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A SHORT history of a BIG failure of energy policies in Kosovo

A SHORT history of a BIG failure of energy policies in Kosovo I. Chronology Kosovo s main providers of electricity (97%) are the Kosovo A and Kosovo B power plants, which were built during the Yugoslav
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A SHORT history of a BIG failure of energy policies in Kosovo I. Chronology Kosovo s main providers of electricity (97%) are the Kosovo A and Kosovo B power plants, which were built during the Yugoslav era. After the war, Kosovo not only inherited old electricity infrastructure, but also a system which for many years lacked maintenance. As a result, there were losses of up to 47.3% of total electricity production 1 that caused shortages of electricity for the public. Thus, it became clear that there is an urgent need for interventions and reforms in the energy system. In order to help facilitate the needed reforms in the energy sector, international institutions such as the World Bank, USAID, et al, offered various technical assistance projects. In September 2002, a World Bank funded report, called Energy Sector Technical Assistance Kosovo (ESTAP) outlined the least-cost amalgam of policies and investments for the period which were in line with EU directives and Kosovo s long-term projected energy consumption. 2 The report stressed the need to diversify the production of energy by undertaking investments in renewable energy, demand-side management especially in the public sector, and the rehabilitation of the existing plants where energy losses were enormous. 3 Finally, the report called for immediate action by the Kosovo s government to prepare and approve a long-term Energy Strategy Plan for sustainable development in the energy sector. Bypassing the recommendations from ESTAP and other bodies, in 2005, the Kosovo Government drafted its first Energy Strategy ( ) which was entirely focused on lignite. This was the first time the New Kosovo Power Plant (NKPP, at that time known as Kosovo C ) was put on the table as a new generating capacity. The new lignite power plant, was foreseen to produce 2100MW, at a cost of EUR 3.5 billion, with the aim of making Kosovo a key player in the energy field in the Western Balkans. A prequalification phase occurred (in 2006), which saw the prequalification of four western companies. 1 Energy Sector Technical Assistance Kosovo (ESTAP). 2 Energy Sector Technical Assistance Kosovo (ESTAP). Pg Ibid. 1 The same year (in 2006), a Project Steering Committee (PSC) for the power plant was established, composed of the main ministries of the Kosovo Government. 4 A series of organizations were monitoring all PSC meetings and decisions, including the World Bank, USAID, the European Commission Liaison Office (ECLO), the International Civilian Office (ICO), and the KfW banking group. Suggestions from European institutions 5 to include Civil Society Organizations (CSO) in monitoring the work of PSC were not taken into consideration. Thus, the work of this Committee remained a secret. The development of the project even now, (more than 10 years later) is taking place away from the public. Requests by CSOs for access to official public documents regarding the developments of the NKPP have constantly been limited or even denied. 6 On October 12, 2006, Board of Executive Directors approved a grant amounting to USD 8.5 million for consultants for the World Bank Lignite Power Technical Assistance Project (LPTAP). A year later, USD 2 million were added for the same purpose. In total, the WB spent USD 10.5 million for consultancy alone. 7 In 2011, the Kosovo Government took over responsibility and engaged the same group of experts to advise the government for the same purpose, but costing an additional EUR 6.5 million. In 2009, the Government of Kosovo took a decision to change the generating capacity of the project (NKPP) from 2100MW to 1000MW. During a press conference after the decision was taken, behind the Prime Minister were standing representatives of the international institutions, including the World Bank. 8 4 Ministry of Economic Development (chair), Ministry of Finance, Ministry of Environment and Spatial Planing, Ministry of Labour and Social Welfare, Ministry of Trade and Industry, Chair of Energy Regulatory Office, Chair of Independent Commission for Mines and Minerals and a representative appointed by the P.M Office. 5 Conclusions of the inter-parliamentary meeting between the EU Parliament and Kosovo Assembly, May 19-20, On December 2009, the Kosovo Government issued the Request for Expressions of Interest for the Development of the Sibovci Lignite Field in Kosovo and Associated Power Generation Capacity which involved: a) Construction of a new electric power generation, Kosova e Re Power Plant ( MW) b) Immediate development of the Sibovc Lignite Field to provide lignite fuel for both the existing lignite fired generation in Kosovo (Kosovo A and Kosovo B) and the new KRPP generation unit(s) as they enter service, and c) Private sector participation in Kosovo B. The prequalified bidders were (March 2010): 1. Adani Power / PT Adani Global consortium from India and Indonesia 2. AES Electric Ltd / Demir Export A.S. consortium from the USA and Turkey 3. Park Holding A.S. from Turkey 4. PPC / ContourGlobal LLP consortium from Greece and UK/USA On April 1, 2010, the Assembly of Kosovo approved the revised Energy Strategy ( ) which foresaw building a power plant which with two units with a capacity of MW. The focus of the revised Energy Strategy ( ) remained lignite. The second strategy, similarly to the first strategy, was not based on any comprehensive studies regarding Kosovo s potential for renewable energy and energy efficiency. Despite continuous attempts by the government, this proposal was again not implemented and it was again redesigned. The same institutions and advisors of the transaction decided in 2010 to change again the capacity of the new power plant by decreasing it to 600 MW. In spite of the fact that there were prequalified companies, in 2012, the Kosovo Government changed again the bidding package by removing the existing generating capacity Kosovo B. A year later, in November 2013, the mines were also removed from the tendering package. The reasoning was the same as when it was decided to include it in the same package: the financial crisis. 9 It is worth pointing out that the majority of civil society groups in Kosovo were never in favor of having Kosovo B and mines in the same tendering package as the new generating 9 Besim Beqaj Minister of the Ministry of Economic Development and head of PSC in an interview with Koha Ditore. 3 capacity. Even though removing them from the package was in theory a good move, civil society groups opposed the way the procedure was carried out. The decision was against the national energy strategy that was then in force, against the advice of the transaction advisors for which a great amount of Kosovo s budget was spent, and the changes were never sent to the Parliament for approval. Civil society groups and the even the ex-minister of Energy, Ethem Ceku, asked for cancellation of the tender and review of the whole project given that with the new terms, there could have been other potential bidders. In spite of these changes, the process was not canceled and nearly 10 years after the bid was initially announced for the New Kosovo Power Plant, in December 2014 the PSC opened the bids for the project, where in the end only one company (Contour Global) submitted a bid. The continuation of the process and failure to cancel the tender was a direct violation of Kosovo s Law on Public Procurement which requires at least two bids. (The violations of Kosovo s laws are elaborated below in the second section, Noncompliance with Kosovo laws). Furthermore, the continuation of the process also violated the bidding criteria of the project which required that the winner of the bid should be experienced in open cast mine development - experience which the only bidder in this tender has not been proven to have. Furthermore, in February 2015, the media in Kosovo published an internal communication of the World Bank officials (Annex 1). This leaked internal communication states that the bidder doesn t have the financial means to build the power plant. Also, the WB encourages political parties to violate the laws on public procurement, and, since World Bank projects are obliged to comply with national legislation, consequently WB rules as well. Even though, Contour Global was the only bidder, it was only on November 23, 2015, that the company was announced by the Steering Committee as the preferred bidder. Furthermore, it was then that Minister of Economic Development, Blerand Stavileci, announced yet another change in the capacity of the plant. 10 The announcement came in the form of oral remarks and without any assessment or consultation with the public. The new design reduced the size of the plant from 600 MW to 500 MW (450 MW net production), a figure which is subject to further negotiations One month later, on December 18, 2015, the Government of Kosovo, led by Prime Minister Isa Mustafa, announced the signing of a Memorandum of Understanding for the project with Contour Global. In order to understand the process better and monitor developments of the NKPP project, KOSID has constantly sent requests for public information which have constantly been denied with the reasoning that these are still draft documents and/or that they are defined as confidential documents. The two last documents to which we were denied access since they are claimed to be confidential documents are: 1. The final request for proposals which was sent to the prequalified companies (7 March 2012) (Annex 2); 2. Changes in the bidding package that occurred from the first call for prequalification until now and the reasons for such changes. 11 II. Non-compliance with Kosovo laws Since the beginning, no clear references to Kosovo Laws were made for the construction of the New Kosovo Power Plant. Violations of Kosovo laws during this project, start with the Law on Public Procurement, Article 32.4, If during the conduct of a procurement activity, less than two (2) responsive tenders or, where applicable, requests to participate are received; the contracting authority shall cancel the procurement activity. As mentioned above, during the bidding process for the NKPP, only a single company (Contour Global) submitted a bid. Furthermore, the Government is giving false information to citizens and international institutions in Kosovo, on the procedural developments of the project and the project has been exempted 12 from almost every law possible, such as: the Law on Public Private Partnership and Concessions in Infrastructure and Procedures (03/L-090), the Law on Public Private Partnership (04/L-045) and the Law on Public Procurement (03/L-241) - (Annex 3, Point 13) - by decision No. 08/17 of the Government of Kosovo dated (Annex 4). The Kosovo Government s Decision (No. 08/17, dated ), circumvents Kosovo legislation, and authorizes the PCS to conduct procurement procedures in accordance with good practice and procurement guidelines as defined by the International Development 11 Pergjigje ndaj kerkeses me numer Protokolli 139 lidhur me projektin Kosova e Re. 03/02/ Ministry of Economic Development, Possible questions and correct answers on TPP Kosova e Re. This document was sent to international institutions in Kosovo in August Association. 13 World Bank standards or those of any other organization cannot suspend Kosovo s laws in force! The standards of the World Bank are not a legislative basis for Kosovo but only rules for the bank s involvement in the project. Furthermore, these standards require full transparency of the process, but the government has never been transparent with this project. Contrary to the Government s own decision, one month later, an official document of the Prime Minister s Office entitled the Action Plan of the Economic Vision of Kosovo dated July 2011, mentions exactly those laws - which were exempted with the decision - as supplementing legislation to enable implementation of the NKPP. Moreover, the Government s Decision (No. 08/17) also states that: the Law on Public Private Partnership (No. 04/L-045 published on ) was not appropriate for the project, since the provisions of this law do not apply to projects where potential bidders have already pre-qualified. Nevertheless, on April 5, 2013 a press release of the Ministry of Economic Development stated the contrary, that Kosova e Re project will be implemented with a Private Public Partnership 15 (Annex 5) regardless of what was assessed in 2011, that the Law on PPP is not appropriate for the project, since the provisions of this law do not apply to projects where potential bidders have already prequalified 16. In September 2016, KOSID sent questions to the Central Department for PPP (CDPPP) on whether the NKPP project was developed with PPP procedures. Ilir Rama, Director of CDPPP, did not reply to our question but instead redirected us to address our questions to the Project Implementation Unit for the NKPP. Such an answer clearly showed that the project was not developed within the legally defined PPP procedures. Moreover, the process for building the proposed power plant is being pushed without the completion of the Environmental Impact Assessment (EIA). The EIA is a process which should determine if the project is feasible, show to what extent the project will harm the 13 Ibid, Point 13, Third paragraph. 14 Action Plan of the Economic Vision of Kosovo Link: Pg Ministry of Economic Development, Press Release , The Steering Committee of the Kosova e Re approved the tender documents. Link: 16 MED s document: Possible questions and correct answers on TPP Kosova e Re. 6 environment, and show the expected social implications from this project. Thus, it is extremely unwise to continue the process without the EIA study. Given that the World Bank is also implicated in the process, it will have to ensure the finalization of the Environmental and Social Impact Assessment (ESIA) study, a process which started in The Kosovo Government and World Bank have so far failed to finish and publish the ESIA study which should serve as a basis for decision-making on whether to go ahead with the project. III. Economic and social impact One of the main ways that the NKPP marketing campaign has been focused is the number of jobs the construction and the functioning of the plant will generate. Referring to the government document Possible questions and correct answers on TPP Kosova e Re, Point 1, the foreseen number of employed workers will be ten (10) thousand, during the 4-5 year construction phase. Further, the plant would create 550 permanent jobs. 17 It should be noted that the numbers given by the Kosovo Government and ContourGlobal are not in line with factual numbers, if taken into account the similar projects in the region. The Stanari power plant of 300 MW in Bosnia and Herzegovina required around 800 workers during the construction stage. Thus, there is no reason why a plant with 500 MW would require more than ten (10) times as many workers than the one in Stanari. 18 Furthermore, there is no explanation why a plant with similar capacity as the Sostanj 6 plant in Slovenia, would require two and a half times more employees. 19 Kosovo is one of the poorest countries in Europe. As stated above, no Environmental, Economic, or Social Impact assessments have been carried out to examine how the building of the NKPP will affect the lives of Kosovar people. This crucial information is not available to the Government nor the wider public - nevertheless, the project is being pushed as a good project for the country. 17 Reuters, February 4, Link: and MED s document: Possible questions and correct answers on TPP Kosova e Re. 18 CEE Bankwatch Network, The Great Coal Jobs Fraud, November Ibid 7 An independent study 20 by the Institute for Energy Economics and Financial Analysis 21, analyses on how much of a financial burden the electricity bill would be for customers if the plant is built. The IEEFA estimates that, based upon the current balance of equities between the household, commercial and industrial sectors, the introduction of KRPP would bring a minimum price increase of 33.8% and possibly as much as 50%, not including here other indicative and risk factors. A 33.8% of increase in the cost of electricity would have the following impacts: Households with an average per capita income would see their costs for electricity per year rise to 12.9 percent of their annual income. Households with low to middle incomes would see their costs for electricity per year rise to 18 percent of their annual income. Households below the poverty level would pay more than 39.7 percent of their annual income for electricity. This would undermine steps to make electricity more affordable to most citizens, and would keep electricity largely unobtainable for the poorest citizens in Kosovo. While Kosovo s Minister of Economic Development stated in November 2015 that the construction cost of the plant would total EUR 1 billion, IEEFA s expectation based on past experience with similar coal plant construction projects is that construction costs alone would total EUR 1.35 billion, and the true cost of the plant, when financing and subsidies are included, would come to at least EUR billion. The negotiated Internal Rate of Return (IRR) is set at 21.5%, nevertheless it is unclear whether this rate of return will be subject to further negotiation. This sets an aggressive schedule of five-year principal payback. Considering the risks involved in the project, ContourGlobal asked for a IRR up to 27%. We must take into consideration that the negotiated IRR is still higher than the original planned IRR of , of 18%, which was already high, Pg. 77 8 One of the problematic social impacts is the displacement of local residents, and other effects as a result of mine expansion. It is estimated that in addition to existing displacement problems, since 2004, the mine expansion will affect the lives of more than 7,000 people. 23 Throughout these years, the World Bank has twice been under scrutiny by the Inspection Panel. 24 In the latest investigation, the Panel found the Bank in non-compliance with its own policies for not applying its policy on involuntary resettlement during the preparation of a Resettlement Policy Framework (RPF) and the Resettlement Action Plan for the Shala neighborhood of Hade village. Furthermore, the report found that shortcomings in these documents of the World Bank contributed to delays and led to prolonged stays in temporary housing for affected households. The Inspection Panel s report also states that, should the Bank finance the proposed KPP, it would ensure that all relevant environmental and social issues are addressed as required under Bank policies, including appropriate safeguards instruments for mining-related resettlement. These studies even though they were contracted are not published yet. The NKPP project has been under development for more than 10 years but still even basic questions such as the capacity, business model, technology that will be used, financial cost etc. of the plant remain unanswered. If Kosovo continues like this for another ten years it will have extremely serious problems. It is high time to work on cleaner alternatives that can be brought to life faster and more cost-effectively than this eternal mirage. 23 Dr. Ted Downing - President, The International Network on Displacement and Resettlement (INDR); Does the Kosovo Power Project s Proposed Forced Displacement of Kosovars Comply with International Involuntary Resettlement Standards?, February The World Bank is involved in Kosovo s energy sector and in the preparation for the proposed NKPP. 9
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