Yugoslavia - Constraints and prospects for restructuring the energy sector

Report No. 4797-YU l ( r ; Yugoslavia Constraints and Prospects for Restructuring the Energy Sector August 21, 1985 Project Department Europe, Middle East and North Africa Regional Office FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Dinar (Din) Din 1.00 = 100.00 paras 1. OFFICIAL EXCHANGE RATE Weighted average for the year Din/US$ 1977 1978 1979 1980 1981 1982 1983 18.0 18.6 19.0 24.9 35.5 51.3 90 2. GDP DEFLATOR (1973 = 100) 192.2 216.4 261.7 343.1 480.2 624.0 811.0 UNITS AND MEASURES 1 kilowatt (kW) = 1,000 Watts (103W) 1 Megawatt (Mw) 1,000 Kilowatts (103 kW) 1 Gigawatt (GW) 1,000,000 kilowatts (106 kW) 1 Terawatt (TW) 1 billion kilowatts (109 kW) 1 kilowatt-hour (kWh) 1,000 watt-hours (103 Wh) 1 Megawatt-hour (MWh) = 1,000 kilowatt-hours (103 kWh) I Gigawatt-hour (GWh) = 1,000,000 kilowatt-hours (106 kWh) 1 Terawatt-hour (TWh) 1 billion kilowatt-hours (109 kWh) 1 kilovolt-ampere (kVA) 103 Volt-Amperes (103 VA) 1 Megavolt-ampere (MVA) = 103 kilovolt-amperes (103 kVA) 1 kilocalorie (kcal) = 3,968 British Thermal Units (Btu) 1 kilogram (kg) 2,206 pounds (lb) 1 ton (metric ton) 1,000 kg = 2,205 lb = 1.102 short ton = 0.984 long ton 1 meter (m) = 3.281 feet (ft) 1 millimeter (mm) 0.001 meter (m) 1 kilometer (km) 1,000 m = 3.281 ft ENERGY CONVERSION FACTORS INTO TONS OF OIL EQUIVALENT (TOE) Hard coal 1.532 Brown coal 2.923 Lignite 5.072 Coke (imported) 1.666 Heavy fuel oil 1.105 Diesel 1.00 Fuel gas (LPG) 0.8837 Jet fuel 1.1051 Gasoline 0.9546 Other petroleum products 1.0539 Natural gas (103m3) 1.1825 Electricity 11,860 kWh FISCAL YEAR Calendar Year  FOR OMCIAL USE ONLY ACRONYMS AND ABBREVIATIONS BOAL - Basic Organization of Associated Labor CCY - City Communes of Yugoslavia CE - Chambers of the Economy CI - Communities of Interest COAL - Composite Organizations of Associated Labor EMS - Energy Management System ENERGOINVEST - OAL responsible for the exploration and development of oil and gas exploration and development in Bosnia-Herzegovina FCE - Federal Chamber of the Economy FCEI - Federal Committee for Energy and Industry FCP - Federal Community for Pricing FISP - Federal Institute for Social Planning INA-NAFTAPLIN - OAL responsible for the exploration and development of oil and gas in Croatia JUGEL - Union of Yugoslav Electric Power Industry JUGOPETROL - OAL responsible for the exploration and development of oil and gas exploration and development in Montenegro JUMEL - Yugoslav Machine Industry MRSCE - Measures for Rationalization, Substitution and Conservation of Energy NAFTAGAS - OAL responsible for the exploration and development of oil and gas in Serbia and Vojvodina OUNP - Association of Oil and Gas Producers OURU - Association of Coal Producers PCC - Permanent Conference of Cities RE - Reproduction Entities RPCE - Republican and Provincial Chambers of the Economy RPCEI - Republican and Provincial Committees for Energy and Industry RPCP - Republican and Provincial Communities for Pricing RPISP - Republican and Provincial Institutes for Social Planning SMA - Self-Management Agreement TOE - Tons of Oil Equivalent WOAL - Work Organizations of Associated Labor This docurnent has a restricted distribution and may be used by recipients only in the performance of their oficial duties. Its contents may not otherwise be disclosed without World Bank authorization.   This report was prepared by Messrs. Ibrahim Elwan and Mahesh Sharma, on the basis of data and information gathered by a number of World Bank energy missions that visited Yugoslavia between 1980 and 1983, with contributions from Messrs. Sam O'Brien-Kumi, Jorge Barrientos (Coal and Lignite), Richard Berney (Petroleum), Jacob Schweighauser (Petroleum), and Jacob Mulckhuyse (Refineries). The report has been reviewed by and discussed with the Yugoslav Authorities whose comments were taken into account in the final preparation of this report. Special thanks go to the Federal Institute of Social Planning, Federal Committee for Energy and Industry, Federal Statistical Office, Union of Yugoslav Electric Power Industry (JUGEL), Association of Yugoslav Mines (OURA), Association of Oil and Gas Producers (OUNP), and the Mining Institute of Belgrade, for their co-operation and assistance to the various Bank energy missions in the collection of data and information and for commenting on the various sections of the initial drafts of the report. The co-operation of other Yugoslav agencies not mentioned above is also greatly appreciated.   ABSTRACT In the post World War II period, major social, political and economic changes were undertaken in Yugoslavia which culminated in the adoption of the new constitution of 1974. It accords complete autonomy to workers in the operation, management and development of socially owned means of production in order to maximize their income and, in turn, that of society. While this system was being implemented, the Yugoslav economy experienced severe external shocks precipitated by the oil crises of 1973 and 1979, which precluded the fine-tuning of the system of self-management and impeded the optimal development of the domestic energy resources needed to deal with the higher costs of energy imports and to provide the country the competitive edge to sustain the growth of its exports. As a result, Yugoslavia's dependence on imported energy increased, which together with the absence of economic and financial discipline exacerbated its balance of payments situation and set in motion a process of reassessment aimed at restructuring the institutions and instruments of economic management. The long-term program of economic stabilization, which was ratified and adopted in July 1983, outlines a strategy for the development of the energy sector to address the structural imbalances that the economy continues to face. In order to assess its viability, this report describes, within the macroeconomic context, the developments in the energy sector since 1975. More specifically, the report reviews the self-management system, underscoring those aspects that have a direct bearing on the development of the energy sector; examines the country's domestic energy resources, focusing on their size and on identifying the issues constraining the development of each resource in order to assess their likely contribution to the future supply of energy; describes the factors responsible for the changes in the pattern of energy consumption and supply; assesses the targets of energy consumption and supply up to 1990 to identify the shortcomings of energy planning in the country; evaluates the developments in the structure and levels of energy prices and their relationship to economic cost of supply; and examines the performance of the 1976-1980 social plan with respect to planning and investment to identify the main constraints responsible for the shortfall in achieving the energy targets. The report then recommends a specific plan of action to supplement the authorities' program to promote the optimal development of the energy sector.  t  MAIN TEXT TABLE OF CONTENTS Page No. CHAPTER I - SUMKARY ........1.................................. Recent Developments in the Economic System ....... 1 Institutional Setting ............................ 2 Workers' Self-Management System .............. 2 Energy Sector . . 3 Energy Resources ... .. ................ . 4 Developments in the Sector Since 1976 ............ 5 Supply and Consumption of Energy Between 1976-1982 .................................. 7 Constraints and Prospects 11 Priorities in the Development of Primary Energy Resources ........................... 11 Energy Pricing ...................................... . 16 Financial Discipline .......................... 22 Priorities in the Development of Secondary Energy . ... ...... 24 Planning and Macroeconomic Management ........ 30 Conclusion ....................................... 33 Table 1.8: Energy Plan of Action ............ 35 Layout of Report ......... . ....................... . 46  Page No. CHAPTER II - INSTITUTIONAL SETTING OF THE ENERGY SECTOR ....... 47 Overview ......................................... 47 Organization of the Energy Sector . . 51 CHAPTER III- ENERGY RESOURCES ................................. 55 Commercially Exploited Energy Resouees ..........c 55 Coal ......................................... 55 Hard and Brown Coal . . . . * 57 Lignite .... 59 Hydropower Potential . ......................60 Oil and Gas . . ................................ 63 Uranium ...................................... 65 Non-Conventional Energy Resources ............ . 65 Oil Shale . . ....... 65 Biomass ... 66 Geothermal Resource ......................... . 66 Solar and Wind Energy ........................ 67 CHAPTER IV - HISTORICAL TRENDS IN THE CONSUMPTION AND SUPPLY OF ENERGY ......................................... 68 Consumption of Energy ....... . .......... 69 overall Consumption of Energy ................ 69 Hydrocarbons ................................ . 71 Coal and Lignite .... 74 Electricity ..... . ......... 76 Supply of Energy .. ............. , 77 Hydrocarbons .. ... .................. 77 Coal and Lignite ...... 84 Electricity .............. 86  -iii - Page No. CHAPTER V - ENERGY BALANCE, 1982 .............................. 90 National Energy Balance .......................... 90 Hard Coal ........................................ 102 Brown Coal ....................................... 103 Lignite .......................................... 104 Crude Oil ........... 105 Natural Gas . ................. 107 Electricity ...................................... 109 Steam ............................................ 111 CHAPTER VI - FORECAST OF CONSUMPTION AND SUPPLY OF ENERGY ..... 112 The 1981-1985 Social Plan ........................ .113 Macroeconomic Targets. 113 Targets for Eneergy Consumption . . 114 Targets for the Supply of Energ ..116 Revised 1981-1985 Social Plan . ................... 126 Forecast Demand and Supply of Energy, 1986-1990 ........................ 131 CHAPTER VII - ENERGY PRICING. 135 The Law on Pricing . . .136 Pricing of Petroleum Products . . 141 Pricing of Natural Gas . .145  -iv - Page No. CHAPTER VII - ENERGY PRICING (cont'd) Pricing of Coal and Lignite ............... ..... 150 Electricity ... 159 Consumer Classification .................... 160 Economic Cost of Supply . ............... 162 CHAPTER VIII - ENERGY PLANNING AND INVESTMENT ................. 168 Social Planning ................................ 170 The 1976-1980 Investment Plan for Energy ....... 173 The 1981-1985 Investment Plan for Energy ....... 178 Issues in Planning .... ......................... 183 Formulation and Implementation of the Plan. 183 Targets of the Social Plans ................ 184 National Versus Regional Plans for the Energy Sector ............................ 187 Identification of Priorities ............... 191 Financial Disciplines ...................... 192 Foreign Exchange Allocation ................ 194 Distortion in the Relative Prices . ..... 195 Costs of Uneconomic Decisions . ....... 197 "Revised" 1981-1985 Investment Plan for Energy. 198  Page No. CHAPTER IX - STRATEGY FOR RESTRUCTURING THE ENERGY SECTOR.... 200 Program of Long-Term Measures for the Rationalization Conservation and Substitution of Energy ....................................... 200 Primary Energy .... . ...... 200 Secondary Energy ............................ 201 Energy Storage, Transport and Distribution.. 202 Energy Consumption .......................... 202 Priorities in the Development of Primary Energy Resources .......................... 205 Energy Pricing ..... ...... 213 Financial Discipline ........................ 218 Priorities in the Development of Secondary Energy .. . ....... .......... . 221 Planning and Macroeconomic Management ....... 229 Institutional Setting of the Sector ......... 230  - vi - List of Annexes Page No. ANNEX 1 None ANNEX 2 2.1 Organization of the Electric Power Subsector ................ 234 Attachment 1 - Organization of JUGEL ..... . 237 Attachment 2 - List of Electric Power Organizations and Other Organizations Associated in the Union of Yugoslav Electric Power Industry... 238 2.2 Organization of the Oil and Gas Subsector ................... 242 Attachment 1 - Members of the Association of Oil and Gas... 244 2.3 Organization of the Coal Subsector .......................... 246 ANNEX 3 3.1 Geographical Distribution of Total Reserves of Coal and Lignite ....................... ..... ................................. 249 3.2 Hydropower Sites Planned for Development between 1986-2000.. 250 3.3 Petroleum Geology and Exploration .......... ................. 254 ANNEX 4 4.1 Energy Balance 1975 ................... ............... 264 4.2 Energy Balance 1980 .. ... ... .................. 265 4.3 Energy Balance 1982 ......................................... 266 4.4 Growth of Total Net Electricity Consumption by Republic and Autonomous Province ... ..................... 267 4.5 Electricity Generating Capacity 1975-1980 .......... ......... 268 4.6 Electricity Production and Consumption ..................... 269 4.7 Inter-republican Energy Exchange in the Period 1976-1980 .... 271 ANNEX 5 None  - vii - Page No. ANNEX 6 6.1 Energy Balance 1985 (Based on the Original Social Plan)..... 272 6.2 Coal Mining Capacities .......... ..... . 273 6.3 Sources of Domestic Production of Oil and Its Distribution Between Republics for 1980 and 1985 ....................... 274 6.4 Use of Petroleum Products by Republic and Province for 1980 and 1985 .............. .............................. .............. 275 6.5 Consumption of Petroleum Products for Energy Use ............ 276 Consumption of Petroleum Products as Feedstocks ............. 278 6.6 Supply of Natural Gas Under the Original Plan for 1981-1985 279 6.7 New Power Generation Capacities Planned Under the Original 1981-1985 Plan ............................................ 280 6.8 Generation at Bus Bars for 1985 Under the Original Plan for 1981-1985 ............................................................ 281 6.9 Energy Balance 1985 (Mission's Estimates Based on the Original 1981-1985 Forecast) . ........ .... 282 6.10 Energy Balance 1985 (Yugoslav Revised Plan for Energy) ...... 283 6.11 Energy Balance 1985 (Mission's Estimates Based on a Reassessment of the Revised Plan) ........................ . 284 6.12 Energy Balance 1990 ....... 285 ANNEX 7 7.1 Prices of Petroleum Products, 1971-1983 (Din/ton)....... 286 Real Retail Prices of Petroleum Products (Constant 1973 Prices), 1971-1983... ........ ............... 287 Structure of Prices of Petroleum Products, By Percentage.... 288 7.2 Tax Revenues from the Sale of Petroleum Products, 1971-1979. 289 Tax Revenues from the Sale of Petroleum Products by Sector.. 290 7.3 I. Current Retail Prices of Natural Gas .................... 291 II. Real Retail Prices of Natural Gas ................ ....... 291 7.4 Current Retail Prices of Hard and Brown Coal and Lignite, 1975-1982 .................................................. ......... 292 Prices of Coal for Household Use ......** ................. 293 Prices of Coal for Power Stations .......................... 294 Prices of Coal for Industry (Including Power Generation) (Dinars/ton) ........................................................... 295 Prices of Coal for Industry (Including Power Generation) (Dinars/toe) ........................................................... 296 7.5 Estimated Long Run Average Incremental Costs of Various Coal and Lignite Mines ......................................... 297  - viii - Page No. ANNEX 7 (cont'd) 7.6 Weighted Average Revenue Per Kilowatt-Hour Sold for 1973, 1980 , 1983 (paras/kWh) .......................... . ...... ... 298 Average Revenue at the Bulk Supply Level 1973-1983 .......... 299 Average Revenue per Kilowatt-Hour Sold at Distribution and Low Voltage Levels, 1973-1983 (paras/kWh) ................. 300 7.7 Current Relative Prices of Fuels for Power Generation, 1977-1983 ............................................................ 301 7.8 Bulk Tariffs and Rates for Sales of Electricity ............. 302 7.9 Medium Voltage Tariffs and Rates for Sales of Electricity ... 303 7.10 Low Voltage Tariffs and Rates for Sales of Electricity ...... 304 7.11 Derivation of the Economic Costs of Electricity Supply at Different Voltage Levels ........................ ......... . 305 Attachment 1 - Maximum Demand Forecast by Voltage Level .... 314 Attachment 2 - Investment Program of the Associated Electric Power Industries 1981-1985 ......... 315 Attachment 3 - Present Values - Investment and Incremental Demand .......................... 316 Attachment 4 - Calculation of Long Run Average Incremental Costs ....................................... 317 Attachment 5 - Long Run Average Incremental Capacity Cost by Voltage Level (at 10% discount rate shadow prices, 1982 price level)(Din/kW/a) ......... 319 7.12 Comparison of Tariffs to Economic Cost - Bulk Tariffs ....... 320 7.13 Comparison of Tariffs to Economic Cost - MV Tariffs ......... 321 7.14 Comparison of Tariffs to Economic Cost - LV Tariffs ........ . 322 ANNEX 8 8.1 Projected Investment in Coal and Power Subsectors Original Plan ............................................. 324 8.2 Original Plan ........................................... * ............... 325 8.3 Specification of Joint Investments (Original 1981-1985 Plan) ....... .......... 326 8.4 Revised Investment in Development of Coal Mining by the OALs Between 1981-1985 in 1980 Prices .............. 327 8.5 Detailed Results from WASP for the Optimization Program (Increased Load Case) ................. ................... 328  - ix - Page No. ANNEX 8 (cont'd) 8.6 Revised Investment in Power and Coal Subsector by Republics and Provinces .................. 369 Revised Plan .................................................*******.......* 370 8.7 Sources of Financing for Power and Coal Revised Plan ........ 371 ANNEX 9 9.1 Industrial Energy Use and Conservation Fertilizer Sector. Fertilizer Industry and Production ............... 372   YUGOSIAVIA CONSTRAINTS AND PROSPECTS FOR RESTRUCTURING THE ENERGY SECTOR CHAPTER I SUMMARY Recent Developments in the Economic System Yugoslavia, a predominantly agrarian society until World War II, emerged as one of the leading developing countries in less than forty years. During this period, major political, economic and social changes were undertaken which culminated in the adoption of the new constitution of 1974. It accords full autonomy to workers in the operation, management and development of socially owned means of production in order to maximize their income and, in turn, that of society. Planning agencies at the federal, republican and provincial, and communal levels outline global indicative targets and harmonize the workers' plans for achieving them. Shortly before the adoption of the 1974 constitution, the economy experienced an external shock precipitated by the first round of increases in the price of oil. Despite this shock, the growth of the economy until 1979 was remarkable compared to that of other economies. The impact of the higher import biil for energy, however, induced the authorities to adopt a medium-term program which outlined the basis for economic development for the period 1976-1985. It called for significant changes in the structure of the external sector, emphasized the accelerated development of domestic energy resources and gave priority to reorienting the economy towards higher levels of import substitution and exports. These objectives were reflected in the five year plans for 1976-1980 and 1981-1985. In both plans, the energy sector was assigned a pivotal role for achieving the targets. However, the social plan for 1976-1980 fell short of its goals for energy, mainly because of the shortage of foreign exchange, constraints on the supply of materials and equipment, and overburdened project implementation capabilities. The 1981-1985 social plan was, by and large, more realistic and addressed some of the main difficulties experienced by its predecessor. However, the down-turn in the growth of the world economies, the concomitant decline in the demand for Yugoslavia's exports, and the sustained increase in domestic inflation induced the Yugoslav authorities to appoint a stabilization commission in 1982, whose main task was to formulate a strategy for restructuring the economy. One of the measures taken by this committee was to adjust the targets of the 1981-1985 social  - 2 - plan, two years after its adoption and introduce a "revised" 1/ investment plan for the economy as well as energy, based on more modest projections of economic growth. The "revised" plan was accompanied by several policy changes aimed at addressing the structural imbalances that the economy continues to face. The setbacks experienced in achieving the energy targets are but a reflection of the young age of the system of self-management planning as outlined in the constitution of 1974. As the system was being implemented and fine-tuned, the external shocks brought about by the oil crises, the ensuing upward adjustment in energy prices and the deceleration in the growth of the industrialized economies necessitated the institution of corrective measures formulated in a crisis mood, which impeded the smooth development of the new system of social planning and the implementation of badly needed long-term policies. To date, efforts to promote the development of the energy sector have been hindered by the protracted process involved in the formulation of comprehensive national plans and in the mobilization of resources for their implementation. Institutional Setting Workers' Self-Management System Yugoslavia's system of workers' self-management comprises of a large number of autonomous entities, referred to as Basic Organizations of Associated Labor (BOALs), whose members voluntarily pool their material and financial resources to expand their productive capacities in a manner that optimizes their earnings and, in turn, their contribution to the national output. All relations among and between BOALs including the pooling of resources, distribution of income, planning, financing, etc., are established and regulated by instruments referred to as Self-management Agreements (SMAs). Workers participate in all economic decisions, management, pricing, investment planning, etc., while the public agencies at the federal, republican and provincial and communal levels have limited executive power. Under the Yugoslav system, productive facilities are neither owned by the state nor the workers that operate them. They are owned by the society and only entrusted to the workers to use, maintain and develop for the generation of income. The unique feature of the Yugoslav institutional setting is that all decisions among BOALs are made on the basis of consensus, which is required by law to ensure equal status. Decisions within BOALs, by contrast, are based on majority rule. Frequently, the achievement of consensus involves lengthy negotiations and delays in making decisions; however, the need to reach consensus is sanctioned by law, and consequently, delays in the 1/ The word revised is used in this report merely for ease of reference. The new targets for the 1981-1985 period are referred to as observations on the plan in Yugoslavia.  -3- ratification of laws and policies are tolerated and taken as a healthy sign of the workers' participation in the determination of their future. In some cases when the conclusion of agreements are considered of interest to the public, OALs are required to go through the process of negotiation, but conclusion of these negotiations cannot be forced. Producers and consumers of some social goods and services such as power, water, health, etc., are required by law to form organizations known as Communities of Interest (CIs) in order to overcome the difficulties that are perceived to result from complete dependence on market forces of demand and supply. CIs are responsible for balancing demand and supply, setting prices equitable to producers and consumers, mobilizing and allocating resources for investments, etc. Investment funds are secured by CIs from member consumers in the form of contributions, transfer payments or compulsory grants and credits, and from financial institutions as credits. OALs are required by law to belong to associations related to the sector in which their activities are concentrated. These associations are organized either at the republican and provincial level or the federal level, depending on the sector and activity. Delegates from professional associations are elected to represent all economic sectors in the Chambers of the Economy (CEs), at both the federal (FCE) and the republican and provincial levels (RPCE). The associations and CEs set guidelines and standards for the operation of OALs, provide a forum for exchange of views, formulate policies and ensure harmonization of plans within the same sector in the case of associations, and across sectors in the case of CEs. The associations and CEs cannot make any decision on the basis of majority vote. They only provide their members the means for harmonizing and concluding SMAs. Under the present system, workers are not paid contractual salaries or wages. Instead, they share the earnings of OALs in which they work. However, should workers' income temporarily fall below the level originally established in SMAs because of forces judged beyond their control, a fund referred to as solidarity fund, has been set up to compensate workers for unexpected loss in income. Similarly, windfalls accruing to OALs as a result of favorable events over which they had no control are not, as a rule, reflected in the workers' income; instead, the surplus is added to the solidarity fund. Energy Sector Three agencies are concerned with the energy sector at the federal level: the Federal Committee for Energy and Industry (FCEI), the Federal Institute for Social Planning (FISP), and the Federal Community for Pricing (FCP). Each republic and province has its own committee for energy and industry (RPCEI), institute for social planning (RPISP) and pricing community (RPCP). These have the same responsibilities as their counterparts at the federal level, but their sphere of influence is restricted to the perimeter of the republic or province. FCEI is responsible for harmonizing energy plans of the republics and provinces,  -4- and through consensus, developing an integrated national energy plan. FCEI also ensures coordination and harmonization between the plans for the energy sector and industry. FISP is responsible for formulating the plans for the economy, which includes setting macroeconomic and sectoral targets, and harmonizing the targets for each sector in the economy and the global investments proposed for achieving these targets. The institute has no executive power and its targets are based on the overall macroeconomic policy being pursued. FCP was created in 1981 to set guidelines for the pricing of all social products which, in the case of energy, include crude oil, imported gas, petroleum products and imported coal. FCP has no executive power and its involvement with CIs is on an advisory basis. Prices of products excluded from those considered of social interest are set at the republican or provincial level and are monitored and reviewed by RPCPs. In the case of energy, RPCPs are responsible for domestically produced natural gas, coal and lignite, and electricity. The national associations for the three subsectors which comprise the energy sector are: the Union of Yugoslav Electric Power Industry (JUGEL), the Association of Oil and Gas Producers (OUNP), and the General Association of Yugoslav Coal Mines (OURU). Energy Resources Yugoslavia's commercially exploitable domestic energy resources consist of hydropower and lignite, followed in order of importance by brown and hard coal, oil and gas, and uranium. Oil shale reserves are also known to exist, but because of technological constraints their commercial exploitation at present would be uneconomic. In addition, Yugoslavia has a substantial non-conventional energy resource base consisting of biomass, solar and wind energy, and some geothermal resources. The hydropower potential is estimated at about 63 TWh, divided among 400 sites in 25 river basins and catchment areas, of which 55 TWh is exploitable. The remaining 8 TWh cannot be developed economically as it is located in close proximity of densely populated areas. To date, 27 TWh (43%) of the total hydro potential has been developed. According to the long-term strategy outlined by the stabilization commission, a total of 55 TWh would be developed by the year 2000. Proven reserves of coal and lignite are estimated at about 14,612 million tons (4,003 million toe). Proven resetves of hard coal are in the neighborhood of 61 million tons (41 million toe), all of which require underground mining. Presently, only 60% (36.6 million tons) of the reserves are exploitable. Proven reserves of brown coal are estimated at 1,278 million tons (449 million toe). About 70% (894 million tons) of the reserves would require underground mining. The remaining 30% (383 million tons) are suitable for open pit mining. Lignite is Yugoslavia's principal domestic energy resource. Its proven reserves are estimated at about 13,273 tons (3,513 million toe). The bulk of the lignite reserves is concentrated in few localities suitable for open pit mining, and  consequently, significant economies of scale could be achieved in its development and production. Yugoslavia's remaining, recoverable onshore oil reserves are estimated to be about 70 million tons. Geological evidence suggests that the scope for delineating important extension to existing fields and for finding smaller accumulations in subtle traps is still considerable. A number of other potential petroleum producing regions have as yet to be evaluated, but preliminary indications are that their potential is not as large as that of the currently producing regions. It is estimated that there are about 70 million toe of gas in the presently known onshore fields. The prospects of finding at least another 35 million tons of oil in Croatia and Vojvodina are good. In addition, preliminary estimates indicate that several Adriatic Basins and some land basins are gas prone. The potential offshore reserves are expected to yield between 15 and 150 million toe of oil. It is also estimated that up to 50 million toe of recoverable gas could be extracted from the Adriatic and a similar amount could be found in the deeper parts of the Drava and Sava Basins in Croatia. Developments in the Sector Since 1976 Shortly before the adoption of the new constitution in 1974, which institutionalized the system of workers' self-management planning, the economy experienced an external shock precipitated by the first round of increases in the price of oil. Despite this shock, the growth of the economy until 1979 was remarkable, when compared to that of other middle income economies. The impact of a higher import bill for energy, however, induced the authorities to adopt the medium term program which outlined the basis for economic development for the period 1976-1985. It called for significant changes in the structure of the external sector and emphasized the accelerated development of domestic energy resources and gave priority to reorienting the economy towards higher levels of import substitution and exports. These objectives were reflected in the five-year plans for 1976-1980 and 1981-1985. In both plans the energy sector was assigned a pivotal role in achieving the targets. Given Yugoslavia's endowment of energy resources, the targets of the medium-term plan were achievable. In keeping with the objectives of the medium-term program, the five-year social plan for 1976-1980 called for a substantial change in the structure of the Yugoslav economy, emphasizing import substitution in the industrial and energy sectors. The energy sector's share of gross investment in the economic sectors was projected to increase from 12.5% in 1971-1975 to 20% in 1976-1980. As a percentage of the overall investment in the priority sectors, the share of energy was to increase from 23% in the period 1971-1975 to 31% during the 1976-1980 plan period. Actual investment in the energy sector surpassed the target investments by about  2.7%. In spite of the increase in the share of investments, the energy sector was unable to achieve its output targets. The energy targets of the 1976-1980 social plan together with outturn figures are given in Table 1.1 below. Table 1.1 1976-1980 Targets for the Energy Sector Target Actual Actual as % of Target Power (MW) Thermal 6,911 3,393 49 Hydro 2,742 1,339 49 Coal (million tons) 55-58 47 86 Oil (thousand tons) Domestic 4,734 4,226 89 Imports 11,477 10,804 94 Gas (million m3) Domestic 3,126 2,148 69 Imports - 1,982 The shortfall in achieving the output targets was due to: (a) the initiation of a larger number of projects than the resources of the economy could either finance or physically implement; (b) the shortage of foreign exchange precipitated by the softening of demand by the industrialized and developing economies for Yugoslavia's exports; and (c) the increase in the import bill, particularly for energy. Yugoslavia's exports dropped as a percentage of imports from 62% in 1975 to 54% in 1980. By contrast, the share of energy in the total import bill increased from 31% to 73%. This imbalance was responsible for Yugoslavia's inability to secure the foreign equipment and material needed for the implementation of the 1976-1980 investment plan. 4 Like its predecessor, the 1981-1985 social plan adhered to the objective of the medium-term program. Specifically, for the energy sector, it emphasized the reduction of imported energy and the accelerated development of domestic energy, particularly coal, lignite and hydro. The 1981-1985 social plan allocated more than half the investment for the priority sectors to energy. However, the first three years of this plan were beset by economic difficulties. In particular, the shortage of foreign exchange experienced during the 1976-1980 plan was further exacerbated by the adverse developments in the international market which constrained the flow of capital and raised interest rates. Moreover, the authorities were slow in adjusting their credit, pricing and exchange rate  -7- policies, and consequently domestic demand remained buoyant which, together with the higher import prices for energy, triggered an unprecedented increase in the general price level. As a result, the 1981-1985 social plan was abandoned and the stabilization commission was appointed to outline a policy for arresting inflation and formulate a long-term strategy for restructuring the economy. This set in motion a process of reassessment aimed at restructuring the institutions and instruments of economic management. Supply and Consumption of Energy Between 1976-1982 The developments in the supply and consumption of energy for the period 1975-1982 are summarized in Table 1.2 below. As shown, contrary to the declared objectives of the medium-term program, Yugoslavia's dependence on imported energy, particularly oil and gas, instead of decreasing, increased between 1975 and 1980. In the following two years, however, there was a substantial reduction in dependence on imported oil, but this was largely due to ceilings on imports of liquid hydrocarbons introduced by the authorities in response to the balance of payment difficulties. A detailed energy balance for 1982, covering the sources of supply, production of secondary energy, when applicable, and distribution of consumption among the main energy consuming sectors is presented in Table 1.3 and Figure 1.1  - 8 - Table 1.2 Sources of Supply and the Gross Consumption of Energy, 1975-1982 1975 1980 1982 %000 % '000 % toe Share toe Share toe Share Hard coal Domestic Production 556 2.2 403 1.1 210 0.6 Imports 1,679 6.5 2,236 6.4 2,632 7.5 Subtotal 2,235 8.7 2,639 7.5 2,842 WT Brown Coal 3,647 14.2 3,158 9.0 3,291 9.3 Lignite 4,862 19.0 7,349 20.9 8,239 23.5 Total Solid Fuels 10,744 41.9 13,146 37.4 14,372 40.9 Oil Domestic Production 3,622 14.1 4,226 12.1 4,134 11.7 Imports 7,257 28.4 10,804 30.7 8,401 23.9 Subtotal 10,849 42.5 15,030 42.8 12,535 35.6 Natural Gas Domestic Products 1,332 5.2 1,557 4.4 1,919 5.5 Imports - - 1,436 4.1 1,886 5.3 Subtotal 1,332 5.2 2,993 8.5 3,805 10.8 Hydropower 1,914 7.5 2,828 8.0 2,335 6.6 Other Imports 727 2.8 1,143 3.2 2,117 6.0 Gross Supply 25,596 100.0 35,140 100.0 35,164 100.0 Losses in Conversion, 6,234 8,946 10,023 Transmission and Distribution EXPORTS OF SECONDARY 46 146 700 ENERGY NET DOMESTIC 19,316 26,048 24,393 CONSUMPTION Consumption by Sector Industry 1/ 11,822 15,230 15,899 Transport 3,326 4,513 3,436 Household 2,355 4,059 3,585 Public/Other 985 1,134 874 Agriculture 828 1,112 598 1/ Includes non-energy products and energy related industries.  Table 1. 3 Energy balance, 1982 /1 (thousand tons of oil equivalent) Primary_Energr Fianufac- Nlon Petroleum Products Hard Brown Crude aatur4l Dry tured Energy Flectri- Aviation Fuel LiNE Coal Coal Lignite Hydro yranium oI _Gas L!nite Coke Gas ProductS "'t_ Steam LPG Gasoline nd Keroseme Diesel Fuel Gos Other TOTAL TOTALS Sources of Supply Domestic Production 210 3,491 8,563 2,335 4,256 1,919 20,74 imports 2.610 - - 619 8.401 1,8R6 - 17 - - 270 - 104 1 1,794 - 1.398 IS.201 Exports - (203) (18) - - - - -t2 - Stock Changes - 3 (306) - (122) - 5 - - - - - -3 1170)) (s50 GROSS SUPPLY 2.820 3,791 8,739 2,31S 619 17.596 3. POS 22 270 - 107 - - I.t21 .m 3S. Convers ion Petroleum Refining - - (12.338) - - 268 1,476 - 229 1.617 225 2.907 4,744 300 10.022 (5sn1 Coking (2.656) -1.907 360 2- - - - - 1133) Electric Power Gen. (88) (1,347) (6,607) (2,335) (619) - (256) - 5,124 9- - - - (699) - (6993 (6.W7) Co-generation of which: Electricity - (52) (26) -- (21) - - (1) llo - - - - - (71 - (171) (237 Stem - (584) (178) - (353) (247) - I,525 (1) - - - (757) - (758) (5461 Boiter Plants (11) (470) (243) (578) - (195) - 2.399 (13) - - (1.314 - (1.32 (4231 Lignite Drying - - (397) - - - - 343 - 35 - - - -(o - - - - t) LIquid Fuel Gasification 9M-13 (3) aSO Plants- (48) 42 - - _ _ _ _ P) Degesification /2 - - - - - - (194) - - 61 32 - 83 - - _3 (_1) Self Consuamtion - (10) ("l) - - (196) (240) - - - - (321) - - (713 Conversion Losses - - - - - - - MM-- - - - - - - - - - (6.' 1/0 Losses - - - - - (508) - - - - - - tS "Et SIPPLY 65 828 777 - 1,918 343 1,929 337 1,764 4.695 3,974 396 1,617 225 2.907 3.017 330 8.462 ZS,093 Bunker Sales - - - - - - - '' - - - - - - - - Secondary Esports - - - - - - (314) (105) - - - - 281 - - (Zs! - lOO3 MET 0O(6STlIC 65 828 7 - 1.918 343 1,615 33Z 1,764 4,590 3,974 396 1,617 225 2.907 3.017 30D 8.1111 h.n31 Consumption by Sector Industry 85 401 312 - 1,061 172 1,615 33? - 2,075 2574 713 - - - 3.0S 274 3.seo 12.1; Energy Industries - - . - 499 1,078 - I - - - - - ' Non Energy Use - - - - - - 446 1,764 - - - - - - 2 _ 2.; I Transport - - e l - 142 - - 1.54 195 1.407 - 21 3.207 3.436 Households - 326 225 - 141 171 - - - 1,452 216 183 - - 62 9 - 1.054 3.5J5 Public/Other - 101 153 - - - 69 - 352 \06 - - 30 63 - - 93 S74 AgrIculture 201 70 33 - 24 - - 3y 58 Source: Prepared by the mission bsed on the Energy Balance for the SFl of Yugoslavia; Boris Judin, Federal Statistical Office. Belgrade. May 19813. /1 For convenience of presentation some cateqories of energy have been combined.   Figure 5.1 NATIONAL ENERGY BALANCE FOR YUGOSLAVIA, 1982 Stloc mp rt -mp rt rt StOcks Import npol V ' V V V V V 5 171 1,293 104n 3; 619 270n 1.475 550 741 PRIMARY ENERGY INPUT 4 No,oEnergy Imnprl 't I,,p&r ImpGr|.