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In this article a critical study of the restructuring policy in electricity sector in South East Europe (SEE) countries in transition, corroborated with some typical examples from Croatia, is given. Being one of a number of European countries passing through processes of economic transition from socialist to market-based economy, Croatia has experienced quite a few problems in restructuring electrical energy sector, held along with fundamental transformation of the society as a whole. In particular, this work is concentrated on interactions between various factors and agents like the state and its sector policies and strategies, supra-national legislation, EU accession, institutional environment, and companies involved in electricity sector. The main conclusions are: (i) SEE countries in transition have mostly reformed their electricity legislation, but still significant problems in implementation of the market rules and principles remain unresolved; (ii) virtually all unresolved issues can be clearly attributed to rigid retail price controls that have been kept throughout the region; (iii) thus, the only possible way to finish the reform of the electricity sector in these countries successfully is to allow all market participants to do business under normal conditions, which seems to be rather difficult for the governments of SEE countries.