Slide Set 1 WB Scott Sinclair

Investors Conference Scott Sinclair World Bank

Pristina Kosovo 20 January 2010

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Kosovo energy sector • Kosovo is an emerging economy with a GDP per capita of €1760 • Population is about 2.1 million; 400,000+ electric customers • The energy sector is a major drain on the central budget, principally for: – power imports – lignite mine development

• Critical need to open new Sibovc lignite mine before lignite runs out in old mines 2

Kosovo energy sector • The energy sector has faced a number of challenges: – – – – – – –

Energy theft Nonpayment of bills Antiquated equipment Lack of funds for maintenance and repairs Weak governance; cumbersome procurement rules Overstaffing Political interference

• Although performance is improving, there is still a critical need to improve the credit worthiness of the sector • Because Kosovo A Power Station is highly polluting, there is a critical need to replace it 3

Kosovo energy sector • • •

Electricity demand is about 4900 GWh and expected to grow at 34% per annum Electricity generation in Kosovo is about 4400 GWh Import of 500+ GWh is expensive at about €85-100/MWh (2007-09)

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current institutional structure Mining Regulator (ICMM)

Energy Regulator (ERO) KEK Kosovo A Power Station

KEK Mining

KEK Kosovo B1/B2 Power Station

Small hydro plants

Transmission System and Market Operator (KOSTT)

KEK Distribution and Supply Division

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key issues and initiatives • Development of new lignite mine is a large fiscal drain – Transfer capital funding requirement to a private owner/operator

• Distribution and supply business is poorly performing – Introduce a private owner/operator with incentives to improve efficiency and cash flow so DiSCO can pay for all costs including imports – Build capacity and independence in Energy Regulatory Office – Implement effective adjudication of theft/nonpayment

• Power supply is inadequate today and gap is growing – – – –

Introduce a private owner/operator for Kosovo B Rehabilitate Kosovo B for life extension Add a new private generation unit to replace Kosovo A Solicit developer for Zhur hydroelectric

• Pollution – Decommission Kosovo A – Rehabilitate Kosovo B to meet EU directives 6

develop a new lignite mine • • • • • • • •

Existing Bardh / Mirash mine to be partially exhausted 2010 with partial supply (~3.5 mmt) from Sibovc SW through mid-2011, thereafter full lignite supply from Sibovc (Kosovo A and B demanding 7-8 mmtpa) Sibovc Field contains 900 mmt lignite (8312 kJ/kg) with low (0.85) overburden to lignite stripping ratio Sibovc SW development guided by main mine plan (Steag 2005 / 2006) 2009 mine development improved through a reinforcing truck-and-shovel operation on overburden removal KEK holds an exploitation license for sufficient coal for Kosovo A and B through decommissioning dates.

Donors have funded refurbishment of three overburden BWE’s Incoming investor will decide actions around existing coal production equipment Incoming investor will have access to Mirash / Bardh for (a) dumping of over-burden and ash, (b) potential water storage, and (c) reclaimed outside dumps to the south for agricultural purposes around land swaps

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privatization of the distribution and supply business • Government has launched the privatization of the distribution and supply business (KEK DiSCo) • A private distribution company will bring – New skills and funding – New governance and regulatory compact

• Cash flow improvement is key to the sustainability of the sector

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rehabilitation of Kosovo B • Poor operations and maintenance in the past has led to de-rating of units – New rotors will improve output

• Not currently in compliance with EU directives on air emissions • Study is underway to establish the feasibility of rehabilitation of Kosovo B1 and B2 – Meet EU directives by 2017 – Life extension to 2030+ 9

retirement of Kosovo A • Kosovo A Power Station is not in compliance with EU directives and must shut by 2017 • Government has committed to closing it by 2015 • New generation unit (KRPP1) will replace power from Kosovo A • Plan for decommissioning of Kosovo A is being developed

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future institutional structure Mining Regulator (ICMM) ine m w Ne

KEK Mining

Energy Regulator (ERO) KEK Kosovo red A RPower eti Station

KEK Kosovo ted a t i il B1/B2 ab Power h ReStation New unit

Transmission System and Market Operator (KOSTT)

d i ze t a v Pri

KEK Distribution and Supply Division

Public-Private Partnership

Small hydro plants

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sector development • The two major private-sector initiatives will run in parallel • Coordination between transaction teams Project Implementation Plan (PIP) 2010 Task Name 1

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2011 02

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09

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02

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Lignite Power Project

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PSC decision

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Expand short-list

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Prepare rehabilitation feasibility study

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Prepare RFP

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Bid preparation

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Bid evaluation/clarifications

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Negotiation/financing

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Closing

PSC short list feasibility RFP (2 stages) bid preparation evaluation contracts/financing

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Distribution and Supply Business

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Select transaction advisor

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Diagnostic report

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Prepare RFP

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Bid preparation

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Bid evaluation/clarifications

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Tariff negotiation/financing

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Closing

select diagnostic prepare RFP bid preparation evaluation tariffs

financing

Project: KS Energy Sector PIP Date: Wed 01/20/10

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key support from the donor community •

European Commission

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KfW

– Study on the decommissioning of Kosovo A – Transmission substations – Support to Energy Regulatory Office – – – –

Transmission line to Albania; transmission studies Peja substation; overhead lines Excavator upgrading Energy efficiency for households and small businesses

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USAID

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World Bank Group

– Advisory services to KEK (PA Consulting) and Ministry (Deloitte) – Feasibility study on rehabilitation of Kosovo B1/B2 – Support to Energy Regulatory Office – Technical assistance (generation expansion; energy efficiency; strategic environmental and social assessment (SESA); regulatory compact (proposed); greenhouse gas strategy (proposed); renewable energy study (proposed)) – Cleanup and Land Reclamation Project for Kosovo A ash dump – Public Expenditure Review – DiSCo privatization advisor (IFC)

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WBG financing instruments for the Lignite Power Project World Bank and MIGA • Prospective providers of loan guarantees to winning bidder IFC • Prospective lender and/or equity investor to winning bidder RFP will contain guidance on appraisal requirements including environmental and social assessment 14