Description:

The aim of this study is to analyse the macroeconomic aspects of the energy sector in CIS countries. These economies rely heavily on energy production, trade and transportation. To date, they have failed to overcome the post-Soviet legacy of high energy intensity and high energy-dependency of their economies. For net energy exporters such as Russia, Azerbaijan, Turkmenistan, Kazakhstan and - to a lesser extent - Uzbekistan, this sector contributes a major part of GDP (around 20% in Russia, above 40% in Azerbaijan), and a substantially bigger share of exports (around 90% in the case of Azerbaijan) and fiscal revenues (more than 50% in some countries). For net importers, their high energy consumption due to high energy intensity implies trade dependence and a substantial cost burden that can determine their current and future international competitiveness. However, some of these countries (Ukraine, Belarus, Georgia) are able to benefit, in various ways, from energy transit, processing and re-exports. For all CIS countries, under-priced energy in the domestic market constitute a substantial indirect subsidy to the manufacturing industry, agriculture, transportation and household consumption. A high dependence on the energy sector and continuous distortions in this sector result in complex and often negative outcomes in the economic, social, institutional and political economy spheres.

The study will comprise three main parts. First, the study will assess the macroeconomic importance of the energy sector for each country in question, in terms of - but not restricted to - GDP, investment, employment, budgetary revenues contribution, balance of payments. Both static and dynamic approach will be used, including an assessment of contributions of the energy sector to growth in GDP, investment, employment, exports, imports, etc. This section will also present an economic analysis of the specific features of the energy industry, namely, its reserves, exporting capabilities, prices and destinations, investment level, ownership and market structure of the energy sector, as this necessarily complements the macroeconomic analysis.

The second main part of the study will take a closer look at related macroeconomic issues, and will include an analysis of macroeconomic policy instruments which attempt to address the various challenges. This section will also address the political economy dimension, which should address the question of whether large deposits of energy resources and high international energy prices encourage and enable economic growth and modernisation of countries, reducing poverty and income inequalities (resource blessing) or, to the contrary, slow down the required reforms, increase income inequalities, and introduce various structural and institutional distortions and temptation to rent-seeking (resource curse).

The third main part of the study will look at more strategic options related to the energy sector itself and its current and potential role in the future, in particular from the EU perspective. Thus, the report will address issues that are relevant for trade and investment flows with the EU, issues that are highly relevant for an EU economic strategy towards the CIS countries. Also, the report will provide a description of alternative strategies and policy options for the future development of the energy sector in the CIS countries. Special attention will be given to investment climate and policies towards foreign investment (especially in the energy sector) in individual countries.

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