While the Mediterranean region displays a great
diversity of population, languages and cultures, it is as well a place of
convergence. Starting with the Euro-Med Conference (Barcelona, November 1995)
the economic and financial partnership between European Union and Southern
Mediterranean countries has been constantly developed. In this context, energy
has been recognized as a pivotal aspect of the Euro-Mediterranean regional
cooperation.

The Barcelona Declaration specifically referred
to increasing crossborder investments in the regional energy markets in order
to support the development of Mediterranean national economies, as well as
strengthen cooperation and intensify exchange of experiences among
Mediterranean countries. Following the 1995 Declaration, the Barcelona process
accomplished progress through several meetings: the Conferences of Athens, Rome
and Naples (2003), the Conference of Brussels (2006), the Conference of
Limassol (2007), and the Algiers Declaration (2010).

Moreover, in June 2008 the Union for the
Mediterranean (UfM) was launched, with the aim to capitalize into a permanent
institution the work done and the synergies emerged throughout the Barcelona
process. The Mediterranean energy sector has a high degree of interdependence,
both for electricity and gas. Constant contacts and strong cooperation among
Mediterranean countries is therefore necessary to ensure countries with proper
flows of energy, both for commercial use and to guarantee proper security of
supply.

Currently, several cross-border
interconnections exist in the region. As for electricity, the three Maghreb
countries (Algeria, Morocco and Tunisia) are interconnected and further linked
with the European Union. As for the Eastern side of the Mediterranean, the
interconnected grids of Jordan and Egypt form the South East Pool. The main gas
interconnections of the region lay on the South shore – North shore axis. It is
foreseeable that diversification of supply will pave the way for more intense
transport infrastructures along the East-West corridor.

Current interconnections are not sufficient to
guarantee a proper development of the region. Electricity and gas
interconnections around the Mediterranean region need to be substantially
improved in order to allow an effective and well integrated regional energy
market. It should also be considered that investments in energy grids and
generation facilities require a medium-to-long term commitment on the part of
companies, regulator and the political power, so to create a stable and well
governed environment where payback is guaranteed in due time.

Moreover, Mediterranean national energy markets
are today at very different degrees of maturity. In the Southern shore
utilities are state-owned and operate either based on sp-vertically integrated
service providers or using a single buyer model. Most of these utilities are
running at high degree of subsidies, which do not provide a right price signal
for private investors. Therefore, most of the investments are financed by the
state. However, states face increasing difficulties in keeping the current
level of subsidies. Reform of the electricity and gas sectors are being
discussed in various Southern countries.

Egypt, for example, is currently designing a substantial
reform of its electricity sector. The presence of independent regulators is
pivotal to guarantee that the reform balances between the needs of investors
and consumers, and to subsequently provide investors with a clear framework of rules.

Several initiatives are active in the region to
increase investments in the energy sector and enlarge their scope: governments,
regulators (MEDREG), TSOs (Med-TSO), operators (Observatoire Mediterraneen de
I’Energie, – OME, Res4Med, Medgrid, Desertec – Dii and others), as well as
international financial institutions (IFIs). Also, the EU implements a program
of financial and technical assistance to the region, called the European Neighborhood
and Partnership Instrument (ENPI).

In particular, international financial
institutions (such as the European Bank for Reconstruction and Development –
EBRD, the European Investment Bank – EIB, the African Development Bank – AfDB
and the World Bank – WB) are today in a key position to support energy
investments, most notably in infrastructure, provided that appropriate cooperation
takes place among the different actors involved. Regulators are among those actors.

Indeed, regulators should dedicate increasing
attention to enhance the level of efficiency interoperability and the quality
of planning of energy infrastructure. Crossborder infrastructures are crucial
to boost the upgrade of internal grids and overcome the actual fragmentation of
the Mediterranean energy system. The creation of adequate, integrated and
reliable energy networks is a prerequisite to deliver a properly functioning energy
market that will enhance security of supply, integration of renewable energy
sources, energy efficiency and will enable consumers to benefit from new
technologies and a smart use of energy.

Currently, Mediterranean countries are mainly
concerned with two priority corridors: the North-South electricity corridor and
the Southern gas corridor. These projects should also take into account future
energy demand, which is expected to substantially rise. For more find in the here report.