The EBRD is lending Elektrostopanstvo na Makedonija (ESM), the state-owned power utility in FYR Macedonia, €40.5mn to help build a 150km transmission line that will cross into neighbouring Bulgaria, benefiting both countries. It should also fuel the creation of a regional electricity market in Southeast Europe.

The 15-year, sovereign-guaranteed loan is the first for the bank in the power sector to span borders, from Stip, in FYR Macedonia, to Chervena Mogila, in Bulgaria. In FYR Macedonia, it will upgrade substations in Dubrovo and finance a new substation in Stip. Across both countries, the project will improve efficiency and promote system stability. It will also promote energy-trading opportunities that can extend beyond these two countries to other parts of southeast Europe.

While the 400kV transmission line will span both countries, with 80km in Bulgaria, ESM is the recipient of the loan. Natsionalna Elektricheska Kompanija, the Bulgarian power utility, will, during the several years of construction, pay by providing a continuous supply of electricity to ESM.

Peter Reiniger, business group director for energy at the EBRD, says the project is important for both countries in improving and retaining a secure supply of electricity. He adds that the construction coordination and power delivery agreements between the two countries can set a precedent for similar projects in the region, speeding up the creation of a regional electricity market in southeast Europe as promoted by the European Union.

The loan will also support long-term reform measures, including independent regulation and improved tariff structures for cost recovery in FYR Macedonia. Moreover, it will promote the unbundling, commercialisation and private involvement in a sector still organised along the lines of a state-owned, vertically integrated utility.

The project was prepared with support from the Canadian International Development Agency and the Swiss Economic Co-operation Office for studies to check the viability of the project and to lay the groundwork its implementation.

The EBRD is one of the largest investors both in FYR Macedonia, with more than €290mn invested in 19 projects, and Bulgaria, with €784mn invested in 54 projects.