europe, combines measures of firms’ international activities (eg exports, outsourcing, FDI, imports) with quantitative and qualitative information on about 150 items ranging from R&D and innovation, labour organisation, financing and organisational activities, and pricing behaviour. Data consists of a representative sample (at the country level for the manufacturing industry) of almost 15,000 surveyed firms (above 10 employees) in seven European economies (Germany, France, Italy, Spain, United Kingdom, Austria, Hungary). Data was collected in 2010, covering the years from 2007 to 2009. Special questions related to the behaviour of firms during the crisis were also included in the survey. • We illustrate the construction and usage of the dataset, capitalising on the experience of researchers who have exploited the data within the EFIGE project. Importantly, the document also reports a comprehensive set of validation measures that have been used to assess the comparability of the survey data with official statistics. A set of descriptive statistics describing the EFIGE variables within (and across) countries and industries is also provided.

Electricity without borders: a plan to make the internal market work. Bruegel Blueprint Series 20, 5 September 2013

The most straightforward European single energy market design would entail a European system operator regulated by a single European regulator. This would ensure the predictable development of rules for the entire EU, significantly reducing regulatory uncertainty for electricity sector investments. But such a first-best market design is unlikely to be politically realistic in the European context for three reasons. First, the necessary changes compared to the current situation are substantial and would produce significant redistributive effects. Second, a European solution would deprive member states of the ability to manage their energy systems nationally. And third, a single European solution might fall short of being well-tailored to consumers’ preferences, which differ substantially across the EU. To nevertheless reap significant benefits from an integrated European electricity market, we propose the following blueprint: First, we suggest adding a European system-management layer to complement national operation centres and help them to better exchange information about the status of the system, expected changes and planned modifications. The ultimate aim should be to transfer the day-to-day responsibility for the safe and economic operation of the system to the European control centre. To further increase efficiency, electricity prices should be allowed to differ between all network points between and within countries. This would enable throughput of electricity through national and international lines to be safely increased without any major investments in infrastructure. Second, to ensure the consistency of national network plans and to ensure that they contribute to providing the infrastructure for a functioning single market, the role of the European ten year network development plan (TYNDP) needs to be upgraded by obliging national regulators to only approve projects planned at European level unless they can prove that deviations are beneficial. This boosted role of the TYNDP would need to be underpinned by resolving the issues of conflicting interests and information asymmetry. Therefore, the network planning process should be opened to all affected stakeholders (generators, network owners and operators, consumers, residents and others) and enable the European Agency for the Cooperation of Energy Regulators (ACER) to act as a welfare-maximising referee. An ultimate political decision by the European Parliament on the entire plan will open a negotiation process around selecting alternatives and agreeing compensation. This ensures that all stakeholders have an interest in guaranteeing a certain degree of balance of interest in the earlier stages. In fact, transparent planning, early stakeholder involvement and democratic legitimisation are well suited for minimising as much as possible local opposition to new lines. Third, sharing the cost of network investments in Europe is a critical issue. One reason is that so far even the most sophisticated models have been unable to identify the individual long-term net benefit in an uncertain environment. A workable compromise to finance new network investments would consist of three components: (i) all easily attributable cost should be levied on the responsible party; (ii) all network users that sit at nodes that are expected to receive more imports through a line extension should be obliged to pay a share of the line extension cost through their network charges; (iii) the rest of the cost is socialised to all consumers. Such a cost-distribution scheme will involve some intra-European redistribution from the well-developed countries (infrastructure-wise) to those that are catching up. However, such a scheme would perform this redistribution in a much more efficient way than the Connecting Europe Facility’s ad-hoc disbursements to politically chosen projects, because it would provide the infrastructure that is really needed.

On Ukrainian Gas Transit and South Stream. There may be more than meets the eye. CEPS Commentaries, 21 March 2014

The EU relies to a considerable degree on imports to meet its demand for natural gas. Whereas Norwegian export pipelines are directly connected to the EU gas system, a major share of Russian gas flows through the Ukrainian territory before reaching consumers located other consumers located down in the supply chain (e.g. Slovakia, Hungary or Italy). But is the Ukrainian gas transit route still a risk? Will the construction of the South Stream pipeline further reduce the importance of Ukraine as a transit country? Or is there more at stake here than meets the eye?

Is Europe vulnerable to Russian gas cuts? CEPS Commentaries, 12 March 2014

The EU relies heavily on imports to meet its demand for natural gas. Nearly 23% of the gas burned by the EU member states is produced in Russian gas fields. Ukraine remains one of the main supply routes for Russian gas flowing into Europe. Consequently, mounting tensions between Russia and Ukraine concerning the Crimean Peninsula brought back memories of past gas supply disruptions, most notably of 2009. The question today is whether the EU in 2014 is equally vulnerable to potential (forced or voluntary) cuts in Russian gas supplies as it was five years ago. In this commentary, Arno Behrens and Julian Wieczorkiewicz look into two different scenarios. First, could Europe sustain longer cuts in gas supplies from Russia? And second, what impact would disruptions of Russian gas deliveries to Ukraine have on the EU? Essentially the authors argue that Russia is highly dependent on gas exports to Europe, while Europe could resort to alternatives to Russian gas. In addition, Europe is much better prepared for potential short-term supply disruptions than it was five years ago.

Ukrainian economy overshadowed by war. OSW Commentary No. 148, 08.10.2014

Ukraine’s financial results over the past few months prove that the economic crisis which has been ongoing since mid 2012 has exacerbated. According to data from the Ukrainian Ministry of Economy, Gross Domestic Product for the first six months of 2014 shrank by 3%. In the second quarter, it fell by 4.6%1 and may further be reduced by as much as 8–10% over the year as a whole. After the first six months of this year, the balance of payments deficit reached US$4.3 billion. After deflation last year, prices grew by 12%, and the hryvnia dropped to a historic low. Although a surplus was seen in Ukrainian foreign trade in goods and services, reaching over US$3 billion at the end of June, its trade volume is shrinking. The main reason behind this deteriorating situation is the actions taken by Russia. Moscow has been fomenting the conflict in Donbas since April, has consistently imposed embargoes on imports of more and more Ukrainian goods and cut gas supplies to Ukraine in June. This has forced the government to focus on the current management of state finances and to carry out budget sequestration twice this year. The government has also used this as an excuse not to implement necessary systemic reforms. The increasing share of military expenditure, the shrinking exports (-5% in the first six months), including in particular to Russia, which until recently was Ukraine’s key trade partner, and the rapid fall in industrial production and investments have all made the situation even worse. All that saves Ukraine from an economic collapse is the loan from the International Monetary Fund and higher taxes, which allows the government to maintain budget liquidity. However, if the conflict in Donbas lasts longer and if Russia continues its economic blackmail, including withholding gas supplies, the economic crisis may prove to be long-lasting.

Security of Russian gas supplies to the EU - the question of infrastrucutral connections. OSW Point of View, February 2005

The energy security of countries importing energy resources depends largely on the shape and quality of operational transport connections. This is particularly important in the case of natural gas supplies. Natural gas is transported mostly by gas pipelines which permanently connect gas producers and consumers. Thus Europe as a consumer is "tied" to certain gas suppliers for anywhere between a dozen and several tens of years. As their own resources are becoming depleted, the EU Member States get increasingly dependent on import of natural gas. The present paper discusses the existing and projected gas transport routes from Russia to the EU. The first part deals with the importance of gas exports to the economy of the Russian Federation, and the second delves into the EU Member States' dependence on gas imports. Then this paper examines the differences in perceiving the energy security issue between the old and the new Member States, those differences stemming from the different degrees of their dependence on Russian supplies. In the third part, two new transport route projects for Russian gas supplies to the EU are compared and it is argued that from the point of view of the Community's interests, the Yamal gas pipeline is a better solution than the North European (Trans-Baltic) gas pipeline.

Kyiv's gas strategy: closer cooperation with Gazprom or a genuine diversification. OSW Commentary No. 110, 2013-07-16

In recent months Kyiv has been intensifying its efforts to diversify Ukraine’s gas supply routes with a view to reducing the country’s dependence on imports from Russia. One of the steps which Kyiv has taken has been to make the unprecedented decision to start importing gas from its Western neighbours. In November 2012, Ukraine’s state-owned Naftogaz began importing gas through Poland under a two-month contract with RWE (the imports continued into 2013 under a separate deal), while in the spring of 2013 Ukraine started importing gas from Hungary. Kyiv is also currently looking into the possibility of purchasing gas from Slovakia. Furthermore, since 2010 the Ukrainian government has been working on the construction of an LNG terminal near Odesa. The authorities have declared that this will allow Ukraine to import up to 5 billion m3 of LNG a year by 2015. The government has also taken measures to increase domestic production, including from non-traditional sources, and it plans to replace gas-based with coal-based technologies in local power stations. Finally, in January 2013, the government signed a 50-year production sharing agreement with Shell. This paves the way for the development of Ukraine’s shale gas deposits.

Rebalancing the EU-Russia-Ukraine gas relationship. Bruegel Policy Contribution ISSUE 2014/15, DECEMBER 2014

The October 2014 agreement on gas supplies between Russia, Ukraine and the European Union did not resolve the Ukraine-Russia conflict over gas. The differences between parties in terms of objectives, growing mistrust and legacy issues make it unlikely that a long-term stable arrangement will be achieved without further escalation. Without EU pressure and support, Ukraine is likely to enter a new unfavourable gas arrangement with Russia, which could have repercussions beyond the energy sector. Key highlights: To reduce prices and increase the security of imports, the EU as a bloc should redefine its gas relationship with Russia and Ukraine and overcome the diverging interests of EU member states on second-order issues. Implementation of a joint strategy rests on enforcement of EU competition and gas market rules, a strengthened role for the Energy Community and the establishment of a market-based instrument for supply security. For Ukraine, the EU should serve as an anchor for comprehensive gas sector reform. Contingent on Ukraine’s reform efforts, EU financial and technical assistance, the enabling of reverse flows from the EU to Ukraine and pressure on Gazprom, should eventually enable Ukraine to obtain a sustainable gas-supply contract with Russia. This should make a sustainable and mutually beneficial Russia-Ukraine-EU gas relationship possible. However, during the transition, the EU should be prepared for possible frictions.