energy sector technical assistance project (estap) kosovo...

UNITED NATIONS INTERIM ADMINISTRATION MISSION IN KOSOVO

UNMIK

“ESTAP Executive Summary”

Final Report

Pristina September 2002

ENERGY SECTOR

TECHNICAL ASSISTANCE PROJECT

(ESTAP) KOSOVO

World Bank Grant No. TF-027791

E S T A P – K o s o v o Project Summary

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Project Synopsis

Pr oject T itle:

Energy Sector Technical Assistance Project Kosovo. WORLD BANK Grant No. TF-027791

Pr oject Objectives:

The ESTAP project provides Consulting Services to Develop a Strategy for a medium and long-term program for the reconstruction and recovery of the Energy Sector, rather than finance rehabilitation investments. The technical assistance was focused on:

(1) Undertaking a household energy survey and affordability study to establish how best to manage future energy in a sustainable manner;

(2) Defining a least-cost investment program for rehabilitation, reconstruction and expansion of the energy sector over a period of 15 years;

(3) Preparing recommendations for the strengthening of energy sector institutions and for the reform of the energy supply industries; and

(4) Training energy sector personnel in modern techniques of energy planning and policy making.

The 13-module study has established projections of energy demand under different scenarios, and assessed the optimal rehabilitation and development strategies to meet this demand. The study has made recommendations on electricity tariff and energy sector reform. Based on these recommendations, a long-term strategy is developed addressing economic cost-reflective electricity tariffs as well as the evolution of the sector towards improved corporate governance, commercialization, competition and privatization, where feasible.

C ontr acting Par ty:

United Nations Interim Administration Mission in Kosovo (UNMIK) Transitional Department of Trade and Industry (ex Public Utilities Department, EU Pillar – Economic Reconstruction and Development)

C ontr actor

CESI, Centro Elettrotecnico Sperimentale Italiano G. Motta, Italy (lead contractor);

ELEKTRO INSTITUTE MILAN VIDMAR (EIMV), Slovenia (partner);

RAMBOLL OIL AND GAS, Denmark (partner), and

RHEINBRAUN ENGINEERING UND WASSER GMBH (RE), Germany (partner)

Pr oject R ecipient R epr esentatives

United Nations Interim Administration Mission in Kosovo

Marko Kosir WB Study Project Coordinator KTA, Energy Division Manager

Pr oject Star ting Date:

23rd April 2001


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Pr oject Dur ation

Twelve (12) months consultancy and six (6) months training Project Working Team K. Robo ESTAP Team Leader CESI Power System Planning and Dispatch Expert G.L. Fracassi Module A Leader CESI Energy Planner and Power System Expert S. Ivanjko EIMV Elektroinstitut Milan Vidmar Expert for Energy Planning D. Pesut EIMV Elektroinstitut Milan Vidmar Expert for Energy Planning F. S. Kjerulf RAMBOLL Energy Economist Oil and Gas G. Drera CESI Expert for Load Monitoring and Analysis L. Ronchietto CESI Expert for Demand Management W. Grattieri CESI Expert for Demand Side Management Z. Kosnjek Module B Leader EIMV Elektroinstitut Milan Vidmar Expert Power Generation Planning Z. Bregar EIMV Elektroinstitut Milan Vidmar Expert Power Generation Planning M. Zeljko EIMV Elektroinstitut Milan Vidmar Expert Power System Operation and Planning A. Sustersic EIMV Elektroinstitut Milan Vidmar Environmental Impact Assessment Expert M. De Carli CESI Expert Thermal Power Plant C. Sampietri CESI Expert for Structural Analysis A. Gnocchini CESI Expert for Structural Analysis G. Negri CESI Expert for Structural Analysis J. Perme Module D Leader EIMV Elektroinstitut Milan Vidmar Power System Analysis and Planning Expert A. Otrinj EIMV Elektroinstitut Milan Vidmar Power System Planning Expert B. Hlebcar EIMV Elektroinstitut Milan Vidmar Planning Expert for MV and HV Networks R. Mihalic EIMV Elektroinstitut Milan Vidmar Power Distribution and Network Planning Expert U. Bazzi Module E Leader CESI SCADA/EMS Control System Expert J. Golob Module F Leader EIMV Elektroinstitut Milan Vidmar Expert in Distribution network planning T. Mohar EIMV Elektroinstitut Milan Vidmar Expert in Distribution network planning


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M.Maucec EIMV Elektroinstitut Milan Vidmar Expert for MV network planning L. Hofmann G Module Leader Rheinbraun Engineering und Wasser GmbH Mine Planning Expert R. Durchholz Rheinbraun Engineering und Wasser GmbH Coal Mining Planning Expert A. Beyer Rheinbraun Engineering und Wasser GmbH Expert for Mine Planning Engineering W. Pelzer Rheinbraun Engineering und Wasser GmbH Expert Electrical Engineering T. v. Schwarzenberg Rheinbraun Engineering und Wasser GmbH Expert for Hydrology/Hydrochemistry and Geology B. Schmitt Rheinbraun Engineering und Wasser GmbH Expert Financial Analysis P. Haag Rheinbraun Engineering und Wasser GmbH Expert for Mechanical Engineering K. Jansen Rheinbraun Engineering und Wasser GmbH Coal Mining Expert O. Rupprecht Rheinbraun Engineering und Wasser GmbH Coal Mining Expert R. Leifer Rheinbraun Engineering und Wasser GmbH Coal Mining Expert A. Dyrelund Module H Leader RAMBOLL District Heating Planning Expert L. Brinkmann RAMBOLL District Heating Expert S. Lorendsen RAMBOLL District Heating Expert P. Jorgensen Module I leader RAMBOLL Expert for Integrated Oil and Gas System Planning T. Brabo RAMBOLL Energy Planner and Energy Economist M. S. Velkoski RAMBOLL Natural Gas Sector Expert J. K. Jensen Module J Leader RAMBOLL Expert for Petroleum Sector Planning D. Shuysky RAMBOLL Petroleum Sector Expert F. Ciampitti Module K&M Leader CESI Power Business Expert M. Cozzini Module L Leader CESI Expert for Electricity Tariff D. Virgilitto CESI Power Analyst C. Ferrario CESI Expert for Financial Analysis


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Table of Contents Project Synopsis ............................................................................................................................. i ACKNOWLEDGEMENT ............................................................................................................ 1 PART 1 SUMMARY OF CROSS-SECTORIAL ANALYSIS .................................................... 2 1 INTRODUCTION ................................................................................................................ 2 1.1 Objectives for the development of Kosovo energy sector ................................................ 2 1.2 Background ....................................................................................................................... 3 1.3 Indigenous energy resources ............................................................................................. 5 1.4 Main problems in energy sector ........................................................................................ 5 1.5 Integration in regional energy market ............................................................................... 7 1.6 EU legislation Directives and Regulation on Energy Sector ............................................ 8 1.7 Legal and Regulatory Framework ..................................................................................... 9 2 SUMMARY OF POLICY RECOMMENDATION AND INVESTMENT NEEDS ......... 10 2.1 Summary of Policy Recommendations ........................................................................... 10 2.2 Summary of Investments................................................................................................. 10 2.3 Proposed new studies ...................................................................................................... 10 3 3 ECONOMIC DEVELOPMENT OF KOSOVO .............................................................. 13 3 3 ECONOMIC DEVELOPMENT OF KOSOVO .............................................................. 14 3.1 Three scenarios for economic development .................................................................... 14 3.2 Demographic development ............................................................................................. 14 3.3 Scenarios description ...................................................................................................... 14 4 ENERGY DEMAND FORECAST ..................................................................................... 16 4.1 Competitiveness and affordability in households ........................................................... 16 4.2 Primary energy consumption .......................................................................................... 18 4.3 Energy balances for 2005, 2010 and 2015 ...................................................................... 19 4.4 Main alternatives for energy supply ................................................................................ 20 4.5 Total Energy System cost................................................................................................ 24 4.6 Energy tariff issues .......................................................................................................... 24 5 ENVIRONMENT ............................................................................................................... 26 5.1 Present situation of environmental pollution from energy sector ................................... 26 5.2 Environmental impact of energy sector development plan ............................................. 28 5.3 Other measures for mitigating the environmental effects ............................................... 29 6 LEAST-COST INVESTMENT PLAN ............................................................................... 31 6.1 Introduction ..................................................................................................................... 31 6.2 Total investments ............................................................................................................ 31 6.3 Investment Plan short-term 2003-2005 ........................................................................... 32 6.4 Investment Plan medium-term 2006-2010 ...................................................................... 33 6.5 Investment Plan long-term 2011-2015 ............................................................................ 33 6.6 Key decisions in relation to a Kosovo energy strategy ................................................... 34 7 FINANCING OF ENERGY PROJECTS ........................................................................... 36 7.1 Introduction ..................................................................................................................... 36 7.2 Outline of financing of projects ...................................................................................... 37 8 KEY ISSUES FOR ENERGY SECTOR ............................................................................ 38 8.1 Energy strategy for Kosovo ............................................................................................ 38 8.2 Key decisions to be made ................................................................................................ 39 8.3 Energy Sector reforms and restructuring issues .............................................................. 41 8.4 Legal and Regulatory Framework improvement ............................................................ 42 8.5 Additional Studies Needed .............................................................................................. 42 9 MAIN RECOMMENDATION FOR STRENGTHENING OF ENERGY SECTOR ........ 44 9.1 Policy recommendation ................................................................................................... 44 9.2 Recommendations to improve efficiency ........................................................................ 45 9.3 Recommendations on the evolution of an appropriate sector structure .......................... 46 9.4 Feasibility for converting the public utilities and unbundling ........................................ 48 9.5 Competition in the power sector ..................................................................................... 48


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PART 2 SUMMARY OF SECTOR ANALYSIS ....................................................................... 51 1. MODULE A – ELECTRICITY DEMAND SUMMARY .................................................. 52 1.1 General ............................................................................................................................ 52 1.2 Scope of Work ................................................................................................................ 52 1.3 Macro economical and demographic analysis ................................................................ 52 1.4 Analysis of the electric system and the electricity consumption..................................... 53 1.5 Electricity demand forecast ............................................................................................. 53 1.6 Electricity Forecast in a scenario without reduction of non-technical losses .................. 55 1.7 Demand Side Management ............................................................................................. 55 1.8 Conclusions and recommendations ................................................................................. 56 2. MODULE B – LEAST-COST POWER GENERATION INVESTMENT PROGRAM SUMMARY ................................................................................................................................ 57 2.1 General ............................................................................................................................ 57 2.2 Scope of Work ................................................................................................................ 57 2.3 Current State ................................................................................................................... 57 2.4 Options for power supply ................................................................................................ 58 2.5 Least-cost power generation investment program .......................................................... 58 2.6 Environment .................................................................................................................... 60 2.7 Conclusions and recommendations ................................................................................. 61 3. MODULE C – POWER TRANSMISSION MASTER PLAN SUMMARY ..................... 63 3.1 General ............................................................................................................................ 63 3.2 Scope of Work ................................................................................................................ 63 3.3 Study Methodology ......................................................................................................... 63 3.4 Summary of Kosovo 2000-2015 Transmission Master Plan .......................................... 64 3.5 New 400 kV Interconnection Line Kosovo B – Kashar (AL) ......................................... 66 4. MODULE D – REDUCTION IN TECHNICAL POWER LOSSES IN TRANSMISSION AND DISTRIBUTION SUMMARY ......................................................................................... 68 4.1 General ............................................................................................................................ 68 4.2 Scope of Work ................................................................................................................ 68 4.3 Reasons for high level of technical losses ....................................................................... 68 4.4 Summary of the results of loss calculation...................................................................... 69 4.5 Conclusions and Recommendations ............................................................................... 71 5. MODULE E – POWER DISPATCH SYSTEM PLAN SUMMARY ................................ 73 5.1 General ............................................................................................................................ 73 5.2 Scope of Work ................................................................................................................ 73 5.3 Main issues of the project ............................................................................................... 73 5.4 Phased implementation ................................................................................................... 75 5.5 Investment Costs ............................................................................................................. 75 6. MODULE F – POWER DISTRIBUTION MASTER PLAN SUMMARY ....................... 77 6.1 General ............................................................................................................................ 77 6.2 Scope of Work ................................................................................................................ 77 6.3 Distribution network planning ........................................................................................ 77 6.4 Conclusions and Recommendations ............................................................................... 81 7. MODULE G – LIGNITE MINING DEVELOPMENT STRATEGY SUMMARY .......... 82 7.1 General ............................................................................................................................ 82 7.2 Scope of Work ................................................................................................................ 82 7.3 Coal Reserves and Coal Quality ..................................................................................... 82 7.4 Coal Market ..................................................................................................................... 83 7.5 Summary Mine Planning................................................................................................. 83 7.6 Environment .................................................................................................................... 84 7.7 Production Costs ............................................................................................................. 84 7.8 Conclusions and Recommendations ............................................................................... 85 8. MODULE H – DISTRICT HEATING SUMMARY ......................................................... 87 8.1 Introduction ..................................................................................................................... 87


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8.2 Scope of Work ................................................................................................................ 87 8.3 District Heating System .................................................................................................. 87 8.4 District Heating Strategy for Kosovo .............................................................................. 90 9. MODULE I – NATURAL GAS SUMMARY .................................................................... 93 9.1. Introduction ..................................................................................................................... 93 9.2. Scope of Work ................................................................................................................ 93 9.3. Main findings .................................................................................................................. 93 9.4. Infrastructure investments ............................................................................................... 96 9.5. Cost benefit analysis ....................................................................................................... 97 9.6. Institutional and regulatory issues ................................................................................... 97 9.7. Consideration about delayed introduction of natural gas to Kosovo .............................. 97 10. MODULE J – PETROLEUM SUMMARY.................................................................... 98 10.1 General ............................................................................................................................ 98 10.2 Scope of Work ................................................................................................................ 98 10.3 Petroleum infrastructure in Kosovo ................................................................................ 98 10.4 Regional co-operation and development ......................................................................... 98 10.5 Organization of the Petroleum industry in Kosovo ......................................................... 99 10.6 Demand forecast and considerations of other energy supplies ....................................... 99 10.7 Price structure and competition in the energy market ................................................... 100 10.8 Requirements for Compulsory Oil Stocks .................................................................... 101 10.9 Regulation and organizational development of the petroleum sector ........................... 101 10.10 Recommendations ..................................................................................................... 102 11 MODULE K – INVESTMENT PLAN AND FINANCING OPTIONS SUMMARY . 103 11.1 General .......................................................................................................................... 103 11.2 Scope of Work .............................................................................................................. 103 11.3 Investment requirement ................................................................................................. 103 11.4 Investment plan ............................................................................................................. 105 11.5 Financing plan ............................................................................................................... 107 11.6 Current investments and KEK funds ............................................................................. 108 12 MODULE L – ELECTRICITY TARIFF SUMMARY ................................................ 109 12.1 General .......................................................................................................................... 109 12.2 Scope of Work .............................................................................................................. 109 12.3 Institutional Framework Relevant to Tariff Setting ...................................................... 109 12.4 Evaluation of Current Tariff Structure .......................................................................... 109 12.5 Long Run Marginal Cost Evaluation ............................................................................ 110 12.6 Financial Viability ......................................................................................................... 110 12.7 Determination of Tariff Structure and Rates ................................................................. 110 12.8 Financial sustainability and monitoring of the Tariff .................................................... 111 12.9 Lifeline Tariff ................................................................................................................ 111 12.10 Transition Period ....................................................................................................... 112 13 MODULE M – FUTURE STRUCTURE OF THE ENERGY SECTOR SUMMARY 115 13.1 General .......................................................................................................................... 115 13.2 Part I Electricity ............................................................................................................ 115 13.3 Part II Lignite Mining ................................................................................................... 120 13.4 Part III District Heating ................................................................................................. 121 13.5 Part IV Natural Gas ....................................................................................................... 121 13.6 Part V Petroleum sector ................................................................................................ 123 List of Tables Table 2-1 Proposed Policy Actions for Energy Sector ............................................................... 11Table 2-2 Summary of the Projected Investment Disbursements ............................................... 12Table 2-3 Summary of the subsector Investment Plan ................................................................ 12Table 2-4 Proposed new studies for Energy sector ..................................................................... 13


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Table 2-5 Composition of households in Kosovo 2001-2015 ..................................................... 14Table 2-6 Projections of GDP, and population in 2010 and 2015 .............................................. 15Table 3-1 Assumptions on heating technologies and fuel sources .............................................. 17Table 3-2 Primary energy consumption under the three scenarios, PJ ....................................... 18Table 3-3 Demand data overview ............................................................................................... 21Table 3-4 Total Energy Sector cost ............................................................................................. 24Table 6-1 Summary of Least-cost investment plan Center Case ................................................ 31Table 4-1 Relative reduction in technical losses in transmission ................................................ 69Table 4-2 Absolute and relative variations in the peak load power losses and annual energy

losses ................................................................................................................................... 70Table 4-3: Constant and variable transformer losses .................................................................. 71Table 4-4 LV network variable losses ........................................................................................ 71Table 4-5 Electrical energy technical losses – MG and HG scenario no gas .............................. 71Table 10-1 Center Case no-gas Forecast of demand for petroleum products, 1000 tonnes per

year ................................................................................................................................... 100Table 10-2 Forecast of the overall demand for petroleum products, 1000 tons per year .......... 100Table 10-3 Petroleum price level in Kosovo (2001), US$/tones. ........................................ 101Table 11-1 Net Present Value of Investments (BUS$): ............................................................ 103Table 11-2 Net present value of total energy system costs (BUS$): ......................................... 104Table 11-3 Summary of the Projected Investment Disbursements: .......................................... 107Table 11-4 Least-Cost Investment Plan Summary .................................................................... 107Table 11-5 Least-Cost Investment Plan Foreign money component ........................................ 108Table 11-6 Least-Cost Investment Plan Local money component .......................................... 108Table 12-1 Tariff Structure based on Long Run Marginal Cost .............................................. 113Table 12-2 Synthesis of new Tariffs and Projected Revenues .................................................. 114 List of Figures Figure 2.1 Growth in GNI per capita in the three scenarios compared to the level in other

countries .............................................................................................................................. 15Figure 3.1 Annual heating cost per unit heated area US$/m2 ..................................................... 18Figure 3.2 Primary energy consumption in Kosovo based on bottom-up Center Case no-gas ... 19Figure 3.3 Primary energy consumption Center Case no-gas ..................................................... 19Figure 3.4 Fuel shares in energy consumption 2005, 2010 and 2015, Center Case no-gas ........ 20Figure 3.5 Final energy consumption in the Center Case without gas Year 2015 ...................... 20Figure 3.6 Coal demand .............................................................................................................. 21Figure 3.7 Petroleum demand ..................................................................................................... 22Figure 3.8 Natural Gas demand .................................................................................................. 22Figure 4.1: Relative technical losses reduction in the period 2002-2015 ................................... 72Figure 4.2: Electrical energy demand versus total technical loss reduction in the period 2002-

2015 ..................................................................................................................................... 72Figure 5.1 Functional architecture of Kosovo Control System ................................................... 74Figure 6.1 Perspective new SS 110/MV in Kosovo 2002-2015 ................................................. 78Figure 9.1 Diversification of energy supply as fuel market share of primary energy

consumption, 2000 .............................................................................................................. 94Figure 11.1 Net Present Value of Investments in Center Case (MUS$.) .................................. 104Figure 11.2 NPV of total energy system costs including environmental (MUS$) in Center Case:

........................................................................................................................................... 105Figure 13.1 Electricity sector structure Phase 1 ........................................................................ 117Figure 13.2 Electricity sector structure Phase 2 ........................................................................ 117Figure 13.3: Proposal for the future organization of the production division ........................... 120


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L ist of A bbr eviations Abbreviation Explanation a Annum, year ACSR Aluminium/steel conductor CAPEX Capital expenditure CC Combined cycle CCGT Combined cycle gas turbine CHP Combined heat and power COS Compulsory Oil Stock DH District heating DSM Demand Side Management EAR European Agency for Reconstruction EBRD European Bank for Reconstruction and Development EC European Commission ESTAP Energy Sector Technical Assistance Project EU European Union FO Fiber Optic system FRY Federal Republic of Yugoslavia FYROM Former Yugoslav Republic of Macedonia GDP Gross domestic production GIS Geographical information system GNI Gross National Income HGS Hight Growth Scenario HPP Hydro Power Plant HV High Voltage IMF International Monetary Foundation KEK Korporata Energjetike e Kosovo KFOR Kosovo Force KfW Kreditanstalt für Wiederaufbau KLM Kosovo Load Model LGS Low Growth Scenario LRMC Long Run Marginal Cost LCIP Least-cost Investment Program LV Low Voltage MGS Medium Growth Scenario MV Medium Voltage NPV Net present value O&M Operations and maintenance p.a. Per annum PEC Primary energy consumption PLC Power Line Carrier PURCK Power Utility Regulatory Commission of Kosovo SCADA Supervisory Control and Data Acquisition SCGT Simple Cycle Gas Turbine SIDA Swedish International Development Agency TPP Thermal Power Plant UCTE Union for the Coordination of Transmission of Electricity UNMIK United Nations Interim Administration Mission in Kosovo WB World Bank


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L ist of Units Currency BUS$ Billion US dollars MUS$ Million US dollars US$ US dollars US$c Cent of US dollar Weights and Measures GWh Gigawatt hour GJ Giga Joule kV kilovolt kW kilowatt kWh kilowatt hour MJ Mega Joule MVA Mega volt ampere MW Mega Watt MWh Megawatt hour PJ Peta Joule V Volt W Watt ton Metric ton (tonne) Mt Million tons


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ACKNOWLEDGEMENT

During the work on the project, the ESTAP team has been grateful for the help received from many sources. Many people in KEK headquarters, in Distribution companies, in TERMOKOS, in INKOS, in the mines and power plants etc. contributed to this project and the ESTAP team extends its thanks to all of them.

The ESTAP team stands in great debt to Professor Sabri Limari for his invaluable support throughout the project, and for having added many valuable suggestions regarding the development of a strategy for Kosovo’s energy sector. We wish to thank our many colleagues and friends, in particular staff of the Strategic Development Directorate, Transmission and Distribution Departments and System Dispatching Center for their assistance in collecting a large volume of data and information; and have given their contribution not only during day-by-day technical discussions, but also during their participation in the Technical Workshops of all Modules, which was most helpful in improving the analysis made by the various modules of the project.

The ESTAP team wishes to acknowledge the valuable contribution of the Mr. Marko Kosir WB Study Project Coordinator (UNMIK KTA, Energy Division) for his expert advices, suggestions, overall support and assistance, his personal dedication throughout the duration of this highly challenging project, and the help by which he greatly facilitated the establishment of essential contacts in various institutions of energy sector in Kosovo.

Many thanks are due to Mr. Iftikhar Khalil, Principal Energy specialist, Energy Department, Europe & Central Asia Region of the World Bank, who was in charge of the ESTAP Kosovo for his professional guidance, assistance and highly appreciated comments that helped considerably in calibrating the final recommendations for the future development of energy sector in Kosovo.

The ESTAP team acknowledges the considerable support it has received from all the members of the Steering Committee, who have patiently followed the project and contributed with their decisions in relation to all activities performed during the project. Finally, the ESTAP wishes to thank all those who contributed to this complex and demanding project. The list of experts is quite long and details of their contribution are given on respective project Modules.


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PART 1 Summary of Cross-Sectorial Analysis

1 Introduction

1.1 Objectives for the development of Kosovo energy sector

The main objective of the Energy Sector Technical Assistance Project (ESTAP) is to provide technical assistance for development of a strategy for the medium-term and long-term program for reconstruction and recovery of the energy sector in Kosovo, as well as the evolution of the sector towards improved corporate governance, commercialization, competition and privatization.

The technical assistance is focused on:

I ) Definition of a least-cost investment pr ogr am for r ehabilitation, r econstr uction and expansion of the ener gy sector for the per iod fr om 2002 to 2015.

The partial objectives are:

Coal Sector (Module G) Propose a lignite mine development strategy for the period up to 2015 and estimate future production costs.

Power Sector Demand (Module A): Analyze the demand for electricity, including evaluating the feasibility and cost of using alternative forms of energy for cooking and space heating and other uses, and make projections of electricity consumption.

Production (Module B): Determine the production capability and remaining lifetimes of the existing power generating facilities; identify options for future power generating capacity and determine a Least-Cost Power Generation Expansion program.

Transmission (Module C): Preparation of a least-cost Transmission Master Plan for rehabilitation and expansion of the power transmission system based on the most economic combination of generation and transmission systems.

Distribution (Module F): Determine rehabilitation requirements and preparation of a Distribution Master Plan.

Losses (Module D): Analyze the technical losses in transmission and distribution, and propose immediate and long-term measures to reach realistic loss reduction targets.

Control (Module E): Evaluate the feasibility of a new SCADA/EMS system and associated telecommunications facilities and the definition of the functional technical specifications for a new modern control system.

District Heating (Module H) Evaluate the current state of the district heating facilities in the DH systems of Prishtina, Gjakova, and Mitrovica. Assessment of the competitiveness of district heating and development of options for the improvement of the heat production (including alternative fuels).

Oil (Module J) and Gas Sector (Module I) Investigate the technical and economic feasibility of importing natural gas to Kosovo, estimating the demand for gas and identifying the required infrastructure; perform a cost-benefit analysis and make recommendations on the most suitable institutional and regulatory issues for the gas sector.


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Estimate the future demand for petroleum products, investigate conditions for development of a private petroleum sector in Kosovo, estimate the present and future cost structure for petroleum products and finally, in co-operation with the Fuel Supervisory Board, to recommend a regulatory framework for operation within the sector.

I I ) C r oss-Sector Objectives:

a. On the basis of the above modules, prepare detailed recommended investment plans for the power sector, lignite, district heating, natural gas, and petroleum, and identify options for financing the investments (Module K).

b. On the basis of the least-cost expansion programs, and the programs for dispatching and distribution, estimate the economic costs of electricity and determine an electricity tariff structure that reflects these costs as far as possible while providing enough revenue to ensure a satisfactory financial performance of KEK; recommend a transition strategy for moving to the new tariff structure (Module L).

c. Preparing recommendations for the strengthening of energy sector institutions and for the reform of the energy supply industries. Examine the internal organizational structure and operations of each of the energy companies; make recommendations to improve efficiency; and make recommendations on the evolution of the sector structure towards greater company autonomy, corporatization, commercialization, competition and privatization (Module M).

d. Training energy sector personnel in modern techniques of energy planning and policy making.

1.2 Background

Kosovo, being located in South-East Europe, close to the warm Mediterranean Sea, but also as a part of the European Continent, experiences rapidly shifting temperatures during the winter. Such cold and short winters are very expensive from an energy supply point of view, if the energy supply systems need to be designed for the coldest periods. During summer, the continental climate results in temperatures, which are higher than the normal comfort level. When people can afford it, there will be a demand for air-cooling.

Pr esent situation of E ner gy Sector

The Kosovo energy sector has been severely affected by the recent conflict so, significant interventions are urgently needed for its reconstruction. A brief description of the present situation and conditions of the sector is presented here below.

Power Sector

Production: Electricity in Kosovo is produced by two lignite-fired TPP Kosovo A and Kosovo B with total installed generation capacity of 1,513 MW. Most of the units of the two thermal plants are in poor operating conditions so that the present available capacity of the system is only 841 MW. Overhauling and rehabilitation works have been carried out or are underway. The total production in 2000 was 1,914 GWh and rose to 2,568 GWh in 2001.

Demand: Before the conflict, annual electricity generation was in the order of 4,500 GWh, out of which 60-80% for domestic consumption. In 2000 the energy consumption was 2,869 GWh and in 2001 it was 3,111 GWh. Only 52.7% of energy was billed in 2001 and only 65% of the billed energy is collected, while the technical and non-technical losses amount to 47.3 % of energy supplied. In the last 10 years a pronounced change has taken place in the share of electricity consumption among the different categories: households’ and services’ shares increased from 26% to 75% and from 7% to 13% respectively, while industry’s share dropped from 67% to 12%. The total number of customers is estimated to about 360,000. The use of


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electricity for heating account for 64.2% of supplied energy and the ratio between the monthly energy in December and in July is 2.4 for the same reasons.

Transmission and Distribution: The total length of transmission lines (400, 220 and 110 kV) is 1,162 km. During the conflict the transmission network, especially the 400 kV portion, was partially destroyed. Most of the transmission lines are now back in operation following recent repairs, while substations are still in bad technical condition. The 400 kV and 220 kV transmission network of Kosovo power system is only a part of the regional interconnected transmission system. The transmission system is interconnected with all the neighboring systems and the 400 kV lines of Kosovo are some of the principal media with a wide regional interest for reliable electricity supply and energy exchanges between the power systems of the Second UCTE Synchronous Zone.

The total length of distribution lines is about 29,000 km. Conflict damage to the secondary distribution network (0.4 to 110 kV) was extensive, estimated to affect 30% of the network.

Coal Sector Lignite is produced by Mirash and Bardh opencast mines. In 1989, the two mines produced 10.5 million tons in total. The present situation at the mines, however, is determined by an uneconomical mining operation due to numerous constraints caused by the war and post-war situation and consequently a low production level. In 2000 the lignite production was only 3.05 million tons, and the overburden removal had apparently been neglected for years. The environmental situation of the mine sites is characterized by fires at the outcrop of the seams within the slope system of the pits. Spontaneous ignition of the lignite is the reason for the lignite fires at both mines.

District Heating District heating systems in Prishtina, Gjakova and Mitrovica supplies only about 5% of the heat demand (only space heating) in Kosovo. The DH companies do not supply sanitary hot water to consumers. In Prishtina heated water is provided by two 58 MW heavy fuel oil-fired boilers and serves about 12,000 apartments. The heating system in Gjakova serves about 700 apartments and in Mitrovica the district heating system supplies 160 apartments.

Oil and Gas Kosovo is fully dependent on imported petroleum products from all the neighboring countries. There are no known indigenous resources and no refinery capacity exists in Kosovo. Being a landlocked country, from a petroleum supply point of view Kosovo has a inexpedient infrastructure, i.e. not only no hydrocarbon resources are available and no refinery capacity exists in Kosovo, but also Kosovo is located in mountainous areas with long distance from the coastline with its port infrastructure and terminals. Present petroleum consumption is estimated between 397,000 and 413,000 tons per year. Petroleum prices are high in Kosovo and petroleum products are subject to relatively high duties and taxes.

A gasification plant extracting low calorific gas from local lignite is located at TPP Kosovo A. Gas was distributed to the local industrial complexes and as far as Skopje some eighty kilometers to the south. The network was functional to the end of the eighties when economic recession seized operations. In the intermediate period, pipes and installations inside Kosovo have at best been lying untouched and are today heavily damaged at several locations. Refurbishment of the similar gas pipeline in Macedonia has been accomplished and the pipeline is now in operation. The Macedonian experience shows that the pipeline is in a quiet good condition; only welding has to be upgraded.

Introduction of natural gas was initially planned in the late 1980’s, mainly for use in the industrial sector. This plan was not implemented due to the break-up of Yugoslavia and the subsequent events in Kosovo.


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1.3 Indigenous energy resources

Coal Sector The Kosovo lignite mines are operated at one of the most favorable lignite deposits in Europe due to its geological conditions. The total estimated resources of 10,000 Mt represent one of the richest lignite sources in Europe, which would allow ambitious power generation and expansion schemes for the future. With an average ‘stripping ratio’ of 1.7 cubic meter of waste per 1 ton of lignite, local coal production is a highly competitive fuel for supplying the power plants, compared to forecasted prices for imported fuel sources.

Renewable Energy Sources in Kosovo Kosovo has a range of renewable energy resources including hydropower, and biomass, as well as geothermal, wind, and solar energy.

Wood is also an important resource used for heating in individual houses. The total wood area in Kosovo is more than 4,000 km2, with a wood stock of 30 million m3. The yearly growth of the wood stock is around 1.0 million m3, compared with an estimated yearly consumption (year 2000) of around 1.0 million m3 of firewood alone. More timber is cut for lumber in the booming construction sector. These data indicates that the fuel wood consumption in Kosovo reached a level quite equal to the forest re-grow, so then in the next years the wood consumption should be kept under control in order to avoid the forest depletion.

Hydropower is only on a very small scale. The planned HPP Zhur with about 292 MW installed power and total annual generation of app. 400 GWh, representing almost 60% of potential hydro energy production technically feasible.

Geothermal energy is available in the northern part of Kosovo in Malisheva, Kllokot etc. However, the resources have not yet been determined and were not determined in the present Study.

Wind resources are assumed to be scarce due to the location sheltered by mountain chains in most directions. The potential has not been evaluated under the present Study.

Solar heating is in some contexts regarded as a potential low-temperature heat source. Based on meteorological data for Kosovo and the efficiency of modern solar collectors it is reasonable to assume a peak production capacity in the months of July and August of approximately 300 W/m2 and a total yearly production of approximately 360 kWh/m2/year. Because of its cost solar energy may be considered mainly for stand-alone systems.

It is recommended to carry out a new dedicated study for assessment of renewable energy sources and possibilities for their exploitation.

1.4 Main problems in energy sector

The main issues in each sub-sector are presented in the following:

C ollection of payment for ener gy ser vices

Only 34.4% of the electricity supplied was duly collected in 2001, while technical and non-technical losses amounted to 47.3 % of energy supplied. The KEK thus accumulated huge payment arrears from their consumers and defaulted on their payments to their input suppliers and the wages to their staff. Poor liquidity of the energy utilities led to maintenance backlogs, system deterioration, and lack of funds not only to invest for new facilities but also to operate the generating units.

The key factors, which caused the emergence of the problem and its aggravation, include:

· Inability of the utilities to disconnect supplies to non-paying customers; · Technical inability to disconnect individual residential power and heat consumers;


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· Dramatic changes in customer base with the share of total electricity consumption declining for industrial consumers while increasing for households making it more difficult to continue the practice of cross-subsidizing of households by industries.

Coal Sector As far as the coal mines are concerned the main problems can be summarized as follows:

· Low equipment utilization and production level due to the bad maintenance status, backlog of overburden removal and organizational inadequacies;

· The amount of main mining equipment and mine personnel is too large compared to the required production;

· Coal fires are causing environmental, health and safety problems.

Power Sector Recovery in the power sector is a fundamental precondition for overall economic growth in Kosovo. The energy sector is structured as a vertically integrated monopoly, i.e. KEK. Ownership issues are still undecided after the entrance of United Nations’ administration. Pending decision of its legal status, UNMIK is the custodian of assets in KEK. The main issues facing the power system are:

· The electric power system in Kosovo was designed as part of the ex-Yugoslavian power system, big thermal units constructed to provide energy not only for internal consumption but also for export. Kosovo is now faced with difficulties in meeting the system requirements for load-following and load-frequency regulation. Many of its generation and transmission facilities are in need of reconstruction and repair.

· Low level of the reliability of the generation, transmission and distribution system reflected in poor quality of the energy services to the customers- and frequent blackouts.

· Low cost recovery due to low payment collection ratios and un-metered losses from the network.

· Lack of substitute energy sources to replace power consumption. · The energy sector of Kosovo has inherited serious environmental problems, e.g., high

emissions of particulates, mine’s fires, NOx, waste disposal, etc.

Petroleum Sector Kosovo is totally dependent on imported petroleum products to meet the energy demand and supply security as back-up for other fuels. In the transitional period, establishment of a large number of petroleum trading companies has emerged. Approximately 36 million liters of petroleum products are sold every month. It is estimated that about 1,200 petrol stations are conducting retail sales. Further, it is estimated that there exists around 1,900 km of roads appropriate for location of petrol stations or in general an average distance of about 1.5 km between the petrol stations. From these figures, it is obvious that Kosovo has an enormous surplus capacity of petrol stations. However, the product quality and safety standards for these petrol stations are not up to European standards. After implementation of a regulatory framework for the petroleum sector in Kosovo we expect that many of the stations will be closed as they will not meet the required standards.

Another main problem is the illegal import of petroleum products to Kosovo. It is estimated that about 30% of transportation fuels (gasoline and diesel) are imported illegally. There exist seven official checkpoints for petroleum import of which only three can present regular petroleum import data. Further there exist about 10 other border crossing points or administrative boundary points for import of goods. Petroleum imports through these checkpoints are takes place but the quantity is not known (either not by the Customs Office). Import control and quality standards therefore are insufficient and precarious.


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District Heating The district heating system face severe difficulties with losses and payment arrears, but should however have an important role in the energy strategy of Kosovo. The DH system has potential opportunities for substantial improvements by rehabilitation, for reduction of the uncontrolled electricity demand, for efficient use of combined heat and power and for use of local coal.

1.5 Integration in regional energy market

Kosovo is a landlocked country and for development of its energy sector will require regional cooperation and initiatives. The electric energy exchanges, the construction of new interconnection lines, the natural gas pipelines and petroleum supply will be dependent on regional agreements.

1.5.1 Stability Pact

The major objective of Stability Pact is to develop a shared strategy among all partners for stability and growth in South Eastern Europe.

Under the Working Table II (Economic Reconstruction, Co-operation and Development), the medium and long-term economic development goals of the Stability Pact have been formulated by the World Bank, the European Commission, the European Investment Bank (EIB), the EBRD, etc. including:

Developing a Regional Strategy for Infrastructure (see strategy paper Transport and Energy Infrastructure in South Eastern Europe) aiming to identify and promote infrastructure projects in a common and coordinated way through the development of regional strategies in the various infrastructure sectors (transport, water, energy and air traffic control), increasing investment in infrastructure and improvements in environmental protection. Regional integration enables companies to exploit economies of scale, encourages inward and foreign investment, facilitates macroeconomic policy co-ordination and stimulates growth.

Liberalizing and Facilitating Trade (see Memorandum of Understanding on Trade Liberalization and Facilitation) aiming at open trade regimes through preparing and implementing political initiatives for liberalizing trade and lowering tariff barriers in the region.

1.5.2 I ntr oduction to r egional power mar ket

The development of a regional electricity market (REM) in South East Europe contributes not only to the efforts of the countries of this region to integrate into EU practices and structures, but also promotes regional economic development and consequently to the regional co-operation and stability.

In the Balkan region, various initiatives are being undertaken to promote regional economic development and consequently the regional co-operation and stability. The main objectives in regional energy sector cooperation for the optimal use of resources are:

· Establishment of a Regional Electricity Energy Market operating under UCTE rules and the EC directives and regulations;

· Coordination of the initiatives in the energy field, such as energy trade (electricity, fossil fuels) on the basis of regionally co-coordinated energy systems and services with respect to economic recovery and growth, environmental protection and regional stability;

· Projects concerning the interconnection of the Balkan Countries into the UCTE ; · Improvement of the cooperation under the Energy Charter Treaty and the Transit

Protocol; · Improvement of the legal and political mechanisms with respect to the environment; · Implementation of norms and practices of the EU in the energy sector;


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· Regional co-ordination of investments for generation and transmission; · Development of an appropriate scheme for investments related to energy

interconnections, regional energy markets, including: o demand structures and demand forecasts; o projected shortfalls in generation, transmission and distribution of electricity; o rehabilitation and extension of the energy infrastructure; o interconnection and diversification of the gas network in the participating

countries and their need for integration with the EU gas network; o development of projects of common interest to all participating countries in the

regional oil pipeline systems.

Establishing electricity exchange between the Kosovo and other regional electric power systems is of a crucial importance for the future successful development of the Kosovo power system. It is important to note that the results of LCIP clearly show that a national autarky policy (self-sufficient scenario) would cost 50% (NPV) more than a regionally integrated approach.

Adequately improved regional cooperation should be promoted considering not only the political reasons but also economic advantages associated to sharing risk, financial support, economies of scale in generation and reduction in the operating costs which are key incentives to integrate energy markets.

1.6 EU legislation Directives and Regulation on Energy Sector

The Southeast European countries have been recognized as potential Candidate Countries for EU membership. The ESTAP study defining a Strategy for a medium and long-term program for the reconstruction and recovery of the Energy Sector in Kosovo, is in general based on adaptation to the most important EU Legislation, Directives and Regulations concerning the energy sector.

Each of the Modules of the study with respect to development of the corresponding energy sub-sector, makes reference to the need that Kosovo respects the EU requirements and makes recommendations how to achieve gradually compatibility with EU standards, norms and practices in the energy sector. The most important EU regulations that have been utilized as a guideline for main recommendations and priorities on energy sector are:

· EU 96/92/EU Directive of the European Parliament and of the Council of 19 December 1996, concerning common rules for the internal and regional electricity market, reforms and restructuring of the electricity sector (demopolization and regulation).

· EU Directives (Council Directive no 1999/30/EC of April 22, 1999) relating to monitoring of ambient air limit values for sulphur dioxide, nitrogen oxides and oxides of nitrogen, etc in areas affected by power plants.

· EU Directives (Council Directive 1999/31/EC of 26th, April 1999 on the Landfill of waste, etc.) relating to ash disposal and other waste materials from power plants.

· Council Directive 98/93 of 14 December 1998, amending Directive 68/414/EEC on Compulsory Oil Stocks (COS);

· Directive 98/70/EC of the European Parliament and of the Council of 13 October 1998 relating to the quality of petrol and diesel fuels and amending Council Directive 93/12/EEC.

· Directive 98/30/EC of the European Parliament and of the Council of 22 June 1998 concerning common rules for the internal market in natural gas,

· European Energy Charter Treaty, etc.


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1.7 Legal and Regulatory Framework

The Kosovo Trust Agency (KTA) of UNMIK has since June 2002, been holding and administering all state assets including the main electric company, KEK. The energy regulatory framework is based on the following Regulations approved or “de facto” into force although at the time of writing they are waiting the last stages of the approval process:

· REGULATION - ESTABLISHING THE KOSOVO TRUST AGENCY “custodian” of the assets of public utilities;

· REGULATION ON THE POWER SECTOR IN KOSOVO, draft regulation. The situation of the regulatory body (named PURCK in a draft of regulation) is under discussion at the moment of the final printing of this document even tough a multi-sector authority seems the most probable outcome.

The present (new) electricity law, besides containing some “planning and control instruments” appropriate for Kosovo, defines a regulatory framework that facilitate future free market reforms.


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2 Summary of Policy Recommendation and Investment Needs

2.1 Summary of Policy Recommendations

A policy matrix listing all the proposed actions, the lead agency responsible for each action, and the time when the action should be taken, is given in the Table 2.1 in the following.

2.2 Summary of Investments

The summary of the projected investment disbursements is given in Table 2.2 and in Table 2.3 are reported the investment in foreign and local costs1

relevant to each energy sector. All the investments are in constant money terms and correspond to Center Case Scenario without a natural gas system in Kosovo.

2.3 Proposed new studies

A list of new studies as a result of ESTAP findings, identified problems and conclusions of activities carried out in the framework of development of Kosovo energy sector strategy, is proposed and given in the Table 2.4. A cost estimation for each study and a proposed scheduled time for their duration are included.

1 “local” refers to the plants and equipments that may be purchased locally.


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Table 2-1 Proposed Policy Actions for Energy Sector


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T able 2-2 Summar y of the Pr ojected I nvestment Disbur sements

T able 2-3 Summar y of the subsector I nvestment Plan


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T able 2-4 Pr oposed new studies for E ner gy sector

3


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3 Economic development of Kosovo

3.1 Three scenarios for economic development

Present energy demand in the industrial sector is low, reflecting the low performance of the Kosovo economy shortly after the conflict and a historical legacy from the outworn socialist economy of Yugoslavia.

The main drivers in the energy demand projections are the development in the economy (measured by GDP) and the increase in size of population. Due to the complexities and uncertainties linked to the development of the Kosovo society and economy, a forecast for the economic and demographic development has been developed separately under the Study in form of a Forecast Paper called “Scenarios and assumptions, Macroeconomic, socio-demographic and International price indicators”. As basis for the economic forecasting three scenarios have been chosen: High Growth (Internationalization), Center Case and Slow Growth (Isolation).

3.2 Demographic development

The demographic structure, its distribution and growth in Kosovo is subject to many discussions. Though the exact numbers are difficult to estimate, there is little controversy over the observation that the recent population growth rate has been among the highest in Europe. It is assumed that the historic growth rate of the previous decades (above 2% p.a.) is already rapidly declining. In addition considerable migration makes forecasting difficult. The main assumptions are given in the following.

Assumption on demographic growth: In all three scenarios the population is expected to grow 1.5 per cent p.a., from 1.96 million in 2001 to 2.45 million in 2015.

Number of households: The present average household size is estimated to be 5.4 persons – for 2001 and approx. 370,000 households. This is expected to fall as new dwellings are erected and more ‘normal’ European family patters emerge in Kosovo. By 2015, the total number of households and average household size are assumed to be:

T able 3-1 C omposition of households in K osovo 2001-2015

2001 2015 Household Persons per family Household Persons per family High Growth 370,000 5.4 612,614 4.0 Center Case 370,000 5.4 544,546 4.5 Slow growth 370,000 5.4 490,091 5.0

3.3 Scenarios description

The economic growth is divided into stages and the growth rate is expected to decline in all scenarios. The initial GDP, in year 2000, is approximately 1.5 BUS$. During the coming years, the gap between GDP and GNI is reduced as the domestic production growth exceeds changes in remittances and international assistance, which are reduced over time.

The High Growth Scenario forecasts an average growth rate over the period of approx. 10% per year, the Center Case predicts approximately 6% growth rate in average, while the more pessimistic Slow Growth scenario shows an average growth rate of approximately 4% per year. A qualitative description of each scenario is provided in the Forecast Paper. The projections of GDP, GNI and population are given in Table below according to each forecast scenario.


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T able 3-2 Pr ojections of G DP, and population in 2010 and 2015

2000 2005 2010 2015

Slow Growth GDP BUS$ 1.5 2 2.3 2.6 Population Mill. 1.96 2.11 2.27 2.45 GDP per capita

(GNI per capita) US$/capita 765

1,130 931

1,185 1,002 1,159

1,079 1,152

Centre Case GDP BUS$ 1.5 2.3 3 3.8 Population Mill. 1.96 2.11 2.27 2.45 GDP per capita


1,130 1,110 1,364

1,315 1,472

1,557 1,630

High Growth GDP BUS$ 1.5 2.5 4 5.9 Population Mill. 1.96 2.11 2.27 2.45 GDP per capita


1,130 1,218 1,472

1,755 1,912

2,394 2,467

Source: ESTAP assumptions and estimations The figure below shows the growth in Gross National Income in the three scenarios compared with some other countries. The gradual decline after 2003 in GNI per capita for the Slow Growth Scenario is explained by the low GDP growth being exceeded by the decline in diaspora inflow and international aid.

0

500

1000

1500

2000

2500

3000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

High growth scenarioin 2015: USD 2467

Reference casein 2015: USD 1630

Slow growth in 2015: USD 1152

USD per capita

FYROM USD 1660

BiH USD 1210

Latvia USD 2430

Source: Own projections for Kosovo economy, World Bank “World Development Indicators”, IMF “Kosovo – Macroeconomic Issues and Fiscal Sustainability” 2001.

F igur e 3.1 G r owth in G NI per capita in the thr ee scenar ios compar ed to the level in other countr ies


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4 Energy demand forecast

4.1 Competitiveness and affordability in households

Energy consumption and specific fuel choice especially in households are determined by three decisive factors: climate conditions (characteristics of the heating season), affordability among consumers and relative competitiveness of energy sources. The main assumptions are that the problem of non-payment for electricity is solved and households are rational economic entities choosing heating options that are cost-efficient. The analysis is based on relative prices for fuels and availability of substitute fuels in Kosovo.

4.1.1 Affor dability issues in K osovo

The analysis is made in order to assess the willingness and capability among Kosovo households to pay for electricity and to invest in and pay for new energy appliances and installations.

Affor dability of households

Average assessment Based on the assumptions for economic, demographic and household development, the affordability, expressed as GNI per household, of an average Kosovo household has been calculated. Average expenditure for electricity per household is 234 US$/p.a., corresponding to 3.84% of the mean GNI value per household in 2000.

The development in household affordability is expected to increase by some 85% in the High Growth scenario, by a moderate 30% in the Medium Growth Scenario and decrease by 9% in the Low Growth scenario

Household survey As an information source concerning affordability of residential users, a survey was carried out where the interviewer has made a personal evaluation of incomes. The income level evaluation was called for as a number in the range from 0 to 10. The results of this research, useful for drawing up a qualitative distribution of income level for residential customers, indicated that 55 % of the interviewees declared that their income level was above level 5.

The result of the survey regarding the willingness to investment in improving heating facilities was that over 50% are disposed to invest on improving the heating system. Only 11% firmly excluded this possibility.

Also, from the analyses and comparisons in Module I it was assessed that the current affordability situation in Kosovo allows 15-35% of the individual households to engage in the investments in gas installations.

The results obtained from the household questionnaire show how many goods such as cars, dishwashers and mobile phones are distributed in Kosovo. Indirectly these data provide us with information on households’ willingness and capability to invest in various goods. Some of the information/conclusions are:

· Around 35-40% of the population have a car and the market average price of a used car in Kosovo is around 2,370 US$;

· More than 65% of the population possess video, satellite receiver and washing machine;

· Between 15-25% of the population have dishwasher, mobile phone and microwave oven – this share is rapidly increasing;


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· Around 50% of the population have a package of luxury items such as washing machine, dishwasher, mobile phone, video, microwave oven and satellite receiver.

Household income split on deciles The income distribution was measured by dividing the population into deciles (tenths of the total population) by yearly income. The lower deciles represent the poorest households and higher income deciles the wealthiest. Assessments indicate that the poorest 10% households in Kosovo earn around 2,660 US$/p.a. and the richest 10% households earn around 14,800 US$/p.a.. In 2015 (Center Case) the corresponding figures would be 3,265 US$/p.a. for the poorest families and 18,140 US$/p.a. for the richest.

Assessing the household capability to pay for an average 4500 kWh/p.a. electricity consumption and considering a threshold value of 5% of total income for electricity expenditure, it can be concluded that paying for electricity is not a problem for 75% of households in Kosovo.

4.1.2 C ompetitiveness of fuels for households

The analysis of competitiveness focus on the households’ choice of energy for heating based on cost-benefit of fuel options (wood, coal, LPG, gas oil and natural gas) and quantifying some of the respective advantages and drawbacks of the fuels, in terms of both operation and maintenance.

The decision to use one particular energy source rather than another depends on the overall cost entailed by this. We therefore determined the total cost of the three types of end-uses taken into consideration. We assumed that a user, who had chosen natural gas, or LPG, or electricity, uses the selected source for space heating.

The results given in Table 4.1 compare heating options for the same type and size of dwelling.

T able 4-1 Assumptions on heating technologies and fuel sour ces

Direct Heating Central Heating Firewood

stove Coal stove

LPG heater

NG heater

Oil heater

El heater

Heat Pump

Gas oil

boiler

NG boiler

Equipment efficiency, % 50 50 100 100 90 100 90 90 90 Units of fuels m3 t Kg m3 t kWh kWh t m3

Fuel price, no taxes and duties

US$/Unit 35 37.5 0.72 0.31 205 0.07 205 0.31 US$/MWh 15.8 8.4 56.5 33.1 16.2 70 16.2 33.1

Fuel price, with taxes and duties

US$/Unit 35 37.5 0.91 0.31 457 0.07 457 0.31 US$/MWh 15.8 8.4 71.1 33.1 36.1 70 36.1 33.1

Heated area, m2 30 30 30 40 40 40 40 80 80 Total no taxes, US$/year 649 551 530 547 556 679 750 1057 1003

Total with taxes, US$/year 649 551 604 547 702 679 750 1350 1003 Cost per heated area, no

taxes US$/m2 21.6 18.4 17.7 13.7 13.9 17 18.8 13.2 12.5

Cost per heated area, with taxes US$/m2 21.6 18.4 20.1 13.7 17.6 17 18.8 16.9 12.5

Some of the conclusions are:

· Having in mind the total expenditure of a household for space heating referred to the same heating area (40 m2), the most convenient combination of energy sources is electrical storage heating, gasoil DH heating, followed by coal fired heating. Wood stove heating costs about an extra 27%. The cost of using LPG and Oil heaters is very much higher.

· If natural gas will be introduced in Kosovo in near future, it will be probably be among the cheapest energy sources for space heating – although it appears unlikely that gas will be introduced and the eventual taxation issue is far from settled.


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4.2 Primary energy consumption

The actual and future energy demand of Kosovo has been assessed via a top-down and a bottom-up analysis. The top-down analysis forecasts the future primary energy demand in Kosovo compared to countries being macro-economic and resource-wise comparable to Kosovo. The bottom-up analysis uses the results of sector-wise forecasts performed in the Modules A to J.

F igur e 4.1 Annual heating cost per unit heated ar ea US$/m2

The demand analysis has reached more or less the same end-figures in the two approaches even though they have been prepared independently and based on two completely different methodologies. This is a reassuring confirmation that results of the two demand analyses are reasonably well anchored theoretically and empirically. The results of the bottom-up approach have been used by Consultant.

4.2.1 T op-down assessment

The top-down assessment of the future energy demand in Kosovo is performed stepwise: a. GDP and population;

b. Energy intensity versus income per capita data from comparable countries are used to extrapolate the potential energy demand.

The future overall energy demand has been forecast for respectively 2005, 2010 and 2015 and shown in the following Table:

T able 4-2 Pr imar y ener gy consumption under the thr ee scenar ios, PJ

2001 2005 2010 2015 High Growth 63 80 110 148 Center Case 63 75 87 103 Slow Growth 63 66 69 74

4.2.2 B ottom-up analysis

Based on the result of individual sub-sectors energy forecast for Center Case no-gas scenario, the total energy demand has been calculated for year 2000 and 2015. Total energy increases from the current level of 63 PJ in year 2000 to 119 PJ in year 2015.

The main changes are for lignite and oil consumption, which double their amounts over the 15-year period. In a situation with a natural gas system developed, natural gas will capture a large proportion of the increases in lignite and residential oil consumption. Natural gas in end-use


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could in the Center Case increase to around 11 PJ. This corresponds to around 40 PJ in primary energy.

F igur e 4.2 Pr imar y ener gy consumption in K osovo based on bottom-up C enter C ase no-gas

4.3 Energy balances for 2005, 2010 and 2015

The entire primary energy consumption of coal, oil, gas, and wood is divided into four main energy consumer groups (conversion, residential, industry and transport). The primary energy consumption increases in the Center Case assuming that a gas system is not developed, from 63 PJ in 2000 to around 119 PJ in 2015. Coal remains to supply around 58%, whereas the use of wood decreases from 18% to 12%, as shown in Figure 4.3.

F igur e 4.3 Pr imar y ener gy consumption C enter C ase no-gas

The growing primary energy consumption is very marked for lignite and oil in the power and residential sectors.

The power sector consumes 56% of all primary energy in Kosovo as the other sectors mainly rely on the electricity produced there. Of the 66 PJ of primary energy used for heat and power production, only 19 PJ materializes as electricity and heat (and losses) representing an average


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conversion efficiency of 29%. The main shift for the residential sector is mainly increased consumption of oil, which at present is very low. The transport sectors use of gasoline and other oil products increases by 79%.

F igur e 4.4 F uel shar es in ener gy consumption 2005, 2010 and 2015, C enter C ase no-gas

F igur e 4.5 F inal ener gy consumption in the C enter C ase without gas Y ear 2015

4.4 Main alternatives for energy supply

The potential future development of a gas system in Kosovo has an effect of the demand for the different fuels, as well as the investments in the power sector. On the demand side, such a system would reduce the consumption of electricity in residential, commercial and industrial sectors. In addition, a reduction of demand for petroleum is envisaged. On the investment side, the natural gas system would reduce investments in lignite production and the construction and operation of lignite-fired power plants as well as in power transmission and distribution systems.

Demand in the power sector is assessed in two cases, namely with and without the presence of a natural gas system. The overview of data and data source combinations is given in Table 4.3 for the horizon year 2015.

4.4.1 M ain alter natives

The energy demand has been calculated in each Module for the three main scenarios. Further, the primary energy demand will depend on the following factors:


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a. Natural gas – Yes/No; b. International trade with electricity – isolated, balanced peak/off-peak, export; c. District heating – connection to power plant Kosovo B for extraction of CHP –

Yes/No.

T able 4-3 Demand data overview

Economic development

Scenarios

Energy Demand Without a natural gas system

Energy Demand With a natural gas system

Electricity New Power Generation Coal Wood Petroleum Electricity New Power Generation Coal Wood Petroleum

GWh Mton M m3 kton GWh Mton M m3 kton

High Growth 6,519 Gasoil/Lignite/hydro-based 10.1 1.196 1,458 5,374 Gas-based 8.7 1.014 1,006

Center Case 5,137 Gas oil-based 8.7 1.094 816 4,614 Gas-based 7.2 0.924 717

Low Growth 4,146 Gas oil-based 7.2 534 534

Coal supply Coal supply/demand is determined by electric power generation and the residential sector. The Figure 4.6 shows the total coal demand for each of the analyzed scenario. Main recommendation from Module G is to implement main option C1, which depletes the current mining around 2012-2018, and initiates a new mining area, preparing the energy (lignite) supply on longer-term basis.

F igur e 4.6 C oal demand

Petroleum demand An estimate of the present and future petroleum demand is made for each of the three growth scenarios implementing a bottom up approach for each energy-consuming sector and the specified growth rates for these sectors. The resulting total petroleum demand figures are shown in the Figure 4.7.

Coal Demand

0

2,000

4,000

6,000

8,000

10,000

12,000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

1000 ton/a

Center CaseCenter Case with-gasHigh growth no-gasHigh growth with-gas


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F igur e 4.7 Petr oleum demand

The demand forecast will not only depend on economic growth indicators but also the development in infrastructure, growth in the industrial production and political stability of the region.

Natural gas demand With the development of overall energy consumption, the penetration rate and the share of Primary Energy Consumption, the demand for gas during the period has been estimated. The figure below depicts the results of the top-down demand assessment.

F igur e 4.8 Natur al G as demand

Power Sector Establishing electricity exchange between the Kosovo power system and other regional power systems is of crucial importance for the future successful development of the electric power sector in Kosovo. It is important to note that the interest in such exchange is not only on the Kosovian side, the exchange is also expected to be advantageous for the neighboring systems.

Additions to domestic generation capacity can be postponed to 2013 for the medium demand growth scenario if an appropriate scheme of electricity exchanges (export during non-peak hours and import during peak hours) can be established with neighboring systems.

Adequately improved regional cooperation will importantly contribute to a higher quality and reliability level of the electricity supply in the region, which currently experiences considerable shortages of electricity and lacks capacities giving rise to frequent and considerable load shedding.

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

2001 2005 2010 2015

Billion cubic meters of natural gas

Slow Growth

Centre Case

High Growth

Petroleum Demand

0

200

400

600

800

1,000

1,200

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

1000 ton/a

Center Case no-gas

Center Case w ith-gas

High grow th w ith-gas

Low grow th


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Power Import The following two categories of the electric power and capacity import are for Kosovian power system optimal:

a. Import (up to 150 MW) during the peak load conditions in (annual volume differs from scenario to scenario but is in the range between 100 and 250 GWh per year); and

b. Import of reserve and emergency capacities (up to 150 MW) to overcome large forced outages of the Kosovian units (annual volume is between 50 and 150 GWh per year).

Power Export The least-cost is power export from Kosovo during the off peak load hours. The volume of such type of export is in the range between 210 and 520 GWh per year.

Power Import-Export Directions Power exchanges between the Kosovian and other power systems in the region can be assured from the Southern (Albania, Greece) or Northern direction (Serbia, B&H, Bulgaria, Rumania, etc.).

From a short-term point of view, the existing transmission links with Serbia would permit such an exchange but there are questions regarding the sustained availability of adequate surplus peak energy in the Serbian system. From medium, long-term perspective ESTAP has considered a close cooperation between Kosovo and Albania. A new 400 kV transmission interconnection with Albania would provide an alternate source for such an exchange and, given the obvious mutual benefits of coordinating operation between the predominantly hydropower-based Albanian system and the predominantly thermal-based Kosovar system, the Consultants recommend that a detailed feasibility study of this new interconnection should be undertaken.

The proposed 400 kV line not only would strengthen the regional interconnections and greatly enhance Kosovo's options and therefore its bargaining position in reaching beneficial exchange arrangements.

District Heating In all cases it is assumed that the existing boiler plant in Pristina will continue as the only heat source and that a new boiler will be installed. It will be switched to gas in case of a decision on gas. However CHP from power plant Kosovo B is still an option to be considered, as it might be more favorable than heat-only boilers taking into account externalities and in case financing can be provided.

4.4.2 I nter nal and exter nal costs

Some general considerations that would influence decisions to be made with respect to the future production of the Kosovo energy sector are:

· Usage of indigenous resources: Kosovo lignite deposit is one of the most favorable lignite deposits in the world. The lignite resources allow competitive power generation in the long-term;

· Development and support of the local supply sector: After the conflict the unemployment rate in Kosovo reached some 70 %. The mines and the power plants are customers for all kinds of goods provided on the local market and in this way they present a starting point for economic growth;

· Improvement of environmental situation: The environmental impact of the mines and the power plants has been investigated and is described in chapter 4 of this report. The present situation is far from acceptable; but it can be assumed that this situation will change when the necessary remedial actions are undertaken. The introduction of


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gas and its use as peak load capacity would contribute significantly to the improvement of the environmental situation because the power plants could be operated with higher efficiency;

· Diversification of energy supply: In terms of pure diversification of energy supplies in Kosovo, the introduction of natural gas would be preferable, provided that it is economically competitive. The availability of gas would always be an improvement to the lack of gas networks. In terms of security of supply, which is partially derived from fuel diversification, the discussion is more complex. Natural gas is generally a reliable energy source. Examples of major supply disruptions in Europe are limited. Lignite is locally produced and should be relatively secure compared to imported fuels that might experience shortfalls for a number of reasons. However, the Kosovo experience has shown that production of commercial coal has been irregular. In case of full dependency on local lignite the system becomes vulnerable to technical disruptions in the mines.

4.5 Total Energy System cost

Based on projected energy demand assessment performed in different Modules covering all energy sectors in Kosovo and the energy balances prepared for each year of the planning period, the total Primary Energy Consumption (PEC) over the whole planning period (2001 to 2015) has been estimated. Also, the total energy system cost calculated as sum of the necessary investments defined in sub-sectors’ development plans and other components such as O&M costs and fuel costs (lignite, oil, wood, gas, etc.) have been assessed for the main economic scenarios, with respect to introduction of natural gas in Kosovo. A general index defined as specific cost for primary energy, expressed as US$/GJ, is calculated and shown in Table 4.4.

T able 4-4 T otal E ner gy Sector cost

In the table, the analyzed scenarios are ranked according to ascending order of total energy sector cost.

4.6 Energy tariff issues

KEK the power utility cannot, and does not, operate efficiently when its revenues do not cover costs. In principle, tariffs should be set to achieve an economically efficient allocation of available resources. The recommendation therefore is that tariffs should reflect the long-run marginal costs (LRMC) of system expansion. Donors, the utility and the government should all agree on the long-run marginal costs, and the tariff structure should be set accordingly.

Evaluation of Current Tariff Structure The current structure was found to be to a large extent in line with that of the costs, requiring only minor modifications accordingly. The main problems facing KEK were identified as follows:

· Extremely high non-technical losses, combined with fairly high technical losses; · Very low collection rate;

Total Energy Demand

(2001 - 2015) Net Present Value MUS$ (discount rate 12%) Price per

Energy Economic development Scenarios

PJ Investments (CAPEX) O&M (OPEX) Fuel Costs Total Cost US$/GJ

Center Case no-gas 1,616 455 423 1,554 2,432 1.505 Center Case with-gas 1,532 519 407 1,550 2,476 1.616 High Growth with-gas 1,796 630 447 1,738 2,815 1.567 High Growth no-gas 1,900 617 459 1,868 2,944 1.549


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· Lack of meters in a portion of households; · Inadequate differentiation of tariff rates according to voltage level.

Long Run Marginal Cost Evaluation A model has been developed for calculating the Long Run Marginal Cost of the generation capacity and energy components. The input data, derived from other Modules of the ESTAP, include the load demand forecast, the classification of load periods, system capacity based on the least-cost investment program, the investment costs for expansion of the generation, transmission and distribution and the technical losses at various voltage levels. A new tariff structure is proposed accordingly.

Lifeline Tariff A electricity consumption of 100 kWh/month, corresponding to the amount that would allow for lighting, basic appliances and a very limited use of electricity for water heating and cooking, has been identified as the lifeline amount, to be covered by a social tariff. Different options are presented for the application of such social tariff, which could be funded either by the Government or by high-income customers or alternatively could be provided in the form of cash payments or vouchers.

Transition Period In order to avoid abrupt effects on customers that could hinder the improvement of the collection rate and the industrial recovery of the country, some transition measures are proposed, to be applied until the electric service achieves an acceptable service level and the economic situation of the country improves, namely:

· Maintain the present set up of off-peak hours (12 hours instead of the proposed 10); · Apply a temporary reduction of about 20% to the households with no space heating; · Apply a nominal customer cost that does not cover the full costs of metering and

connection. · Apply a discount in the order of 30% to the standing charge for industries, until the

problem of emergency interruption and load shedding is solved.


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5 Environment

Projections for Kosovo indicate a continuing increase in demand for energy, especially for electricity, in the next 15 years. Any rapid expansion of energy production and consumption produces a wide range of environmental impacts at the local, regional, and global levels.

This leads to significant health problems associated with air pollution, and to accompanying losses of welfare.

For reducing the environmental impacts of projected energy consumption, decisions should be made concerning the level of environmental impacts that is acceptable to society at large and the level of cost it is reasonable to endure without reducing economic growth.

5.1 Present situation of environmental pollution from energy sector

The key pollutants associated with the energy and transport sectors are dust, sulfur dioxide (SO2), nitrogen oxides (NOx), and carbon dioxide (CO2).

Coal Sector The main historic environmental damages in Kosovo’s mines are the non-reclaimed outside dumps and the extensive coal fires in the lignite seam at the mine highwalls.

The implementation of foreseen technical and biological rehabilitation measures will allow for land sales to the farmers to grow wheat, vine etc. It is envisaged that all of 1000 ha of outside dumps will be reclaimed within ten years, and 50% of the land annually brought into cultivation can be sold to the public, ensuring a yearly profit of about 0.9 MUS$ from 2004 onwards. In total a profit of about 9 MUS$ could possibly be realized by recultivating and selling outside dump areas.

Outside dumps

Special attention must be paid to the mine fires, which cause environmental problems (air pollution), safety problems in the mines and economic damage to the lignite deposit. About 3 Mt of coal are likely to be burnt every year. It is proposed to collect information about the extent of the fires by means of drillholes and to set-up an action plan for extinguishing the mine fires as soon as possible. An amount of some 1.8 MUS$ has been estimated for the preparation and realization of the fire fighting which could be financed by sales of mining areas restored to cultivation.

Coal fires

Power generation Sector The main recommendation is that the environmental problems should be solved simultaneously with improving quality of power supply. It is necessary to reduce the adverse environmental impact of electricity generation and to approach EU environmental standards. Full compliance by 2015 is not recommended because of the high costs. Looking beyond 2015, environmental standards should be met in full. The largest discrepancy with EU standards was found at dust emission concentrations.

In addition, it is recommended that the use of fossil fuels for power generation and heating purposes should be excluded from CO2 taxation during transitional period. The present taxation regime creates an artificial barrier for light heating oils fuels for household heating, thereby leaving customers to the scarce supplies of electricity.


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The main environmental issues related to power production from thermal power plants are:

Dust emission from Kosovo A and, to a lesser extends from Kosovo B, exceed the permitted limits. After rehabilitation in 2001/2002, the dust emissions from Kosovo A3 and A4 are reduced and down to (estimated) 400-500 mg/m3.

Dust and particles

The neutralization basin of technological wastewater in Kosovo A is rehabilitated and working and is only partially in operation in Kosovo B.

Wastewater

The humidification system of ash disposal in Kosovo A is out of operation. The ash dump in Kosovo B is practically filled up.

Ash disposal

There is no environmental monitoring of air emissions or of discharge of wastewater from the TPPs of Kosovo A and Kosovo B does not exist. Furthermore, automatic and permanent monitoring of surrounding air and local wildlife is not carried out.

Environmental monitoring

The following measures have been identified and must be introduced at Kosovo A and B in order to improve and meet environmental constraints. The related costs are included in the investment plan.

It is recommended that a specialized team of experts to be set up to manage of environmental monitoring and other environmental issues.

Kosovo A To ensure proper and successful operation of the existing Kosovo A TPP units, it is necessary to undertake the maintenance works on their electrostatic precipitators. The overall rehabilitation measures should include also the electrostatic precipitators as well, which must ensure emission concentrations are kept below 100 mg/Nm3 after January 2008. The expected cost for A3, A4 and A5 units is about 3.5 MUS$.

It is paramount that the system responsible for the process wastewater neutralization is properly arranged and put into operation. Reconstruction of the neutralization system or purification of technological waste waters should be done.

Considering the relatively low sulfur content in coal and its relatively high rate of bonding with ash and slag, ensuring emission concentration to be kept around 400 mg/Nm3, desulphurisation is not required.

The decision of introducing primary measures for NOx reduction could be accepted only conditionally. The final decision should await the implementation of a new set of measures. The foreseen cost is approx. 3.5 MUS$ per unit.

Ash transport must be rehabilitated and should be directed into abandoned areas of the existing mines.

Continuous monitoring of dust emission concentrations has to be introduced for the rehabilitated units A3, A4 and A5 for all flue gas exhaust; measuring other pollutants has to be performed on regular basis.

Kosovo B Considering the relatively low sulfur content in coal and its relatively high rate of bonding with ash and slag, self-desulphurisation rate is about 85%. Based on the criteria set, flue gas desulphurisation at the Kosovo B TPP is not compulsory.

Primary measures aiming at the reduction of the NOx emission concentration need to be introduced only if later investigations show that NOx emission exceeds the emission limit defined by EU directives. The foreseen investment cost is approximately 3.5 MUS$ per unit.


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Upgrading of the existing electrostatic precipitators is required already before 2008, in order to keep dust concentrations below 50 mg/Nm3.

Retrofitting of the neutralization system or purification of the waste waters should be done and included in the frame of regular maintenance.

Implementation of environmental monitoring of SO2, NOx and dust emission monitoring is recommended.

The lignite mine itself could serve as ash disposal.

Environmental effects of the residential wood combustion in Kosovo The environmental effects of the residential wood combustion in Kosovo are assessed such as:

· Air pollution, caused by the emission of pollutants into atmosphere from the chimney of the residential appliances (i.e. stoves, oven, boilers, etc.)

· Forest depletion, caused by the cutting of trees used for fuel production.

As the air pollution from the residential wood combustion in Kosovo, in 2000 accounts only for: 1.4 % of Nox, 0.14 % for SO2 and 2.84% for CO2, of total Yugoslavia emissions no recommendation are proposed.

The preliminary estimations indicate that the annual (year 2000) fuel wood consumption in Kosovo reached a level (evaluated about 1.0 million of cubic meters) quite equal to forest re-grow (about 0.95 million of cubic meters), then in the next years the wood consumption should be under control in order to avoid the forest depletion.

5.2 Environmental impact of energy sector development plan

Total primary energy increases from the current level of 63 PJ in year 2000 to around 120 PJ in year 2015. Lignite production, currently at 4.7 Mt, is projected to increase up to 11.5 Mt by 2015 (in the High Growth Scenario). In order to minimize any adverse environmental impact, the proposed development plan for the energy sector includes various countermeasures.

Coal Sector Measures to minimize the future effects of the mining operation such as dust and noise emissions, water pollution and resettlements have been described and considered in the production costs accordingly.

At present there are no measures and technical installations available to minimize dust development especially during coal excavation. Measures to minimize the future effects are described including storage and water spraying and necessary equipment.

Dust

At presently there are no measurements available for the reduction of the noise level in any area. The noise level outside the mine generally is low and no mitigating measures will be necessary.

Noise

Inside the mine self-protection devices such as earmuffs is recommended.

Surface water quality in the mine and river waters have been determined and appropriate countermeasures are recommended and included in the investment costs.

Surface water quality

The cost of village relocation is considered in the mine development strategy. Resettlement of houses

The mining voids could be used as waste-dumping locations from municipalities located in the surrounding area. In addition to that, KEK could make money by obtaining fees for each ton of waste and eventually for any kind of earth and drainage works. This would help to increase

Waste dumping


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investments for the rehabilitation of the mining equipment and will also help to fill up the open pits more rapidly.

Power generation Sector The Least-cost Investment Program is evaluated from the SO2, NOx, dust and CO2 air emissions perspective and the conclusion is that this program allows power plant operations within the environmentally acceptable parameters.

Despite a yearly increase of energy production and corresponding increase of polluting emissions (apart from dust), the calculation has shown a decrease of emissions per unit of generated electricity. The environmental related costs are considered in the investment plan. The new large combustion plants will satisfy all EU directives and criteria regarding environmental standards.

5.3 Other measures for mitigating the environmental effects

In the following we give a list of measures that can mitigate some of the environmental effects stemming from the energy sector, and in some cases can do so cost-effectively.

I mpr oving Power G ener ation E fficiency

Not only will the new power plants be more efficient than existing ones, but also the regular operation and maintenance activities for existing units should be considered a key factor to achieve economics and environmental benefits due to higher efficiency.

R educing no-technical and technical losses.

The total losses in Kosovo during year 2000 were 47% of the total electrical energy available for the system (more than the TPP Kosovo B produced in 2000). These very high total losses consist mainly of non-technical losses, due to widespread illegal connections and to customers without metered consumption.

Non-technical loss reduction does not require much in material investment. It does, however, require improvement in management systems (e.g., customer management, meter management, billing management) and business procedures/practice. Although not all the non-technical loss reduction will be reflected in reduced power generation, paying for electric is expected to result in substantial savings. Any investment in a non-technical loss reduction program will have very high the rate of return because it directly yields a revenue increase based on sales price.

The level of the total technical losses, which is about 18% of the available electricity, must be reduced. A reduction of technical losses in transmission and distribution of 5 to 7 percent during the period 2002- 2015 is possible.

I ntr oduction of natur al gas

The environmental advantages of introducing natural gas in the power sector and substituting coal and heavy fuel oil are evident and from a long-term perspective the introduction of natural gas in Kosovo remain a key objective.

H ydr oelectr ic power

According to the results obtained in least-cost generation plan, if projected demand follows the high growth scenario and no natural gas is available in Kosovo, the HPP of Zhur will be required by 2014.

E lectr icity exchange Establishing electricity exchange with other regional electric power systems is of crucial importance not only for implementation of the least cost generation plan but also from an environmental point of view. The import of energy is needed for covering peak demand and is produced mainly from hydropower plants in the region.


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I mpr oved fuel quality for the industr ial, r esidential, and tr anspor tation sector s The implementation of the specific and detailed regulations for all companies involved in importation, distribution and trade of petroleum products in Kosovo is the bases for the improvement of fuel quality with direct impact on health, security and environmental issues.

I ncr easing ener gy efficiency thr ough demand-side management (DSM ) Demand-side management (DSM) measures include non-price initiatives taken to influence energy awareness and consumption patterns directly.


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6 Least-Cost investment plan

6.1 Introduction

The main objective of ESTAP is to develop of a strategy for the medium-term and long-term program for reconstruction and recovery of the energy sector in Kosovo. The technical assistance is focused on the definition of a least-cost investment program for rehabilitation, reconstruction and expansion of the energy sector for the period from 2002 to 2015.

The least-cost investment plan integrates all energy subsectors and (to some degree) demand-side management and regulation to achieve an efficient, adequate and reliable energy supply. The aim for all investments is collectively to cover the forecast demand. Some investments intersect (supplying the same customers, offering the same benefits), in some cases, investments are mutually conflicting each other and finally some investments are interdependent (e.g. transmission pipelines to import natural gas as a condition for investments in gas-fired power generation). Priority is given to investments with high economic return. Due to high cost on scarce capital for investments, a relatively high discount rate of 12 % is chosen to calculate the net present value (NPV) of the proposed investment package. When appropriate, the rate of return on investments is compared to identify the most attractive solution. The investment plan represents the optimal combination of investments as identified in the analyses.

Identifying the optimal investments is based on societal efficiency, which could very well differ from the private gains of an investor. With high non-technical losses, weak institutional framework and considerable uncertainties concerning the development in Kosovo, it is far from certain that investors are willing to put capital into investments even when they are optimal from the point of view of society. Great consideration should be given into creating the proper incentives for the market to invest in the most efficient technologies. This is widely a task for the regulatory agencies applying economic (taxes and subsidies), legal and social instruments.

6.2 Total investments

The total investment of the least-cost investment plan is given in Table 6.1 where the investment (in constant money terms) in the Center case without a natural gas system are summarized for the entire planning period and three main sub-periods.

T able 6-1 Summar y of L east-cost investment plan C enter C ase

Energy Sector Least-cost Investment Plan Summary

2003 - 2005 2006 - 2010 2011 - 2015 Total planning period MUS$ % of Total MUS$ % of Total MUS$ % of Total MUS$ % of Total

1. Coal Sector 73 20.0 16 6.8 3 1.2 92 10.8 2. Power Sector 257 70.4 193 84.7 241 94.6 691 81.5

Power generation 39 11 18 8 93 37 149 18 Transmission System 27 7 27 12 26 10 80 9

Distribution System 177 49 145 64 122 48 444 52 SCADA/EMS System 14 4 4 2 0 0 18 2

3. District Heating 23 6.3 11 4.7 3 1.2 37 4.4 4. Petroleum Sector 12 3.2 9 3.8 8 2.9 28 3.3

Total 364 100 228 100 255 100 847 100

Main investments are in the power distribution system (444 MUS$) followed by power generation (149 MUS$), coal sector (92 MUS$), power transmission system (80 MUS$), etc. The NPV of total investments required over the entire planning period (2003-2015), amounts to


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455 MUS$ in the Center Case without a natural gas system. For the implementation of a gas system in Kosovo the needed investment is 154 MUS$ in the Center Case. The total GDP in 2001 was around 1,900 MUS$. Assuming that the investment level follows normal international standards, it will be reasonable to expect investments of up to 10 percent of GDP for 3 years and 5 percent thereafter.

The frame for energy investments in the three scenarios will hence be around 200 MUS$ in year 2003 to 2005, and 125 MUS$, 200 MUS$ and 300 MUS$ in year 2015 for the Low, Center and High scenarios, respectively.

In the following, the investment plan relevant to Center Case without a gas system is described.

6.3 Investment Plan short-term 2003-2005

All identified short-term (2003-2005) investment packages have been drawn from the individual Module Reports and aggregated in the figures that follow. The total investment cost of the short-term phase in energy sector is estimated at about 364 MUS$.

Coal Sector The proposed scenario of the lignite mining strategy for the period up to 2015 consists on exploitation of the Mirash East area starting from 2005, operation of Bardh and Mirash East mines until 2017 and then substitution of lignite production by the new Sibovc mine in 2017, ensuring an average lignite production of up to 7.5 Mt/p.a. The total investment cost planned for repair works, new equipment purchasing and personnel training is 73 MUS$.

Power Sector

Total investment cost planned for repair works, for rehabilitation of unit A5 and A3 of TPP Kosovo A is estimated about 38.5 MUS$ shared as follows:

Power Generation

· 21.0 MUS$ for unit A5 during 2003; · 17.5 MUS$ for unit A3 during 2004.

Total investment cost during the period 2003 – 2005 is 27 MUS$ taking into consideration the following project:

Transmission System

· New 400/110 kV Peja III substation and connecting lines: 13.4 MUS$; · New 110 kV lines, rehabilitation and replacement: 13.6 MUS$.

Total investment cost during the period 2003 – 2005 is 177 MUS$ divided among the MV network development 89 MUS$, LV network 54 MUS$, and for installation of missing and new electricity meters 34 MUS$.

Distribution System

Total investment cost during the period 2003 – 2005, is: SCADA/EMS Control System

· 10.3 MUS$ (80% of the total investment of first stage, option with PLC), or; · 14.1 MUS$ (80% of the total investment of first stage, option with FO).

District Heating Total investment cost during the period 2003 – 2005 is 38.8 MUS$.

Petroleum Sector Total investment cost during the period 2003 – 2005 is 11.7 MUS$. Natural Gas Sector (option with gas) Total investment cost during the period 2003 – 2005 is 113 MUS$ shared among:


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· Implementation phase in Prishtina: 98 MUS$.; · Penetration phase Peja and Prizren: 15 MUS$.

The project includes an approximately 20 km long, 18” transmission pipeline from Skopje.

6.4 Investment Plan medium-term 2006-2010

All identified medium-term investment packages has been drawn from the individual Module Reports and aggregated in the following figures. Some of the projects are continuation of their first phase. The total investment cost of the medium-term phase in energy sector is estimated about 228 MUS$. The investment package only lists investments identified and recommended. The various energy subsectors are expected to make considerable additional investments, which are not considered by the ESTAP Study e.g. in filling stations in the petroleum sector or in household heating technologies generally.

Coal Sector Following the mine development strategy the total investment cost planned for repair works, for new equipment purchasing is 15.56 MUS$.

Power Sector

The total investment cost planned for rehabilitation of unit A4 TPP Kosovo A is estimated at about 17.5 MUS$.

Power Generation

Total investment cost during the period 2006 – 2010 is 26.84 MUS$ taking into consideration the following projects:

Transmission System

· New 400 kV interconnection line Kosovo B – Border Albania: 20.84 MUS$; · New 110 kV lines, rehabilitation and replacement: 6 MUS$.

Total investment cost during the period 2006 – 2010 is 145 MUS$ divided among the MV network development 73 MUS$, LV network 58 MUS$, and for installation of new electricity meters 14 MUS$.

Distribution System

Total investment cost for completion of the project is: SCADA/EMS Control System

· 2.5 MUS$ (option with PLC), or; · 3.53 MUS$ (option with FO).


Petroleum Sector Total investment cost during the period 2006 – 2010 is 8.6 MUS$.

Natural Gas Sector (option with gas) Total investment cost during the period 2006 – 2010 is 184 MUS$ divided among:

· Implementation phase in Prishtina: 25 MUS$; · Penetration phase Peja and Prizren: 62 MUS$; · Consolidation phase: 72 MUS$; · Expansion phase: 25 MUS$.

6.5 Investment Plan long-term 2011-2015

The total investment cost of the long-term phase in energy sector is estimated at about 255 MUS$.


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Coal Sector During this period land acquisition and overburden removal will start at Sibovc mine. The investment costs planned for land acquisition, overburden removal, new equipment purchasing and for personnel training are 3.15 MUS$.

Power Sector

The total investment cost planned for two new generation units is estimated at about 93.1 MUS$ divided as follows:

Power Generation

· 40.6 MUS$ for new SCGT 118 MW in operation in 2013; · 52.5 MUS$ for new CCGT 69 MW in operation in 2015.

Total investment cost during the period 2011 – 2015 is 26.1 MUS$ taking into consideration the following projects:

Transmission System

· New 400/110 kV Ferizaj II substation and connecting lines: 14.4 MUS$; · Second 400/110 kV transformer 300 MVA in Peja III substation: 4.7 MUS$; · New 110 kV lines, rehabilitation and replacement: 7 MUS$.

Total investment cost during the period 2011 – 2015 is 122 MUS$ divided among the MV network development 55 MUS$, LV network 56 MUS$, and for installation of new electricity meters 12 MUS$.

Distribution System


Petroleum Sector Total investment cost during the period 2011 – 2015 is 7.5 MUS$ for completion of the Storage Capacity project.

Natural Gas Sector (option with gas) Total investment cost during the period 2011 – 2015 for completion of the natural gas project is 78 MUS$ divided among:

· Implementation phase in Prishtina: 25 MUS$; · Penetration phase Peja and Prizren: 25 MUS$; · Expansion phase: 5 MUS$; · Saturation phase: 23 MUS$.

6.6 Key decisions in relation to a Kosovo energy strategy

M ain investment decisions (shor t ter m 2003-2004):

· Decide on import/export of power or self-sufficiency strategy for Kosovo; · Rehabilitation and expansion of lignite mining areas Brand, Mirash and Bardh; · Power plant rehabilitation of Kosovo A5; · Power plant rehabilitation of Kosovo A3; · Power transmission upgrades; · Power distribution upgrades; · SCADA system; · Re-evaluate the potential and economics for development of a Kosovo natural gas

system; · Invest in rail wagons for oil transportation and storages.


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M ain investment decisions (medium ter m 2005-2006 and long-ter m up to 2015):

· Decision on implementation of gas system; · If gas: Gas phase K1 to Prishtina reduces immediately the power system

requirements; · Decide on continued import/export or self-sufficiency; · Development of new lignite mining area Sibovic; · Power plant rehabilitation of Kosovo A4; · Power interconnection expansion to neighboring countries; · Power transmission expansion; · Power distribution expansion; · If gas: district heat in Prishtina should initial be based on conversion of existing heat

plants to gas. Later and if no gas: district heat in Prishtina should be served by new heat transmission pipeline from Kosovo B plant;

· New power plants (Center case): o Decision on central or decentral location; o If gas: No need for power, but a smaller CHP plants in Prishtina; and o No gas: Need for 187 MW new net capacity over the period: 118 MW gas oil in

2013 and 69 MW gas oil in 2015. · New power plants (High Growth scenario):

o Decision on central or decentral location; o If gas: Need for 513 MW new capacity over the period: 118 MW gas in 2009,

118 MW in 2013, 208 in 2012 and 69 MW CCGT gas in 2015; and o No gas: Need for 592 MW new net capacity: 120 MW oil in 2009, 180 MW

Lignite in 2012 and 292 MW hydro in 2014. · If gas: Next phases K2 and K3 develops gas system to Prizren and Peja; · Expand rail wagons for oil transportation and storages.


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7 Financing of Energy Projects

7.1 Introduction

The Study has assessed the aspects of financing energy infrastructure, identified the possible promoters of energy infrastructure; the requirements that are needed to have a bankable project; barriers for financing; presentation of the different lenders and finance options for projects, including some of the options for EU support in the south European regional infrastructure; and specific proposals for finance plans for the selected representative projects; and description of the potential investors depending on economic development of Kosovo.

Two main types of financing prevail: corporate finance i.e. the loan for the project is arranged through a promoter company with recourse to that company’s assets; and project finance by which only the project net proceeds are used to cover the interests and repayment of the investment. The current trend is increasingly towards project-financed projects, where the risk is kept within the project company.

That lack of financing due to various risks - political, legal, technical, environmental, etc.- constitutes a barrier to project development. However, the main barrier to project investment is the lack of a market. Another barrier to finance will of course be, if a lender of funds to a project attaches conditions to the finance package, which in turn can influence the operations of the promoter, including the implementation method, and maybe even the final project. This includes unclear/non-transparent tariff methodologies, energy strategies or privatization topics or a certain magnitude of own funds. For KEK, this will be a main concern in the short-term as technical losses and non-payment is resulting in insufficient funds, whereas the medium and longer-term expectations predict an improved credit rating and credit access.

Pr oject oper ator s

KEK is today under custody of UNMIK: so are the petroleum filling stations. It is however expected that the public-owned utilities will be privatized, most likely to a strategic investor.

Strategic Investors

The positions of some of the strategic investors are listed above:

a. RWE Group has a general interest and a strong presence in the east and southeast European energy market;

b. RWE Rheinbraun intends to develop lignite mining and lignite-based power generation throughout east and south-eastern Europe, provided sufficient profitability is given;

c. E.on the owner of BKB in Germany operates lignite-fired power plants and mines and the same requirements with respect to a commitment in Kosovo can be assumed;

d. Entergy and other USA based investor are presently very cautious regarding new investment in the sector after the Enron case;

e. The consulting subsidiary SwedPower of the Swedish power company Vattenfall is recently in Kosovo for “Management and Technical Assistance" to KEK under the EAR;

f. The German gas companies Ruhrgas and/or Verbundnetz Gaz (VNG) could be of interest for a future gas sector development;

g. Finally, VEAG, a power producer currently owned by Swedish Vattenfall has preferences likewise for regions that involve lignite power technologies.


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European Investment Bank

European Investment Bank (EIB) – the investment bank owned by EU member countries - is without any doubt the most active lender to energy projects in Europe. However, a contact at the EIB revealed that the Bank at present do NOT intend to be active in Kosovo. In order to involve EIB in activities in Kosovo, the issue of its mandate will hence need to be resolved or clarified among the EU member countries.

E ur opean B ank for R econstr uction and Development

The Bank is active in Kosovo and any viable bankable project would be potentially eligible for Bank financing. Key for its projects would be the availability not only of guarantees, but a clear source of project/corporate revenues to repay any loan that the Bank might extend in the sector. EBRD is confirming its interest in learning more about ESTAP’s potential projects.

B ilater al Development banks (K fW )

The KfW group gives impetus to economic, social and ecological development on a global scale in its capacity as Germany's development bank. Regarding Kosovo the programs are integrated into a fund known as the Balkan Development Fond (BDF). The BDF has two instruments:

· The Emergency Relief Fund used to finance commodity aid for the lignite-mines and the Emergency Programme Energy Phase I and II for the TPP Kosovo A. The Emergency Programme Energy Phase III for Kosovo A is currently being funded by KfW and UNMIK;

· The Investment Fund used to finance economically viable investments, which serve long-term development, such as the reconstruction of the energy supply.

At the moment the focus for activities of KfW in Kosovo is principally on the commercial programs. Later on, a condition will be the involvement of German enterprises in the projects.

E U-funding (E AR , C ar ds pr ogr amme, I NOG AT E , T E N-E )

EU has recently launched a regional strategy paper for the western Balkans for the so-called CARDS assistance programme. EU has supported Kosovo and at present most short-term investments are supported by the European Agency for Reconstruction.

Energy projects in Kosovo should be seen in a regional context, as Kosovo is too small, a province, for independent optimization of energy system. The regional approach should include the entire Southeast European power systems. The EU Commission is informed for the initiatives already taken as part of the ESTAP study to secure consistency between Kosovo and regional priorities.

7.2 Outline of financing of projects

Some financing plan for a new natural gas system and for combined investment in lignite mines and rehabilitation of power plants are described in the study.

K E K flow of funds

Presently, due to its financial situation, KEK contributes noting towards its own investment. If KEK is able to reduce non-technical power losses and improve collections sufficiently, it should be able to generate considerable funds for investments in a few years’ time.

The forecast financial statements show that KEK might be able in the future to have a sufficiently favorable credit rating to enable it to borrow from foreign commercial banks.


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8 Key issues for Energy Sector

8.1 Energy strategy for Kosovo

The political objectives of the new government of Kosovo in the energy sector are not yet formalized and uncertainty prevails surrounding the energy sector and its main policies.

The economic consequences of the conflict were severe, in a province already deep in economic decline and social stress from industrial collapse. Post-conflict challenges are now moving out of the emergency phase towards repairing conflict damages, and are rapidly moving towards restarting economic activity, reconstruction and the beginning of the transition to a marked-based economic system.

In this context, it is expected that growth and recovery of economic activity will be mainly supported by the development of energy sector in order to meet the present and projected energy demand of Kosovo economy.

Some stated energy objectives are:

· Kosovo needs energy for heating, cooking, industry, appliances and transportation; · The Kosovo economy needs normalization of energy supply and an end to present

electricity blackouts; · Energy must be affordable for low-income families also; · The present environmental situation damages the health and welfare of the

population, and action should be taken to reduce pollution.

The main objectives in the energy strategy plan to be prepared by the Government should include the following:

General Improving cost recovery through establishing discipline in payments for energy, improving electricity tariff levels and structures while ensuring lifeline tariffs for vulnerable social groups.

Affordability for energy services for families and availability of alternative fuels for heating instead of electricity.

Coal Sector The coal industry is the major source of fuel as well as of employment in Kosovo. Lignite production will increase to support any feasible power generation plan, with due attention to production costs and environmental issues.

Power Sector The first priority should be revenue collection, and all technical/organizational measures such as metering issues, cutting off illegal connections, and ensuring bills payment.

Reinforce the technical, organizational and legal frameworks for a policy of disconnecting customers who do not pay their electricity bills even in ethnic enclaves within Kosovo.

Rehabilitation of existing units and especially rehabilitation of Kosovo A is found to be the most profitable investment in power generation. The quality of supply has to be improved by investing in transmission and distribution systems.

District Heating The objective of district heating strategy for Kosovo should deal with options for the improvement of the heat production (including alternative fuels) and district heating systems in Prishtina, Gjakova and Mitrovica. The strategy should address the measures to be taken at national level, and measures to be taken in each of the three cities as well as other towns.


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Gas/Oil Sector Regulation and improvement of market regulation and pricing in the petroleum sector. Review of the high taxes on petroleum products to encourage the use heating oil for heating purposes as an alternative to electric heating for residential and commercial consumers.

Renewable Energy sources Wood is a principal source of energy for heating in private houses. Wood consumption is almost equal to the forest re-growth and, therefore, Kosovo’s forest assets must be monitored in coming years to avoid forest depletion. The basic principles of Sustainable Forestry Management concerning forest utilization, protection and forest development should be applied.

Development of other renewable energy sources (solar, geothermal, and small hydropower) that have the potential to contribute more to the generation mix should be promoted. Solar heating should be regarded as a potential low temperature heat source for production of hot tap water and private investment in solar collectors should be encouraged. The prospective privately owned and operated distributed power generation from renewable sources (such as small-scale hydropower plants), must be encouraged and supported.

Environment Protection Develop capacity for environmental regulation, monitoring, and enforcement across at all levels of government, and continuous improvement of the legal and political mechanisms with respect to the environment.

Promote environmentally sustainable development of energy resources. The development of the energy sector should be made on sound environmental basis.

Regional integration and contribution to free trade and competition, regional electricity, oil and gas markets The main objectives in regional energy sector cooperation for the optimal use of resources are coordination of the initiatives in the energy field, such as coordinated investment and energy trading (electricity, fossil fuels) on the basis of regionally co-coordinated energy systems and services with respect to economic recovery and growth, environmental protection and regional stability.

Energy sector Reforms One of the most important objectives of new government should be the preparation of a set of reform policies concerning the structure of the energy sector in order to liberalize the operation of the energy market transferring the ownership of the power sector to the private sector, and secure property right for private investors in the energy sector.

Rational Use of Energy The main objectives should be the reduction of energy demand through: a) improvement of efficiency of the energy conversation into useful energy; b) reduction of energy intensity in the industrial sector by implementation of energy-efficient technologies; c) rational use of energy resources in residential and service sectors and also d) encouragement and promotion of rational energy use practices in all other sectors.

A medium term objective should be the development of a national energy conservation programme including legislative and non-legislative measures to encourage the rational use of energy resources, aiming at better use of the existing energy resources and postponement of new investments in energy sector.

8.2 Key decisions to be made

A number of key decisions need to be made as part of the formulation of an energy strategy for Kosovo, taking into account security of supply, employment and social problems, environment, regional cooperation and compatibility of targets with potential strategic investors’ and suppliers’ interests.


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Coal Sector Decision for future (medium-term) development of the sector considering the options for opening of a new coalmine (options Mirash East or Sibovc).

Decision on downsize of mine personnel to improve efficiency in coal production.

Power Sector Improvement of the electric energy supply through implementation of the proposed least-cost generation investment plan.

Priorities for reinforcement of transmission and distribution system according to proposed Master Plans.

Increasing mutually beneficial power exchanges between Kosovo and neighboring countries and deciding on the construction of the new 400 kV interconnection with Albanian power system.

District Heating Implement consumption based billing of heat in apartment buildings and promote formation and operation of homeowners associations (condominiums). In case natural gas will not be available, consider on basis of further analysis of costs and externalities the construction of the heat transmission line from TPP Kosovo B to Pristina.

Petroleum Sector To reduce the electricity consumption for heating purposes, decisions should be taken about (1) completely removing the excise duties on heating oil, as an alternative to electric heating during the transition period and (2) impact on revenue for the Kosovo budget where excise duties on petroleum products are at present the single most important domestic contributor.

A control system for securing separation of heating oil from diesel oil for transportation should be implemented. For example it is recommended to put dye in the heating oil, which would cause noticeable stains on vehicles if used in them; secondly all imported petroleum products should have a clear product specification (including laboratory testing) and Customs should be instructed to control functioning of the system. Otherwise the products may be mixed or even interchanged as a result of the diversified taxation system.

Reallocation of the petroleum transportation to rail transport and creation of strategic oil storage in Kosovo.

Gas Sector Decision on timing and arrangement for introduction of natural gas and implementation of a gas system based on private investments.

Environment Definition of an environmental policy towards considerable environmental pollution caused by energy sector activities. Preparation of a National Environmental Action Plan for reducing environmental impacts of projected energy consumption.

Decisions should be taken about (1) the level of environmental impact that is acceptable to society at large and (2) the level of cost that it is reasonable for the economy to bear without reducing economic growth.

Renewable Energy sources Promoting the use of solar collectors for hot tap water in individual houses.

Rehabilitation of damaged small HPP and construction of new small-scale hydropower plants by attracting private investors and other sources of funds for renewable projects.

Energy efficiency Preparation of a medium/long term action program focus on energy conservation and efficiency improvement with the aim of encouraging the use of high-efficiency household appliances,


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improving insulation in new and existing buildings and introduction of energy efficiency provisions in a national building code.

8.3 Energy Sector reforms and restructuring issues

The energy sector reforms are needed in order to improve the poor performance of the state-run electricity sector in terms of high costs and/or unreliable supply and to finance needed expenditures on new investment and/or maintenance. On the other hand there is a desire for the government to raise immediate revenue through the sale of assets from the sector.

The final goal of energy sector reform is to introduce private ownership where possible and competition in the parts of energy industries that are not natural monopolies, with regulation of monopolistic elements.

The most important issues of energy sector reform process are:

· Unbundling– to reduce vertical and vertical integration of state energy enterprises; · Commercialization – as a first step to further ownership changes; · Establishment of a legal and regulatory framework, which would be compatible with

new developments; · Implementing EU standards and practices in the energy sector.

Coal Sector The problem of the organization of the production division must take into account the proposed future mine development. Decision on the future mine operation is related with implementation of new organizational structure of Kosovo lignite mines aimed at meeting organizational requirements of a lignite open cast mine based on continuous mining technology and the integration of such an operation in a modern utility.

The future possible privatization the mines and the power plants means there is a need to set up in advance a new structure where the mines and power plants should be regarded as a unit from the technical and commercial point of view.

Power Sector The principal driving forces behind the power system reform process include the following: (a) the poor performance of the KEK in terms of high illegal consumption, low rate bill collection, unreliable supply; (b) the inability of the power sector to finance new investment and/or maintenance; (c) the need to remove subsidies to the sector in order to release resources for other pressing public expenditure needs; and (d) the desire to raise immediate revenue for the government through the sale of assets from the sector.

The objective for restructuring of electric power sector in Kosovo are:

· Improve power sector performance by improving or establishing technical proficiency, efficiency, reliability, and minimizing cost;

· Comply with the requirements of EU Directive 96/92/EC concerning common rules for the internal market in electricity ;

· Attract private foreign capital; · Introduce competition; · Create self-sustaining (self-financing) organizations; · Maintain the ability to privatize power sector organizations if that eventually

becomes desirable.


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8.4 Legal and Regulatory Framework improvement

Energy sector in Kosovo needs a comprehensive reform of its commercial legal and regulatory environment. One of the reason why still the most critical issue of un-payment for energy supply is not resolved in Kosovo is the absence of a legal framework dealing with the problem. The government has to legislate for a clear and unambiguous law of property rights including the right of the energy supplier to deny supplies to those who do not pay for it.

In order to support the private sector, Kosovo needs a comprehensive reform of its commercial legal and regulatory environment. The absence of a legal framework not only creates a vacuum, but also greatly increases the costs and risks of new ventures, commercial transactions, and overall economic activity.

Another condition to guarantee a successful implementation of the energy sector reform is the development of economic regulation of the power market, applied transparently by an agency that operates independently from influence by government, electricity suppliers, or consumers. In the wholesale market, the focus of regulation is to prevent anticompetitive abuses of market power. In the retail market, the focus of regulation should be on balancing the interests of suppliers with the interests of their captive customers.

The proper legal framework should contain at least the following laws:

· Electricity or Energy Law and relevant secondary regulation; · Enterprise Law; · Foreign Investment Law.

The present electricity law – regulation on the power sector - while containing some “planning and control tools” reasonable for Kosovo, has the benefit to define a regulatory framework that lets open the path to the future free market

8.5 Additional Studies Needed

General Energy policy · Advise on general energy policy, energy saving, taxation, environment, including

training and twinning; · Assessment of potential privatization/concession of power sector in Kosovo; · Renewable energy overview (wood, geothermal, solar).

Coal sector · Preparation of a Master Plan for rehabilitation measures and technical/biological

reclamation of dump areas of mines; · Action plan for the fighting of the coal fires.

Power Sector · Feasibility study for 400 kV line between Kosovo and Albania in the framework of

economic energy exchanges as result of short and medium term hydro-thermal generation scheduling;

· Regional study in energy demand and market development and the future role of Kosovo power system on the regional electricity market;

· Regular update of demand forecasts and distribution system development study; · Assess residential affordability; · LCIP up-dating on regular bases to follow eventually new demand scenarios; · Macro-economic forecasts based on new statistics (follow-up to ESTAP) · Study in power plant energy efficiency aiming at technological process optimization.


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· Improvement of availability level and other technical performance of the existing units;

· Studies related with Demand-side management; · Feasibility study for provision/contracting ancillary services from neighboring power

systems; · Study in renewable energy small power projects to better determine small

hydropower sites that are suitable for economic power generation.

District heating · Investigations on the geothermal potential and eventually a pilot project; · Pilot project for solar energy and for local low cost manufacturing of solar panels.

Oil and Gas Sector If the creation of a development company is not viable in Kosovo (as analyses show), the Consultant proposes the work put into a separate new technical project in continuation of the ESTAP Study.

The feasibility of introduction of natural gas in Kosovo should be carefully reviewed every two/three years or when the techno-economic and political circumstances in Kosovo will change considerably.


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9 Main recommendation for strengthening of Energy Sector

9.1 Policy recommendation

The policy and regulatory environment in Kosovo during pre-conflict time was based on Yugoslav-style socialism and heavy industry was largely state and socially owned.

The policies in energy sector should be focused on energy sector reforms, demopolization and regulation, prices and fiscal policy, investment policy, social protection and environmental protection.

Fiscal Policy The main objective in energy sector in Kosovo is strengthening discipline in the collection of payments for electricity and heating supply. The tariffs should be set at levels that ensure the cost recovery and promote the efficiency of the energy uses.

Investment Policy Rehabilitation of existing units in Kosovo A and in coal production to meet the demand of power plants, industry and households. Rehabilitation and extension of district heating in order to minimize the use of electricity for space heating. Facility rehabilitation is generally more cost-effective that building new plant.

In order to promote the private investment in energy sector infrastructure, an appropriate “policy framework” should be created including laws and regulations to govern the investment process; institutions, and arrangements among these institutions to manage the process; as well as procedures to facilitate it.

Energy sector reform, demopolization and regulation The main purpose of energy sector reform is to enable the sector to provide improved service to customers at reasonable and fair cost in an environmentally compatible way in order to support economic and social development without burdening the Kosovo budget.

One of the objectives of the policy in energy sector should be shifting the role of state from owner to regulator, with particular emphasis on the privatization of companies in the competitive segments of the energy sector.

As a medium term target of the reform is demopolization and regulation, unbundling vertically integrated monopolies to isolate natural monopolies and to increase competition among energy producers and suppliers.

Employment and Social Protection The private investment and encouragement of creation of new companies must have a high priority as important means for decrease the unemployment rate.

The shedding/redeployment of surplus labor should be facilitated strengthening the social safety net for the unemployed. The most important single employer today is KEK, which employs around 9,650 staff in operation.

Poor urban/rural households that are unable to cope with the rising cost of energy services have to be supported through lifeline tariffs or means-tested subsidies.

Security of supply, diversifying and regional cooperation In Kosovo, firewood, lignite and oil totally dominate the primary energy demand. The introduction of natural gas on a longer-term perspective is to be supported as an ideal fuel substitution ensuring an adequate level of security of supply. On medium-term and within the forecasted period introducing natural gas would come at a higher cost than substitute fuels. Although the increased security of supply could outweigh the added costs, it is concluded under the present Study to exclude any decisions on introducing gas and postpone it for later studies.


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Contribution to free trade and competition, regional oil, electricity and gas markets The domestic energy market has to be open to external competition.

In the framework of regional trading and cooperation the construction/rehabilitation of interconnection lines, transnational oil and gas pipelines and electricity connections should be supported and facilitated the movement of electricity, oil and gas.

9.2 Recommendations to improve efficiency

Recommendations to improve efficiency in all energy sub sectors are given in individual Modules. They can put together as short-term and medium- long-term recommendations.

Short-term recommendation The non-payment problem is creating an emergency situation in power sector. The following practices at the utility level and the government level, which help to mitigate the payment problem, are described.

Practices at the utility level, which had helped to tackle the problem effectively include:

· Elimination of un-metered consumption, intermediate metering, relocation of meters in locked boxes in places accessible to utility staff only, using tamper-resistant coaxial cables to connect single-household dwelling units to the grid;

· Separation of meter reading function from the technical metering function on the one hand, and from the commercial functions of billing and collection on the other hand;

· Computerization of consumer accounts enabling monitoring of each account and follow up for arrears through court systems and pursuing liquidation etc.;

· Directing investments towards areas of the distribution network where non-technical losses are low and payment rate for electricity is high;

· An information campaign would be useful (on the press, radio and TV) to make people more aware of Kosovo’s energy problems;

· Incentive schemes for the collection staff have to be designed carefully and properly; · Working with large industrial and commercial consumers.

Practices at the government level which have been found to be effective in mitigating or eliminating the problem include:

· The laws regulating relations between suppliers and consumers have to be improved and, above all, applied. Illegal connection and violation of meters must be strictly forbidden and severely penalized;

· For all utilities providing services as drinking water supply, sewerage etc. adopting tariffs which generate adequate revenues at least to pay for the operation and maintenance (O&M) costs, which include the cost of power supply;

· Adjusting tariffs in a timely fashion to cost recovery levels and to approach marginal supply costs and to eliminate internal cross subsidies, enables utilities to improve quality of supply and thereby improve collections;

· Replacing arbitrary and unsustainable price discounts to a wide range of households, by targeted means-tested subsidy to the poorer families paid directly to them as a part of the social security payments encourages better collection from the households.

Medium-long term recommendations They are related mainly with energy sector reforms having direct impact on production and distribution. In general terms, the benefits of reform are that incentives and pressures are applied to reduce operating costs and improve the efficiency of the system. In addition, the price of energy supply reflects more accurately costs and tends to reduce direct and/or cross-subsidies; in addition, fair prices give the right signals to the consumers regarding consumption levels and patterns.


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The objective of energy sector reform should be accomplished by (a) requiring sector enterprises to operate according to commercial standards, (b) making maximum use of market mechanisms for improving the efficiency of the energy sector, and (c) regulating transparently the monopoly elements of the industry.

On management aspects, the improvements include (a) improved personnel practices, including rationalization of recruitment, incentive payment structure, strict application of discipline among workers, and systematic training programs; (b) introduction of modern cost-accounting methods and financial control; (c) rationalization of purchasing and contracting for services; (d) improved spar parts procurement and inventory policies; and (e) improved labor and customer relations.

On the economic and financial side, restructuring is likely to rationalize costs. If prevailing tariff levels and structure are low and non rational, restructuring could lead to an increase in tariffs, as consumers are required to pay for the operating cost of service; in the longer term, however, reform is likely to increase efficiency and reduce costs.

A rational investment program, based on sound assessments of investment risks, would meet the needs of electricity users. Unnecessary or very risky investments would be minimized. A financially viable utility would be able to finance at least part of the needed investment program and obtain a reasonable rate of return for the investments, preferably a rate that is competitive with risk-adjusted returns in capital markets.

Under rational regulation, energy conservation would become a major means of meeting present and future system requirements. Demand-side management (DSM) could be introduced as a flexible and cost-effective tool of utility customer relations with attendant economic and environmental benefits.

9.3 Recommendations on the evolution of an appropriate sector structure

There are two essential conditions must be met before any reform is attempted: (a) it should be generally perceived in the country that reform is desirable; and (b) carrying out the reform agenda should be politically feasible.

The government’s role should be focused on policy formation and execution while giving up the roles of operator and investor with divestiture of state ownership in energy sector.

The process of a full reform program in energy sector consists of the following main stages:

1. Formation and approval of a energy policy by government that provides the broad guidelines for the reform program and the heavy political commitment needed to sustain the reform process, followed by the enactment of legislation necessary for implementing this policy;

2. Development of a transparent regulatory framework for the energy market that is applied transparently by an agency that operates independently from influence by government, suppliers, or consumers;

3. Unbundling of the integrated structure of the energy supply and establishing an energy market;

4. Privatization of the unbundled enterprises and distributors under dispersed ownership.

Coal Sector The reorganization of the production division of the mines should focus on the following subjects:

a. Strong co-operation between the planning, maintenance and operating units;

b. Reintegration of the INKOS institute into the production division of KEK as the engineering department;


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c. Fusion of the departments Mirash mine and Bardh mine to prepare the mines for the future concentration of the operation within one mine, only.

Power Sector KEK is today a monopoly within coal mining, power production, transmission and distribution.

The Consultant has examined the organizational structure of the power sector and identified three restructuring Options:

· Option 1 Efficiency Improvement (on-going project of KEK Management); · Option 2 Comply with the requirements of EU Directive 96/92/EC concerning

common rules for the internal market in electricity as soon as common rules are practical;

· Option 3 Privatization as a long-term objective of the restructuring process.

A fully competitive, disaggregated structure is not appropriate in the medium term for relatively small size system as KEK, particularly where one-generation pole (Kosovo B) exerts such dominance over the market.

Empowering Independent Regulators: Presently the regulation regarding PURCK is at a final stage of approval upon the Political Bodies in Kosovo. Once PURCK regulation is approved, secondary regulation or unregulated practices will determine the success of the Regulator action.

Ensuring Independency: Concrete measures should be adopted for regulator of Kosovo.

Accountability: Independence must be reconciled with measures to ensure that the regulator is accountable for its actions.

District Heating Sector It is recommended not to privatize the core business (head production and heat distribution) of the district heating company, in the nearest future. After some years when all consumers are organized and able to pay the bills without any major subsidies, the future ownership of the company could be considered. The recommendation is that all operating district heating companies should have 100% municipal ownership.

It is proposed to improve the regulation at national level will generally be given through legislation and other legal regulations and guidelines. The most important institutions for the national regulation are: Price Regulator, Regulatory Agency, and DH Association.

Natural Gas Sector ESTAP analyses show gas to be uneconomic. It is therefore not recommended to proceed with gas sector planning. However, if a gas sector emerges the following comments will have relevance.

The regulation and organization of the gas sector is based on the assumption that Kosovo will have a gas sector within the period until 2015.

Considering the size of the market in Kosovo we recommend establishing a new gas company as a single entity vertically integrating all links of the gas chain.

A combination of strategic investors from the region and internationally is recommended to be the most attractive and likely owners of the Kosovo gas industry.

The gas industry in Kosovo will have to comply with the EU Directives on natural gas and European Energy Cart to implementing amendments to the existing laws.

An independent regulator dedicated to gas market regulation is to be established as the most effective party in the regulation of the gas sector. The independent regulator should also be independent from the administrative functions of the state-apparatus and political scene.


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Petroleum Sector In order to secure liberalization and best business practice it is recommended to establish a Competition Council in Kosovo, which should overview the functioning of the petroleum market avoiding creation of monopolies and non-competitive behavior in the market.

Preparation and implementation as soon as possible the specific and detailed regulation for all companies involved in importation, distribution and trade of petroleum products in Kosovo.

Implementation of the EU regulation on Compulsory Oil Stocks and imposing quality standards for gasoline and diesel fuels. This regulation however should be implemented over a longer time period than valid for EU Member States.

9.4 Feasibility for converting the public utilities and unbundling

Feasibility and Ease of Implementation Formation and approval of a energy policy by government that provides the broad guidelines for the reform program and the heavy political commitment needed to sustain the reform process, followed by the enactment of legislation necessary for implementing this policy.

In general the political feasibility of sector reform is likely to be closely related to the political feasibility of macroeconomic reform, but one possible difference is that sector reform is most likely to eventually involve the privatization of existing assets, as well as private-sector involvement in new investment.

Privatization of the existing organizations within the power sector offers the potential of improved efficiency and the other benefits of private ownership, along with raising money from the sale of assets.

Unbundling and eventually privatization of KEK

The Consultant has schematized a reform path.

Phase 0: Situation in the year 2001; Phase 1: Regulated monopoly: a) law concerning objectives in energy sector; b) regulation (PURCK, KTA); c) definition of a company law “foreign investment law”; Phase 2: Definition of the organization of KEK as a Joint Stock Company; Phase 3: Institute the Single Buyer its duties and responsibilities (privatization and concession are also considered); and, in case of adoption of Single Buyer Model:

Phase 4: Multi bulk suppliers and KEK unbundling. Privatize the KEK production power plants; Phase 5: Eligible and Captive Customers; divide the customers into two main categories: the captive customers and the eligible customers.

The last phase, as an option for the future, is the KEK privatization representing the long-term achievement of the restructuring process.

9.5 Competition in the power sector

The competition in power sector, where feasible, is introduced in order to improve sector performance in terms of efficiency, customer responsiveness, innovation, and viability. Meanwhile the economic regulation of the wholesale and retail power markets should be used to promote competition and protect consumer interests.

Generally the competition is the form of private participation most likely to reduce the costs of production and to pass benefits on to consumers. If the sector can be made to cover its costs and be profitable, then there will be an incentive for firms to invest, and they will have an incentive to seek out new markets that can be profitable.


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Energy sector reform has the final goal is to introduce private ownership where possible and competition in the parts of energy industries that are not natural monopolies, with monopolistic elements being regulated.

In Kosovo, furthermore, private investors are expected to bring in financial resources and technical and managerial expertise that will rectify the prevailing low standard of supply by state-owned utilities.


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PART 2 Summary of Sector Analysis


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1. Module A – Electricity Demand Summary

1.1 General

The social and political changes in the recent history of Kosovo have completely changed the economic conditions and structures. This has had significant impact also on the electrical energy consumption. For example, in 1989 energy consumed by residential consumers constituted 26% of total energy consumption, while in 2000 it had increased to 75%. Under these conditions, the historical data related to the economy and to the electricity consumption structures do not serve as a basis for forecasting the future of electricity consumption. Knowledge on the consumption patter and its development trends was built on information collected directly from the consumers.

The electricity consumption in Kosovo is subject to many supply constraints that hamper normal growth. In the study, it was assumed that these supply constraints would be removed in future and, as a result, there would be no obstacle to the development of electrical consumption.

Specific power consumption per residential consumer is higher than what could be expected in Kosovo (average consumption per consumer/household in 2000 was 5300 kWh/p.a.), primarily due to widespread illegal connections to the network, to a high number of customers without installed meters, to frequent non-payment of the electricity billed and to low prices of electricity used for space heating. The study analyses these phenomena and points out how electric energy consumption can be reduced if the above-mentioned abnormalities are solved.

The objective of Module A as part of the Energy Sector Technical Assistance Project (ESTAP) is to analyze the demand for electricity, including evaluating the feasibility and cost of using alternative forms of energy for cooking and space heating and other uses, and make projections of electricity consumption for the period from 2002 to 2015.

1.2 Scope of Work

The following tasks have been considered in the electricity demand module: · The analysis of macro-economic and demographic development of Kosovo; · Analysis of the electric system and the electricity consumption by consumer category,

economic sector, losses etc.; · Identification and analysis of supply constraints and their effects on electricity

consumption; · Electricity demand forecast for the period 2002-2015; · Estimation of peak power on regional and system level, and load duration curves; · Assessment of electricity demand in a scenario without reduction of non-technical

losses.

1.3 Macro economical and demographic analysis

The GDP for year 2000 is estimated at about 1.5 BUS$ and the GNI at about 2.25 BUS$. Three scenarios for economic development were considered:

a. HGS: High Growth Scenario with an average GDP growth of about 10 % per year;

b. CCS: Center Case Scenario with an average GDP growth of about 6% per year;

c. LGS: Low Growth Scenario with an average GDP growth of about 4% per year.


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The residential electric customers specifically under Module A were estimated to be 321.000 in 2000 and the total number of households would be 454,000 in 2015. The affordability (expressed as GNI per household) of an average Kosovo household is estimated about 6900 US$ in 2000 and of this 3.4% (234 US$/a) is estimated to be the average expenditure for electricity per household.

1.4 Analysis of the electric system and the electricity consumption

The two lignite-fired TPP (Kosovo A and Kosovo B) produced 1,914 GWh in year 2000 that, added to the 955 GWh of import/export balance, amounting to a total of 2,869 GWh of energy supplied. Only 1,517 GWh (53%) were billed, while 1,352 GWh (47%) refer to technical and non-technical losses.

The annual load factor (ratio between average and maximum utilization of the network) is only 0.5 (expressing a low average use of the network capacity with high short-term demand peaks) due to the very seasonal nature of demand. The ratio between the monthly consumption in December and July is 2.4:1.

Data for forecasting were provided by: · Interviews and data sheets filled in by KEK central offices and by Regional

Distribution Units; · Interviews with a sample of 813 residential customers of the seven Regions; · Interviews with a sample of 20 representative industries; · Load data recorded on 6 LV feeders supplying residential customers, 1 LV feeder

supplying commercial customers and 1 MV feeder. Interviews with residential customers provided information on the type of dwelling, the composition of families, fuels used for heating, cooking and hot water, and availability of the main types of household electrical appliances. Electricity customers were divided into 3 categories and the consequent end-use of electricity was analyzed for each:

a. Residential Customers: Space heating, Cooking, Hot water, Other uses;

b. Industry: Thermal uses, Non-thermal uses;

c. Services (including all LV non residential customers): Thermal uses, Non-thermal uses.

The average residential customer, in year-2000, consumed about 5300 kWh/p.a.; the customers with meter have an average consumption of 4500 kWh/p.a., while the residential customers without meter (about 84,000) of 7550 kWh/p.a. If all residential customers would have meters, the total residential consumption will drop about 15%. Total electricity consumption in Kosovo households during 2000, reached around 1,705 GWh. Heating accounted for 64.2% (20.8% went to space heating, 26% to water heating and 17.4% cooking), and non-thermal needs for 35.8%.

1.5 Electricity demand forecast

Power consumption was estimated for each end-usage in every customer category, and for each scenario in each milestone year during the forecasting period. The years considered are the first 5 years in the millennium (2001 to 2005), 2010 and 2015.


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The consumption pattern among residential consumers is estimated according to several parameters (e.g. number of households, average area of dwelling, area heated, persons per household.). Total household electricity consumption would increase from 1,705 GWh (in year-2000) to:

· 2,317 GWh by 2015 for MGS no gas scenario, or 36%; · 2,555 GWh by 2015 for HGS no gas scenario, or 50%.

The forecast for the industrial customers was made by reconstructing the base year. In order to make this forecast, Kosovo is compared with other Balkan countries, which resembles Kosovo’s socio-economical conditions. The main parameters used for the consumption forecasts were the GDP estimates, the specific electricity intensity of the industrial branches and its development.

The predicted total consumption of electric energy in industry will reach in 2015: · 1,162 GWh in case of MGS no-gas scenario with an annual growth rate of 10%; · 1,720 GWh in case of HGS no-gas scenario with an annual growth rate of 13 %.

The key variables in the forecasting model for the customers in the service sector are, the service sector’s share of GDP, the specific electricity consumption per square meter and the share of electricity for heating purposes.

The total electricity demand in the service sector in 2015 will be: · 858 GWh, in case of MGS no-gas scenario with a rate of growth of 7.5 % per year; · 1,228 GWh, in case of HGS no-gas scenario with a rate of growth of 10 % per year.

A forecast including the introduction of natural gas was prepared for the HGS and MGS scenarios. In that version, natural gas gradually replaces part of the electrical consumption for heating purposes. It was assumed that the use of gas will begin to spread through Kosovo in 2005 and that, in 2015, its share of the domestic sector will reach 42% of the HGS scenario or 20% of the MGS scenario. Natural gas penetration in HGS scenario causes a reduction of 1145 GWh and 256 MW in peak power in year 2015; in MGS scenario there is a reduction of 523 GWh and 92 MW output effect required during demand peaks.

The development of technical losses was estimated in Module D. It was assumed that, in year-2000, total technical losses constituted 18% of the electricity delivered to the network. This figure will gradually decline to 13% in 2015, on the assumption that the rehabilitation network programs will be carried out appropriately and in a timely manner.

A gradual reduction in non-technical losses was also forecasted, from the current figure of about 30% of total energy, they will fall to a normal level of 5% in 2015 following measures against illegal use of electrical energy.

Analysis of the annual energy figures of the three customer categories and of technical losses, made possible to calculate the total energy forecast for Kosovo in the period 2001 – 2015.

Evaluation of the total load curves and of the peak power at each network voltage level (LV, MV, and HV), was undertaken by the Kosovo Load Model (KLM) specially developed for the purpose of this study. This model separately considers the end-use of each customer category. Residential space heating end-use was divided into “direct space heating” (utilized manly during the day) and “storage space heating” (manly during the night), because they have a very different impact on the load curves. In total, nine end-uses load classes were modeled by coefficients representing electric energy modulation through time. The residential and services KLM coefficients were mainly obtained from recorded load curves on the LV feeders. The KLM model allowed to determine the typical curves of the total load as a result of the end-use load curves summing. Consequently, one can see the modification of the daily load profile as the composition of the load changes. Moreover, KLM provides an estimate of peak power and the Load Duration Curve.


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The following table summarizes the main results of forecasting for each scenario considered.

Scenarios KOSOVO Electricity Demand Forecast

2000 2005 2010 2015

HG Scenario No Gas

System Peak Power (MW) 653 796 1,061 1,424 Electricity Demand (GWh) 2,869 3,769 4,988 6,519 Annual Growth Rate (%) - 5.61 5.76 5.50

Average Growth Rate (%) 5.62

HG Scenario With Gas

System Peak Power (MW) 653 776 949 1,168 Electricity Demand (GWh) 2,869 3,673 4,450 5,374 Annual Growth Rate (%) - 5.07 3.91 3.85


MG Scenario No Gas

System Peak Power (MW) 653 749 890 1,081 Electricity Demand (GWh) 2,869 3,586 4,272 5,137 Annual Growth Rate (%) - 4.56 3.56 3.76


MG Scenario With Gas

System Peak Power (MW) 653 742 852 989 Electricity Demand (GWh) 2,869 3,549 4,054 4,614 Annual Growth Rate (%) - 4.35 2.70 2.62


LG Scenario

System Peak Power (MW) 653 687 764 848 Electricity Demand (GWh) 2,869 3,324 3,724 4,146 Annual Growth Rate (%) - 2.99 2.30 2.17


In all the scenarios, at the end of forecasting period, the composition of electric consumption changes substantially. In year 2000, residential power consumption is 75% of the total consumption and industrial 12% only, while in 2015 residential will be 46% (HGS) or 61% (LGS), and industry will be 31% (HGS) or 23% (LGS) and Services will be 22% (HGS) or 16% (LGS).

1.6 Electricity Forecast in a scenario without reduction of non-technical losses

The main hypothesis behind this new scenario is that the imperative actions to stop the illegal use of energy has been unsuccessfully implemented and the operation of power system will continue to be characterized by a permanent high level of non-technical losses.

The electric energy forecast has been estimated until 2015 for the Central Case MGS and the main conclusions are:

· In 2015 the electric energy consumption of residential customers will be up to 3,103 GWh, 34% higher than in the MGS scenario;

· Total energy demand increases up to 6320 GWh in 2015 or 23% higher than in the MGS scenario;

· In 2015 the system peak power will be 261 MW higher than in MGS mainly in LV and MV networks, respectively 32% and 26% surpassing the peak power foreseen in MGS.

1.7 Demand Side Management

Residential consumption is the current driver of the system’s peak load. Different demand side management measures can slow down demand growth. This can be done through a set of measures properly distributed among residential, industrial, and service sectors. Due to its market share, the residential sector has the largest savings potential followed by the industrial sector. The industrial sector can implement various load management actions, but the actual DSM action plans are left to the management of the individual companies.


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Suitable measures in the residential sector should primarily be oriented towards reduction of electricity consumption for thermal uses, followed by possible intervention on specific electricity uses, such as:

· Improvement of home thermal insulation, which would lower the specific heating consumption to less than 200 kWh/m2 in 2015;

· Insulating water-heater storage tanks is a fairly simple and inexpensive improvement that can help maintain water temperature at the thermostat setting. Easy-to-install, pre-cut blankets (or jackets) for electric water heaters are available and, according to manufacturers’ claims, when properly installed, they can save up to one third of the stand-by consumption (18 – 25 GWh of energy saving);

· The substitution of standard incandescent light bulbs with compact fluorescent lamps (CFLs) can lead to a unit saving of about 90-100 kWh/year for the first lamp replaced (66 – 71 GWh/year of saving in 2015).

1.8 Conclusions and recommendations

Rapid economic development is required in Kosovo and therefore a high growth in electrical loads is expected. The development is conditioned by various factors, among which are the stabilization of the political and administrative situation with proper regulatory institutions in place, the beginning of the privatization process, and the strong investment incentives. In addition to this, some bottlenecks in the economy must be solved and that includes power supply quality and reliability. Load shedding operations every day interrupting production will deter investments and growth. Solving these problems is linked to reducing the very high share of technical and non-technical losses.

Base on the obtained results of the study, the following recommendations can be made: · Implementing a meter installation plan for all LV customers is an urgent matter; · Installing meters for apartments buildings, in locked collective boxes; using tamper-

resistant coaxial cables to connect single-household dwelling units to the grid; · The laws regulating relations between suppliers and consumers have to be improved

and, above all, applied. Illegal connection and violation of meters must be strictly forbidden and severely penalized;

· The percentage of non-paying users must be drastically reduced. It would be useful to verify and, in case, reorganize the whole chain, from meter reading up to final payment of bills;

· Directing investments towards areas of the distribution network where non-technical losses are low and payment rate for electricity is high;

· An information campaign would be useful (on the press, radio and TV) to make people more aware of Kosovo’s energy problems;

· For a more rational use of energy, thermal insulation should be encouraged through incentives when building new houses and incentives should be given for the old ones; such action would, in future, lead to significant savings in energy;

· Measures for electric energy substitution, for example the use of LPG for cooking and coal for space heating should be investigated and developed if economically justified;

· Broader measures to promote rational use of energy and renewable sources.

Reducing non technical losses, regulating electric energy payment and increasing electricity price used for space heating purposes, will have a decisive impact on the success of introducing new sources of energy such as natural gas, because the user’s choice would have to be based on a correct economic comparison of the costs.


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2. Module B – Least-Cost Power Generation Investment Program Summary

2.1 General

In the past two decades, the Kosovo region has gone through three periods that have in a different way and quite substantially have affected its electric power sector.

The first period lasted from 1980 until 1991. Characteristic of this period was a rather fast increase in the electricity demand and consequential commissioning of significant power generation facilities, i.e. the Kosovo B TPP units.

The second period, from 1991 until 1999, was equally marked with a rapid increase of the electricity demand but no investment in new power generation units. Meanwhile, the operating characteristics of the existing units were deteriorated as a result of absent or poor maintenance.

Within the third period, which followed the end of the war, that is from 1999 onward, a considerable efforts were introduced to have the electricity generation part stabilized with the aid of the international community and the work of staff of KEK. Numerous results are already well visible.

The objective of Module B as part of the Energy Sector Technical Assistance Project (ESTAP) is to propose a Least Cost Generation Investment Program for Kosovo for the period up to 2015.

2.2 Scope of Work

The main objectives of the Module B are: · Determine the generation capability and remaining lifetimes of the existing power

generation facilities; · Identify options for future power generating capacity and provide data on their

technical characteristics and costs; · Determine a least-cost power generation investment program (LCIP) for the period

2002 to 2015 to meet the projected demand.

2.3 Current State

The entire generation of electricity in power plants of Kosovo is based on domestic lignite. Electricity generation is provided by two power plants, Kosovo A and Kosovo B. The total installed generation capacity of Kosovo power system is 1,513 MW, but the available net capacity is only 841 MW.

The Kosovo A power plant has five units. Their total installed capacity amounts to 800 MW. The actual state of these units differs considerably from their rated or design parameters. Units 2 and 5 are currently not available and other units are in a rather bad condition.

The Kosovo B power plant has two units, B1 and B2, each having the capacity of 339 MW. The units of Kosovo B are more recent than units of Kosovo A, and also in a better condition.

There is only one large hydro multipurpose power plant, the Ujman HPP (2 x 17.5 MW); other hydro power plants are all comparatively small-sized.


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2.4 Options for power supply

Module B is outlining the criteria for power expansion, which will provide the basis upon which the electricity sector may improve the quality and reliability of power generation.

According to the ‘Scenarios and Assumptions’ for the ESTAP-Kosovo, three different scenarios for the development of the GDP have been defined: a High Growth, a Center case, and a Low Growth scenario. Respectively three different electricity demand scenarios are analyzed, i.e. High, Medium (Center case) and Low. The medium demand scenario is used as the Base Case.

As development options for the future the following generation facilities have been considered: hydropower (HPP Zhur), coal-fired power plants, oil-fired steam, combustion turbines (natural gas or gas oil fired), combined-cycle units and co-generation, converting existing units at district heating power plants into co-generation units.

Imported electricity, as an alternative to new generation within Kosovo, and options for export of electricity to neighboring countries s has been investigated.

The feasibility of coordinating the operation of the predominantly hydropower systems in neighboring countries also has been considered.

2.5 Least-cost power generation investment program

Scenar ios

Two main scenarios of the Kosovian electric power system expansion plan are analyzed and compared within the Least Cost Investment Program: A) development of the Kosovo power system as a (isolated) self-sufficient system and B) planning the generation system based on a close co-ordination with other neighboring systems.

The results obtained analyzing the first scenario named Scenario A, shown that investment funds for the new gas turbine technology with the capacity of 490 MW will be required until 2015. The NPV of the total system cost is 798.6 MUS$. As scenario A proves not to be the least-cost one, its implementation seems unrealistic and undesirable.

Three interregional power exchange patterns were analyzed in the framework of second scenario dubbed Scenario B. The results have shown that all sub-scenarios are economically much more favorable than the self-sufficient system in Scenario A.

The least cost cooperation alternative foresees electricity import during peak hours and electricity export during off peak hours. All other co-operation alternatives are less advantageous and push the present net value to a higher level.

L east-cost G ener ation Plan

All the analyses comprised in Module B indisputably speak in favor of the rehabilitation of the existing units of the Kosovo A TPP, particularly units A3, A4 and A5. The sensitivity analyses performed with an additional increase by 50% of the rehabilitation costs, confirmed the correctness of this conclusion. During the rehabilitation phase, these units need to be technically and environmentally qualified for the operation until 2015. According to plans, the rehabilitation of the unit A5 is to be completed by the second half of 2003 and is to be commissioned in the beginning of 2004. Rehabilitations of units A3 and A4, is planned by 2004 and 2005, so the units will be back in operation at 2005 and 2006 respectively.

During the mining prospecting in the years sixties some samples of lignite have been analyzed and a content of about 14% of inert solids was found and the boilers were designed on this value. Presently the average content of inert solids reached 21% in the superficial layers so, in order to reduce the strength of the boiler problems and the investments, some recommendation are given. The measures that mitigate the problem consist on intervention on mills to reduce the


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granulometry of the coal injected in the boiler, to study a new air and fuel injection in the combustion chamber, and the revision of the soot blowing system to reduce the higher fouling. It is obvious that the units would not operate in optimal condition but still in satisfactory manner.

An extensive technical rehabilitation of the Kosovo B TPP’s units is not foreseen for the observed period because the EAR has funded a series set of overhauls in period 2000-2002.

Base Case According to the medium demand scenario the power generation system will until 2013 most probably require peak load capacity of 300 MW, which can be ensured by the proposed interregional co-operation. Implementation of such co-operation is perceived to be economically the most favorable one, especially when compared to construction of new power generation facilities. During this period, the rehabilitated units take up the role of the intermediate capacity. Additional intermediate and peak capacities will be required after 2013. The base load capacities are estimated to suffice until the end of the observed period.

The proposed LCIP of the Kosovian system shows the following new generation units: · A 118 MW SCGT gas-fired to be constructed by 2013. Its main task will be to

provide reserve and peak power. The fuel to be used may be gas-oil or natural gas, if natural gas will be available in Kosovo.

· A 69 MW CCGT gas-fired to be put in operation by 2015.

The NPV of the total system cost is 532.1 MUS$ roughly 70 % of the amount required in case of scenario A.

An appropriate solution for the observed period represent the emergency and reserve capacity that are ensured from outside of the Kosovian system, at a price of 7 US$c/kWh. This electricity should be contracted based on a co-operation agreement. The undertaken sensitivity analysis shows that contracting at an even higher price may also be an option.

In-band electricity power import (constant power import during observed period) purchased at the expected market price is economically unjustifiable for Kosovo power system. This is because the power generation by the existing and rehabilitated units in TPP Kosovo A and B is cheaper.

The use of natural gas for electric energy generation enables fuel differentiation and sensitivity analyses demonstrated that even an increase of 25% (or 50%) in the cost of natural gas, the proposed LCIP is not changed. Nevertheless having in mind that the first gas-fired unit is foreseen in 2013 and the possibility of substitution by gas-oil, the use of natural gas in the power generation can be postponed (in Module I natural gas is discussed as early as 2005 – although the overall conclusion points towards a considerably later introduction date).

If electricity demand adheres to the low demand scenario - for what there is but little probability - only the rehabilitation of units A3, A4 and A5 is necessary. This means that no new power generation units are needed during the observed period providing that the interregional co-operation is established. In such case, there is no need for additional emergency and reserve capacity contracted from neighboring countries.

High Demand Scenario If the load rises as quickly as anticipated in the high demand scenario, it is essential to establish an interregional co-operation, as soon as possible, to rehabilitate the existing units in time and introduce new power generation capacities.


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Export Kosovo would be able to provide guaranteed power export in case having proper conditions at existing base-load units and new foreseen peak-power units. Simulation of an additional 250 MW of the in-band electricity export from 2006 onward displayed that the existing units and those planned within LCIP are not capable to carry out such tasks. The Kosovian power system, namely, requires further investment into peak units; their overall installed capacity being to some extent lower than the foreseen additional electricity export.

In additional to base-load power export the system will be able to export surpluses, which normally occur during night hours, over weekends and in the summer seasons. Such exports due to nature of its occurrence can be implemented only in short-terms basis.

Other issues The new gas fired CHP unit (installed power of 208 MWe and 160 MWth) proposed by Module H was evaluated within our scenarios. The analysis made within LCIP established a considerable increase in the related cost so, the construction of new CHP in 2005 is found unjustifiable. A solution proposed by LCIP is heat extraction from the existing Kosovo B TPP units. A realistic implementation scheduled time is 2005.

During the observed period, we propose that the oldest Kosovo A TPP unit, i.e. Unit A1, is to be shut down. This is anticipated to take place in 2004. No other units need to be shut down until 2015.

2.6 Environment

The objectives to mitigate the environmental problems caused by power generation are twofold a) improvement of present situation; b) stepwise compliance with EU standards.

The following measures have to be introduced for Kosovo A and B units:

Kosovo A · To ensure an adequate and successful operation of the existing Kosovo A TPP units, it

is obligatory to undertake the maintenance works on their electrostatic precipitators. The overall rehabilitation measures shall include also the electrostatic precipitators rehabilitation, which must ensure emission concentrations to be kept below 100 mg/Nm3, which is upper emission limit for existing units after year 2008;

· It is indispensable that the system responsible for the technological waste water neutralization is properly arranged. and put into operation. Reconstruction of the neutralization system or purification of technological waste waters should be done;

a) Natural gas available in Kosovo

b) No natural gas available in Kosovo

The analysis identified the following new generation units:

The analysis identified the following new generation units:

· A 118 MW SCGT gas-fired to be constructed by 2009.

· Additional 118 MW SCGT gas-fired to be constructed by 2013.

· A 208 MW CHP gas-fired to be put in operation by 2012.

· A 120 MW GT gas oil-fired to be constructed by 2009.

· A 180 MW lignite-fired to be constructed by 2012.

· The Zur HPP 292 MW to be constructed by 2014.

The NPV of the total system cost is 637.5 MUS$.

The NPV of the total system cost is 658.0 MUS$.


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· Considering the relatively low sulfur content in coal and its relatively high rate of bonding with ash and slag, ensuring emission concentration to be kept around 400 mg/Nm3, desulphurisation is not required;

· The decision on introducing primary measures for NOx reduction should be taken after that a new campaign of measurements would be performed. The new set of measures is crucial and the final decision will be agreed upon after new measurements will be analyzed;

· The ash transport should be directed into abandoned areas of the existing mines. It requires to be rehabilitated;

· On rehabilitated units A3, A4 and A5 at any exhaust of flue gases into air continuous monitoring of emission concentrations of the dust have to be introduced, measurements of other pollutants are to be taken on temporary basis.

Kosovo B · Based on the set criteria, flue gas desulphurisation at the Kosovo B TPP is not

obligatory; · Primary measures aiming at the reduction of the NOx emission concentration depends

from the results of new set of measurements (the same as Kosovo A); · Upgrading of the existing electrostatic precipitators is required already before 2008, in

order to keep dust concentrations below 50 mg/Nm3; · Environmental monitoring located at the plant’s stack to carry out SO2, NOx and dust

emission monitoring needs to be set up; · Retrofitting of the neutralization system or purification of the waste waters should be

done. · The lignite mine is envisaged to serve for ash disposal as a long-term solution.

2.7 Conclusions and recommendations

Considering results of analyses, the following proposals are made:

· The development of Kosovo power system according to self-sufficient Scenario A is not recommended because it is not the least-cost investment.

· For Kosovo power system the optimal regional co-operation variant is characterized by off-peak electricity export and peak hours electricity import. The proposed co-operation should be established even immediately.

· The in-band electricity imported at the foreseen market price is economically unjustifiable.

· For ancillary services i.e. emergency and reserve power, it is proposed to contract outside Kosovo power system.

· All existing units of the Kosovo A TPP, specifically Units A3, A4 and A5 should be rehabilitated as soon as possible including environmental aspects and will operate until 2015. An extensive technical rehabilitation of units of the Kosovo B TPP is not necessary in the observed period.

· From generation planning point of view the introduction of natural gas in Kosovo is not necessary up to 2013 when the first gas-fired unit (118 MW SCGT) should be put in operation.

· To improve availability parameters a precondition is implementation of good overhauling plan for each unit and continuous technical personnel training on the annual basis.

· Assurance of an adequate and successful operation of the existing Kosovo A TPP units requires that extensive maintenance works should be made on electrostatic


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precipitators and that the system for the technological waste waters neutralization. The flue gas desulphurisation in the Kosovo B TPP is not necessary.

· Environmental monitoring sited on the plant stack for SO2, NOx and dust emission monitoring needs to be set up.

We propose the following studies and study activities to be made in future:

· LCIP up-dating on regular bases to follow eventually new demand scenarios; · Study in renewable energy sources; · Measures to improve the availability level and other important technical parameters

of the existing units; · The contribution of Kosovo power system on the regional electricity market based on

the day-night and seasonal electricity surpluses; · Study in power plant energy efficiency aiming at technological process optimization; · Feasibility study for provision of ancillary services from neighboring power systems.


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3. Module C – Power Transmission Master Plan Summary

3.1 General

The 400 kV and 220 kV transmission network of Kosovo power system is only a part of the regional interconnected transmission system. The transmission system is interconnected with all the neighboring systems and the 400 kV interconnection lines of Kosovo are some of the principal media with a wide regional interest for reliable electric supply and energy exchanges between power systems of Second UCTE Synchronous Zone.

The critical parts of transmission system are:

a. The 110 kV network, where the cross-section of some of the 110 kV lines is ACSR 150/25 mm2, which does not comply with reliability criteria;

b. The insufficiency of the present transformation capacity between 400, 220 kV networks and 110 kV; and

c. The bottleneck of present 220/110 kV transformer capacities in Kosovo A.

The objective of Module C as part of the Energy Sector Technical Assistance Project (ESTAP) is to prepare a least-cost Transmission Master Plan for rehabilitation and expansion of the transmission system for the period up to 2015 providing the lists of components, equipment and materials along with their estimated costs.

3.2 Scope of Work

The following activities have been carried out in the preparation of the Transmission System Master Plan: · Analysis of results of Module A, Module B and Module F: The review of the results of

load forecast, LC generation planning, distribution master plan and the definition of the relevant reference scenarios in the framework of transmission network planning;

· Kosovo transmission network data collection: performed in close collaboration with KEK experts;

· Transmission Network Planning Criteria: The Planning Criteria that are used in the planning of transmission network has been specified;

· Transmission Network Development: Probabilistic Reliability Study; · Transmission Network Development: Deterministic Reliability Study; · Transmission Network Development: Detailed Analysis and Optimization; · Economic Evaluation of Transmission Network Development Options (Sensitivity

Analysis); · Analysis of Interconnection of Kosovo power system and Development Options: the

assessment of the transfer capability of the Kosovo transmission system during study period and definition of the most suitable network reinforcements for achievement of a desirable level of transfer capability between Kosovo and Albania.;

· Detailed list of components and equipment with relevant costs and scheduling;

3.3 Study Methodology

The applied methodology for transmission planning study consists of an optimization process in which a number of alternative expansion plans are tested and improved for technical acceptability, and finally compared on an economic basis. These comparisons were used in the


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decision-making process. The following describes the analyses performed for the Transmission System Planning Study.

Probabilistic Reliability Evaluation of the transmission network development options was performed to determine the necessary reinforcements for the network expansion and to avoid unnecessary expenditure accepting a certain risk of failure for the future system. A dedicated approach based on annual cost comparison (investment cost and benefit cost) has been applied to evaluate the profitability of draft plans of technically acceptable reinforcements.

Deterministic Reliability Analysis of the transmission network development options were performed in order to assess the reliability of the proposed alternative expansion plans testing the system behavior during critical calculation conditions.

Transient Stability Study was conducted to assess the performance of Kosovo’s transmission system following large perturbations (short circuits, generator trips, etc.).

Optimal Power Flow Study were carried out to define the optimal, both active and reactive, power dispatch, to optimize the voltage profile within the operative constraints all over the transmission network.

Short Circuit Study was carried out to determine whether the maximum ratings of the equipment are not exceeded.

3.4 Summary of Kosovo 2000-2015 Transmission Master Plan

For each of the network reinforcement careful investigation of various alternatives has been dedicated to selection of the most appropriate technical solution and to defer capital expenditures wherever possible and when economically justified.

Transmission network investments for Horizon Year 2005 Kosovo’s Transmission Master Plan for Development Stage 1 (2002 - 2005) proposes several internal new and upgrade projects in accordance with the assumed load forecast scenario (Center Case Scenario).

Total installed capacity of substations and length of transmission lines planned for construction are as follows:

Transmission Network Element

Total Investment Costs 1000 US$

400/110 kV Substations 300 MVA 9,222 400 kV Overhead Lines 4 km 820 110 kV Overhead Lines 92 km 10,596 110 kV Cable Lines 8 km 2,440 Rehabilitation and replacement 3,871

Total investment cost during the period 2002 – 2005 is 26,952,000 US$.

The main network element is the new Peja III 400 kV substation to be constructed during the period 2004-2005, which allows for drastic decrease of EENS related to transmission network constraints as well as a significant reduction of power and energy losses. Detailed deterministic reliability studies have shown a general improvement of the transmission system behavior eliminating the bottlenecks and other restrictions of network and solving in a very efficient way the difficulties of supply of Northwest area. The power transformer capacity of first phase is of 300 MVA. The total installed capacity needed in 2015 is 600 MVA.

Substation 400/110 kV Peja III shall be constructed near the existing 110/10 Istok substation.

The 400 kV connection will be a looped arrangement on the existing 400 kV Kosovo B – Ribarevina (YU). The new 400 kV double circuit 2 km line Peja III – Connecting Point would be constructed with ACSR 2x3x490/65 conductors. The 110 kV part includes two 110 kV


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transformer bays and at least three 110 kV line bays relevant to the single circuit lines Peja III – Istog, Peja III – Peja and Peja III – Kline, which are part of the project.

Total investment cost for this project is about 18 MUS$.

Transmission network investments for Horizon Year 2010 Total installed capacity of substations and length of transmission lines planned for construction foreseen in Transmission Master Plan for Development Stage 2 (2006 - 2010) are as follows:



110 kV Overhead Lines 52 Km 5,920 Rehabilitation and replacement 100 Total investment cost during the period 2006 – 2010 is 6,020,000 US$.

Transmission network investments for Horizon Year 2015 Total installed capacity of new substations and length of new transmission lines planned for construction during the Development Stage 3 (2011 - 2015) are as follows:

Transmission Network

Element

Total

Investment Costs

1000 US$ · 400/110 kV

Substations 600 MVA 12,694

· 400 kV Overhead Lines

8 km 1,640


94 km 11,516

· Rehabilitation and replacement 250

Total investment cost during the period 2011 – 2015 is 26,100,000 US$.

The main network element is the new Ferizaj II 400 kV substations to be constructed in 2014. Detailed deterministic reliability studies have shown a general improvement of the transmission system behavior eliminating the bottlenecks and other network restrictions and solving in efficient way the difficulties of supply of Southeast area.

The installed capacity needed in 2014 is 300 MVA. The second autotransformer, also necessary in order to comply with N-1 criterion, is foreseen to be installed only if the projected demand will follow the HG rate scenario.

Substation 400/110 kV Ferizaj II shall be constructed near the existing 400 kV interconnection line 400 kV Kosovo B – Skopje 1 (FYROM). The 400 kV connection will be a looped arrangement on the existing 400 kV Kosovo B – Skopje 1 (FYROM). The new 400 kV double circuit 8 km line Ferizaj II – Connecting Point would be constructed with ACSR 2x3x490/65 conductors. The 110 kV part includes one 110 kV transformer bays and at least three 110 kV line bays relevant to the double circuit line Ferizaj II – Bibaj and to the 31 km Ferizaj II – Gjilan which are part of the project.

Total investment cost for this project is about 15.1 MUS$.

Additional Transmission network investments for HGS Year 2010 In case that the projected demand in year 2010 would occur according to HGS no Gas, it is necessary to introduce in the transmission system the additional reinforcement. Total additional capacity of substations and length of transmission lines are as follows:


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· 220/110 kV transformer

150 MVA 1,850


13 Km 2,570

Total additional investment cost during the period 2006 – 2010 is 4,420,000 US$.

Additional Transmission network investments for HGS Year 2015 In case that the projected demand during the period 2011 - 2015 would occur according to HGS no Gas, it is necessary to introduce on the transmission system the additional reinforcement. Total additional capacity of new substations and length of new transmission lines planned for construction are as follows:

Transmission Network

Element

Total

Investment Costs

1000 US$ · 400/110 kV

Substations 300 MVA 4,790

· 220/110 kV Substations

150 MVA 1,850


140 km 16,100

Total additional investment cost during the period 2011 – 2015 is 22,570,000 US$.

3.5 New 400 kV Interconnection Line Kosovo B – Kashar (AL)

Three different options aiming to increase the exchange capability of Kosovo and Albania power system, have been compared: a) new 220 kV interconnection line Kosovo – Albania, doubling the existing 220 kV Prizren (KS) – Fierza (AL); b) new 400 kV line Kosovo – Kashar (AL) in operation in 2010; and c) new 400 kV line Podgorica (YU) – Kashar (AL) in operation in 2010.

The technical comparison of different options, leads to the following conclusions: · A new 220 kV interconnection line Kosovo - Albania is not feasible from point of view

of increasing the transfer capability for direct power exchanges between Kosovo and Albania. It cannot support the requested transfer capability for the implementation of the least cost generation investment plan of Kosovo. In additional it does not provide any support to the needs of Albania to import significant amount of electricity from abroad.

· The detailed technical analyses have shown superiority of option 2 Kosovo B – Kashar (AL) which assures highest ATC between Kosovo and Albania (30% more) compared to option 3 Podgorice (YU) – Kashar (AL). The construction of this line would permit the establishment of new power corridor in the region and compare to option 3, allows for higher power exchanges, lower regional power losses and mitigates some network congestions in existing lines during power transfer from North to South of the region.

· Based on preliminary economic evaluation the option 2, new 400 kV Kosovo B- Kashar (AL) is not only technically superior compared with option 3, Podgorice (YU) – Kashar (AL), but also more profitable.

The 400 kV interconnection line between Kosovo power system and Albanian power system will provide these two complementary systems with an adequate transfer capability necessary to perform an appropriate long term and short term hydro–thermal coordination of their respective generations. Considering the generation characteristics of the Albanian (hydro) and Kosovo


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(thermo) system, a strong connection between these two systems would allow for reliably operation while achieving their major benefits such as:

· Sharing of generating capacity through diversity in production realizing an optimal short-term generation dispatch and optimal medium, long-term optimization of hydrologic recourses of Albanian HPP;

· Increasing annual hydro production, and reductions in the operating costs of Kosovo power system due to better utilization of thermal power plants;

· Improvement on reliability of electricity supply for customers as a result of increase of generator availability, decrease of the “water or energy risk” for the Albanian power system and the “power risk” to cover the peak loads for the Kosovo power system;

· Reducing the projected necessary investments in installed generating capacity in both countries and, in particular for the Kosovo power system, the expenses for providing ancillary services;

· Strengthening the interconnected Balkan network through establishment of new 400 kV interconnection line which will increase exchanges and transactions of electricity between other countries in the region, contributing on development of a regional electricity market (REM) operating under UCTE rules and the EC directives and regulations and consequently to the regional co-operation and stability.

The total investment cost for 400 kV transmission line and 400 kV line bays is estimated about 55.5 MUS$. The investment cost includes the cost of line within Kosovo territory (80 km) and the cost in Albanian territory (135 km).

In order to quantify all mutual benefits of coordinating operation and to evaluate more in detail the viability of the project, the Consultants recommend that a detailed feasibility study of this new interconnection should be undertaken. The proposed 400 kV line would strengthen the regional interconnections and greatly enhance Kosovo's options and therefore its bargaining position in reaching beneficial exchange arrangements.


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4. Module D – Reduction in Technical Power Losses in Transmission and Distribution Summary

4.1 General

A most serious problem of Kosovo’s power system is the high level of technical and non-technical losses, which accounted for about 47% of total electricity available in year-2000. The technical losses in MV and LV network constitute 15.5% of total energy available. The reason for non-technical losses is the illegal electricity consumption in Kosovo that lacks proper restrain.

The loss increase tendency is found to be critical. The estimated total technical losses in 2000 reached 18% of the total electricity available in Kosovo, i.e. the non-technical losses account for almost 29% of the total electrical energy available for the system.

The objective of Module D as part of the Energy Sector Technical Assistance Project (ESTAP) is to determine the technical losses for all the voltage levels and to propose measures aiming at their reduction to attain an acceptable level harmonized with the planned transmission and distribution network development.

4.2 Scope of Work

The following main issues have been considered in the study of technical losses’ reduction: · Collection of data on Kosovo transmission network in cooperation with Module

C: Based on the information provided by KEK. · Analysis of Kosovo’s transmission network development variants and UCTE

interconnection: Analysis of Module C “Power Transmission Master Plan” in cooperation with KEK experts

· Analysis of collected data on Kosovo distribution MV network and development variants: Analysis of Module F “Power Distribution Master Plan” and peak loads level

· Collection of data on Kosovo distribution LV typical networks : Analysis of three typical LV network configurations, provided by local experts; Analysis of the measured daily demand meeting diagrams, provided by Module A;

· Analysis of "Electricity demand": Analysis of Module A electricity consumption and peak power estimation at HV, MV and LV;

· Analysis of “Least-cost Power Generation Investment Program Study”: Analysis of the existing power generation and options for future power generating capacity;

· Selection of methodologies for energy technical losses calculation: Two different methodologies are chosen (HV/MV and LV network);

· Detailed analysis of technical losses on HV, MV and LV level: Selected methodologies are applied. Adequate measures for technical losses reduction are proposed.

4.3 Reasons for high level of technical losses

The level of the total technical losses, which is 18% of the available electric energy, is unsustainable compared to technical losses in the advanced electric power systems in the West-European countries that range between 6% and 8%.

Most of the technical losses are allocated in the distribution network for these reasons:


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· The LV voltage distribution network account for 62% of total losses, corresponding to 30% of net electricity imports in year-2000. These enormous losses occur where the major part of customers is connected to the LV network and the illegal consumption (materializing as losses) is extremely high. It was estimated that its share of the LV load is 38%. Knowing that the variable technical losses being current quadrate-dependent, the share of technical losses is in fact even higher;

· The number of the supply sources, i.e. 110/MV, 35/10 kV and 10/0,4 kV substations, is small and they are highly loaded;

· The state of the MV level is critical where the 10 kV network is completely radial, with small cross-sections of the highly loaded conductors - especially in rural areas;

· The facilities in the 35 kV network are operating almost at their thermal limits causing enormous power or energy losses;

· The 110 kV network is not adequately designed and the cross-section of some of the 110 kV lines is ACSR 150/25 mm2 and at the peak load, they operate at level of their thermal maximum limit.

4.4 Summary of the results of loss calculation

Transmission network technical losses

An appropriate computational procedure has been used to calculate the power and energy transmission losses. The network model took into account the existing transmission network with all its parameters of any of the voltage levels (400 kV, 220 kV and 110 kV). For the future reference years 2005, 2010 and 2015, new facilities have been taken into account according to network variants and related in-service times defined by the distribution, transmission and generation system development plans.

Table 4.1 provides for the two relevant electricity demand scenarios a review of technical power and energy losses in transmission and relative reduction in technical losses in the period 2000-2015.

T able 4-1 R elative r eduction in technical losses in tr ansmission Center Case – no gas Reduction High Growth - no gas Reduction

Year 2000 2005 2010 2015 2000/2015 Year 2000 2005 2010 2015 2000/2015 ΔP (MW) 22.4 18.1 21.5 19.9 ΔP (MW) 22,4 20,6 26,4 25,0 ΔP/P (%) 3,4 2,5 2,3 1,8 1,6% ΔP/P (%) 3,4 2.5 2,3 1.7 1,7% ΔW (GWh) 72,2 72,9 77,8 76,6 ΔW (GWh) 72,2 73,3 88,3 91,0 ΔW/W (%) 2,5 2,0 1,8 1,5 1,0% ΔW/W (%) 2,5 1.9 1.8 1.4 1,1%

Distribution MV network technical losses

The best method for the calculation of energy losses of large networks is the so called »standard method«. The method adopted allows for the calculation of the annual energy losses as a product of power losses at a peak load and full hours of the annual energy losses. The peak load power losses were calculated with our simulation program GREDOS. All calculations are relied on a MV distribution network model most realistically representing conditions of a real network. In our calculations focusing on the future horizons (made in collaboration with Module F), we took into account the network development that we considered necessary to satisfy distribution network planning criteria. All analyses are made considering the foreseen load growth for the next 15 years.

The main measures to be taken to minimize losses are:

a. Increasing the number of the supply sources (the 110 kV/MV substations);

b. Abolition of the 35 kV voltage level and adoption of the direct 110/(20)10 kV transformation;


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c. Reinforcement of the MV network (upgrading the conductor cross-sections, additional lines);

d. Gradual transition on the 20 kV voltage level operation.

As the implementation of the above measures would require enormous investments, a gradual approach to the related work should be taken which follows the load growth in each distribution area. The large investment foreseen for network expansion (transmission and distribution) cannot be economically justified only for the purposes of loss reduction, but the loss minimization targets are achieved during the as part of the otherwise necessary investment needed to fulfill the requirements of the network planning criteria.

The Table 4.2 summarizes the peak load power losses and annual energy losses as occurring in the MV distribution network during 2000 - 2015.

T able 4-2 Absolute and r elative var iations in the peak load power losses and annual ener gy losses

Scenario Losses 2000 2005 2010 2015

Center Case no gas

ΔP (MW) 46.3 31.9 24.3 23.3 ΔP/P (%) 7.4 4.3 2.8 2.3 ΔW (GWh) 127 102 83 82 ΔW/W (%) 4.8 3.1 2.1 1.7

High Growth no gas

ΔP (MW) 46.3 33.9 23.1 31.6 ΔP/P (%) 7.4 4.3 2.2 2.3 ΔW (GWh) 127 107 80 107 ΔW/W (%) 4.8 3.1 1.7 1.8

Distribution LV network technical losses The present study addresses the issue of technical losses incurred in the LV (0.38 kV) distribution networks and in the MV/0.38 kV transformers operating in the power distribution area of Kosovo. In the LV network, constant losses mainly occur in distribution transformers and electric meters approximately shared as 7:1 respectively. The remaining constant losses on the LV network can be neglected. Replacement of the network elements attributable to constant loss reduction is not reasonable, but it is strongly recommended to pay attention to the loss issue in case of transformer replacement. By employing economizing transformers of the DIN type, it will be possible to save app. 0.7% of the consumed energy. The estimated value of the electric meter losses is 0.2% of the consumed energy.

According to our calculations, variable energy losses of the distribution transformers are estimated at app. 0.43% of the energy used.

Variable energy losses in the 0.38 kV network - A sample evaluation of losses and the analysis of the possibility for their reduction in the LV network was made on three typical configurations of the LV networks. Typical daily demand meeting diagrams for these networks were determined on the basis of several months lasting measurements of 15–minute averages of the active and reactive power flows over phases of the MV/0.38 kV transformer secondary. Results obtained with models showed that losses of the urban cable network do not cause problems and are of the order between 2.5% to 3.7% of the transmitted energy. This is unlike in the case of overhead lines, which are loaded up to their thermal rating. In this case the losses of networks with shorter lines are of the order of 10%, and in extreme cases of the rural areas even 20%.

The transition on the higher voltage level (from 0.38 kV to 0.4 kV), reduces the losses in LV network of app. 10%.

The results of calculation are summarized in Table 4.3 for the constant and variable transformer losses, while Table 4.4 gives a summary of calculations for all the three typical LV networks.


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T able 4-3: C onstant and var iable tr ansfor mer losses

Case

Existing MV/0.38 kV TR

[%]

DIN MV/0.38 kV TR

[%]

Energy Meters

[%] No-load losses 1.4 0.7 0.2 Reductions 1 0.5 0.13 Variable losses 0.43 - - Reductions 0.62 - -

T able 4-4 L V networ k var iable losses

Network Model

Urban Low season

Urban High season

Suburb Low season

Suburb High season

Rural Low season

Rural High season

[%] [%] [%] [%] [%] [%] State 2.5 3.7 7.2 10.6 10.0 21.4

4.5 Conclusions and Recommendations

All technical loss analyses are made in close collaboration with Module C and Module F. Calculations of technical losses prove that along with the implementation of the proposed network reinforcement and adoption of adequate concepts for the transmission and distribution network, the targeted values set for the total loss reduction are economically justified in the range 5% - 7% (from actual level of technical losses of about 18% to 13% - 11% in 2015).

Implementing the Module F and Module C technical measures combined with measures proposed for the LV network given here bellow, the electrical energy technical losses of the MG and HG scenarios focusing on the 2015 horizon would be relatively reduced by 5.6% as are shown in Table 4.5 or in Figure 4.1 and Figure 4.2.

The target of a loss reduction campaign must be the LV network. Namely, the current illegal consumption, giving rise to the additional enormous voltage losses, must be reduced to an acceptable level and the legalized connections would be implemented as appropriate and supported with any needed LV network reinforcement. There is no doubt that with quite radical measures enforced in the area of the national legislation combined with the proposed technical solutions, values above the targeted 5% - 7% can be achieved.

To reach the target of loss reduction by 7% in 2015 will require additional funds to be invested into the large LV network. As taught by the experiences gained by other distributions, the decrease in the LV network losses is a much time consuming process. We recommend that the proposed 4.6% (MGS) and 4.5% (HGS) total reduction in technical losses in distribution is realistic provided that the proposed investments follow the dynamics of Module F.

T able 4-5 E lectr ical ener gy technical losses – M G and H G scenar io no gas

Reduction in Technical Losses - 5.6% (MG Scenario - no gas) Year 2000 2005 2010 2015 Reduction MG Scenario DW DW/W DW DW/W DW DW/W DW DW/W in Voltage level (GWh) % (GWh) % (GWh) % (GWh) % 2000-2015 Transmission 72 3 73 2 78 2 77 1 -1.0 Distribution 444 15 490 14 499 12 559 11 -4.6 Sum DW 516 18 563 16 577 14 636 12 -5.6 Total W 2,869 3,586 4,272 5,137 Reduction in Technical Losses - 5.6% (HG Scenario - no gas) Year 2000 2005 2010 2015 Reduction HG Scenario DW DW/W DW DW/W DW DW/W DW DW/W in Voltage level (GWh) % (GWh) % (GWh) % (GWh) % 2000-2015 Transmission 72 3 73 2 88 2 91 1 -1.1 Distribution 444 15 519 14 585 12 717 11 -4.5 Sum DW 516 18 592 16 673 14 808 12 -5.6 Total W 2,869 3,769 4,988 6,519


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F igur e 4.1: R elative technical losses r eduction in the per iod 2002-2015

F igur e 4.2: E lectr ical ener gy demand ver sus total technical loss r eduction in the per iod 2002-2015

Reduction in Technical Losses - HG Scenario

1.4%2.5%

4.4%

1.6%

9.4%

12.4%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

2000 2004 2005 2010 2015Years

Rel

ativ

e lo

sses

(%)

HV -1.1% MV -2.8%LV -1.7% Total -5.6%

Reduction in Technical Losses - MG Scenario

1.5%2.5%

4.4%

1.6%

9.3%

12.4%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

2000 2004 2005 2010 2015Years

Rel

ativ

e lo

sses

(%)

HV -1% MV -2.8%LV -1.8% Total -5.6%

MG Scenario

48.9%

25%

79.1%

15.7%

13.5%

12.4%

18%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2000 2005 2010 2015Year

Ele

ctri

cal E

nerg

y D

eman

d

12%

14%

16%

18%

20%

Loss

Red

uctio

n

W MGS(%) dW/W (%)

HG Scenario

127.2%

31.4%

73.9%

18%

12.4%

13.5%

15.7%

0%

20%

40%

60%

80%

100%

120%

140%

2000 2005 2010 2015Year

Elec

trica

l Ene

rgy

Dem

and

12%

14%

16%

18%

20%

Loss

Red

uctio

n

W HGS(%) dW/W (%)


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5. Module E – Power Dispatch System Plan Summary

5.1 General

Developed in the late '80s, the KEK data acquisition and control system is now in a very precarious condition. Many components were damaged or lost during the conflict and, in addition to this, KEK does not have all the information required to operate the system.

Considering the limited equipment installed, its current operating status, its technical and economic obsolescence, the best and quickest solution would be designing and planning a totally new SCADA/EMS system to solve the huge daily problems that affect the dispatching activities of the KEK production and transmission power network.

The objective of Module E as part of the Energy Sector Technical Assistance Project (ESTAP) is to evaluate the feasibility of a new SCADA System and to recommend a SCADA system and associated telecommunications facilities suitable for Kosovo, and lists of components, materials and equipment along with their estimated costs.

5.2 Scope of Work

The main objectives of the document is to define the functional technical specifications for a new modern control system - Kosovo Power Network Control System (KCS) – based on the latest and state-of-the-art techniques by adopting mature and proven market products and technologies; open architecture technologies that may be expanded in terms of functions and capacities; and products compliant with international standards, especially in terms of communication protocols.

The new KCS project will adequately satisfy the needs of a modern power system strictly integrated in the Second UCTE Synchronous Zone and being compliant with all the management criteria set forth by UCTE. The KCS architecture must be flexible and suitable to accommodate the future evolution of control requirements for an electrical system that in the next few years could be involved in the scenarios of the free electric power markets of Southeast Europe.

KCS can be divided into three main integrated sub-systems, each of them designed and managed by a dedicated sub-project:

a. SCADA/EMS;

b. Communication Network;

c. Sub-Station Adaptation works.

5.3 Main issues of the project

The structural/functional features and the performance of the new KCS and technical specifications are given.

The SCADA/EMS subsystem includes the control system itself (Host – LAN - Console), the control room equipment (Mimic panel – digital instrument – etc.), the control center infrastructures and auxiliaries services (power supply – emergency diesel generator, etc.) along with the RTUs in all the stations and plants with 400, 220 and 110 kV bus bars. In addition to main control system it would also be possible to foresee, as initial hypothesis, an emergency back-up system, which could be installed in the sub-station of the Kosovo B thermal plant.

The Communication Network subsystem shall comprise all the equipment needed to physically connect the single power stations to the Main SCADA/EMS system and its back-up


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by means of optical fibers, if available, power line carriers and radio links. The station belonging to the primary network (400 and 220 kV) will be connected to the control system by two different logical and physical paths. This sub-project shall also define the modules required to manage the first three levels of the ISO-OSI protocol convention on basis of TCP/IP protocol.

The main aim of the KCS project is to set-up, in relation to operational structures and technologies, all the supervision, control and remote management functions of the network and of the transmission systems. Operational activities shall be concentrated in the KEK Control Center of Prishtinë, which will have an “alter ego” in the emergency back-up Control Center (named EKCS – Emergency Kosovo Control System) that should be located in the sub-station of the Kosovo B.

The two Centers will be interconnected and form a single unit linked to the peripheral remote actuator devices through a data acquisition system distributed on the territory, according to basic architecture shown in the following Figure 5.1.

Functional Architecture of Kosovo Control System

PRIMARY DATA ACQUISITIONNETWORK

EKCS KCS

PERIPHERICAL STATIONS

MAINSTATION

CONTROL SYSTEMSOF NEIGHBOURING

COUNTRIES

MAINSTATION MAIN

STATION

F igur e 5.1 F unctional ar chitectur e of K osovo C ontr ol System

In addition, it shall be necessary to take into account also the possibility of connecting in future the KCS to the control center of the neighboring country in order to exchange, by standard native Inter-Control Center Communications Protocol (ICCP), data related to the tie line and part of the network near to the national border.

The target of the Sub-Station Adaptation Works is to guarantee the availability, in the teletransmission room of each station at the marshaling of interface between the station power circuit and the RTU I/O cards: measures, status indications, commands and set points by adequate isolated and/or decoupled circuits. The scope of this sub-project is to define, design in detail, supply all the equipment and carry out all the works necessary to make stations and plants compliant with remote control requirements. This sub-project does not include any of the activities required to motorize disconnectors in the stations where they are not yet motorized.

The three sub-projects mentioned above must be regarded as separate contract packages, although a single turnkey contract covering all the three items would be the preferable solution. The requirements of the three sub-projects, SCADA/EMS, Communication Network and Sub-Station Adaptation Works, are described individually. Nevertheless, the three tasks designs shall be considered as a fully integrated and complete Operation and Control System. If separate


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contracts are issued for each sub-system, the SCADA/EMS contractor shall be responsible for fully defining and agreeing upon all interfaces with the other party, in order to ensure the compatibility and complete functionality of the system as a whole.

5.4 Phased implementation

Due to the current Kosovo network supervision and control conditions, the implementation plan must be based on an extremely limited time frame. The project plan could be organized according to the two following stages:

1. First Stage - SCADA system available in KCS and EKCS with the database of all the network and:

· Completion of the sub-station adaptation works for the stations belonging to the first group,

· Completion of the sub-station adaptation works (supervision and control) for the bay of secondary winding of the transformer HV/MV installed in the station of the first group and of 10 kV bus-bar system of the Prishtina 3 and Deçan stations that at the end of this stage should be operated in unattended mode;

· First group of RTU - installed, connected to the communication network and activated;

· Communication Network configured and operational for the Control Centers and the station belonging to the first group.

2. Second Stage – EMS functions available in KCS for all the HV network (400,220 and 110

kV) and:

· Complete sub-Station adaptation works for HV bus-bar system of the stations belonging to the second group;

· Completion of the sub-station adaptation work (supervision and control) for the bay of secondary winding of the transformer HV/MV installed in the station of the second group;

· Second group of RTU - installed, connected to the communication network and activated;

· Communication network completion also for the station belonging to the second group; · Integration in SCADA/EMS and in Communication Network of the new stations

without any adaptation works.

The first stage must be performed after the 20th month of the project kick-off, the second stage at the end of 32-th month. The new station shall be connected to Control System 2 month before the start of operations.

5.5 Investment Costs

The estimated investment costs include all software, hardware, documentation, training, and miscellaneous items necessary to implement a fully operational system.

The investment costs are given for the first and second implementation stages. Two variant are specified depending from the options of telecommunication system a) based on technology of digital PLC Communication Network; b) based on technology of Fiber Optic Communication Network.

Variant PLC: Investment cost for first stage is about 8.6 MUS$ and second phase is 4.3 MUS$. Variant FOC: Investment cost for first stage is about 12.3 MUS$ and second phase is 5.4 MUS$.


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The acquisition of RTU's, Communication Network Equipment and power supply system for new stations shall be managed under Sub-station construction contract. SCADA/EMS Contractors have to consider, in their Tender, only the integration activities need to connect the new station to the Control Centers.

As a conclusion the PLC variant is the proposed best solution; from economic point of view, satisfying all the data acquisition and transmission requirements of KEK dispatching core business (SCADA/EMS data transmission, voice communication and teleprotection). On the other side FOC solution must be adopted if others projects external to KEK transmission and dispatching department, the so-called “data over power”, have to be satisfied like, as an example, mobile and fixed telecommunication traffic, internet services, home banking, credit card services, bancomat, TV signals, heavy information transmission (data and/or picture) and so on. The new business must justify the additional costs, of about 5 MUS$.


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6. Module F – Power Distribution Master Plan Summary

6.1 General

One of the characteristics of the Kosovo distribution network is the small number of its supply sources and high loads on 110/35kV and 35/10kV SS. Furthermore, rated power of the transformer is exceeded in some instances. The distribution network is overload and its thermal capacity is exceeded during peak load conditions.

The present situation of MV feeders in rural areas is critical due to their length and small conductor cross-sections, causing high voltage drops (up to 40% of the nominal voltage) and considerable technical losses (there are instances with losses more than 6% of the peak load). Reserve supply cannot be assured, particularly in the rural areas, due to the radial structure of the network.

The objective of Module F as part of the Energy Sector Technical Assistance Project (ESTAP) is to propose a Power Distribution Master Plan determining further rehabilitation requirements and investments and new distribution capacities for the period 2002-2015 with lists of components and their estimated costs.

6.2 Scope of Work

The work was broken down into the following tasks: · Collection of data on Kosovo distribution network: Based on the information and

rehabilitation plans provided by KEK. · Analysis of collected data on Kosovo distribution network: According to the actual state

of electrical system, a model of the electrical network is made, preserving operational characteristics of the real network.

· Analysis of "electricity demand forecast" (Module A): Analysis of Module A global prognosis of a particular region.

· Assessment of criteria for system development and operation: According to the actual state of the electrical system, adequate criteria are assessed.

· Distribution network planning: Proposed planning methodology is applied. · Detailed analysis and optimization of the best alternatives: Optimal development

variants are determined by assessing technical, economical and reliability criteria. · List of components and equipment with relevant costs and scheduling: Distribution

investment program with lists of components, equipment and materials along with their estimated cost is recommended.

6.3 Distribution network planning

Based on our analysis of the MV network and 110/MV transformation development to take place in the period 2000 – 2015, we propose implementation of the measures foreseen in Distribution Master Plan.

The review of the new SS 110/MV in the period 2002-2015 is presented in Figure 6.1.


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$

$$$

$

$T

$$T

$T

$T

$

$

$

$

$T

$

$

$T

$

$$

$T $$T

$

PR 5PR 6

Mazgit

PEJA 2

SHTIME

N.Berda

RAHOVEC

DRAGASH

SHTRPCE

FERIZAJ

KACANIK

PODUJEVE

F.Kosova

K.MITR 2

GJILAN 4GJILAN 5

SKENDERAJ

MALISHEVE

K. MITR. 1

LEPOSAVIC (HGS)

DARDANA (Kamenica)

Drenasi (HGS)PR. 4

PRIZREN 4

Kosovo.Distribution borders

New SS 110/MV$ SS_2002-2005$ SS_2006-2010$T SS_2011-2015

New Substations 110/20(10) kV in Kosovo

F igur e 6.1 Per spective new SS 110/M V in K osovo 2002-2015

The period 2002 - 2005 By 2005, all missing meters should be installed to eliminate the non-payment of electricity. Construction of the most needed supply sources, i.e. 110/(20)10kV with the most urgently needed MV network reinforcements, should be accomplished according to criteria of network planning (permissible network element loads, permissible voltage drops under normal and under stand-by operating states) in the following order of priority:

New meters: · Missing meters: 84 000; · New consumers: 63 000.

New SS: Confirmed on the basis of approved tender:

· 220/(35) 20 (10) kV Podujeve SS, 2x40MVA; · 110/20(10) kV Prishtina 5 SS, 2x31.5MVA; · 110/20(10) kV Berivojca SS, 31.5MVA.

1. 110/20(10) kV Peja 2 SS, 2x31.5MVA; 2. 110/20(10) kV Rahovec SS, 31.5MVA; 3. 110/20(10) kV Gjilani 4 SS, 31.5MVA; 4. 110/20(10) kV Mitrovica 2 SS, 31.5MVA; 5. 110/20(10) kV Prizren 4 SS, 2x40MVA; 6. Upgrading of the Prishtina 4 SS with a 20 kV equipment, 2x31.5MVA; 7. 35/10 kV Prishtina III SS upgrading to 110/20 kV (Prishtina 6),

2x31.5MVA; 8. 110/20(10) kV Dragashi SS, 2x20MVA.

Other network investments:


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· New 110/10(20)kV transformer: 218 MVA; · New 10(20)kV lines: 770 km; · MV/LV TS: 412; · Transition of the 10kV TS on the 10(20)kV TS: 954; · LV network lines: 2640 km.

Estimated investments costs for the period 2002-2005 are 44 MUS$/year:

· 22.2 MUS$/year MV network costs; · 13.6 MUS$/year LV network costs; · 8.5 MUS$/year meter costs; · plus 16.8 – 16.4 MUS$/year of maintenance costs.

The period 2006 - 2010 Until 2010, adoption of the direct 110/10(20)kV transformation, gradual transition from the 10kV voltage level to the 20kV distribution voltage and abolition of the 35kV voltage level are in progress.

The main reason for the transition to 20kV voltage level is the technical criteria of network planning, achievable only with 20 kV voltage level. Transition to 20kV voltage level increases total investment costs in MV network to the year 2015 according to 10 kV variant minimally. On the 10kV voltage level, voltage drops pose a significant problem, which can be alleviated in the period up to the year 2005 with intensive reinforcement of the MV network. The transition to 20kV voltage level up to the year 2010 greatly reduces the needs for reinforcement of the network: the transmission capacity of the lines is doubled and the voltage drops reduced by a factor of four.

The transition to the 20kV voltage level shall be made in phases duly respecting the following recommendations:

§ All new MV/LV SS must be of the reconnectable type, 10(20)/0.4kV; § Insulation of all new overhead lines and ground cables must comply with the 20kV

voltage requirements; § All new SS equipment must comply with the 20kV voltage requirements.

Owing to the fact that in Kosovo there are only some 10 % of the reconnectable 10(20) kV type TS, we propose that the gradual replacement of the 10/0.4 TS with the 10(20)/0.4kV units begins immediately. This process should be running in parallel with the transition of the existing 10kV voltage level to the 20kV voltage level and adoption of 110/10(20) kV transformation.

Until 2010, gradual and consistent implementation of the proposed planning criteria regarding voltage drops is in progress (10% under normal operational conditions and 15% under reserve operational conditions). New sources should be implemented in the following order of priority:

New SS: 1. 110/20 kV Fushe Kosova SS, 2x31.5MVA; 2. Reconstruction of the 110/35 Prishtina 1 SS to 110/20(10) kV, 2x31.5MVA; 3. Reconstruction of the 110/35 Peja 1 SS à 110/20 kV, 2x31.5MVA; 4. Reconstruction of the 110/35 Gjakova 1 SS à 110/20 kV, 2x31.5MVA; 5. 110/20 kV Malisheva SS, 2x20MVA; 6. 110/20 kV Mazgit SS, 2x31.5MVA; 7. 110/20(10) kV Gjilani 5 SS, 31.5MVA; 8. 110/20(10) kV Shtime SS, 2x20MVA; 9. 110/20(10) kV Ferizaj SS, 2x40MVA;


1. New meters: 62 000; 2. New 110/10(20) kV transformer: 158 MVA;


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3. New 10(20)kV lines: 322 km; 4. MV/LV TS : 526; 5. Transition of the 10kV TS on the 10(20)kV TS: 1,674; 6. LV network lines: 2540 km.

Estimated MGS scenario investments costs for the period 2006-2010 are 29 MUS$/year:

· 14.5 MUS$/year MV network costs; · 11.7 MUS$/year LV network costs; · 2.8 MUS$/year meter costs; · plus 16.4-15.5 MUS$/year maintenance costs.

Estimated HGS scenario investments costs for the period 2006-2010 are 39 MUS$/year. The introduction of a Distribution Management System (DMS) would be appropriate in this period. The estimated cost for one DMS center, which could completely fulfill the needs for the Kosovo distribution would be 3 MUS$ (hardware and software). The introduction of the DMS and training of the staff could double the costs.

The period 2011 - 2015 We propose that by 2015 transition to the 20kV voltage level is completed in the major part of Kosovo. In order to improve the supply reliability, creation of some loops in the 20kV network with short 20kV connections is proposed. Then, to ensure minimal possible losses, optimal disclosure of this loop is needed on the section of the loop where the loop current is the smallest. Investments in new sources in priority order:

New SS: 1. 110/20(10) kV Skenderaj SS, 2x20MVA; 2. 110/20 kV Kacanik SS, 2x20MVA; 3. 110/20(10) kV Mitrovica 1 SS, 2x31.5MVA; 4. 110/20 kV Shterrpce SS, 2x20MVA; 5. 110/20 kV Nova Berda SS, 2x31.5MVA.


1. New meters: 52 000; 2. New 110/10(20)kV transformer: 166 MVA; 3. New 20kV lines: 280 km; 4. MV/LV TS: 630; 5. Transition of the 10kV TS on the 10(20)kV TS: 1,000; 6. LV network lines: 2,190 km.

Estimated MGS scenario investments costs for the period 2011-2015 are 24 MUS$/year: · 10.9 MUS$/year MV network costs; · 11.1 MUS$/year LV network costs; · 2.4 MUS$/year meter costs; · plus 15.5-14.8 MUS$/year maintenance costs.

Estimated HGS scenario investments costs for the period 2011-2015 are 28 MUS$/year. Additional investment costs for the HGS scenario compared with MGS during all planned period (2002-2015) are 71 MUS$.

LV network expansion costs and costs of new meters The past and the current practice in Kosovo is that the new client invests in a new connection to the grid and meter but further maintenance is in the domain of the distribution company. Taking these facts into consideration the total estimated LV network costs assigned to distribution


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company would be 84 MUS$ in period 2002-2015. In case the distribution company should apply the new connection, total estimated LV network costs would be 168 MUS$ in period 2002-2015.

Meter costs were estimated on the base of data of missing meters (84 000) in the year 2000 and the number of new consumers from Module A forecast. The costs for missing and new meters are estimated for:

· 2002-2005: 34 MUS$ (19 MUS$ for missing meters); · 2006-2010: 14 MUS$; · 2011-2015: 12 MUS$.


General recommendations § New SS and transformation should be 110/20(10) kV; § The cross-sections recommended for new 10(20)kV or reconstructed overhead lines are

Al/Fe50 mm2 or Al/Fe70 mm2, respectively; § The cross-section recommended for new 20 kV cables is Al 150 mm2; § The recommended distribution network structure is the open loop concept; § As some of the input parameters used in the study may change (for instance electricity

demand forecast), distribution system planning studies should be updated/reviewed regularly every 2-3 years.

Recommendations and guidelines for further activities in the field of distribution planning A technically and economically optimal development of the electric power system is possible only with careful planning while regarding the recommended planning criterion. Therefore, the consultant wishes to encourage the responsible in KEK to give enough attention to commissioning a group of young computer experts for:

· Maintenance of the ESTAP project generated database of network data for use in long-term development plans of the Kosovo distribution;

· Creation and maintenance of a real Kosovo distribution network map on the basis of the supplied digitalized geographical maps and entry of coordinates of the network elements, taken from GPS readings;

· Acquisition and maintenance of reliable load data of HV/MV substations, loads of MV feeders and MV/LV TS;

· Acquisition of LV network data and local LV network analysis.

By integration of GIS technology in the software for the analysis and development of electric power networks (GREDOS), a long-term compatibility is assured with other spatial data that already is or will be available from government institutions. Data acquisition is this way considerably accelerated, thus stimulating electricity distribution utilities to speed up their adoption of GIS technology.


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7. Module G – Lignite Mining Development Strategy Summary

7.1 General

The Kosovo lignite mines are operated at one of the most favorable lignite deposits in Europe due to its geological conditions. With an average stripping ratio of 1.7 cu m of waste: 1t of coal, coal production at Kosovo mines could supply a most competitive fuel to the power plants, compared to international fuel sources and energy prices. The total estimated resources of approx. 10,000 Mt represent one of the richest lignite sources in Europe, which would allow ambitious power generation and expansion schemes for the future.

The present situation at the mines, however, is determined by an uneconomical mining operation due to numerous constraints caused by the war and post-war situation and consequently a low production level.

The objective of Module G as part of the Energy Sector Technical Assistance Project (ESTAP) is to propose a lignite mining development strategy for the period up to 2015 and estimate the future production costs.

7.2 Scope of Work

The following aspects have been considered in the lignite mining development study: · Coal Reserves: Determination of the economical exploitable coal reserves as per quality

and quantity.

· Coal Market: Determination of the future coal production level to meet the demand of local thermal power plants, regional demand and demands for coal by industry, households and possible export markets.

· Mine Planning: Development of a least-cost mining strategy for the exploitation of the lignite deposit with a planning horizon until year 2015 based on demand figures given by the power plants and other consumers, with due consideration of the environment and optimum equipment utilization.

· Environment: Assessment of environmental damages caused by the past and the impact of future mining operation in terms of resettlement, land use, groundwater availability, air pollution, etc. including cost estimation for respective countermeasures

· Production Costs: Determination of future production costs for different production scenarios considered on lignite mining development study.

7.3 Coal Reserves and Coal Quality

The lignite of the Kosovo basin belongs to the upper Miocene and has an age of about 9 million years. The coal seam thickness varies between 56 m and 70 m. The original overburden coverage shows a thickness of 60 m – 120 m.

The calculation of the coal reserves based on the data provided by KEK resulted in the following figures:

Volume: 2,453,220,230 cu m Waste

Volume: 1,524,789,740 cu m Lignite


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Density: 1.14 t/cu m Metric Tons: 1,738,260,303 t

Waste : Lignite: 1.41 cu m/t Ratio

The calculated reserves exceed the coal quantity required within the next 15 years (77 - 124 Mt depending on the scenario) by far. The reserves can be regarded as economically exploitable as far as the next 14 years are concerned and as economically to potentially economic for the time after year 2015.

The average values of lignite quality parameters of the different mine areas to be mined within the next years are:

Moisture content: Average seam moisture contents vary between 42% and 49%. Ash contents: Ash contents vary between 7% and 35% within the coal seam. The average values are around 14% to 17%. Heating values: Heating values are in the order of 7800 kJ/kg on average in the Bardh-Mirash area, while in the Sibovc area they show values around 8100 kJ/kg. Sulphur: Total sulphur concentrations are around 1 % in all parts of the mines/deposit including an average content of combustible sulphur of 0,35 %.

7.4 Coal Market

The lignite market in Kosovo is clearly dominated by the demand of the local thermal power plants. Total lignite for the use for other purposes or consumers than the power plants is estimated to 500,000 t/a. A significant increase of this amount in the long-term is not to be expected because other fuel sources, which can be handled more easily and environment – friendly, will be available in Kosovo to competitive prices.

The coal demand for energy generation is reflected in various production scenarios, which have been developed, in order to calculate the coal production costs for different production levels of the thermal power plants.

7.5 Summary Mine Planning

Different production scenarios (A, B, C1, C2, D1, D2) have been investigated in order to calculate the mining costs based on different coal requirements defined by the different electricity generation scenarios prepared under Module B of the power plants and alternative mining sequences.

For the production scenarios A and B the coal demand could be met by the existing mines Mirash West, Bardh and Brand until year 2015. The production scenarios C and D, however, would require additional mining areas, in order to meet the coal demand until year 2015. Two additional mining areas are available, the Mirash East mining area and the mining area Sibovc. Sibovc contains the larger reserves which would allow to supply the existing power plants and possible new power plants in the long – term. Mirash East however, although providing limited reserves would contribute to a safe lignite supply of the power plants in the short – term due to its preferable stripping ratio. Additionally, the exploitation of Mirash East would allow to postpone the necessary investments for the opening-up of the Sibovc mining area for 4 years. Regarding the future mining sequence scenarios C and D have been divided into the following sub-scenarios:


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· C1: Exploitation of the Mirash East area starting in year 2005. Operation of Bardh and Mirash East mines until year 2017, then substitution of lignite production by the new Sibovc mine.

· C2: Operation of Bardh mine until year 2013, then substitution of lignite production by the new Sibovc mine.

· D1: Exploitation of the Mirash East area starting in year 2005. Operation of Bardh and Mirash East mines until year 2015. Exploitation of the Sibovc area starting in year 2014.

· D2: Operation of Bardh mine until year 2012, then substitution of lignite production by the new Sibovc mine.

The following table shows the different production and mining scenarios.

Scenario Corresponding

Scenario of Module B

Average Production

Mirash West Bardh Brand Mirash

East Sibovc

A - 4.5 Mt p.a. X X X - - B A 5.5 Mt p.a. X X X - - C1 B1 7.5 Mt p.a. X X X X X C2 B1 7.5 Mt p.a. X X X - X D1 B2 5.9 – 11 Mt p.a. X X X X X D2 B2 5.9 – 11 Mt p.a. X X X - X

Source: RE Based on the different production schedules, a detailed assessment of the technical status of the existing mining equipment and estimations with respect to its future performance, rehabilitation measures and related costs for the required equipment have been worked out. It can be summarized that a significant reduction of the number of main mining equipment would be required for all scenarios, due to the successive concentration of the mining operation to one mine, only. This process will result in a downsize of personnel until year 2008 in the range of 50 % to 70 %, depending on the scenario.

7.6 Environment

The review of the impact of the mining operation on the environment has been carried out considering historic damages and future effects of the mining operation. Measures to minimize the future effects of the mining operation like dust and noise emissions, water pollution and resettlements have been described and considered in the production costs accordingly. With respect to the historical damages two main areas of concern have been identified, the recultivation of the old outside dumps and the extinguishing of smoldering mine fires. The recultivation of the outside dumps can be carried out to reasonable efforts and costs and could be financed by land sales of already recultivated areas. However, special intention must be paid to the mine fires, which cause environmental problems (air pollution), safety problems in the mines and an economic damage on the deposit. It is proposed to set-up an action plan in order to extinguish the mine fires as soon as possible and to collect information about the extent of the fires by means of drillholes. An amount of 1.8 MUS$ has been estimated for the preparation and realization of the fire fighting.

7.7 Production Costs

According to the ‘Scenarios and Assumptions’ for the ESTAP-Kosovo, three different scenarios for the development of the Gross Domestic Product have been used: a High Growth, a Center


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case, and a Low Growth scenario. While the labor costs will increase corresponding to the scenario all other cost types have been kept at the 2001 rate. Levelized unit costs have been calculated starting in year 2001 as defined by the "Scenarios and Assumptions" - paper. Using a real interest rate of 12 % the levelized unit cost over the period of 15 years from 2001-2015 amounts to:

in constant money US$ per ton / US$ per GJ

H igh gr owth Scenario

C enter C ase Scenario

L ow G rowth Scenario

Scenario B, 5.5 Mt p.a. Investment, Replacements 2.27 / 0.29 2.27 / 0.29 2.27 / 0.29 Operating Expenses 2.94 / 0.37 2.81 / 0.35 2.68 / 0.34 Total 5.21 / 0.66 5.08 / 0.64 4.95 / 0.62

Scenario C1, 7.5 Mt p.a. Investment, Replacements 1.85 / 0.23 1.85 / 0.23 1.85 / 0.23 Operating Expenses 2.45 / 0.31 2.33 / 0.29 2.21 / 0.28 Total 4.30 / 0.54 4.18 / 0.53 4.07 / 0.51

Scenario C2, 7.5 Mt p.a. Investment, Replacements 2.39 / 0.30 2.39 / 0.30 2.39 / 0.30 Operating Expenses 2.61 / 0.33 2.46 / 0.31 2.33 / 0.29 Total 5.00 / 0.63 4.85 / 0.61 4.72 / 0.59

Scenario D1, 11.0 Mt p.a. Investment, Replacements 2.19 / 0.28 2.19 / 0.28 2.19 / 0.28 Operating Expenses 2.52 / 0.32 2.37 / 0.30 2.24 / 0.28 Total 4.71 / 0.60 4.56 / 0.58 4.43 / 0.56

Scenario D2, 11.0 Mt p.a. Investment, Replacements 2.15 / 0.27 2.15 / 0.27 2.15 / 0.27 Operating Expenses 2.51 / 0.32 2.36 / 0.30 2.23 / 0.28 Total 4.66 / 0.59 4.51 / 0.57 4.39 / 0.56

Source: RE

The total expenditure are covering all reasonable expenditure for investments, replacements, labor, parts, contractor services, energy, and consumables as determined in this study. Duties and taxes are also considered.


The economical analysis has shown a clear advantage of the scenarios C1 compared to C2, due to the fact that with a relatively low investment required for the relocation of the river Sitnica the higher investments for opening up the new mining area Sibovc can be postponed for at least 4 years. This economic advantage could be verified even under consideration of a 20-year view, when the investments for the Sibovc area come into effect in their full amount. Considering the fact that the corresponding scenario of Module B represents the least-cost alternative for the operation of the power plants in a 15 years view, scenario C1 is the preferable option for the future mine development.

As far as Scenarios D1 and D2 are concerned, the economic advantage of the exploitation of the Mirash East area does not come into effect, because due to the high coal demand the investment for the Sibovc area would be postponed for 2 years, only. However, under the technical point of view the development of Mirash East mine is preferable, because its low stripping ratio provides easy access to the coal, which would contribute to a safe coal supply to the power plants.

The fact that in the future the mining operation will concentrate on one mine only, results in a significant downsize of equipment and personnel. The most significant reduction occurs in the low demand scenarios A and B. However, even the preferable scenario C1 would require a downsize of personnel in a range of 70 % due to the fact that after year 2007 the overburden


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removal will significantly decrease. After year 2015 there would be an increase with respect to the personnel requirements because the opening up of the Sibovc mining area again requires equipment and personnel for the removal of overburden.

The organization of the production division must be changed to take into account the mine development described above. The reorganization of the production division as far as the mines are concerned should focus on the following subjects:

· Strong co-operation between the planning, maintenance and operating units in order to co-ordinate maintenance and operational measures, thus increasing the availability of the main mining equipment.

· Reintegration of the INKOS institute into the production division of KEK as the engineering department.

· Fusion of the departments Mirash mine and Bardh mine to prepare the mines for the future concentration of the operation within one mine, only.

· The activities of the separation should be integrated under the mines or power plant department.

· The environmental situation is acceptable as far as the existing outside dumps are concerned. The technical and biological preparation of the sites to be sold as farmland could be financed by the revenues of the sales. Even when considering a significant decrease of prices, a profit could be realized by this procedure.

A major environmental problem is being caused by the smoldering mine fires within the final slopes of the existing mines. Immediate action is required to stop these fires in order to avoid the environmental and economic damage to the deposit. Some 1.8 MUS$ would be required to extinguish the coal fires. These costs have not been considered in the calculation but could be financed by the profit of the land sales.

To summarize the above, the most important actions are recommended as follows:

Technical / Environment Action Priority Time Frame Decision on the medium-term mining direction (Mirash East or Sibovc)

High Immediately

Introduction of a short term mine planning Medium 2003 Rehabilitation of main mining equipment High 2001 – 2007 Extinguishing of the mine fires (mapping of the extent of fires, action plan, execution)

High 2002 – 2003

Recultivation of depleted mining areas Medium 2015 Organizational

Action Priority Time Frame Restructuring of the mines and the workshop Medium 2003 Preparation of a detailed personnel lay-off plan and determination of related costs and interim solutions

High 2002

Downsize of equipment and personnel High 2003 – 2007


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8. Module H – District Heating Summary

8.1 Introduction

District heating systems in Pristina, Gjakova and Mitrovica only supplies about 5% of the heat demand in Kosovo, but should however have an important role in the energy strategy of Kosovo mainly for reduction of the uncontrolled electricity demand, for efficient use of CHP and for use of local coal. It is very costly to maintain and develop the district heating systems compared to the present payability of the consumers. Therefore is of utmost importance that the strategy is based on following main principles:

· Any duplication of investments for the same heating purpose should be avoided. · Efficient organizational models for regulating the sector and for organizing the

apartment buildings must be implemented. · Low cost solutions based on modest technical requirements should be preferred. · Solutions with a high degree of local labour and local resources should be preferred.

The objective of module H as part of the Energy Sector Technical Assistance Project (ESTAP) is to evaluate the current state of the district heating system propose a development strategy for the period up to 2015 and estimate the future production costs.

8.2 Scope of Work

The following specific objectives have been addressed under this module: · Evaluation of the current state of the district heating system in Pristina, Gjakova and

Mitrovica. · Assessment of the competitiveness of district heating in Kosovo. · Options for the improvement of the heat production (including alternative fuels) and

district heating systems in Pristina, Gjakova and Mitrovica.

8.3 District Heating System

Strategy in Pristina The following technical components for rehabilitation in the basic scenario are proposed in continuation of the ongoing granted rehabilitation projects:

· The network shall be in operation 24 hours a day. Network operation:

· Preinsulated pipes shall be operated with treated water all year round. · The network branch supplying Sunny Hill shall be separated by a heat exchanger. · From the year base load from CHP is in operation, districts with preinsulated pipes shall

be in non-stop operation to offer consumers supply of hot tap water and for preservation of the pipes.

· The network shall after the installation of variable speed pumps and control valves at all substations operate with variable flow.

· The maintenance and draining of concrete ducts to be preserved shall be intensified. · The network shall be redesigned with the use of the hydraulic model created during the

ESTAP project for optimizing trench dimensions and emergency operation.


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· The leak detection shall be intensified. · The water treatment shall be improved and monitored in accordance with western best

standard. · Maximum efforts shall be made to reduce the supply and return temperature.

· Preinsulated pipes shall replace 11 km trench of bad concrete ducts in 2002-3. Network construction:

· Further 5 km of trench shall be replaced with preinsulated pipes in 2004-8. · Two new districts, Sunny Hill II and a district north of the museum shall be connected

before base load is in operation, in total around 3 km trench. · The market share in the supply area and the capability to supply consumers should be

100% in year 2004 or not later than new base load is in operation. · Urban development districts next to the district heating network, which are planned for

apartment buildings, shall be supplied with district heating.

· Upgrading of the production capacity in near future is necessary. Production:

· Seen from an economical point of view, given the assumptions on discount rate and fuel prices in this study, the least cost solution will be to continue with mazut boilers as long as gas is not an option. That would require new capacity and upgrading of boilers corresponding to around 3 MUS$.

· However taking into account relevant factors, like CO2 emission reductions, reduction of imports, use of local labour as well as the risk of continuation of the currently high level of mazut prices, the project for transmission of CHP from the lignite fuelled power plant B could be considered in case financing can be provided. The 7.5 km heat transmission line could be completed during 2003 and extended with 3 km trench to be connected to power plant B for extraction of CHP. Power plant B has been chosen due to better CHP efficiency and longer remaining lifetime.

· In case the transmission line is established, the fuel oil boilers will be peak and spare capacity. In that case, consideration can be given to converting to light oil in one or two steps and the comprehensive upgrading with a new boiler will not be necessary.

· Rehabilitation of 70 substations in year 2002-2003. Substations:

· All existing consumers shall during a 10 year period, starting in 2003 install thermostatic radiator valves and heat allocators.

Consumer installations:

· All new consumers shall from year 2004 install thermostatic radiator valves and heat allocators when connecting.

· 50% of the connected apartment buildings shall during a period of 14 years, starting in 2003, install a central hot tap water system heated by district heating.

Strategy in Gjakova The following measures are recommended for the district heating system of Gjakova:

· Full rehabilitation of boiler no. 2 in 2002 to operate on mazut If gas not will be available this boilers may continue to operate on mazut.

Production:

· Installation of two new natural gas fired CHP units of the gas engine type as soon as the Gjakova is connected to the natural gas grid; the total thermal capacity of these new base load units shall be approximately 11 MJ/s.


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· Connection of the additional 9 buildings that are suited for district heating and within the present supply area of the district heating system. This shall take place during 2002 and 2003.

Network:

· During 2002-2005 the five new buildings that are being built close to the distribution network and are suited for district heating shall be connected.

· Intensified supervision and maintenance of the existing pipes in ducts. · Redesign of the entire network in order to ensure, that the right dimensions are

chosen when replacing pipes. · Gradual replacement of all branch pipes in concrete ducts during 2006-2011. · All new extensions of the network shall be in preinsulated pipes.

· Modernization during 2002 and 2003 of all existing substations. Substations:

· Installation during 2002 of heat meters at all existing substations in order to make introduction of a consumption based tariff structure possible.

· Equipment for local production of hot tap water shall be installed at all substations that are connected to the distribution network through preinsulated pipes.

· Installation of thermostatic valves and heat allocators on all radiators over a ten year period between 2003 and 2012.


· Installation of internal piping for distribution of hot tap water in buildings with a substation prepared for local production of hot tap water; installation of a meter for measuring the consumption of hot tap water in every apartment.

· Non-stop operation shall be introduced in all parts of the network, where preinsulated branches have been installed.

System operation:

· Variable flow operation of the system. · The proposed CHP units shall be the base load units, while the mazut boilers shall

function as peak load and emergency units. · Gradual reduction of both the supply and return temperature from the present level of

110/90 °C to 90/50°C, respectively, in order to reduce heat losses from the distribution network and increase the efficiency of the CHP unit(s).

Strategy in Mitrovica The following measures are proposed in Mitrovica:

· Installation of the necessary equipment in order to commission the unfinished boiler at the “Lisic Polje” boiler plant.

Production:

· Installation of two natural gas fired CHP unit(s) of the gas engine type at the boiler plant “Lisic Polje”. The units with a total installed heat capacity of 16 MW shall be commissioned in the same year natural gas is introduced in Mitrovica.

· The approximately 82 identified buildings shall be connected or re-connected. Network:

· Immediate repair of the best of the existing pipes in concrete ducts. · Redesign of the entire network in order to ensure, that the right dimensions are

chosen when replacing pipes. · Replacement of all pipes in concrete ducts that are beyond repair with preinsulated

pipes. This shall be carried out in 2002 and 2003.


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· Extension of the network with preinsulated pipes to include all identified buildings. This shall also be carried out in 2002 and 2003.

· Connection of the local distribution network in the area of the hospital to the larger distribution network. This shall take place after the commissioning of the CHP unit in 2003.

· Modernization during 2002 of all substations in the system All substations shall be of the indirect type.

Substations:

· Installation during 2002 of heat meters in order to enable introduction of a consumption based tariff structure.

· Installation during 2002 of control valves in order to enable variable flow operation and load dispatching.

· Equipment for local production of hot tap water shall be installed at all substations that are connected to the distribution network through preinsulated pipes.

· Installation of thermostatic valves and heat allocators on all radiators over a ten year period between 2003 and 2012.


· Installation of internal piping for distribution of hot tap water in buildings with a substation prepared for local production of hot tap water; installation of a meter for measuring the consumption of hot tap water in every apartment.

· Those parts of the network, where the pipes have been replaced by preinsulated pipes, shall be in non-stop operation, 24 hours a day.

System operation:

· Installation of the available pumps for distribution of district heating. Variable flow operation of the system.

· As long as natural gas has not been introduced in Mitrovica, the new mazut boiler will function as base load production.

· When the proposed CHP units are commissioned, these shall be the base load units, while the mazut boiler at the “Lisic Polje” boiler plant shall be primary peak load unit. The “Bolnica” boiler plant shall only be used in emergency situations.

· Gradual reduction of both the supply and return temperature from the present level of 130/75 °C to 90/50°C, respectively, in order to reduce heat losses and increase the efficiency of the CHP units.

8.4 District Heating Strategy for Kosovo

The district heating strategy for Kosovo is divided into a strategy for measures to be taken on the national level, and measures to be taken in each of the three towns as well as other towns.

8.4.1 Distr ict H eating Str ategy at national level

Institutional measures

· Establish a department in a Regulatory Agency (or nominate a person) to be responsible for the overall least cost development of the heating sector in interaction with the other energy sectors and for support to the municipalities. Moreover the person should be responsible for optimal utilisation of grants and credits, which may be available to the heating sector from international donors and financial institutions.

· Prepare a heat law with necessary provisions (heat sector regulation) for the Agency, the municipalities and the heat price regulator, including legal provisions for ownership and management of district heating companies. The law has to focus on the specific problems of the heating sector, which are very different from the problems of the electricity and gas sectors.


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· Establish a heat price regulator function for the heating sector. It is important that the problems of the heat sector, being very different to the electricity sector, is treated separately. Moreover the regulation of the heating sector must distinguish between the district heating for sale of heat to building owners and the regulation of the building sector, including division of costs among apartments for heating and hot water.

· It must be stipulated that the municipalities in question have an obligation for local heat sector regulation and that the municipalities must allocate the necessary (but limited) resources for this purpose.

· Establish legal basis for ownership and operation of apartment buildings and apartments. The law must specify an apartment building must have an owner, being responsible for the common facilities, including the operation of heating and hot tap water installations, and that apartments can only be privately owned of the owners jointly own the building and operate a home owners association.

· Improve the legal basis for debt collection and make it more operational, e.g. to efficient establish procedures in the courts, including procedures to collect debt from debtors, which own property, e.g. cars, apartments etc.

· Improve the social subsidy schemes including special attention to the real need for heating subsidy to low-income families. Instead of granting a subsidy to pay for a deficit in the district heating company, the municipality should allocate grant only to needy families based on an overall evaluation of family income and basic needs, including the costs of heat.

· Launch a programme for promotion of organising heat supply in apartment buildings and for subsidies for investments in heat saving measures in accordance with the least cost solutions (simple building envelope improvements, thermostatic valves and heat allocators, hot tap water systems).

8.4.2 Distr ict H eating Str ategy at municipal level

· The city council should be responsible for approving all major investment projects

concerning heat supply in the municipality, due to the fact that such investments in the longer term can only be paid back by the consumers in the city, and that the city council is the only authority, which serves the specific interests of these consumers.

· The city council must allocate resources on the urban planning department to deal with

the heat sector regulation too.

· The city administration must ensure that the activities on district heating, other municipal services and the urban development planning are coordinated, e.g. to ensure that new apartment buildings in the districts supplied with district heating are connected to the grid.

· The city administration must promote the formation and operation of home owners

associations and work for development of a market for housing administration companies

8.4.3 Demonstr ation pr ojects

In order to test the new ideas before they are introduced in large scale, we strongly recommend to organize technical/institutional demonstration projects supported by all possible grants on:

· Organization and management of condominiums in general, including energy management.


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· Demonstration of new cost based district heating tariff model with incentives to reduce the return temperature (in continuation of the “on the job” training in the ESTAP project).

· Installation of thermostatic valves and heat allocators and administration of cost division in condominiums.

· Installation of central hot tap water installations for testing various low cost technical concepts and for testing administration of division of costs in condominiums.

· Heat and hot water supply to each apartment organised by the district heating company on behalf of the apartment owners.

· Investigations on the geothermal potential and eventually a pilot project for geothermal energy.

· Pilot project for solar energy and for local low cost manufacturing of solar panels on basis of the newest technology.

8.4.4 T r aining of staff

The ESTAP project has included training sessions addressed to engineers and economists. The DH staff is, to some extent, lacking professional expertise on a more hands-on level for example the mazut boilers are operated inappropriately, i.e. with too low water temperatures, leading to sulphuric acid condensation and increased corrosion. Therefore donor-financed projects should be supplemented with training courses in order to avoid faulty implementation and subsequently inappropriate operation. The courses should cover general DH technologies, design of networks, handling and installation of preinsulated pipes, etc.


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9. Module I – Natural Gas Summary

9.1. Introduction

Introduction of natural gas in Kosovo has initially been planned in the late 1980’ies, mainly for use in the industrial sector. This plan was not implemented due to the break-up of Yugoslavia and the following events in Kosovo.

The assumptions for introduction of natural gas in Kosovo have changed meanwhile. Because of the historical development, the industrial base in Kosovo is much weaker and more uncertain than a decade ago. Now, the introduction of natural gas focuses on the use of gas for power generation (as alternative to rehabilitation of existing –lignite-plants, construction of new coal-fired plants etc.) and for residential and commercial sectors.

The present report follows the method description given in the Terms of Reference and the Contract in which Module I of the ESTAP Study concerns the feasibility of introducing natural gas to Kosovo.

9.2. Scope of Work

According to the ToR the Module is divided into five logically separated Tasks:

I1: Import options. Investigate the technical and economic feasibility of importing natural gas to Kosovo;

I2: Gas Demand Forecast. Estimate the demand for gas; I3: Infrastructure Investments. Identify the required infrastructure in pipelines and gas

distribution facilities; I4: Cost Benefit Analysis. Provide estimates of the costs of infrastructure as well as of the

delivered cost of gas to consumers; I5: Institutional & Regulatory Issues. Make recommendations on the most suitable

institutional structure for the gas sector within Kosovo.

As part of the work, meetings have been held with representatives and experts from the gas and energy sectors in Albania, Croatia, FYROM and FR Yugoslavia. The main purpose of this was to allow for a reliable assessment of import cost for gas, to identify capacity of the existing networks together with transmission tariffs and to identify potential common benefits with respect to security of supply.

In the Module Report (I) is included a comprehensive analysis of the competitiveness of natural gas compared to other fuels used for heating, comparing different alternative heating sources and their affordability.

9.3. Main findings

The following main findings have been made during the study.

Overall feasibility of natural gas in Kosovo before 2015 The ESTAP energy strategy plan is based on least-cost analyses of substitute fuel solutions to cover demand during a fifteen-year period. Natural gas is compared to fuels and technologies already present in Kosovo. The criteria set by the World Bank dictates that projects with an economic rate of return below 12% are deemed uneconomic and energy demand should be covered by the fuel which generates least-costs during the period.

Analysis of the natural gas potential arrives to an estimated economic rate of return of approximately 7 % in the center case. This is below the set criteria and based on the available


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data natural gas is deemed uneconomic for the time being and within the forecasted period unless market conditions change beyond what is anticipated in this Study. Therefore, a key conclusion on the feasibility of natural gas is that it is probably not economically efficient and cannot be recommended for the investment plan.

The situation could rapidly change - e.g. due to changing fuel prices on the international markets, emergence of energy-intensive industry or greater regional interests leading to the construction of transit pipelines through the territory of Kosovo. In such case gas offers significant benefits environmentally, socially and in form of convenience to the customer. It is therefore at the same time recommended that investigating the feasibility of gas is repeated on frequent (say 2 to 4 year intervals) in comprehensive studies.

Although the cost-benefit analysis could not prove the economic effectiveness of natural gas, the Study goes much beyond evaluating the feasibility. The Natural Gas Module (I) analyses technical, institutional and demand side aspects of a potential gas sector development. This is described in the following and reference is made to the Module Report for a more comprehensive description of the work.

Energy balance of Kosovo The present energy sector of Kosovo is characterized by insufficient supplies of non-diversified fuel sources. While demand in industry is moderate due to low activity level, main demand is in residential and commercial sector for primarily electricity and low-cost bio-fuels. Since electricity is based on conversion of coal (apart from net-imports), fuel consumption is primarily based on local lignite production and petroleum products for road transportation – see figure below.

Source: BP “Statistical Review 2001” and ESTAP estimates for Kosovo. Bio-fuels, as firewood is included in the figure only for Kosovo. Kosovo is estimated to consume around 13.41 PJ or 21% of total energy consumption from firewood. Other countries shown above utilizes large quantities of bio-fuels, although it is diversified on various renewables in addition to firewood. The figure does not include power exchange. In year 2000 Kosovo was net importer of 955.5 GWh.

F igur e 9.1 Diver sification of ener gy supply as fuel mar ket shar e of pr imar y ener gy consumption, 2000

The figure shows Kosovo next to a selection of neighboring and comparable countries. As can be seen from the figure Kosovo is relying on basically two primary fuel sources, when excluding firewood that to a wide extent is used exclusively in households, whereas all other countries have a more balanced and diversified consumption pattern. It is also illustrated that natural gas is the fuel used in most other countries to achieve this balance.

Seen from outside natural gas offers the following benefits to Kosovo:


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· Balanced energy supply and less dependency on a single fuel; · Additional source of energy to supplement the insufficient supply situation; · Reduced strain on limited local reserves and the environment.

This alone will not secure the development of the gas sector, which in the implementation phase is capital intensive and complicated. A more diversified and adequate energy sector comes at a price that could be too high even if the overall benefits are obvious. The Report aims at investigating the possibilities and societal benefits of introducing natural gas to Kosovo.

Supply and import

· Sufficient gas transmission capacity is available in FYROM and in Serbia for supply of gas to Kosovo. Only relatively short new transmission pipelines of approx. 100 km will be necessary to reach the main market in Kosovo: Prishtina and the power plants of Obilic.

· Delivery cost of gas is judged to be lowest for Russian gas, which could be delivered either through Hungary and FRY or through Romania, Bulgaria and FYROM.

· Delivery cost at the Ukrainian border is judged to be around 70 US$/1000 m3 at an oil price of 18 US$/bbl for base load gas. Transportation cost to the Kosovo border will be an additional 25 US$/1000 m3 assuming a high load factor of 0.85, and 45 US$/1000m3, at a load factor of 0.45.

· Unit transportation cost inside of Kosovo is found to be around 15 US$/1000 m3 for gas at a high load factor of 0.85 and 30 US$/1000m3 at a load factor of 0.45, when we assume the volumes used in the central demand forecast.

· No possibilities for underground gas storage have been found in Kosovo. However, a more thoroughly geological evaluation is recommended in parallel to the introduction of gas.

· Due to the transit of gas through a number of transit countries, with no access to gas storage, the security of supply to Kosovo will be relatively low as compared to other countries. A full connection of the gas systems of FYROM and FRY via Kosovo will considerable increase the security of supply for all three systems.

Gas Demand

· Gas demand in Kosovo will mainly be in the residential and commercial sectors and in power generation. The industrial sector is very uncertain with respect to volumes location.

· Prishtina and the power plants in Obilic will be the main center of gas demand. Gas should only be introduced in residential areas not already covered by district heating.

· Due to the high reliance on the heat generated demand for the residential sector as well as for commercial, district heating and power generation, the overall load factor for gas supply is expected to be only around 0.35.

Gas demand in the Center Case is assessed to increase as follows: Million m3/year 2005 2010 2015 RESIDENTIAL 13 64 125 Commercial 4 18 34 Industrial 32 52 82 District Heating 20 31 34 Power generation 48 58 130 Total, Center Case 117 223 404

· The realized gas consumption is closely linked to the development of new

transmission and distribution systems and it is therefore possible to transform some of the electricity demand to gas demand by use of an accelerated gas development strategy.


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· Gas can also be used as a transportation fuel, in particular for city buses and for taxis. Kosovo has high population density and short distances between main cities. It will therefore be relatively easy to establish gas filling stations. Further, gas can be used as a fuel for cooling of larger buildings. However, these new gas sectors have not been included in the scenarios.

Gas overall demand in the three scenarios will be as follows: Variations (billion m3/year) 2005 2010 2015 Total, center 0.117 0.22 0.40 Total, slow 0.06 0.08 0.1 Total, high 0.15 0.41 0.94

9.4. Infrastructure investments

· Gas supply to Kosovo can be in place already by October 2004 in case a decision is taken during year 2002 and preparatory work is started immediately. First stage will be to supply Prishtina, either from FYROM or via FRY. The required transmission pipelines would have a length of respectively 95 and 135 km. Pipeline dimension would be 16 to 20 inch.

· Second phase could be supply of gas to Prizren, Peja and Mitrovica. · Third phase is foreseen to be a full looping between FRY and FYROM in order to meet

larger demand from power generation. · Fourth phase is an expansion and further supply to Gjakova, Vuciterne. · Fifth phase is a saturation phase with supply to Kamenica and Podujeva. · Investment cost is foreseen as follows for the different phases. The time schedule

corresponds to the demand growth foreseen in the centre demand scenario. Phase KIV and KV will most likely not be economic viable in this phase:

MUS$ Phase KI Phase KII Phase KIII Phase KIV Phase KV Total Duration 2002-2004 2005-2006 2006-2008 2008-2010 2011-2012 2002-2012 Transmission pipelines 31 46 46 16 19 158 Compressor, meter stations, SCADA etc. 33 5 21 6 4 69 Distribution 84 54 5 11 16 170 Total 147 105 72 33 39 566 · Further to the investment shown above, there will be a need for considerable investments in

central heating systems, boilers, cookers etc. inside each house or apartment. The total of such investments is assessed to add up to around 250 MUS$.

· A historical gas pipeline from the days of town gas distribution (based on the gasification plant in conjunction to Power Plant A) in Kosovo still exists reaching as far south as Skopje. Reports on the state of this pipeline differ. The Kosovo power company KEK, claims the pipeline has been severely damaged in several sections due to heavy construction work on the land under which it is buried. A brief visual survey along sections of the pipeline showed that it had been interrupted at some locations, houses had been built on top of it and at one crossing, the pipeline was not buried and the coating and steel was damaged. On the FYROM side, a recent investigation shows the pipeline to be in full working order and reliable up to 25 bar pressure. All present analyses are made under the assumption that the pipeline is not in working condition. Verification of the mechanical integrity of the pipeline will require a number of tests, including a new pressure testing. Such investigations are assessed to cost around 0.5 – 1.0 MUS$ and to be outside the scope of the present Study.


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9.5. Cost benefit analysis

· The value of natural gas in Kosovo is assessed based on the alternative fuels. At present fuel wood and electricity are the most dominant fuels for heating in individual houses. Heavy fuel oil is used in the industry, for district heating and for support fuel in power generation in the two coal-fired power plants.

· In power generation, the alternative to natural gas, in case of HGS, will be new coal fired power plants, which will have a higher investment cost than gas fired power plants and also higher emissions. This has been taken into account in determining the value of gas in this sector.

· The rate of return for the Center Case Scenario is 7 percent. · The unit transportation cost of gas for residential and commercial consumers is found to 155

US$/1000m3, and 46 US$/1000m3 for power plants, when assuming an interest rate of 12 percent.

· In countries like Greece, Portugal, Spain and Ireland, regional funding from the European Commission has supported the gas development. Such funding schemes could also be considered for Kosovo.

9.6. Institutional and regulatory issues

· No natural gas companies exist for the time being in Kosovo. However, the FRY Company NIS Energogas is assumed to have a concession for building a pipeline to the southern Serbia and to Kosovo. The status of such concession is not known.

· As long as the legal framework is not solved for Kosovo it will be difficult for private investors to engage in the gas development. We assume that UNMIK will solve this problem or alternatively will guarantee the private companies, who could potentially invest. We find a combination of strategic investors from the region and internationally to be the most attractive and likely owners of the Kosovo gas industry.

· We recommend that a development company should be formed with the objective of preparing the introduction of natural gas.

· In general it is assumed that the gas industry in Kosovo will have to comply with the EU Directives. On the other hand these directives give the possibility for derogation for emerging markets and for markets with only a single supplier. The size of the market in Kosovo will only have the same size, as may regional distribution companies in Western Europe therefore we recommend establishing a new gas company as a single entity vertically integrating all links of the gas chain.

· The penetration speed of natural gas into the residential and commercial sector will depend very much on the marketing effort made and the training and education of skilled personnel to be able to install gas distribution systems, gas boilers and central heating when required.

9.7. Consideration about delayed introduction of natural gas to Kosovo

· Delayed introduction of natural gas to Kosovo is very likely, in particular if the system should be based on private investments as the procedure of privatization would typical take some years.

· If natural gas will not be available, the most likely fuel to be used instead will be a petroleum product, unless high taxation makes this too expensive. In the case of high taxes on petroleum products, electricity will be the most likely heating source for residential and commercial consumers. The consequence will hence be increased electricity demand.

· If gas is introduced some years later than anticipated, the potential market will be considerable higher than foreseen for 2005. This will improve the economic viability of the system. However, there is a risk that the consumers who had shifted to petroleum products will be difficult to convince of shifting to natural gas.


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10. Module J – Petroleum Summary

10.1 General

From a petroleum supply point of view Kosovo has a difficult infrastructure. Firstly, no hydrocarbon resources are available and no refinery capacity exists in Kosovo. Further Kosovo is located in mountainous areas with long distance to the coastline with port infrastructure and terminals. Energy infrastructure has not fully recovered from the breakdown of the former Yugoslavia and the subsequent wars in the Balkans during the first half of the 1990s followed by the Kosovo war of 1999.

The objective of Module J as part of the Energy Sector Technical Assistance Project (ESTAP) is to create a Knowledge Platform for the petroleum industry in Kosovo, to estimate the future demand for petroleum products, investigate conditions for development of a private petroleum sector in Kosovo, estimate the present and future cost structure for petroleum products and finally set up a regulatory framework for operation within the sector.

10.2 Scope of Work

The findings and recommendations in Module J are presented and structured as follows:

· Petroleum infrastructure in Kosovo; · Regional co-operation and development; · Organization of the petroleum industry in Kosovo; · Demand forecast and considerations of other energy supplies; · Price structure and competition in the energy market; · Requirements for Compulsory Oil Stocks; · Regulation and organizational development of the petroleum sector.

10.3 Petroleum infrastructure in Kosovo

Kosovo is fully dependent on imported petroleum products from all the neighboring countries and regions: Macedonia, Albania and the Federal Republic of Yugoslavia (FRY). Nearly all petroleum importation today takes place in the shape of road transportation through seven import crossing points to Kosovo and some of them are hardly passable, in particular in wintertime. The consumption is too small and scattered to consider the construction of a product pipeline. However, the railway capacity is not utilized and it is recommended to allocate as much import as possible to railway transportation. The railway system is also connected to the common petroleum terminals (tank farms) with loading and unloading facilities.

Two options to increase security of supply have been proposed. Firstly, allocation of road to railway transportation of petroleum products should be encouraged and promoted and secondly sufficient Compulsory Oil Stocks (COS) should be established.

10.4 Regional co-operation and development

The region imported about 218,000 bbl/d, less than 0.5% of total world production, mostly overland from Russia and from tankers at Adriatic ports. However, the refinery capacity in the region is of considerable size. The production capacity in Macedonia is 2.5 million tons, in Albania 1.5 million tones, in FRY 9.5 million tons and in Croatia 8.0 million tons. Beyond Croatia the actual production rates are much below the stated capacities. The most interesting import options are considered to be Macedonia, FRY and Croatia.


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In Macedonia the OKTA refinery in Skopje with a location close to the Kosovo border is expected to increase production due to construction of a new crude oil pipeline from Thessalonica. The two refineries in FRY are badly damaged but in future it should be expected that these refineries, which are connected with pipeline to Russian crude oil supplies, would appear as an interesting option. The petroleum sector in Croatia is well functioning and has a strong position in the Balkans. The main problem to be solved is permission to transport petroleum products to Kosovo through FRY territory. Negotiations are in progress and with a successful completion, Croatia could be a reliable petroleum supplier to Kosovo.

10.5 Organization of the Petroleum industry in Kosovo

A number of petroleum importation and trading companies have emerged in Kosovo during the last years. The core businesses for these companies are importation and/or trading in the market. Usually two co-operating companies, of which one a licensed company from the country of importation and the other a domestic company in Kosovo, manage importation of petroleum products. The consultant has been informed of the existence of 14 such companies of which 7 are of Kosovo origin.

The companies are members of Kosovo Chamber of Commerce who are advocating and supporting the companies in relation to authorities and fiscal charges (custom and excise duties and competitive matters).

Opposite, there exist a countless number other companies in Kosovo and about 1,200 petrol stations, trading with transportation fuels and conducting retail sales of gasoline and diesel. Compared to the estimated length of 1,900 km appropriate roads for establishment of petrol stations it is evident that there exists a surplus capacity of significant size. This situation will be changed in connection with implementation of petroleum regulation.

In future the petroleum sector is expected to be partly or fully privatized. Some international oil companies are in the process of entering the petroleum market in Kosovo. Clarification of the future autonomy and status of Kosovo, and implementation of a regulatory framework for the petroleum sector will be important conditions for these companies before entering the market.

10.6 Demand forecast and considerations of other energy supplies

Estimating the present energy demand and predicting the future development is therefore not an easy task and subject to much uncertainty. The Consultant has for each of the three growth scenarios implemented a bottom up approach for each energy-consuming sector and specified specific growth rates for these sectors.

If natural gas is not introduced in Kosovo the demand for petroleum products will increase significantly. The demand forecast is conducted for the Center Case Scenario and the results are shown in Table 10.1 From the existing petroleum consumption estimate between 397,000 tons and 413,000 tons the future consumption in 2015 is estimated to account for 816,000 tons.

If the natural gas will be introduced in Kosovo the annual average growth rate for petroleum products vary between 2.2% and 6.6% from the low growth to the high growth scenarios. The future consumption in 2015 is estimated and results are reported in Table 10.2, to account for between 534,000 tons (low growth) and 1,006,000 tons (high growth).


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T able 10-1 C enter C ase no-gas F or ecast of demand for petr oleum pr oducts, 1000 tonnes per year

The demand forecast will not only depend on economic growth indicators but also the development in infrastructure, growth in the industrial production and political stability of the region.

T able 10-2 F or ecast of the over all demand for petr oleum pr oducts, 1000 tons per year High growth

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Average annual growth

Gasoline 231 250 267 285 305 326 349 373 395 417 441 466 493 521 551 6,4%Diesel/Gasoil 115 129 143 157 173 190 209 229 248 268 289 311 335 360 387 9,1%HFO 52 62 55 58 39 34 36 37 38 35 35 36 36 37 37 -1,6%Jet fuel 13 13 14 14 15 15 16 17 18 18 19 20 21 22 22 4,2%LPG 2 3 4 5 5 5 5 6 6 6 7 7 7 8 8 10,3%Total petroleum 413 457 483 519 535 571 615 662 703 744 790 839 892 947 1.006 6,6%

Centre case2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Average annual growth

Gasoline 230 248 264 272 281 290 299 308 319 329 340 352 364 376 389 3,8%Diesel/Gasoil 115 127 140 147 155 164 173 182 191 201 213 224 236 249 262 6,1%HFO 50 59 50 51 38 33 34 35 36 34 33 35 36 36 37 -1,6%Jet fuel 13 13 13 14 14 14 15 15 15 16 16 17 17 17 18 2,5%LPG 2 3 4 5 5 5 6 6 7 7 8 9 10 10 11 12,4%Total petroleum 410 450 472 490 492 506 526 547 569 588 611 636 662 689 717 4,1%

Low growth2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Average annual growth

Gasoline 222 231 237 240 243 246 250 253 256 260 263 267 271 275 279 1,6%Diesel/Gasoil 110 116 123 126 130 136 141 147 152 158 164 171 177 183 190 4,0%HFO 50 57 48 47 35 30 31 31 32 29 29 30 30 30 30 -3,0%Jet fuel 13 13 13 13 13 13 13 13 13 13 13 13 13 13 14 0,5%LPG 2 3 4 5 5 7 8 10 11 12 14 16 17 19 21 17,4%Total petroleum 397 420 425 432 427 432 443 453 464 473 484 496 509 521 534 2,2%

10.7 Price structure and competition in the energy market

Energy prices and in particular petroleum prices are very high in Kosovo. The petroleum infrastructure in Kosovo and access to the market is one explanation. Prices are in general determined on market conditions. However, the limited supply options imply some lack of market competition and monopoly like status. On top of this petroleum products are given high duties and taxes, which in total constitute about 40% of revenues of the Kosovo budget. In Table 10.3 are shown the result of estimation of consumer prices divided on different petroleum products.

The high excise duties makes petroleum products less competitive compared to e.g. electricity. The consequence is that there only exist low consumer incentives to switch from electricity heating to gas oil, which results in high peak loads for the electricity supply and an inefficient and unreliable energy supply system. Therefore, the Consultant recommends removing excise duties for the petroleum products used in the residential and industrial sectors at least for an interim period.

Centre Case 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Average annual growth

Gasoline 230 248 264 272 281 290 299 308 319 329 340 352 364 376 389 3.8 Diesel/Gasoil 115 127 140 147 188 202 216 232 248 265 284 302 345 375 421 9.7 HFO 50 59 50 51 55 56 59 61 63 65 65 67 69 70 72 2.6 Jet fuel 13 13 13 14 14 14 15 15 15 16 16 17 17 17 18 2.4 LPG 2 3 4 5 6 6 7 7 9 9 10 11 13 13 14 15.2 Total petroleum 410 450 471 489 544 568 596 623 654 684 715 750 808 851 914 5.9


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T able 10-3 Petr oleum pr ice level in K osovo (2001), US$/tones.

Petroleum products: HFO, 3,5% HFO, 1,0% Gasoil Diesel Jet Fuel Gasoline LPGCosts: Mediterranean price 2001 (cif) 119 147 235 235 244 277 269 Transportation, terminal 20 20 20 20 20 20 100 Storage, terminal 5 5 5 5 5 5 120 Distribution, power 5 5 5 Distribution, industry 10 10 10 110 Distribution, residential 30 330 Distribution, transport 10 10 10Retail prices, excl. duties/taxes: Retail, power 149 177 265 Retail, industry 154 182 270 599 Retail, residential 290 819 Retail, transport 270 279 312Retail prices, incl. duties*: Retail, power 312 345 525 Retail, industry 317 350 530 798 Retail, residential 550 1018 Retail, transport 530 551 637Retail prices, incl. VAT: Retail, power 359 396 603 Retail, industry 364 402 609 917 Retail, residential 632 1170 Retail, transport 609 633 733*Custom and Excise

10.8 Requirements for Compulsory Oil Stocks

The ESTAP study is in general based on adaptation to EU regulation for the energy sector. For the petroleum sector specifically it is presumed that the Compulsory Oil Stock Directive should be implemented with the purpose to secure the society with sufficient energy supplies also in periods with restricted or limited supplies. The 90 days COS capacity is proposed to be implemented during the period from 2002 to 2015.

The first stage of building up COS should be implemented through refurbishment of the existing common storage plants (tank farms), which have been damaged during the Kosovo war. The storage terminals Elit Hany close to the Macedonian border, Dragodan in Prishtina and the Prizren storage between Prizren and Gjakova should be renovated over a two years period and set in operation by the end of 2004. Investments in these storages will amount to about 7.1 MUS$.

In parallel, investments in necessary new COS facilities should be implemented over the period from 2002 to 2015. The total estimated investments in new COS capacities are estimated to approx. 17.3 million US$ in the Low Scenario, 23.6 million US$ in the Center case and 33.3 million US$ in the High Scenario. Necessary costs for petroleum products in COS is estimated to 35.5 million US$ for the Center case. Finally investment in rolling stocks is estimated to 4.1 million US$ for the Center case.

10.9 Regulation and organizational development of the petroleum sector

Importation, transportation, storage and distribution of petroleum products are today under no regulation in Kosovo. The Fuel Supervisory Board is now developing the provisions and infrastructure for this regulation. It is of utmost importance that this regulation is being implemented at the soonest possible.

The regulation will cover standards and specification for exercising as importers, transporters, traders and distributors in the future Kosovo petroleum market. In particular codes for health, security and safety operations should be respected. The future autonomy and status of Kosovo in the region and membership of international energy organizations (e.g. the International Energy Agency) will be an essential precondition for the future development of the petroleum sector.


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10.10 Recommendations

Regulation of the petroleum sector · Preparation and implementation as soon as possible the specific and detailed regulation

for all companies involved in importation, distribution, transportation, and trade of petroleum products in Kosovo;

· Preparation and implementation of regulation on safety and security in connection with transportation, distribution and trade of petroleum products;

· Finally general provisions for health, security and the environment should be introduced for organizations and individuals dealing with petroleum products;

· Implementation of the EU regulation on Compulsory Oil Stocks (COS) and Quality Standards for gasoline and diesel fuels (EU directive 98/93/EC and 98/70/EC). This regulation however should be implemented over a longer time period than valid for EU Member States. Quality standards on other fuels e.g. HFO and gas oils are regulated in more general terms. In EU Council Directive 1999/32/EC are given recommended values for the maximum sulphur contents in these petroleum products. Member States of EU shall take the necessary steps to ensure that as from 1 January 2003 within their territory HFO’s are not used if their sulphur content exceeds 1,00% by mass. Further the maximum content of sulphur in gas oil should not exceed 0.20% by July 2000 and 0.10% by January 2008. Many EU Member States have obtained derogations from this Directive and Kosovo, which is heavy dependent on Russian oil products with high sulphur contents, is not in a position to meet these requirements in the medium term.

Market regulation and pricing · In order to secure liberalization and best business practice it is recommended to

establish a Competition Council in Kosovo, which should overview the functioning of the petroleum market with open and transparent conditions for all companies avoiding creation of monopolies and non-competitive behavior in the market.

· It is recommended that heating oil, as an alternative to electric heating, should be taxed lower in order to support the wider use of heating oil for this purpose and in a transitional period it is recommended to remove completely the excise duties on heating oil.

Reallocation of petroleum transports · It is recommended to reallocate as much of the petroleum transportation to rail transport

as possible to increase security of supply, mitigate road transportation problems and to reduce the illegal import of petroleum products. It is recommended that decisions regarding transportation mode should be included as a part of this regulation and licensing system.

Regional market trade and transportation · In order to obtain competitive market prices in Kosovo regular contacts between

UNMIK and the Greek and Macedonian authorities should be established in order to avoid high transit fees. Similar contacts should be established to other countries in the region with the aim to promote private enterprises entrance at the petroleum market in Kosovo.


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11 Module K – Investment Plan and Financing Options Summary

11.1 General

The objective of Module K as part of the Energy Sector Technical Assistance Project (ESTAP) is to prepare an investment plan on the basis of Modules A-J and identify financing options.

The present report presents an overview of all the investment projects identified by the individual modules for lignite/mining, power plants, power transmission and dispatching and power distribution, natural gas, district heat and oil. These identified projects are combined as complete investment plans to reach the identified economic and energy futures of Kosovo.

11.2 Scope of Work

The following aspects have been considered in the Investment Plan and Financing Options study:

· Economic development of Kosovo and definition of the scenarios for economic development;

· Energy demand of Kosovo 2000-2015; · Investment Plan; · Financing of projects.

11.3 Investment requirement

The total investments required in new Kosovo energy infrastructure in the Center Case without a gas system amounts to 847 MUS$ in constant money or to 455 MUS$ as NPV of January 1st 2002. Main investments are in the distribution system and power system based on lignite.

T able 11-1 Net Pr esent V alue of I nvestments (B US$):

Scenarios With gas Without gas High Growth 0.63 0.62 Center Case 0.52 0.46

In case of construction of a gas system in Kosovo, investment is 14% higher (64 MUS$), to a total of 519 MUS$. The gas system is based on residential consumers, which will reduce the expansion of the entire power system. The lignite and power investments of 404 MUS$ are reduced to 319 MUS$. Instead investments in the gas system of 154 MUS$ are required.

Investments in the first seven years vary more marked between the two cases, as the gas system requires relative larger upfront investments.


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F igur e 11.1 Net Pr esent V alue of I nvestments in C enter C ase (M US$.)

Total energy system costs Over the assessment period 2001-2015, the total energy supply costs for Kosovo are 2.9 BUS$. In fact, investments constitute only 16% of the total energy supply costs for Kosovo. The largest component is costs for imported fuels, 1.6 BUS$. This amount only includes gasoline, oil products and firewood, as the main fuel, lignite, is domestically produced - Its costs are included as investments and operational costs under mining.

T able 11-2 Net pr esent value of total ener gy system costs (B US$):

Scenarios Without gas With gas Center Case 2.89 2.92 High Growth 3.48 3.32

By inclusion of a gas system, total energy supply costs increases to 2.92 BUS$. The relative small difference covers some more marked differences in the individual cost components. Investments are higher in the gas case, while operational costs are lower in the gas case. Costs for imported fuel are slightly cheaper in the gas case as well, as oil products are more expensive to transport to Kosovo.

The investments constitute 18% of total energy system costs in the High Growth Scenario without gas. The costs for imported fuels amounts to around 1.9 BUS$, of which 1.1 BUS$ are used in the transport sector.

Conclusion on energy sector costs As presented in the above, the total energy sector costs in the Center Case without gas is 2.9 BUS$. Of this 0.46 BUS$ are investments, whereas the largest share is imported fuel costs (mainly oil and gasoline).

In case of a gas system, the total energy system costs are of the same range. The difference of less than 1% or 23 MUS$ is insignificant in comparison to the total costs. It cannot be economically concluded which of the systems is the preferred. In addition, the two cases differ on a string of and highly important issues. These include diversification and security of energy supplies, balance of payments, environmental aspects and employment.

0

100

200

300

400

500

600

Oil 14 19District heat 32 32Gas system 154 0Distribution 156 206Transmission 43 59Power plants 32 51Lignite 88 88

With gas Without gas


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The recommendation is, that based on a full energy strategy, including these more energy-external issues, a political based optimization and ranking to be decide on the energy futures in detail.

F igur e 11.2 NPV of total ener gy system costs including envir onmental (M US$) in C enter C ase:

11.4 Investment plan

Based on the individual analyses in all the Modules of the study, a complete investment plan have been established:

· Decide on import/export of power or self-sufficiency;

Main investment decisions (short term 2002-2003):

· Rehabilitation and expansion of lignite mining areas Brand, Mirash and Bardh; · Power plant rehabilitation of Kosovo A5; · Power plant rehabilitation of Kosovo A3; · Power transmission upgrades; · Power distribution upgrades; · SCADA system; · Invest in rail wagons for oil transportation and storages.

· Decide on introduction of natural gas; Main investment decisions (medium-long term 2004-2015):

· If gas: Gas phase K1 to Prishtina in order to reduces the power demand; · Decide on continued import/export or self-sufficiency; · Power plant rehabilitation of Kosovo A4; · Power interconnection expansion to neighboring countries; · Power transmission expansion; · Power distribution expansion; · If gas: district heat in Prishtina should initial be based on conversion of existing heat plants

to gas. Later and if no gas: district heat in Prishtina should be served by new heat transmission pipeline from TPP Kosovo B;

0

500

1000

1500

2000

2500

3000

3500Investments Operation Import fuels Environment

Environment 441 462Import fuels 1550 1554Operation 407 423Investments 519 455

With gas Without gas


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· New power plants (Center case): o Decision on new units sitting; o If gas: No need for power, but a smaller CHP plants in Prishtina; o No gas: Need for 187 MW new net capacity over the period: 118 MW gasoil in

2013 and 69 MW gasoil in 2015. · New power plants (High Growth scenario):

o Decision on new units sitting; o If gas: Need for 187 MW new capacity: 118 MW gas in 2013 and 69 MW

CCGT gas in 2015; o No gas: Need for 592 MW new net capacity over the period: 120 MW oil in

2009, 180 MW Lignite in 2012 and 292 MW hydro in 2014. · If gas: Next phases K2 and K3 develops gas system to Prizren and Peja; · Expand rail wagons for oil transportation and storages.

· Organization / Ownership of entities/companies; Political decisions in relation to a Kosovo energy strategy

· Privatization of entities/companies under the Kosovo Trust Agency; · Regulation of energy sector; · Reduce non-payment for energy services; · Environmental issues; · Strategic, Security of supply and diversification; · Taxation, subsidies and tariffs, including social aspects.


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11.5 Financing plan

The following figure presents all the above investment items including size and timing.

T able 11-3 Summar y of the Pr ojected I nvestment Disbur sements:

Furthermore the three following tables (11.4-11.6) are showing the break down of the total investment according energy subsectors, time periods, and foreign/local components.

T able 11-4 L east-C ost I nvestment Plan Summar y

Least-cost Investment Plan Summary 2003 - 2005 2006 - 2010 2011 - 2015 Total planning period Energy Sector MUS$ % of Total MUS$ % of Total MUS$ % of Total MUS$ % of Total

1. Coal Sector 73 20.0 16 6.8 3 1.2 92 10.8 2. Power Sector 257 70.4 193 84.7 241 94.6 691 81.5 Power generation 39 11 18 8 93 37 149 18 Transmission System 27 7 27 12 26 10 80 9 Distribution System 177 49 145 64 122 48 444 52 SCADA/EMS System 14 4 4 2 0 0 18 2 3. District Heating 23 6.3 11 4.7 3 1.2 37 4.4 4. Petroleum Sector 12 3.2 9 3.8 8 2.9 28 3.3 Total 364 100 228 100 255 100 847 100


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T able 11-5 L east-C ost I nvestment Plan F or eign money component

T able 11-6 L east-C ost I nvestment Plan L ocal money component

11.6 Current investments and KEK funds

Presently Kosovo has no investment program for the years after 2002 excluding the plan defined by this study. Special attention should be given to the fact that no Donors are committed to continue donations after 2002.

From EAR, figures about 10 MUS$ for the next year are often mentioned, no other bilateral donors are considering any support to investment projects, primarily considered to finance some "soft" measures (training, TA etc.).

Presently, due to its financial situation, KEK doesn’t contribute to its own investment. While this is true now, the situation can change over time. If KEK is able to reduce non-technical power losses and improve collections sufficiently it should be able to generate considerable funds for investments in few years time. Due to the uncertainties of the assumptions, the amount of funds available for investment purposes should be yearly reviewed by KEK and the expert in charge of the Management Contract.

Least-cost Investment Plan Summary Foreign Money 2003 - 2005 2006 - 2010 2011 - 2015 Total planning period Energy Sector

MUS$ % of Total MUS$ % of Total MUS$ % of Total MUS$ % of Total 1. Coal Sector 72 23.4 15 8.4 3 1.5 90 12.9 2. Power Sector 203 66.7 149 82.4 200 94.4 552 79.2




Total 305 100 181 100 211 100 697 100

Least-cost Investment Plan Summary Local Money 2003 - 2005 2006 - 2010 2011 - 2015 Total planning period Energy Sector

MUS$ % of Total MUS$ % of Total MUS$ % of Total MUS$ % of Total 1. Coal Sector 1 2.5 0 0.7 0 0.1 2 1.2 2. Power Sector 53 89.7 44 93.4 42 95.7 139 92.6




Total 59 100 47 100 44 100 150 100


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12 Module L – Electricity Tariff Summary

12.1 General

The reconstruction, recovery and medium-long term development program of the electric power sector in Kosovo requires among others, determination of a new electricity tariff structure that reflects foreseen investment costs to the extent possible and provides enough revenue to ensure a satisfactory financial performance of KEK.

The present situation of the electric power sector, however, is determined by extremely high non-technical losses and very low collection rate partially due to inappropriate organization issues, lack of meters for a considerable part of the households and last but not least, some inadequacies of tariff system.

The objective of Module L as part of the Energy Sector Technical Assistance Project (ESTAP) is to determine an electricity tariff structure reflecting economic development costs, while providing enough revenue to ensure a satisfactory financial performance of KEK.

12.2 Scope of Work

The following main activities have been carried out:

· Review of the institutional framework relevant to tariff setting and assessment of its suitability; assessment and review of current procedures for tariff setting and current tariff structure;

· Calculation, by means of a specific computer model, of the economic costs of providing electricity at the various voltage levels during peak and off-peak periods;

· Financial analysis of the electricity supplier and determination of the revenue requirements for a satisfactory financial performance;

· Verification of the appropriateness of the existing consumer categories; determination of tariff rates for each consumer category, reflecting as close as possible the economic costs and meeting the revenue requirements;

· Evaluation of the impact of the proposed tariffs on households and identification of alleviation measures for low income consumers;

· Recommendations on tariff rates during the period of transition from the old tariff structure and level, starting with recommendations for tariff rates for 2002;

· Analysis of the impact of the proposed tariff regime on the financial performance of the suppliers;

· Recommendations on the institutional procedure for establishing the new tariffs and for adjusting tariffs over time.

12.3 Institutional Framework Relevant to Tariff Setting

The existing institutional framework relevant to tariff setting and the current tariff structure were initially examined and evaluated.

12.4 Evaluation of Current Tariff Structure

The current structure was found to be to a large extent coherent with that of the costs, requiring accordingly only minor modifications. The main problems facing KEK were identified as follows:


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· Extremely high non-technical losses (about 27%), combined with fairly high technical losses (about 18%).

· Very low collection rate, which, in spite of a significant improvement in recent times, amounted to only 65% in December 2001.

· Lack of meters for part of the households, which stimulates the improper consumption of electricity, in particular for space heating.

· Inadequate differentiation of tariff rates according to the voltage level.

12.5 Long Run Marginal Cost Evaluation

A model has been developed for calculating the Long Run Marginal Cost (LRMC) of the generation capacity and energy components. The input data, derived from other modules of the ESTAP, include the load demand forecast, the load periods classification, the system capacity based on the least-cost investment program, the investment costs for expansion of the generation, transmission and distribution and the technical losses at different voltage levels. In particular, the following four load periods were defined:

· High Season, daily peak: October 1 – March 31, 8 am – 10 pm · High Season, daily off-peak: October 1 – March 31, 10 pm – 8 pm · Low Season, daily peak: April 1 – September 30, 8 am – 10 pm · Low Season, daily off-peak: April 1 – September 30, 10 pm – 8 am

The LRMC of capacity and energy were calculated as follows:

High Voltage: 103.4

LRMC of Capacity (US$/kW/year):

Medium Voltage: 188.9 Low Voltage: 286.3

A) High Season

LRMC of Energy (US$c/kW):

Average High Voltage: Peak 3.41, Off-peak 1.05; Average Medium Voltage: Peak 3.53, Off-peak 1.07; Average Low Voltage: Peak 4.26, Off-peak 1.21. B) Low Season Average High Voltage: Peak 1.96, Off-peak 1.05; Average Medium Voltage: Peak 2.03, Off-peak 1.07; Average Low Voltage: Peak 2.44, Off-peak 1.21.

12.6 Financial Viability

The final aim of the pricing system is to allow KEK to have a satisfactory financial performance on the basis of carefully selected criteria (rate of return on assets, self-financing ratio, debt service coverage, etc). The income statement of KEK has been then estimated until the year 2015 utilizing a computer model purposely elaborated. In order to assess the total revenues, it has been assumed that the rate of collection would reach 98% by the year 2006 and the projected electricity consumption of the different categories reported in Module A of the study has been introduced.

12.7 Determination of Tariff Structure and Rates

The consumer categories have been slightly modified with respect to the current structure, to better reflect the actual LRMC of the capacity and energy. In particular:


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· The present MV categories of 35 kV and 10 kV have been combined into one single category, to take into account the proposed unification of voltage to 20 kV.

· The present distinction of households rates based on monthly consumption has been eliminated. A separation has been introduced in the household consumers, according to the ratio between High Season and Low Season consumption, in order apply a penalty for electric space heating.

· Except for the large consumers, the capacity and energy charges have been combined into one single element.

For determining the new rates, besides the strict LRMC, the average Load Factor and the Diversity Factor of the various categories have been taken into consideration, in order to attribute to them in a more correct form the costs related to the extension of capacity. This explains why there is no rigorous correlation between voltage levels and tariff rates.

The new proposed tariff structure and the relative projected revenues are shown in the Table 12.1 and Table 12.2.

Additionally, the customer costs related to meter installation, connection to the grid and billing, as well as the costs of reactive power, have been estimated.

The impact on the households of the proposed tariff rates has been evaluated and corrective measures for low-income consumers identified. The impact has been found to be fairly high (up to 6% for low-medium income consumers), wherefore some rate reductions during the transition period appear to be convenient.

12.8 Financial sustainability and monitoring of the Tariff

The financial sustainability of the proposed tariff system has been verified through a financial analysis. A huge number of inputs of this analysis contains for the time being a great level of uncertainty. For example, the signed bilateral funds commitment for the next year is at the date of the finalization of this report equal to zero, while it is expected that the international support to the sector will last for few more years. The level of the collection rate should be heavily improved under the new management contract but today may only be guessed. However, even though certain inputs have been broadly estimated and some assumptions may be debated, the overall result shows that the tariff level resulting from the LRMC may be adopted for the first years.

In the future, the viability of the financial projection of KEK should be monitored and adjustment may be foreseen (see Chapters 9 and 10 of Module L report), while the relative distribution among the main consumer categories as well as, among the different pricing periods should maintain its validity in the medium-long term.

12.9 Lifeline Tariff

A consumption of electricity of 100 kWh/month, corresponding to the amount that would allow for lighting, basic appliances and a very limited use of electric water heating and cooking, has been identified as the lifeline amount, that can be covered by a social tariff. Different options are presented for the application of such social tariff, which can be funded either by the Government or by high-income customers or alternatively can be provided in the form of cash payments or vouchers. The proposed lifeline tariff system is based on the average generating costs, inasmuch as low-income consumers with a consumption lower than 100 kWh/month are asked to pay a lifeline tariff equal to the average variable energy cost of supply at LV level, that recovers the average operating cost of generation, except for capital cost, and the T&D losses. The low rate based on the average cost of supply at LV level has to be applied to all customers, obviously limited to the first 100 kWh/month of consumption. For tariff rates above the lifeline amount, two alternative mechanisms (Alternatives A and B) are analysed: both alternatives aim


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to contain the required subsidy within financially acceptable levels. Additionally, a further alternative based on direct subsidy from the administrative authority (Alternative C) is examined. Alternative C is more transparent and well targeted, but it is not easy to implement, as it requires the assessment of the families income. Assuming that a clear identification of the “poor families” is possible, this solution is deemed to be the most suitable one.

12.10 Transition Period

In order to avoid abrupt effects on the customers that may hinder the improvement of the collection rate and the industrial recovery of the country, some transition measures are proposed, to be applied until the electric service achieves an acceptable service level and the economic situation of the country improves, namely:

a. Maintain the present set up of off-peak hours (12 hours instead of the proposed 10);

b. Apply a temporary reduction of about 20% to the households with no space heating;

c. Apply a nominal customer cost that does not cover the full costs for metering and connection;

d. Apply a discount in the order of 30% to the standing charge for industries, until the problem of emergency interruption and of load shedding is solved.

Finally, a formula for indexation of the tariff rates is proposed. This tariff takes into account two indexes: the general inflation and, partially, the evolution of the average cost of electricity imports from the neighboring countries..


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T able 12-1 T ar iff Str uctur e based on L ong R un M ar ginal C ost

Existing Tariff Strict LRMC Tariff

High Season 4)

Low Season 4)

HS/LS Ratio

High Season 4)

Low Season 4)

HS/LS Ratio

High Season 4)

Low Season 4)

(USc/Unit) (USc/Unit) (-) (USc/Unit) (USc/Unit) (-) (USc/Unit) (USc/Unit)Standing (demand) charge kW/month 1 125 875 1.29 840 560 1.50 -25% -36%

1 Active energy (P), of which: kWh High Tariff** 2.63 2.07 1.27 3.36 1.87 1.80 28% -9%Industrial 110 kV kWh Low Tariff** 1.32 1.07 1.23 1.05 1.05 1.00 -20% -2%

HV High Tariff / Low tariff ratio 2.00 2.00 1.00 3.21 1.79Reactive energy (Q) kVARh 1.38 1.13 1.22 0.48 0.48 1.00 -65% -57%Standing (demand) charge 5) kW/month 1 250 938 1.33Active energy (P), of which: kWh High Tariff** 3.13 2.50 1.25

kWh Low Tariff** 1.57 1.25 1.25High Tariff / Low tariff ratio 2.00 2.00 1.00Reactive energy (Q) kVARh 1.25 0.94 1.33Standing (demand) charge 5) kW/month 1 250 938 1.33Active energy (P), of which: kWh High Tariff** 3.44 2.75 1.25

kWh Low Tariff** 1.72 1.38 1.25High Tariff / Low tariff ratio 2.00 2.00 1.00Reactive energy (Q) kVARh 1.25 0.94 1.33Standing (demand) charge 5) kW/month 1 536 1 024 1.50 23% 9%

2 Active energy (P), of which: kWh High Tariff** 3.48 1.93 1.80 2% -7%Industrial 10-20-35 kV kWh Low Tariff** 1.07 1.07 1.00 -9% -5%

MV High Tariff / Low tariff ratio 3.25 1.81Reactive energy (Q) kVARh 0.89 0.89 1.00 -7% -1%

4-Block 1 0.4 kV

Domestic Lifeline Active energy (P) kWh Single Tariff* *** *** NEW NEW0.4 kV 4-Block 2 0.4 kV Standing (demand) charge 6) kW/month 141 113 1.25

Domestic i) Active energy (P) kWh Single Tariff* 3.91 3.13 1.25 6.36 4.14 1.53 63% 33%No space ii) Active energy (P), of which: kWh High Tariff** 4.69 3.75 1.25 9.02 5.55 1.63 92% 48%Heating kWh Low Tariff** 2.35 1.88 1.25 1.21 1.21 1.00 -49% -36%

High Tariff / Low tariff ratio 2.00 2.00 1.00 7.47 4.600.4 kV 4-Block 3 0.4 kV Standing (demand) charge 6) kW/month 188 141 1.33

Domestic i) Active energy (P) kWh Single Tariff * 6.25 4.69 1.33 7.17 15%With space ii) Active energy (P), of which: kWh High Tariff** 7.50 5.63 1.33 10.10 35%

Heating kWh Low Tariff** 3.75 2.82 1.33 1.21 -68%High Tariff / Low tariff ratio 2.00 2.00 1.00 8.37

0.4 kV 5 0.4 kV Standing (demand) charge kW/month 833 617 1.35 1 665 1 110 1.50 100% 80%Category I Category I > 700 kWh/m Active energy (P), of which: kWh High Tariff** 5.00 3.75 1.33 4.19 2.33 1.80 -16% -38%

Services kWh Low Tariff** 2.50 1.88 1.33 1.21 1.21 1.00 -52% -36%High Tariff / Low tariff ratio 2.00 2.00 1.00 3.47 2.00

7) Reactive energy (Q) kVARh 1.25 0.94 1.33 1.34 1.34 1.00 7% 43%0.4 kV 6 0.4 kV Standing (demand) charge I *) kW 247 185 1.33

Category II Category II < 700 kWk/m Standing (demand) charge II **) kW 92.60 67.90 1.36Services i) Active energy (P) kWh Single Tariff* 7.41 5.56 1.33 7.91 5.18 1.53 6.8% -6.8%

ii) Active energy (P), of which: kWh High Tariff** 9.26 6.79 1.36 11.47 7.18 1.60 23.9% 5.8%kWh Low Tariff** 4.94 3.71 1.33 1.21 1.21 1.00 -75.6% -67.4%

High Tariff / Low tariff ratio 1.87 1.83 1.02 9.50

8 Public lighting (0.4 kV)

7Public

Lighting 0.4 kV Active energy (P) kWh Single Tariff 8.03 6.18 1.30 9.93 5.54 1.79 24% -10%

NOTE: *) single tariff meters, **) double tariff meters, *** social tariff (sse chapter 7 of the report)

6) When no maxigraph is installed, the demand charge is calculated from the amount of energy consumed in the High Tariff divided by 100.

6

7

5) In case a "maxigraph" is installed (which registers 15 min. measurements and memorizes the highest value within the month), the standing (or sometimes also called "demand") charge is paid in accordance with that value. (At the end of the month, e.g. whecase ameters are read again, the maxigraph is returned to "zero".)

4) High Season (HS): 1 October - 31 March, Low Season (LS): 1 April - 30 September.

3) High Tariff (HT): 8am - 10pm, Low Tariff (LT): 10pm - 8pm, Single Tariff (ST): 0am - 12pm.

2) Customers are supplied at 3 voltage levels: HV (110 kV), MV (35 kV and 10 kV) and LV (0.4 kV).

1) There are 8 tariff groups differentiated by the voltage level (110 kV, 35 kV, 10 kV, 20 kV, 0.4 kV), the customer group (e.g. households, commercial - both on 0.4 kV), and the level of consumption (e.g. below and over 800 kWh).

HS cons. < 1.2 LS cons

5 (domestic over 800 kWh/m)

HS cons > 1.2 LS cons

3 10 kV

4 (domestic below 800 kWh/m and

hospitals)

1 110 kV

2 35 kV

Voltage level of supply 2)

No. of tariff group 1) Tariff elements No. of tariff

group 1)Voltage level of supply 2) Unit Time-Of-Day

3)

Existing Tariff Categories Proposed Tariff Categories Charge change


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T able 12-2 Synthesis of new T ar iffs and Pr ojected R evenues


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13 Module M – Future Structure of the Energy Sector Summary

13.1 General

The Kosovo power sector today faces structural problems and a low efficiency along all stages of value adding.

The objective of Module M as part of the Energy Sector Technical Assistance Project is to examine the future of the overall energy sector and make recommendations to improve efficiency in the long run. The report is divided into:

Part I, Electricity Part II, Lignite Mining Part III, District Heating Part IV, Natural Gas Part V, Petroleum Sector

13.2 Part I Electricity

13.2.1 Objectives for Restructuring

The objectives for restructuring of electric power sector in Kosovo are:

· Improve power sector performance by improving or establishing technical proficiency, efficiency, reliability, and minimizing cost;

· Coordinate and integrate the generation system with those of the neighboring countries to solve short-term problems and to establish, in the medium – long term a power regional market;

· Comply with the requirements of EU Directive 96/92/EC concerning common rules for the internal market in electricity as soon as common rules are practical, in order to facilitate the development of regional market and not to delay future EU membership;

· Attract private (especially foreign) capital; · Introduce competition (through IPPs); · Create self-sustaining (self-financing) organizations; · Maintain the ability to privatize power sector organizations if that eventually becomes

desirable.

13.2.2 Options and Conditions for Restructuring

The Consultant has examined the organizational structure of the Electricity sector and identified three theoretical restructuring options: · Option 1 – Efficiency Improvement. · Option 2 – EU Compliance. · Option 3 – Privatization. These options – not alternative to each other- at the time of the final writing of this report are just theoretical.

Option 1 is underway due to the Management and Technical Assistance ongoing project so is not dealt with much detail.

Option 3 should represent the long-term goal of the restructuring process. The privatization and its associated benefits may be properly and usefully achieved only through a time consuming process and thanks to the efforts of all involved actors. Short cuts are seldom acceptable and this doesn’t seem the case of Kosovo.


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Option 2 represents intermediate steps, toward that final achievement and the associated benefits.

However, the Consultant would like to reaffirm that without a dramatic improvement of the collection rate and reduction of non-technical losses, any strategy will be unable to significantly ameliorate the situation.

Present Situation

At the end of July 2002 the energy regulatory framework is based on the following Regulations approved or “de facto” into force even though in the last stages of the approval process: · REGULATION - ESTABLISHING THE KOSOVO TRUST AGENCY (KTA): approved,

July 2002. · REGULATION ON THE POWER SECTOR IN KOSOVO, draft regulation under

discussion.

KTA is the “owner” of the utilities.

The situation of the regulatory body (named PURCK in a draft of regulation) is under discussion at the moment of the final printing of this document even tough a multi-sector authority seems the most probable outcome.

The Consultant deems that the key element in dealing with the future structure of the electricity sector is not which structure should be adopted but rather the pace of the reforms.

EU Directive 96-92-EC

For its key role in the reform of the electricity sector, Directive 96/92/EC of the European Parliament and of the Council of 19 December 1996, concerning common rules for the internal market in electricity, has been utilized as a guideline all along the activities.

Regulatory Framework

Empowering Independent Regulators: Presently the regulation regarding PURCK is at a final stage of approval upon the Political Bodies in Kosovo. Once PURCK regulation is approved, secondary regulation or unregulated practices will determine the success of the Regulator action.

Ensuring Independency: Concrete measures should be adopted for regulator of Kosovo such as:

· clear defined mandate; · provisions specifying particular qualifications and disqualifications for appointment; · fixed term of appointment, eventually with one time renovation; · protection from arbitrary removal; · independent source of funds.

Accountability: Independence must be reconciled with measures to ensure that the regulator is accountable for its actions.

Sector coverage: The decision regarding the basic model of regulatory institution has already been taken, and has been supported by the Consultant, in favor of a multiutility regulator.

Decision-making Commission: Establishing an odd number of members will facilitate Decision-making. Commission with three members should be optimal for Kosovo.

13.2.3 The Pace of the Reforms

The pace of the reforms is the object of the central chapter of this report, where the Consultant has schematized a reform path. As for any reform process, such path represents only one of the possible strategies, but it specially reflects the knowledge of Kosovo and KEK acquired by the team of experts working in the ESTAP project. In the following the first two phases are


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summarized and corresponding proposed structures of electricity sector are illustrated in Figure 13.1 and 13. 2.

Phase 1: Regulated monopoly Time scheduled: From 01/2002 to 01/2003

F igur e 13.1 E lectr icity sector str uctur e Phase 1

Phase 2: Accounting Unbundling Time scheduled: from 01/2003 to 01/2004.

F igur e 13.2 E lectr icity sector str uctur e Phase 2

PURC (Public Utility Regulatory Commission)

Production

Transmission

Distribution

Supply

All Customers

Import / Export

KEK

KTA Assets

Watched over by

Leased to

SRSG UNMIK

PURC (Public Utility Regulatory Commission)

Production

Transmission

Distribution

Supply

All Customers

Import / Export

KEK Joint Stock Company

KTA Assets

Watched over by

Leased to

SRSG UNMIK


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The privatization strategy can’t be defined now so as it can’t be decided whether the whole electric system or just a part has to be privatized, Some considerations can anyhow be anticipated, being valid for Kosovo also in the future:

· A strategic partner is preferable to a financial investor, and its shares should be such to let it have a control position in the consortium (if he joints forces with other partners).

· The percentage to be privatized shall be bigger than 50% and shall be such that the private will have an effective management control.

· In a short-times privatization scenario especially, the electric sector assets could be privatized without a wide unbundling, especially horizontal, eventually separating only the transmission system, and developing the competition more on an international level than on a local one. Moreover the role of the Regulator should be strengthened.

This choice, simplifying the overall management, should increase the attraction of the privatization towards private investors (Kosovo it is not expected to be a very attractive market) and at the same time should eliminate the risk of private monopolies.

13.2.4 Road Map to Eventual Privatization

Legislation: Being the electricity sector one of the first recipients of foreign attention in a country, it is worth to remind the main legislation that should be in place before any privatization attempt:

· Electricity or Energy Law and relevant secondary regulation; · Enterprise Law; · Foreign Investment Law.

Action Plan: The consultant has defined preliminarily, with respect to the needs, a “road map” to an eventual privatization and some of the main steps are:

Step Action Actor When 0 Establishing a legal of regulatory framework Government Several month

The experience at the last year is showing several examples of privatization in which this step has been developed in parallel with the privatization process. Nevertheless, similar practices should be avoided.

Step Action Actor When 1 Re-evaluation of fixed assets Company 3 month

The re-evaluation is an important step to define the value of the company; however, the market dictates the end value. A complete list of assets is instead a key benefit for the good result of the privatization. Even more important are the land rights and a clear ownership of the assets listed in the asset book.

Step Action Actor When

2 Preparation of financial statement of the Company Independent financial auditor 3 months

To be carried out in line with international accounting standards and checked by an international recognized auditor.


4 Preparation of the legal statute of the company Representatives and Consultant 2 / 8 months

The details of this action vary greatly according the situation of the company at the moment of the privatization. It may include among others:

a. Preparation of the Statute;

b. Establishing the company as a Joint Stock Company;


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c. Electing Supervisory Board;

d. Getting political approval;

e. Implementing restructuring (spin off of non core activities).


6 Preparation of the Master Plan and recommendations of the model Commission 0.5 / 1 month

The Commission will recommend a Master Plan and model of selling the assets/shares to the Minister.


8 Nomination of Advisor Ministry of Economy -

The Advisor will conduct the entire process of sale of the assets/shares to investor i.e. announcing, advertising, preparation of bid documents, evaluation of bids, negotiation with the investors and bid closing.

The Advisor will have full responsibility, accountable to the Minister and to its international reputation, for the remainder of the privatization process. The Advisor should be an investment bank.


13 Due diligence and bid preparation Interested investors 2 months

Bidders have the permission to examine the company’s sensitive documents in due diligence. These documents will be made available in a closed and supervised data room. They will comprise financial, technical, environmental supply and legal issues. In addition, investors should be able to talk to the company management.

Step Action Actor When 14 Evaluation of offers Advisor 0.5 / 1 month

A clear and transparent evaluation criteria will enhance the interest of the potential investors and the value of the transaction.


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13.3 Part II Lignite Mining

The Kosovo lignite mines organizational structure is proposed with respect to organizational requirements of a lignite open cast mine based on continuous mining technology and the integration of such an operation in a modern utility.

It is there proposed to regard the mines and the power plants as one company when privatization is to be discussed. This would allow for synergy effects in administration, in procurement and storekeeping and would facilitate the co-ordination of coal production and demand in terms of quantity and quality.

New structure in coal production The proposal of a new structure in the production division is shown in Figure 13.3.

This department will deal with the mine engineering consisting of mine, drainage and reclamation planning, geotechnical and hydrological engineering, and geology. It will also include a section for civil engineering.

Engineering Department

This department is subdivided into workshops for electrical, mechanical and auxiliary equipment as far as repair or overhaul is required. However, the day-to-day service has to be carried out in the mines. Sections of defectoscopy, corrosion protection, mechanical and electrical engineering would also be integrated within the structure.

Workshop Kosovamont:

This department is dealing with the mine operation, the day-to-day maintenance and civil construction.

Mines:

F igur e 13.3: Pr oposal for the futur e or ganization of the pr oduction division

Source: RE

Mine Planníng

Geology

Geotechnics

Hydrology

Surface Drainage

Reclamation

Mine Engineering

Civil Engineering

Engineering

Electrical-Workshop

Mechanical-Workshop

Auxiliary Equipment Workshop

Defectoscopy

Corrosion Protection

Mechanical Engineering

Electrical Engineering

Workshop Kosovamont

Production

Belt Conveyors

Main Mine Equipment

Mine Control Center

Surface Drainage

Drilling

Auxiliary Equipment

Surveying

Operational Planning

Mine Operation

Definition of Maintenace Actions

Work-Preparation

Field Maintenance

Service Stations

Service Vehicles

Planned Maintenance

Emergency Maintenance

Maintenance

Civil Construction

Mines Power Plants

Production Division


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13.4 Part III District Heating

All district heating companies in Kosovo face the same problems, which appeal for a solution on both institutional and regulatory measures at national level and at local level.

Regulation at national level The regulation at national level will generally be given through legislation and other legal regulations and guidelines. The most important institutions for the national regulation are: price regulator, Regulatory Agency, and DH association.

The most important legal regulations and guidelines are: · Heat law on least-cost heat supply development for Kosovo; · Law on urban infrastructure; · Building regulations; · Law on administration of apartment buildings; · Law on collection of debt; · The social security legislation.

Regulation at city level The city council should be responsible for approving all major investment projects concerning heat supply in the municipality.

Ownership, Company Management and private sector participation District heating company operating the network: It is recommended not to privatize the core business of the district heating company, in the nearest future. After some years when all consumers are organized and able to pay the bills without any major subsidies, the future ownership of the company could be considered.

District heating boiler plants: The main boiler plant should be owned by DH company, which owns and operates the network, but any private company can offer heat capacity or surplus heat energy at competitive prices, on contractual basis.

District heating company operating the transmission line from Kosovo B to Prishtina: It is proposed to have a 100% municipal ownership.

Tariffs and price legislation It is proposed a simple tariff system that ensures a minor profit for DH companies to pay particular future investments and establishment of an independent Price Regulator to which consumers and companies can complain.

Regulation of backfeeding of electricity For future cogeneration units owned and operated by DH companies the price of electricity should correspond to the long-term marginal cost.

Consumer organization, billing, collection and private sector participation Recommendation for consumer organization in case of heating supply to households, bill collection, maintenance, administration and cost share in a condominium are given.

13.5 Part IV Natural Gas

Analyses show natural gas to the uneconomic and it is therefore not expected that Kosovo will have a viable gas sector in the near future. The description of regulation and organization of the gas sector is based on the assumption that Kosovo will have a gas sector within the period until 2015, although it may not be likely.

Ownership, investors and stakeholders There is no single rule for ownership in the European gas sector and the EU legislation, European Energy Charter Treaty and various international trade agreements have no provision


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for the degree of public participation in the gas industry. The choice of ownership is often associated to the financing and to special political considerations.

In the case of Kosovo the Consultant finds a combination of strategic investors from the region and internationally to be the most attractive and likely owners of the Kosovo gas industry. To facilitate the entrance of international gas companies a clear institutional framework for investor protection and property rights in general is required.

Organization The potential gas sector of Kosovo will be relatively small in volumes as well as network complexity compared to many other countries so the Consultant would therefore assume that the Kosovo gas sector within the period to 2015 is organized as a single entity vertically integrating all links of the gas chain. The Consultant sees a potential in sharing consumer information and billing systems between the energy utilities, however this could be achieved without the bundling of technical services.

Creation of a development company

Once the decision of introducing natural gas in Kosovo will be assumed, it is recommended to establish since the beginning a gas development company. Such company should have the following tasks:

· initiate negotiations on gas supply, including gas purchase and transportation; · initiate negotiations on gas sales to power, heat and industrial consumers; · prepare application for concession; · prepare market surveys among residential and commercial consumers; · prepare basic design for gas transmission system; · prepare input on gas legislation, including evaluation of the need for derogation from EU

Directives; · initiate negotiation on subsidies and financing from donor organizations and banks; · prepare the future ownership of a gas company and prepare potential privatization.

Legal framework The present laws regulating the gas industry in Yugoslavia mostly originate in the laws of socialist Yugoslavia. It is however also clear that these laws are somewhat complicated and not in full compliance with the international directives as set up by the EU in the gas sector.

As long as the legal framework is not solved for Kosovo it will be difficult for private investors to engage in the gas development. We assume that UNMIK will solve this problem or alternatively will guarantee the private companies, who could potentially invest.

EU regulation In general, it is assumed that the gas industry in Kosovo will have to comply with the EU Directives on natural gas and European Energy Cart. On the other hand, these directives give the possibility for derogation for emerging markets and for markets with only a single supplier. For Kosovo one main question will be if it is possible to obtain derogation from the EU regulations on unbundling, third party access, etc. Anyway, if Kosovo is to implement EU legislation amendments to the existing laws are required.

Regulation In the development of a Kosovo gas sector the regulation and regulators will always be required to ensure the interest of primarily the public and of the players themselves. The Consultants recommends that inspiration is collected from the experiences gathered from the reforms leading to the development of the internal European gas market, emphasizing the need to focus on investor protection and clear allocation of property rights and public service obligations.

An independent regulator dedicated to gas market regulation is generally conceived over Europe to be the most effective party in the regulation of the gas sector. The independent regulator


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should also be independent from the administrative functions of the state-apparatus and political scene.

Price setting and tariff regulation The Consultant recommends the following price setting mechanisms: · Transit and transmission tariffs based on stamp tariffs equal for all shippers of gas. · End-user tariffs based on market-based prices approach.

Marketing and training Marketing of natural gas for residential and commercial consumers should be done in parallel to the physical installation of the distribution network. For training is recommended to set up a gas training school as soon as possible in year 2002 to educate and train personnel to be ready for installation of the gas system in 2004.

Call for further analyses and decisions to support the gas sector If the creation of a development company is not viable in Kosovo, the Consultant proposes the work put into a separate new technical project in continuation of the ESTAP Study.

13.6 Part V Petroleum sector

Present organization of petroleum sector Regulation of the petroleum sector in Kosovo is being implemented. In general, petroleum trade is regulated under the UNMIK Regulation No. 1999/9 of 20 September 1999 on Import, Transport, Sale and Distribution of petroleum products for and in Kosovo. The Fuel Supervisory Board under the UNMIK authority, responsible for issuing of licenses is now in the process of preparing the basis regulation for importing, transporting, handling, storing and distribution of petroleum products.

Future Structure of the Petroleum Sector

Criteria for market liberalization and competition The license regulation and administration should secure that domestic and foreign companies operating within the petroleum sector will secure a fair competition in the market and transparent trade agreements. The companies that are going to obtain a license to conduct petroleum business must be subject to strict rules of conduct and should meet the criteria covering the whole business: importation, transportation, deposition, measurement and distribution to retailers and retailers. The license rules must be clear, accurate and comprehensive as well as verifiable.

Regulation of the petroleum sector It is recommended at the earliest possible to prepare and implement the specific and detailed regulation for all companies involved in importation, distribution and trade of petroleum products in Kosovo. This regulation should include provisions to obtain and maintain a license within one or several of the above mentioned business areas. Besides this, regulation on safety and security in connection with transportation, distribution and trade of petroleum products should be issued. Finally, general provisions for health, security and the environment should be introduced for organizations and individuals dealing with petroleum products.

It is further proposed to implement the EU regulation on Compulsory Oil Stocks (COS) and Quality Standards for gasoline and diesel fuels (EU directive 98/93/EC and 98/70/EC). This regulation however should be implemented over a longer time period than valid for EU Member States.


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Market regulation and pricing In order to secure liberalization and best business practice it is recommended to establish a Competition Council in Kosovo, which should overview the functioning of the petroleum market with open and transparent conditions for all companies.

Prices for petroleum products should be established in a competitive marked with equal conditions for companies licensed to operate within special business activities. Prices should reflect the real costs on importation and distribution and transparency with allocation on specific purposes.

The taxation of petroleum products should reflect the adopted energy policy of Kosovo. It is recommended that heating oil, as an alternative to electric heating, should be taxed lower in order to support the wider use of heating oil for this purpose. In a transitional period it is recommended to remove completely the excise duties on heating oil.

Reallocation of petroleum transports It is recommended to reallocate as much of the petroleum transportation to rail transport as possible. The rail system in Kosovo is functioning well and there is significant reserve capacity, which may be used for transportation of petroleum products.

Regional market trade and transportation The present import of petroleum products from neighboring countries is inexpedient with numerous restrictions and high transit fees. Regular contacts between UNMIK and the Greek and Macedonian authorities should be established in order to avoid this situation. Similar contacts should be established to other countries in the region with the aim to promote private enterprises entrance at the petroleum market in Kosovo.

energy sector technical assistance project (estap) kosovo...

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