Energy Regulatory Office of Kosovo

Transcription

1 Hamdi Mramori Street, No 1 Prishtina Kosovo Tel: +381 (0) ext. 103 Fax: +381 (0) info@ero-ks.org Energy Regulatory Office of Kosovo Five-year Business Plan

2 Contents 1 Introduction 3 2 The Energy Regulatory Office of Kosovo Mission Mandate Objectives Organisation ERO as a key factor in the Energy Sector of Kosovo Organisational chart Human resources ERO benchmarked to regulators in South East Europe 13 3 Overview of the Energy Sector in Kosovo Structure Development prospects 17 4 Challenges Goals for the planning period Key external factors that will influence the strategic planning 18 5 Strategies and initiatives for achieving ERO s goals Short-term future (2005) Long-term horizon ( ) 47 6 Required resources Investment in people Necessary knowledge and skills by function 56 Web-site: - i August 2006

3 6.1.2 Planned increase of human resources Efficient financial management Introduction Financing the Energy Regulatory Office Projected financial statements General assumptions Other assumptions 70 A Appendix 1 - Projected financial statements for the period Web-site: - ii August 2006

4 1 Introduction This business plan for the period sets out the goals, strategies and initiatives of the Energy Regulatory Office of Kosovo (ERO) during the current and next four financial years. More specifically the plan: outlines ERO s mission, mandate, objectives and organisation, provides an overview of the structure and development prospects in the energy sector in Kosovo, identifies the challenges with which ERO is faced in terms of strategic goals and factors that would impact on their achievement, specifies the projects, outputs and their indicative timing during 2005 and sets outs the strategies and initiatives for the following four financial years, defines the required resources for implementation of the projects and initiatives planned, contains detailed financial projections for the five-year planning period. The business plan has been drawn up by the Consultant on the basis of information and assumptions provided to the Consultant by ERO within the framework of the EAR-managed project Institutional Building Support to the Energy Regulatory Office of Kosovo. This document is intended to serve as a management tool allowing ERO to plan and monitor the implementation of specific projects and initiatives for achievement of its strategic goals for the period A draft version of the business plan was discussed with the ERO counterparts on 30 and 31 August and as a result the Consultant has prepared this final version of the document, Web-site: 3

5 2 The Energy Regulatory Office of Kosovo 2.1 Mission ERO is the key driving factor for the establishment of a sustainable Energy Market in Kosovo based on the principles of transparency and free competition, which enhances value to customers and enterprises alike. 2.2 Mandate ERO was formally established in the second half of 2004 as an independent body under the Constitutional Framework of Kosovo with its headquarters in Pristina. ERO is responsible for the economic regulation and monitoring the energy in Kosovo.. Its overall goals are to: achieve compliance of the energy sector with the obligations under the Treaty for establishment of the Energy Community of South East Europe and harmonisation with the Acquis Communnautaire on energy, ensure non-discriminatory access of all users to the energy networks at prices reflecting true economic costs, promote competition and the efficient functioning of the energy market, ensure the effective unbundling of the vertically integrated energy utilities and non-cross-subsidisations of prices, promote economic efficiency by providing the appropriate long and short-term energy pricing signals, and ensure the security of supply at efficient cost for the customers in Kosovo. Web-site: 4

6 2.3 Objectives ERO is responsible for the development and enforcement of a regulatory framework for the energy sector that will ensure: the transparent and non-discriminatory functioning of an energy market based on free market principles; the transparent and non-discriminatory performance of energy activities which are subject to public service obligations; the transparent and open criteria for issuing licenses and granting permits; that prices for energy activities which are regulated are reasonable and fixed on the basis of tariff methodologies; that no energy enterprise abuses its dominant position and anti-competitive practices; that, where technically and economically feasible, all customers have the right to connect their facilities to the networks and to receive a universal supply of energy; the implementation of adequate dispute settlement procedures for protection of both customers and licensees; that there is a fair balance between the interests of customers and energy enterprises; the implementation of appropriate measures to strengthen the social and economic cohesion throughout Kosovo; the gradual improvement of environmental protection standards; the security of supply of electricity, heat, and natural gas through the maintenance and construction of necessary generation and transmission capacity and network infrastructure including interconnection capacity. This will hopefully be achieved by market mechanisms and appropriate pricing signals. In this relation, ERO s overall objectives are to: develop principles, rules, regulations, procedures and methodologies for establishment and operation of an efficient energy market, Web-site: 5

7 develop pricing methodologies and approved tariffs of the regulated activities, develop systems for monitoring the quality of services and compliance by licensees, enforce the implementation of and the compliance of licensees with the above rules, procedures and methodologies, and acting as a balancing factor between the market players. 2.4 Organisation ERO as a key factor in the Energy Sector of Kosovo In order to fulfill its role and objectives ERO is empowered to: grant, modify, suspend, transfer, withdraw, supervise and control compliance with Licenses; set Ex-ante the pricing principles and methodologies, then subsequently approve tariffs for regulated energy services (access and use of networks, public supply, public service obligations, etc); grant permits for the construction and operation of new generation capacities, gas pipeline systems including direct pipelines and direct electricity lines; launch tender for the building of new generation capacity in case that the authorisation process does not provide enough capacity and the security of supply is threatened; monitor the unbundling of the legal form, organisation, decision-making, and accounts of energy enterprises. ERO will perform this role through issuance of licenses for the unbundled activities of energy enterprises, approval of the tariffs and similar activities within the scope of ERO. Function of monitoring covers also monitoring the tariffs, dispute resolution, quality of services, performance standards, etc.; revise, approve, and control compliance with all codes and technical rules including the grid, distribution, metering, connection and use of system and trade rules; Set the rules for the access to and congestion management of international tie-lines and gas pipelines; issue general acts, individual acts, and secondary legislation and enforce the provisions of the Laws and other related legislation and impose fines for violations. In accordance with the Law on the Energy Regulator, ERO will be governed by a Management Board of five members which is responsible for approval of the organisation s operational policies and statutes, adopting (by majority voting) under public consultation procedures all secondary legislation, rules, ordinances and/or decrees issued by ERO, to organise and supervise the management activities, supervise the budget and financial management, and approve the reports and financial statements of ERO. Web-site: 6

8 Before the beginning of each calendar year, ERO needs to draft a projects document that includes a general description of the projects and other work it proposes to undertake during the next calendar year. The projects document is submitted for review to the Assembly of Kosovo together with an annual financial report for the past year. ERO also prepares an annual budget where the regulator provides estimates of the costs for realisation of the activities in the projects document, the operating expenses, the expected revenues and additional funding necessary from the Kosovo Consolidated Budget. ERO s Financial Statements are subject to external audit by an auditor appointed by the Ministry of Finance and Economy. On an annual basis ERO reports to the Assembly of Kosovo and the SRSG. The report shall be made public. While performing its activities, ERO cooperates with energy enterprises, Ministries (especially MEM), different associations and institutions in Kosovo Organisational chart ERO s organisational structure is stipulated in the Law on the Energy Regulator and ERO s Statute. As mentioned above the institution will be directed by a Board with five members. ERO has the following functional units: Licensing and Legal, Customer Protection, Energy Supply and Market Structure, Pricing and Tariffs, and Administrative Office. A Technical Advisory of experts in the areas of power systems economic regulation and district heating, assisting these overall departments in developing their functions. ERO s organisational chart including positions and names of appointed staff is presented in Fig 2.1 overleaf. Web-site: 7

9 Figure 2.1 ERO Organisational Chart as of the end of August 2005 BOARD OF ERO Dr. Nick Frydas, Chairman Dr. Nysret Avdiu, Member Mrs. Theranda Theranda Beqiri Beqiri, Member, Member Mrs. Merita Merita Kostari, Kostari, Member Member Mr. Naim Naim Bejtullahu, Member PR Officer and Personal Assistant Adelina Murtezaj HEAD OF OFFICE Dr. Nick Frydas Technical Advisory Power Plant Expert Dr. Nysret Nysret Avdiu Avdiu Senior Regulatory Economics and Tariffs Advisor Pierre Jacobs District Heating Expert Astrit Saraqini Power System Expert Naim Bejtullahu Pricing and Tariffs Theranda Beqiri Legal and Licensing Merita Kostari Customer Protection Azem Kastrati Administration Office (vacant) Procurement and Finance (vacant) Technical Advisor District Heating Marek End of Szymanski* Project Energy Supply and Market Structure Rifat Blakaj Tariff Structures Expert Asllan Janova Licensing Officer (vacant) Afrim Ajvazi Performance Standards Analyst Petrit Pepaj Secretariat and Documentation Letafete Spahiu Finance Officer Shqipe Krasniqi- Selishta Market Monitoring Analyst Arben Kllokoqi Power System Expert Assistant Driton Gojani Cost and Price Control Expert Naim Sahiti Licensing License Monitoring Officer Analyst Assistant Hysnie Hysnije Rextaj Rexhaj Secretary Drita Haziri Data Management Officer Mehdi Godeni Procurement Manager Officer Xhyldane Murtezi Translator in Albanian Alketa Sala Translator in Serbian (vacant) Cleaning Translator and in Maintaining Serbian (Nezir (vacant) Sylejmani Web-site: 8

10 Chairman of the Board and Head of ERO He has overall responsibility towards the Government and UNMIK to fulfill the mandate of ERO and to build up the capacity of the organisation s staff. He develops ERO s strategy, interfaces with donors and allocates tasks as required to ERO staff. The four Board members, the Technical Advisory and the Head of Customer Protection report directly to him. The Chairman represents ERO at the highest level and acts as ERO member of the following Committees, Task Forces or Working s: Energy Community Regulatory Board (Athens Process), SEE Mini-Forum (Athens Process), Belgrade - Prishtina Energy Dialogue, "Internal Market" TF (CEER - SEEER WG). Member of the Board and Head of the Legal and Licensing She is responsible for the issuance and monitoring the adoption (by Public Consultation Procedures) of all ERO secondary legislation, rules, decrees and ordinances. She also oversees the issuance of licences to all energy enterprises and organises the procedures for monitoring licensees. She has the responsibility to design and organise authorisation procedures for new capacity, as well as the issuance of permits. The Licensing Officer and Licence Officer Assistant report to her. She also acts as the ERO member of the following Committees, Task Forces or Working s: KEK incorporation study (EAR), Institutional Building Task Force (CEER - SEEER Working ), Licensing Committee (ERRA), Legal Regulation Working (ERRA). Web-site: 9

11 Member of the Board and Power System Expert He is responsible for all issues of regulatory reporting, review and interface between ERO and KEK/other electrical enterprises. He has full > responsibility to develop rules for CBT and Congestion Management of the interconnections. He is also in charge of the Energy Supply and Market Structure and has an assistant reporting directly to him. He acts as the ERO member of the following Committees, Task Forces or Working s: 400 kv Line to Albania (ESTAP II, World Bank), TSO establishment project (ESTAP III Lot 1, World Bank), TSO implementation project (EAR), Export/Import Working (ERRA). Member of the Board and Power Plant Expert He is responsible for monitoring all developments and legislation in the Mining Sector and follows all developments in the costs and operational requirements of all types of power plants. He is also oversees the Administration Office and hence the development of ERO s integrated IT systems, and web site and portal, according to the envisaged needs of investors, customers and licensees. He deals with all issues of staff training, traveling, annual, and special and sickness leaves, training, travelling and sickness leaves. He also interfaces on behalf of ERO with MEM and ICMM, and acts as the ERO member of the following Committees, Task Forces or Working s: Feasibility study for the rehabilitation of Kosovo A (EAR), New IPP - Kosovo B environmental mitigation measures (EAR), New Mine Planning Study - SW Sibovc (EAR), "Market Investment Facilitation TF" (CEER - SEEER Working ). Web-site: 10

12 Member of the Board and Head of the Pricing and Tariffs She is responsible for the price review of the District Heating Companies and KEK, approving the unbundled tariffs submitted by the utilities, develop a "Life Line" tariff, and monitoring of energy price benchmarking with other countries. She is in charge of the Pricing and Tariffs and is supported by the Senior and Regulatory Economic Tariffs Advisor and the District Heating Expert from the Technical Advisory. She also acts as the ERO member of the following Committees, Task Forces or Working s: Review of electricity tariffs project (ESTAP III Lot 3, World Bank), Benchmarking Monitoring Working (ERRA). Senior Regulatory Economics and Tariffs Advisor He assists the Head of PT in all issues regarding price review and tariff approval of the energy entrerpises. He has full responsibility to develop the Business Plan, the Projects Document and to co-ordinate the work of the Annual Budget of ERO. He "owns" the following activities from the KPMG project; Tasks 1.3, 1.5, 3.1, 3.2. He acts as the ERO member of the following Committees, Task Forces or Working s: Tariff Committee (ERRA), Review of Electricity Tariffs (ESTAP III Lot 3, World Bank), together with the Member of the Board and Head of Pricing and Tariffs. District Heating Expert He is supported by a District Heating Technical Advisor and is responsible for the sustainable development of the District Heating Sector in Kosovo and in this capacity proposes relevant technical and economic solutions and develops procedures for regulatory reporting and interface between the DH companies and ERO. The District Heating Expert follows all DH developments in Europe and performs benchmarking studies. He supports the Member of the Board and Head of the Pricing and Tariffs in undertaking an annual price review of the DH companies and approve tariffs. He acts in all issues regarding Natural Gas on behalf of ERO, monitoring related developments, projects and investments with particular emphasis on the SEE area, and proposing investment schemes so that NG may penetrate the energy sector in Kosovo. He is He acts as the ERO member of the following Committees, Task Forces or Working s: Gas Forum (Istanbul Process), Gas Task Force (CEER - SEEER Working ). Web-site: 11

13 Head of the Energy Supply and Market Structure Supported by a Market Monitoring Analyst he is responsible to monitor the establishment of a competitive energy market in Kosovo, energy prices and the developments of in the market (number of players, market abuse behaviour, prices and contracts, etc). He approves import/export contracts of KEK and PPAs by the Public Supplier (KEK), as well as the annual and long-term Power Balance of KEK, formulating opinions on the long-term prospects of the security of supply. He follows energy market developments in Europe with particular emphasis on the SEE region, building a database of prices and trends. He is responsibility to develop ERO's interface with various market information agencies (Platts, Argus, etc.) and subscribe and register ERO to those deemed useful. He monitors medium and long-term investments in the region and forecast market conditions. He acts as the ERO member of the following Committees, Task Forces or Working s: Regional Markets Working (ERRA) Head of Customer Protection Supported by a Performance Standards Analyst, he is responsible for development of consumer protection procedures and is involved in the dispute settlement procedures. He is also in charge of the development of performance monitoring indicators and quality of service standards, as well as for the conducting of benchmarking studies and elaboration of incentive mechanisms that correlate quality of service with prices and penalties. He acts as the focal point of ERO in all issues with ERRA and the Athens Forum/SEEER Working and updates the Board about all developments in these two institutions. He monitors the training opportunities offered by them and informs the Board. He acts as the ERO member of the following Committees, Task Forces or Working s: EU integration Working (ERRA), "Institutional Compliance" Task Force (CEER - SEEER Working ). Given ERO s flat organisational structure, operations are structured to involve cross-functional teams where specific tasks require the ad-hoc involvement of staff irrespective of the reporting lines and the organigram. Human resources ERO is a young institution which is in a process of strengthening its operations and building its team. Currently ERO employs 23 staff and the plans are to increase this number to 25 by the end of Out of the 23 people seven are economists, seven - engineers and three - legal experts. The other team members are with different professionals skills. Web-site: 12

14 The Heads of have sound experience both in industrial and public sector organisations at a senior management level. They have gained extensive expertise in the utility sector, including energy, electricity, water and waste water management under the conditions of a centrally planned economy. ERO employs young professionals with little or no experience in the energy sector, however some of them have regulatory experience in water and waste water management. Further some of them have a good academic background, which can serve as a basis for future development in the specific areas of responsibility. With a few exceptions the staff does not have previous international exposure and practical skills in modern management. Knowledge of the English language varies among the staff, where some of them need to enhance their skills. The ERO employees are currently building their knowledge and expertise in free energy market operations with the purpose of achieving a common level of understanding of its underlying principles and performance standards. The experts in the different departments need to further deepen their technical competence in the respective functional areas and enhance their ability to work as a team in order to achieve ERO s common goals. ERO benchmarked to regulators in South East Europe According to the Regulatory Benchmarking Report for the EC-SEE MOU Signatory Parties and Observers, 2004, modified on 28 March 2005 by I. Bjork, Pierce Atwood/USAID, regulatory bodies can be described as undergoing two basic phases. In the first phase, the regulatory body is established and organised, and it then licenses sector participants. The majority of the participants in the South East European region (Albania, Bosnia and Herzegovina, Bulgaria, Croatia, FYR Macedonia, Greece, Romania, Serbia and Montenegro, Turkey and Kosovo) have passed through this phase, although a number of them have not. Many of these have adequate resources, at least minimally appropriate self-governing rules and exist as viable elements in the sectors. As a group, most regulators meet many of the minimum requirements of the MOUs and the Directives regarding basic structure, operation and competencies. In the second phase of development, the energy regulators need to assume an active role in promoting competition and general market development. This phase requires more sophisticated information systems, training, explicit rules and regulations focusing on specific market issues. Many of the participants are now entering or have been in this phase for some time. It is at this stage that adjustments beyond the minimum requirements may be needed in the legal and regulatory framework to advance market reform goals. For some institutions, best, as opposed to minimum, regulatory practices may be needed in order to implement difficult market reforms aimed at providing long-term benefits. Web-site: 13

15 A comparative overview across energy regulators in South East Europe is presented in Figure 2.2 overleaf. Figure 2.2 Comparative overview of energy regulators in South East Europe SEE Countries Government able to approve, change or reject decisions Approval of budget required Audit Albania No No Yes (independent audits) Bosnia and Herzegovina (1) No No for SERC Yes for entity regulators Market opening & monitoring (National timetable) Power to issue licence rules Power to issue tariff rules Power to set quality service standards Power to penalise No Yes Yes Yes (planned) Yes Yes No Yes Yes (all 3) Yes (all 3) Yes(all 3) Bulgaria No Yes Yes 2004-LICs No No Yes Yes Full (only develops) Croatia Yes (but limited) Yes No Partial No No No No FYR Macedonia No Yes Yes No Yes Yes Yes No Greece Yes No Yes No No No No Yes Romania No Yes Yes % % Full Serbia and Yes Yes Yes No clear timetable Montenegro No Yes Yes All eligible Turkey No Yes Yes (by the Prime Ministry, Higher Audit Board) Kosovo UNMIK (2) % 2011 Full Yes Yes Yes Yes No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No Yes Yes No Yes Yes Yes Yes Source: Table based on data from the CEER Regulatory Benchmarking Report, Final Version Note: (1) Bosnia and Herzegovina has a unique federal structure resulting in three Regulators (2) UNMIK is the Interim Administration Mission in Kosovo pending a final political settlement Web-site: 14

16 3 Overview of the Energy Sector in Kosovo 3.1 Structure After the promulgation of the three laws, i.e. Law on Energy, Law on Electricity and Law on the Energy Regulator on 30 June 2004 creating the legislative framework of the energy sector in Kosovo, ERO was established and became operational in the second half of 2004, followed by the setting-up of a Ministry of Energy and Mining (MEM). In summary, the key stakeholders in the energy sector in Kosovo are: Ministry of Energy and Mining (MEM) responsible for energy sector strategy and policy (preparation and implementation), development of secondary legislation (including technical standards and norms), energy inspectorate, renewable energy sources and efficient use of energy, coordination of donors and attraction of investments ( one-stop-shop ) representing State Energy Authority according to MoU and REM. Energy Regulatory Office (ERO) responsible for the economic regulation of the energy sector, development and issuing the rules of economic regulation of energy sector, issuing and monitoring licenses for energy activities carrying out energy activities in Kosovo, approves the tariffs prepared by energy enterprises based on rules and guidelines issued by ERO, issuing permits and authorisation procedures for new investments and rehabilitations in energy sector as defined in the energy legislation enacted in June 2004; UNMIK / EU Pillar IV, one of the four pillars of UNMIK in charge of Economic Reconstruction of Kosovo with particular financial support to energy enterprises and regulatory authorities, this support will probably end by the end of Kosovo Trust Agency (KTA), under auspice of the UNMIK/EU Pillar, which among others continues to perform the business oversight over POEs ( KEK, Iber Lepenc/HPP-Ujmani, and 4 district companies) and to act as custodian of assets of POEs. According to UNMIK regulations, KTA can restructure POEs, lease the assets, and provide for management contract, however, KTA cannot privatise the assets of POEs in Kosovo. Independent Commission for Mines and Minerals (ICMM), established in January 2005 by UNMIK regulations 2005/2 representing an Independent Regulatory Agency in the mining sector. KEK, the vertically integrated power utility of Kosovo including coal mining, power generation, transmission and dispatch, distribution and supply. KEK is currently subject to incorporation, as well as legal and accounting unbundling of Independent Transmission System Market Operator (ITSMO) which is expected to be completed by the end March 2006; District Heating Companies (DHC) of Prishtina, Gjakova, Mitrovica and Zvecan (vertically integrated), the assets of which are also in custodianship of KTA. The DHC of Prishtina and Gjakova are also in the process of incorporation; Web-site: 15

17 Donor Community, the representative offices of the European Agency for Reconstruction (EAR), United Nations Development Program (UNDP), the World Bank (WB), United States Agency for International Development (USAID), and the bilateral donors: Gesellschaft für Technische Zusammenarbeit (GTZ) and Kreditanstalt für Wiederaufbau (KfW), Germany, SDC of Switzerland, Sida of Sweden, further maintained in Prishtina/ 1. Obligations of Kosovo institutions related to Europe Partnership with Kosovo concerning energy: Short-term priorities: - Make Progress in meeting commitments under the 2002 and 2003 MoA of the Athens process and ECSEE Treaty on the Regional Energy Market in SEE (ERO, MEM, MESP, other PISG of Kosovo, UNMIK). - Establish effective and functioning governance structure in the energy sector to ensure the viability and sustainability of Kosovo electricity company (KEK) notably by substantially increasing the revenue collection (KEK, MEM, ERO, PISG, UNMIK/KTA) Medium-Term Priorities: - Further develop the Regulatory framework for public utilities with regard to EU and international standard, notably by adopting and implementing subsidiary legislation, procedures and guidelines (ERO, MEM). - Continue gradual alignment of Kosovo s legislation with all aspects of the EU s company law acquis (ERO, MEM, Government and Assembly of Kosovo). - Develop policy framework for public-partnerships and mixed investments in the energy sector (ERO, MEM, Government and Assembly of Kosovo). - Obligations of Contracting Parties, and institutions of Energy Community after enter to the force of the Treaty. Obligations of Kosovo institutions after enter to the force of the ECSEE Treaty. Energy: - Implement the EC Directive 2003/54 and 2003/55, and EC Regulation 1228/2003 within twelve months of the entry into force of the treaty (MEM, ERO, Energy enterprises) - Ensure that the eligible customers are: (i) from 1 st January 2008, all non-household customers; and (ii) from 1 st January 2015, all customers (MEM setting of eligible criteria, and ERO with public announcement for applying for eligibility) Environment: - Implement the Directive 85/337/EEC on the assessment of certain public and private projects on the environment, and its subsequent amendments of 31 December 2004, on the entry into force of this treaty (MESP, MEM, ERO, Government of Kosovo) - Implement the Directive 1999/32/EC on reduction of sulphur content of certain liquid fuels by 31 st December 2011 (MESP, MEM, MTI, ERO) - Implement the Directive 2001/80/EC on large combustion plants by 31 st December 2007 (MESP, MEM, ERO). - Implement the Article 4(2) of the Directive 79/409/EEC on the conversation of wild birds on the entry into the force of the treaty (MESP). 1 Other donor offices have ceased operations in Kosovo (e.g. DANIDA of Denmark, NORAD of Norway, UNOPS / UNDP, DFID of the UK, etc.). Web-site: 16

18 3.2 Development prospects Due to the small size of the power system in Kosovo, an efficient, liquid, liberalised market with a variety of generation mix could be established in the mediumterm on a sub-regional level with close co-operation and harmonisation of the regulatory framework with the neighboring systems. Market Rules, Access rules to the grid, and to the inter-connection capacity, are particularly important for such harmonisation, which will benefit many neighboring systems, as they are complimentary in many aspects. ERO will be working in promoting the establishment of a sub-regional market, meanwhile participating in the process of the South East European Regional Electricity Market. In the future private sector participation, particularly in distribution and supply, will be required in order to provide competition to KEK and incentives for the reduction of the very high non-technical and network losses. In addition, other options will be considered whereby the performance of the power sector may be improved, i.e. lease/concession agreements (involving investment of private capital), management contracts (knowledge transfer) and/or potential privatisation, aiming to ultimately result in increased efficiency and profitability. Web-site: 17

19 4 Challenges 4.1 Goals for the planning period Given ERO s statutory role and objectives, and the challenges ahead, it has defined the following corporate goals for the planning period : Goal 1: To establish a regulatory framework that fosters the development of a competitive energy sector Goal 2: To promote customer protection and the development of a non-discriminatory energy market Goal 3: To create conditions for a competitive energy market based on free market principles and create a market framework that will attract private investments in energy sector thus safeguarding the security of supply, Goal 4: To ensure that regulated prices for energy activities are cost reflective, transparent, provide appropriate economic signals and incentives and based on ex ante approved tariff methodologies Goal 5: To ensure the efficient unbundling of the vertically integrated energy enterprises in a competitive market, Goal 6: To develop the expertise, professionalism and motivation of all ERO staff and enable the organization to fulfill its role, Goal 6: To integrate ERO into the international network of energy regulators, actively participating in regional and international initiatives. 4.2 Key external factors that will influence the strategic planning The main external challenges that will influence ERO s strategic planning are: Removal of the uncertainty regarding the political future of Kosovo (final status with respect to the creation of an independent country); Political will from the part of PISG (MEM) and UNMIK to support the independence of ERO within the framework to implement the Treaty of ECSEE. Building up and maintaining of trust by Kosovars in independent public institutions (such as ERO) which oversee and promote market competition; Web-site: 18

20 Development of a viable energy sector in Kosovo with urgent improvements in the revenue collection of energy enterprises and the reduction of the nontechnical losses and continued economic development in Kosovo; Building and sustaining the co-operation of neighbouring countries to allow Kosovo to gain from transit and trading opportunities that are likely to emerge under the operation of a regional energy market; Commitment from the Management of energy enterprises to willingly support and implement the regulatory monitoring and the market model that is chosen; Political will on the part of PISG taking a pro-active stance on support for legislation and regulations to facilitate and promote creative opportunities to obtain benefits in further private sector involvement & investment in the energy sector (eg allowing the leasing of state assets to private sector investors); Development and the successful implementation of pricing methodologies and economic regulation regime that best meets the objectives and needs of Kosovar customers; Continued donor assistance to ERO directly, as well as to other stakeholders, including the successful completion of the unbundling process of KEK; Working together with other emerging economic regulators to install and promote good Corporate Governance and regulation across the infrastructure sectors in Kosovo; Sharing best practice economic regulation methodologies within the regulatory environment in Kosovo and promoting a common consensual regulatory model appropriate to Kosovo. Web-site: 19

21 5 Strategies and initiatives for achieving ERO s goals 5.1 Short-term future (2005) Goals Objectives Project Key performance indicators Responsible Indicative timing Legal and Licensing Establish a regulatory framework that fosters the development of a competitive energy sector Develop and approve Rules of ERO (Secondary Legislation) and review, develop and approve policies and procedures that regulate energy enterprises Finalisation of drafts of ERO Rules ERO works together with consultants on developing the final drafts of Rules All Rules issued by ERO s Board following Public Consultation procedures ERO s Board Heads of and Senior Advisers All required final Drafts prepared Heads of s/senior Advisers as instructed by Head of ERO March 2006 Mid February 2006 Consultants Legal and Licensing is the process owner of the project on all legal documents Organise public consultations on draft ERO Rules prepared Rules published on ERO s Web site Comments from various stakeholders received All comments evaluated by ERO and published on ERO s website Legal and Licensing Administration Office All other ERO s as needed December 2005 March 2006 Web-site: 20

22 Goals Objectives Project Key performance indicators Responsible Indicative timing Establish a regulatory framework that fosters the development of a competitive energy sector (continued) Develop and approve Rules of ERO and review, develop and approve policies and procedures that regulate energy enterprises (continued) Include comments and remarks from public consultations and prepare the final Rules to be issued by ERO s Board Publish the Rules issued by ERO s Board Registration of number of complaints solved in accordance with several Rules Registration of number of customer complaints processed by energy enterprises Published Rules in Official Gazette and on ERO s Web site ERO Board Legal and Licensing Legal and Licensing March 2006 March 2006 Finalise the Guidelines on Authorisation Procedures for new energy Review, develop and prepare the transitional decisions on policies and procedures received from energy enterprises Development and approval of Guidelines for Authorisation Procedures facilities Work with consultants and other specific donor support on developing guidelines Organise public consultation sessions with stakeholders in energy sector Assist and actively participate in the task force/one-stop shop for building new energy capacities through authorisation procedures Registration of number of decisions and comments archived by ERO Rules/Procedures issued by ERO s Board Administration Office Legal and Licensing Administration Office ERO s Board Heads of Drafts prepared Legal and Licensing Rules published uploaded on ERO s Web site Number of public consultations held Number of comments received Assisting that task force/one-stop shop is established in time Legal and Licensing Administration Office Legal and Licensing Ongoing November 2005 March 2006 End of March 2006 Ongoing November 2005 Ongoing Web-site: 21

23 Goals Objectives Project Key performance indicators Responsible Indicative timing Establish a regulatory framework that fosters the development of a competitive energy sector (continued) Issue licences to energy enterprises Completion of the procedures, forms and guidelines for licensing Prepare licence application guidelines for energy enterprises Organise presentations for energy enterprises explaining licensing procedures Procedures completed and published Procedures and guidelines provided to energy enterprises Number of presentations made by ERO ERO s Board Legal and Licensing Legal and Licensing Legal and Licensing Administration Office March 2006 March 2006 March - April 2006 Review licence applications Number of applications reviewed ERO s Board Legal and Licensing April - May2006 Preparing the procedures to issue licences to energy enterprises Number of licences issued ERO s Board Legal and Licensing February - March 2006 Web-site: 22

24 Goals Objectives Project Key performance indicators Responsible Indicative timing Create conditions for a competitive energy market based on free market principles and create a market framework that will attract private investments in energy sector thus safeguarding the security of supply Issue authorization procedures for construction of new power plants Issuance of authorisation procedures for construction of new power plants Issue an authorisation procedure for rehabilitation of Kosovo A Power Plant by private investors Issue an authorisation procedure for construction of a new power plan Development of criteria of Authorisation and relevant elements of feasibility study See above, and depending on Decision by the Government ERO Board Legal and Licensing Energy Supply and Market Pricing and Tariffs Technical Advisory March 2006 See above See above See above See above See above Monitor the incorporation of KEK and DH companies from legal/regulatory point of view, including the establishment of the TNO Incorporation of POE s Assignments prepared by consultants UNMIK/KTA KEK and DH companies ERO Board MEM Ongoing 2006 Web-site: 23

25 Goals Objectives Project Key performance indicators Responsible Indicative timing Develop the expertise, professionalis m and motivation of all ERO staff and enable the organization to fulfill its role Build the capacity of the Legal and Licensing Recruitment of new staff and training on EU Directives and regulations Fully staff the Legal and Licensing Train staff in EU directives and regulations Fully staffed Legal and Licensing Legal and Licensing Planned staff recruited Legal and Licensing Administration Office At least one expert trained Legal and Licensing End of 2005 See above Ongoing Web-site: 24

26 Goals Objectives Project Key performance indicators Responsible Indicative timing Customer Protection Promote customer protection and the development of a nondiscriminatory energy market Prepare, implement and monitor Rules (General Conditions of Energy Supply and Dispute Resolution Procedures) issued by ERO s Board and procedures issued by energy enterprises Finalisation of drafts of ERO Rules, and review and approval procedures issued by energy enterprises Assist in the preparation and commenting on the draft rules on General Conditions for Energy Supply, Dispute Resolution Procedures, Disconnection Procedures All Rules issued by ERO s Board ERO Management Board Issued rules reviewed by Customer Protection Heads of Technical Advisory Customer Protection End of March 2006 ongoing See above Review and provide comments on KEK procedures KEK procedures nondiscriminatory Customer Protection Ongoing Technical Advisory Heads of department Review and provide comments on district heating companies procedures district heating companies procedures non-discriminatory Customer Protection Ongoing Technical Advisory Heads of department Web-site: 25

27 Goals Objectives Project Key performance indicators Responsible Indicative timing Promote Prepare, customer implement and protection and monitor Rules the development (General of a nondiscriminatory Energy Supply and Conditions of energy market Dispute Resolution Procedures) (continued) Establish a system for registering customer complaints issued by ERO s Board and procedures issued by energy enterprises (continued) Implementation of ERO Rules and monitoring of the Rules observance by energy enterprises Monitor the quality of services provided by energy enterprises, review the data received from energy enterprises with focus on customer complaints Apply the measures provided for in the relevant Laws and Rules when reviewing customer complaints Number of complaints settled in compliance with the Rules Number of customer complaints processed by energy enterprises Established register of customer complaints Number of customer complaints on quality of supply Number of customers complaints reported by energy enterprises Customer Protection Legal and Licensing Customer Protection Customer Protection Heads of departments Technical Advisory Number of cases reviewed Customer Protection Heads of departments Technical Advisory Ongoing after issuance of the rules February 2006 End of December 2005 and ongoing End of December 2005 and ongoing Web-site: 26

28 Goals Objectives Project Key performance indicators Responsible Indicative timing Energy Supply and Market Structure Create conditions for a competitive energy market based on free market principles and create a market framework that will attract private investments in the energy sector Develop a Wholesale Market Model with appropriate legal framework harmonised with EU Directives Introduction and enforcement of general rules on the operation of energy wholesale and distribution markets (electricity and district heating) Develop a Market Model in compliance with the requirements of the Athens Memorandum and in consultation with energy sector stakeholders, particularly the Ministry of Energy and Mining General rules developed ERO s Board Energy Supply and Market Structure Legal and Licensing Market model developed ERO s Board Energy Supply and Market Structure March 2006 March 2006 Develop Market Rules in accordance with the Market Model and in consultation with energy sector stakeholders, particularly the Ministry of Energy and Mining Market rules developed ERO s Board Energy Supply and Market Structure March 2006 Develop and implement a Market Monitoring Methodology Finalisation of a Market Monitoring Methodology in compliance with the Market Model Data received from energy enterprises Market Monitoring Methodology developed Energy Supply and Market Structure March 2006 Develop a Market Monitoring Methodology Market Monitoring Methodology developed Energy Supply and Market Structure March 2006 ongoing Develop standard forms for receiving data and information from energy enterprises in compliance with the Market Monitoring Methodology Standard forms prepared Energy Supply and Market Structure March 2006 Web-site: 27

29 Goals Objectives Project Key performance indicators Responsible Indicative timing Create conditions for a competitive energy market based on free market principles and create a market framework that will attract private investments in the energy sector (continued) Develop and implement a Market Monitoring Methodology (continued) Support the unbundling of the publicly-owned enterprises in the energy sector Continuously monitor and analyse data submitted to ERO and to ensure efficient functioning of the market Active participation in the unbundling of the vertically integrated energy publicly owned enterprise (KEK) Active participation in the unbundling of the vertically integrated KEK and the introduction of an independent Transmission System and Market Operator Market monitoring reports prepared based on data submitted to ERO Comments and recommendations provided Market model developed Comments on proposals by the Ministry of Energy and Mining Comments on proposals prepared by ERO Energy Supply and Market Structure Customer Protection Pricing and Tariffs ERO s Board Heads of ERO s Board Heads of Ongoing Ongoing Ongoing Provide comments on proposals by the Ministry of Energy and Mining for the unbundling of POE (KEK) generation Comments on proposals by the Ministry of Energy and Mining Evaluation of investment projects ERO s Board Heads of Ongoing Monitor the incorporation of KEK and the DH companies Monitoring of the functioning of power system and DH companies ERO Board Heads of s Ongoing Provide comments and advice in relation to the incorporation of KEK and the DH companies Comments and advice provided See above See above Web-site: 28

30 Goals Objectives Project Key performance indicators Responsible Indicative timing Create conditions for a competitive energy market based on free market principles and create a market framework that will attract private investments in the energy sector (continued) Actively participate in the development for construction of new power plants Actively participate in the development of projects for rehabilitation of existing plants Provide support to the Legal and Licensing for issuance of authorization for construction of new power plants Provide support to the Legal and Licensing Provide support for issuance of an authorisation procedure for rehabilitation of Kosovo A Power Plant by private investors Provide support for issuance of an authorisation procedure for construction of a new power plan In accordance with Energy Strategy decision taken by MEM Decision taken by MEM ERO Board Legal and Licensing Energy Supply and Market Pricing and Tariffs Technical Advisory March 2006 See above See above See above Development of See above See above Web-site: 29

31 Goals Objectives Project Key performance indicators Responsible Indicative timing Pricing and Tariffs Ensure that regulated prices for energy activities are cost reflective and based on approved tariff methodology Prepare and issue a detailed Electricity Pricing Rule Co-operation with the consultants under the EAR Project for Support to ERO for drafting of the Electricity Pricing Rule Review and provide feedback on the draft Electricity Pricing Rule prepared by the consultants, coordinating with the Legal and Licensing Proposal approved and officially published Comments on drafts prepared by the consultants ERO s Board Pricing and Tariffs Pricing and Tariffs Legal and Licensing End of November 2005 October November 2005 Finalise the draft proposal for Electricity Pricing Rule Issue the Electricity Pricing Rule to stakeholders such as KEK, ICMM, MEF and MEM Final draft prepared ERO s Board Pricing and Tariffs Legal and Licensing Draft rule issued ERO s Board Pricing and Tariffs End of November 2005 December 2005 Organise a Public Hearing including comments from the above stakeholders Workshop introduced by ERO and presented by consultants to a large audience Final draft of the Electricity Pricing rule published on ERO s website Pricing and Tariffs Administration Office September 2005 Take into account the inputs and comments from public consultations and finalise and issue the Electricity Pricing Rule Final official version published on ERO s website ERO s Board Pricing and Tariffs Administration Office End of November Web-site: 30

32 Goals Objectives Project Key performance indicators Responsible Indicative timing Ensure that regulated prices for energy activities are cost reflective and based on approved tariff methodology (continued) Develop and issue Tariff Methodology Development and issuance of Tariff Methodology with the assistance of the consultants under the EAR Project for Support to ERO Participate in the workshops on tariff methodologies organised by the consultants and learn and streamline the proposed methodology in line with the Kosovo environment Prepare a proposal and require feedback from other ERO s departments on applicable Tariff Methodology for Kosovo Issue a note on losses, develop and review the draft tariff methodology Tariff methodology developed and approved by ERO s Board Consensus with the consultants on proposed methodology for Kosovo Workshops, discussions and inputs from different ERO s Draft paper discussed with other ERO departments ERO s Board Pricing and Tariffs Pricing and Tariffs Pricing and Tariffs Heads of s ERO s Board Pricing and Tariffs Heads of s December 2005 End of July 2005 End of July 2005 End of August 2005 Publish the drafts of the proposed tariff methodology on ERO s website for comments and organized a public consultation Final draft available on ERO s website Workshop introduced by ERO and presented by consultants to a large audience Pricing and Tariffs Administration Office 25 October 2005 Take into account possible comments from public consultation and finalise and issue the final tariff methodology Final official version published on ERO s website ERO s Board Pricing and Tariffs Beginning of November 2005 Administration Office Web-site: 31