V4 Regional GDP Breakup

The chart below shows the relative economic strength of the V4 countries in a regional breakup. Almost all the regions of the Visegrad Group are below the EU27 average (€24,500) considering the GDP per capita. The only exception is Prague with an €26,500 GDP per capita

From the left-hand side to the right-hand side it is visible, that the Czech Republic is generally richer than the rest of the V4. The economic power or the non-capital regions of Hungary, Poland and Slovakia are almost identical. Bratislava, Budapest and Warsaw metropolitan areas stand out from their countries but still remain below the 75% of EU27 which is the limit for EU Cohesion Fund eligibility. For comparison: the richest NUTS-2 level (statistical) region, Inner London, has a localized domestic product that is 334% of the EU27 average. The poorest, Severozapaden (Bulgaria) has the economic strengths of 26% of the EU27 regional average.

The EU's 20 poorest regions are almost exclusively located in Bulgaria and Romania, however, five Polish and four Romanian regions count into this group.

From an investor's point of view these regions still have a large growth potential. Except for Prague, these regions are eligible for all EU aid, and many of these relatively poor regions have also shown the highest growth rates before the economic crisis.

Declaration of the Budapest V4+ Energy Security Summit

The Czech Republic, the Republic of Hungary, the Slovak Republic and the Republic of Poland, as Member States of the Visegrad Group as well as the Republic of Austria, Bosnia and Herzegovina, the Republic of Bulgaria, the Republic of Croatia, the Republic of Serbia, the Republic of Slovenia and Romania have made a joint declaration.

The most important feature of the document for the first sight is the declaration to harmonize contingency planning and rationing if a new natural gas crisis emerges. The footnotes are interesting bits of the document. Austria does not consider nuclear energy as a safe and sustainable energy source and is hence not in a position to support the paragraph relating to nuclear energy. Despite the EU-conform enthusiasm for the Nabucco pipeline, the Bulgaria, Croatia, Hungary,Serbia andSlovenia also state that they are involved in the South Stream project which would enable them access to sources via an alternative route.

Here is the declaration (consolidated text with preamble here):

• Express their support to strengthen cooperation in further integrating their gas networks and diversifying routes and sources of supplies:

- By promoting the North-South interconnections through all V4 countries, between the planned Croatian and Polish Liquefied Natural Gas terminals and also

- By further promoting and implementing the Nabucco and the NETS projects,

- By supporting the Constanta LNG terminal and other LNG and CNG projects in the wider Black Sea Region,

• Expect urgent political agreement with the European Parliament as regards the regulation on security of gas supplies which should ensure in particular the effective EU reaction in cases where the EU gas market is no longer able to respond to the gas supply disruption autonomously. Due to this the European Commission should coordinate measures predefined in national and EU emergency plans in order to restore the functioning of the internal gas market,
• Strongly favour that immediate acknowledgement of common regional interests should be made in the process of the establishment of the Second Action Plan for EU Energy Policy (2010-2014), inter alia on the architecture and the budget of the new EU Energy Security and Infrastructure Instrument,
• Are determined to strengthen the region's energy security with a strong and uniform demand to secure the EU cohesion policy funding for common energy projects within the EU as well as to continue their concerted efforts to support the energy projects in the Energy Community countries within the framework of the EU external policy financial instruments. The proposals to this effect will be prepared by the established working groups.
• Declare their willingness to provide support and joint efforts for a higher allocation of EU financial resources notably from the EU cohesion policy to all infrastructure projects aimed at increasing the energy security of the region.
• Encourage closer cooperation of the energy companies of the region operating critical elements of the energy value chain to enhance synergies and energy supply security.
• Intend to hold regular high level meetings in order to further discuss the ways of improving the energy security of their countries and the EU as well as to adopt the necessary measures which may help mitigate any possible disruption of supply in the future.
• Have agreed to set up "ad hoc" working groups at expert level on different projects such as the North-South interconnections and other regional interconnectors, oil supply in the region, etc. The main task of the working groups should be to prepare concrete proposals for implementation and to better coordinate their cooperation in these fields, notably in the EU decision making process.

Budapest, February 24, 2010

Slovakia Enters Regional Nuclear Race

On 9 December 2009 the Slovak government approved the launch of Jadrová Energetická Spoločnosť Slovenska (JESS), a joint-stock company which will be charged with building a new nuclear power plant in Jaslovské Bohunice. JESS will be a joint venture of JAVYS, the state-owned nuclear energy company (51%) and the Czech energy group ČEZ (49%).

Central Europe faces an ever growing electricity deficit in the 2010s. The new manufacturing hub of Europe as well as increased household consumption drives up demand for electricity, while plant-building has been delayed due to state ownership, or misregulated privatization. A number of countries besides Slovakia, namely Hungary, Romania and Bulgaria has decided recently to build power plants.

The costs of the new nuclear plants are estimated between are estimated €4 billion and €6 billion. Nuclear plants usually take around 10 years to build. The new nuclear capacities, if not built in a coordinated way, will cause a huge shock in the base-load supply of the regional electricity market. Another worry is that the 6-8 units planned in the region may use up most of the available investment capital in the region.

We believe that the recent news nuclear race among Central European governments must be coordinated and curved. Other parties interested in power generation and also banks and financial institutions should beware of the crowding-out effect of the multi-billion euro plans and increased government intervention in the electricity sector.