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UNIVERSITY OF GUYANA FACULTY OF TECHNOLOGY DEPARTMENT OF ELECTRICAL ENGINEERING

ELP 3205 LIBERALISATION IN POLAND NAME: JOSHUA GOBIN 12/0935/1729

REGISTRATION NUMBER:

Introduction
Liberalisation may be defined in context as the establishment of independent energy sources through privatization of all energy assets owned by the state. It also encompasses the introduction of structural changes in the organization to bring about competition between energy companies. This is basically done to reduce government control and influence in the generation, transmission and distribution of energy in the state. It also allows for lower energy tariffs and better quality of service to be seen in the countrys energy supply. Below are key motivations for the liberalisation of electricity. These were reasons given for the UK privatization by Marsh and Moore but the same could be applied to any country or state that seeks to privatize their energy sector. The desire to reduce Government involvement Increasing the efficiency of the companies Reducing public sector borrowing Curbing trade union power by break up Wider share ownership Gaining political advantage for the government

In this report we will address the Polish energy sector in this context. What caused the Polish to liberalize their energy sector, the process they used for the liberalization, the effects of liberalization on the 3 main areas of the energy industry, and the contrast between before and after liberalization.

The Days of One


Before liberalisation of the polish energy industry, the countrys energy generation, transmission and distribution was controlled by a single vertically integrated power company called in English The community of power industry and lignite coal. This mean that there was no division of generation, transmission and distribution in the energy sector but all of it was controlled and done by the community. They also were responsible of the mining of the lignite coal which was used for power generation (Poland is now moving towards the use of LNG or Liquefied Natural Gas). The community supervised the 5 territorial districts, controlling power stations and heat-and-power plants. The districts were operated as state enterprises.

The Community conducted activities according to five-year and annual plans, which contained tasks connected with energy and thermal production, extracting and processing the lignite coal, the expansion of the power stations, the combined heat-and-power plants and the power grid. The plans were approved by the Ministry of Industry. Until the end of the 1980s the organization of Polish power industry was based on public property, central planning and vertical and horizontal integration. The level of internal integration was so high that nobody tried to introduce legal or economic unbundling. The power sector was identified with the infrastructure of the economy. The Polish were not tolerant of the idea of regulation. Allowing privatization of the electricity company and a separate regulatory body testified to a lack of authority in the leaders eyes. However, in the late 1990s the idea became home worthy due to planned organizational and ownership changes of the industry as well as new economic and organizational theories, which helped demonstrate that the energy market could be divided into various regulated segments of business.

Moving into a New Age - Privatization


In 1989 the power industry districts were liquidated and reforms of the Polish energy sector began with organizational changes instituted in 1990. The electricity and coal-mining industries were legally and functionally separated. Following were the segmentation of the electricity arm into generation, transmission and distribution. The institutional framework for competition was established. The

main goals of the energy sectors transformation were the introduction of competition and the improvement of efficiencies of electricity companies. These purposes were to be achieved by the division of the energy sector. As a result, 33 national distribution companies, 32 power stations and a heat-and-power plant and several dozen local heat-and-power plants were established. This introduced the TSOs and DSOs, transmission systems operators and distribution systems operators respectively. The first TSO was PSE S.A. (Polskie Sieci Energetyczne S.A. Polish Power Grids Company) established in 1990 and held a strong monopolistic position in the wholesale energy trade in Poland.

In short, the process of liberalization of the polish energy sector started at the turn of the 1980s and 1990s with commercialization being the 1st step. The state reduced its control of the energy sector in order to focus on enhancing the industrys effectiveness and profitability. This was done by economically and legally separating generation, transmission and distribution into state owned enterprises which proved to be a success. The regulatory framework for the Polish energy sector was defined in the Energy Law Act, adopted on 10 April 1997 (Prawo energetyczne 1997). The Energy Law changed the structure of the energy market. To achieve objective accounting, organizational and legal unbundling, new undertakings dealing exclusively in electricity trade entered the market. The Energy Law does not provide any particular limitations to the development of particular forms of energy trade. The Energy Law provides conditions for the gradual implementation of a market mechanism. Following EU practice, Poland adopted a system of gradually introducing Third Party Access (TPA). Depending on the quantity of energy purchased, particular consumer groups will have access to the grid. Generation sector: In 2005, the total amount of electricity generated in Poland reached 156,938 GWh. Compared to 2004, this was an increase of 1.8%. Most of that was generated in system power stations. The sector of electricity producers consists of system power stations and combined heat-and-power plants, producing energy mainly from fossil fuels, as well as producers of electricity from renewable energy sources. Generation sector included power producers: 12 power plants, 19 heat-and-power stations and over 270 local power plants and thermal power plants connected to distribution network. In 2004 holding BOT Grnictwo i Energetyka started to operate. It caused the increase of concentration indicator HHI. Transmission sector: Polskie Sieci Energetyczne S.A. (Polish Power Grid Company), oneperson company of Treasure acting as a Transmission System Operator an energy enterprise dealing with the transmission of electricity, responsible for grid operation in electricity transmission system, the ongoing long term operational security of that system, the use, maintenance and repair and the necessary expansion of the transmission grid, including its connections to other electricity systems. Distribution sector: After consolidation, out of 33 distribution companies operating in 1990, in 2004 only 14 remained on the market. The process of consolidation in the distribution sector is not completed.

The above table shows the before and after atmosphere of the various energy headings. Along with the production of new companies, technologies, economic growth and the joining of the EU, the liberalisation also meant a change in the way tariffs were set.

What sets the right price


Having a single company generating, transferring and distributing power within a state is not only unstable and unreliable but very expensive for the consumers. The company holds all the right to set tariffs as they are influenced by changing oil prices and maintenance cost, expansion and their will. However, with a regulated, multi-source power sector tariff are much lower and stable for consumers. The competitive atmosphere forces each of the 3 branches to not only provide tariffs that are well within the pockets of their consumers but also to improve their systems quality and reliability. In Poland we see the emergence of a number of entities within the various branches which allows for a more considerable tariff level. The only branch that has a monopolistic hold on the tariff is the transmission

company. In view of tariff regulations, Polish solutions provide for an ex-ante regulation that in comparison with the ex-post type of regulation allow for providing more effective control. The effective regulation of tariffs on access and use of networks is the initial condition to suppress monopolistic position of network companies. According to the Energy Law, the energy enterprises determine energy tariffs in accordance with the scope of their business activity. The tariffs should be calculated in a way that ensures: covering the justified expenses of the business activity of the energy enterprises related to the generation, transmission and distribution energy, covering the justified expenses borne by the transmission and distribution

system operators in relation to the execution of their tasks, protecting customers against an unjustified increase of the prices and fee rates. The minister in charge of economic affairs consults the Chairman of ERO and determines, by way of ordinance, detailed terms of establishing and calculating tariffs applicable to electricity as well as the detailed rules of settlement in the trade in electricity, taking into consideration: the state energy policy, ensuring the coverage of the justified expenses of the energy enterprises, including the cost of their development, the protection of customers against a unjustified price and fee levels, an improvement of the efficiency of supply and use of electricity, an equal treatment of customers, eliminating cross-subsidizing and the transparency of prices and fee rates. Energy enterprises that have been granted licenses specify energy tariffs subject to approval by the Chairman of ERO and suggest the term of their validity. The energy enterprises who have been granted licenses present their tariffs to the Chairman of ERO by their own initiative or by request of the Chairman of ERO. The Chairman of ERO approves the tariffs submitted or rejects a tariff if it is inconsistent with the principles and provisions. The table on the following page shows the changes made in the various energy sectors through liberalization.

Conclusion
It is not clear when the revolution ended in terms of the liberalization process. However, not all of Poland power has been liberalized and the state still has many problems with respect to its power generation and quality of service. In 2004, Poland joined the EU and therefore became subject to its rules and regulations for liberalization. According to these standards Poland still has its energy consumption as twice as low as in the EU, energy consumption for GDP unit as twice as high as in the EU, efficiency of power plants are at 36.5% whereas EU power plants are at 46.5% and most of all has an

excess of 155% capacity installed with a UCTE expectation of 125%. All of these problems are still to be rectified to see the full rewards of Polands efforts towards liberalizing its energy sector.

References
Current issues of the energy sector in Poland , Krzysztof Zmijewski, Technical University of Warsaw, Gliwice, March 2003 Liberalization, privatization and regulation in the Polish Energy sector, Beata Radzka, Institute os Sociology Warsaw University, PIQUE, November 2006 Challenges of Liberalization. The case of Polish Electricity and Gas sector, Bartlomiej Nowal, Universiity of Warsaw Faculty of Management Press,MPRA, 2009

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