Report No. 4797-YU l ( r ; Yugoslavia Constraints and Prospectsfor
Public Disclosure Authorized Restructuringthe Energy Sector
August 21, 1985 Project Department Europe, Middle Eastand North Africa Regional Office FOR OFFICIALUSE ONLY Public Disclosure Authorized Public Disclosure Authorized
Public Disclosure Authorized Document of the World Bank
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS
Currency Unit = Dinar (Din) Din 1.00 = 100.00 paras
1. OFFICIAL EXCHANGE RATE
Weighted average for the year Din/US$
1977 1978 1979 1980 1981 1982 1983
18.0 18.6 19.0 24.9 35.5 51.3 90
2. GDP DEFLATOR (1973 = 100)
192.2 216.4 261.7 343.1 480.2 624.0 811.0
UNITS AND MEASURES
3 1 kilowatt (kW) = 1,000 Watts (10 W) 1 Megawatt (Mw) 1,000 Kilowatts (103 kW) 1 Gigawatt (GW) 1,000,000 kilowatts (106 kW) 1 Terawatt (TW) 1 billion kilowatts (109 kW) 1 kilowatt-hour (kWh) 1,000 watt-hours (103 Wh) 1 Megawatt-hour (MWh) = 1,000 kilowatt-hours (103 kWh) I Gigawatt-hour (GWh) = 1,000,000 kilowatt-hours (106 kWh) 1 Terawatt-hour (TWh) 1 billion kilowatt-hours (109 kWh) 1 kilovolt-ampere (kVA) 103 Volt-Amperes (103 VA) 1 Megavolt-ampere (MVA) = 103 kilovolt-amperes (103 kVA) 1 kilocalorie (kcal) = 3,968 British Thermal Units (Btu) 1 kilogram (kg) 2,206 pounds (lb) 1 ton (metric ton) 1,000 kg = 2,205 lb = 1.102 short ton = 0.984 long ton 1 meter (m) = 3.281 feet (ft) 1 millimeter (mm) 0.001 meter (m) 1 kilometer (km) 1,000 m = 3.281 ft
ENERGY CONVERSIONFACTORS INTO TONS OF OIL EQUIVALENT (TOE)
Hard coal 1.532 Brown coal 2.923 Lignite 5.072 Coke (imported) 1.666 Heavy fuel oil 1.105 Diesel 1.00 Fuel gas (LPG) 0.8837 Jet fuel 1.1051 Gasoline 0.9546 Other petroleum products 1.0539 Natural gas (103m3 ) 1.1825 Electricity 11,860 kWh
FISCAL YEAR
Calendar Year FOR OMCIAL USE ONLY
ACRONYMS AND ABBREVIATIONS
BOAL - Basic Organization of Associated Labor CCY - City Communes of Yugoslavia CE - Chambers of the Economy CI - Communities of Interest COAL - Composite Organizations of Associated Labor EMS - Energy Management System ENERGOINVEST - OAL responsible for the exploration and development of oil and gas exploration and development in Bosnia-Herzegovina FCE - Federal Chamber of the Economy FCEI - Federal Committee for Energy and Industry FCP - Federal Community for Pricing FISP - Federal Institute for Social Planning INA-NAFTAPLIN - OAL responsible for the exploration and development of oil and gas in Croatia JUGEL - Union of Yugoslav Electric Power Industry JUGOPETROL - OAL responsible for the exploration and development of oil and gas exploration and development in Montenegro JUMEL - Yugoslav Machine Industry MRSCE - Measures for Rationalization, Substitution and Conservation of Energy NAFTAGAS - OAL responsible for the exploration and development of oil and gas in Serbia and Vojvodina OUNP - Association of Oil and Gas Producers OURU - Association of Coal Producers PCC - Permanent Conference of Cities RE - Reproduction Entities RPCE - Republican and Provincial Chambers of the Economy RPCEI - Republican and Provincial Committees for Energy and Industry RPCP - Republican and Provincial Communities for Pricing RPISP - Republican and Provincial Institutes for Social Planning SMA - Self-Management Agreement TOE - Tons of Oil Equivalent WOAL - Work Organizations of Associated Labor
This docurnenthas a restricteddistribution and may be used by recipientsonly in the performanceof their oficial duties. Its contents may not otherwise be disclosed without WorldBank authorization.
This report was prepared by Messrs. Ibrahim Elwan and Mahesh Sharma, on the basis of data and informationgathered by a number of World Bank energy missions that visited Yugoslavia between 1980 and 1983, with contributions from Messrs. Sam O'Brien-Kumi, Jorge Barrientos (Coal and Lignite), Richard Berney (Petroleum), Jacob Schweighauser (Petroleum), and Jacob Mulckhuyse (Refineries).
The report has been reviewed by and discussed with the Yugoslav Authoritieswhose comments were taken into account in the final preparationof this report.
Special thanks go to the Federal Institute of Social Planning, Federal Committee for Energy and Industry, Federal Statistical Office, Union of Yugoslav Electric Power Industry (JUGEL), Association of Yugoslav Mines (OURA), Association of Oil and Gas Producers (OUNP), and the Mining Institute of Belgrade, for their co-operationand assistance to the various Bank energy missions in the collection of data and informationand for commenting on the various sections of the initial drafts of the report.
The co-operationof other Yugoslav agencies not mentioned above is also greatly appreciated.
ABSTRACT
In the post World War II period, major social,political and economic changes were undertaken in Yugoslavia which culminated in the adoption of the new constitutionof 1974. It accords complete autonomy to workers in the operation,management and developmentof socially owned means of production in order to maximize their income and, in turn, that of society. While this system was being implemented,the Yugoslav economy experiencedsevere external shocks precipitatedby the oil crises of 1973 and 1979, which precluded the fine-tuningof the system of self-management and impeded the optimal developmentof the domestic energy resources needed to deal with the higher costs of energy imports and to provide the country the competitiveedge to sustain the growth of its exports. As a result,Yugoslavia's dependence on imported energy increased,which together with the absence of economic and financialdiscipline exacerbated its balance of payments situationand set in motion a process of reassessmentaimed at restructuringthe institutionsand instrumentsof economicmanagement. The long-termprogram of economic stabilization, which was ratified and adopted in July 1983, outlines a strategy for the developmentof the energy sector to address the structural imbalances that the economy continuesto face. In order to assess its viability, this report describes,within the macroeconomiccontext, the developmentsin the energy sector since 1975. More specifically,the report reviews the self-managementsystem, underscoringthose aspects that have a direct bearing on the developmentof the energy sector; examines the country's domestic energy resources, focusing on their size and on identifyingthe issues constrainingthe developmentof each resource in order to assess their likely contributionto the future supply of energy; describes the factors responsiblefor the changes in the pattern of energy consumption and supply; assesses the targets of energy consumptionand supply up to 1990 to identify the shortcomingsof energy planning in the country; evaluatesthe developmentsin the structure and levels of energy prices and their relationshipto economic cost of supply; and examines the performanceof the 1976-1980 social plan with respect to planning and investment to identify the main constraintsresponsible for the shortfall in achieving the energy targets. The report then recommends a specific plan of action to supplement the authorities'program to promote the optimal developmentof the energy sector. t MAIN TEXT
TABLE OF CONTENTS
Page No.
CHAPTER I - SUMKARY ...... 1......
Recent Developments in the Economic System...... 1
Institutional Setting ...... 2 Workers' Self-Management System ...... 2 Energy Sector . . 3
Energy Resources ...... 4
Developments in the Sector Since 1976 ...... 5 Supply and Consumption of Energy Between 1976-1982...... 7
Constraints and Prospects 11 Priorities in the Development of Primary Energy Resources ...... 11 Energy Pricing...... 16 Financial Discipline ...... 22 Priorities in the Development of Secondary Energy ...... 24 Planning and Macroeconomic Management ...... 30
Conclusion ...... 33
Table 1.8: Energy Plan of Action ...... 35
Layout of Report ...... 46 Page No.
CHAPTER II - INSTITUTIONAL SETTING OF THE ENERGY SECTOR ...... 47
Overview ...... 47
Organization of the Energy Sector . . 51
CHAPTER III- ENERGY RESOURCES ...... 55
Commercially Exploited Energy Resouees ...... c 55 Coal ...... 55 Hard and Brown Coal . . . . * 57 Lignite .... 59 Hydropower Potential ...... 60 Oil and Gas ...... 63 Uranium ...... 65
Non-Conventional Energy Resources ...... 65 Oil Shale ...... 65 Biomass ... 66 Geothermal Resource ...... 66 Solar and Wind Energy ...... 67
CHAPTER IV - HISTORICAL TRENDS IN THE CONSUMPTION AND SUPPLY OF ENERGY ...... 68
Consumption of Energy ...... 69 overall Consumption of Energy ...... 69 Hydrocarbons ...... 71 Coal and Lignite .... 74 Electricity ...... 76
Supply of Energy ...... , 77 Hydrocarbons ...... 77 Coal and Lignite ...... 84 Electricity ...... 86 -iii -
Page No.
CHAPTER V - ENERGY BALANCE, 1982 ...... 90
National Energy Balance ...... 90
Hard Coal ...... 102
Brown Coal ...... 103
Lignite ...... 104
Crude Oil ...... 105
Natural Gas ...... 107
Electricity ...... 109
Steam ...... 111
CHAPTER VI - FORECASTOF CONSUMPTIONAND SUPPLY OF ENERGY..... 112
The 1981-1985 Social Plan...... 113 Macroeconomic Targets. 113 Targets for Eneergy Consumption . . 114 Targets for the Supply of Energ .. 116
Revised 1981-1985 Social Plan ...... 126 Forecast Demand and Supply of Energy, 1986-1990 ...... 131
CHAPTER VII - ENERGY PRICING. 135
The Law on Pricing . . .136
Pricing of Petroleum Products . . 141
Pricing of Natural Gas . .145 -iv -
Page No.
CHAPTER VII - ENERGY PRICING (cont'd)
Pricing of Coal and Lignite ...... 150
Electricity ... 159 Consumer Classification ...... 160 Economic Cost of Supply ...... 162
CHAPTER VIII - ENERGY PLANNING AND INVESTMENT...... 168
Social Planning ...... 170
The 1976-1980 Investment Plan for Energy ...... 173
The 1981-1985 Investment Plan for Energy ...... 178
Issues in Planning ...... 183 Formulation and Implementation of the Plan. 183 Targets of the Social Plans ...... 184 National Versus Regional Plans for the Energy Sector...... 187 Identification of Priorities ...... 191 Financial Disciplines ...... 192 Foreign Exchange Allocation ...... 194 Distortion in the Relative Prices ...... 195 Costs of Uneconomic Decisions ...... 197
"Revised" 1981-1985 Investment Plan for Energy. 198 Page No.
CHAPTER IX - STRATEGY FOR RESTRUCTURING THE ENERGY SECTOR.... 200
Program of Long-Term Measures for the Rationalization Conservation and Substitution of Energy ...... 200 Primary Energy ...... 200 Secondary Energy ...... 201 Energy Storage, Transport and Distribution.. 202 Energy Consumption ...... 202 Priorities in the Development of Primary Energy Resources...... 205 Energy Pricing ...... 213 Financial Discipline...... 218 Priorities in the Development of Secondary Energy ...... 221 Planning and Macroeconomic Management...... 229 Institutional Setting of the Sector ...... 230 - vi -
List of Annexes
Page No.
ANNEX 1
None
ANNEX 2
2.1 Organization of the Electric Power Subsector...... 234
Attachment 1 - Organization of JUGEL ...... 237 Attachment 2 - List of Electric Power Organizations and Other Organizations Associated in the Union of Yugoslav Electric Power Industry... 238
2.2 Organization of the Oil and Gas Subsector ...... 242
Attachment 1 - Members of the Association of Oil and Gas... 244
2.3 Organization of the Coal Subsector ...... 246
ANNEX 3
3.1 Geographical Distribution of Total Reserves of Coal and Lignite ...... 249 3.2 Hydropower Sites Planned for Development between 1986-2000.. 250 3.3 Petroleum Geology and Exploration ...... 254
ANNEX 4
4.1 Energy Balance 1975 ...... 264 4.2 Energy Balance 1980 ...... 265 4.3 Energy Balance 1982...... 266 4.4 Growth of Total Net Electricity Consumption by Republic and Autonomous Province ...... 267 4.5 Electricity Generating Capacity 1975-1980 ...... 268 4.6 Electricity Production and Consumption ...... 269 4.7 Inter-republican Energy Exchange in the Period 1976-1980.... 271
ANNEX 5
None - vii -
Page No.
ANNEX 6
6.1 Energy Balance 1985 (Based on the Original Social Plan)..... 272 6.2 Coal Mining Capacities ...... 273 6.3 Sources of Domestic Production of Oil and Its Distribution Between Republics for 1980 and 1985 ...... 274 6.4 Use of Petroleum Products by Republic and Province for 1980 and 1985 ...... 275 6.5 Consumption of Petroleum Products for Energy Use ...... 276 Consumption of Petroleum Products as Feedstocks...... 278 6.6 Supply of Natural Gas Under the Original Plan for 1981-1985 279 6.7 New Power Generation Capacities Planned Under the Original 1981-1985 Plan ...... 280 6.8 Generation at Bus Bars for 1985 Under the Original Plan for 1981-1985 ...... 281 6.9 Energy Balance 1985 (Mission's Estimates Based on the Original 1981-1985 Forecast) ...... 282 6.10 Energy Balance 1985 (Yugoslav Revised Plan for Energy) ...... 283 6.11 Energy Balance 1985 (Mission's Estimates Based on a Reassessment of the Revised Plan) ...... 284 6.12 Energy Balance 1990 ...... 285
ANNEX 7
7.1 Prices of Petroleum Products, 1971-1983 (Din/ton)...... 286 Real Retail Prices of Petroleum Products (Constant 1973 Prices), 1971-1983...... 287 Structure of Prices of Petroleum Products, By Percentage.... 288 7.2 Tax Revenues from the Sale of Petroleum Products, 1971-1979. 289 Tax Revenues from the Sale of Petroleum Products by Sector.. 290 7.3 I. Current Retail Prices of Natural Gas ...... 291 II. Real Retail Prices of Natural Gas ...... 291 7.4 Current Retail Prices of Hard and Brown Coal and Lignite, 1975-1982 ...... 292 Prices of Coal for Household Use ...... **...... 293 Prices of Coal for Power Stations ...... 294 Prices of Coal for Industry (Including Power Generation) (Dinars/ton)...... 295 Prices of Coal for Industry (Including Power Generation) (Dinars/toe)...... 296 7.5 Estimated Long Run Average Incremental Costs of Various Coal and Lignite Mines ...... 297 - viii -
Page No.
ANNEX 7 (cont'd)
7.6 Weighted Average Revenue Per Kilowatt-Hour Sold for 1973, 1980 , 1983 (paras/kWh) ...... 298 Average Revenue at the Bulk Supply Level 1973-1983 ...... 299 Average Revenue per Kilowatt-Hour Sold at Distribution and Low Voltage Levels, 1973-1983 (paras/kWh) ...... 300 7.7 Current Relative Prices of Fuels for Power Generation, 1977-1983 ...... 301 7.8 Bulk Tariffs and Rates for Sales of Electricity ...... 302 7.9 Medium Voltage Tariffs and Rates for Sales of Electricity ... 303 7.10 Low Voltage Tariffs and Rates for Sales of Electricity ...... 304 7.11 Derivation of the Economic Costs of Electricity Supply at Different Voltage Levels ...... 305
Attachment 1 - Maximum Demand Forecast by Voltage Level .... 314 Attachment 2 - Investment Program of the Associated Electric Power Industries 1981-1985 ...... 315 Attachment 3 - Present Values - Investment and Incremental Demand ...... 316 Attachment 4 - Calculation of Long Run Average Incremental Costs ...... 317 Attachment 5 - Long Run Average Incremental Capacity Cost by Voltage Level (at 10% discount rate shadow prices, 1982 price level)(Din/kW/a)...... 319
7.12 Comparison of Tariffs to Economic Cost - Bulk Tariffs ...... 320 7.13 Comparison of Tariffs to Economic Cost - MV Tariffs ...... 321 7.14 Comparison of Tariffs to Economic Cost - LV Tariffs ...... 322
ANNEX 8
8.1 Projected Investment in Coal and Power Subsectors Original Plan ...... 324 8.2 Original Plan ...... * ...... 325 8.3 Specification of Joint Investments (Original 1981-1985 Plan) ...... 326 8.4 Revised Investment in Development of Coal Mining by the OALs Between 1981-1985 in 1980 Prices ...... 327 8.5 Detailed Results from WASP for the Optimization Program (Increased Load Case) ...... 328 - ix -
Page No.
ANNEX 8 (cont'd)
8.6 Revised Investment in Power and Coal Subsector by Republics and Provinces ...... 369 Revised Plan ...... *******...... * 370 8.7 Sources of Financing for Power and Coal Revised Plan ...... 371
ANNEX 9
9.1 Industrial Energy Use and Conservation Fertilizer Sector. Fertilizer Industry and Production ...... 372
YUGOSIAVIA
CONSTRAINTSAND PROSPECTSFOR RESTRUCTURING THE ENERGYSECTOR
CHAPTERI
SUMMARY
Recent Developments in the Economic System
Yugoslavia, a predominantly agrarian society until World War II, emerged as one of the leading developing countries in less than forty years. During this period, major political, economic and social changes were undertaken which culminated in the adoption of the new constitution of 1974. It accords full autonomy to workers in the operation, management and development of socially owned means of production in order to maximize their income and, in turn, that of society. Planning agencies at the federal, republican and provincial, and communal levels outline global indicative targets and harmonize the workers' plans for achieving them.
Shortly before the adoption of the 1974 constitution, the economy experienced an external shock precipitated by the first round of increases in the price of oil. Despite this shock, the growth of the economy until 1979 was remarkable compared to that of other economies. The impact of the higher import biil for energy, however, induced the authorities to adopt a medium-term program which outlined the basis for economic development for the period 1976-1985. It called for significant changes in the structure of the external sector, emphasized the accelerated development of domestic energy resources and gave priority to reorienting the economy towards higher levels of import substitution and exports.
These objectives were reflected in the five year plans for 1976-1980 and 1981-1985. In both plans, the energy sector was assigned a pivotal role for achieving the targets. However, the social plan for 1976-1980 fell short of its goals for energy, mainly because of the shortage of foreign exchange, constraints on the supply of materials and equipment, and overburdened project implementation capabilities. The 1981-1985 social plan was, by and large, more realistic and addressed some of the main difficulties experienced by its predecessor.
However, the down-turn in the growth of the world economies, the concomitant decline in the demand for Yugoslavia's exports, and the sustained increase in domestic inflation induced the Yugoslav authorities to appoint a stabilization commission in 1982, whose main task was to formulate a strategy for restructuring the economy. One of the measures taken by this committee was to adjust the targets of the 1981-1985 social - 2 -
plan, two years after its adoption and introduce a "revised" 1/ investment plan for the economy as well as energy, based on more modest projections of economic growth. The "revised" plan was accompanied by several policy changes aimed at addressing the structural imbalances that the economy continues to face.
The setbacks experienced in achieving the energy targets are but a reflection of the young age of the system of self-management planning as outlined in the constitution of 1974. As the system was being implemented and fine-tuned, the external shocks brought about by the oil crises, the ensuing upward adjustment in energy prices and the deceleration in the growth of the industrialized economies necessitated the institution of corrective measures formulated in a crisis mood, which impeded the smooth development of the new system of social planning and the implementation of badly needed long-term policies. To date, efforts to promote the development of the energy sector have been hindered by the protracted process involved in the formulation of comprehensive national plans and in the mobilization of resources for their implementation.
Institutional Setting
Workers' Self-Management System
Yugoslavia's system of workers' self-management comprises of a large number of autonomous entities, referred to as Basic Organizations of Associated Labor (BOALs), whose members voluntarily pool their material and financial resources to expand their productive capacities in a manner that optimizes their earnings and, in turn, their contribution to the national output. All relations among and between BOALs including the pooling of resources, distribution of income, planning, financing, etc., are established and regulated by instruments referred to as Self-management Agreements (SMAs). Workers participate in all economic decisions, management, pricing, investment planning, etc., while the public agencies at the federal, republican and provincial and communal levels have limited executive power. Under the Yugoslav system, productive facilities are neither owned by the state nor the workers that operate them. They are owned by the society and only entrusted to the workers to use, maintain and develop for the generation of income. The unique feature of the Yugoslav institutional setting is that all decisions among BOALs are made on the basis of consensus, which is required by law to ensure equal status. Decisions within BOALs, by contrast, are based on majority rule. Frequently, the achievement of consensus involves lengthy negotiations and delays in making decisions; however, the need to reach consensus is sanctioned by law, and consequently, delays in the
1/ The word revised is used in this report merely for ease of reference. The new targets for the 1981-1985 period are referred to as observations on the plan in Yugoslavia. -3-
ratification of laws and policies are tolerated and taken as a healthy sign of the workers' participation in the determination of their future. In some cases when the conclusion of agreements are considered of interest to the public, OALs are required to go through the process of negotiation, but conclusion of these negotiations cannot be forced.
Producers and consumers of some social goods and services such as power, water, health, etc., are required by law to form organizations known as Communities of Interest (CIs) in order to overcome the difficulties that are perceived to result from complete dependence on market forces of demand and supply. CIs are responsible for balancing demand and supply, setting prices equitable to producers and consumers, mobilizing and allocating resources for investments, etc. Investment funds are secured by CIs from member consumers in the form of contributions, transfer payments or compulsory grants and credits, and from financial institutions as credits.
OALs are required by law to belong to associations related to the sector in which their activities are concentrated. These associations are organized either at the republican and provincial level or the federal level, depending on the sector and activity. Delegates from professional associations are elected to represent all economic sectors in the Chambers of the Economy (CEs), at both the federal (FCE) and the republican and provincial levels (RPCE). The associations and CEs set guidelines and standards for the operation of OALs, provide a forum for exchange of views, formulate policies and ensure harmonization of plans within the same sector in the case of associations, and across sectors in the case of CEs. The associations and CEs cannot make any decision on the basis of majority vote. They only provide their members the means for harmonizing and concluding SMAs. Under the present system, workers are not paid contractual salaries or wages. Instead, they share the earnings of OALs in which they work. However, should workers' income temporarily fall below the level originally established in SMAs because of forces judged beyond their control, a fund referred to as solidarity fund, has been set up to compensate workers for unexpected loss in income. Similarly, windfalls accruing to OALs as a result of favorable events over which they had no control are not, as a rule, reflected in the workers' income; instead, the surplus is added to the solidarity fund.
Energy Sector
Three agencies are concerned with the energy sector at the federal level: the Federal Committee for Energy and Industry (FCEI), the Federal Institute for Social Planning (FISP), and the Federal Community for Pricing (FCP). Each republic and province has its own committee for energy and industry (RPCEI), institute for social planning (RPISP) and pricing community (RPCP). These have the same responsibilities as their counterparts at the federal level, but their sphere of influence is restricted to the perimeter of the republic or province. FCEI is responsible for harmonizing energy plans of the republics and provinces, -4- and through consensus, developing an integrated national energy plan. FCEI also ensures coordination and harmonization between the plans for the energy sector and industry. FISP is responsible for formulating the plans for the economy, which includes setting macroeconomic and sectoral targets, and harmonizing the targets for each sector in the economy and the global investments proposed for achieving these targets. The institute has no executive power and its targets are based on the overall macroeconomic policy being pursued. FCP was created in 1981 to set guidelines for the pricing of all social products which, in the case of energy, include crude oil, imported gas, petroleum products and imported coal. FCP has no executive power and its involvement with CIs is on an advisory basis. Prices of products excluded from those considered of social interest are set at the republican or provincial level and are monitored and reviewed by RPCPs. In the case of energy, RPCPs are responsible for domestically produced natural gas, coal and lignite, and electricity. The national associations for the three subsectors which comprise the energy sector are: the Union of Yugoslav Electric Power Industry (JUGEL), the Association of Oil and Gas Producers (OUNP), and the General Association of Yugoslav Coal Mines (OURU).
Energy Resources
Yugoslavia's commercially exploitable domestic energy resources consist of hydropower and lignite, followed in order of importance by brown and hard coal, oil and gas, and uranium. Oil shale reserves are also known to exist, but because of technological constraints their commercial exploitation at present would be uneconomic. In addition, Yugoslavia has a substantial non-conventional energy resource base consisting of biomass, solar and wind energy, and some geothermal resources. The hydropower potential is estimated at about 63 TWh, divided among 400 sites in 25 river basins and catchment areas, of which 55 TWh is exploitable. The remaining 8 TWh cannot be developed economically as it is located in close proximity of densely populated areas. To date, 27 TWh (43%) of the total hydro potential has been developed. According to the long-term strategy outlined by the stabilization commission, a total of 55 TWh would be developed by the year 2000.
Proven reserves of coal and lignite are estimated at about 14,612 million tons (4,003 million toe). Proven resetves of hard coal are in the neighborhood of 61 million tons (41 million toe), all of which require underground mining. Presently, only 60% (36.6 million tons) of the reserves are exploitable. Proven reserves of brown coal are estimated at 1,278 million tons (449 million toe). About 70% (894 million tons) of the reserves would require underground mining. The remaining 30% (383 million tons) are suitable for open pit mining. Lignite is Yugoslavia's principal domestic energy resource. Its proven reserves are estimated at about 13,273 tons (3,513 million toe). The bulk of the lignite reserves is concentrated in few localities suitable for open pit mining, and consequently, significant economies of scale could be achieved in its developmentand production.
Yugoslavia's remaining,recoverable onshore oil reserves are estimated to be about 70 million tons. Geological evidence suggests that the scope for delineating important extension to existing fields and for finding smaller accumulations in subtle traps is still considerable. A number of other potential petroleum producing regions have as yet to be evaluated,but preliminary indicationsare that their potential is not as large as that of the currently producing regions. It is estimated that there are about 70 million toe of gas in the presently known onshore fields. The prospects of finding at least another 35 million tons of oil in Croatia and Vojvodina are good. In addition, preliminary estimates indicate that several Adriatic Basins and some land basins are gas prone. The potential offshore reserves are expected to yield between 15 and 150 million toe of oil. It is also estimated that up to 50 million toe of recoverablegas could be extracted from the Adriatic and a similar amount could be found in the deeper parts of the Drava and Sava Basins in Croatia.
Developmentsin the Sector Since 1976
Shortly before the adoption of the new constitution in 1974, which institutionalizedthe system of workers' self-managementplanning, the economy experienced an external shock precipitatedby the first round of increases in the price of oil. Despite this shock, the growth of the economy until 1979 was remarkable,when compared to that of other middle income economies. The impact of a higher import bill for energy, however, induced the authorities to adopt the medium term program which outlined the basis for economic development for the period 1976-1985. It called for significant changes in the structure of the external sector and emphasized the accelerated development of domestic energy resources and gave priority to reorienting the economy towards higher levels of import substitution and exports. These objectives were reflected in the five-year plans for 1976-1980 and 1981-1985. In both plans the energy sector was assigned a pivotal role in achieving the targets. Given Yugoslavia's endowment of energy resources, the targets of the medium-term plan were achievable.
In keeping with the objectives of the medium-term program, the five-year social plan for 1976-1980 called for a substantial change in the structure of the Yugoslav economy, emphasizing import substitution in the industrial and energy sectors. The energy sector's share of gross investment in the economic sectors was projected to increase from 12.5% in 1971-1975 to 20% in 1976-1980. As a percentage of the overall investment in the priority sectors, the share of energy was to increase from 23% in the period 1971-1975 to 31% during the 1976-1980 plan period. Actual investment in the energy sector surpassed the target investmentsby about 2.7%. In spite of the increase in the share of investments, the energy sector was unable to achieve its output targets. The energy targets of the 1976-1980 social plan together with outturn figures are given in Table 1.1 below.
Table 1.1
1976-1980 Targets for the Energy Sector
Target Actual Actual as % of Target
Power (MW) Thermal 6,911 3,393 49 Hydro 2,742 1,339 49
Coal (million tons) 55-58 47 86
Oil (thousand tons) Domestic 4,734 4,226 89 Imports 11,477 10,804 94
Gas (million m3 ) Domestic 3,126 2,148 69 Imports - 1,982
The shortfall in achieving the output targets was due to: (a) the initiation of a larger number of projects than the resources of the economy could either finance or physically implement; (b) the shortage of foreign exchange precipitated by the softening of demand by the industrialized and developing economies for Yugoslavia's exports; and (c) the increase in the import bill, particularly for energy. Yugoslavia's exports dropped as a percentage of imports from 62% in 1975 to 54% in 1980. By contrast, the share of energy in the total import bill increased from 31% to 73%. This imbalance was responsible for Yugoslavia's inability to secure the foreign equipment and material needed for the implementation of the 1976-1980 investment plan. 4
Like its predecessor, the 1981-1985 social plan adhered to the objective of the medium-term program. Specifically, for the energy sector, it emphasized the reduction of imported energy and the accelerated development of domestic energy, particularly coal, lignite and hydro. The 1981-1985 social plan allocated more than half the investment for the priority sectors to energy. However, the first three years of this plan were beset by economic difficulties. In particular, the shortage of foreign exchange experienced during the 1976-1980 plan was further exacerbated by the adverse developments in the international market which constrained the flow of capital and raised interest rates. Moreover, the authorities were slow in adjusting their credit, pricing and exchange rate -7- policies, and consequently domestic demand remained buoyant which, together with the higher import prices for energy, triggered an unprecedented increase in the general price level. As a result, the 1981-1985 social plan was abandoned and the stabilization commission was appointed to outline a policy for arresting inflation and formulate a long-term strategy for restructuring the economy. This set in motion a process of reassessment aimed at restructuring the institutions and instruments of economic management.
Supply and Consumption of Energy Between 1976-1982
The developments in the supply and consumption of energy for the period 1975-1982 are summarized in Table 1.2 below. As shown, contrary to the declared objectives of the medium-term program, Yugoslavia's dependence on imported energy, particularly oil and gas, instead of decreasing, increased between 1975 and 1980. In the following two years, however, there was a substantial reduction in dependence on imported oil, but this was largely due to ceilings on imports of liquid hydrocarbons introduced by the authorities in response to the balance of payment difficulties. A detailed energy balance for 1982, covering the sources of supply, production of secondary energy, when applicable, and distribution of consumption among the main energy consuming sectors is presented in Table 1.3 and Figure 1.1 - 8 -
Table 1.2
Sources of Supply and the Gross Consumption of Energy, 1975-1982
1975 1980 1982 %000 '000 % % toe Share toe Share toe Share Hard coal Domestic Production 556 2.2 403 1.1 210 0.6 Imports 1,679 6.5 2,236 6.4 2,632 7.5 Subtotal 2,235 8.7 2,639 7.5 2,842 WT
Brown Coal 3,647 14.2 3,158 9.0 3,291 9.3
Lignite 4,862 19.0 7,349 20.9 8,239 23.5
Total Solid Fuels 10,744 41.9 13,146 37.4 14,372 40.9
Oil Domestic Production 3,622 14.1 4,226 12.1 4,134 11.7 Imports 7,257 28.4 10,804 30.7 8,401 23.9 Subtotal 10,849 42.5 15,030 42.8 12,535 35.6
Natural Gas Domestic Products 1,332 5.2 1,557 4.4 1,919 5.5 Imports - - 1,436 4.1 1,886 5.3 Subtotal 1,332 5.2 2,993 8.5 3,805 10.8
Hydropower 1,914 7.5 2,828 8.0 2,335 6.6
Other Imports 727 2.8 1,143 3.2 2,117 6.0
Gross Supply 25,596 100.0 35,140 100.0 35,164 100.0
Losses in Conversion, 6,234 8,946 10,023 Transmission and Distribution
EXPORTS OF SECONDARY 46 146 700 ENERGY
NET DOMESTIC 19,316 26,048 24,393 CONSUMPTION
Consumption by Sector Industry 1/ 11,822 15,230 15,899 Transport 3,326 4,513 3,436 Household 2,355 4,059 3,585 Public/Other 985 1,134 874 Agriculture 828 1,112 598
1/ Includes non-energy products and energy related industries. Table 1. 3 Energy balance, 1982 /1 (thousand tons of oil equivalent)
Primary_Energr Fianufac- Nlon Petroleum Products Hard Brown Crude aatur4l Dry tured Energy Flectri- AviationFuel LiNE Coal Coal Lignite Hydro yranium oI _Gas L!nite Coke Gas ProductS "'t_ Steam LPG Gasoline nd Keroseme Diesel Fuel Gos Other TOTAL TOTALS
Sources of Supply Domestic Production 210 3,491 8,563 2,335 4,256 1,919 20,74 imports 2.610 - - 619 8.401 1,8R6 - 17 - - 270 - 104 1,794 - 1.3981 IS.201 Exports - (203) (18) - - - - -t2 - Stock Changes - 3 (306) - (122) - 5 ------3 1170)) (s50
GROSSSUPPLY 2.820 3,791 8,739 2,31S 619 17.596 3.POS 22 270 - 107 - - I.t21 .m 3S.
Convers ion Petroleum Refining - - (12.338) - - 268 1,476 - 229 1.617 225 2.907 4,744 300 10.022 (5sn1 Coking (2.656) -1.907 360 2- - - - - 1133) Electric Power Gen. (88) (1,347) (6,607) (2,335) (619) - (256) - 5,124 - - - (699)9- - (6993 (6.W7) Co-generation of which: Electricity - (52) (26) -- (21) - - (1) llo - - - - - (71 - (171) (237 Stem - (584) (178) - (353) (247) - I,525 (1) - - - (757) - (758) (5461 BoiterPlants (11) (470) (243) (578) - (195) - 2.399 (13) - - (1.314 - (1.32 (4231 Lignite Drying - - (397) - - - - 343 - 35 - - - -(o - - - - t) LIquid Fuel Gasification 9M-13 (3) aSOPlants- (48) 42 - - _ _ _ _ P) Degesification /2 ------(194) - - 61 32 - 83 - - _3 (_1) Self Consuamtion - (10) ("l) - - (196) (240) - - - - (321) - - (713 Conversion Losses ------(6.'MM-- 1/0 Losses - - - - - (508) ------tS
"Et SIPPLY 65 828 777 - 1,918 343 1,929 337 1,764 4.695 3,974 396 1,617 225 2.907 3.017 330 8.462 ZS,093
Bunker Sales ------'' ------Secondary Esports ------(314) (105) - - - - 281 - - (Zs! - lOO3
MET 0O(6STlIC 65 828 7 - 1.918 343 1,615 33Z 1,764 4,590 3,974 396 1,617 225 2.907 3.017 30D 8.1111 h.n31
Consumption by Sector Industry 85 401 312 - 1,061 172 1,615 33? - 2,075 2574 713 - - - 3.0S 274 3.seo 12.1; Energy Industries - . - - 499 1,078 ------' I Non Energy Use ------446 1,764 ------_ 2.;2 I Transport - - e l - 142 - - 1.54 195 1.407 - 21 3.207 3.436 Households - 326 225 - 141 171 - - - 1,452 216 183 - - 62 9 - 1.054 3.5J5 Public/Other - 101 153 - - - 69 - 352 \06 - - 30 63 - - 93 S74 AgrIculture 201 70 33 - 24 - - 3y 58
Source: Prepared by the mission bsed on the Energy Balance for the SFl of Yugoslavia; Boris Judin, Federal Statistical Office. Belgrade. May 19813.
/1 For convenience of presentation some cateqories of energy have been combined.
Figure 5.1 NATIONALENERGY BALANCE FOR YUGOSLAVIA, 1982 Stloc mp rt -mp rt rt StOcks Import npol V ' V V V V V 5 171 1,293 104n 3; 619 270n 1.475
550 741 PRIMARYENERGY INPUT 4 No,oEnergy
Imnprl 't I,,p&r ImpGr|.§l 57l j 1668 | ||||Dy109624 19% 396
12539 I 1.932 11,291 .i_ ,aI Ias I 1,822 789 . , L190~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I-qdGas 779 0.2% 7,785 4,252 T
I| i t3~ _G o& 20-881 L,q,Id Fuel
1,677 Gcisification 13 v ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~0%z 0 3974 ~~~~~3,974
Bi. 0~~~~~~~~~~~
121~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~33 .2 .9
148 143 129 2_ _U 3 orlLse 8
2333 8 - 1,668~~~~~~~~~~~~~~~~121OsI0sGi1 141k Warld331225643Enk-50
* Coal.-Coke NucecrnPiowerI.. 7 Oi D l e onvates oF otonr
Ironstormotron8~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~5 -~nEeg
Loss~~~~~~ Distrlb,,fionWrl Bor.-240
in Ocrol~~~~~~~~~~~~ lososi Gase E Cool~~~~~~~~~~.coorpocrarHydro Cone Power E I [J oL…9ld s(LG Fontrory~~,47oo Wan ae HtWse em ( ac,iciy 6 a HdoPoe [ o Y [132 otf (Looes iono 78S los
- 11 -
Constraintsand Prospects
The setbacks experienced in achieving the energy targets are but a reflection of the shortcomings of the system of social planning, shortage of resources needed for the implementationof the plan and the adverse external conditions. As the system was being implemented and fine-tuned, the external shocks brought about by the oil crisis, the ensuing upward adjustment in energy prices and the deceleration in the growth of the industrialized economies necessitated short-term measures formulated in a crisis mood which impeded the fine-tuning of the institutions and the badly needed long-term policies to address the structural imbalances that the economy continues to face. The constraints impeding the developmentof the energy sector and the recommendationsfor addressing them are discussed below under the following sub-headings. priorities in the developmentof primary energy; energy pricing; financial discipline; priorities in the development of secondary energy; and planning and macroeconomicmanagement.
Priorities in the Developmentof Primary Energy Resources
In terms of domestic energy resources, high priority should be given to the development of those resources where Yugoslavia has a comparative advantage in terms of availabilityof reserves or potential, and expertise in a proven technology. This would involve a sustained effort in developing the proven reserves of coal and lignite, harnessing the hydropower potential and the continued exploration for oil and gas. The development of oil shale reserves should be reconsidered in view of the unproven technology for its development. The accelerated development of uranium should also be reconsidered until the supply is in fact needed. Some application of solar energy and biomass should be given priority; however, in view of the fact that their potential contribution to the overall future supply of energy is limited, the postponement of their exploitation,in case the shortage of financial resources persists, is not likely to have a significantimpact on the structuraladjustment of the economy that is currentlyunderway.
Hard and Brown Coal: Yugoslavia's output of hard coal declined between 1976 and 1982. This decline was primarilydue to the reduction in the rate of capacity utilizationof existing mines because of shortage of financial resources needed to maintain the output at its optimal level. The shortage of financial resources has also increased the danger associated with mining and resulted in a drastic reduction in the number of skilled undergroundminers. Despite the recent measures introduced to retain and attract underground miners by improving their compensation packages, the poor structural state of the mines continues to be a major deterrent. The output of open pit mines account for about 50% of the domestic output of brown coal. Recently, new reserves have been discovered which would allow for the expansion of several major producing mines in Bosnia-Herzegovina. However, since 1976 the output of these mines has decreased steadily also because of shortage of financial 12
resources which delaved tiTiecmaiisioning of a number of mine extensions. The potential for increasinig the output of open pit brown coal mines is good and with access to both domestic resources and foreign exchange, output is expected to increase. By contriast,the remaining 50% of the brown coal is produced in underground mines, which like hard coal mines are structurallydeteriorating and their output declining because of the shortage of imported equipment and material. Unless financial resources are made available to upgrade and expand existing mines and to undertake a comprehensive exploration program, Yugoslavia's domestic output of hard and brown coal would continue to decline. The priorities are, in terms of:
(a) hard coal, to channel iesources for the rehabilitation of the mine of Rasa iA Croatia, which accounts for 85% of the country's total output, to increase its rateB of capacity utilization; the Ibrskia minie in Serbia, which also requires rehabilitation,is of secondary importance onlu; and
(b) brown coal, to make available resources for the rehabilitation and eNpansion of mines in Bosnia-Herzegovina, particularly the Titovi mines and the mine at Tuzla.
Presently, over 70% of the domestic output of hard coal is used for power generation, and the rest is used either for steam generation or is mixed with imported coal for coking. The use of hard coal for power generation is uneconomic given the relative abundance of lignite which is a relatively cheaper source of primary energy for power generationand the potential for substituting hard coal for electricity and heating oil currently being used by the household sector for space heating. It is estimated that the substitutionof coal briquettes for space heating would yield a saving to the economy of about US$44 million/year. Moreover, the use of lignite to generate electricity that would otherwisebe produced by burning hard coal would generate a net saving to the economy of about US$14 million/year. In view of the potential savings to the economy associated with the briquiettingof hard coal currently being used for the generation of electricitywhich would substitute for higher value energy products such as electricityand heating oil, the authorities should -give high priority to undertaking a feasibility study for this purpose and implement the program at the latest by the beginning of the 1986-1990 social plan. Like hard coal, about 40% of the domestic output of brown coal is also used for power generation. Although the calorific value of brown coal is lower than that of hard coal,,its use for power generation is also uneconomic in view of the fact that it could substitute for higher value energy products and that available reserves of lignite are large enough to accommodatevirtually all of the new plants projected to operate on solid fuels. Brown coal could substitute for electricity and heating oil in the household sector and for fuel oil and natural gas in the industrial sector, particularly in the production of cement, steel and building materials. In view of the potential for using brown coal as a substitute for higher value energy products and the relatively large size - 13 - of the lignite reserves, whose use for power generation is economic, the authoritiesshould review their policy regarding the use of brown coal for power generation.
Lignite: Lignite accounts for 92% of Yugoslavia's reserves of solid fuels. Most of it can be produced in open pit mines, some of which are large enough to allow for economies of scale because of the low stripping ratio and the size of the reserves. The two largest and most economic sites are located in Serbia and Kosovo. Production from these is expected to account for 80% of the total output of lignite. Delays in their development were precipitatedby the underpricingof their output. Presently, about 80% of the total output is used for power generation and only 5% is used for district heating and in boiler plants. Another 5% is either dried or used for the production of coal gas. Lignite is non-tradeableand its transport, beyond a radius of 50 km, is uneconomic. Its main economic use would be as a source of primary energy for the production of steam and the generation of electricity in mine-mouth type plants. Since 1976, high and low priority mining investments were undertaken for lignite because of the pursuit of regional energy self-sufficiencyand failure of the macroeconomic policies in providing signals that would induce OALs to voluntarily channel their resources to the relatively large economic mines. The authorities have prepared a methodology jointly with the Bank for determining LRMC of supply. Based on the estimated economic cost of supply for each of the mines, priority in terms of achieving national output targets for lignite at least cost to the economy should be given to the expansion and developmentof:
(a) the Sibovac mine located in the Kosovo basin to achieve the production target of 3 million tons/year by 1989, 6 million tons/yearby 1990 and 9 million tons/yearby 1995;
(b) the Tamnava mines located in the Kolubara basin to reach an output of 3 million tons/year by 1988, 6 million tons/year by 1989, and 12 million tons/yearby 1991; and
(c) the Drmno mines in Serbia to reach an output of 3 million tons/year by 1986, 5 million tons/year by 1984 and 6.5 million tons/yearby 1988.
Lignite from economic lignite mines could be used to generate power for export to the interconnectedEuropean network at a price above the economic cost of generation but slightly below the cost to the importer of generating electricity by burning hydrocarbons. A group of European power producers organized under the Swiss Central European Dispatch Union has agreed to cofinance with the Bank the cost of developing several blocks of 300 MW each to be operated by burning lignite produced at Kosovo's largest reserves in exchange for the future firm supply of electricity. In view of the potential for increasing the foreign exchange earnings of the economy by developing the lignite mining industry and using it for the generation of power for use in the production of electricity intensive exportable products or for direct - 14 - export of electricity, the authorities should give high priority to the development of lignite and power for export of electricity by seeking joint ventures with potential importers to expedite that development. Moreover, consideration should be given to the possibility of financing the foreignexchange cost of the plants through export of electricity.
Hydro: In response to the declared objectives of the 1976-1985 medium term program of accelerating the development of hydropower potential,JUGEL updated the 1955 study in 1978 and concluded that only 55 TWh of the originally estimated 63 TWh could be developed economically. The developmentof the remaining 8 TWh was not viable as it was located in close proximity of densely settled areas. Despite this conclusion, the long-term strategy formulated by the stabilization commission projected the developmentof a total of 55 TWh by the year 2000, 56 TWh by 2010, and 57 TWh by 2020. In addition to being inconsistentwith the findings of JUGEL, the targets set by the stabilization commission are also unrealistic. They imply that an additional 24.6 TWh of potential would be developed by 1990, representing a 300% increase over the potential developed during the past two decades. This pace of development is not likely to materialize in view of the expected shortage of foreign exchange and local financing which the economy is expected to face during its structural adjustment process. Even if the resources were to be mobilized, the concurrent development of about 300 sites would tax the implementationcapabilities of OALs, particularly in the less developed regions. Moreover, to this date the estimated potential at each site has only been crudely determined. A more extensive evaluation of the potential at each site, the nature of the geological structure and the cost of development is needed before such a development plan can be implemented. Therefore, as a first step in implementing the plan for achieving the commission's targets, the authorities should undertake a detailed evaluation of the hydro potential at each of the remaining sites to be developed and catalogue these in order of importance in preparation of a more extensive engineeringand geological analysis.
Since 1976, the development of hydro potential has been undertaken on an ad hoc basis, dictated by the availabilityof resources at the disposal of OALs. This, as was the case with coal and lignite, resulted in the development of sites requiring modest investment, while the larger scheme, whose development would have been in the national interest, were postponed because of the failure of OALs' failure in reaching agreement on cost-sharing and riparian rights. A large percentage of the remaining hydro potential is suitable for multi-purpose schemes. The approach used for determining the power potential and for allocating joint cost of such schemes varies considerably between republics and provinces. In several instances, the assessments were deliberatelybiased in favor of certain sites by unrealisticallyreducing the share of the power component in the joint cost in order to justify development that would contribute to the energy self-sufficiencysought by OALs. Given the autonomy of OALs, the first step in the rationalization of investment in hydro power development is to unify the methodology used for assessing the potential. JUGEL in its capacity as the coordinator of - 15 -
the development of the power sub-sector should be entrusted by the authorities to outline such a methodology and ensure its adoption by all of its members. This would ensure that OALs follow a systematic and consistent approach in evaluating the economic viability of developing hydro sites and provide the authorities with the means for comparing alternativehydropower investmentsby OALs.
The development of hydropower potential in Yugoslavia has been undertaken in isolation of the republican and provincial plans for the development of thermal capacities. Preference is universally given to hydropower plants and thermal capacities are developed only if the hydropower is unavailable or could not be developed to meet demand in time. This has had the effect of duplicating investmentsresulting in the deviation of the power developmentplans from their least cost path. The development of hydropower potential should be dictated by a national least cost plan that integrates investments in hydro and thermal capacities, giving preference to one over the other, only on the basis of economic merit. So far, Yugoslavia has not been able to formulate a least cost plan for power which largely explains the delays that have been experienced in commissioning power plants, both hydro and thermal. The authorities have recently come to realize the cost to the economy of the absence of such a plan. For that reason, the long-term strategy proposed by the stabilization commission calls for the development of the power subsector as a single technicallyunified systelm. JUGEL, in collaboration with the Bank, has prepared the first iteration of an optimal investment plan for the power sub-sector. A critical input needed for refining this plan is the cost per unit of output at each potential site. Unless these data are compiled and categorized, the results of the plan would not constitute the least cost alternative. Therefore, in order to comply with the guideline of the long-term strategy and ensure that the first iteration of the least cost plan for the development of the power sub-sector is refined, the authorities should give high priority to the use of the methodology to be developed by JUGEL in cataloguing and classifying the remaining hydro sites on the basis of their economic cost per unit of output.
Petroleum: In the past, despite the encouraging prospects, Yugoslavia'sexploration and developmentprogram progressed on a piecemeal basis. Co-ordination among OALs in the subsector across republics and provinces was inadequate and there were moves Itoestablish new OALs which wuld acquire operating expertise in exploration and production. Activities, facilities and resources available for exploration and developmenthad not been utilized effectivelyfrom the national viewpoint, delaying the developmentof already proven reserves. This was aggravated by the shortage of financial resources on the whole, which together with the constraints on the availability of foreign exchange had brought the exploration and development program in the country to a virtual standstill. According to the long-term strategy, the production of oil and gas is forecast to increase. This necessitates a streamlined exploration and development program which would identify priorities in terms of the overall contributionto the total supply of oil and gas for - 16 -
Yugoslavia. More recently, significant improvements towards co-ordination among OALs in the subsector has taken place to establish the national priorities for exploration and development envisaged in the Federal Assembly's Annual Resolution for 1985. Outside of the existing producing areas of Croatia and Vojvodina, other republics (Bosnia Herzegovina and Montenegro) have set up small administrative organizations to manage the republican resource rights and promote and co-ordinate exploration activities within these republics. These administrative organizations rely on the technical expertise and the operating capabilities of the already well established oil and gas producing OALs INA Naftaplin and Nafta-Gas in Croatia and Vojvodina, respectively, and when feasible, they have formed foreign joint ventures to implement their programs. In order to avoid duplication of facilities for oil and gas exploration and development, the other republics and autonomous provinces should continue to rely on the technical expertise of INA Naftaplin and Nafta-Gas and should not create independent operating enterprises.
Energy Pricing
Law on Pricing: The 1980 law on pricing, outlined six criteria which are to be used by OALs in negotiating and concluding self-management agreements. These criteria are: (a) market clearance; (b) economic efficiency; (c) productivity; (d) distribution; (e) development; and (f) inflation. The criteria when used together result in an overdetermined system with conflicting objectives. Any one criterion could be used to counteract the other, and consequently, with the prevalence of CIs, there is no assurance that OALs would not resort to alternative criteria to achieve their goals. Unless the law on pricing is amended to ensure that economic prices are introduced and maintained, distortions in the level and structure of prices would re-emerge once the special measures in effect are removed. The amendments to the law on pricing, currently under review, give priority to the achievement and maintenance of domestic prices at parity with border prices. 1/ Again, the emphasis on priority is vague and is unlikely to remain as the main criterion once OALs face a potential loss in income. Unless more specific targets are set for domestic prices, the distortions that the amendments are expected to address would reappear. Optimally, domestic prices should be set at levels that reflect the cost of the resources to the economy. In the absence of intervention, prices would be set at parity with border
1/ This discussion in the text refers to the Law on Pricing of 1980. On January 1, 1985, the Law on the System of Social Control of Prices was introduced to replace the Law on Pricing of 1980. Under the new law, prices are to be set on the basis of market conditions. Prices of energy and energy raw materials are to be set in accordance with common elements established by federal plan documents and other enactments relative to the formulation of economic policy and also on the basis of world prices. 17 prices plus delivery cost in the country for tradeable goods and at a level that, as a minimum, cover the economic cost of supply of non-tradeables. This could be achieved by assigning weights to each of the criteria. Since the authorities aim to achieve parity with economic prices, the criterion on economic efficiency should be assigned a weight of say 80% so that no matter what other criterion OALs resort to the weight would always tip in favor of the criterion of economic efficiency; that is, all criteria combined would have a lower weight than that criterion. This would imply that the maximum deviation of domestic prices from border prices, adjusted for internal transport, would be at a maximum of 20%. Therefore, in view of the objectives set by the authorities in achieving parity with economic prices to ensure efficient resource allocation, the law on pricing should be amended to allow for a maximum deviation between domestic and economic prices of 20% which could be partially or totally applied on the basis of criteria other than efficiency.
Communities for Pricing: With the ratiEication of the 1980 Law on Pricing, communities for pricing were established at the federal (FCP) and the republican and provincial levels (RPCPs'), to review and monitor the prices set by OALs. The pricing of crude oil, petroleum products and imported natural gas are under the jurisdiction of the FCP, while domestic natural gas, coal, lignite and electricity are under the jurisdiction of the RPCPs. The division of responsibility for monitoring the pricing of energy products is dictated by the fact that crude oil, petroleum products and imported natural gas are considered of relevance to the development of the entire economy while the others are not. Clearly this is not the case. Relative prices of primary energy determine the configuration of consumption, magnitude and location. Failure in the past in maintaining relative prices of domestic energy products at parity with their cost to the economy has led to uneconomic investments. Given the pivotal role of the energy sector in the future development of Yugoslavia and the potential for using domestic energy to gradually restructure the economy, the law on pricing should be amended to include coal, lignite, domestic natural gas and electricity as products of interest to the development of the entire country. The FCP should be responsib:Le for setting the prices of all energy resources and products. This would ensure that national policies for pricing lignite, brown and hard coal and electricity are developed and relative prices of these products are maintained at levels that would facilitate the achievement of the targets set for the economy. It would also make possible the setting of prices based on national plans.
Historical Developments in Pricing; The differences in the price of domestically produced natural gas and that of hard and brown coal and lignite, have been maintained at a minimum since 1977. As shown in Table 1.4, in 1977 domestic gas was priced at US$52/toe, which is US$10/toe lower than that of hard coal and onLy US$7/toe and US$6/toe above the price of brown coal and lignite, respectively. In 1983 the price of domestic natural gas was US$8/tce below that of hard coal, and at parity with the price of brown eoal and about Ueat3/toehigher than price - 18 -
Table 1.4
Relative Prices of Fuels for Power Generation 1977-1983
…------US$/toe ------1977 1978 1979 1980 1981 1982 1983
Domestic natural gas 52 51 55 49 66 63 50 Imported natural gas 77 74 139 198 195 189 170 Fuel oil 93 93 141 192 242 177 149 Hard coal 62 76 101 80 74 75 58 Brown coal 45 57 67 77 82 67 50 Lignite 46 55 64 66 67 59 42
Source: JUGEL
of lignite. The differential between the price of domestic and imported gas, and the practice of averaging their price has led to the uneconomic use of gas. The inability of the policy makers to increase the reliance on solid fuels can be explained largely by the distortion in the relative prices of fuels used by industry and the power subsector. In the Yugoslav system, where workers produce to maximize their income, the decision to increase the consumption of natural gas rather than switch to hard and brown coal was a rational economic decision,,reflecting the behavior of an economic entity responding to relative prices. OALs consuming fuel oil would have gradually shifted away from this product to natural gas, particularly domestic gas in view of the prevailing differential in prices. The price of fuel oil has on the average ranged between twice and three times the price of domesticallyproduced natural gas. OALs who had access to both domestic natural gas and hard coal or brown coal had no incentive to switch from the former to the latter. Given the potential for the substitutionof solid fuels for hydrocarbons,the shift would have been achieved had the relative prices of competing fuels been set at their economic cost of supply. Therefore, in order to ensure that economic investments are made voluntarily, relative domestic prices should be adjusted to reflect the cost of these resources to the economy.
Relationship Between Domestic and Economic Prices: The relationshipbetween domestic and economic prices of energy products, as of July 1983, is as presented in Table 1.5. - 19 -
Table 1.5
Comparisonof Prices of Energy Products With Economic Costs (July 1983)
Domestic Prices as Product Domestic Price Economic Cost % of Economic Cost (Din/toe) (Din/toe) (%)
Natural Gas 4,500 15,300 29 Fuel Oil 13,500 15,300 88 Hard Coal 7,902 9,000 88 Brown Coal 7,074 8,280 85 Lignite 5,640 7,200 78 Electricity (paras/kWh bulk supply level) 110 254 43
Petroleum Products; With one exception, the domestic price of petroleum products are above their border prices. However, the domestic price of fuel oil of $150/toe (at July 1983 prices and exchange rate), or about 88% of its border price. The price of fuel oil should therefore be raised to at least parity with its border price.
The tax on kerosene is disproportionatelylow relative to the tax on other fuels used by the household and transport sectors (diesel, gas oil, gasoline, LPG). The differential in the domestic price of kerosene and diesel oil is about US$135/ton (July 1983 prices and exchange rates), which is sufficient incentive for the consumers of diesel to switch to kerosene. Consequently, there is economic merit in raising the price Cf the product to parity with the price of diestelas it would mobilrze resources for the authoritiesand ensure that increasedconsumption is ukot stimulatedby the price differential. The ratio of the border prices of kerosene and diesel are close to unity. In contrast, the ratio of the domestic prices of these same products is about 0.7. To ensure that the mix of petroleum products consumed is optimal the tax on kerosene should be raised to maintain the relative domestic prices at, or close to, parity with relative border prices. Therefore the domestic price of kerosene should also be raised from its level of US$301/ton to at least US$435/ton (July 1983 prices and exchange rates) to be at parity with the domestic price of diesel. This would mobilize more resources and ensure tb \ prevailing differentialbetween the price of kerosene and diesel do, encourage the increased consumption of the former. The prices of petroleum products should be adjusted periodicaLly to ensure that their levels relative to their border prices are maintained unaltered in real terms. These adjustments should take place in accordance with a predetermined schedule which would allow OALs to take these projected changes into considerationwhen negotiatingand concluding SMAs. - 20 -
Natural Gas: Yugoslavia's output of gas has a value to the economy which exceeds the price set by OALs and RPCPs. Alternatively, since Yugoslavia is a net importer, the cost to the economy of meeting a unit of extra demand at the margin is equal to the border price. Therefore, in order to ensure that natural gas is allocated optimally between competing ends, the authorities should increase the price of domestic gas to reach parity with the price of imported gas. The stabilization committee has recently acknowledged the pivotal role of economic pricing in the structural adjustment process of the economy, and as a result, an agreement under the Bank's first loan for structural adjustment (SAL I) was reached in April 1983 to move the real price of domestic gas upwards to achieve parity with the border price of imported gas by 1987. Since then, the price of domestic natural gas has been increased by 60% in Croatia and 39% in Vojvodina, and 37% across the board in October 1983. A third increase of 23% is planned for January 1985. Additional increases would be required to close the prevailing gap between the price of domestically produced gas and its border price by 1987. In order to achieve this objective the authorities should automatically adjust the domestic price once every three months for changes in the rate of inflation and exchange rate and move the price closer to its border price through additional quarterly increases in accordance with a predetermined timetable. Specifically, the price of domestic natural gas should be increased, in real terms, by about 340%, from US$50/toe to US$170/toe (July 1983 prices and exchange rate) over a period of 5 years, ending 1987. As for imported gas, domestic price should be maintained at parity with its border price adjusted for domestic transport and allow for periodic upward corrections to compensate for the depreciation of the exchange rate and the increase in the general price level. Achievement of parity between the prices of domestic and imported gas, however, is only the first step in formulating a pricing policy that would ensure its optimal allocation between competing ends. Gas is a storable commodity whose consumption varies by season, time of day and location. Transmission, storage and distribution of gas would allow for efficient supply. This would require the development of an infrastructure that would ensure economic management of the resource throughout Yugoslavia by interconnecting the gas pipeline network in order to move the product (domestic and imported) to meet demand at least cost to the national economy. Price structure and level should be based on a national plan which would ensure that consumption of gas is optimally allocated, rather than on a regional basis guided by number unconnected and uncoordinated development programs. Therefore, in order to ensure the efficient supply and consumption of natural gas throughout the country, high priority should be given to the formulation of a pricing policy based on a least-cost national plan for the supply of gas.
Hard Coal: In terms of domestic supply, the output of hard coal is constrained by the geological setting of the reserves. Its underpricing in the past has been responsible for its uneconomic use. Since, at the margin, an increase in demand would have to be imported and given the fact that each ton diverted from domestic use could be exported, - 21 -
the economic cost of this resource to the country is equal to its border price. In order to ensure the efficient use of hard coal and to mobilize resources for the rehabilitationof mines, its domestic price should be increased from US$87.8/toeto US$100/toe (at July 1983 prices and exchange rate).
Brown Coal and Lignite: The domestic price of lignite should be set at LRMC of supply since it is not economically tradeable. The potential for increasing the supply of brown coal is fairly limited and its calorific value is almost at parity with the calorific value of underground lignite. Moreover, imported hard coal would be a superior substitute for brown coal. Therefore, the price of lignite should, at a minimum, be set at its LRMC. The price of brown coal, on the other hand, could be set anywhere between its LRMC and the border price of hard coal, depending on the consumers' willingness to pay and availability of substitutes. The domestic price of brown coal should be increased from US$70/toe to US$92/toe (at July 1983 prices and exchange rate) to cover its LRAIC and that of lignite from US$63/toe to cover its LRAIC of US$80/toe. Moreover, all prices should be adjusted to ensure that an adequate level of self-financingof not less than 40% is achieved.
Electricity: The prevailing tariff structure is consistentwith the structure dictated by the principles of marginal cost pricing; that is, tariffs are differentiatedby time of day and season to reflect the differences in the cost incurred by OALs in meeting consumer demand for electricity. However, the tariff levels do not reflect the economic cost of supply. If electricity is to be consumed efficiently, the level and structure of tariffs must coincide with the economic cost of supply. Under the agreements with the Bank for SAL I and the Third Transmission loan, the authoritieshave agreed to achieve parity with the LRAIC by the end of 1987. In real terms, this would mean that over the next 5-year period, tariffs at all levels would have to be doubled.
Due to the substantial economies that can be realized through rationalization of investment in the power subsector and other related sectors by setting electricity tariffs at the LRkIC of supply from the national interconnectedsystem, electricity tariffs should be increased at all voltage levels to reach parity with LRAIC by 1987. This would involve increases as follows 1/:
Bulk supply: increase from paras 110/kWh to paras 254/kWh Medium voltage: increase from paras 138/kWh to paras 313/kWh Low voltage: increase from paras 182/kWh to paras 452/kWh, in real terms.
1/ Tariffs are expressed in 1982 prices. - 22 -
Financial Discipline
Pricing of Social Goods: The creation of the communities of interest was intended to overcome the difficulties that could arise from total dependence on market forces to balance demand and supply, and set prices equitable to both consumers and suppliers. Theoretically, the deliveries of goods and services by the producers to the consumers in CIs are ensured under SMAs. In return, consumers contribute to the producers' total investment needed to expand the output to meet their demand. The contribution of consumers to the investments of the suppliers through credits, non-reimbursablefunds and interest free loans is one of the main sources for financing the 5-year development plans. It is a form of advanced contracting which ties consumers and producers not only with respect to the delivery of goods but also into financial arrangements. In so doing, it depletes the financial resources of the consuming OALs and restricts their freedom in seeking alternate suppliers once funds have been disbursed for projects that are delayed. Consequently, failure in implementationof plans or delays in completion of projects results in a net loss to the economy. Considering the adverse impact that SMA's and customer contributionare having on the achievement of the targets set in the 5-year plans and the financial positions of QALs in CIs, it is imperative that Cls should submit to the Chambers of Economy complete financing packages for the major projects in the priority sectors before disbursementof funds to ensure efficient implementationof these plans.
SolidarityFund: Solidarity funds are used to compensate workers whose income has been adversely affected by circumstances outside their control. This includes failure to secure financing, inability to implement projects because of delays in delivery of critical equipment and material, unexpected increases in the prices of inputs, etc. These are usually more a reflection of uneconomic investment decisions than of decisions made by resource owners that attempt to take all factors into considerationin order to minimize risk. Similarly, workers whose income increases because of unexpected events are also denied the use of these windfalls. To demonstrate the effect of these rules on the operation of the energy sector, consider an OAL responsible for the operation of an oil-fired power plant that, contrary to the objectives of the energy plan, decides to expand its capacity. Consider another OAL, responsible for the operation of a hydropower station, that makes a decision to expand its capacity in compliance with the authorities'overall policies. According to the guidelines of CIs, the contributionof consumers to the cost of expansion and the quantities of electricity to be delivered in return is set in SMAs for both OALs. If the hydrological conditions are favorable the power generated by the OAL operating the hydro station would exceed the agreed level, while the OAL with thermal power station would deliver less than the amount called for in SMA. According to the law, the enterprise that complied with the policies of the authorities is denied the use of extra funds and OALs that took a decision contrary to the established policies are compensated for their losses. This illustrates clearly that OALs that make uneconomic decisions are not made to bear the cost of such decisions. If the system allowed for material rewards and - 23 - punishment for investment and pricing decisions, OAL with the thermal power station would have refrained from the expansion of its capacity to minimize its risk of loss in income and pooled its resourceswith those of OALs with the hydropower station, thus improving the chances for higher income and concurrentlycomplying with the targets of the authorities to decrease the petroleum products used in the power generation. Under the decentralized system prevailing in Yugoslavia, efficiency in investment could be achieved by satisfying two conditions. First, as discussed above, all inputs should be priced at the cost to the economy. Second, decision-makers should incur the cost or reap the benefits of their economic decision. Therefore, in order for authorities to rationalize investment,rules governing the disbursementof solidarity fund should be streamlined to ensure that beneficiaries undergo changes in structure involvingmanagement, pricing, investment,etc., that would enable them to become viable both economicallyand financially.
Official Versus Actual Rates of Inflation: Financial planning in Yugoslavia is based on constant prices, expressed in terms of the base year of the plan. The official rate of inflation is ratified by the FEC and is one of the components of the compacts covering the first step of the plan and represents one of the macroeccinomictargets to be considered. Consequently, all SMAs involved in the second step of planning forecast their deliveries on the basis of the official inflation rate. Once real inflation exceeds the rate set in the compacts, the producers request the negotiation of prices agreed to earlier. Their success, however, is usually minimal because of the criteria on pricing discussedearlier. As a result, producers tend to fall behind in securing the level of self-financingneeded to implement tlheirplans. The fixed rate of inflation, which differs significantly i-rom market determined inflation, tends to trigger uncertainties in the financial planning of OALs. Given this disparity and its effects on financial planning, the authorities should consider setting a target inflation on the basis of a revolvingplan to allow FISP to re-estimate inflation.
Cost of Capital: Consumption and investment decisions are primarily determined by relative prices. Distortions in relative prices result in suboptimal decisions on the mix of goods consumed and on the allocation of resources used to supply the goods. The policies for pricing energy and for setting the level of interest rates have been responsible for the uneconomic investment decisions in the energy sector. Nominal interest rates have been kept low to promote development;however, with the sustained increase in the general price level, the real interest rates on credits and loans have been negative at least since 1976. The interest rate of both the publicly guaranteed and private non-guaranteed loans are summarized in Table 1.6 below. The table also includes the average increase in the retail prices. - 24 -
Table 1.6
Average Interest Rates on Credits and Loans and the Rate of Increase in the Retail Prices between 1975 and 1982
1976 1977 1978 1979 1980 1981 1982
Weighted average interest rate 7.3 7.6 9.3 11.0 15.2 18.0 18
Annual average increase in retail prices 10 13 14 22.0 30.0 47.0 45
In view of the relationship between the price levels and interest rates, it was rational for OALs to borrow at what in essence was a negative interest rate. The authorities have agreed under SAL I to move the lending rate to a positive level over a period of 2 years.
Foreign Exchange Allocation: Following the adoption of the stabilization measures, a system of foreign exchange allocation was introduced, replacing the old system which provided for OALs with shortage or no access to foreign exchange to obtain the required quantities at an effective price higher than the official exchange rate. Under this new system, export earners were given preferential access to foreign exchange with some provisions made for the priority sectors, including energy. The provisions, however, have fallen short of the requirements of foreign exchange needed for imports of essential equipment and material, particularly spare parts. The prevailing system of foreign exchange allocation, based on whether the beneficiary is an exporter or a priority sector, should not be the only criterion as it would impede the development of the energy sector along the least-cost path. The authorities should devise a mechanism that would enable a critical sector like energy to have all the foreign exchange needed for exploration, development and production of the domestic energy resources. However, this mechanism should be viewed as an interim measure to be used only during the period required for restructuring the economy. Ultimately, plans should be made to liberalize the system and provide OALs the opportunity to freely purchase their foreign exchange requirement at prices determined by the forces of supply and demand. This liberalization would be consistent with the policies being pursued by the authorities in moving the economy towards a rational economic approach to pricing.
Priorities in the Development of Secondary Energy
Current plans to expand the output of coal gas are not justified on economic grounds. The gasification plant at Kosovo has been riddled with technical problems. In 1982, the cost of coal gas averaged about - 25 -
US$250/toe. This gas is used mainly by households. A more economic alternativewould be to substituteelectricity generated by lignite-fired power plants for this type of gas. It is estimated that one toe of electricitywould cost about US$212. In view oL its economic cost, this gas should not be produced, and if produced, it should not be used by industry. The production of coal gas would also require imports of equipmentand material which have been used in thteindustrial countries in pilot schemes only. In view of its high cost of production and the unproven technology for commercialuse, the authorities should reconsider all plans for expanding Yugoslavia's capacity for the production of coal gas, until the commercial application of the technology is proven elsewhere. The stabilization commission's long-term plan also calls for the developmentof the natural gas pipeline to substitute for electricity in households. At present, this would be premature First, the geological potential of presently proven gas reserves should be assessed to determinethe extent of future supply. The plan for the developmentof gas network, including storage and distribution, should follow. At that point, it would be possible to identify areas where substitution for electricity is economic. For the next few years, however, the proposed substitution should not be a high priority in view of the current and projected shortage of financial resources, and given the fact that the development of a network for distributionof gas in urban areas is fairly capital intensive. A more economic option would be to develop the national gas grid and supply the large industrialand commercialconsumers once it is determined that such supply is economic.
Refinery; One of the main issues facing the energy sector is the rationalization of the oil refining subsector. The installed refining capacity is grossly underutilized. In 1982, the capacity utilizationwas on the average about 50%. As a result, the energy efficiency of most refineries was lower than would have been under full utilization. In addition, most of Yugoslavia's refineries are based on technologieswhich by today's standards are energy inefficient. Retrofitting and investment in recently developed equipmentcould reduce the energy used in conversion by about 30%. However, the refineries in Yugoslavia have not been able to take advantage of the new technologiesmainly because of the shortage of foreign exchange. In 1982, the refining of 12,6 million tons of crude involved losses in conversion amounting to 0.8 million tons, representing about 6.1% of the total oil refined. The mission estimates that, as a minimum, these losses could be reduced to about 4%. This represents a reduction in conversion losses of about 242,000 tons, which if valued at about US$200/ton,would amount to an annual saving of about US$48 million in foreign exchange. Obviously, as the amount refined increases so would the savings. The improvement of energy efficiency of refineries is a fairly straightforward task; however, in order to ensure the rational development and operation of the subsector, the existing refinery capacity and its mix of products should be optimized together with a program for the development of infrastructurefor transport, storage and delivery of petroleum products. Such optimizationshould be carried out on a national basis to ensure that the refining capacities are fully integrated and developed to meet the future demand for petroleum products at least cost - 26 - to the economy. Therefore, a study for restructuring the petroleum refining subsector should be undertaken with a view to identifying the investments required to adapt the existing refining capacities to correspond with the forecast mix of demand Eor petroleum products and its location; to replace the existing technologies with new more energy efficient processes and equipment; and to retrofit existing equipment in order to improve the energy efficiency.
Least Cost National Plan for Power and Coal The power subsector accounts for slightly more than one half of the investments in the energy sector. Investment for the development of the subsector under the revised 1981-1985 social plan amounts to Dinar 161 billion which is about 27% more than the projected investments in the coal and petroleum subsectors combined (Din 125 billion), In fact, if the development of the mining capacities by integrated OALs for power and solid fuels are considered, the share of the power subsector would rise to 68% of the investment in the energy sector. Consequently,the rationalizationof investment in the power subsector would go a long way in addressing the majority of the constraints experienced by the energy sector. Past development of the sector has been suboptimal from the national point of view. The pursuit of energy self-sufficiencyby OALs has contributed to the shortfall in achieving the production and investment targets. If investments in power and solid fuels are to be rationalized, their development should be dictated by a least-costnational plan. In view of its importance for the rationalizationof investment in the power and coal subsectors,JUGEL, in collaborationwith the Bank, has prepared the first iteration of a least cost national plan for the development of the power subsector. If refined, this plan could serve as a basis for pricing electricity which would link pricing and investment decisions and assist in the identificationof national priorities. It could also provide a framework within which the associationsof power and coal producers could harmonize tLeir views and settle on a mix of investmentswhose magnitude would not exceed the level dictated by the national plan. The refinement of this plan would require an extensive data base for the power subsector. Currently, JUGEL collects a fairly standardized set of data on the subsector covering generation, by plant, type of fuel, fuel consumed, station use, losses etc. However, data on consumer load characteristics is very limited. The availabledata fall short of providing the necessary inputs for the formulation of a national least cost plan for the subsector. Moreover, the data availablewould not allow for the efficient operation of the integrated network once the dispatch centers are commissioned. JUGEL should therefore increase its efforts at compiling comprehensivedata on the subsector and to establish a data bank as an input for a national energy sector data base to be developedby FISP.
Rationalization of Secondary Energy. The potential for energy savings in the power subsector is also high, especially in power plants in the transformation of primary energy into electricity and in the distributionsystem. Conversion losses in most of the large thermal power plants range from about 76% to 72% of total primary energy consumed in electricity production. In other words, the efficiency of most of these - 27 - plants ranges from about 24% to about 28%. The low level of efficiency is mainly due to inadequatemaintenance caused by extensive use of plants in an attempt to meet demand, and the age of some of the plants. This has resulted in low levels of plant availability. The mission estimates that, the efficiency of these coal and lignite-fired power plants could be increased from the prevailing weighted average of 26% to about 33% for plants with unit sizes less than 100 MW and to albout35% for plants with unit sizes greater than 100 MW. Based on the 1982 data on solid fuels consumed in the production of electricity, the improvement in average efficiency level could result in fuel savings of about 1 million toe per year made up of 5.5 thousand toe of hard coal, 2132thousand toe of brown coal and about 812 thousand toe of lignite. The total estimated value of US$84 million (Din 4.3 billion) per year. The pctential savings in solid fuel-fired thermal power plants could be regarded as equivalent to the release of 5.1 million tons of lignite, representing about 16% of the total annual lignite consumption of the power subsector and equivalent to one and half times the output of Kolubura 5. Saving that could be realized through improvement in overall plant efficiency would also lead to a reduction in the self-consumptionof power plants which, based on data provided by JUGEL, is estimated at 12% in 1982. The potential saving that could be realized through improvementsin effEiciencyof thermal power plants is estimated at US$113.8 million (Din 5.8 billion) per year. Investments in retrofittingand rehabilitationof power plants to improve their efficiency are significantly lower than investments in additional generating facilities. In view of the substantial savings that could be realized, the authorities should assign high priority to improving the efficiency of power plants, first in the oil and gas-fired plants to reduce the consumption of oil in power generation, followed by coal-fired plants since coal can be briquetted to displace hydrocarbons in domestic and industrial uses and finally in lignite-firedplants. A study should first be undertaken to identify all the plants that need rehabilitation.
Infrastructure for Transport and Distribution of Power. As a result of the delays in the completion of Phases I and II of the 380-kV network and the emphasis given in the past to the development of power generation facilities at the expense of transmission and distribution networks, several critical 380-kV lines are being operated at the 220-kv level. Moreover, the 220-kV, llO-kV and lower voltage lines and substations have in the past not been adequately maintained and as a result, are currently in need of reinforcement and rehabilitation. Consequently, losses in the transmission and distribution of electric energy have been relatively high. The mission estimates that in 1982, losses in both networks amounted to about 12% of total electricity available for consumptionor 7,946 GWh out of total supply of about 66,217 GWh. Currently, losses in the transmissionsystem constitute about 40% of the total losses in the transmissionand distriblutionsystems due to the current overloading of sections of the 220-kV and ll0-kV networks. Transmission losses would be substantiallyreduced upon completion of the 380-kV system which is not expected to become overloaded in the foreseeable future. However, the potential exists for reducing losses at the medium and low voltage levels by about 3% of net generation equivalent - 28 - to 1986 GWh. Based on economic cost of supply at the medium voltage level of USc 6.1/kWh (paras 313/kWh) reduction in losses would amount to a saving of US$121 million (Din 6.2 billion) per year in 1982 prices. In terms of energy used for power generation, reduction in losses would amount to about 497 thousand toe, representing about 78% of the 640 thousand toe consumed by the oil- and gas-fired power plants in 1982. Therefore, by reducing losses in the distribution network, the power subsector could reduce its use of primary energy and decrease the investmentsrequired. Moreover, and more importantly,it could reduce the subsector's dependence on liquid hydrocarbons. Losses could be reduced by: (a) operating the networks at their optimal capacity levels and by using the most economic design and size of equipment, i.e. conductors, insulators, transformers etc.; and (b) by matching the sources of supply and demand to reduce the distances involved in delivering electricity to its ultimate consumers. At the high voltage level the optimal design and material have been determined in the feasibility study for the 380-kV network. Efficient dispatch of power plants to reduce the distance for the transmission of electricity would be achieved once Phase II is completed to allow for economic dispatching of power plants on a national basis, and consequently the emphasis above on the need to mobilize resources for the timely implementationof the critical phase. However, at the sub-transmissionand distribution levels, variation in the design and equipment used is quite high. The development of these networks has been dictated by the availabilityof finances rather than a least cost national plan. Moreover, coordinationbetween OALs, particularly at the distributionlevel, has not been adequate, and has resulted in some cases, in duplication of facilities (lines, substations,etc.) most of which are under utilized, and overloading in others, resulting in relatively high levels of losses. Consequently, there is a clear need for JUGEL to initiate and adopt, in collaboration with its members, a program for standardizingequipment and adopt these throughout the country. Moreover, overloaded facilities should be identified and a plan outlined for rehabilitatingthem. The developmentof the transmissionand distribution network should be based on a least cost development plan; however, given the autonomy of OALs these plans can not be formulated by a central authority. JUGEL should take the lead in outlining the methodology and in formulatinga least cost plan for the development of subtransmissionand distributionnetworks. This methodology should cover the parameters and standards of design, economic costs for estimating network configurations and their associated costs, specification and range of capacities and equipmentto be used.
In industry, the potential for conservation and substitution of coal and lignite for fuel oil and natural gas, is high. In 1982, the industrial sector consumed about 1.3 million toe of natural gas and 1.5 million toe of fuel oil. It is estimated that at least 35% of this combined consumption could be switched to lower value products, such as hard and brown coal and, at times, lignite. This would amount to a net annual saving of about US$78.4 million. More importantly, it would release about 0.5 million tons of fuel oil for secondary refining which represents 25% of the 2 million tons installed secondary refining. The - 29 -
980 thousand toe of hard and brown coal which would displace fuel oil and natural gas represent60% of the hard and brown coal consumed by the power subsector (1.4 million tons). Their withdrawal from the power subsector can be replaced by lignite which would amount to 10% of total production in 1982. The industries where natural gas and fuel oil can not be displaced by lower value products are candidates for energy saving through retrofitting and investment in changes in technology. Of the total energy consumption of 8.7 million toe, it is estimated that, with conservation measures, a minimum of about 20% saving in overall energy consumption could be achieved. In terms of the energy consumption of industry in 1982, this would amount to 1.7 million toe, representing US$204 million. In view of the economic potential for shifting the industrial sector and the power subsector to the consumption of lower value product as substitutes for fuel oil and natural gas and the scope for energy conservation, FCEI and RPCEI should identify OALs where the substitution and conservation would be economic, and take measures to ensure that OALs have access to the resources required for financing the technological changes needed. In recognition of the need to restructure energy consumption in the large energy inatensive industries, the authoritieshave agreed with the Bank, under SAL I, to prepare a technical assistanceproject to be financedby the Bank. Under this project several OALs in energy intensive industries would be audited to determine the potential for improving their energy efficiency and the scope for the substitutionof solid fuels for hydrocarbons. In addition, the extent of the investment required to achieve this objective and the economic viability of these investments would also be determined. Following the review of the results, the targeted OALs would be ranked in terms of their overall contribution to the national economy. It is expected that the implementationof this project would set the stage for the creation of a fund which would lend to OALs both foreign and local costs, needed to implement their programs. It would also serve as a means for strengtheningthe institutionalcapabilities of agencies at all levels in implementingand monitoring similar projects in the future.
Transport, Storage and Distributionof Energy; The increased use of domestic natural gas in Vojvodina and Croatia was stimulated largely by the maintenance of low prices in real terms; however, the short term gas supply constraints and absence of an infrastructurefor the storage and transport of natural gas, whether domestic or imported, have also been responsible for concentrating gas use in the producing republic and province. As a result, Yugoslavia does not: have an interconnected pipeline network for the transport of natural gas between the sources of supply and the main demand centers. The network has been expanded on an ad hoc basis, justified by the needs of existinLgor new consumers rather than a least cost national plan that would dictate the optimal size of pipes, economic number of compressor stations and the strategic location of storage facilities. In 1982, Yugoslavia paid about US$5 million in foreign exchange, divided almost equally between Hungary and Austria, to store part of the imported natural gas which it could not utilize because of the unavailability of adequate storage faciLities.Consequently, part of the gas was stored abroad and the rest was sold at a discount to - 30 -
domestic consumers. The operation of the gas supply system in an optimal fashionwould require storing the gas during off-peak periods and using it to supplement domestic production and imports during peak periods. Two storage facilities have already been identified and preparation has started; however, because of the shortage of foreign exchange their construction has been postponed. In view of the possibilities for increasing gas supply through additional imports or domestic production, it is recommended that the formulation of a program for the optimal developmentof a national gas transport, storage and distributionnetwork in relation to potential uses of gas is essential for the efficient use of natural gas. FCEI and RPCEIs should give the initiation and adoption of that plan high priority in the context of their evaluation of new proposals for expanding gas imports.
The formulation and implementation of a national least cost development program for power and lignite, as well as, the efficient operation of existing and new generating capacities would require a fully interconnected system operated at a voltage level that would minimize losses and the probability of outages. Technical studies have determined that the 380-kV transmission network is at present optimal for Yugoslavia. The network would evacuate the electric power from the surplus to the deficit republics and provinces in order to minimize the overall cost of meeting the demand for electricity throughout the country. This would allow for the dispatch of the power plants on the basis of their operating cost and ensure that at each point in time the most economic combination is used. In recognizingthe critical role of the 380kV network, the Bank financed all three phases. The implementationof the first and the initiation of work on the second phase were delayed because of the shortage of foreign exchange. The timely implementationof the remainingwork on the second phase and the conmissioningof the third phase are by far the most critical. They would ensure the success of the developmentplan for the power subsectorand, since power accounts for the bulk of energy investments,the entire energy plan. Delays in the future could hinder the efficient operation of the system by forcing OALs to transmit power at lower voltages which would increase losses or by operating the standby oil- and gas-fired capacities to compensate for the shortage of power that could otherwise be purchased from other republics and provinces. Therefore, in view of its pivotal role for ensuring the least cost development and operation of the subsector, the authorities should ensure that all foreign and local currency requirementsare met.
Planning and MacroeconomicManagement
Formulation and Adoption of Plans: The time involved in the harmonization of plans usually extends into the first year or two of the plan being implemented, and consequently, projects which are being negotiated have either started or are delayed. By the time consensus is reached, it is too late to stop the projects already under constructionor start those delayed by one or two years. OALs have been known to initiate projects as a means of ensuring that the rest of the financing required could be secured from the CIs, banks, etc., since they constitute ongoing - 31 -
projects. Such projects usually are viewed favorably and given preferentialtreatment in the allocation of resources. This induces OALs to emulate each other and compete for the favorablestatus. As a result, priority projects are, at times, delayed and instead some of the less attractive projects are allocated the scarce resources. In view of the delays usually experienced in harmonizing the investment plans of the economic agents at all levels and given the negative effects these delays have on project implementation and the achievement of targets, the authorities should consider initiating the planning cycle at least two years before the start of the next plan.
Targets: The implementationof the plans hinges largely on the targets set by the authorities. Unless these targets are technically realistic, over investmentsby OALs is inevitable. A major shortcomingof this approach is that once compacts relating to the macroeconomic and sectoral targets are concluded, they cannot be changed without reinitiating the process, even when they are unattainable. This lack of flexibility is the principal source of the inconsistencybetween the plan targets set by the authorities and the targets set by OALs, which in the past has promoted over-investment. Therefore, all that is required is to adjust the prevailing practice to allow for the bi-directional flow of information between the first and the second steps and a mechanism for adjusting the targets, as and when required, in order to improve the efficiency of planning and shorten the tiime required for reaching agreement. The latter could be achieved by requiring OALs to rank their priorities based on a uniform measure, for example rate of return. This would ensure that each project put forth is part of the national least cost plan and is ranked. Decision-makers could then identify, in consultationwith OALs, the projects with the lowest rate of return which, in case of resource constraints or when the targets need to be scaled down, could be postponed.
Overambitious Forecasts: Forecasts oDf the demand for energy prepared by the authorities are based on a relatively simple linear equation relating GDP and energy consumption., This equation takes no account of the impact of prices on energy consumption. The exclusion of prices from the equation reflects the view, adhered to until recently by the authorities,that prices of social goods, iwhichare determined within CIs, do not serve an allocative function. Although this view has now come under scrutiny, prices have not been accorded their proper role in determining the mix and level of products consumed. Moreover, the equation also does not take into account the mix of energy products consumed and the differentialsin the growth of value added for the main energy consuming sectors. In the past, this approach to forecastinghas resulted in the overestimationof energy targets and, in turn, in the initiation of a larger number of projects than the economy could either finance or implement. Therefore, as a first step in rationalizing investment planning in the energy sector, the authorities should adopt available macro-economicmodels to provide a more disaggregated forecast of energy consumption by taking into account the changes in the structure - 32 - of fuels used and the development of the main energy consuming sector. However, until a macroeconomicmodel is adopted the MEAD developed by the InternationalAtomic Energy Agency, which is availableupon request should be used to provide the support needed in formulatingthe 1986-1990 social plan. It would allow the authoritiesto simulate and assess the impact of alternative growth scenarios on the energy sector. Hence, the acquisition of MEAD should be given high priority by the authorities and steps should be taken to train Yugoslav professionalsin one of the research institutes in the use of the model. Concurrently, in order to achieve economies in both time and manpower, the same institute should also be assigned the task of training Yugoslav professionals in the use of the macroeconomic model adopted. Moreover, the mission, in the absence of forecasts of energy for 1985 and 1990 that are consistent with the macroeconomic targets, has prepared forecasts for the two years which are given in Table 1.7. - 33 -
Table 1.7
Mission's Forecasts of the Demand for Energy, 1985 and 1990
Mission's Forecasts 1985 1990 Growth Rate '000 '000 000 '000 (%) toe tons toe tons 1985-1990
Solid Fuels Hard & brown coal 6,456 14,470 7,106 17,294 3.6 Lignite 10,626 53,686 14,477 73,427 6.5
Total coal 17,082 68,365 21,583 90,721 5.8
Petroleum Products Fuel oil 3,545 3,918 3,005 3,321 -3.2 Diesel 4,160 4,160 5,024 5,024 3.8 LPG 382 339 471 418 4.3 Aviation & kerosene 297 328 376 415 4.8 Gasoline 2,336 2,230 3,035 3,897 5.4 Other 1,006 1,060 1,814 12911 12.5
Total Petroleum Products 11,726 12,035 13,725 13,986 3.0
Natural Gas (106m3) Total natural gas 5,033 5,951 6,508 7,695 5.3
Electricity (GWh) Total electricity 5,080 60,476 6,938 82,595 6.4
Conclusion
Constitutionally,the system of workers' self-managementaccords complete autonomy to OALs in decision relating to pricing, investment, planning, etc., which reflect their desire to maximize income. Moreover, the constitutionalso precludes any interferenceby the authorities in the workings of OALs. Economic plans and policies and the compacts guiding them are only indicative and, as such, they are taken into consideration only when OALs decide that such action is in their interest. Therefore, movement by OALs cannot be initiated and sustained by compacts but by economic interests only. Herein lies the key to economic management in Yugoslavia and the instrumentswith which to move the entire economy in the direction desired. OALs should be given proper signals regarding the cost of resource used and left to optimize their income knowing well in - 34 - advance that the cost of uneconomic decisions would be fully borne by their members and not the system in general through solidarity funds and other funds set up to ease the workers' burden of responsibility. In the energy sector as well as in all other sectors, this would require the amendment of the law on pricing, movement towards positive interest rates, amendments to the law on bankruptcy and the adoption of least cost national strategies for the development of the sector. A plan of action for restructuringthe energy sector is summarizedin Table 1.8. OMWMNrf SD ls)PES FM S NGTHe EE! So=
neregy Plan of Action
1. DQMESliCE=EE! SMII
TM!AEZ AND FE3 IE TS ORSJmS 1 #MYATISM S 7P KNQ AMEEY PR8OR1 RlKNt ArCaCS l4 /1
(A) Coal & Lignite
1. Use of dtmea bwwn S9bstitute hard ard Uailertake a stady to Investment pmgra The Federal, Provincial Mediun Beirg uilertaken by Minirg san hard coal for bmo coal for higher detenune the acomuis ixuld be prq,ered mAd ad Repblicana Institute. fuue par ger- value energy poducts of coal aal ligmte ratified by the Cmittees for Eergy tin is uneconomic. in the housold ardi briquettig by min rqxtlican, provin.ial and Indstry aid the industrial sectors. Howowr, detensine tle and federal authorities Coal Association ecoinoic coast of adirg for izpleentation the briquettiag durirg the 1986-199 infrastcture to each Social Plan. mine sairark these costs.
Assess the econmics of Sam enangy mdits of uad ia sine SUbstitutirg hard coal indastries hae been carried out and blown coal for Qvich would form basi of IF natural gas ard higber project. No action taken yet for value petroleun pmducts enery intensive iiustries, but in the in&xstrial prqosed PPF ieuld assist. sector.
TIhe deterioration in the To rehebilitate Undertake a feasibility As a minima, the The Association of Coal High Study has boen unlertaknm by infrastructure of the aidergnxim mines to to identify the insreswent nede for Producers, the Hinilg Institute. >lemnta- fim i,yoa ail hand coal implnxT tbeir safety ail m%nitude of the the rehabilitation of Republican ani tion will be finamced .idergrund mines limits enaciL eiteer jastained inves tn needed to the uriegrouid Provinciil Committees petrolm taxation revnues. che prospects for or iivreased autput in rehabilitate each mine hard-coal mines should for Energy ail industry, xstainiag ail ttie fzuxre. and rank these on the be inclded in the and AFLs operating the xcreasirg the outxt. basis of a least-cost social plan for mnes. plan. 19861990.
tiims tia or prqposed s: GreAenv (bwer eport preared. aD L. DQESIIC JIRY RIXRCES
T1MBIE AlD RESPOEIBIE _S___ aBJ.CrIVESWB a4 fATDi6 SITtS1 OF ACrDN APiCR HIRITYf RAWI(IW ACNS TAIMN
3. Purmzit of policy of Dveloopat of mining Base future develop1t Prepare a last-cost The Coal Asaociation, Mdiau Autbirities hame not agreel to repFblicai ao capacities dxxud be of solid fuels cn a inweszait progrsm as the Coal Mining least cost uwstseit prngra l(curmSal eneiy dictated by a natical natimnal lest-cost part of the IUstitute and tbe for coal, although power stuies independece resulted leat-cot proWas zich iwuestat progra ccre-iwesiait progran RepLblican ad will partly achieve this. Same in dLvelopast of will idatify Iriorities cnicnmtrating initially for energ for 1986-1990 Provincial Caumittees limited studies of inwestent wall amd relatively and serve as a basis cn large eccmic Social Plan by June for lhergy ard IncKstry priorities have qparatly beem uacnonic mines. for achieving conamsm ligiite mines uich as 1985. and the Federal dme. Federal authorities will MAlAsin chauelirg Sibwsc in Kosoro arl Institute fir Social finance priority projects out rescrces fur the Kilubara in Serbia. Plamning and the of petrolaa tax rewes. PrFD Prcvincial aSd Republican Institutes fcr Social Plaming.
(B) Hyopcwer Develop a mthodxloaj Resources for the evaluation of hydo paer potential by 4. Preference of OALSfor Develophydrop-wer Prepare a sethodology June 1985, and JJ(EL in association HiEh Methodology prepared by US cF regicial pa- potmitial on the basis fiw assessing and ratification by the with provincial/ consultant. self-sufficiency ccupled of a least-cost national evalusting hydropower authorities by December republican power C.OAS. with inconsistent plan integrating the potential. 1985. approaches fcr assessing developwnt of therml and evaluating and hydro schemes. Ratify the methodology Priority projects would be investmnta have been and enstre its adoption rarked during power plamijog responsible fr by w(ls responsible for studies, but funds and tine developmentof the developmentof hydro insufficient for national UneDnoasic schemes. schemis. raring of hydro at present
Set a frawrk fcr the Draft self zmnm tt resolution of riparian agreement has been prepared conflict between for the dejelce1t of the republics and prcrinces. Drina basin.
u-I I. WDB1IC l3iG ROWIRS
TrMBLE AND RIESRO3 IE ISSUES C&ECrIVS *IUDgMI STAUB w ACTNnAG1CV WRIRUYrY(RANDC CrIma TDRE
(C) _athble Iberw
5. nfiratic an the kcelerate the Asein the potential of These efforts should be Ikpbliean and 1 extent of the resorces developant of reable bxuass reorces aod wtdart&ai dring the Prcsincial Cosmmttees amd tbeir regicnal Ulfg resinaws md determine the imnic iiqeamntatim of the for Energy and Industry. c itratim is intevate it with the tedmology rnb! fw 1986-199D SDcial Plan. relatdvely paor. werall plan fr meting their exploitatiun. Ifwf, concentratim the future ded fir thould be cn the merv at least mat to Compile a wre exteasive anercial aplicatiin the ecamy. solar ap pwticularly of solar cnergy. on the Adriatic mast to allcw for the eixmuic exploitation of solar energ for the production of 1lw t8qtrature hot mitr, particulaly for hadehold and institutiinal use.
Assess the potential fhr exploiting the oaother! resQraas hnr the pneration of electricity and outline a pilm fhr their geological as_nmt and developaet.
OD IL I3EER PRIC=G
TlMlMBl AM) RESIFONlBIE
____ w.cnIvES IlEEDAENTDI STATUSCF ACDN AGENCY RI_RlITYRARIN Alr]DM WEN
() Ieetitutimal Iricluded in draft new law 1. nivision of Set ener prices to Federal Commity for Set up a michanism for Federal, Prnincial and Fedium on Focial Ccntrol of Prices, resprmsibility betbween mnix csmistewy Pricing duxd set the mmitoring cospliamce in Peptblican Comuanities expected to be inplemented F(P and 1ItPs for across republics and franwwrk for pricing 9As for aijustuents in for Pricing. in 1985. setting iideinei fwr prominces an the bmis and ensre adoptian by enerW prices by June pricing and annitoring of eaxnanic criteria. Proincial and 1985. mqplimie in %fs has Republican Cc.unities led to udrpricing of for Pricing. dmetic energy prox cts resulting in distnrtiins in relative prices of enrgy prota.
(B) Petrolaeum ProabIa
2. Cwrest prices of )Hitaimnce in real Adjust prices of all Federal C mmity for Federal Camuity for Hi0i Petroleim prices now adjusted petrolaeum prodicta aotbd ternm of dwstic prices petroleum podects Pricing to fcnilate a Pricing seni-mEtmatically every depreciate rapidly due mad financial resewres periodically in tietable for qwrterly three ninths. tohigi levels of ncbilizwd thrgi taes accerdance with a adjustmats in prices of d tic inflation and and tolls and predetenmind schecale petroleum prodkacts for exdhame rate elimimatimn of ihidh would allow OAIS inflation and exchange deterioratioc. protracted neptiatimss to take the projected rate depreciation. betniem OATSmid ensue dmcmgesinto that the mi of consideraticn ,ben petrolemn prodects negptiating and axiamed is qtiMl. concluding self-smagemnt ageements.
3. Crent differeitial Fiswe that prevailing Irwrease dmestic price Parity to be adcieved by Federal Ccammity for LOW Nbt date. bebmi prices of diffirential between of kerosene fran present 199D. Pricing kerceene and diesel oil prices of kerosene and level of IB$3)/ton to Frcvides sufficimet diesel do not encourage UE$435ton to be at inctive to haushold increased axmampticn of parity with xestic and transprt sectors to kerosene. price of diesel oil. switch to OmDaitimn of '3 keraesee. =I
0a IL ENE= RCIIG
TDWIBIE AND RESEMIKl.E mmSIE mscBSOWs HECDO3~WA SIMTt (_ APRDN AMC.Y MItIUrY RAING A_D_E__
4. Cprtbmity mot of fitel lb raise dtic price As a first step, bring khiewe parity with Federal Comity fir Lau ck-refiney fuel oil oil to the ecauy is of fuel oil to levels m8tic jrice of fuel barder price by mid-1985 Pricing prices re naw Ixut hiier thai itS brdw that exsed its border oil 3 tD parity with its mid gadially intro 0Daboe fob. Frice if uwed a a jxioe. The extat of border price. Then, a premitn dbwing the tLditerramei spot sawce of aigwy since the differential bebeem aLbject to the extent of inplmmtstiom of the prims (see Aex 3). it cold be refined inat d-tic aid border secdry refining 1986-199D 9ocial Plan. ;MIle distillates. prices Iuld be capaity, we the detuned by thie &mastic twice upards railaility of aoe its bordw price seowdhry refining to nrbilize restwces capcity. and induce a swa to difit to l1w vale prokicts.
(C) li.wral Gas
5. Prim of dmstic lwrvemt in ecxmic IxreEtse querterly, the Areemt was reached Fedrsl Camity Sr lHigh In progrsas. rattral gs has se of natural g meI price of dic Ws in with the Bak in April Pricing amaistantly berm kept to udbilire resawres real tems to acieve a 1983 mider SA I for beaw the barder price for oil and gm sectcr total caiuatiw aumel real increases of of iqrted natnwal8ps for exploration and increase of 2410 fran abt 271 to reedc resulting in its da1opt. curent lerel of parity with border price ummic use id tMD/tmn to USS17/tcu of ioprtwd pa by shortae of finaicial war 5 yar intMin Jae!"- LQ- Te .ie resources for thrV periodic real increase of 27Z is esploration ad adjustmnts, Frice of expected by Jaury devlopurnt. iportd nattral Sa at 1985. parity with its border price adjusted for dstic tra)sDrt and distributim costs.
'.4 IL f1U FRlICG
TDElB1 AND RESIVMNIBhE lSowI; (kEmClIvU MEG 1TD SIIUB or ACriDN AIY RICRUYRAWMKG AMCr]N PMK
6. Strut,we of gs prices Iprovernt in Pwulate pricing pilicy (i) lweelop a naticnal Fedeeal, Pro,incial ard Wdium IRC gas Pricing study to all c r claes efficiency of jatural baed en a least-coat least-coat iweasmant PepLblican Casmnities is dopoedto be do not reflect the Ps utilization. national plan fir Wase pa-for 6 ps supply for Pricing included in fordioming ecwnc coat of supply supply and reatuctire by Jamiry 1987. Bt petrolen project. at differeat times. priees tx reflect cost (ii) Devlop a of suppy at different nethodoloW for times. estintive lmg-run marginal coat of gas suppy by Deceiber 1987. (iii) Designl tariffs cn the basis of (ii) by Jute 1988.
(D) Coal & lite
7. Dstic prices hare Aperoveefficiency in Dbvelopnethodolog for Draft reprt already The Ccal Associatiou aid Hi#i )ethodoloW has ben sWeed cc.istatly bemnkept cmszeptien and resowxe calculating ecc isc reviseed by the Bak in the Coal Mining aIA final draft of report balos eaamuic caet. mobilizatiam. cost of suWly of Deowbee 19W. Find Institute, Federal, will be sent to Bet by d&stic berv coal and report to be coapleted Prcwincial adl 115/U5. Linited action ligiite for eaih type of by June 194. Adoption Reublican Casuities has bewn taken to reiace mining nethod. of the aethodology ad for Pricing. price disparities. recommdotimes of study by Mecembt 19W#. Prep-e a prorm by June 19M for adjusting prcis to perity with eccamic coat aeim a dree-yew horizon.
00 IL ENEiMU WUGCB
TIIEIE AD RE3BIOIBlIE ______ls 1Ea QD6I S16 OF AaTDN AGENCY PRQfUlY RM&IN ACDN DKIN
(I) Electricity
8. ariffs tD all clasess Iupr iat in eouic Develop a cmsistent Artion initiated under JUCELin associatimi Uish (a) Mathodblov ha ber sFes of c ers we bela efficiewy in othodology baed oma mhird Power Trimaissim p aL0 , Federal with m*. bpJrt on pjaw eaic mts ihich has electricity cons - leastt-ost natmal Project and SAL 1. Prcjincial and IRWs will be sent to 33k resulted in umcwAwc tion, cbilizaticn of ivwesbarit proga for Mediodology has been lhpiblican Cammities by XIL5/85. Study would be toe of electricity and resourc aid ratica- the puw absector fr tested with data om for Pricing. finalired in 1985 shendata ihirtage of fincnial lizaticm of iestt. detervning the eccwic power systet of Serbia. on eca c cent of coal re aLwos fr the timely met of supply frB the A national model is wa-ld be available. developD t of the pow nstinal intercaected cwrently being otbsector aid associated syste. Inirse deveioped and exected (b) 8lectricity tariffs increine coal and ligpite mem. electricity tariffs in to be cmpleted by by t 110t in 198}- so reai ter. to reach Nvembr 19S4. IDsilp that tariffs hate risean-cm psrity with eccnaxc tariffs far varicm about 40% to 60Z of IMC costs by 1987. categpry of consaws by June 190i. (c) traft self mnpmt agVeint an electricity Iricing will be sigied in Jaxuy 1985.
OD
'. IIL WJrY rw
T1BUI AND RESWN;MIBU
mmJW. _____im HKODOO NU SWdTE OWACLDN A-U IRIIJUR RAW1NG kDNS AME1N
(A) Wfinery
1. Eafting installed anre the rati-i Qotimize existing ACtion initiated ursde The Federal Ccuittee 1tdim kb acion tsxi o Fropoed. pacity is gosly dwelopamt amd refinery capacity ad SL 1 A tedmical for amgy ad Inustry uainutilized resulting opeaticn of the its mix of procicts assistae lwn by Bzk in oullixratimi with in a decline in sdiector. tDopther with zo for ubadies is nder their canterperts in efficiency. for development of ccmsideratimn. the republics and infrastrwctre far primces. transprt, straW, and delivery of petroleam prolxcts first by umdtaking an erergy audit of refinery.
(B) Eler¢
2. Tere is very little kchieveent of umifia Cary out a survey of Artim an JUEL in olldlorati 1n (a) Study an equiput staidadizatim of naticml stailads for distribution sypte stabirdizatien of with the pnis 0A1 statahrdizttiAm has bem equipant at the equipmamt at the equipent with regard to equip1t initiated udertdkn by SUEL- distributin level. distributim voltaW type aid lading of idw secacd aMd diird levels. lim, transftrs pow tramissim (b) JJtEL study n los typ and l-ding projects for reductioa to be c.pleted capacities. JIEL transmission equipuat in 1mmer 19. arkd would dold outline ich s achieed saw be sent tD Bak fcr natiawide staiderds for de8ee of surcess. rewieu. distributim srtz Actigm of equipawit to be used in staidrdizatimn of desiip and castrwtim distributim equipm!nt of distribution haoald be drtsken ezuipmnt. drting the 198619)9 SDcial Pim.
OD IIL 5GW r
TDIBIE AND Rl3t6IB1E
ism a.zais~ wommumD sall (F DMN UDCf lRuxur AISNKG A__ _
3. Thsml p1 jist Fhtianalizatii of pr Cay out a study to Umdrrie the JUEL in associatim tbdius Ims recictii otub viil efficienies ae low ectar to redice idtntify eant of ftxmdatit of a with reptblicm ad be cmpl eted by RItIL in resulting in hiut d ixxwted losses in pA sptm onrehawive prgam provincial pVm (0S. Ihe e 9ad. us19d ccxeiaon lose". nesug md to iAerve a tD drw up a pxupm fic the iqreit of be Bst to Bank foc Imsft in distrib eiwv in the pui fr rehdbilitatim. therml efficite:y of rewis. t ae relativwy si&ectw. rawe the tha:l existfig pw plmt hiji. ppw plsat effinaice ncentrating, as a according to the first step, am oil- ad rexxkd prra gas-fired pF Crry cut a study to statiaes, hard coal id-ntitf nure aid per statians, brao extait of laoses in coal, md dit ligwite. distrbtimi stwms aid tushile, drw up tm of rehabilitation of &osoc re aidfnce ptoai A and Peica hydro fw loss rs ttcht Set plmtm iuld be up ms ibmise loss1 uhrtit as a redbctima te_ in 'NtIL ctntrstim mad to o cxwod aid akise prride training. on loss reducti4
(C)
4. Patntial for inxrel Rbtionalization of Cwry out esW auiit ktim initiated under Feisal, lbepiimdi acd Ifi* lD aCtin teli t for WwuXUs ff ~~~~~~~~~~~~~~~~~~~~~~~~als>r W WX; trWlrW-X dt- of S- amsavtic is hi#i. indiktrial satw. the sbstitutiat and aosistm las fir fir Elw and Industry eium sue indstries canersvtim of aFw studies. ihidi utuld faubasis of wILd be eiuamic. IDF projet. A PIF is Alloa resawoss fir *rpomi to enable aeergy iqltinig technical audits fw enqy intri- mad tsduadogical sim ibntries. diaiga
p- o* Fa I- __S V R3mTI! ______SU3 (W AC_ _ U RXRI RADK; hh 1PDNR
CD) c II
5. InDting ppelime h lb i,qtwe efficxmvy F Dl IV. ALWINGAM NiPSTnM TDBIJ! AND RB;I1.E E ISSUES Z(3ElVES RU(D 1NDATDtS STI&,BOr ACrIN AAII PRIlY RJNNG ACNrS tuA The lack of a nacnal oore lb set Iriorities for lvelop a amsistant thdKr SALI, a ore F edral, Republican and High Proposad Scrial Ckmpwta an ivses t-roWau fcr the energV sector in ntldol for itwesbnt proWam wB Pranincial Institutes eIWrZy i annt will be energ omtributed to a oder to dhamel identifying and raking deveoped Ex 1983-1985. for Social Plazmng, and finulized in mid 1985 ad Fest extfnt to the resouceo to thcse irvestasets in the A revised prgrin i JJI will przbsbly lead to ase unwamic investanets by inwestmts vhidc would enwrg sector from the acrrently being prepared ratimlizaticn of invest- QAs resulting in nice he mot ecaioic netimal vieaoint. by the authirities. The mot fimu the nstional scb-opimsl developent of contributirn to the kuthorities should vpoint. the sector. dselopmet of the prepe core uiwestant sector. program for Werg for the 19861990 Social Pla&L The Bak dhouild be informed of periodic revisia. tD the Pro8.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~a I- 00 - 46 - Layout of Report The report is divided into nine chapters. Chapter II briefly describes the institutionalsetting of the Yugoslav system to serve as a basis for assessing the policies and constraints in the context of that system. Chapter III reviews the energy resources of the country to provide a basis for determining the contributioneach can make to the supply of energy. Chapter IV reviews the historical trends in the consumption and supply of energy, focusing specificallyon the changes that occurred in the period 1976-1982. Structural changes in the consumption and supply of energy induced by the authorities and by external economic forces during this period are distinguishedto assess the present setting of the energy sector. Since the strategy proposed by the stabilizationcommission takes 1982 as the point of departure, a detailed balance for each energy product and for the country as a whole, covering the sources of supply, transformationinto secondary energy, when applicable, and the distribution of consumption among the principal consuming sectors for that year is presented in Chapter V. Chapter VI, first reviews the energy targets associated with the social plan for 1981-1985 to identify some of the shortcomings of energy planning in Yugoslavia. The implications of these shortcomings for the achievement of the structural changes currently being sought by the authorities are then examined. The "revised" energy targets are then assessed in light of the expected performance of the economy. The chapter concludes with the Bank's energy forecasts for 1985 and 1990. Chapter VII briefly discusses the changes in pricing policy since 1946 and the implicationsof 1980 Law on Pricing. The historical development of the structure and levels of prices of petroleum products, natural gas, coal and lignite, and electricity are then reviewed, focusing on their relationship to the economic cost of supply. In Chapter VIII the basic features of the system of social planning are outlined to provide a context for reviewing the 1976-1980 and the 1981-1985 social plans. The main constraints responsible for achieving the targets for the energy sector are then identified. The report concludes with Chapter IX, which provides an assessment of the long-term strategy proposed by the authorities to restructurethe energy sector. - 47 - CHAPTERII INSTITUTIONAL SETTING OF THE ENERGYSECTOR Yugoslavia's system of workers' self-managementcomprises a large number of autonomous entities whose memberis voluntarily pool their material and financial resources, in accordance with agreements drawn for that purpose, to expand their productive capacities in a manner that optimizes their earnings and, in turn, their contributionto the national output. 1/ In its present form, the system is the outcome of an evolutionaryprocess which began in 1950, when the principles of workers' management were first introduced. It was initiatedwith the formation of Workers' Councils in state-ownedeconomic enterprises which were assigned wide-ranging but advisory responsibilities. Since then, the role of workers and the state has been greatly transformed. This transformation was formalized in the constitution of 1974 and the Associated Labor Law which was adopted in 1976. Workers now participate in all economic decisions, management, pricing, investment planning, etc., while the planning agencies at the federal, republican and provincial, and communal levels serve as advisory bodies with limited executive power. The associated labor law outlines the responsibilitiesfor decision making and sets out the sequence and scope of processesrelating to the management of the economy, i.e. pricing, planning, financing, etc. These processes are uniform across sectors. Consequently, an appreciationof the issues in the energy sector requires an understanding of the institutional setting of the economy and the mechanisms by which decisions are made. Toward that end, this chapter summarizes the salient features of the Yugoslav self-managementsystem, highlightingonly those aspects that have a direct bearing on the operation, development and management of the energy sector.l/ Overview The Yugoslav law defines the Basic Organization of Associated Labor (BOAL) as the smallest economic unit invrolvedin the production of social goods and services. Social goods and services are produced by workers entrusted with the operation and development of socially owned means of production. Under the Yugoslav system, productive facilities are owned neither by the state nor by the workers that operate them. They are owned by the society and only entrusted to the workers to use, maintain and develop for the generationof income. Workers can form a BOAL if the 1/ Schrenk M, Ardalan C, and El-Tatawy N; Yugoslavia: Self-Management Socialism,World Bank, Johns Hopkins University press 1979, Chapters 1 and 2. - 48 - following three conditions are satisfied: (a) their output is technically identifiablein a series of productive processes; (b) a market or transfer price can be assigned to their output; and (c) they are able to exercise direct control over their own labor inputs, the capital stock entrusted to them and the pricing of their output. Since BOALs constitute technical units, their size depends on the nature of their operations and the state of technology. Consequently, their size ranges between ten and several thousand workers, depending on the sector and activities involved. However, regardless of their size, all decisions among BOALs are made on the basis of consensus l/ which is required by law to ensure equal status. This, at times, involves lengthy negotiations to reconcile differences. Decisions within BOAL's, by contrast, are based on majority rule. To ensure the autonomy of these entities, decisions reached by authoritieseither at the republican and provincial or federal levels must also be agreed upon by all members of BOALs affected before they can be implemented. The planning agencies at the federal and the republican and provincial levels, therefore, devote considerable time and effort to harmonizingviews within and across BOALs. BOALs must pool their resources within Work Organizations of Associated Labor (WOALs) in order to improve their income. WOALs are associations of BOALs whose resources are pooled in accordance with agreements which can be amended or cancelled. Unlike BOALs, which are indivisible and permanent unless dissolved by their members, WOALs can change in structure, organization and objectives, depending on market forces and the preferencesof their members. WOALs linked horizontally in the chain of production can pool their resources to form legal entities known as Composite Organizations of Associated Labor (COALs). The creation of COALs is encouraged since they are viewed as a means for promoting a greater degree of specializationand for realizing economies of scale. Similarly,WOALs whose activities are vertically linked, either in a forward or backward manner, are also encouraged to seek closer cooperation by pooling and coordinating their activities. These are referred to as Reproduction Entities (RE), and are organized along the rows and columns of Input/Output Tables. An example of an RE is one involving the mining of coal, generation of power, and the manufacture of aluminum. The essential difference between COALs and REs is that the former has legal status and the latter does not; however, in an economic sense, there is no difference between associationsformed on the basis of horizontal or vertical linkages. In keeping with the Yugoslav convention, all work organizations including BOALs, WQALs and COALs are hereafter referred to as Organizationsof Associated Labor (OALs). Producers and consumers of some social goods and services such as power, water, health, etc., are required by law to form organizations known as Communities of Interest (CI) in order to overcome the difficulties that are perceived to result from complete dependence on 1/ In the Yugoslav context consensus impliesunanimity. - 49 - market forces of demand and supply. Once established,CIs are independent legal entities with clearly defined rights End obligations for its members, consumers and producers. CIs manage their affairs on the basis of equality among members. Decisions are made 6throughelected delegates to their assembly,who, as in other cases, are guided by the instructions of OALs that elected them. Emphasis within CIs is on consensus among members, producers and consumers alike. Since CIs were designed to supplement the market as a regulating mechanism, they are responsiblenot only for balancing the demand for and supply of essential goods and services,but also for setting prices that are equitable to both producers and consumers and for mobilizing and allocating resources for investments. Current expenditures of producers in CIs are covered by prices acceptable to both consumers and producers. Funds for operation, including investment, are secured by producers in CIs from member consumers in the form of contributions, transfer payments or compulsory grants and credits, and from financial institutionsas credits. The role played by CIs in the economic affairs of their members makes them a unique feature of the Yugoslav economic system. Holwever, the inconsistency between the criteria used to set prices within CIs to ensure equity and the authorities desire to operate the economy on the basis of efficiency prices has been responsiblefor the prevailing distortionsin prices. Self-management agreements (SMAs) are ithe principal instruments for establishingand regulating relations among and between OALs, banks, cooperatives,etc. They cover all aspects relating to association of OALs such as the pooling of social means of production, the sources of finance and credit, the plans for investments, the means for sharing the income generated, the recourse in case of disputes, etc. As a rule, SMAs are multilateral and, once concluded, are legally binding on all signatories who assume the rights, obligations and liabilities set forth. Changes in SMAs require the consensus of the participatingOALs, which explains the unusual delays experienced in altering existing agreements and the slow response of OALs to changes in the national or international economic environment. In principle, OALs are free to decide whether and with whom to conclude SMAs; however, if conclusion of an SMA is in the public interest, OALs are required to go through negotiation and, if necessary, arbitration in order to reach agreement. If this fails, OALs cannot be forced to conclude the agreement. Disputes that arise during the enforcement of SMAs are settled through arbitration involving a delegate body elected by the two sides. The procedures for arbitration are outlined in the SMAs when first drawn. If arbitrationfails, disputes are settled by self-management courts. SMAs are usually concluded for an indeterminateperiod; however, if the conditions under which they were originally signed change, SMAs can be either amended or terminated if all the signatoriesconsent to the proposed action. Another self-management instrument for establishing and regulating formal links is the Social Comact (SC). Procedurally, it is enacted in much the same way as SMAs. However, unlike SMAs, it can be concluded if, and only if, at least one of the parties involved is an - 50 - agency of a socio-politicalcommunity 1/ or organization.2/ Since SCs regulate activities affecting the general public such as planning, social development,price control, incomes policy, employment, protection of the human environment,etc., the participationat least one representativeof the socio-politicalcommunity is required. Obligations outlined in SCs do not entail legal responsibility. Legal sanctions cannot be enforced against the parties who fail in honoring their commitmentsif they are not outlined in the agreement. In fact, it is the absence of sanctions for non-complianceby the signatories of SCs that is largely responsible for the difficultiesexperienced by the authorities in implementingeconomic plans and policies. OALs are required by law to belong to associationsrelated to the sector in which their activities are concentrated. These associationsare organized either at the republican and provincial level or the federal level, depending on the sector and activity. For example, OALs responsible for power generation and transmissionare required by law to be members of the association of electricity producers at the republican or provincial level, as well as, the national level. OALs involved in petroleum exploration and refining are only required to belong to the association of crude oil and gas producers at the national level. By contrast, OALs responsible for the distribution of electricity are only required to be members of the association of distributors of electricity at, the level of the republic or province. Delegates from professional associationsare elected to represent all economic sectors in the Chambers of the Economy (CEs), which exist at both the federal (FCE) and the republican and provincial levels (RPCE). The delegates to the associations and CEs set guidelines and standards for the operation of QALs, provide a forum for exchange of views, formulate policies and ensure harmonizationof plans within the same sector in the case of associations, and across sectors in the case of CEs. Associationsand CEs cannot make any decision on the basis of majority vote that overrides or binds their members. They only provide their members a forum for harmonizing and concludingSMAs. Financial resources are pooled in Banks in which delegates are depositors. The bank's function is to manage these resources for its members. The allocation of funds and the acquisition of credit are subject to the approval of all members and consensus must be reached on the use of these resources prior to their disposal. Banks are work communitiesrather than work organizations that carry out the directives of their members without discretionaryallocative authority. 1/ Include: assemblies, executive or administrative agencies at the federal,republican, provincial or communal level. 2/ Include: the SocialistAlliance, the League of Communists, the Trade Union Confederation,the Youth Federation,etc. - 51 - A unique feature of the Yugoslav system is that workers are not paid contractual salaries or wages. Instead, they share the earnings of OALs in which they work. Workers, therefore, are supposed to act as entrepreneurswho increase their income by maximizing their OAL's social product and hence earnings. However, should workers' income temporarily fall below the level originally established in SMAs because of forces judged beyond their control, a fund referred to as solidarity fund l/ has been set up to compensate workers for unexpected loss in income. Similarly, windfalls accruing to OALs as a result of favorableevents over which they had no control are not reflected in the workers' income. Instead, the surplus is added to the solidarity fund. Although the solidarity fund is socially commendable,in practice it is abused and, as a result, it has had an adverse effect on the efficiency of resource allocation throughoutthe economy. Organization of the Energy Sector Three agencies are concerned, inter alia, with the energy sector at the federal level: the Federal Committee for Energy and Industry (FCEI), the Federal Institute for Social Planning (FISP), and the Federal Community for Pricing (FCP). Each republic and province has its own committee for energy and industry (RPCEI), institute for social planning (RPISP) and pricing community (RPCP). These have the same responsibilitiesas their counterparts at the federal level, but their sphere of influence is restricted to the republic or province. FCEI is responsible for harmonizing energy plans of the! republics and provinces and, through consensus, developing an integratiednational energy plan. FCEI also ensures coordinationand harmonizationbetween the plans for the energy sector and industry. FCEI and FISP cooperate in the formulationof social plans and participate in the harmonization of plans and policies submitted by RPCEIs and RPISPs. These plans and policies are supposed to have been harmonized at the level of the republic or province before submission to the federal authorities. The emphasis in the committees for energy and industry is on harmonization involving lengthy negotiations, discussionsand revisions which, in the past, have resulted in substantial delays in the implementationof the developmentplans. FISP is responsible for formulating the plans for the economy, which includes setting macroeconomic and sectoral targets and preparing balance of payment forecasts. The institute also sets targets for regional development to ensure balanced interreagionaldevelopment. The institutehas no executive power and its targets are based on the overall macroeconomic policy being pursued. The institute is also responsible 1/ This is an abbreviationwhich is referred to as "the fund of common resources" in the Yugoslavia Constitution. - 52 - for harmonizing the targets for each sector in the economy and the global investments proposed for achieving these targets. OALs and CIs, in that order, are responsible for the formulation of their own investment plans for energy with a view to contributing towards the achievement of the social plan targets. These are then harmonized at the republican and provincial levels by RPCEI, RPISP and RPCE, and then at the federal level by FISP, FCEI and FCE. Other responsibilitiesof the institute include establishing long-term economic cooperation with other countries and internationaleconomic organizations,facilitating the flow of information for the preparation of plans, the conclusion of compacts, and implementationof plans. FCP was created in 1981 to set guidelines for the pricing of all social products which, in the case of energy, includes crude oil, imported gas, petroleum products and imported coal. It also reviews the prices proposed by CIs to ensure that they comply with the pricing policies and advises the Federal Executive Council (FEC) on whether to approve or reject the proposed prices. FCP has no executive powers and its involvementwith CIs is on an advisory basis. In addition, FCP acts as a mediator between consumers and producers in CIs whenever differences arise. Prices of products excluded from those considered of social interest are set at the republican or provincial level and are monitored and reviewed by RPCPs which advise their respective executive councils (RPECs) on prices. In the case of energy, RPCPs are responsible for domesticallyproduced natural gas, coal and lignite and electricity. In 1983 a decision was made by FEC to transfer the responsibility for the pricing of domestically produced natural gas to FCP. A proposal for transferring the responsibility for setting the price of electricity on the bulk sales level to FEC is also being considered. As mentioned above, OALs are required by law to belong to associations related to the sector in which their activities are concentrated. The national associations for the three subsectors which comprise the energy sector are. the Union of Yugoslav Electric Power Industry (JUGEL), the Association of Oil and Gas Producers (OUNP), and the General Association of Yugoslav Coal Mines (OURU). JUGEL's primary function is to coordinate the operation and development of the Yugoslav power system "as a single technologically integrated system'. 1/ Coordinated operation of the interconnected system is based on the "Self-ManagementAgreement for Joint operation" 2/, which calls for the coordinationand management of the eight dispatch centers located in the republics and provinces, by a federal dispatch center operated by JUGEL. Its coordinatingrole in the development of the power system is outlined in the "Self-Management Agreement on the Coordination of Development Plans", establishedunder a requirementof the law. Under this agreement, JUGEL has wide-ranging responsibilitiesincluding the preparation of the annual generation program for the interconnectedsystem, the preparation 1/ Law on Association in JUGEL, 1978, Article 1. 2/ The original version was made in 1971, but this was revised in 1981. - 53 - of short and long-term electric power balances, the harmonization of the developmentplans of electricity producers in each republic and province, and presenting the resulting programs and plans to FCEI and FCE. It also represents the interests of the Yugoslav power industry vis-a-vis other agencies and institutions. JUGEL's obligatorymembership at the beginning of 1983 consisted of approximately 100 OALs, including all those engaged in the generation, transmissionor distributionofE electricity,and some that were engaged in the production of lignite for thermal power stations. A list of the member OALs is provided in Annex 2.1. In addition, there were about a dozen voluntary members such as various research institutes, engineering and consulting organizations involved in the power subsector. Since JUGEL has no executive authority, all decisions are secured through consensus. In the event of conflict between the least-cost operation of the interconnectedpower system and the financial objectives and the interest of individual OALs, the least-cost objective is supposed to prevail. If there is a fundamentaldisagreement amongst the republics and provinces on the future supply of electricity, the Arbitration Commission of JUGEL mediates. FEC has the power to ensure the technological integrity of the Yugoslav power system should some members choose not to ratify or comply with the SMAs required by law or should JUGEL fail to discharge its responsibilities. OURU was founded in accordance with the Law on Association of Organizations of Associated Labor in General Associations and in the Yugoslav Chamber of Economy. According to the Law, OALs involved in coal mining must be members of OURU. Its membership consists of 38 OALs operating 49 coal mines. A list of the member OALs is provided in Annex 2.2. OURU's main functions are to improve the operation of coal mines, especiallywith respect to safety and management, to increase productivity of labor and to promote the optimal utilization of existing capacities. In addition, it reviews and comments on the producitionplans for the short (1 year), medium (5 years) and long-term (10 years) and provides a forum for harmonizing these plans. OURU also conducts feasibility studies and makes recommendationsto appropriate agencies to adopt or amend existing regulations that affect coal exploration, production, processing and trade. The other issues addressed by OURU are: relations among member OALs, pricing of coal, cooperation with other sectors of the economy, particularly JUGEL and other major coal consumers, and international organizations such as the Commission for Eastern European Countries, EEC and UN. OURU is also responsible for the harmonization of the interests of the coal subsector with other sectors of the economy. Like other associations,OURU represents the coal subsector in FCE. In addition to OURU, there are other scientific and research institutes such as Mining Institute in Belgrade, Mining Research Institute in Tuzla and Mining Institute in Ljubljana that are associated with the coal subsector. Research work in the area of coal mining is also carried out by the Faculty of Mining and Geology in Belgrade, Faculty of Mining and Geology in Tuzla, Faculty of Mining in Ljubljana, Faculityof Mining, Petroleum Studies and Geology in Zagreb and Faculty of Mining in Titova Mitrovica. - 54 - As of 1983, twenty six OALs engaged in the exploration and production of oil and gas, the manufacture of petroleum products, and in the distributionof these products, were represented in OUNP. A list of the member OALs is presented in Annex 2.3. Like other national associations,OUNP represents the petroleum and gas industry in FCE, FCEI and FCP. It concerns itself primarily with the questions of interest to the industry such as coordinating the activities and investments of its members with other sectors of the economy and providing a forum to its members for exchanging views on technical and financial matters. In addition, by the end of each year, decisions are made within OUNP by its member delegateson the allocation of inputs to various OALs, based on the energy forecasts for the followingyears. Specifically,the criteria used in making these allocations include items such as the refining and processing capacity of each OAL, the structure of that capacity and last, but not least, the forecast demand for the various petroleum products and gas in individual republics and provinces. The import quotas for OALs also are established in OUNP by member delegates. Since the association does not have executive power, decisions generally are secured through consensus, as they are in all other associations. - 55 - CHAPTER III ENERGY RESOURCES Yugoslavia's commercially exploitable domestic energy resources consist of lignite and hydropower, which account for a major share of these resources, followed in order of importance by brown and hard coal, oil and gas, and uranium. Oil shale reserves are also known to exist, but because of technological constraints their commercial exploitation at present would be uneconomic. In addition, Yugoslavia has a substantial non-conventional energy resource base consisting of biomass, solar and wind energy, and some geothermal resource. To date, all of Yugoslavia's energy resources, except oil and gas, are relatively underutilized. Consequently, the prospect for increasing their supply and, in turn, for reducing the country's dependence on imported energy are good. The achievementof this objective,however, would require the formulationof a project specific long-term strategy and the mobilizationof resources for its implementation. This chapter briefly reviews the country's domestic energy resources, focusing specificallyon the size of the reserves and on identifying the issues constraining the development of each resource in order to assess their contribution to the future supply of energy. The first section of the chapter reviews the relative shares of coal and lignite, their distribution across republics and provinces, and the technical characteristicsof each which are likely to affect the potential for expanding their output. Hydropower is discussed next, with specific reference to the interaction between its exploitation and the overall development of the power subsector. The potential for increasing the domestic output of oil and gas is then addressed and the main issues constraining the future supply of hydrocarbons are identified. This section closes with a brief review of the uranium reserves and their likely role in the future supply of energy. The second section examines the strategy for the development of oil shale. Geothermal resource is then reviewed, followed by biomass, and solar and wind energy. So far very little has been done by the authorities to identify the extent, location and potential uses of each non-conventionalenergy resource and hence, only general statements regarding their potential contribution to the overall supply are made. CommerciallyExploited Energy Resources Coal Yugoslavia'sproven reserves of coal and lignite are estimated at - 56 - about 14,612 million tons (4,003 million toe). 1/ A detailed breakdown of the reserves is presented in Annex 3.1. As summarized in Table 3.1 below, Bosnia-Herzegovina,Kosovo and Serbia, together, account for over 90% of the reserves; the rest are distributed among the other republics and provinces. Of the total proven resources of solid fuels, 91% are in the form of lignite, 8.6% in brown coal and 0.4% in hard coal. Table 3.1 GeographicalDistribution of Proven Reserves of Coal and Lignite (million tons) Hard Coal Brown Coal Lignite Total Reserves Share Reserves Share Reserves Share Reserves Share Bosnia- - - 1,128 88.2 2,118 16.0 3,246 22.2 Herzegovina Croatia 14 22.9 - - - - 14 0.1 Kosovo - - - - 7,302 55.0 7,302 50.0 Macedonia - - - - 499 3.8 499 3.4 Montenegro - - - - 140 1.0 140 1.0 Serbia 47 77.1 75 5.9 2,776 20.9 2,898 19.7 Slovenia - - 75 5.9 243 1.8 318 2.2 Vojvodina - - - - 195 1.5 195 1.4 Total 61 100.0 1,278 100.0 13,273 100.0 14,612 100.0 Source; Report of the Federal Commission on Economic Stabilization,Vol. 3 Annex 3.1, Belgrade,March 1983, p. 308 The relative shares of coal and lignite change, when expressed in terms of their calorific value. Lignite continues to account for the bulk of the total proven reserves, but its share in terms of potential energy supply decreases to 86%. By contrast, the shares of hard and brown coal increase 1/ The Yugoslav authorities define 3 categories of reserves: balance reserves, out of balance reserves and potential reserves. Balance reserves refer to deposits which have been adequately explored and found to be economically viable for development. Out of balance reserves are deposits which have also been explored, but whose development would be uneconomic. Potential reserves refers to deposits which are expected to exist based on partial geological explorations. In the text only the balance reserves, referred to as proven reserves, are discussed. - 57 - to 1.1% and 12.8%, respectively. As sunxmarized in Table 3.2, about 77% (3,087 million toe) of the proven reserves arie suitable for open-pit mining. All of the proven reserves of hard coal (41 million toe), 70% of the reserves of brown coal (314 million toe) and 16% of the reserves of lignite (561 million toe) would require underground mining. Table 3.2 Proven Reserves of Coal and Lignite by Type of Mining Method (millions toe) Hard Coal Brown Coal Lignite Total Re- % Re- % Re- % Re- % serves Share serves Share serves Share serves Share Open pit - - 135 30 2,952 84 3,087 77 Underground 41 100 314 70 561 16 916 23 Total 41 100 449 100 3,513 100 4,003 100 Source: Report of the Federal Commission on Economic Stabilization, Vol. 3, Annex 3.1, Belgrade, March 1983, p. 208. Hard and Brown Coal Proven reserves of hard coal are in the neighborhood of 61 million tons (41 million toe) which, as shown in Table 3.1 above, are located in Croatia and Serbia. When delivered as mined, the coal has an average calorific value of about 5,600 kcal/kg, and a relatively high ash and sulphur content. The hard coal reserves are characterized by a complex tectonic structure, with thin coal seams of small inclinations located at depths ranging between 400 and 600 meters. These characteristics limit the potential for fully, exploiting the proven reserves. Presently, only 60% (36.6 million tons) of the reserves are exploitable, which are sufficient for approximately another 94 years, based on the 1982 level of production of 0.39 million tons. Domestic production of hard coal accounted for about 7% of total supply in 1982. The remaining 93%, all of which was used for coking, was imported. One of the targets of the 1976-1980 social plan was to increase the production of hard coal to substitute for petroleum products. However, instead of increasing, Yugoslavia's output of hard coal declined over that period. This was primarily due to the reduction in the rate of capacity utilization of existing mines precipitated by tlhe shortage of financial resources needed to maintain the output at its optimal level. The shortage of financial resources has also increased the danger associated with mining, resulting in a drastic reduction in the number of skilled underground miners. Despite the recent improvements in compensation - 58 - packages introduced to retain and attract underground miners, the structural deteriorationof the mines continues to be a major deterrent. The shortage of financial resources has also had a severe impact on the exploration for hard coal. Outlays for the exploration of hard coal over the past seven years have amounted to only 12% of the planned investment for exploration. Although the resource base of hard coal is small, its relatively high calorificvalue makes it a suitable substitute for higher value energy products. Unless financial resources are made available to upgrade existing mines and to undertake a comprehensive exploration program, Yugoslavia's domestic output of hard coal would continue to decline. In view of the potential for increasingthe output from existing mines and sustaining that output well into the distant future as well as the possibility for discovering new reserves, high priority should be given to ensuring that existing mines are upgraded and expanded, where economic, and that exploration is undertaken as part of an exploration program for solid fuels for the country as a whole. Proven reserves of brown coal are estimated at 1,278 million tons (449 million toe) of which 88% are located in Bosnia-Herzegovinaand the remaining 12% are divided equally between Serbia and Slovenia. When delivered as mined, brown coal has a relatively high sulphur and ash content. Its calorific value ranges between 3,000 kcal/kg and 5,000 kcal/kg and averages about 3,580 kcal/kg. The coal has a relatively high sulphur and ash content. 1/ Coal seams have a mild inclination,ranging between58 and 250, and a thickness which, in most cases, is between 2.5 and 4 meters. These seams are generally located at depths of 150 meters to 400 meters and consequently, about 70% (894 million tons) of the reserves require undergroundmining. The remaining 30% (383 million tons) are suitable for open pit mining. At present, about 60% of reserves requiringunderground mining and 92% of the reserves suitable for open pit mining, totalling about 889 million tons, are recoverable. These would meet the future demand for brown coal for another 83 years, based on the 1982 level of production of 10.7 million tons. The output of open pit mines, which presently accounts for about 50% of the domestic supply of brown coal, could be increased by expanding several major producing mines in Bosnia-Herzegovina,where new reserves have been discovered. However, since 1976 the output of these mines has decreased steadily also because of shortage of financial resources which delayed the commissioning of a number of mine extensions. The potential for increasing the output of brown coal from open pit mines is good, but its realization would require increased access to both domestic resources and foreign exchange. The output of undergroundmines accounts for the remaining 50% of the domestic supply of brown coal. However, like hard coal mines, these are structurally deteriorating and their output declining because of the shortage of imported equipment and material. Despite the fact that the potential for increasing the output of undergroundmines is limited, there 1/ Ash content is estimated at about 20% for the coal as mined. This drops to 15% after beneficiation. - 59 - is still scope for raising their share in the tot'alsupply of brown coal by improving the level of capacity utilization of existing mines through rehabilitationand the introductionof updated equipment. Although the output of brown coal is expected to increase with improved access to financialresources and equipment, its share in the total supply of solid fuels is not likely to increase substantially because the size of the reserves is small relative to lignite reserves whose exploration is being accelerated. However, in view of its relatively high calorific value, brown coal could be a substitute for higher value energy products. Therefore, high priority should be given to ensuring that economic open pit and undergroundmines of brown coal are developed and rehabilitatedin order to increase their output. Lignite Lignite is Yugoslavia's principal domestic energy resource. Its proven reserves are estimated at about 13,273 tons (3,513 million toe) of which, as summarized in Table 3.1 above, about 92% are located in Bosnia-Herzegovina(16%), Kosovo (55%) and Serbia (21%). These reserves belong to a young geological formation of relatively simple tectonic structure, with seams reaching a thickness of up to 100 meters and small inclinationsranging between 3°and 5° Only rarely do these inclinations reach 15 . The flow of groundwater in most lignite mines is moderate. About 86% of the proven reserves are suitable for open pit mining. The stripping ratio 1/ for the proven reserves is: about 1 for 10% of reserves; between 1 and 3 for another 40%, and between 3 and 6 for the remaining 50%. Moreover, since the the bulk of the reserves is concentrated in few localities, significant economies of scale could be achieved in the development and production of lignite through the increased use of highly mechanized equipment. Although easily exploitable, lignite has a large content of mcisture (between 34% and 54%), ash (between 7% and 16%) and sulphur (0.2% to 1.2%). These characteristics,together with its relatively low calorificvalue, ranging between 1,500 kcal/kg and 2,700 kcal/kg, make ithetransport of lignite uneconomic, beyond a radius of about 50 km. Consequently, the main economic use for lignite would be as a source of primary energy for the generation of electricity in mine-mouth type power plant and the production of steam for industries located in close proximity of the mines. Alternatively, the quality of lignite could be upgraded and its heat content raised to about 4,000 kcal/kg, which would make it suitable for transport and use by industries and power pltnts located at distances of up to 200 km. However, upgrading the quality of lignite is in itself energy intensive and would only be justified for fairly limited uses that would have to be assessed on a case by case basis. Unlike hard and brown coal, the output of lignite has increased steadily since 1976. This is primarily due to the fact that most of the lignite is produced by large scale open pit mines. The incremental investment needed to expand their output is small relative to undergroundmines. Nevertheless, despite the 1/ Defined as the ratio of earth to lignite that can be extracted. - 60 - potential for realizing economies of scale, the output of lignite was well below the projected target for the 1976-1980 social plan. This shortfall was due to two factors. The first is the shortage of financial resources precipitated by the fact that lignite mines are captive suppliers operated primarily for the supply of power plants. Consequently, in accordance with the principles of workers' self-management system, OALs involved in mining and power generation pooled their resources and resorted to transfer prices which were inadequate in providing the resources needed for the expansion of output. The second is the institutional setting of Yugoslavia, which has been responsible for the pursuit of energy self-sufficiency by republics and provinces. This, in the absence of a mechanism for ranking priorities for the country as a whole, has led to the parallel development of economic and uneconomic mines. 1/ Unless resources for the development of lignite mines are made available and investment in the subsector is rationalized, output targets for lignite are not likely to materialize. In the past, the institutional arrangements governing pricing, investment and financing decisions failed to convey the proper signals needed for discriminating between economic and uneconomic investments. The rationalization of investment in the coal subsector would require the formulation of a least-cost plan for Yugoslavia as a whole, which would identify priorities and ensure that resources are channelled for their implementation. This would involve the determination of the cost to the economy of expanding the capacities of existing and new mines by type of coal. These costs would provide the means for ranking the various mines and for the formulation of a coal pricing policy. Only through economic pricing would OALs be induced to voluntarily move toward the development of economic mines. In recognition of the need for such a plan, the Mining Institute in Belgrade, in collaboration with the Bank, completed a study in January 1984 which outlines a methodology for determining the economic cost of supply and for setting the prices for hard and brown coal and lignite. This methodology could be used to identify OALs whose access to credit and financial resources should be facilitated in order to achieve the least cost development of the coal subsector. This is discussed in more detail in Chapters VII and IX. Hydropower Potential According to a study undertaken by the authorities in 1955, Yugoslavia's hydropower potential was estimated at about 63 TWh, divided among 400 sites in 25 river basins and catchment areas. As shown in Table 3.2, this potential is distributed unevenly among republics and provinces (Map IBRD 16917). Most of the potential is located in Serbia, Bosnia-Herzegovina, Croatia, Slovenia, and the Drina and Trebisnjica 1/ Mines were classified as economic and uneconomic on the basis of cost to the economy of an extra unit of output, and not on the basis of size. - 61 - Table 3.2 Distributionof HydropowerResources Among Republics and Provinces /1 Annual Potential Percentage of Republic or Province in TWh Total Potential Bosnia-Herzegovina 9,3 14.6 Croatia 10.5 16.6 Macedonia 4.7 7.5 Montenegro 2.1 3.4 Serbia 10.2 16.1 Slovenia 8.1 12.7 TrebisnjicaBasin /2 4.2 6.6 Drina Basin /2 14.3 22.5 Total 63.4 100.0 Source: JUGEL /1 This only includes hydro potential with capacities greater than 2 TWh. /2 The exact division of this potential among republics and provinces is currentlybeing determined. basins. To date, 27 TWh (43%) of the total hydro potential has been developed, and another 3.4 TWh would be exploited by 1990. In response to the declared objectives of the 1976-1985 medium-term program for accelerating the development of the hydropower potential, JUGEL updated the 1955 study in 1978 and concluded that only 55 TWh of the originally estimated 63 TWh could be developed economically. The remaining 8 TWh could not be developed as it was located in cLose proximity of densely settled areas. Despite this conclusion, the long-term strategy formulatedby the stabilizationcommission projected the developmentof a total of 55 TWh by the year 2000, 56 TWh by 2010, and 57 TWh by 2020. 1/ Annex 4.2 presents a list of hydropower potential to be developed between 1986 and the year 2000. The targets set by the stabilizationcommission are unrealistic,implying that an additional24.6 TWh would be developed between 1990 and the year 2000, which represents;a 300% increase over the potential developed during the past two decades. This pace of 1/ Report of the Federal Commission on Economic Stabilization,Vol. 3, Belgrade,March 1983, p. 124. - 62 - development is not likely to materialize due to the shortage of foreign exchange and local financing which the economy is expected to face during its structural adjustment process. Even if the resources were to be mobilized, the concurrent development of about 300 sites would tax the implementationcapabilities of OALs, particularly in the less developed regions. Moreover, since the potential at each site has only been crudely estimated so far, a more extensive evaluation of the potential at each site, the nature of the geological structure and the cost of development would be needed before such a development plan can be implemented. Therefore, as a first step in accelerating the development of hydro potential, a detailed evaluation of each remaining site should be undertaken to catalogue these in order of importance in preparation for more extensive engineeringand geologicalanalysis. Like the medium-term program for 1976-1985, the targets set by the stabilization commission are also general in nature in that they provide no indication of the priorities and the means for achieving them. The developmentof the hydro potential since 1976 has been undertaken on an ad hoc basis, dictated primarily by the availabilityof resources at the disposal of OALs. This, as was the case with coal and lignite, resulted in the development of sites requiring modest investment, while the larger scheme whose developmentwould have been in the interest of the country as a whole were postponed because OALs were unable to reach agreement on cost-sharing and riparian rights. The division of the potential between the bordering republics and provinces is yet to be determined. However, Bosnia-Herzegovina and Montenegro have recently signed a compact to pool their resources and jointly exploit 26 sites in the Drina Basin, the largest hydro potential in the country. Nevertheless, a large percentage of the remaining hydro potential, suitable for multi-purposeschemes, is unexploited. The approach used for determining the power potential and for allocating joint cost of such schemes varies considerably among republics and provinces. In several instances, the assessments were deliberatelybiased in favor of certain sites by reducing the share of the power component in the joint cost unrealisticallyin order to justify development that would contribute to the energy self-sufficiencysought by the republics and provinces. Given the autonomy of OALs, the first step in the rationalizationof investment in hydro development is to unify the methodology used for assessing the potential. JUGEL, in its capacity as the coordinator of the development of the power subsector, conducted a study in the mid-seventies to formulate a methodology for assessing the hydro potential which has been used by OALs in all republics and provinces to identify sites whose development would be economic. However, in light of the recent developmentsin the price of oil, the economic viability of developing the country's hydro potential should be re-evaluated in order to provide a list of high-priorityprojects to be assessed in greater detail. The development of the hydropower potential in Yugoslavia has been undertaken in isolation of the republican and provincial plans for the development of thermal capacities. Undue preference was given to - 63 - hydro power plants and economic balance between hydro and thermal capacity for Yugoslavia as a whole was not achieved. As a result, the development of the power subsector has deviated significantly from its least cost path. The development of the hydro potential should be dictated by a least cost program for the country as a whole that integrates investments in hydro and thermal capacities,giving preference to one over the other only on the basis of economic merit. However, such a plan has not been formulated so far, which largely explains tlhe delays that have been experienced in commissioningpower plants, both hydro and thermal. The authoritieshave recently come to realize the cost to the economy of the absence of such a plan. Consequently,the long-term strategy proposed by the stabilization commission calls for the development of the power subsector as a single technicallyunified system. JUGEL, in collaboration with the Bank, has formulated the first iterationof an optimal investment plan for the power sub-sector. A critical input needed for refining this plan is the cost/kWh at each hydro potential site. Unless these data are incorporated,the plan would not constitute the least cost alternative. Therefore, in order to comply with the guideline of the long-term strategy and ensure that a least cost plan is formulated for the developmentof the power subsector, priority should be given to compilingmore accurate data on all exploitablehydro potential sites. Oil and Gas Yugoslavia's remaining 'recoverable onshore oil reserves are estimated to be about 70 million tons of which 55 million tons (79%) are in Croatia and 15 million tons (21%) are in Vojvodina. 1/ Annex 2.2 provides a summary of petroleum geology and exploration in Yugoslavia. In 1982, domestic production of oil reached about 4,468 thousand tons, which covered about 33% of the country's total requirements of oil in that year. Although most of the major onshore oil fields in Croatia and Vojvodina have most probably already been discovered, geological evidence suggests that the scope for delineating important extension to existing fields and for finding smaller accumulations in subtle traps is still considerable. However, the application of enhanced recovery to existing fields is not expected to sustain Yugoslavia'scurrent level of output for more than three years. A number of other potential petroleum producing regions, particularlyin Bosnia-Hercegovinaand Montenegro,have as yet to be evaluated, but preliminary indicationsare ithattheir potential is not as large as that of the currently producing regions. Unless recently discovered reserves are developed and brought on stream, Yugoslavia's dependence on imported oil would start to increase at the latest by 1987. Gas reserves are always more difficult to establish;however, based on the recent success in finding large deep deposits, it is estimated that there are about 70 million toe of gas in the presently known onshore fields in Croatia and another 25 million toe in Vojvodina. So far, no reserves have l/ Data are mission estimates based on information obtained from the Association of Oil and Gas Producers (OUNP). - 64 - been found in the other republics and ?rovinces. Of the total supply of natural gas in 1982 (4,576 million m) approximately 50% was produced domestically, of which 1,245 million m was produced by INA and 930 million m3 by Naftagas. The prospects of finding at least another 35 million toe of oil in Croatia and Vojvodina and the Adriatic Sea developing into an important oil province are good. The potential offshore reserves could yield between 15 and 150 million tons; extensive geological work is needed before a more accurate estimate can be made. Preliminary estimates indicate that several Adriatic Basins and some land basins are gas prone. It is also estimated that up to 50 million toe of recoverablegas could be extracted from the Adriatic and a similar amount could be found in the deeper parts of the Drava and Sava Basins in Croatia. These estimates are encouragingand, judging by preliminary geologicalresults, the likelihood of new discoveries of oil and gas are high. Despite the encouraging prospects, exploration and development of proven reserves had ,been suboptional from a national viewpoint. Coordination among OALs in the subsector across republics and provinces was inadequate and there were moves to establish new OALs which would acquire operating expertise in exploration and production. An example was when Bosnia-Hercegovina awarded the 25 km concession area, located on the border of Croatia and Montenegro to Energoinvest which has no experience in petroleum exploration, although foreign or local participation will now be sought and Energoinvest will not develop its own operational capability. In addition,resources available for explorationand developmenthad not been utilized effectively from the national viewpoint delaying the development of already proven reserves. This was aggravated by constraints on the availability of foreign exchange which brought the exploration and developmentprogram in the country to a virtual standstill. According to the stabilization commission's long-term strategy, the production of oil and gas is forecast to increase. This necessitates a streamlined exploration and development program which would identify priorities in terms of their overall contribution to the supply of oil and gas for Yugoslavia. More recently, significantimprovements towards co-ordination among OALs in the subsector has taken place to establish the priorities for Yugoslavia for exploration and development envisaged in the Federal Assembly's Annual Resolution for 1985. Outside of existing producing areas of Croatia and Vojvodina, other republics (Bosnia-Herzegovinaand Montenegro) have set up small administrativeorganization to manage the republican resource rights and promote and co-ordinate exploration activitieswithin these republics. These administrativeorganization have been relying on the technical expertise and the operating capabilitiesof the already well established oil and gas producing companies (INA Naftaplin and Nafta-Gas) in Croatia and Vojvodina, respectively,and when feasible, they have formed foreign joint ventures to implement their programs. In order to avoid duplication of facilities for oil and gas explorationand development,the other republics and autonomous provinces should continue to rely on the technical expertise of INA Naftaplin and Nafta-Gasand should not create independentoperating enterprises. - 65 - Uranium Total reserves of uranium are estimated at 44,740 tons. 1/ Of these, 34,740 tons are located at Zirovski Vrh and 10,000 tons at Skofja Loka in Serbia. Proven resources of uranium, alL of which are located at Zirovski Vrh, are estimated at about 2,740 tons, representing 6% of the total reserves. The remaining 42,000 tons are potential reserves. At present, Phase I of the program for the developmentof the proven reserves at Zirovski Vrh is being implemented. Upon completion in 1984, the first mine is forecast to produce 120 tons of uranium annually, which is sufficient for fueling the 644 MW nuclear power plant at Krsko. The cost of extracting the resource is estimated by the authorities to be three times higher than the cost of imported fuel. The bias in favor of developing domestic uranium resources stems from the authorities' desire to reduce the foreign exchange requirements of the energy sector. More importantly, its development is perceived as a means for ensuring the future security of supply. Current plans call for annual production to increase by another 120 tons by 1989. It is estimated that this increase would allow for economies of scale and reduce the overall cost of production by about 24% (1983 prices). The authorities plan to raise the output of uranium to about 430 tons by 1995. However, the achievementof the targets for 1989 and 1995 is contingent on the availabilityof both material and financialresources. Moreover, the authoritiesestimate that 150 to 200 tons of uranium could be produced by ithemid-1990 by extraction from phosphoric acid in new and planned facilities at Kutina, Prahovo, Sabac, Titov Veles, Trepca and Hrasink. These plans should be reconsidered,given the size of the proven reserves of uranium. For the development of uranium, priority should be given to improving the efficiency of the existing mining facilities and to formulating a systematic program for evaluating the potentiaL reserves in preparation for possible exploitationin the distant future. Non-ConventionalEnergy Resources Oil Shale Yugoslavia's principal deposits of oil shale are located in Aleksinac, Serbia. The reserves are estimated at about two billion tons, of which 40% could be mined by open-pit methocls,and the remaining 60% would require underground mining. The oil content of shale is estimated at about 10%; however, extensive geological work is needed for a more accurate determinationof this estimate. The authorities plan to exploit the shale reserves for the extraction of oil by retorting. A feasibility study, financed by UNDP, was undertakento determine the cost, the 1/ Report of the Federal Commission on Economic Stabilization,Vol. 3, Annex 3.1, Belgrade, March 1983. - 66 - appropriatemine design, technologyand the optimal size of the retorting plant. The study, which was completed in 1981, recommended the developmentof a mine and a pilot retorting plant. It was estimated that the design and equipment needed to mine the shale and construct a small retorting plant (50,000 tons of oil annually) would cost about US$129 million (in 1983). 1/ The cost per ton of shale oil would amount to about US$350 per ton, assuming no significantcost overrun. This amounts to 75% more than the border price of oil. In fact, if adjustments are made for the foreign exchange component of this development, there would be no economic merit in developing this resource on the basis of foreign exchange savings. In addition, the retorting technologyhas neither been fully tested nor proven and therefore, the risks associated with the developmentof the pilot plant are fairly high. Considering the potential for the discovery of petroleum, particularly offshore, and the unproven technology for the production of shale oil in commercial quantities, the plan to develop shale should be reconsidered. Biomass Yugoslavia has extensive resources of biomass in the form of animal and agriculturalwaste. According to the authorities,both these sources would provide about the same amount of energy as was produced from the output of brown coal in 1980. Current plans call for the construction of a few pilot projects in different regions of the country to assess their viability for wider commercial application in the future. Traditionally, biomass resources contribute to the energy needs of households in rural areas. The extensive use of these resources for commercial purposes envisaged by the authorities is not likely to materialize, mainly because the sources of supply are fairly dispersed which makes it uneconomic to collect, process the feedstockand distribute the energy. The most economic use of biomass in the future would be as a source of energy for farms, based on especiallyadapted stoves, digesters, etc. Thus far, the exploitationof biomass in Yugoslaviahas been limited to a few pilot projects. In view of the potential for meeting part of the future demand for energy of households in rural areas and farms, the authorities should undertake research projects to identify the most appropriate technology for local manufacture and supply the needed equipment to promote the increaseduse of energy from biomass. Geothermal Resource According to the Yugoslav authorities,the geothermal resource is likely to be the first non-conventionalsource of energy to be exploited. However, thus far, its potentialhas not been investigatedsystematically. Most of the presentlyavailable data were collectedin the process of 1/ Estimated on the basis of a project life of about 20 years and operating cost of about 10% annualized at an opportunity cost of capital of about 11%. - 67 - drilling for oil and gas and the followingmean temperaturegradients were obtained: 50OC/km for the Pannonian Plain; 25°C/km for the Adriatic offshore region; and 150C/km for the Dinaric Alps. The highest temperatureof 1500 C was recorded in the northern region of the Pannonian Plain at depths of 300 meters. Presently, the Yugoslav authorities are planning to undertake studies that would systematize these results and collect additionaldata in the most promising areas to further assess the viability of developingthis resource. Solar and Wind Energy Potential insolation in Yugoslavia is estimated at about 4,470 hours per annum. However, only 18% to 31% of the potential duration, amounting to 1,600 and 2,700 hours per annum, could actually be utilized because of overcast and foggy conditions. It is estimated that insolation of this duration in the southern parts of the Adriatic and of Macedonia would yield energy equivalent to 1,090 kWh/m2. As for wind energy, its extent and distribution are not adequately documented and consequently, judgment on the potential for its exploitationcannot be made. Presently, only some of the applicationsof solar energy have been tested and proven viable. Of these, solar water heating is, by far, the most advanced and widely used. However, despite the spectacular progress made in other countries in exploiting solar energy, Yugoslavia is still far behind in fully tapping the potential of this resource. There is an urgent need for the formulation of a plan of action for increasing the level of solar energy exploitation along the Adriatic coast anid in Macedonia. Such a plan should be based on an extensive resource assessment. In view of the contribution solar energy has made in other counatriestoward meeting the households' demand for low temperature water, extensive data on solar insolation and duration should be collected and compiled to serve as a base for the formulationof a plan for its economic exploitation. - 68 - CHAPTER IV HISTORICAL TRENDS IN THE CONSUMPTION AND SUPPLY OF ENERGY In the medium-term program for 1976-1985, which was formulated to provide the global strategy for the five-year social plans of 1976-1980 and 1981-1985, special attention was accorded to the development of the energy sector. The 1976-1980 social plan initiated several key investmentsaimed at acceleratingthe development of lignite, hydropower, and oil and gas. However, the plan's targets were not achieved because of adverse external setbacks and the shortcomingsof the policies of pricing, interest rate, investment, financial management, etc., which failed in guiding OALs toward the achievement of the plan targets. Some of these shortcomingswere addressed in the 1981-1985 social plan; however, the continued deteriorationof the external sector and the emergence of high level of domestic inflation led to the adjustment of the plan targets and the appointment of the stabilization commission. Its mandate was to formulate a long-term plan for restructuring the economy. In addition to the macroeconomic issues, the commission concentrated its efforts on few key sectors where development was critical to the economic adjustment being sought. Energy was one of the sectors for which a long-term plan was formulated. However, this plan also has some of the same weaknesses as the medium-term program for 1976-1985. One of these is the absence of a detailed review of the past developmentsin the sector in areas such as supply, consumption,pricing, investment,planning, etc., which are needed to identify the forces responsible for its present setting. Another weakness is the lack of a comprehensive analysis of the structure of energy supply and demand in 1982, which represents the point of departure for the stabilization commission's long-term plan. A third weakness is the absence of concrete and exact targets for the future and an analysis of the projected structure of supply and demand. The purpose of this and the subsequent two chapters is to address these shortcomingsby providing the policy-makersin Yugoslavia with a consistent and unified picture of developments in the energy sector since 1975 and of the likely prospects for the immediate future. Toward that end, this chapter reviews the forces responsible for the changes in the pattern of consumption and supply of energy since 1975. Chapter V describes in detail the energy balance for 1982, the reference point for the long-term strategy. Chapter VI is devoted to forecastingthe consumptionand supply of energy over the next decade, focussing specificallyon 1985 and 1990. In order to provide a consistent picture linking the past, present and the future development of the sector, the mission has constructedenergy balances, which hitherto were non-existent,for 1975 and 1980, based on data compiled from variety of sources in Yugoslavia. These represent the first set of balances available for these years to policy-makersin Yugoslavia. Energy balances for 1975, 1980 and 1982 are presented in Annexes 4.1, 4.2 and 4.3, respectively. - 69 - Consumptionof Energy Overall Consumptionof Energy Yugoslavia's per capita consumption of energy increased at an average annual rate of about 5.7% between 1975 and 1980, from 1.19 toe to 1.57 toe, and declined slightly thereafter to 1.55 in 1982. The per capita consumptionof energy in 1982 was about 30% higher than the average for middle income developing countries (1.19 toe), but it was about 184% and 242% lower than the average for Eastern European countries (4.4 toe) and industrial market economies (5.3 toe), reslpectively.1/ Gross domestic consumption 2/ of energy increased from 25,550 thousand toe to 34,994 thousand toe, and declined slightly over the next two years, dropping to 34,464 thousand toe in 1982, representing an average annual increase of about 4.4% between 1975 and 1982. The growth in real GDP averaged about 4.3% during this period, which results in an energy coefficient of about 1.02. However, if this period is disaggregated,the coefficientis about 1.14 for 1975-1980and 0.76 for 1980-1982. The sharp decline in the energy coefficient was due to the deceleration in the growth of the economy which reduced the overall consumptionof energy, and to the reduction in the consumption of liquid hydrocarbons brought about by the ceiling on imports of crude oil introduced by the authorities in 1981 in response to the balance of payments difficulties. Consequently, the energy coefficient for 1980-1982 is an outlier, reflecting setbacks in the performance of the economy and administrativecontrols which distort the long-term relationshipbetween growth in energy consumption and GDP. It is for this reason that the 1975-1980 energy coefficient, which is a more accurate measure of this relationship, is used in Chapter VI to forecast the supply and demand for energy. Despite the stagnation in the growth of energy consumptionbetween 1980 and 1982, the energy intensity 3/ continued its upward trend, increasingfrom 80.5 toe/per million dinars in 1975 to 83.5 toe/per million dinars in 1980 and 84.2 toe/per million dinars in 1982. 4/ During the first five years, this increase was primarily due to the initiationof large energy intensive industries,but in the subsequenttwo years, it was due to the operation of the refineries and power plants at less than optimal capacity, which lowered their efficiency and resulted in relatively higher consumption of energy per unit of output. The shares of the main sectors of the economy in gross energy consumption remained fairly stable between 1975 and 1980 for all except the industrial and household sectors. As summarized in Table 4.1, the share of energy consumed by the industrial sector declined from 46.3% in 1/ World DevelopmentReport 1983, Oxford UniversityPress, 1983, page 163. 2/ Excludes exports of secondaryenergy. 3/ The intensity of energy consumption is a crude measure of the potential for reducing energy consumptionthrough conservation. 4/ In millions of 1972 dinars. - 70 - 1975 to 43.5% in 1980. This was primarily due to the deceleration in the growth of its output which averaged 6.8% during this period compared to 7.9% in the preceding five years (1970-1975). By contrast, the share of energy consumed by the household sector increased from 9.2% in 1975 to 11.6% in 1980, mainly because of the growth in personal income and the decline in the real price of energy products which raised the demand for energy for domestic use. In fact, energy consumption for the household sector during this period was twice as high as that for all sectors taken together, 11.6% compared to 5.3%. In the following two years, however, the relative shares of energy consumed declined in all except the industrial sector, mainly because of the ceiling on imports of liquid hydrocarbons,rationing, curtailedpublic transport services and increases in the price of energy products. Table 4.1 Relative Shares in Gross Energy Consumption (%) 1975 1980 1982 Agriculture 3.2 3.2 1.7 Industry 46.3 43.5 46.0 Transport 13.0 12.9 10.0 Households 9.2 11.6 10.7 Public/Other 3.9 3.2 2.5 Losses in Conversion,/1 Transmissionand Distribution 24.4 25.6 29.1 100.0 100.0 100.0 Sources! Federal Committee for Energy and Industry for 1975 and 1980, and the Federal Bureau for Statistics for 1982. /1 Includes self-consumptionof energy producing industries. It is expected that once the economy regains its growth momentum, the share of energy consumed by these sectors would increase. The magnitude of this increase would depend on the success of the recently proposed program of long-term measures for the rationalization,substitution and conservationof energy. 1/ As shown in Table 4.1, the share of energy losses in conversion, transmissionand distributionalso increased during this period, from 24.4% in 1975 to 25.6% in 1980 and 29.1% in 1982. This 1/ These measures are discussed in detail in Chapter IX. - 71 - increase was mainly due to the continued reliance, since 1976, on relatively inefficient power plants, delays in the completion of the high voltage transmission networks resulting in the increased use of the old and overloaded lower voltage networks, and the operation of refineries and energy intensive industries at low levels of capacity utilization. Unless the proposed measures for conservation and restructuring energy consumption are implemented, these losses are likeslyto increase as the economy resumes its historical growth rates. Consiequently,high priority should be assigned in the long-term strategy for the development of the energy sector to improving the energy efficiency of the facilities involved in the production and delivery of secondary energy. Of particular importance is the efficiency of the refining and power generationsubsectors as well as the large energy intensiveindustries. Hydrocarbons Oil: Consumption of crude oil increased at an average annual rate of about 6.6% between 1975 and 1980, from 10.9 million tons to 15.0 million tons. In the following two years, concomitant with the downturn in the economy, the consumptionof oil declined, dropping to 12.5 million tons in 1982. As noted, ceilings on the imports of liquid hydrocarbons introducedby the authorities in response to the balance of payments difficultiesaccounted for most of this decline. Petroleum Products: Consumption of petroleum products increased at an average annual rate of about 7.6% over the period 1975-1980. Table 4.2 below shows that fuel oil had the highest rate of growth (9.9%) Table 4.2 Consumptionof Petroleum Products, 1975-1982 (thousand toe) AveragieAnnual Growth Rate (%) 1975 1980 1982 1975-1980 1980-1982 LPG 293 393 336 6S.0 -7.5 Gasoline 1,566 2,196 1,617 7.0 -14.2 Aviation fuel & kerosene 239 298 225 4.5 -13.1 Diesel 3,299 4,213 2,907 5.0 -16.9 Fuel Oil 4,409 7,073 5,865 9.9 -8.9 Other /1 293 381 300 5.4 -11.3 Total 10,099 14,554 11,250 7.6 -12.1 Source; Federal Committee for Energy and Industry (FCEI) /1 The "other" category includes petroleum products such as asphalt, lubricants,etc., whose consumptionis too small to list separately. - 72- because of the increased demand of the power subsector. The next highest rate of growth was in consumptionof gasoline (7%) because of the increase in personal income in the early years of the period under consideration which increased the demand for private transport. The growth in the consumption of LPG (6.0%) stems primarily from its increased use by the household sector as a substitute for kerosene in areas without access to natural gas. Substitutionof diesel in the transport sector for hard and brown coal, traditionally used by railroads, accounted for most of the increase in its consumption,averaging about 5.0% a year. Aviation fuel and kerosene had the lowest rate of growth, reflecting the substitutionof electricity and LPG for kerosene in households, the reduction in the number of routes operated by the national airline (JAT), and the increased use of natural gas by petrochemicalindustries as a substitutefor naphtha and kerosene. After 1980, the consumption of petroleum products declined at an average annual rate of 12.1%, dropping to 11.2 million tons in 1982. As summarized in Table 4.2, the consumption of all petroleum products declined during this period. Diesel had the highest rate of decline (21.0%), followed by gasoline (14.2%), aviation fuel and kerosene (13.1%), fuel oil (8.9%) and LPG (7.5%). As noted above, reductions in oil imports together with the deceleration in the growth of the economy, rationing and other administrative controls account for most of the decline in the overall consumptionof petroleum products. The consumption of petroleum products increased in all sectors between 1975 and 1980. The most notable increase during this period was in the power subsector where, because of delays in the commissioningof some major lignite-fired power stations in Kosovo and Serbia, the consumption of petroleum products, mainly fuel oil 1/, increased fourfold from 518 thousand toe in 1975 to 1.9 million toe in 1980, representingan average annual increase of 30.8%. As shown in Table 4.3, the share of petroleum products consumed by the power subsector increased from 5.1% in 1975 to 13.6% in 1980. In the following two years, the consumption of petroleum products declined in all sectors of the economy largely because of supply constraints. During this period, in addition to rationing and administrative controls, the prices of petroleum products also were increased. Since the industrialsector's demand for energy is less price elastic than that of other sectors, it experienced the lowest rate of decline in the consumptionof petroleum products, 1.9% compared to 19.7% for all other sectors taken together. Largely due to these shifts in rates of growth, the share of petroleum products consumed by the industrialsector increasedfrom 34.5% in 1980 to 44% in 1982. 1/ See Annexes 4.1 and 4.2. - 73 - Table 4.3 Consumptionof PetroleumProducts by Sector, 1975 and 1982 1975 1980 1982 Average Annual '000 % '000 % '000 % Growth Rate of Toe Share Toe Share Toe Share 1975-80 1980-82 Industry 3,937 38.9 5,029 34.5 4,834 44.1 5.0 -1.9 Power 518 5.1 1,983 13.6 1,528 13.9 30.8 -12.2 Transport 3,140 31.1 4,339 29.8 3,207 29.2 6.7 -14.0 Household 1,405 13.9 1,845 12.7 980 8.9 5.6 -27.1 Public/Other 368 3.6 463 3.2 93 0.8 4.7 -55.2 Agriculture 731 7.2 895 6.1 327 3.0 4.1 -39.5 Total 10,099 100.0 14,554 100.0 10,969 100.0 7.6 -13.2 Source: Federal Committee for Energy and Industry. Natural Gas: Consumption of natural gas increased at an average annual rate of about 17.6% between 1975 and 1980, from 1,332 thousand toe to 2,993 thousand toe, mainly because of the increased availability of natural gas, both domestic and imported. Imports from the Soviet Union were based on fixed deliverieswhich, with the delays in the completion of the infrastructure for storage, transport and distribution, forced the authoritiesto encourage the use of natural gas among consumers located in the close proximity to the sources of supply. This encouragement was perceived as a means of increasing Yugoslavia's exports because the mode of payment for Soviet gas was based on a formula that allowed the country to pay for 50% of its imports of natural gas in manufactured goods. However, since Yugoslavia has developed a surplus of Soviet currency, this arrangement is now being perceived negatively as it deprives the country of manufactured goods that could be exported to countries from whom it could earn convertible currency of which there is an acute shortage. The increased consumption of natural gas was also stimulated by the maintenance of domestic prices of natural gas by RPCPs in Croatia and Vojvodina at levels substantially below the price of imported gas. Moreover, the averaging of prices for gas to consumers of both domestic and imported gas distorted the relationship of the price of natural gas relative to the prices of competing fuels and provided incentives to consumers to substitute natural gas for liq[uid hydrocarbons. For essentially these same reasons, the upward trend in the consumption of natural gas has continued through 1982, although at a slightly lower rate of growth than was experienced in the preceding five years. In fact, the consumption of natural gas between 1975 and 1982 would have been substantiallyhigher had it not been for supply constraints including the - 74 - Table 4.4 Sectoral Consumption of Natural Gas, 1975-1982 1975 1980 1982 Average Annual '000 % '000 % '000 /1 % Growth Rate (%) Sector Toe Share Toe Share Toe Share 1975-80 1980-82 Power 147 11.0 365 12.2 473 12.4 19.9 13.8 Industry 980 73.6 2,187 73.1 2,749 72.2 17.4 12.1 Households 102 7.7 204 6.8 313 8.2 14.9 23.9 Public/Other 40 3.0 69 2.3 69 1.8 11.5 - Agriculture 63 4.7 168 5.6 201 5.3 21.7 9.4 Total 1,332 100.0 2,993 100.0 3,805 100.0 17.6 12.8 Source: Federal Committee for Energy and Industry. /1 Includes gas produced in refineries. inadequacy of storage and transport facilities. As shown in Table 4.4, the consumption of natural gas reached 3,805 million toe in 1982, representing an average annual increase of 12.8% between 1980 and 1982. The continued increase in the consumption of natural gas during this period, when the consumption of other higher value energy products was declining, clearly underscores the need for increasing its price. In fact, unless the authorities assign high priority to sustaining the upward adjustments in the price of natural gas, Yugoslavia's dependence on imported natural gas would continue to increase, particularly if import restrictions on oil are maintained. As summarized in Table 4.4, the consumption of natural gas increased in all sectors of economy between 1975 and 1982. During the period 1975-1980 most of the increase in consumption of natural gas by the industrial sector, which continues to account for over 60% of consumption, was due to the displacement of domestic coal and fuel oil, and the growth of petrochemical industries. After 1980, however, the consumption of natural gas increased in this and in other sectors largely because of the slack created by the reductions in oil imports. Coal and Lignite Consumption of coal and lignite increased from 10.7 million toe in 1975 to 13.1 million toe in 1980 and 14.3 million toe in 1982, representing an average annual rate of 4.1% between 1975 and 1980 and 4.5% between 1980 and 1982. As suinarized in Table 4.5, between 1975 and 1980 the consumption of brown coal declined at an average annual rate of about 2.8% while that of hard coal and lignite increased at average annual rates of about 3.3% and 7.4%, respectively. In the following two years, the - 75 - consumption of all solid fuel increased, averaging 9.0% for lignite, 3.4% for hard coal and 2.1% for brown coal. Most of the increase between 1980 and 1982 was to compensate for the reductions in the imports of crude oil. Table 4.5 Coal Consumptionby Type, 1975-1982 1975 1980 1982 Average Annual '000 '000 '000 '000 '000 '000 Growth Rate (%) Coal Type Tons Toe Tons Toe Tons Toe 1975-80 1980-82 Hard 3,537 2,235 3,663 2,639 3,914 2,820 3.3 3.4 Brown 10,663 3,647 9,231 3,158 10,222 3,291 -2.8 2.1 Lignite 23,592 4,862 37,247 7,349 41,923 8,239 7.4 9.0 Total 37,792 10,744 50,758 13,146 56,059 14,350 4.1 4.5 Source; Federal Committee for Energy and Industry. As summarized in Table 4.6 below, the consumptionof solid fuels declined between 1975 and 1982 in all except the power subsector,where it increased at an average annual rate of about 8.4%. In the first five Table 4.6 Coal Consumptionby Sector, 197.5-1982 ('000 toe) 1975 1980 1982 /1 Average Annual '000 % '000 % '000 % Growth Rate (%) Sector Tons Share Tons Share Tons Share 1975-80 1980-82 Power 5,060 47.2 7,509 57.1 8,882 62.2 8.2 8.7 Industry 5,224 48.7 4,509 34.3 4,325 30.3 -2.9 -2.1 Transport 124 1.1 90 0.8 87 0.6 -6.2 -1.6 Public/Other 318 3.0 270 2.0 254 1.8 -3.2 -3.0 Households - - 768 5.8 723 5.1 - -2.9 Total 10,726 100.0 13,146 100.0 14,27L 100.0 4.1 4.2 Source; Federal Committee for Energy and Industry. /1 Adjusted for self-consumption. -76 - years of that period, the increase was mainly due to the growth in demand for electricity,but in the subsequent two years it was to offset the reductions in the supply of oil precipitatedby the ceiling on imports of liquid hydrocarbons. The decline over the seven-year period in the consumptionof solid fuels in sectors other than power, was due to their displacementby natural gas. This shift, as is discussed in Chapter VIII, was induced by the distortion in the relative prices of solid fuels and domesticallyproduced natural gas. Electricity Consumption of electricity in Yugoslavia increased from 33,392 GWh in 1975 to 47,653 GWh in 1980 and 54,445 GWh in 1982, representing average annual growth rates of 7.4% and 6.9% respectively. The decelerationin the rate of growth of electricity consumptionwas largely due to the downturn in the growth of the economy which began in 1979. The growth of electricity sales by main consumer class summarized in Table 4.7 shows that the consumption of electricity increased at a substantially higher rate between 1980 and 1982 than in the preceding five years in all except industrial and public sectors. This was largely due to the stagnation in the growth of industrialoutput and restrictionsrelating to the use of electricity in public facilities. In 1982, industry was the major consumer of electricity (56.1%), which together with the household sector (31.6%), accounted for almost 88% of total electricity consumption in Yugoslavia. The rest was consumed by the three remaining sectors, namely transport,public/other and agriculture. Table 4.7 ElectricityConsumption By Sector, 1975-1982 in the InterconnectedSystem (GWh) 1975 1980 1982 Average Annual % % % Growth Rate-(%) GWh Share GWh Share GWh Share 1975-80 1980-82 Transport 735 2.2 996 2.1 1,684 3.1 6.3 30.0 Industry 19,122 57.2 28,683 60.1 30,532 56.1 8.4 3.2 Households 10,059 30.1 13,475 28.3 17,224 31.6 6.0 13.1 Public/Other 3,072 9.2 3,938 8.3 4,175 7.7 5.1 3.0 Agriculture 403 1.2 581 1.5 830 1.5 7.6 19.5 Total 33,392 100.0 47,673 100.0 54,445 100.0 7.4 6.9 Source: JUGEL - 77 - As shown in Table 4.8, consumption of electricity varies among the republics and provinces. The level of consumption in Slovenia, Croatia, Bosnia-Herzegovina,and Serbia, was significantlyhigher than the level of consumption in Macedonia, Montenegro, Kosovo and Vojvodina for 1975, 1980 and 1982. These are largely due ito the differences in the level of development of the republics and provinces. Annex 4.4 provides data on the republican and provincial consumptionof electricityfrom 1955 to 1980 and on the sectoral consumptionof electricityfrom 1975 to 1982. Table 4.8 ElectricityConsumption by Republics and Provinces /1 1975 19830 1982 Total Total Total Consumed Share Consumed Share Consumed Share GWh % GWh x GWh % Bosnia-Herzegovina 4,557 13.0 7,033 14.1 8,348 7.8 Montenegro 1,465 4.2 2,305 4.6 2,678 4.8 Croatia 8,177 23.4 11,226 22.5 11,283 20.2 Macedonia 2,988 8.6 3,204 6.4 3,483 6.2 Slovenia 5,906 16.9 7,814 15.6 8,299 14.8 Serbia 11,865 33.9 18,392 36.8 13,387 23.9 Kosovo - - - - 2,415 4.3 Vojvodina - - - - 6,073 10.8 TOTAL 34,958 100.0 49,974 100.0 55,966 100.0 Source; JUGEL /1 Includes consumptionby autoproducers. Supply of Energy Hydrocarbons Exploration: Prior to 1945, petroleumlexploration in Yugoslavia was sporadic, resulting in relatively small and uneconomic discoveries. Systematic exploration for oil and gas began only in the postwar period with the establishmentof INA-Naftaplin,Naftagas and Energoinvest, which were entrustedwith all activities relating to the oil and gas subsector. INA is responsible for exploration in the republic of Croatia, Naftagas covers the province of Vojvodina, and Energoinvest has the exploration rights for Bosnia-Herzegovina. Recently, Jugopetrol has initiated - 78 - explorationactivities in Montenegro. Intensive explorationby these OALs over the past three decades has resulted in the discovery of important oil and gas reserves. Presently, all of Yugoslavia'soutput of oil and gas is from onshore fields in Croatia and Vojvodina. Most of these fields are located in relatively simple structural trappings, ranging in depth between 500 meters and 3,000 meters. Although the trapping domains have been fully evaluated, geologicalprospects are such that the country could still become a large producer of hydrocarbons. In order to fully develop this potential, future exploration activities would have to be directed toward subtle traps related to existing fields and deep gas prospects at or related to basement levels. Mapping the configuration of these domains, however, would not be easy since it would require recently developed techniques not yet introduced in Yugoslavia to re-evaluate and analyze available seismic data and collect substantial amounts of new seismic information. External assistance, both technical and financial, would be required to undertake these activities. In the Drava and Sava Basins in Croatia, the focus of INA-Naftaplin's exploration activities, conventional oil and gas fields have probably reached their peak. However, current plans for water injection in the relatively large fields are expected to increase or sustain the present level of production for a few more years. Additional oil and gas reserves, found in wedge-outs and other subtle traps, can also be recovered by field extension. Future explorationefforts are expected to focus on mapping and testing deep gas/condensateprospects. In order to increase production from these domains in a relatively short time, Naftaplin would have to accelerate the collection of seismic data, acquire modern data processing equipment and special equipment for drilling deep gas wells 1/, all of which would have to be imported. INA-Naftaplin's other explorationactivities onshore in Croatia and Slovenia have yielded numerous oil and gas shows such as the one in the island of Brac; however, due to the complex geological setting its structure cannot be unravelled without the most sophisticatedgeophysical methods. Exploration drilling has also been constrainedby difficultiesin securing proper equipmentand technology to systematically undertake this activity. INA-Naftaplin's offshore exploration activities in the northern part of the Adriatic have resulted in the identification of four gas bearing structures whose development, at present, would be uneconomic due to their shallow occurrences and irregular sand development. Deeper trapping structures have been identified and are the targets for future explorationdrilling. Several geological basins, where gas is likely to occur at depths between 1,000 m and 3,000 m, have also been identified in the south Adriatic; however, drilling would be difficult due to greater water depths. As these problems cannot now be handled by INA-Naftaplin,three areas have 1/ Special equipment would be required because of high temperaturesand pressures which develop during the drilling process and the presence of C02 and H2S. - 79 - been contracted to foreign consortia (Chevron/Agip, Texaco/Agip and Agip/Chevron/Hispanoil) on joint-venture terms. INA-Naftaplin would consider explorationoperation in deeper waters after initial drilling has been carried out by the consortia. The approach adopted by Jugopetrol and INA-Naftaplinof continuing to explore in shallow areas, which are well identified and relatively inexpensive,while offering the deeper, more expensive,high risk areas to foreign contractors represents a successful strategy which would contribute to increasing the output of oil and gas from the offshore areas. Naftagas explores mainly in the province of Vojvodina and Serbia. It has made some effort to map and drill deep gas prospects at basement level for which there was some initial encouragement, but follow-uphas been slow due to inadequateprocessing facilities. Naftagas has also explored in Bosnia-Hercegovinaon behalf of Energoinvest. In northeast Bosnia, the sedimentarysection is considered favorable for the generation of hydrocarbons. So far, three sedimentary basins have been delineated in the eastern part and at least two more appear to be present in the west. Exploration in this area will involve substantiallygreater risks than in an area whose hydrocarbon potential is known. Nevertheless, the prospectsare good enough to justify the initiation of an exploration drilling program to test the region's potential,but this would have to be postponed until sufficient foreign exchange becomes available. Three wells, all with shows but none with commercial reserves, were drilled by Jugopetrol in joint-venturewith Chevron/Buttes in the southern Adriatic. Additional prospects have been mapped, but a decision for further drilling is yet to be taken. Although Yugoslavia has the potential for significantly increasing its output of oil and gas, the shortages of foreign exchange together with the recently adopted procedures for its allocation have impeded the ability of the major OALs to fully develop that potential. The impact of the shortage of foreign exchange is illustratedbest by the substantial reductions in the drilling operations of both INA-Naftaplin and Naftagas. As shown in Table 4.10, the number of meters drilled between 1980 and 1982 declined by 8.6% for both, from 196,200 meters to 179,499meters for the former and from 132,400 meters to 125,500 meters for the latter. To alleviate the difficultiesstemming from the shortage of foreign exchange, a new law has been passed to ensure that 17% of all export earnings would be assigned to the oil anidgas subsector for imports of oil and gas and the purchase of necessary equipment and materials for explorationand production. In 1983, about 11.4% of this 17% (about 1.9% of the export earnings)was to be assigned to OALs for the exploration and development of oil. This sum was expected to have amounted to about US$195 million, but less than half of this was actually made available. - 80 - Table 4.10 ExplorationActivities, 1980 and 1982 Meters Drilled ('000) % 1980 1982 Change INA 196 179 -8.6 Naftagas 132 125 -8.6 Source: INA and Naftagas Oil. Domestic production of oil increasedbetween 1975 and 1980; however, it was insufficientto meet the domestic demand. The difference was imported,which increasedat a faster pace than domestic production to keep up with the growth of demand. As a result, over the five-year period, Yugoslavia became more dependent on imports which was contrary to the objectives of the 1976-1980 social plan. Table 4.11 shows that the share of domestic production in the supply of crude oil declined from about 33% in 1975 to about 28% in 1980. During this same period, domestic production of crude oil increased at an average annual rate of 3.1% compared to an average increase in imports of 8.3%. By contrast, imports of oil decreased between 1981 and 1982, and the production of domestic oil increasedbut at a lower rate of growth than was achieved in the preceding five years. Domestic production increased at an average annual rate of 2.8% during the two-year period. Imports of oil decreased over the same period at an average annual rate of about 12%, mainly because of import restrictionsfollowing the introductionof the stabilizationmeasures and the downturn in the growth of the economy since 1979. As a result, the share of domestic production increased from 28.1% in 1980 to 34.0% in 1982. Table 4.11 Supply of Crude Oil, 1975-1980 ------1975------1980 ---- … ------1982------'000 Tons Share '000 Tons Share '000 Tons Share Domestic production 3,622 33.3 4,226 28.1 4,256 34.0 Imports 7,257 66.7 10,804 71.9 8,401 67.0 Total 10,879 100.0 15,030 100.0 12,535 100.0 Source; INA and Naftagas - 81 - Natural Gas. Yugoslavia's supply of natural gas increased by about 186% between 1975 and 1982, from 1,332 thousand toe in 1975 to 3,805 thousand toe in 1982. As summarized in Table 4.12 below, most of this increase was due to the availabilityof both domestic and Soviet gas, the supply of which started in 1978. Imports of gas increased from 172 thousand toe in 1978, representing about 10% of total supply, to about 1,886 thousand toe in 1982, amounting to 49% of supply. Although domestic production of gas increased by about 44% between 1975 and 1982, from 1,332 thousand toe in 1975 to about 1,919 thousand toe in 1982, the increasewas less than what was geologicallypossible. The stagnation in the domestic production of oil and gas between 1981 and 1982 was entirely due to the shortage of foreign exchange experienced by INA and Naftagas. This shortage, which started in 1980, was further exacerbated over the following two years by the replacement of the market where firms could purchase the foreign exchange needed, by a system of sectoral allocation introducedin 1982. In that year, the allocation of foreign exchange made to OALs involved in the oil and gas subsectorwas only enough to cover the cost of imports of oil, which made it virtually,impossible for them to import the spare parts needed. As a result, INA and Naftagas had to decelerate the rate of extraction from its fields. Moreover, these OALs were forced to attempt the constructionof highly specialized equipment, such as offshore platforms for deep water, etc., where Yugoslavia lacks the comparative advantage and consequently, the completion and installationof some of these equipmentwas achieved after serious delays and with exceptionally high cost overrun. Unless the foreign exchange constraints being experienced by the subsector are removed, Yugoslavia's future dependence on imported oil and natural gas is likely to increase. In fact, had it not been for the deceleration in the growth of the industrial sector and the power subsector in 1981 and 1982, the share of imported gas in the total supply would have been higher than observed, provided gas transportation and storage facilities were available. In order to assist the producers in increasing their output of hydrocarbons, high priority should be given to the formulationof a strategy in the near future to ensure that the oil and gas subsector has the necessary foreign exchange for its developmentand operation. Table 4.12 Suppl1yof Natural Gas, 1975-1~982 1975 1980 1982 '000 Toe Share '000 Toe Share '000 Toe Share Domestic production 1,332 100% 1,557 52% 1,919 5i% Imports 0 - 1 436 48% 1 886 49% Total 1,332 100% 2,993 100% 3,805 100% Source: INA and Naftagas - 82 - Petroleum Products. Yugoslavia's oil refining capacity increased from 14.1 million tons per year in 1975 to 24 million tons per year in 1980, representing an increase of about 70%. The completion of the new refinery at Skopje, in 1983, has increased the country's the refining capacity by another 2.55 million tons. As shown in Table 4.13, the refineriesat Rijeka, Sisak and Lendava in Croatia, which are operated and managed by INA, account for 58% of this capacity. Another 24.5% is accounted for by the refineries at Novi-Sad and Pancevo, in Vojvodina. Naftagas operates and manages these refineries. The remaining capacity of about 17.5% is divided between the refineries at Skopje, in Macedonia, and at Bosanski-Brod. Table 4.13 Growth in Refinery Capacity Between 1975 and 1983 (million tons) 1975 1980 1983 INA Rijeka 4.0 8.0 8.0 Sisak 4.0 6.7 6.7 Lendava 0.6 0.7 0.7 NAFTAGAS Pancevo 1.3 5.5 5.5 Novi-Sad 1.0 1.0 1.0 ENERGOINVEST Bosanski-Brod 2.5 2.1 2.15 MACEDONIAPETRO Skopje _ - 2.5 Total 14.1 24.0 26.55 Source: Association of Oil and Gas Producers (OUNP) In 1983, of the maximum refining capacity of about 26.5 million tons per year, less than 7% (1.8 million tons) was for secondary refining. This capacity was installed in the late 1970s at the Rejika and Sisak refineries, in anticipation of an increase in the demand for light and middle distillates. The fuel oil used as feedstockwas to be released by the power subsector where, according to the targets of the 1976-1980 social plan, it was to be displaced by coal and lignite. However, the consumptionof fuel oil by the power subsector increasedbecause of delays in the completion of the lignite fired power plants, on the one hand, and - 83 - the growth in the demand for electricity, on the other. As a result, there was only a marginal shift in the black/white product ratio, from 47/53 in 1975 to 40/60 in 1982. The consumptionof oil and the product mix for each refinery in 1982 is presented in Table 4.14. According to the current plan, this ratio is expected to reach 35/65 by 1985 and 20/80 by 1990. This scenario is tenable only if the authorities keep the existing fuel oil fired power plants on reserve, as was decided in 1982, and adopt all necessary measures that would promote the substitution of coal for fuel oil in the industrialsector. Table 4.14 Consumption of Crude Oil and Product Mix by Refinery in 1982 Consumption Between Ratio Percentage of Crude Oil 1980 & Black/ Gaso- Diesel & Fuel Refinery (million tons) 1982 white line Jet Fuel Oil Rijeka 3.0 FCC 35/65 28 29 25 Sisak 3.2 FCC 40/60 23 52 29 Lendava 0.6 45/55 20 35 42 Pancevo 3.3 45/55 21 30 42 Novi-Sad 1.0 45/55 21 30 42 Bosanski Brod 2.0 30/70 19 35 20 Total 13.1 40/60 23.6 30.6 35.9 Source; Association of Oil and Gas Producers (OUNP) As noted, the consumption of fuel oil by the power subsector instead of decreasing, increased between 1975 and 1980. To meet this demand, which was expected to continue its upward trend through the 1980s, three new refineries, at Skopje, Novi-Sad and Bosanski-Brod, all with primary distillationcapacities only, were planned. However, the increase in oil prices since 1979, the recent deceleration in the rate of economic growth and the acute shortage of foreign exclhangenecessitated sharp reductions in the imports of oil. Consequently, as early as 1980, the refinery subsector was operating at 75% of capacity. With the commissioning of the new refinery at Skopje, the utilization factor decreased even further. Estimates presented in Table 4.15 show that capacity utilization had dropped to about: 54% by 1982. The underutilizationof the refining capacity was further exacerbated by the installationof secondary cracking facilities at: the existing refineries needed to achieve the projected black/white product mix ratio. It is estimated that the refining capacity in 1983 would exceed Yugoslavia's projected demand for 1990 by about 40%. Therefore, to rationalize - 84 - investment in the petroleum subsector, priority should be given to the formulation and implementationof an investment plan to restructure the refining capacity in order to meet the future demand for mix of petroleum products at least cost to the economy. Such a plan should incorporatethe development of the infrastructure for storage, transportation and distributionof petroleum products. Table 4.15 Capacity Utilizationby Refinery in 1982 Refinery InstalledCapacity Output Capacity Utilization - --- million tons --- Rijeka 8.0 3.0 0.37 Sisak 6.7 3.2 0.48 Lendava .7 0.6 0.85 Pancevo 5.5 3.3 0.60 Novi-Sad 1.0 1.0 1.00 Bosanski-Brod 2.1 2.0 0.80 Total 24.0 13.1 0.54 Source: Association of Oil and Gas Producers (OUNP) Coal and Lignite Total mining capacity 1/ increased from 37.8 million tons in 1975 to 50.1 million tons in 1980 and 59.9 million tons in 1982, representing average annual growth rates of 5.8% and 9.4%, respectively. As summarized, in Table 4.16, most of the increase in the first five years of that period was due to the expansion of lignite mining capacity,which increased at an average annual rate of 8.4%, from 26.2 million tons in 1975 to 39.2 million tons in 1980. By contrast, the mining capacity for both hard and brown coal declined, from 970 thousand tons to 579 thousand tons for hard coal, and from 10.6 million tons to 10.2 million tons for brown coal. In the following two years, the mining capacity for hard coal continued to decline at about the same rate as it did in the preceding five years, but that for brown coal increased at an average annual rate 2%, reaching 10.7 million tons by 1982. The mining capacity for lignite, on the other hand, continued to increase at an acceleratingrate of growth, averaging 11.5% a year between 1980 and 1982. 1/ Includes the expansion of the existing mines, the commissioningof new mines or a change in rate of utilizationof existing capacities. - 85 - Table 4.16 Mining Capacity by Type of Coal, 1975-1982 (thousandtons) Growth Rate (Z) 1975 1980 1982 1975-1980 1981-1982 Hard coal 970 579 470 -9.8 -9.9 Brown coal 10,658 10,257 10,680 -0.8 2.0 Lignite 26,213 39,244 48,810 8.4 11.5 Total 37,841 50,080 59,911 5.8 9.4 Source: Bank estimates The domestic productionof solid fuels increasedbetween 1975 and 1980 at an average annual rate of about 5.2X, from 35,128 thousand tons to 45,177 thousand tons. Table 4.16 shows that while the production of both hard and brown coal fell between 1975 and 1980, that of lignite increased at an average annual rate of about 8.4% to reach 35,320 thousand tons in 1980. During the same period Yugoslavia increased its imports of coking coal from 2,664 to 3,627 thousand tons. In the following two years, Table 4.17 Sources Supply of Coal, 1975 - 1982 (thousandtons) Average Annual Growth Rate (x) 1975 1980 1982 /1 1975-80 1980-82 Domestic Production Hard coal 873 626 388 -6.4 -21.3 Brown coal 10,663 9,231 10,744 -2.8 7.9 Lignite 23,592 35,320 43,532 8.4 11.0 Imports /1 Hard coal 2,664 3,627 3,526i 6.4 -1.4 Exports Brown coal - - 60 - - Lignite - - 510 - - Stock Changes Brown coal 287 1,954 (12) _ _ Lignite - (1,549) Total 37,792 50,758 56,059 6.1 5.1 /1 Bank estimates. - 86 - domestic production of hard coal declined by 38%, dropping to 388 million toe in 1982, but that of brown coal and lignite increased,reaching 10,744 thousand tons and 43,532 thousand tons, respectively. Imports of coking coal declined during this period largely due to the softened demand .precipitated by the stagnation of industrial output. Table 4.17 summarizesthe changes in supply of coal between 1975 and 1982. Electricity Total installed power generating capacity increased from 9,037 MW in 1975 to 16,428 MW in 1982. Most of this increase, which was in lignite-firedthermal plants, occurred in the public supply system where the installedcapacity increased from 8,372 MW to 15,277 MW. In 1975, the ratio of hydro to thermal capacity was 56:44. By 1982, the ratio had changed to 44:56. Table 4.18 shows the installed capacities by type of plant in 1975 and 1982. The investment in lignite-fired plants was Table 4.18 InstalledCapacities in 1975 and in 1982 1975 1982 l. Total Country Hydro (MW) 4,793 7,250 % of Total 53 44 Thermal (MW) 4,244 9,178 % of Total 47 56 Thermal of which: Coal & Lignite (MW) 3,216 6,737 % of Total 36 41 Oil and Gas (MW) 1,028 1,780 % of Total 11 11 Nuclear (MW) - 661 % of Total _ 4 Total InstalledCapacity (MW) 9,037 16,428 2. Public Supply System (InterconnectedSystem) Hydro (MW) 4,673 7,125 Thermal of which 3,699 3 Coal & Lignite (MW) 3,216 6,737 Oil and Gas (MW) 483 919 Nuclear _ 66.1 Total 8,372 15,442 % of National Installed Capacity 92.6 94.0 3. Self-Producers Hydro (MW) 120 125 Thermal (MW) 545 861 Total WU 986 % of National InstalledCapacity 7 6 - 87 - consistent with Yugoslavia's objective of increasing its reliance on domestic energy resources. However, the commissioning of a 953 MW oil-fired plant (Annex 4.2) was contrary to this objective. Part of the additional oil-fired capacity was committed before the 1973 oil price increase, but most of the new capacities were not installed until after 1977, suggesting that decisions on these plants could have been changed. The new oil-fired plants were constructed in the republics which are deficient in coal and lignite reserves, in particular Croatia and Macedonia. The main reasons for the construction of these plants were disagreements between republics and provinces on the extent of their contribution to new joint investments, considerations of republican/ provincial energy self-sufficiency,and distortions in the pricing of energy products. During the 1976-80 plan period only half of the planned thermal capacity additions of 6,911 MW was actuaLly commissioned. This was due mainly to delays in the delivery of equipment to lignite-fired power plants and the financial constraints experienced by the power subsector. As a result, only 46% of the 4,794 MW of planned lignite-fired plant capacity was in operation by 1980 which had a significant impact on the realization of the output targets of lignite mines and accounts for the increaseddependence on fuel oil for power generation between 1976 and 1980. The remaining additions were in oil and gas-fired and brown coal-fired plants. The first nuclear power plant (664 MW) was commissionedin 1981 (Annex 4.5). The growth in the generating capacity has been accompanied by a rapid expansion of the transmission and distribution systems. Table 4.19 shows the length of transmissionlines and transformer capacities at the various transmission voltage levels in 1975 and 1982. The most rapid expansion occurred at the 380-kV voltage level, reflecting the desire of the authorities to build a high voltage transmission system that would form the backbone of a fully integrated national bulk supply system to overcome the hitherto limited interrepublican bulk power transfer capability. The Bank's involvement in the power subsector through TransmissionProjects I and II was mainly to assist in the development of the 380-kV transmissionsystem. The implementationand completion of the Third TransmissionProject would considerably strengthen this integration through a national electric power management system (EMS) that would form the main nerve center for the coordinated operation of the national interconnected transmission system. It is envisaged that the coordinated operation of the national interconnectedsystem 'by JUGEL would lead to coordinated planning of power generation expansion programs through the sheer weight of economic advantages gained by joini:load dispatching. One of the main objectives of the Bank's involvement in the power subsector would be achieved with the successful completion of EMS. The development of the domestic transmission system has been accompanied by the construction of interconnections with the power systems of all of Yugoslavia'sneighboring countries; through 4 tie lines of 380-kV (Greece, Romania, Bulgaria, and Italy), 7 tie lines at 110-kV and 150-kV voltage levels (Italy, Austria, Hungary, Romania, Bulgaria and Greece) and 3 tie lines at 220-kV (Italy, Austria and Albania). These interconnections offer means of power exchanges between Yugoslavia and the neighboring countries to improve availabilityand reliability of power supply in all the countries involved. - 88 - Table 4.19 TransmissionLines and Transformer Capacities in 1975 and 1982 TransmissionLines TransformerCapacities kilometers MVA Year 380-kV 220-kV 110-kV 380-kV 220-kV 110-kV 1975 596 4,553 10,650 1,500 6,200 10,029 1982 3,468 5,165 13,530 12,400 11,488 18,087 The distributionsystem has expanded at a relatively slower rate than the transmission system. This shows the emphasis the authorities placed, as of the early 1970s, on the development of the transmission system. This led to the overloadingof the distributionsystem resulting in increased distribution losses. The total length of distributionlines increasedby 15% from 252,693 kilometers in 1975 to 292,305 kilometers in 1980. The most significant increase occurred at the 10-kV level which increased by 24% from 68,316 kilometers in 1975 to 84,822 kilometers in 1980. Low voltage lines (0.4-kV) increased in length by 12% and the 35-kV lines increased by only 6% over the same period. Total transformer capacity increased in the same period by 39% from 17,531 MVA to 24,201 MVA, with most of the increase occurring at the 10-kV level. Table 4.20 shows the distributionnetwork in 1975 and 1980. The relatively higher expansion at the 10-kV level was mainly to supply power to additional agriculturalconsumers, large and medium industriesand rural communities. Table 4.20 DistributionNetwork in 1975 and in 1980 1975 1980 Voltage Level 1. Length of Lines ('000 km) 35-kV 14.8 15.7 10-kV 68.3 84.8 0.4-kV 169.5 191.8 Total 252.6 292.3 2. TransformerCapacity ('000 MVA) 35-kV 7.8 9.8 10-kV 9.7 14.4 Total 17.5 24.2 - 89 - Electricity production in Yugoslavia increased at an average annual rate of about 6.7%, from 40,033 GWh in 1975 to 63,018 GWh in 1982. Between 1975 and 1982, thermal generationaccounted for about 52% of total electricity production. The share of the production of the public supply facilities in the total generation averaged about 95%. The remaining 5% was provided by self-producers. Table 4.21 summarizes production by type of plant in 1975 and in ]L982. Exports increased gradually from 549 GWh in 1975 to 1,067 GWh in 1982. Imports of electricity as part of the available energy ifor domestic consumption declined from 1,642 GWh in 1975 to 340 GWh in 1977 and increased to 3,120 GWh in 1982. Yugoslavia was therefore a net importer of electricity in 1982 (Annex 4.6). Apart from the internationalexchanges of electricity, interrepublican/interprovincialexchanges take place through the national interconnectedtransmission system. Annex 4.4 sunmarizes these exchanges from 1976 to 1980. Table 4.21 ElectricityProduction in 1975 and in 1982 (GWh) 1975 1982 1. Total Country Hydro 19,310 30,060 Thermal 20,723 32,958 Total Gross Generation 40,033 63,018 2. Public Supply System (InterconnectedSystem) Hydro 18,829 29,703 Thermal: Coal & Lignite 15,382 22,472 Oil & Gas 1,380 2,391 Nuclear - 2,350 StationUse /1 1,895 2,951 Total GenerationPublic Supply System 37,486 59,874 Less; Overall StationUse /2 1,923 2,993 Net Generation 35,563 56,874 Add: Imports 1,642 3,199 Less: Exports 549 1,243 Less: T & D Losses :3,666 4,820 Net Available for Consumption 32,990 54,010 ,.,,.= == Self-Producers(GWh) :2,547 3,120 /1 The thermal plants only (lignite,coal, oil/gas, nuclear). /2 Made up of uses in both hydro and thermal plants. - 90 - CHAPTER V ENERGY BALANCE, 1982 1/ The trend in Yugoslavia'sconsumption and supply of energy during the period 1975-1982 was examined in the previous chapter. As noted, the first five years of that period were characterizedby a sustained increase in energy consumption and, contrary to the objectives set forth in the medium-term program, by an increase in dependence on imported oil and gas. In the following2 years this dependence declined, mainly because of the decelerationin the rate of economic growth and the ceilings on the imports of liquid hydrocarbons introduced in response to the balance of payments difficulties. The long-term plan for the energy sector formulatedby stabilizationcommission to address these difficultiestakes 1982 as its point of departure. However, the plan suffers from the absence of a systematic analysis, linking the past, present and the future development of the sector. The chapter addresses this shortcoming by providing a detailed review of the structure of energy supply and demand for 1982 to serve as a link between the developments in the energy sector since 1975, its present setting, and its future prospects. A brief description of the national energy balance, covering the sources of supply, production of secondaryenergy and the distribution of consumption among the main sectors is presented first. This is followed by disaggregated balances for hard coal, brown coal, lignite, natural and manufacturedgas, liquid hydrocarbons,electricity and steam. National Energy Balance In 1982, Yugoslavia's gross supply of energy amounted to 35,975 thousand toe, 2/ of which 20,774 thousand toe (58%) was produced domesticallyand the remaining 15,201 thousand toe (42%) was imported. Of the gross supply, about 2,820 thousand toe (7.8%) was in the form of hard coal, 3,491 thousand toe (9.7%) in brown coal, 8,563 thousand toe (23.8%) in lignite, 2,335 thousand toe (6.5%) in hydropower, 619 thousand toe (1.7%) in uranium, 12,657 thousand toe (35.2%) in crude oil, 3,805 thousand toe (10.6%) in natural gas, 17 thousand toe (0.05%) in coke, 270 thousand toe (0.8%) in electricity, 104 thousand toe (0.3%) in LPG and 1,294 thousand toe (3.6%) in fuel oil. As shown in Table 5.1 and Figure 5.1, all of the brown coal and lignite was produced domestically. Of the domestically produced brown coal, about 203 thousand toe (5.8%) was exported. The remaining 3,288 thousand toe (94.2%) was supplementedby 1/ The data presented in this chapter were compiled by Boris Judin for an Overall Energy Balance for Yugos1avia, Federal Statistical Office; Belgrade,May 1983. 2/ Total domestic production and gross imports. - 91 - another 3 thousand toe drawn from stock, which provided 3,291 thousand toe for final consumption and for the production of secondary energy. Likewise, of the domesticallyproduced lignite, 18 thousand toe (0.2%) was exported and 306 thousand toe (3.6%) was used to replenish existing stock. The remaining 8,239 thousand toe (96.2%) was available for final consumption and production of secondary energy. As shown, coke, electricity,LPG and fuel oil were all imported. About 5 thousand toe of coke and 3 thousand toe of LPG were drawn from stock to supplement imports, which amounted to a gross supply of coke of 22 thousand toe, and of 107 thousand toe of LPG. By contrast, 173 thousand toe (13.4%) of the imported fuel oil was used to replenish existing stock, and the remaining 1,121 thousand toe (86.6%) supplementeddomestic production. A total of 210 thousand toe of hard coal, representing 7% of gross supply, was produced domesticallyand the remaining 2,610 thousand toe (93%), all used for coking, was imported. Domestic production of crude oil of 4,256 thousand toe accounted for 33.6% of the gross supply. The other 8,401 thousand toe (66.4%) was imported. Of the gross supply of crude oil, 122 thousand toe (1.0%) was used to replenish existing stock, and the remaining 12,596 thousand toe (99%) was refined domestically. Imports from the Soviet Union of 1,886 thousand toe, accounted for 49.6% of the gross supply of natural gas. The other 1,919 thousand toe (50.4%) was produced domestically. In 1982, losses amounted to 10,071 thousand toe, representing 14.5% of gross supply. The rest, amounting to 25,093 thousand toe (85.5%), constitutes the net energy supply. About 8,785 thousand toe (87.2%) of the losses were in conversion from priimaryto secondary energy, 778 thousand toe (7.7%) were self-consumptionof the producing industries, and 508 thousand toe (5.1%) were losses in transmissionand distribution. As shown in Table 5.1 and Figure 5.1, 572 thousand toe (6.5%) of the conversion losses were in refining, 133 thousand toe (1.5%) in coking, 6,827 thousand toe (78.2%) in thermal, hydro and nuclear generation of electricity,783 thousand toe (8.9%) in co-generation1/, 423 thousand toe (4.6%) in steam production, 19 thousand toe (0.2%) in the processing of natural gas, and the remaining 10 thousand toe (0.1%) in fuel gasification. Net supply of energy consisted of 3,588 thousand toe (14.3%) of primary energy and 21,505 thousand toe (85.7%) of secondary energy. The latter included: 343 thousand toe (1.6%) of upgraded lignite, 1,929 thousand toe (9.0%) of coke, 337 thousand toe (1.6%) of manufactured gas, 1,764 thousand toe (8.2%) of non-energy products, 4,695 thousand toe (21.8%) of electricity, 3,974 thousand toe (18.5%) of steam, and 8,462 thousand toe (39.3%) of petroleum products which include LPG, gasoline, aviation fuel and kerosene, diesel, fuel oil, and other products. About 700 thousand toe (3%) of the net supply was exported, including 314 thousand toe (45%) of coke, 105 thousand toe (15%) of electricity,and 281 thousand toe (40%) of diesel. 1/ Joint production of electricityand steam. - 92 - Total energy available for final consumption amounted to 24,393 thousand toe. Of this, 13,689 thousand toe (56.1%) was consumed by the industrial sector, which included the energy-related industries. 1/ The energy consumed by the industrial sector consisted of 3,500 thousand toe (25.6%) of petroleum products, 3,652 thousand toe (26.7%) of steam, 2,574 thousand toe (18.8%) of electricity, 1,398 thousand toe (10.2%) of natural and manufactured gas, and 2,565 thousand toe (18.7%) of solid fuels. Non-energy use amounted to 2,210 thousand toe, of which 446 thousand toe (20.2%) was in the form of natural gas and 1,764 thousand toe (79.8%) of non-energy products. Energy consumption by the transport sector amounted to 3,436 thousand toe, representing 14.1% of the energy available for f}inal consumption. About 3,207 thousand toe (93.3%) of the energy consumed by the transport sector consisted of petroleum products, mainly gasoline and diesel, and to a lesser extent, aviation fuel and kerosene. The remaining 229 thousand toe (6.7%) consisted of electricity and lRignite. Of the energy available for final consumption, 3,585 thousand toe (14.7%) was used by the household sector. It consisted of 1,054 thousand toe (29.4%) of petroleum products, 216 thousand toe (6.0%) of steam, 1,452 thousand toe (40.5%) of electricity, 141 thousand toe (3.9%) of natural gas, and 722 thousand toe (20.1%) of solid fuels. Energy consumption by the public and other sector amounted to 874 thousand toe, representing 3.6% of the energy available for final consumption. Of this, 93 thousand toe (10.6%) was in the form of petroleum products, 106 thousand toe (12.1%) in steam, 352 thousand toe (40.3%) in electricity, 69 thousand toe (7.9%) of natural gas, and 254 thousand toe in solid fuels. The agricultural sector accounted for the remaining 598 thousand toe (2.5%). About 327 thousand toe (54.7%) of this consisted of petroleum products, 70 thousand toe (11.7%) of electricity and 201 thousand toe (33.6%) of natural gas. 1/ Energy-related industries refer to power plants, refineries, and coal benefaction and coking plants. ll Table5.1 Energy Balance, 1982 /1 (thousand tons of oil equivalent) Products PrimaryEnergy Manufac- Non Petroleum LINE Hard Brown Crude Natural Dry tured Energy Electri- Aviation Fuel Coal Coal Lignite Hydro Uranium Oil Gus Ligoite Coke Gas Products city Steam LPG Gasoline and Kerosene Diesel Fuel Gas Other TOTAL TOTALS Sources of Supply Domestic Production 210 3,491 8,563 2,335 4,256 1,919 - - _ _ ------20,774 15,201 Imports 2,610 - _- 619 8,401 1,886 - 17 - 270 - 104 - - - 1,294 _ 1,398 (221) Exports - (203) (18) - - - ______(170) (590) Stock Changes - 3 (306) - - (122) - - S - _ - _ 3 - - - (173) - GROSSSUPPLY 2,820 3,291 8,239 2,335 619 12,596 3,805 _ 22 - - 270 107 - - 1,121 - 1,228 35,164 Conversion (572) Petroleum Refining - - - - - (12.338) - - 268 1,476 - - 229 1,617 225 2,907 4,744 300 10,022 (133) Coking (2,656) - - _ _ _ _ _ 1,907 360 256 ------Electric Power Gen. (88) (1,347) (6,607) (2,335) (619) (256) - - - 5,124 - - - _ _ (699) - (699) (6,827) Co-generation of which: Electricity - (52) (26) - - - (217) - - (1) - 130 - - - (71) - (71) (237) - (758) (546) Steam - (584) (178) - _ (353) _ _ (247) - - 1,575 (1) - - - (757) _ _ _ (578) - - (195) - _ 2,399 (13) - _ _ (1,314) (1,327) (423) Boiler Plants (11) (470) (243) - (19) Lignite Drying - - (397) 3- - - - Liquid Fuel Gasification - - - 13 (9) (7) (16) (3) Gas Plants - (49) 42 ------(7) Degasification /2 ------(194) _ _ 61 32 _ 83 - _ _ _ 83 (18) - (778) Self Consumption - (10) (1l) - - (196) (240) - _ - - (321) - - - - - _ Conversion Losses - - - - - (8,785) T/D Losses - - - - - (OB) _- (508) 25,093 NET SUPPLY 65 828 777 - - _ 1,918 343 1,929 337 1,764 4,695 3,974 396 1,617 225 2,907 3,017 300 8,462 Bunker Sales ------l7,, SeconaaryExports - - - - - (314) (5) _ _ _ 28_21 - - (,8I) NET DOMESTIC 65 828 777 - - - 1,918 343 1,615 337 1,764 4,590 3,974 396 1,617 225 2,907 3,017 300 8,181 24.393 Consumption by Sector 12,112 Industry 65 401 312 - _ _ 1,061 172 1,615 337 - 2,075 2,574 213 - - - 3,008 279 3,500 Energy Industries - - - _- - - - - 499 1,078 - ______1,577 2,210 Non Energy Use - - - _ _ - 446 - 1,764 ------Transport - - 87 - - - 142 - - 1,584 195 1,407 - 21 3,207 3,436 Households - 326 225 - - - 141 171 - _ _ 1,452 216 183 - - 862 9 - 1,054 3,585 Public/Other - 101 153 - - - 69 - - _ - 352 106 - - 30 63 - - 93 874 598 Agriculture ------201 - - - _ 70 - - 33 - 294 - - 327 Source: Prepared by the mission based on the Energy Balance for the SFR of Yugoslavia; Boris Judin, Federal Statistical Office, Belgrade, May 1983. /1 For convenience of presentation some categories of energy have been combined. I Figure 5.1 NATIONALENERGY BALANCE FOR YUGOSLAVIA, 1982 Stooks :rmoC mpot Impost Stocks Impot sITpOrl V V V V 5V 17VV 1,23 104 3 619 . 277n 145 660744~~~~~~~~~~~~~~~1 1 1 :, '1t 3 61 ,,,,5 ; ' n s r\ 47. PRIMARYENERGY INPUT 43 V 11V572 r10,h24 _9 39 ;,=./.4 e Nt. G- 8 5~~~~~~~~~~~~~~~~~~~~~~~~~~~4992 49 ttXi>gzgli 12.255}-|43 7 - 1,4038404f Qt3 n 1I 1 67~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~5 Irnfrc 72 ------0% g ----|- -4ItX _ _ | t _ _| I It _ - -=oNonE ergg ineCoaMns[ [l Sronstortrttott _ I r2 ExporStocks Lfossrmo | Erjzorr Export I L.... ___.18...... Lossesm7 0472 | t Thr ; 1 1~~~~~~~~~~~~32TroteLorotetie 78I _ Po _ver _ | _| _L ______350 844 424 LossezIn L ~~~~~~~~~~~~~~~~~~~~~~~~~~~~18 ogend World 3ank 20401 *Cocd Coke Nuc ecr Powver 001Cer votes FiEectrcoty Gora i| Hdro Power [IJLiquid Gas) (PM) Hot (WarmoWoltr H-otMoter. Slotrn Figure 5.2 BALANCEFOR HARDCOAL Sfocks Import Import 765 _ 3 .0 88 Thema 28 25 65 a Pwr 5 17 11 ~~Boiler 9 Plant U) 255 0 omestic Production 210 PlSatint=~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 36C0 onEeg 2,820 2,755 2,656 1,907 1,616 210 Coke ______ DomesticProduction Pat30NnEeg 256~ Legend: Coal, Coke 360 .9 25 313 1,360 D Electricity El Heat (Warm Water, Hot Water, Steam) Gas- Export Blast Furnaces World Bank-25394 Figure 5.3 BALANCEFOR BROWNCOAL Thermal Power Stocks Import Storage 828 3 0.4 369 1,347 44 Thermal 413 369 Power c Station Q E c 0 3,491 3,281 2 2,453 CC Domesticn~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~cCombined 636 City & 16 v 14 828 Heat Gener- fl ation Plant 399 Domestic Production7 470 Pant 381 [ 10 203 369 Lgn:778 383 *Coal, Coke LZ7 0 DE~~~~~~~~~~~~~~~~~~F]Lectricit7 Self-Consumption Export Thermal in Cool Mines Power L.JHeat (Worm Water,Hot Water,Steam) Storage World Bank-25395 Figure 5.4 Legend: BALANCEFOR LIGNITE * Coal, Coke D Electricity D1 Heat (Warm Water, Hot Water, Steam) 777 Gas 8,563 777 6,607 205 C 0 E 2,142 1,935 C Thermal 0 Power U Station Q .0 0) Domestic Production 343 Combined 98 Electricity& 204 Heat Gener- 116 ation Plant 1,945 11 116 18 190 vi243 ler 194 ~~~~~Plant 311 35 397 Gasification 343 & Drying LZDVO Self-Consumption Stocks Export Thermal vv v in Coal Mines Power Storage World Bank-_ 25396 Figure 5.5 BALANCEFOR OIL LNG Import Import 57 7 7 7,785 .401...... !.. 572 1,294 ...... ~~~~~11,832 C ...... 0L037 ...... - . -..-.-..-...... y...... r : I Heat Gener-...... * Gas ~ ...... d 2 2 ..... Oil...Derv...es...... 1,314.....1,143...... Boiler.. [IILiquid...... Gos...... Plant.. E.li..Electricity...... 1,314...... I...... Hot er...... i P r Hot Water,Steam)...... j6 7329.29.281.173.1733..13.26 7 7W...... 7 77..... 2 LiquidGas (LPG) .l | P~~~~~~~~~~~~~~~~~~~liquiFul1 ...... Stock...Los..es i....Export..Stocks...... :21 ElectricityTrons..ormot.....World...... l 1,314 Non-Energy~~~~~~~~~~~asiicaio Domesti PWrodWcteo, I 699 ThiX 5 3 Cool Cok 82 Cobie 2V 25VV GasStck Lose Electriort 590ck Crude~ ~ ~ ~ Tusfrat Oill Eaanion2Plan Figure 5.6 BALANCEFOR GAS Kapt. Refinery Coke Blast Liquid Fuel Gas Import Gas LPG Import Stocks Plant Gasification Furnaces Gasification 7777 v V v v v v V Non-Energy Legend: * Coal, Coke > 504 1,886 329 229 104 3 360 35 374 13 483 EGas L Oil Derivates F1Liquid Gas (LPG )3 Electricity Eec cfy ~~~~~~~~~~~~~~~~~~~~~~~~~~~~410 396 326 Heat______13(Warm Water, Hot Water, Steam) 9 14|-32O 8 ~~~~0 C 1_S D)omesticProduction ______Therrnal 85 ;* 77 190 . n * Power Station . Reinjection t 83 - 83 24873 *784 O 654 Combined 78 l; 73 1 Electricity& 32 _ 1HeatGener- 472 64 64 570 ation Plant Condensate 6|Boiler 13 1 672 Plant 5749 Gas 42 12 . t GPlant t:,on-FnergyN 50 112 9 1,144 150 32 Self-Consumption LNG LiquidFuel & Lossesin Gasification Transformation World Bank-25398 Figure5.7 BALANCEFOR ELECTRICAL ENERGY 12 2,335 1'985 1,973 Hydro- ~~~~~~~~~~~~~~~~~~~~Import Power7 Station 15 619 Nuclear 214 198 270 38 ...... Power Station 88 8,041 1,399 ri,.' 6,633 283 Thermal . Power 1 5,098 , 4,924 ,i 4,590 - 0 Station . , 2,925 AOO 2,925 2,642 2,960 o 770 256 | ,0 10 47379' , :'< 71 Combined .o. ,9 Combinedy& 130 ' 120; J 105| Ir 173 296 Electricity& 1312 217 Heat Gener- ation Plant V FL K] Export Lossesin Lossesin Transmission Distributior, Legend. (Electricity) World Bank-25399 Coal, Coke Nuclear Power Hydro-Power Gas Oil Derivates Electricity Figure 5.8 BALANCEFOR HEAT 1,485 762 __~~~~~~~~~~~~~~...... _.. 353 757 Combined Electricity& Heat Gener- c 14 1 ation Plant _9 1,575 E 247 0 u O 931 c~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~i X .0 723 2,399 2,071 5 * t ~~~~~578 13 1,314 Plant Legend: * Coal, Coke 442 Gas ! ~~~ ! i '' .. ; . ~~~~~~~~~195 Derivates ! _ j ., =, <_=.= 95 3Oil 2 Liquid Gas (LPG) U Heat (Warm Water, Hot Water, Steam) World Bank-25400 - 102 - Hard Coal In 1982, Yugoslavia's gross supply of hard coal was about 2,820 thousand toe, of which 2,610 thousand toe (93%) was imported, and the remaining 210 thousand toe (7%) was produced domestically. As shown in Table 5.2 and Figure 5.2, only 65 thousand toe (2%) of the supply was used by final consumers. The remaining 2,755 thousand toe (98%) was used in the production of secondary energy and non-energy products. Of this, 2,656 thousand toe (96.4%) was used for the production of coke, 88 thousand toe (3.2%) for the generationof electricity,and 11 thousand toe (0.4%) for the production of industrial steam. Most of the secondary energy produced was in the form of coke, amounting to 1,907 thousand toe (74.5%). The rest consisted of 28 thousand toe (1.1%) of electricity,9 thousand toe of steam (0.4%), 360 thousand toe (14%) of coking gas and 256 thousand toe (10%) of non-energy products. Losses in conversionand self consumptionamounted to about 198 thousand toe, of which 133 thousand toe (67%) was in coking, 60 thousand toe (30.3%) in power generation, 2 thousand toe (1.1%) in the production of steam, and 3 thousand toe (1.6%) for self consumption by power plants. Total supply of coke amounted to 1,929 thousand toe, of which 17 thousand toe was imported and 5 thousand toe was drawn from existing stock. The remaining 1,907 thousand toe was produced domestically from imported coal. Of the total supply of 1,929 thousand toe, 1,615 thousand toe (84%) was used by industry and 314 thousand toe (16%) was exported. Table 5.2 Balance for Hard Coal, 1982 ('000 toe) Non- Hard Elec- Coking Energy Coal tricity Steam Coke Gas Products TOTAL Sources of Supply Domestic Production 210 - 210 Imports 2,610 - - 17 - - 2,627 Exports Stock Changes - - 5 5 GROSS SUPPLY 2,820 - - 22 - - 2,842 Conversion Coking (2,656) - - 1,90;7 360 256 (133) Electricity Gen. (88) 28 - - - - (60) Boiler Plants (11) - 9 . - - (2) Self Consumption - (3) - - - (3) Conversion Losses - - - - (195) NET SUPPLY 65 25 9 1,929i 360 256 2,644 SECONDARY EXPORTS - - - (314) - - (314) FINAL CONSUMPTION 65 25 9 1,615 360 256 2,330 - 103 - Brown Coal Domestic production of brown coal amounted to 3,491 thousand toe, of which 203 thousand toe was exported. The remaining 3,288 thousand toe was used domestically, supplementedby another 3 thousand toe drawn from existing stock. As shown in Table 5.3 and Figure 5.3, only 828 thousand toe (25%) of the gross supply of 3,291 thousand toe was used by final consumers. The rest, amounting to 2,463 thousand toe (75%), was used in the production of secondary energy. Of this, 636 thousand toe (25.8%) was used for co-generation,and the remaining 1,347 thousand toe (54.7%) was consumed in the generation of electricity. Production of industrial steam absorbed 470 thousand toe (19.1%), and the remaining 10 thousand toe (0.4%), was for self-consumptionby mines. The secondary energy produced amounted to 1,207 thousand toe, of which 429 thousand toe (35.5%) was in the form of electricityand 778 thousand toe (64.5%) in steam. Losses in the conversion of brown coal to secondary energy and own use by the producing industries amounted to 1,302 thousand toe, of which 1,157 thousand toe (89%) was in the production of electricity and steam. The remaining 145 thousand toe (11%) was used by coal mines and power station for their own use and the production of industrial steam. Table 5.3 Balance for Brown Coal, 1982 ('000 toe) Brown Coal Electricity Steam TOTAL Sources of Supply Domestic Production 3,491 - 3,491 Imports - - - - Exports (203) - - (203) Stock Changes 3 _ _ 3 GROSS SUPPLY 3,291 - - 3,291 Conversion ElectricityGeneration (1,347) 413 - (934) Boiler Plants (470) - 381 (89) Co-generation (636) 16 397 (223) Self Consumption (10) (46) - (56) Conversion Losses -__ - (1,246) NET SUPPLY 828 383 778 1,989 SECONDARYEXPORTS FINAL CONSUMPTION 828 383 778 1,989 1/ Co-generationrefers to the joint production of electricityand steam. - 104 - Lignite As summarized in Table 5.4 and Figure 5.4, domestic production of lignite amounted to 8,563 thousand toe in 1982. Of this, about 18 thousand toe was exported and 306 thousand toe was used to replenish existing stock. The remaining 8,239 thousand toe, about 96% of domestic production,was used for the production of secondaryenergy and for direct use by consumers. Approximately 777 thousand toe (9%) of the lignite available for domestic consumptionwas consumed directly, and the other 7,462 thousand,toe (91%) was used in the production of secondary energy. Of the lignite used for the production of secondary energy, 6,607 thousand toe (88.7%) was consumed in the generation of electricity,204 thousand toe (2.7%) for co-generation,243 thousand toe (3.3%) for the production of industrial steam, and 397 thousand toe (5.3%), was used for the productionof manufacturedgas (coal gas) and for upgrading the quality of lignite (drying). The use of lignite for the production of secondary energy provided 2,151 thousand toe (75.7%) of electricity, 311 thousand toe (11%) of steam, 35 thousand toe (1.2%) of manufactured gas and 343 thousand toe (12.1%) of dried lignite. Losses in conversion and station's own use amounted to 4,828 thousand toe, of which 4,544 thousand toe (94.1%) was in the production of electricityand co-generation. Losses in the production of industrial steam amounted to 48 thousand toe (1.0%). Losses in gasificationand benefaction of lignite, and self-consumptionof mines and power stations account for the remaining 236 thousand toe (4.9%) of ligniteused in the production of secondaryenergy. Table 5.4 Balance for Lignite, 19132 ('000 toe) Manufac- Electri- tured Dry Lignite city Steam Gas Lignite TOTAL Sources of Supply Domestic Production 8,563 - - - - 8,563 Imports - - _ _ _ - Exports (18) - - - - (18) Stock Changes (306) - - - - (306) GROSS SUPPLY 8,239 - - - - 8,239 Conversion Electricity Gen. (6,607) 2,142 - - - (4,465) Boiler Plants (243) - 194 - - (48) Co-generation (204) 9 116 - - (79) Gasification/Drying (397) - - 35 343 (19) Self Consumption (11) (206) - - - (217) Conversion Losses - - - - - (4,611) NET SUPPLY 777 1,945 311 35 343 3,411 SECONDARY EXPORTS - - - - _ FINAL CONSUMPTION 777 1,945 311 35 343 3,411 - 105 - Crude Oil In 1982, Yugoslavia's gross supply of crude oil amounted to 12,718 thousand toe, of which 4,317 thousand toe (34%) was produced domestically and 8,401 thousand toe (66%) was imported. Of the gross supply, 122 thousand toe (1%) was used to replenish existing stock. The remaining 12,596 thousand toe (99%) was refined. As shown in Table 5.5 and Figure 5.5, the refineries' output of petroleum products amounted to 11,827 thousand toe, of which 329 thousand toe (2.8%) was in the form of refinery gas; 229 thousand toe (1.9%) of LPG; 9,793 thousand toe (82.8%) of petroleum products, including fuel oil, kerosene, gas oil, and gasoline; and 1,476 thousand toe (12.5%) of non-energy products. Conversion losses and refineries own consumption were about 6% of the feedstock, namely oil. In addition to the domestic production of 9,793 thousand toe, Yugoslavia imported 1,294 thousand toe of petroleum products, of which 173 thousand toe was used to replenish existing stock, and the remaining supplemented domestic production to provide a total supply of about 10,914 thousand toe. Domestic consumption amounted to 10,633 thousand toe (97.4%), and the remaining 281 thousand toe (2.6%) was exported. Of the total available supply, 7,785 thousand toe (73.2%) was used by final consumers, and 2,848 thousand toe (26.8%) was utilized in the production of secondary energy. The use of petroleum products in the production of steam for industrial use absorbed 1,314 thousand toe (46.1%). Electricity and steam production absorbed another 1,527 thousand toe (46.1%), and the remaining 7 thousand toe (0.3%) was used for the production of manufactured gas. Losses in conversion to secondary energy amounted to 824 thousand toe. - 106 - Table5.5 EnergyBalance for CrudeOil, 1982 ('000toe) Manufac- Non Crude Petroleum tured Electri- Energy Oil LPG Products Gas /1 Steam city Products TOTAL Sourcesof Supply DomesticProduction 4,317 /2 ------4,317 Imports 8,401 - 1,294 - - - - 9,695 Exports------StockChanges (122) - (173) - _ _ _ (295) GROSSSUPPLY 12,596 - 1,121 - - - - 13,717 Conversion PetroleumRefining (12,400) 229 9,793 329 _ _ 1,476 (572) ElectricityGen. - - (699) - - 258 - (441) BoilerPlants - - (1,314) - 1,143 - - (171) Co-generation - - (828) - 590 27 - (211) LiquidFuel Gasification - (7) (7) 13 - - - (1) Self Consumption (196) - - - - (25) - (221) ConversionLosses _ ------(1,617) NET SUPPLY - 222 8,066 342 1,733 260 1,476 12,100 SECONDARYEXPORTS _ - (281) _ _ _ - (281) FINALCONSUMPTION - 222 7,785 342 1,733 260 1,476 11,819 Source; Preparedby the missionbased on the EnergyBalance for the SFR of Yugoslavia;Boris Judin, Federal Statistical Office, Belgrade, May 1983. /1 Same as refinerygas. /2 Includescondensate. (1687P) - 107 - Natural Gas Gross supply of natural gas was about 3,805 thousand toe in 1982. Of this 1,919 thousand toe (50.4%) was produced domestically and the rest, amounting to 1,886 thousand toe (49.6%), was imported from the Soviet Union. As shown in Table 5.6 and Figure 5.6, about 784 thousand toe (21%) of natural gas was processed to extract condensates (higher value products). This provided 654 thousand toe (83%) of low quality gas, 83 thousand toe (11%) of LPG, and 32 thousand toe (4%) of non-energy products; losses in conversion absorbed the remaining 15 thousand toe (2%). Gas used in the generation of electricity and co-generation amounted to 1,075 thousand toe, consisting of 482 thousand toe (45%) of natural gas, 344 thousand toe (32%) of low quality gas, 248 thousand toe (23%) of manufactured gas, and 1 thousand toe of LPG. The output consisted of 164 thousand toe of electricity and 472 thousand toe of steam. Losses in conversion,amounting to 439 thousand toe, accounted for the remaining gas used in the production of electricity and for co-generation. Another 277 thousand toe of natural gas, representing 7% of gross supply, together with 300 thousand toe of low quality gas, 195 thousand toe of manufacturedgas, and 13 thousand toe of LPG were used for the production of industrial steam. The output of industrial steam amounted to 672 thousand toe. The rest, amounting to 113 thousand toe, represented losses in conversion. A total of 49 thousand toe of gas, of which 39 thousand toe was in the form of natural gas and 10 thousand toe of low quality gas, was used in gas plants to produce 42 thousand toe of manufactured gas. Losses in the production of manufactured gas amounted to 7 thousand toe. Self-consumptionof natural gas and electricity was about 240 thousand toe and 14 thousand toe, respectively. The supply of gas available for final consumptionwas about 2,271 thousand toe. Of this 1,983 thousand toe (87%) was in the form of natural gas, and the remaining 288 thousand toe (13%) was in the form of manufacturedgas. - 108 - Table5.6 EnergyBalance for NaturalGas & ManufacturedGas, 1982 Manufac- Non- Natural. tured Electri- Energy Gas Dry Gas Gas LPG _city Steam Products Total Sourcesof Supply DomesticProduction 1,919 ------1,919 Imports 1,886 ------1,886 Exports ------Stock Changes - _ - - - -- TOTAL SUPPLY 3,805 - - - - - 3,805 Conversion Degasification/1 (784) 654 83 - _ 32 (15) ElectricityGeneration (100) (156) - - 85 - - (171) BoilerPlants (277) (300)(195) - - 672 - (113) Co-generation (382) (188)(248) - 79 472 - (268) Gas Plants (39) (10) 42 - - - - (7) Liquid Fuel Gasification - - 13 - - - - (9) Self Consumption (240) - - - (14) - (254) Non-EnergyUse (483) - - - - 483 (-) ConversionLosses ------(840) SecondaryExports ------ NET DOMESTICCONS. 1,500 - 336 83 150 1,144 515 4,041 Source; Preparedby the missionbased on the EnergyBalance for the SFR of Yugoslavia;Boris Judin, Federal Statistical Office, Belgrade, May 1983. /1 Refersto the extractionof highervalue products from natural gas, includingthe upgradingof naturalgas qualityin the caseswhere there is high levelof moisture. - 109 - Electricity As shown in Table 5.7 and Figure 5.7, about 12,318 thousand toe of energy was used in the generation of electricity in 1982. Of this, 8,997 thousand toe (73%) was used in thermal power stations, 2,335 thousand toe (19%) in hydropower plants, 619 thousand toe (5%) in the generation of electricity from a nuclear power station (Krsko), and the rest, amounting to 367 thousand toe (3%), was used for co-generation. The energy consumed by thermal power stations consisted of 88 thousand toe (1%) of hard coal, 1,347 thousand toe (15%) of brown coal, 256 thousand toe (3%) of natural gas and 699 thousand toe (8%) of petroleum products, mainly fuel oil. The energy used in plants for the combined generationof electricity and steam comprised 52 thousand toe (14%) of brown coal, 26 thousand toe (7%) of lignite, 217 thousand toe (59%) of natural gas, one thousand toe (0.3%) of manufactured gas and 71 thousand toe (19.7%) of petroleum products. Conversion losses in the generation of electricity amounted to 7,064 thousand toe, of which 6,072 thousand toe (86%) were in thermal power plants, 350 thousand toe (5%) in hydropower plants, 405 thousand toe (6%) in the nuclear plant and 237 thousand toe (3%) in plants for the combined generation of electricity and steam. Gross generation, which includes self-consumptionof power stations, totalled 5,254 thousand toe, of which 2,925 thousand toe (56%) was produced in thermal power plants, 1,985 thousand toe (38%) in hydropower plants, 214 thousand toe (4%) in nuclear the plant and 130 thousand toe (2%) in co-generation. Gross generation was supplemented by imports, amounting to 270 thousand toe, which provided a total supply of electricity in 1982 of about 5,524 thousand toe. Of this 321 thousand toe (6%) was for stations own use and another 508 thousand toe (9%) was accounted for by losses in transmission and distribution. The remaining 4,695 thousand toe (85%) constitutes the net supply of electricity. A total of 105 thousand toe, representing2% of net supply was exported and the remaining4,590 thousand toe (98%) was' consumed by all consumer categories. Table 5.7 Energy Balance for Electricity,1982 ('000 toe) Manufac- Petro- Brown Natural tured leum Electri- Hard Coal Coal Lignite Hydro Uranium Gas Gas Products city TOTAL Sources of Supply DomesticProduction 210 3,491 8,563 2,335 - 1,919 825 9,793 - 27,136 Imports 2,610 - - - 619 1,886 - 1,294 270 6,679 Exports - (203) (18) _- - - - - (221) Stock Changes - 3 (306) - - - - (173) - (476) GROSS SUPPLY 2,820 3,291.3 8,239 2,335 619 3,805 825 10,914 270 33,118 Conversion ElectricityGen. (88) (1,399) (6,633) (2,335) (619) (473) (1) (770) 5,254 (7,064) -a of which; Thermal (88) (1,347) (6,607) - - (256) - (699) 2,925 (6,072) Hydro - - - (2,335) - - - - 1,985 (350) Nuclear - _ _ - (619) - - - 214 (405) Co-generation - (52) (26) - - (217) (1) (71) 130 (237) Other (2,667) (1,054) (818) - - (1,175) (442) (2,078) - (8,234) Self Consumption _ (10) (11) - - (241) - - (321) (583) T/D Losses - _ _ (508) (508) ConversionLosses ------(15,298) NET SUPPLY 65 828 777 - - 1,916 382 8,066 4,695 16,729 SECONDARYEXPORTS ------(281) (105) (386) FINAL CONSUMPTION 65 828 777 - - 1,916 382 7,785 4,590 16,343 Source: Prepared by the mission based on the Energy Balance for the SFR of Yugoslavia; Boris Judin, Federal Statistical Office, Belgrade, May 1983. - ill - H. Steam A total of 4,943 thousand toe of. energy was used in the production of steam, 2,121 thousand toe (43%) in co-generation plants and 2,822 thousand toe (57X) in boiler plants for the.production of industrial steam. As shown in Table 5.8 and Figure 5.8, the energy used in co-generationplants consisted of 584 thousand toe (27.5%) of brown coal, 178 thousand toe (8.4%) of lignite, 353 thousand toe (17%) of natural gas, 247 thousand toe (12%) of manufactured gass 1 thousand toe of LPG and 757 thousand toe (362) of petroleum products. Likewise, the energy consumed by boiler plants consisted of 10 thousand toe (0.4%) of hard coal, 470 thousand toe (17%) of brown coal, 243 thousand toe (8.6%) of lignite, 578 thousand toe (20%) of natural gas, 195 thousand toe (7%) of manufactured gas, 13 thousand toe (0.5%) of LPG and 1,314 thousand toe (46.5%) of petroleum products. Losses in conversionamounted to 969 thousand toe, of which 546 thousand toe (56%) were in co-generationplants and 423 thousand toe (44X) in boiler plants. The output of steam amounted to 3,974 thousand toe, of which 1,575 thousand toe (40%) was produced in co-generationplants and 2,399 thousand toe (60%) was produced in boiler plants. Table 5.8 Energy Balance for Steam, 1982 Manufac- Brown Natural tured Petroleum HardCoal Coal Lignite Gas Gas LPG Products Steam TOTAL Sourcesof Supply DomesticProduction 210 349 8,563 1,919 825 316 9,793 - 25,117 Imports 2,610 - - 1,886 - 104 1,294 - 5,894 Exports - (203) (18) - - - - - (221) StockChanges - 3 (306) - 3 (173) - (473) GROSSSUPPLY 2,820 3,291 8,239 3,805 825 423 10,914 - 30,317 Conversion Heat (10 (1,054) (421) (931) (442) (14) (2,071) 3,974 (969) of which:Co-generation - (584) (178) (353) (247) (1) (757) 1,575 (546) BoilerPlants (10) (470) (243) (578) (195) (13) (1,314) 2,399 (423) Other (2,745)(1,399) (7,030) (717) - (9) (778) - (12,678) Self Consumption - 10 (11) (241) - - - (262) ConversionLosses - - - - (13,647) NETSUPPLY 65 828 777 1,916 382 400 8,066 3,974 16,408 SECONDARYEXPORTS - _ _ _ _ (281) - 281 NETDOMESTIC 65 828 777 1,916 382 400 7,785 3,974 16,127 Source:Prepared by the mission based on the Energy Balance for the SFRof Yugoslavia;Boris Judin, Federal StatisticalOffice, Belgrade, May 1983. - 112 - CHAPTER VI FORECAST OF CONSUMPTIONAND SUPPLY OF ENERGY The growth of Yugoslavia's GDP averaged about 5.7%/a for the period 1976-1980, which was substantially higher than the growth rates achieved by most economies;however, it was lower than the target growth rate of 7% set by the authoritieswhen the social plan was adopted. The shortfall was due to the acute shortage of foreign exchange precipitated by the softening of demand by the industrializedand developing economies for Yugoslavia's exports, and the increase in the import bill, particularlyfor energy. During this period, Yugoislavia'sexports dropped as a percentageof imports from 62% in 1975 to 542 in 1980. By contrast, the share of energy in the total import bill increased from 31% to 73%, respectively. 1/ This imbalance was responsible for Yugoslavia's inability to secure the foreign equipment and material needed for the implementationof the 1976-1980 investmentplan. The shortage of foreign exchange was further exacerbated by the adverse developments in the internationalmarket which constrained the flow of capital and raised interest rates. Moreover, the authorities were slow in adjusting their credit, pricing and exchange rate policies, and consequently domestic demand remained buoyant which, together with the higher import prices for energy, triggered an unprecedentedincrease in the general price level. The inflationarycrisis, shortage of foreign exchange, overvalued exchange rates and a weak internationaldemand for Yugoslavia's exports ushered the economy into the 1981-85 social plan period. Although the targets of this plan were more modest than those of its predecessor,they were still too optimistic, particularly in light of the continued deteriorationin the performanceof the Yugoslav economy which started in 1979 and was further aggravated by the increases in the price of oil in that year. The annual growth of GDP averaged abouit2.4% and 2.1% for 1979 and 1980, and less than 1% for both 1981 and 1982. This prompted the authorities to adjust the original targets for the growth of the various sectors of the economy and set new targets for the 1981-1985 period. The "revised" 2/ targets, like those for the 1976-1980 and 1981-1985 social plans, also forecast a greater dependence on domestic energy resources and substantialchange in the mix of energy products used. The first section of this chapter reviews the energy targets oif the social plan for 1981-1985. Although the targets of this plan were adjusted, it is used in this report to identify some of the shortcomings of energy planning in 1/ Bery, S. et. al., Yugoslavia: Adjustment PoDliciesand Development Perspective,Volume III: Methodologicaland StatisticalAnnex; p. 74. 2/ The word revised is used in this report merely for ease of reference. The new targets for the 1981-1985 period are referred to in Yugoslavia as observationson the plan. - 113 - Yugoslavia which, unless addressed, would hinder the achievement of the structural changes currently being sought by the authorities. The chapter then reviews the "revised" targets and assesses these in light of the expected performance of the economy. Finally, forecast targets for both 1985 and 1990 are outlined, which reflect the Bank's assessment of the direction the energy sector is likely to take over the next decade. The 1981-1985 Social Plan Macroeconomic Targets The macroeconomic targets set by the authorities for the 1981-1985 social plan reflected the realization that a growth of 5.7% for GDP achieved under the earlier plan (1976-1980) was unattainable. A target growth rate of 4.5% was set which, at the time, was considered to be conservative. 1/ The growth rates achieved under the 1976-1980 plan and those projected for the 1981-1985 plan are summarized in Table 6.1 below. Table 6.1 Historical and Projected Real Annual Growth Rates for Main Sectors of Yugoslavia's Economy V, Constant 1972 Prices) 1976-1980 1981-1985 (Actual) (Plan) Gross domestic product (GDP) 5.7 4.5 Agricultural output 2.3 4.5 Industrial output 7.0 5.0 Gross fixed capital formation 5.0 1.5 Exports of goods /1 5.6 8.0 Imports of goods /1 2.0 -2.0 /1 Including non factor services. As shown, a significant change in the trade balance was projected, with exports increasing at an average annual rate of 8%, compared with the 5.6% achieved under the preceding social plan. Imports were forecast to 1/ The Social Plan of Yugoslavia for 1981-1985 (DRUSTVENI PLAN JUGOSLAVIJEOD 1981 DO 1985), Belgrade, 1981; p. 16. - 114 - decrease at an average annual rate of about 2%, compared with the 2% increase experienced during the 1976-1980 plan period. The growth of industrialoutput was expected to decline from the 7% achieved under the last five-year plan to 5% for the new plan. However, as will be shown later in this chapter, the targets of the 1981-1985 plan proved to be too optimistic. Targets for Energy Consumption Gross energy consumption was forecast to increase between 1980 and 1985 at an average annual rate of about 8.5%, from about 35.1 million toe in 1980 to 52.8 million toe in 1985. Although specific output and consumption targets for energy were set in the social plan for 1981-1985, to this date the authorities have not prepared an energy balance corresponding to these targets. Consequently, a detailed energy balance for 1985, presented in Annex 6.1, was prepared by the Bank, based on the targets set by the authorities for that plan. Like the social plan for 1976-1980, the new plan also called for a change in the structure of energy consumption involving greater reliance on solid fuels and natural gas and decreased dependence on petroleum products. The share of coal and lignite in total energy consumption was forecast to increase from about 38.5% in 1980 to about 41.3% in 1985, and that of natural gas was expected to increase from 8.5% to about 13.4%. Solid fuels and natural gas were forecast to replace liquid hydrocarbons, whose share was expected to decrease from 45.7% to 37.3%. The change in the structure proposed under the 1981-1985 plan was consistent with the objectives of the medium-term program, which called for the accelerated development of and greater dependence on domestic energy resources, and a reduction in the consumption of petroleum products whose production is mostly based on imported oil. As summarized in Table 6.2 below 1/, the consumption of solid fuels was expected to increase from 50.7 million tons in 1980 to 87.3 million in 1985, representing an average annual rate of about 11.5%. The share of lignite in the total consumptionof solid fuels was forecast to increase from 73.5% in 1980 to 78.0% in 1985, while that of hard and brown coal was expected to decrease correspondingly. The consumption of petroleumproducts was forecast to increase from 16.4 million tons in 1980 to 19.2 million tons, representing an average anaual rate of growth for the five-year period of about 3.1%, compared with the 7% growth experienced during the preceding plan period. The new plan also projected a significantchange in the mix of petroleum products consumed. The most significant shift was the decline in the share of fuel oil in total petroleum products consumed, from 42% in 1980 to 34X in 1985, primarily because of its displacementby lignite and coal in the power subsector and by natural gas in the industrial sector. The fuel oil released was expected to be cracked to lighter fuels. This is reflected in the 1/ The format of the table is used to retain consistencywith the manner used by the Yugoslav authorities in presenting the energy targets for the 5-year social plans. - 115 - projected increase in the share of middle distillates (diesel, aviation fuel and kerosene) from about 30% in 1980 to 33% in 1985. The share of gasoline was also expected to increase from 15% in 1980 to 22% in 1985. Natural gas consumption was projected to increase at an average annual rate of about 18%, which exceeded the rate of growth observed during the preceding five-year period. Similarly, the consumption of electricity was projected to increase at an average annual rate which exceeded the growth rate of consumption during the period 1976-1980; that is, 9.3% compared to 7.7%. Table 6.2 Original 1981-1985 Social Plan Projections of Demand for Energy Actual 1980 1985 Social Plan Growth Rates (%) 7000 '000 /1 '000 '000 /1 1976- 1981- toe tons toe tons 1980 1985 Solid Fuels Hard & brown coal /2. 5,797 13,484 9,285 19,325 -2.5 7.5 Lignite 7,349 37,274 13,407 68,000 8.6 12.8 Total Coal 13,146 50,758 22,692 87,325 4.1 11.5 Petroleum Products Fuel oil 6,284 6,946 5,858 6,474 7.4 -1.4 Diesel 4,635 4,635 5,777 5,777 6.1 4.5 LPG 425 375 698 617 6.0 10.4 Aviation & kerosene 331 366 451 498 3.7 6.4 Gasoline 2,603 2,485 4,491 4,287 7.1 11.5 Other 1,553 1,637 1,465 1,544 8.9 -1.2 Total Petroleum Products 15,831 16,444 18,740 19,197 7.0 3.1 Natural Gas (106 m3) Total Natural Gas 2,993 3,539 6,881 8,136 17.6 18.1 Electricity (GWh) /3 Total Electricity 4,019 47,845 6,257 74,488 7.7 9.3 Source: Prepared by the mission based on data provided by the Federal Committee for Energy and Industry, and the Federal Institute for Social Planning. /1 Expressed in tons except for electricity and gas. /2 Including coke. /3 Final consumption. - 116 - Targets for the Supply of Energy The mining capacity was forecast to increase during the 1981-1985 plan period at an average annual rate of about 10%, from 57.2 million tons/year in 1980 to 92.5 million tons/year in 1985. Of the total mining capacity projected for 1985, about 81% (75.7 million tons/year) was for lignite, 18% for brown coal, and only 1% for hard coal. Of the total lignite mining capacity of about 75.1 million tons/year, 62.3 million tons/year, representing over 83%, was to be located in Serbia (51%), Kosovo (18%) and Bosnia-Herzegovina(14%). As summarized in Annex 6.2, Table 6.3 Distributionof Coal and Lignite Mining Capacities by 1985 (In million tons/year) Lignite Brown Coal Hard Coal Total Bosnia-Herzegovina 10.2 12.3 22.5 Montenegro 2.5 0.3 - 2.8 Croatia - - 0.5 0.5 Macedonia 5.2 - - 5.2 Slovenia 4.7 1.9 - 6.6 Serbia 38.4 2.1 0.3 40.8 Kosovo 13.7 - - 13.7 Vojvodina 0.4 _ 0.4 Yugoslavia 75.1 16.5 0.8 92.5 Source: Prepared by the mission based on data provided by the Federal Committee for Energy and Industry, and l:heFederal Institute for Social Planning. the remaining 17% was to be divided among lthe other republics and provinces. The mining capacity for brown coal was forecast to reach 16.5 million tons/year by 1985, of which 12.3 million tons/year, representing 75% of the total brown coal mining capacity, was to be located in Bosnia-Herzegovina. The remaining 25%, was to be divided between Slovenia and Serbia. The mining capacity for hard coal was expected to reach 0.844 million tons/yearby 1985 of which 65% (0.550 million tons/year)was to be located in Croatia, and the remaining 35% (0.294 million tons/year) in Serbia. The supply of oil for the period 1981-1985 was forecast to increase from 15.0 million tons to 19.1 million tons, representing an average annual rate of about 4.9%. Of the total supply in 1985, about 73% - 117 - (14 million tons) was to be imported and the remaining 17% (5.1 million tons) was to be produced domestically in Croatia (3.4 million tons) and Vojvodina (1.7 million tons). Croatia's output of oil was expected to increase by only 0.4 million tons relative to its output in 1980 of 3.0 million tons. The production of Vojvodina was expected to be higher than its output in 1980 (1.2 million tons) by about 0.5 million tons. Therefore, over the 1981-1985 plan period, the authorities projected an increase in the domestic production of oil of only 0.9 million tons, representing an increase of about 21% above the level achieved in 1980 (4.2 million). Table 6.4 below shows the sources of supply and its distribution among republics and provinces. Details are presented in Annex 6.3. Croatia was expected to absorb the major share (51%), followed by Vojvodina (28%), Bosnia-Herzegovina(13%) and Macedonia (8%). During the 1981-1985plan period, Macedonia was expected to become an importer of crude oil, which was to be refined at its new refinery at Skopje (2.5 million ton/year). This refinery was planned and commissioneddespite the then prevailing excess refining capacity in the country. A more detailed discussion of this issue is presented later in this chapter and in Chapter VIII. Table 6.4 Sources of Supply and Distributionof Oil Among Republics fof 1985 (In million of tons) Domestic Production Imports Total Bosnia-Herzegovina 2.5 2.5 Montenegro - - - Croatia 3.4 6.3 9.7 Macedonia - 1.4 1.4 Slovenia - - - Serbia Kosovo - _ _ Vojvodina 1.7 3.8 5.5 Yugoslavia 5.1 14.0 19.1 Source; Prepared by the mission based on data provided by the Federal Committee for Energy and Industry, and the Federal Institute for Social Planning. The supply of petroleum products was expected to total about 18.7 million tons by 1985. Of these 6.5 million tons was produced in Vojvodina for its own consumption and for distributionin Serbia (3.4 million tons) - 118 - and Kosovo (0.5 million tons). Croatia was expected to produce another 5.8 million tons for distribution in Slovenia (2.2 million tons) and Montenegro (0.4 million tons) as well as for its own use (5.8 million tons). The-. remaining 3.7 million tons wasi to be produced in Bosnia-Herzegovina (2.3 million tons) and Macedonia (1.4 million tons). Details on the distribution and uses of petroleunm products are presented in Annexes 6.4 and 6.5. The supply of natural gas was forecast: to increase over the 1981-1985 plan period at an average annu9l rate of about 17.8%, from 3,539 million m5 in 1980 to 8,028 ?illion m in 1985. Of the total supply in 1985, 63% (5,028 million m ) was to be produced domestically and the remaining 37% was to be imported from the Soviet Union. Table 6.5 below provides a summary of the sources of supply by republic and province for 1985. Details are presented in Annex 6.6. Table 6.5 Sources of Natural Gas Supplyfor 1985 (In millions of mJ) Domestic Total Republicand Province Production Imports Su,ply Bosnia-Herzegovina - 320 320 Montenegro - _ Croatia 3,278 600 3,878 Macedonia - - - Slovenia 40 750 790 Serbia - 1,065 1,065 Kososoo - Vojvodina 1,710 265 1,975 Yugoslavia 5,028 3 ,000 8,028 Sources Prepared by the mission based on data provided by the Federal Committee for Energy and Industry, and the Federal Institute for Social Planning. The table shows that Croatia was expected to accoulnt for about 65% (3,278 million m3) of the domestic aspply of natural gas in 1985, Vojvodina another 34% (1,710 million m ), and Slovenia the remaining 1% (40 million m3 ). As for imports, Serbia was projected to account for about 3 35% (1,065 million i 3), Slovenia 25% (750 million m ), Bounia-Herzegoona 11% (320 million X 3) and the remaining 29% (865 million m ) was planned as supplement to fi'll the gap between the demand by Croatia and Vojvodina and their production of gas. - 119 - Installed capacity for power generation was forecast to reach 20,072 MW by 1985. A total of about 6,929 MW new capacity was planned to come on stream during the 1981-1985 plan period, of which 1,839 would have been in hydropower capacity and the remaining 5,090 in thermal capacity. Details of the type, location and size of the new capacities planned are presented in Annex 6.7. The hydropower capacity was almost equally divided between run of the river (887 MW) and pump storage (870 MW) plants. A relatively sriall share was expected to be in the form of storage plants (82 MW). As for the thermal power capacity, about 83% of this was projected to be coal fired, 13% nuclear, and 4% oil and gas fired. The 1981-1985 plan projected a total generation of about 83,000 GWh by 1985 of which 96% (79,549 GWh) was expected to be generated by members of JUGEL, and the rest by OALs distributing electricity and autoproducers (3,451 GWh). Details regarding the generation of electricityby republics and provinces and by type of fuel are presented in Annex 6.8. The targets for energy consumption and supply under the social plan for 1981-1985 were overly optimistic. Although the forecast growth in the consumption of energy was scaled down relative to the growth rate observed during the 1976-1980 social plan period, it was still high compared to the projected growth in income. The forecast rates of growth in energy consumption imply an elasticity of energy consumption with respect to GDP of about 1.9. This is unrealistic given the fact that energy elasticity with respect to GDP for the period 1975-1980 was about 1.14. If the higher elasticity is accepted, it would imply that despite the declared objectives of the authorities to rationalize energy consumption by increasing domestic prices of coal, natural gas and electricityto achieve parity with their economic cost of supply over the next three to five years, and promote energy conservation, Yugoslavia's overall energy consumptior.would increase at a substantiallyhigher pace than the growth in GDP during this period than in 1960's and early 1970's when oil and gas were relatively inexpensive. Not only is this scenario technicallyuntenable as there was no indication of a significant change in the structure of the economy to bring about a drastic change in mix of products consumed or a substantial increase in their levels, but it is also contrary to the objectives of both the medium-term program and the five-year social plans for 1976-1980 and 1981-1985. If a forecast of energy consumptionis to be consistent with the objectives adopted by the authorities, which call for an overall improvement in the energy efficiency of the economy, the elasticity of energy consumption to change in GDP should be less than the estimated elasticity based on the historical relationship. At most it could be at the same level or slightly above it. The elasticity of energy consumptionwith respect to GDP implied by the authorities forecast is about 66% higher than the elasticity estimated for the period 1976-1980,which is unrealistic. The unrealistically high energy elasticity implied by the forecast prepared by the authorities stems from the continued use of a relatively simple linear equation model relating GDP and energy consumption. This does not take into account the impact of prices on - 120 - energy consumption. The exclusion of prices from the equation reflects the view, adhered to until recently by the authorities, that prices of social goods, which are determinedwithin CIs, do not serve an allocative function. Although this view has now come under scrutiny,prices have not been accorded their proper role in determining the mix and level of products consumed. Moreover, the equation used by the authorities is highly aggregative,in that it does not take account of the mix of energy products consumed and the differential in the growth of value added for the main energy consuming sectors. The overestimationof targets has had, and would continue to have, a serious negative impact on the development of the sector as it results in over-investmentby OALs. Therefore, as a first step in rationalizing investment planning in the energy sector, existing macroeconomic models should be adopted to provide a more disaggregatedforecast of energy consumptionwhich takes into account the changes in the structure of fuels used and the development of the main energy consuming sectors. However, until such a model is adopted, the MEAD, which was developed by the InternationalAt:omic Energy Agency and is available upon request, should be used to provide the support needed in formulatingthe 1986-1990 social plan. It would allow the authorities to simulate and assess the impact of alternative growth scenarios on the energy sector. Hence, the acquisition of MEAD should be given high priority and steps should be taken to train Yugoslav professionalsin one of the research institutes in the use of the model. Concurrently, in order to achieve economies in both time and manpower, the same institute should also be assigned the task of training Yugoslav professionals in the use of the macroeconomicmodel adopted. In the absence of such a model, the mission has used an econometric model which relates the growth of value added by sector, prices, and mix of energy products used in preparing its own forecast. Based on this mod,el the energy coefficient used for forecastingenergy consumptionbetween L981 and 1985 is estimated to be in the neighborhood of 1.1. 1/ For the forecast up to 1990, the energy coefficientused was scaled down to 1 to accommodate the impact of the projected increases in the real prices of energy products and improvementsin energy efficiency resulting from the proposed investment in refineries, power stations, and power transmission and distribution network. On the supply side, the projected increases in the supply of hard and brown coal, and lignite were optimistic. Moreover, instead of concentrating on few sites which would meet the target, the forecast sources of supply are scattered among republics and provinces. Given the shortage of financial resources and materials experienced in the past five years, the plan for 1981-1985 should have concentrated on achieving the 1/ It is assumed that domestic prices for petroleum products will be maintained at their present levels in real terms over the forecast period and that prices of electricity,natural gas, and solid fuels would be increased in real terms at an average annual rate of 15% for electricity,5% for solid fuels, and 20% for natural gas. - 121 - supply target based on the development of few economic mines. For example, as shown in Annex 6.2, the development of the mining capacity in Vojvodina to produce 0.4 million tons of lignite for power generation could have been more economicallyproduced by the large mines in Serbia, whose target output was set at 38.4 million tons. The Serbian lignite could have been used to generate electricity to meet Vojvodina's needs. In fact, it is most likely that the additional output for Vojvodina's electricity needs could have been produced in Serbia with a much lower investment. A similar argument can be extended to the target output for Macedonia. The 5.2 million tons could have been produced in Kosovo, which has the largest open pit lignite mines, to allow for economies of scale, and the lignite used for power generation at the mine and power transmittedto Macedonia. The allocation of oil among the various republics and provinces for refining was contrary to the objectives of the medium term program. Given the fact that the existing refineries were operating inefficiently, at less than 50% capacity on the average, it would have been more economic to rely on the more efficient refineries that could be operated at higher levels of capacity utilizationand then distribute the output by pipeline, river and rail transport. Instead, the plan called for the commissioning of the refinery at Skopje (2.5 million/year) to process only 1.4 million tons, representing a capacity utilization of only 56%. Likewise, the projected expansion of the power generatingcapacity includes about 870 MW of pumped storage capacity, located in Croatia (276 MW) and Serbia (594 MW). Since Croatia is the largest producer of natural gas, it could have installed gas turbines to meet the peak demand at a lower cost and in a shorter time than is needed for the completion of pump storage hydro plants. Serbia with its close proximity to Vojvodina, the second largest gas producer in the country, could have also financed gas turbines to meet its incrementalpeak demand and postponed its plans to develop some of its 5 projected 574 MW pumped storage facilities. Vojvodina could have postponed its plans to build a 200 MW lignite fired power plant and imported the electricity from Serbia which burns one of the most inexpensive lignite in Yugoslavia. Given the slippage that was experienced in implementing the 1976-1980 social plan, the authorities should have tried to streamline the sources of power supply to meet the projected demand at least cost to the national economy. A more detailed review of energy planning and investmentis presented in Chapter VIII. In the Yugoslav economic system, targets of social plans are only indicative. They are supposed to outline the magnitude and direction of change, provide signals to OALs to initiate their investmentplans, to the professional associations to seek consensus on the contribution of the republican and provincial producers towards the achievement of these targets, 1/ and to RPCEI to harmonize the plans of OALs under their 1/ This involves the division of the overall targets between OAL based on consensus on quotas set and agreed among members. - 122 - jurisdiction. This is supposed to be an iterative, bidirectional approach designed to allow for adjustments in targets and plans until equilibrium is achieved. 1/ Targets that are overly optimistic tend to trigger over investment by OALs, and the initiation of a larger number of projects than the resources of the economy could either finance or physically implement. The setting of targets for social plans is the first step in social planning and is, by far, the most important element in providing the signals to OALs on the extent of investments required for the new plan. Unless the sectoral targets are made consistent with the overall macroeconomic targets, the tendency for over investment in the Yugoslav system would persist, which together with the absence of economic prices and the existence of the solidarity fund, results in the implementation of both economic and uneconomic projects. To demonstrate the impact of more consistent sectoral and macroeconomic projections on planned investments, the mission prepared its forecast for energy consumption based on the macroeconomic targets for the 1981-1985 social plan. These are summarized in Table 6.6 below. In terms of overall consumption of energy, the Bank's forecast is about 13.5% lower than the projections of the 1981-1985 social plan, 45,158 thousand toe compared to 51,267 thousand toe. Detailed energy balance covering this forecast is presented in Annex 6.9. The main difference between the two forecasts centers around power and, in turn, lignite consumption which is used mainly for power generation. According to the Bank's forecast, electricity consumption in 1985 would reach 66,190 GWh compared with 74,488 GWh forecast under ithe 1981-1985 social plan. The difference of about 8,300 GWh implies that about 2,000 MW of the planned capacities would not be needed. 2/ 3/ The investment cost of these capacities, assuming that all would be started and coapleted during the plan period, is about Din 50 billion, expressed in 1980 prices and the exchange rate that prevailed in the beginninag of that year. 4/ This implies that about 25% of the Din 200 billion (1980 prices) originally planned for investment in the power subsector between 1981-1985 would not have been required. In fact, the 2,000 MWwould have eliminated the need to develop: (a) the entire 870 MWpump storage, the most expensive means for generating electricity during peak hours; (b) the 135 MW of oil and gas-fired capacity which would have reduced the future dependence of the sector on hydrocarbons and (c) another 1,000 NW of coal-fired capacities, representing about 20% of the 5,090 MWplanned for 1981-1985. 1/ Detailed discussion of the planning process in Yugoslavia is presented in Chapter VIII. Consequently, the discusslion here is confined to the setting of plan targets and their effect on the development of the sector. 2/ Based on an average plant factor of about 50% and allowing for a reserve margin of only 5%. 3/ The extra capacity is viewed by the authorities as a means for ensuring continuity in planning. It is the assumption that in the most probable event only a small fraction of this 2,000 MWwould be undertaken and commissioned during the plani period. However, there is no safeguard against the possibility of this happening. 4/ Based on an average economic cost of about $1,000/kW and exchange rate of about Din 24.91/US$l (1980). - 123 - Table 6.6 Energy Demand Forecasts, 1981-1985 … ------1985 1985 ------Mission's Estimates Original Social Plan for Original Plan '000 toe '000 tons /1 '000 toe '000 tons /1 Coal & Lignite Hard & brown coal /2 9,285 19,325 7,286 16,427 Lignite 13,407 68,000 9,191 46,617 Total Coal 22,692 87,325 16,477 63,044 Petroleum Products Fuel oil 5,858 6,474 7,854 8,679 Diesel 5,777 5,777 5,968 5,968 LPG 698 617 542 479 Aviation & kerosene 451 498 452 499 Gasoline 4,491 4,287 3,593 3,429 Other 1,465 1,544 1,949 2,054 Total Petroleum Products 18,740 19,197 20,358 21,108 Natural gas (106m3) Total Natural Gas 6,881 8,136 3,696 4,370 Electricity (GWh) /3 Total Electricity 6,257 74,488 5,560 66,190 /1 Except where indicated otherwise. /2 Including coke. 75 Final consumption. Source: Prepared by the mission based on data provided by the Federal Committee for Energy and Industry, and the Federal Institute for Social Planning. In addition, there would have been a reduction in the required production of lignite, the main source of energy for most of the planned thermal capacity, of about 21 million tons which would have reduced the forecast production for 1985 of 68 million tons by about 31%. The saving in investment associated with the 21 million tons of lignite would amount to about Din 16 billion, which represents a 23% reduction in the planned - 124 - investment for the coal subsector of Din 70 billion (1980 prices). 1/ Therefore, by only reducing the forecast consumption of electricity to maintain consistency with the macroeconomic targets, the overall investment in energy could have been reduced by Din 66 billion, representinga saving of about 20% in the total planned investmentof Din 335 billion. The savings estimated above represent the minimum that could have been achieved. If a more detailed analysis is undertaken of the effects of reduced targets on planned investment, the savings would be higher because, in most cases, it would be the investmentwith the highest economic cost/unit of output which would be eliminated. For example, in terms of investments,the capital cost for power generationcould reach as high as US$1,500/kW for hydropower plants and about US$1,300/kW for lignite steam plants. 2/ The analysis above, however, takes an average capital cost/kW of about US$1,000. Similarly, the capital cost of developing coal mines could reach as high as Din 3,000/ton; however, a cost of only Din 800/ton was used. 3/ The issue of least-cost investment and its impact on the overall performance of the economy is discussed in more detail in Chapter VIII. The divergence between the macroeconomic and sectoral targets stems from the institutional arrangement and the processes involved in social planning. Theoretically, FISP prepares an assessment of the performanceof the economy during the preceding five-year plan, determines the extent to which the targets were achieved and outlines the factors responsible for the shortfall and deviation from the plan, if any. These set the broad outline for the new plan which is expected to address all the structural constraints identified. The provisional targets are then reviewed by all concerned. OALs, professional associations, republican and provincial authorities, the chambers of the economy at the federal, republican and provincial levels, etc. After an elaborate and extensive exchange of views, the targets are approved by the Federal Assembly, once consensus is reached among its members. If consensus is not reached, the constitutionallows for the setting of provisional targets for a period of six months which enables FISP to complete the formulation of the plan while negotiationsproceed between the various sectoral representativesin the communal, republican and provincial, and federal assemblies. If after six months consensus is not reached, the provisional targets are once again adopted for another six months until consensus is reached. There are no provisions in the Yugoslav constitution that would allow for a permanent majority decision. If consensus cannot be reached, the Federal Assembly directed by the Presidency of Yugoslavia makes a majority decision for six months at a time to allow for continuityin the operation of the system. The measures introducedunder the majority ruling have the 1/ Based on an economic cost of Din 800/ton expressed in 1980 prices. 2/ Electric Power Research Institute,Technical Assessment Guide, Special Report, Palo Alto, California,May 1982, pp. B49-Blll. 3/ For example, the capital cost of developing underground hard coal mines in Croatia. - 125 - form of a law; however, these are not permanent and they remain in effect only until consensus is reached, which is usually a long and time consuming process. Consequently,once a set of macroeconomic targets are accepted and adopted by all concerned, there is an inherent reluctance in the system to adjust these targets and start once more the long process of reaching consensus. This locks the institutions involved in planning (federal, republican and provincial) into a set of macroeconomic targets which, for all practical purposes, are processed as indicative and, at times, knowing well in advance that the likelihood of their achievement is, at best, very small. While the macroeconomic targets are being adopted, the mechanism is triggered for the autonomous OALs to seek the means for achieving them. This involves a two-way iterative process between OALs and the authorities. As discussed in Chapter II, OALs have complete freedom in setting their future output targets and the investment required to meet these targets. The output plans of OALs are then integrated simultaneously by the republican and provincial authorities and the professional associations. The republican and provincial authorities ensure that the total output within their republics and provinces is divided among their OALs in a way that is satisfactoryto all (consensus among OALs). The associations,on the other hand, ensure that output of each product for the entire country is divided between OALs across republics and provinces in a manner acceptable to all of their members. After harmonization (consensus) among OALs within and across republics and provinces, the targets are forwarded to RPCEs for harmonization across sectors. Once approved they are submitted to the FCE for approval. Consensus is again sought and the approved macroeconomic and sectoral targets are set in a social compact for the plan. The lengthy and elaborate process involved in reaching consensus within OALs, among OALs in the same province or republic, among OALs across republics and provinces is extremely complex and takes several iterations that flow up and down the decision making ladder. Although FISP is involved in guiding the economy in setting a consistent set of macroeconomic and sectoral targets for the country, it lacks executive power and ultimately ends up working on the basis of harmonized targets that evolve through the system. Moreover, the ability of FISP to revise or adjust targets, once accepted by the authorities,is constrainedby the complex decision making process and the time it takes in reaching agreement. For example, although the compact on the premises of the 1981-1985 social plan was concluded in 1980, 43 issues were not resolved until July 1983 when "revised" targets were adopted. In the first year of the 1981-1985 social plan period, it became evident that the achievement of the targets proposed was not possible, given the deteriorationin both the balance of payments and the performance of the economy; however, once the process of adopting the original plan was started, any adjustment would have required a reinitiationof the entire harmonization process and the consequential delays involved. To demonstrate the rigidities in the system for setting new targets one only needs to point to the fact that although the authorities at the level of the Presidency realized the need for reorienting the economy and appointed the stabilization commission in - 126 - 1982, which was empowered to prepare and suggest measures for stabilizing the economy, agreement on their recommendation of adopting a series of annual plans was not reached in the Federal Assembly until mid-1983. Moreover, FISP, the planning arm of the federat-ion,which was to support the stabilization commission, also did not prepare its "revised" 1/ targets until July 1983, almost a year after the commissionwas appointed. Under the Yugoslav system of self-managementplanning, decision making powers are entrusted to OALs, who have total control over the social means of production. The self-managementsystem replaced a highly centralized system where decision making was in the hands of the federal authorities, whose planning agencies had full powers to set targets, assign quotas and allocate investment funds. The decentralizationof the system, the assignment of decision-makingresponsibilities to OALs and the sanctions built in the system to safeguard the rights of the worker has stripped institutionssuch as the FISP of all dlecision-makingpowers and transformed them into advisory bodies. Their ability to redirect the lengthy process of harmonization is highly constrained, and for all practical purposes is non-existent. There is a tendency among OALs, and the republican and provincial authorities to regard any attempts by FISP or FCEI to set firm targets as a return to centralism. In the Bank's view, the principles of social planning as outlined in the constitution of 1974 could overcome the shortcoming addressed above by streamlining the process involved in setting plan targets and supporting the new procedure with a set of policies aimed at increasing the reliance of OALs, professional associations, and republican, provincial and federal authorities on economic criteria for the formulattion of social plans, the selection of projects and the setting of prices and interest rates. These are discussed in greater detail in Chapter VIII. "Revised" 2/ 1981-1985 Social Plan The acute shortage of foreign exchange precipitated by the slow growth of Yugoslavia's exports and the steep climb in the oil prices coupled with the higher cost of international borrowing resulted in a record deficit in the balance of payments in 1979, of approximately US$3.7 billion. 3/ In addition, the buoyant domestic: market and expansionary monetary and credit policies brought about a severe escalation in the 1/ The word "revised" is used in this report merely for ease of reference. The new targets for the 1981-1985 period are referred to in Yugoslavia as observations on the plan. 2/ The word "revised" is used in this report mere"l y reference. The new targets for the 1981-1985 period are referred to in Yugoslavia as observations on the plan. 3/ F. Kilby, et. al,, Yugoslavia- Employment Strategy and Manpower Policies for the 1980's, World Bank, 1983; pp).1-7. - 127 - general price level. This prompted the authorities to introduce, a series of stabilizationmeasures aimed at bringing inflation under control and improving the countries balance of payments. The measures have succeeded in reducing the deficit to US$2.3 billion for 1981, and US$0.9 billion, for 1982. However, these same measures have also resulted in the decelerationin the growth of the economy. The growth of GDP slowed down to 1.5% for 1981 and 0.3% for 1982; both substantiallybelow the original targets of about 4.5%. Consequently, the Federal Assembly adjusted the growth targets of the 1981-1985 plan and "revised" targets were set in July 1983. In general, these reflect a substantial deceleration in the overall growth of the economy and its main sectors. It is to be noted that these "revised" targets have not been formally adopted by the Federal Assembly as it would have required the reinitiation of the planning process. In fact, a decision was made by the Federal Assembly in July 1983 to continue until 1985 on the basis of yearly plans to avoid unnecessarydelays. The "revised" macroeconomic targets for 1981-1985 are summarized in Table 6.7. As shown, the growth of GDP is now expected to increase at an average annual rate of 0.7%, compared to the forecast of 4.5%. Agricultural and industrial output is also forecast to increase at a substantially lower rate of growth, 3.6% and 1.3% respectively. Gross fixed capital formation, which according to the plan was forecast to increase by 1.5% a year, is now projected to decline at an average annual rate of 7%. Imports, on the other hand, instead of declining by 2% a year, as was originally forecast, are now expected to increase at an average annual rate of 1.1%. The Bank, based on its review of the current status of Yugoslavia'seconomy, considers even the "revised" macroeconomic targets to be optimistic, and therefore, has prepared a set of targets which are attainable. These are shown in Table 6.7. According to the Bank projections,GDP is expected to increase at an average annual rate of 0.5%, compared with the revised rate of 0.7%. Industrial output is forecast to increase at an average annual rate of 0.3%, instead of 1.3%. Table 6.7 ProjectedReal Annual Growth Rates for Main Sectors of Yugoslavia'sEconomy (%, constant 1972 prices) 1981-1985 1981-1985 1981-1985 (Plan) ("RevisedPlan") Mission Forecast Gross domestic product 4.5 0.7 0.5 Agriculturaloutput 4.5 3.6 2.0 Industrial output 5.0 1.3 0.3 Gross fixed capital formation 1.5 -7.0 -2.0 Exports of goods 8.0 10.0 1.5 Imports of goods -2.0 1.1 -1.5 - 128 - The Yugoslav authorities now forecast energy consumption to increase at an average annual rate of 4.6%, from.35,140 thousand toe in 1980 to 43,971 thousand toe in 1985. In other words, energy consumption in 1985 would be about 17% lower than was forecasted under the 1981-1985 plan. A detailed energy balance for 1985 based on the authorities' "revised" targets is presented in Annex 6.10. Despite this reduction, the revised forecast of the rate of growth of energy consumption is still optimistic. It implies an elasticity of energy consumption to GDP of about 6.6 for the five-year period, approximate.Ly547% higher than the estimated elasticity for 1976-1982 and 478% higher than the elasticity estimated for 1976-1980, a more stable relationshipbetween the growth of value added for the main sectors of the economy and the consumption of energy. 1/ By contrast, the Bank forecastsenergy consumptionto increase at an average annual rate of about 0.7%, from 35,140 thousand toe in 1980 to 36,436 thousand toe in 1985. This is based on the Bank's reassessment of the macroeconomic targets and the assumption that the elasticity of energy consumption to GDP would, under the worst possible scenario, reach a level of about 1.4, reflecting the fact that until 1985, capacity utilization in the production of secondary energy might drop slightly, thereby raising losses in conversion. In fact given the recent emphasis of the authorities on the rationalizationof energy consumptionby moving to economic pricing, undertaking investments in retrofittingand changes in technology to improve the energy efficiency of the major energy consuming sectors, the Bank's forecast represents a pessimistic scenario in terms of the growth of energy consumption relative to GDP. A detailed energy balance based on the Bank's estimates is presented in Annex 6.11. The changes in the pattern of energy consumption associated with forecasts based on the "revised" plan and the Bank's reassessment of that plan are summarized in Table 6.8. As shown, both forecasts imply a change in the mix of primary energy consumed, reflecting increased reliance on coal and ligniite and natural gas and a coreresponding decrease in dependence on petroleum products. The authorities' forecast, however, calls for the consumption of coal and lignite tco increase at a slightly higher rate of growth than is implied by thet Bank's forecast, 6.9% compared to 6.1%. As for natural gas, its consumption is projected by the authorities to increase at a substantiallyhigher rate of growth, 18.0% compared to an average annual rate of growth of 10.9% forecast by the Bank. By contrast, the consumption of petroleum products is forecast by the Bank to decline at a faster rate than by the authorities,6% compared to 0.5%. 1/ The estimated elasticity for 1981 and 1982 should not be used for the forecasts since the consumption of energy in these 2 years was dictated by rationing necessitated by severe shortage of foreign exchange. - 129 - Table 6.8 "Revised" 1981-1985 Social Plan Projections of Demand for Energy, 1985 Yugo.Authorities Mission'sFore- GrowthRates Asso- ForecastsBased castsBased on ciatedwith the Actual1980 on "Revised"Plan on "Revised"Plan 2 Forecasts( '000toe '000ton '000toe '000ton '000toe '000ton 1980-85 1980-85 SolidFuels Hard& browncoal 5,797 13,484 6,642 15,602 6,456 14,470 3.0 1.4 Lignite 7,349 37,274 10,936 55,467 10,626 5 8.3 7.6 TotalCoal 13,146 50,758 17,578 71,069 17,082 68,365 6.9 6.1 PetroleumProducts Fueloil 6,284 6,946 5,748 6,353 3,545 3,918 -1.8 -10.8 Diesel 4,635 4,635 4,952 4,952 4,160 4,160 1.3 -2.1 LPG 425 375 446 393 382 339 0.9 -2.0 Aviation& kerosene 331 366 346 383 297 328 0.9 -2.2 Gasoline 2,603 2,485 2,825 2,697 2,336 2,230 1.6 -2.1 Other 1,553 1,637 1,172 1,235 1,006 1,060 -5.5 -8.3 TotalPetroleum Products 15,831 16,444 15,489 16,013 11,726 12,035 -0.5 -6.0 NaturalGas (106M3) TotalNatural Gas 2,993 3,539 6,850 8,099 4,296 5,069 18.0 10.9 Electricity(GWh) TotalElectricity 4,019 47,485 5,735 68,273 5,080 60,476 7.5 4.9 The authorities forecast an increase, albeit small, in the consumption of all petroleum products, except fuel oil, while the Bank's projections show a decrease in the consumption of all petroleum products, with fuel oil declining at rates significantly higher than those associated with the "revised" plan. The differences in the rates of growth for the consumptionof fuel oil reflect differencesin the forecast consumption of electricity, which according to the Bank's estimates is expected to be 7,797 GWh lower than the forecast based on the "revised" plan. If the demand for electricity remains as high as is projected under the "revised" plan, the power subsector would have to rely on fuel oil for power generation to avoid shortages. The use of fuel oil for power generation would leave very little to be cracked for higher value products. The Bank believes that its forecast of the future demand for electricity is more consistent with the overall future development of the economy, and consequentlyby maintaininga lower target for electricity consumption and retaining the projected output of lignite at the level forecast by the authorities, about 1.5 million tons of fuel oil would be available for secondary refining into higher value products (gasoline, diesel oil and aviation fuel). - 130 - The "revised" forecast prepared by the authorities call for a reduction in the mining capacity of about 16%, from 92 million tons to 89 million tons. 1/ Most of this decline is expected to be in the production of lignite and to a lesser extent brown coal. The mining capacity for lignite required to meet the "revised" target would decrease from 75 million tons to 61 million tons, which would reduce the projected expansion of the less economic mines in Montenegrc and Serbia. Most of the expansion of mining capacity would take place in Serbia (12 million tons) and Kosovo (4.6 million tons). The mining capacity for brown coal would be reduced from 16.5 million tons to about 15 million tons, thus concentrating *most of the expansion of mining capacity in Bosnia-Herzegovina(6 million tons). As for oil, the "revised" targets assume the same level of domestic production but a substantialreduction of imports, from 14.0 million tons to 10.6 million tons in 1985. Likewise, the "revised" targets for natural gas also call for maintaining the same level of domestic production and imports as was projected under the 1981-1985 social plan. Although the achievement of these targets is considered attainable by the Bank, shortages of foreign exchange similar to those experienced in 1981 and 1982 by the petroleum subsector could hinder their achievement. Therefore, high prioril:yshould be given to meeting the foreign exchange needs of the petroleum sector to ensure that production from presently developed reserves is maintained and that currently known reserves are developed and brought on stream. The target for the supply of petroleum products has been reduced from 18.7 million toe under the 1981-1985 plan to 15.5 million toe under the "revised" plan. Although the mix of petroleum lproductsis expected to change, no changes in the primary and secondary refinery capacity are projected for the remainderof the 1981-1985 plan. The installed capacity for power generation is forecast to reach 19,147 MW instead of the 20,072 MW originally projected level; that is about 6,004 MW of new capacity would be commissioned of which 4,587 MW represent slippages of capacities whose constructionwas initiated in the 1976-1980 plan period. Of the total new capacity to be commissioned, 1,874 MW would be hydro, 3,850 MW coal and 280 MW oil and gas. Despite the declared objectives of the authorities regarding the constructionof oil fired power plants, a 180 MW plant would be commissioned. Another 100 MW gas fired capacity would also be commissioned under the "revised" plan. In the "revised" plan the projected sources of supply have now been streamlined;however, not to the extent that could have been achieved had OALs not started several new projects. Power and coal and their projected consumption continue to be the key to theisuccess of the energy plan. The Bank's forecast requires total generation capacity of at most 1/ Federal Institute for Social Planning, Draft Strategy on the Development of the Energy Sector, July 25, 198T p. 2. - 131 - 18,000 MW to generate the estimated 60,476 GWh. This represents a 2,000 MW reduction in capacity, relative to the total capacity needed to meet the 68,273 GWh forecast by the authorities under the "revised9 plan. In practical terms, this would mean that the 2,000 MW out of the 6,004 projected to come on stream by 1985 could have been postponed to the next plan period. If this capacity had been in the form of coal fired facilities, it could mean that the target output of lignite could have been reduced by about 20 million tons. Once again this demonstrates the critical role played by the targets set by the authorities in the investment decisions made by OALs. In fact, a more consistent forecast could lead to substantial savings once it is integrated with plans designed to meet the future demand for energy at least cost to the Yugoslav economy. This issue is discussed in greater detail in Chapter VIII. Forecast Demand and Supply of Energy, 1986-1990 The Bank has prepared a forecast of the demand for and the supply of energy for the period 1986-1990 based on the assumption that the recently imposed stabilizationmeasures would enable Yugoslavia to emerge from its current economic slump around the mid-1980s. The forecast assumes that the pattern of growth overall and by the main sectors between 1986 and 1990 would be a facsimile of the growth pattern forecast under the original social plan for 1981-1985. The macroeconomictargets of this plan were summarized earlier in Table 6.1. This assumption is reasonable in view of policies and measures that were introduced as part of the program for restructuring the economy and the response in terms of shifts that have already taken place since these measures were adopted in 1983; e.g. the devaluation of the currency and its impact on the import and export sectors, the rationalizationof energy consumption and its impact on imports of oil and in turn on the balance of payments, the streamlining of investmentsand the move towards greater reliance on economic criteria for selecting projects, the continuation of the move towards the liberalizationof the pricing system and its movement closer to economic prices, etc. These measures, in the opinion of the Bank, would start to show positive effects on the growth of the economy starting in 1985, and are expected to provide the means for resuming a more modest growth of the economy. In the energy sector, it is further assumed that the implementation of the Program of Long-Term Measures for the Rationalization, Substitution and Conservation of Energy (MRSCE) would enable Yugoslavia to become less energy intensive despite the increased use of coal and lignite whose end use efficiency is substantially lower than that of oil products. Accordingly, the projected elasticity of energy consumption to the growth of GDP is forecast to drop from 1.1 to 1. These assumptions imply that gross energy consumption would increase at an average annual rate of about 4.8% between 1985 and 1990, from 36,436 thousand toe to 46,182 thousand toe. An energy balance for 1990, prepared by the Bank, is presented in Annex 6.12. As shown in Table 6.9, the consumption of all energy products, except fuel oil, is forecast to increase during the period 1985-1990. The decline in the consumption of fuel oil, from 3,545 thousand toe in 1985 to 3,005 thousand toe in 1990, is forecast to occur only if the fuel oil fired power plants are kept on - 132 - Table 6.9 Mission's Forecasts of the Demand for Energy, 1985 and 1990 Mission's Forecasts Avg. Annual 1985 1990 Growth Rate '000 '000 '000 '000 (%) toe tons toe tons 1985-1990 Solid Fuels Hard & brown coal 6,156 14,982 7,106 17,294 2.9 Lignite 10,626 53,686 14,477 73,427 6.4 Total coal 16,782 68,668 21,583 90,721 5.2 Petroleum Products Fuel oil 3,545 3,918 3,005 3,321 -3.2 Diesel 4,160 4,160 5,024 5,024 3.8 LPG 382 339 471 418 4.3 Aviation & kerosene 297 328 376 415 4.8 Gasoline 2,336 2,230 3,035 3,897 5.4 Other 1,006 1,060 1,814 1,911 12.5 Total Petroleum Products 11,726 12,035 13,725 13,986 3.0 Natural Gas (106 m3 ) Total natural gas 4,296 5,069 6,508 7,695 8.7 Electricity (GWh) Total electricity 5,080 60,476 6,938 82,595 6.4 Source: Mission's estimates. reserve. If the fuel oil fired power plants are indeed kept on reserve, the share of petroleum products in the gross consumption of energy would decline from 29% in 1985 to 26% in 1990 without curtailing the growth in consumption of middle and light distillates (diesel, LPG, aviation fuel, gasoline as well as the other category of petroleum products). Correspondingly, the share of natura,l gas would increase slightly from 12% in 1985 to 12.6% in 1990. The consumption of natural gas is forecast to increase at an average annual rate of 5.3%, from 5,033 thousand toe in 1985 to 6,508 thousand toe in 1990. Although the shares of solid fuel in gross energy consumption are expected to remain unchanged at about 42%, their consumption is forecast to increase at an average annual rate of 4.1% for hard and brown coal, 6.5% for lignite and 1.5% for coke. The consumption of electricity is projected to increase at an average annual rate of 6.4%, from 60,476 GWh in 1985 to 82,593 GWh in 1990. - 133 - The Bank has also prepared some preliminary forecasts for the supply of energy. As summarized in Table 6.10, Yugoslavia could reduce its dependence on imported energy between 1985 and 1990. The share of domestically produced energy in the gross supply of primary energy is Table 6.10 Gross Supply of Primary Energy and Equivalent, 1985 and 1990 1985 1990 Domestic Production Coal 40.0 42.1 Oil 14.1 12.7 Natural gas 6.3 9.6 Other 8.6 8.9 Subtotal 69.0 73.3 Imports Coal 6.1 4.6 Oil 18.8 17.6 Natural gas 5.4 4.5 Other 0.7 Subtotal 31.0 26.7 TOTAL 100.0 100.0 Source: Mission's estimates. forecast to increase from 69.0% in 1985 to 73.3% in 1990, and the share of imported energy is forecast to decline correspondingly,from 31.0% to 26.7%. The most notable increases are forecast to occur in the domestic production of coal and lignite, and natural gas, whose shares are expected to increase from 40.0% to 42.1% for solid fuels and from 6.3% to 9.6% for natural gas. However, the share of domesticallyproduced oil is projected to decrease from 14.1% in 1985 to 12.7% in 1990. Although in absolute terms domestic production would increase slightly from 5.1 million toe in 1985 to 5.8 million toe in 1990. The shares of all imported energy products are projected to decline between 1985 and 1990, from 6.1% to 4.6% for solid fuels, from 18.8% to 17.6% for oil, from 5.4% to 4.5% for natural gas. Yugoslavia's existing refinery capacity would be sufficient to meet the projected demand for petroleum products, including middle and light distillates,without any additional investment. The forecast also - 134 - imply that Yugoslavia would require about 24,514 NW of generatingcapacity to meet its demand for electricity. This is attainable given the capacity that has already come on stream and the capacity that is likely to be commissionedover the next three years of the 1981-1985 plan period. The realizationof these supply targets, however, would depend upon the extent to which the authoritiesare able to channel in the immediate future, both domestic funds and foreign exchange for the dlevelopmentof: (a) the presently known and producing reserves of natural gas and oil; (b) the economic mines of lignite and brown coal; and (c) the implementationof a least-cost plan for refining crude oil and the storage, transport and distributionof.petroleum products and natural gas. 135 - CHAPTER VII ENERGY PRICING The first law oa pricing was passed in conjunction with the five-year plan for 1947 1951, following the adoption of the 1946 constitution. The constitution placed all means of production under the control of the authorities to ensure the successful implementation of the plan. l/ Uniform, centrally set, accounting prices were instated to balance the flows of goods and services between sectors. These reflected relative scarcities as perceived by the authorities rather than the cost of production. 2/ Revenues collected were channelled to firms involved in the production of social goods. 3/ Although successful in mobilizing the required resources, the accounting prices were inefficient as mechanisms for resource allocation. As a result, during the implementation of the plan, the gap between administered prices and the real cost of resources widened, particularly with the increased dependence on imports of raw materials. To bridge this gap, the pricing system was reformed in 1949, and prices were linked to the cost of production. These linkages, however, were selective and affected mainly non-essential goods. Prices of most industrial products, including minerals and energy, remained fixed and under the control of the authorities. In 1951, another reform involving a dual price system for consumer goods was introduced. It allowed lower prices for guaranteed mininum supplies of essential goods and market determined prices for all others. By 1952, as the system of workers self-management started to gain wider popularity, the law on administered prices was repealed, and a new pricing system was introduced. Prices were now to be set on the basis of domestic costs determined by the market forces of demand and supply. Under the market-oriented pricing policy, the authorities still maintained control over subsidies and taxes. Subsidies were granted to enterprises involved in the production of high priority products and taxes were levied on non-essential goods. This resulted in some serious market distortions, particularly for industrial products. Profitable firms were taxed to mobilize resources for the subsidized producers to the extent that viable firms were unable to finance the expansion of their capacities in response to market forces. The ensuing dissatisfaction resulted in the introduction, in 1961, of measures to administratively control prices. These, however, were unsuccessful in resolving some fundamental issues, especially those relating to the pricing of domestic and imported primary 1/ Singleton, F. and Carter, B., The Economy of Yugoslavia, St. Martin's Press, N.Y., USA, 1982, p. 101. 2/ Bicanic, R., Economic Policy in Socialist Yugoslavia, Cambridge University Press, Cambridge, UK, 1973, p. 22. 3/ Social goods refer to products of interest to the entire economy. - 136 - goods. In response to these difficulties, the authorities introduced what constituted a major reform at the time. The objective of the reform was to achieve parity between domestic and world prices. 1/ Taxes and other fiscal measures, originally introduced to manipulate domestic prices, were eliminated. The dinar was devalued and most import tariffs were reduced. In 1968, prices started to escalate and once more administrative controls, mainly involving ceilings on prices, were introduced. These ceilings created disparity between the prices of imported raw materials and inputs and similar materials produced domestically. This was particularly true for mineral resources. The control over price ceilings was maintained by the authorities' in varying degrees, depending on the economic environment, until 1980 when the "Law on the Foundations of the Price System and Social Control of Prices" 2/ was ratified. In 1982, this law was temporarily suspended twice 3/ for six months each time, as was permitted by the constitution. A freeze on all prices was instated as part of the measures introduced by the stabilization commission in its attempts to slow down the rate of domestic inflation and correct the prevailing distortions in domestic prices. Since then, the law has been under review and an amendment to the law is expected to be approvecd by the Executive Council in January 1985. It will provide the basis for all future energy pricing policies. This chapter briefly discusses the main tenets of the law and its objectives, followed by a detailed review of energy pricing in Yugoslavia. The review covers petroleum products, natural gas, coal and lignite and electricity. For each resource, the historical developments in the structure and levels of prices are reviewed and their relationship to the economic cost of supply is examined. The Law on Pricing The communities for pricing at the federal (FCP) and the republican and provincial levels (RPCPs) were created after the ratification of the Law on Pricing. 4/ These communities are advisory bodies and have no executive powers. They only make recomwendations to their respective executive councils regarding proposed changes in prices. Their implementation requires a complex review process, involving the 1/ Drutter, I. and Lackovic, V. "Price System and Policy" in Rikard Lang et al. (editors), Essays on the Political Economy of Yugoslavia, hnformator, Zagreb, Yugoslavia, 1982, p. 127. 2/ Zakon 0 osnovama sistem cijema i drustvenoj kontroli cijema, Belgrade, 1980. 3/ The suspension of the law can be renewed for 6 months at a time only after review by the executive councils (federal, republican and provincial) and their conclusion that the iactors responsible for the first suspension are still being experienced. 4/ "Yugoslavia; Self-Management Agreement on the establishment of 'the Federal Community for Prices," Official Gazette of SFRY, No. 70. - 137 - communities for pricing, their respective executive councils, the comnunities of interest, OALs and professional associations. FCP and RPCPs monitor the compliance by OALs with the law and assess the impact of new pricing proposals on the demand for and the supply of goods and services. They also assist and advise OALs in the conclusion of SMAs on prices and determine the effects of pricing policies on earnings and income distribution. The essential difference between FCP and RPCPs is with respect to the products under their jurisdiction. FCP has jurisdiction over goods and services considered essential for the development of the country as a whole. These were listed in a compact signed in 1980. 1/ In the energy sector, these include petroleum products, coking coal and imported natural gas. Goods not listed in the compact fall under the jurisdiction of RPCPs which, for energy, encompass hard and brown coal, lignite, electricity and domestically produced natural gas. As will be shown later, some of the prevailing inconsistencies in the pricing of energy products and the conflicting messages conveyed to consumersstem from this division of responsibility. The criteria for pricing which OALs should take into considerationwhen negotiating and concluding SMAs were outlined in the Law of 1980. 2/ These criteria are also used by FCP and RPCPs to determine whether pricing agreements are in compliance with the law before recommending their approval by the executive councils. The criteria outlined in the law are: (a) market clearance; (b) economic efficiency; (c) productivity; (d) distribution; (e) development; and (f) inflation. (a) Market Clearance: This criterion is intended to ensure that prices set by OALs would balance the demand for and supply of goods. However, the function of prices outlined by this criterion is substantially different from that of prices in markets fully guided by demand and supply, where prices are adjusted iteratively and in an impersonal fashion to ensure that shortages or surpluses are eliminated. In the Yugoslav context, market clearing prices refer to prices which are perceived as being equitable to both producers and consumers and guarantee 1/ Yugoslavia:. "Compact for Determining which Products and Services shall be considered of Interest for the Country as a whole", Official Gazette of SFRY, No. 70. 2/ On January 1, 1985, the Law on the System of Social Control of Prices was introduced to replace the law of 1980. Under the new law, prices are to be set on the basis of market conditions with the view to attaining economic efficiency in production and consumption of goods and services. Prices of energy and energy raw materials are to be set in accordance with common elements established by federal plan documents and other federal enactments relative to the formulation of economic policy, and also on the basis world prices. - 138 - deliveries of prespecified quantities of goods and services. Prices are supposed to be adequate for covering the supplier's cost of production, providing sufficient income 1/ and securing an agreed level of contribution for investments. These same prices should also be acceptable to the consumers, allowing them to continue with their productive activities. (b) Economic Efficiency: This is supposed to ensure that domestic prices reflect world prices, although there is no reference in the law to moving toward or achieving parity with world prices. As is discussed later, voluntary movement toward world prices is unattainable under the present institutional setting. (c) Productivit:-. This is by far the most nebulous criterion used in setting prices. It is supposed to ensure that prices would promote technically efficient use of resources and foster improvements in lab or productivity, which is systematically compared with the performance of labor within and outside the country. However, under the Yugoslav institutional setting, productivity implies a pattern of behavior on the part of producers distinct from that associated with producers in market oriented economies. This criterion, as is discussed below, induces producers to concentrate on the prices of their output rather than productive efficiency. (d) Distribution: This criterion is intended as a means of ensuring that the distributional impact of prices on both producers and consumers is given due consideration when setting prices. Supposedly, it allows for discretionary action in moderating price increases for products delivered to marginally profitable OALs and to consumers in relatively less developed regions. (e) Development: This criterion is primarily included as a means of ensuring that infant industries and relatively less developed regions are protected and, at times, given concessionary prices to foster their growth. (f) Inflation% In setting prices, OALs amd communities for pricing are supposed to make certain that the new prices would not trigger an upward pressure on the general price level. The criteria outlined in the law for setting prices result in an over-determined mechanism, in that prices could be based on some or all of the criteria above. At times, these could operate in opposite directions, thus enabling OALs to use the same law to argue for higher or lower prices, depending on the wishes of those involved and the economic 1/ In Yugoslavia, workers' income is not included in the cost of production since they are the owners of social resources. - 139 - environment. For example, higher prices for natural gas, petroleum products or coal could be successfully argued for based on the criterion of economic efficiency by resorting to the concepts of opportunity cost, economic allocation of resources, etc. Alternatively, a freeze on the prices of these same energy products could be achieved by invoking the criterion of inflation, distribution, or development. Given the inadequate tools in the hands of the communities for pricing and the large number of products under their jurisdiction, resorting to the inflation criterion would nullify all attempts to adjust a particular price upwards, especially during an inflationary crisis. Despite the insistence of the communities for pricing, since 1979, that prices be set at or near parity with world prices, OALs were able to retain the upward movement of prices at a minimum by resorting to criteria other than that of economic efficiency. Only through the direct interventionof the authorities and the suspension of the law were prices moved closer to their opportunity cost to the economy. This was the case in 1982 when the General Assembly, under the guidance of the stabilization commission, suspended the law and transferred the power for setting prices to FCP. The law was suspended only after the commission had failed to induce OALs to voluntarily raise the domestic prices of some critical products, such as domestically produced gas, to bring them more in line with prices in the world market. Prices in Yugoslavia are not used as signals of market movements, but reflect negotiated values assigned to products which are perceived to be equitable to producers and consumers. Consequently, the market clearance criterion is not a rationing device, but a means of ensuring that negotiations between producers and consumers continue until consumers are assured deliveries of prespecified quantities of goods at prices acceptable to both parties. Shortages in supply which are supposed to put upward pressure on prices to clear the market in the traditional economic sense are not tolerated under the Yugoslav system, because they are regarded as monopolistic tendencies involving gains to producersresulting from non-productive efforts. Similarly, downward pressures on prices stemming from a surplus of goods, also are not allowed as they could result in losses to OALs arising from circumstances supposedly beyond their control. 1/ The laws on monopoly and losses, outlined in the Associated Labor Act, tend to introduce rigidities, which hinder efficiency, by preventing short term fluctuations in prices that are supposed to result in changes in productive activities. These fluctuations are essential for the operation of an economy at the most efficient frontier. In Yugoslavia, these are dampened and have been partly responsible for reduced efficiency. 2/ The economic efficiency criterion is in principle intended to ensure consistency between domestic and world prices. However, CIs, which were created to overcome the difficulties stemming from complete 1/ Associated Labor Act, Articles 120 and 155. 7/ Kavalsky, B., et. al., Raising Productivity in Yugoslavia Industry-. Some Issues, World Bank Report No. 3383a-YU,1981, page 17. - 140 - dependence on the market forces of demand and supply, could argue that world prices reflect monopolistic practices and, in so doing, negate the economic efficiency criterion. For example, since 1976, Yugoslavia has been importing natural gas from the Soviet lUnion at a price which continues to be pegged to the world price of oil. Yugoslavia's output of natural gas, however, has been priced at a fr action of the price of imported gas because attempts, since 1977, by the producing OALs, namely INA and Naftagas, to raise the domestic price of gas were perceived by consumers as an indication of monopolistic behavior. Consequently, unless a collective decision is made and ratified by all concerned to move toward world prices, parity with border prices is not likely to be achieved over the long run. In compliance with the long term stabilization measures, some prices were moved upwards with the intention of eventually reaching parity with world prices over the next three to four years. This movement was achieved under special circumstances which necessitated the suspension of the law. Voluntary movements of price by OALs to achieve parity with border prices are not likely to occur given that the efficiency criterion could be countered by others. Productivity, as discussed in the law, refers to labor productivity, which is used by OALs to assess the change in their efficiency over time and compare it with that of other OALs or organizations outside the country. Labor productivity is the quotient of the value of output expressed in terms of the prevailing prices and labor input measured in physical terms. In the Yugoslav system, level of employment is largely determined by social objectives, that is, providing a means of livelihood to the largest number possible. once employed, workers constitutionally become owners of the means of production and their number cannot be reduced on grounds of redundancy or inefficiency. Moreover, losses incurred by OALs due to circumstances beyond their control, including lower labor productivity, are compensated by the solidarity fund. On the other hand, SMAs ensure deliveries from producers to consumers, thereby safeguarding the latter's constitutional right of pursuing their economic activity. Hence, price is the only variable that can be manipulated by OALs. The observed changes in the average labor productivity, therefore, are largely a reflection of the ability of OALs in obtaining successively higher prices for their products in negotiating their SMAs. The implication of this productivity criterion, if at all used or enforced, is that it compels OALs to concentrate their efforts on achieving higher prices, even when such prices are not warranted by market conditions. The 1980 Law on Pricing was temporarily suspended twice in 1982 for a period of six months each allowed under the constitution, and a ceiling on all prices was introduced to assist the stabilization commission in arresting inflation. The authoril:ies, as agreed with the Bank in April 1983 under SAL I, have been foremulating a strategy for liberalizing the pricing system and raising the domestic prices to levels prevailing in the world market. In the interim, the prices of some critical products have already been increased significantly. Of concern here are the increases in the prices of energy products 9 specifically, - 141 - domestically produced natural gas, coal and lignite, and electricity. As envisaged by the authorities, the prices of these products would reach parity with economic prices by 1987. 1/ Moreover, since the law on pricing was suspended, the criteria for pricing have been under review and an amendment to the law is expected to be approved in January 1985. If ratified, the amended law would retain all six criteria for setting prices, but would require that OALs assign primacy to the criterion of economic efficiency. The other five criteria were retained to reaffirm the authorities ' commitment to the social aspects of pricing, distribution, development, etc. By designating economic efficiency as the principal criterion, the new law could set the stage for the move toward economic pricing. The efforts currently being made by the authorities to correct shortcomings in the pricing policy may, however, not be realized unless a fixed and uniform mechanism for weighting the criteria on pricing is adopted. A possible approach to this issue is discussed in Chapter IX. Pricing of Petroleum Products The nominal price 2/ of petroleum products increased between 1973 and 1983 at an average annual rate of about 29%. Most of this increase was introduced in the second half of this period. The average annual rate of increase for 1979-1983 was about 45%, compared to 12% for 1973-1978. In real terms, however, the price declined between 1973 and 1978 at an average annual rate of about 3.7%, and increased thereafter at the rate of 11.5%. Table 7.1 shows both the nominal and real increases in the prices of petroleum products for the periods 1973-1978 and 1979-1983. Ietails covering the development since 1971 of refinery and distribution costs, taxes and tolls, and retail prices are presented in Annex 7.1. The decline in the real prices of petroleum products between 1973 and 1978 was the largest for fuel oil and kerosene which averaged about 6% and 5%, respectively, and the smallest for diesel oil, averaging only 1.9%. The differences among the rates of increase in the real prices of petroleum products reflect the policies pursued at the time by the authorities of passing on a larger share of the increase in the price of imported oil to consumers with relatively low price elasticities, e.g., the household and transport sectors. The industrial sector and the power subsector, the major consumers of fuel oil and kerosene, were buffered from the full impact of the higher cost of imported energy by maintaining the increases in their prices consistently below the increases in the import price of oil. This, as was discussed in Chapter IV, resulted in an unprecedented increase in the consumption of fuel oil and kerosene during the first few years of the 1976-1980 plan period. In response to the ensuing increase 1/ Refers to tradeables only. Non-tradeable would be priced at the economic cost. 2/ Designates an average price weighted by the share of each product in the overall consumption of petroleum products. - 142 - in imports of energy, Which was contrary to the cbjectives of the medium term program, a decision was made by the authorities in 1979 to close the gap between domestic and world prices of petroLeum products to restrain the growth of consumption. Since then, the real increase in the price of petroleum products averaged about 11.5% between :1979 and 1983. Noteworthy is the real increase in the prices of industrial fuels 1/, which averaged about 19.7% for kerosene and 16.4% for fuel oil. Table 7.1 Changes in the Prices of Petroleum Products Between 1973 and 1983 (%) 1973-1978 1979-1983 Product Nominal Terms Real Terms Nominal Terms Real Terms Premium gasoline 11.2 -4.9 39.4 7.1 Regular gasoline 12.6 -3.7 27.1 6.4 Kerosene 11.2 -5.0 55.9 19.7 Diesel oil 14.5 -1.9 47.1 12.9 Fuel oil 10.8 -6.1 50.6 16.4 Average annual rate 12 -3.7 45 11.5 of increase As a result of the sustained increase in the domestic prices of petroleum products since 1979, their weighted average price in July 1983 was at about 152% of border price, US4358/torLcompared to US4236/ton. Domestic prices of all petroleum products,excepit fuel oil, were at levels that exceeded their border prices. The price of fuel oil slipped below its border price only after the devaluation of the dinar in mid-1983 because its level was set fairly close to the border price, which with the deterioration of the exchange rate increased the level of the latter relative to the former. Upward adjustments in the price of fuel oil and in the prices of other petroleum products are currently planned to compensate for both the devaluation of the diner and domestic inflation. Under the prevailing pricing policy, light distillates and diesel/gas oil, which are used mainly by the transport and household sectors, are heavily taxed. As shown in Table 7.2, domestic price of LPG is at about 255% of its border price, gasoline at about 191% and diesel/gas oil at about 163%. Prices of fuel oil and kerosene are set at, or slightly above their respectiveborder prices. 1/ According to the data provided by the FCSI, diesel/gas oil is not consumed by the industrial sector or power subsector. - 143 - Table 7.2 Relationship between Domestic and Border Prices for Petroleum Products, July 1983 (US$/ ton) Border Domes tic Domestic Price as Product Price /3 Price /1 Percentage of Border Price LPG 275 700 255 Gasoline 297 566 191 Kerosene 275 301 109 Diesel/gas oil 267 435 163 Fuel oil 170 150 88 Weighted price /2 236 358 152 /1 Expressed in terms of an exchange rate of Din 90/US$. /2 Weighted by their relative shares in total consumption (1982). /3 Source. Petroleum products average spot prices, Petroleum Economist, September 1983. The petroleum subsector has been a net contributor to fiscal resources. Taxes 1/ are levied at the federal level, based on social compacts with republican and provincial authorities. Tax revenues are divided equally between the federal, and the republican and provincial authorities. Tolls, on the other hand, are user fees collected by the republican and provincial authorities to finance the construction and maintenance of roads. Since 1973, taxes and tolls on regular and premium gasoline have remained, with minor fluctuations, at about half the retail price. The tax and toll on gas oil were about 30% of retail price prior to 1977, thereafter they started to rise reaching 46% of retail price in 1983. Taxes and tolls on fuel oil were at about 8% of retail price in 1972. These were eliminated between 1973 and 1977 and reinstated at the beginning of 1978. Since then, they have fluctuated between 27% in 1978 and 10% in 1983. Taxes and tolls on kerosene and aviation fuel, constituting about 10% of the retail price, were first levied in 1982. Details are presented in Annex 7.2. In 1982, revenues from taxes and tolls amounted to Dinars 46.2 billion (US3900 million), 2/ of which 64% was collected from the transport sector. In 1983, a tax on gasoline, amounting to 2 dinars/gallon (Din 613/ton), was introduced to mobilize 1/ Taxes levied on petroleum products are referred to as "Basic Turnover Tax" in Yugoslavia. 2/ Based on an average exchange rate for 1982 of about Din 51.3/US$. - 144 - additional resources for the development of coal mining capacities. This tax is expected to provide about Dinars 991 billion (US$11 million) in 1983. 1/ The prevailing levels of domestic prices of petroleum products, except fuel oil, convey to the consumers their opportunity cost to the economy. In January 1983, the price of fuel oil wals also above its border price, and the average domestic price of petroleum products was at 174% of average border price; 2/ however, as a result of the continued depreciation of the dinar, it dropped to about 152% by July 1983. The domestic price of fuel oil should therefore be raised to its border price. Frequent and regularly scheduled adjustments are needed to maintain, in real terms, the level of prices and the resources mobilized through taxes and tolls at their present level, and retain the relationship between domestic and border prices unaltered. In order to achieve this objective, FCP should set a fixed timetable for quarterly adjustments in the domestic prices of petroleum products. This would enable consumers to integrate the adjustments in their projections of financial requirements and SMAs. Given the institutional setting of Yugoslavia, reliance on a mechanism for automatically adjusting prices during periods involving the continued deterioration in the exchange rate and a sustained increase in the general price lenvel would eliminate the need for protracted negotiations among and between OALs, once the law on pricing is reinstated. Kerosene was taxed for the first time in 1982; however, the tax is disproportionately low relative to the tax on other fuels used by the household and transport sectors (diesel, gas oil, gasoline, LPG). The differential in the domestic price of kerosene and diesel oil is about USTl35/ton, which is sufficient incentive for the consumers of diesel to switch to kerosene. Consequently, there is economic merit in raising the price of kerosene to parity with the price of diesel as it would mobilize resources and ensure that increased consumption is not stimulated by the price differential. Relative prices of competing fuels determine the mix of quantities consumed. If border prices are taken to reflect the relative scarcity of petroleum products, the mix of consumption dictated by these prices constitutes an optimal mix. The ratio of the border prices of kerosene and diesel is close to unity. In contrast, the ratio of the domestic prices of these same products is about 0.7. Therefore, the tax on kerosene should be raised to maintain the relative domestic prices at, or close to, parity with relative border prices. In other words, to ensure that the mix of kerosene and dieEsel consumed is optimal, the domestic price of kerosene should be increased by 45% (US4134/ton) to reach parity with the domestic price of diesel of US4435. Based on an estimated average consumption of about 225 thousand tons for the period 1/ Assuming total sales of gasoline for 1983 of about 521 million gallons. 2/ Expressed in terms of an exchange rate of Din 67 .73/US$. - 145 - 1983-1990, this increase would yield additinal resources of about US$30.4 million (Din 2.7 billion). Therefore, in order to mDbilize additional resources and correct the prevailing distortion in the price of kerosene relative to diesel oil, its main competing fuel, the authorites should consider raising the domestic price of kerosene from US$301/ton to US4435/ ton. Pricing of Natural Gas The price paid for natural gas in Yugoslavia depends on the source of supply. Consumers in republics and provinces fully dependent on Soviet gas pay the border pr ice pl us th e cost of transport and distribution. Those who consume both domestic and imported gas, pay a price representing the weighted average price of domestic and imported gas. The weights are determined by the proportion of domestic and imported gas consumed in each republic and province. For convenience, this price is referred to as the average price to distinguish it from the price of domestically produced natural gas which is referred to as the price of domestic gas. The pricing of domestic natural gas is under the jurisdiction of RPCPs, while FCP regulates the price of imported gas. The price of natural gas varies by end use and consumer category. The price paid by industry for gas used as a source of energy is higher than the price paid by chemical industries for its use as a feedstock in the production of fertilizer and in other chemicals. The highest price is paid by households. Annex 7.3 shows the prices of natural gas by consumer category in Slovenia, Croatia and Vojvodina. Table 7.3 summarizes the developments in the average price 1/ of natural gas between 1977 and 1983. As shown, the average price of gas used as a source of energy increased, in nominal terms, at an average annual rate of about 43% between 1977 and 1983. The real price, however, declined during the first two years of that period at average annual rate of 11% and increased thereafter at an annual rate of about 14%, from Dinars 0.60 in 1979 to Dinars 1.02 in 1983. The price of gas used as a feedstock followed a pattern of increase, in both nominal and real terms, similar to that of natural gas used as a source of energy. The nominal price increased between 1977 and 1983 at an average annual rate of 43%. Real price, on the other hand, declined by about 10% between 1977 and 1978 and increased 1/ Average weighted price of imported and domestically produced natural gas. The import price is outlined in a five-year contractual agreement with the Soviet Union uhich pegs it at about 75% of the international price of oil. According to the agreement, Yugoslavia pays in foreign exchange for 50% of the gas and the rest is paid for in the form of manufactured goods selected from a list specified in the contractual agreement. - 146 - Table 7.3 Development of the Average Domestic Price of Natural Gas between 1977 and 1983 (Din/m3) 1977 1978 1979 1980 1981 1982 1983 …------In Current Dinars ------ Energy use 0.97 1.00 1.56 2.58 3.96 5.40 8.24 Feedstock 0.96 0.97 1.51 2.55 3.79 5.38 8.27 ------In Constant Dinars /1 ------ Energy use 0.51 0.46 0.60 0.75 0.83 0.87 1.02 Feedstock 0.50 0.45 0.58 0.74 0.79 0.86 1.02 /1 Expressed in 1973 Dinars. Source. Federal Community for Pricing. thereafter at an average annual rate of about 15%, from Dinar 0.58 in 1978 to Dinar 1.02 in 1983. Most of this increase was effected since 1980, and reflects the policy adopted by the authorities of eliminating the disparity between price of domestic and imported natural gas. The price of domestic gas is also differentiated by end use and consumer category. Table 7.4 shows its historical developxment since 1973. The price was stagnant in nominal terms between 1977 and 1978 at Dinars 0.82 for energy use and at Dinars 0.77 for use as a feedstock. However, the nominal price increased over the next four years at an average annual rate of 42% for energy use and about 46% for feedstock. In contrast, the real price declined between 1977 and 1980 at an average annual rate of 10% for energy use and 11% for feedstock. Thereafter, the real price increased at 2.2% for energy use and 4.5% for feedstock. The decline in real price between 1977 and 1980 and the resulting shortages of financial resources impeded the implementation of a comprehensive exploration and development program for gas, particularly in the Adriatic offshore region. Since 1980 the authorities have made a concerted effort to increase the price of natural gas by the arsme percentage as the increase in the general price level. Although these adjustments have increased the availability of domestic resources for the exploration and - 147 - Table 7.4 Historical Development of Prices of Domestically Produced Natural Gas, 1977-1983 (Din/m-3 ) 1977 1978 1979 1980 1981 1982 1983 ------Curr ent Dinars ------ Energy use 0.82 0.82 0.91 1.06 2.13 2.72 3.73 Feedstock 0.77 0.77 0.83 0.99 1.784 2.69 3.80 ------In Constant Dinars /1 ------ Energy use 0.43 0.38 0.35 0.31 0.44 0.44 0.46 Feedstock 0.41 0.36 0.32 0.29 0.37 0.43 0.47 Source: Federal Community for Pricing. /1 Expressed in 1973 Dinars. development program, the severe shortages of foreign exchange experienced between 1980 and 1983 have made it extremely difficult for the gas subsector to import critical materials and equipment. Consequently, the program has been progressing at a slower pace than originally planned. A detailed discussion of the impact of foreign exchange shortage on the gas subsector is presented in Chapter VIII. In July 1983, the average price of natural gas for energy use was Dinars 8.24/m3 (US$109.9/toe) and Dinars 8.27/ml (US$110.3/toe) for feedstok., representing about 65% of the border price of about Dinars 12.75/rn (US$170/toe). Table 7.5 summarizes the relationship between the price of domestic and imported natural gas since 1977. It shows that the price of domestic gas was about 67% of the price of imported gas in 1977 and only 29% in 1983. - 148 - Table 7.5 Relationship between the Price of Domestic and Imported Natural Gas In Currernt Prices (US$/ toe) 1977 1978 1979 1980 1981 1982 1983 Domestic / 1 52 51 55 49 66 63 50 Imported /2 77 74 139 198 196 189 170 Domestic as % of imported 67 68 39 25 34 33 29 Average exchange rate (Din/US4) 18 18.6 19 24.9 35.5 51.3 90 /1 Price of domestic gas is the weighted average based on prices prevailing in Croatia, Slovenia and Vojvodina. In deriving the weighted average price the following consumption weights were used-. (i) consumption in Croatia and Slovenia is about 65%, Vojvodina and others 35% of total national consumption; (ii) sectoral consumption; households (7%), industry (44%), feedstock (491%). /2 Price of fuel oil (f.o.b. Mediterranean). Excludes domestic cost of transport and distribution and other domestic taxes. It is to be noted that the gap between the price of domestic and imported gas widened between 1977 and 1983 mainly due to the depreciation of the exchange rate and not due to the failure of the authorities in introducing significant increases in the price of domestic gas. The exchange rate has depreciated relative to the dollar by about 300% between 1981 and 1983, while the increases in the nominal prices have averaged about 46% per year. Moreover, the nominal increase, although substantial, has barely managed to compensate for domestic inflation %hich has been averaging about 45% per year since 1979. Domestic inflation and the deterioration in the exchange rate eroded the relationship between the price of domestic and imported gas. The prevailing differential in the price of domestic and imported natural gas is unjustified. As discussed in Chapter IV, this differential has been the main reason for the accelerated increase in the consumption of natural gas since 1976 and the failure of OALs to increase the use of coal and lignite. As mentioned earlier, the low price levels have also been responsible for the shortage of financial resources needed for the - 149 - implementation of the offshore gas exploration and development program. This, coupled with the recent shortage of foreign exchange, has impeded the achievement of the gas production targets. Yugoslavia's output of gas has a value to the economy which exceeds the price set by OALs and RPCPs. The total output can be exported for foreign exchange at a price close to that paid for Soviet gas which represents the opportunity cost to the economy or the foregone foreign exchange associated with the diversion of gas from the export to the domiestic market. Alternatively, one could think of the value of domestic gas in terms of economic cost of supply. Since Yugoslavia is dependent on imports for over 50% of its supply of natural gas, and given the fact that at the margin any increase in demand would have to be met from imports, the LRAIC of supply of gas is equal to its border price. Either argument would dictate the setting of the domestic price of gas at parity with import price of Soviet gas. This would ensure that the gas produced domestically is not used inefficiently by the producing republics and provinces who, in the past, have promoted the development of uneconomic industries, justified mainly on the basis of cheap gas. If domestically produced natural gas is to be allocated optimally between competing ends, the authorities should increase the price of domestic gas to reach parity with the price of imported gas. The stabilization commission has recently acknowledged the pivotal role of economic pricing in the structural adjustment of the economy and, as a result, an agreement was reached under the Bank's first loan for structural adjustment (SAL I) in April 1983 to move the real price of domestic gas upwards to achieve parity with the border price of imported gas by 1987. The price of domestic gas has been increased by 60% in Croatia and 39% in Vojvodina between April and July of 1983, and by 37% across the board in October 1983. A third increase of 23% is planned for January 1984. It is expected that if the exchange rate does not depreciate significantly below 100 Dinars per US4, these increases would raise the average price of domestic gas from 29% of border price in July 1983 to about 51% in January 1984. The actions of the authorities on the pricing of domestic gas have so far been commendable. The increases have mobilized significant resources for the subsector and would ultimately ensure more economic use of gas. However, frequent increases in the domestic price of gas are needed to compensate for domestic inflation and the depreciation of the exchange rate to maintain the existing relationship between domestic and border prices. Additional increases would be required to close the prevailing gap between the price of domestically produced gas and its border price by 1987. Therefore, in order to achieve this objective the authorities should automatically adjust the domestic price once every three months for changes in the rate of inflation and exchange rate and move the price closer to its border price through additional quarterly increases in accordance with a predetermined timetable which would allow OALs to take account of the expected higher gas prices in negotiating SMAs on pricing. Achievement of parity between the prices of domestic and imported gas is the first step in outlining a strategy for pricing. The formulation of a pricing policy involves a more extensive review of the - 150 - demand for gas, domestic and imported, and the cost of developing the resource and delivering it to the ultimate consumers. The analysis of demand would cover the mix and type of consumers, their pattern of future consumption, seasonality, fluctuations in consumption over a 24-hour period, etc. This would form the basis for the design of a development program that would meet the demand at least cost to the Yugoslav economy. The development program would cover storage facilities, pipelines, pumping stations, dispatching facilities,etc. These two elements would provide the basis for the formulation of a gas pricing policy that would convey to consumers the cost incurred by the economy in meet:ingtheir demand by type of consumption,season and time of day. As notecl,the price of domestic gas is presently set within each republic and province by CIs, whose members include OALs producing gas and those involved in the production of fertilizer and chemicals. Hence, the price paid by OALs for gas used downstream, which accounts for the bulk of consumption, is in essence a transfer price determined through negotiations within CIs. These prices bear no relationship to the structure dictated by the economic cost of supply. Moreover, since the supply of domestic and imported is localized and prices are set within CIs in each republic and province, the same consumer category across Yugoslavia is not faced rith the same price level or structure. Industrial consumers in Vojvodina ay a price of Din 5.87/Iu which is 46% higher than the Din 4.01/mi paid by the same consumer category in Slovenia and Croatia. In Vojvodina, the price paid by the household consumers is Din 5.4/mi3 , representing 91% of the Din 5.9/ni paid by industry, compared to Slovenia and Croatia where the price 3 paid by household consumers is Din 5.6/m3 which is 140% of the Din 4.0/mi paid by industry. Gas is a storable commodity whose consumption varies by season, time of day and location. Transmission, storage and distribution of gas would allow for efficient supply. This would require the development of an infrastructure that would ensure economic management of the resource throughout Yugoslavia by interconnecting the gas pipeline network in order to move the product (domestic and imported) to meet demand at least cost to the national economy. Price structure and level should be based on a comprehensive plan for the country as a whole which would ensure that consumption of gas is optimally allocated, rather than on a regional basis guided by nuuber of unconnected and uncoordinated development programs. Therefore, in order to ensure the efficient supply and consumption of natural gas throughout the country, high priority should be given to the fornulation of a pricing policy based on a least cost national plan for the supply of gas. Pricing of Coal and Lignitet The price of domestic hard coal increasted, in nominal terms, at an average annual rate of about 26% between 1975 amd 1983. In real terms, it declined during the period 1975-1978 and then increased at an average rate of 8% between 1980 and 1983. The nominal prices of brown coal and lignite increased between 1975 and 1983 at an average annual rates of 29% and 25%, respectively. As shown in Table 7.6, the real prices of brown - 151 - coal and lignite followed a pattern of increase similar to that of hard coal. The real price declined between 1975 and 1979, and then increased over the next four years at an average annual rate of 4.2% for brown coal and 4.5% for lignite. The decline in the real prices of coal and lignite between 1975 and 1979 was the main reason for the shortages of financial resources and for the failure of the subsector in achieving its planned production targets. Table 7 .6 Historical Development of Average Prices of Domestic Coal /1 and Lignite - 1975 to 1983 (Dm/ ton) 1975 1976 1977 1978 1979 1980 1981 1982 1983 ------…Current Dinars ------ Hard coal 657 725 844 875 1,037 1,441 2,281 3,146 4,275 Brown coal 306 339 386 419 550 904 1,357 1,783 2,421 Lignite 181 186 204 223 262 412 664 841 1,112 ------Cons tant Dinars /2 ------ Hard coal 466 428 439 404 392 420 475 504 527 Brown coal 217 200 201 194 210 263 283 285 298 Lignite 128 110 106 103 100 120 138 135 137 /1 These are national averages published in the Official Gazette. T2 Expressed in 1973 prices. Source. Federal Community for Pricing. Historically, the prices of domestic hard coal, brown coal and lignite have consistently been kept below their respective opportunity costs. In October 1983, the price of domestic hard coal was at 76% of its border price, Dinars 7,902/toe (US487.8/toe) compared to Dinars 9,000/toe was (US4l00/toe). 1/ As shown in Table 7.7, the price of brown coal is 1/ Comparison is based on an average calorific value of hard coal imported from Poland with average calorific value of about 6,400 kcal/kg, priced at US462.7/ton. The average calorific value of Yugoslav hard coal is taken to be 5,600 kcal/kg, brown coal 3,400 kcal/kg and lignite 2,018 kcal/kg. - 152 - Dinars 7,074/toe (US$78.6/toe) and that of lignite as mined was 5,640 dinars/toe (US$62.67/toe). Annex 7.4 provides a summary of the development of coal and lignite prices since 1975. Table 7.7 Domestic Prices of Coal and Lignite (July 1983) Din/ton Din/toe US /ton US$/toe Hard coal 4,275 7,902 47.5 87.8 Brown coal 2,421 7 ,0 74 26.9 7 8.6 Lignite, as mined 1,112 5 ,640 12.4 62.67 Hard coal imported 5,643 9,000 62.7 100 .00 Source: Federal Community for Pricing. Yugoslavia's domestic production of hard coal accounts for only a small fraction of the country's total demand, maLinly because of geological constraints which limit the prospects for increasing its output. Despite the potential for its economic use as a substitute for higher value energy products, about 50% of the domestic output of hard coal is being used for the generation of electricity which represent the least economic use of this resource, especially since Yugoslavia has an abundant. supply of lignite and brown coal which can be mined more economically. The under-pricing of domestic hard coal was the main reason for its uneconomic use. The principles of economic pricing would dictate that the domestic price of hard coal be set at parity with its border price since, at the margin, any increase in the supply of hard coal, would have to be imported at a price of US$62.7/tons. Therefore, in terms of economic efficiency, domestic price should be increased from US$87/toe to US$100/toe. The annual resources that would be mobilized by raising the price of hard coal assuming an annual output of 300 thousand toe, would amount to about US43.7 million. These resources could bes channelled into the rehabilitation of underground mines. Brown coal and lignite are Yugoslavia's principal domestic energy resources. The production of brown coal and lignite is divided among 56 mines, whose output ranges between 4,000 tons/year (Bajovac in Serbia) and 15 million tons/year (Field D in Kolubura). About 76% of the brown coal and 16% of the lignite are produced in underground mines. These variations in the size of mines and type of mining required imply substantial differences in the cost of production. The rules of economic pricing would dictate that the domestic price for lignite should be set at LRMCof supply since it is not tradeable. Howevrer, with the expansion of - 153 - production new mines with higher LRMC would be brought on stream and the domestic price would ultimately approach the border price, adjusted for delivery to consumers 1/ of its imported substitute which in this case is hard coal. Once the LRMC of supply 2/ exceeds the border price of hard coal, the development of domestic lignite would stop and the incremental demand would be met by imports, which represents the least cost alternative. This would only be the case if a premium is not added to the border price of coal. If it is, then the effective border price would be higher and allow for the development of additional marginal mines. In the case of Yugoslavia, such a scenario is in the distant future because the country's lignite reserves are fairly large. In the foreseeable future, therefore, the price of lignite should be set, as a minimum, at LRMC, starting from delivery at the mine, and increasing the cost at each step to accomnmodate processing, storage, transport, etc. The differential in the Li4C between the various categories of consumers should be dictated by the quantity and size of lignite, and the distance from the mine. In addition to the LKMC of production, processing and delivery, two additional costs should be added. The first is the cost of the environmental damage precipitated by the mining process (deforestation, accumulated overburden, etc.) but not the cost associated with consumption (sulphur, ash, C02 , etc.). The latter should be covered by consumers, namely, the power plants and industrial consumers. In the case of coal or lignite which is upgraded for use by households, the cost of beneficiation would be reflected in the price and hence, also be covered by consumers. The second cost relates to a depletion premium to allow for the fact that with increased production future potential production diminishes. In the case of Yugoslavia, given the size of the proven and potential reserves, the premium would be negligible. As for brown coal, the potential for increasing its supply is fairly limited and its calorific value is almost at parity with the calorific value of underground lignite. Moreover, imported hard coal would be a superior substitute for brown coal. The issue here is whether to price brown coal at parity with the border price of hard coal or domestically produced lignite. If its price is set at parity with the border price of hard coal, the higher price would decrease its overall consumption and induce consumers, who by virtue of their location could do so would shift to lignite. In Yugoslavia, brown coal is, in most cases, located in close proximity to underground lignite mines (Bosnia-Herzegovina and Serbia). Consequently, a higher price for brown coal relative to lignite would induce a shift toward the latter which, in turn, would bring in marginal mines until the LRMC of supply of lignite from these mines reaches parity with the LRMC of supply for brown coal. Only then would the development of brown coal reserves be stimulated. Alternatively, one could set the price of brown coal at its LRMC which 1/ Includes the development of mining capacity, and cost of delivery to the ultimate consumer and processing, etc. 2/ These and other costs are normally borne by consumers. - 154 - would induce a gradual shift of consumers, whc can technically do so, to lignite. Those unable to shift would continue to use brown coal, bringing on stream higher cost mines until the LRMC becomes equal to the border price of hard coal. At that point, incremental demand would be met by imports. Again, in setting the domestic price at LRMC, allowance would have to be made for environmental costs associated with mining and depletion. In this case, the depletion allowance would be substantially higher than for lignite. Therefore, theoretically, the price of lignite should be set, at a minimum, at its LRMC. The price of brown coal, on the other hand, could be set anywhere between its IRMC and the border price of hard coal, depending on the consumers' willingness to pay and availability of substitutes. Setting domestic prices at LRMC would ensure levels of consumption consistent with economic efficiency. However, at times, these prices may not be sufficient for the development of the sector. The revenue requirements of each mine for self-financing differ and consequently, increases in excess of LRMC would be needed to ensure adequate levels of self-financing. In such cases, the structure of prices dictated by LRMC is retained and levels increased to meet the financial targets. Alternatively, if LR4C based prices provide revenues in excess of financial requir ements, it would mobilize resources for the authorities. Noteworthy is the fact that the estimates of LR4C discussed below have shown an upward trend (decreasing returns to scale), which indicates that by pricing at the margin the large economic mines whose LRMC is relatively low would generate sufficient revenue to achieve their financial targets without upward adjustments in their prices. As noted above, there are significant differences in the scale of operations, type of technology used and in the location of coal and lignite mines. These differences make the estimation of a single LRMCfor coal and lignite (expressed in terms of Dinars/unit of calorific value) difficult. Consequently, for the estimation of LRMC, mines were grouped into five categories-. open pit lignite, underground lignite, open pit brown coal, underground brown coal and hard coal, all of which is produced in underground mines. It is important to note that the consumption of lignite and brown coal is highly localized and in most cases they are sold to nearby power stations, large scale industries, and households. 1/ The LRAIC 2/ of supply was calculated after correcting for the prevailing distortions in domestic prices. The approach adopted for this study is to set for each group, the economic price equal to the cost of producing the marginal unit, i.e. the last unit produced by the highest cost mine. Figure 7 .1 shows the estimated LRAIC of lignite produced in open pit mines. These are US$31.2/toe for the first mine (Al ), US$34.4/toe for 1/ Only processed brown coal and lignite is sold to households. 2/ Due to the lumpiness of investment, the Long Run Average Incremental Cost (LRMC) is used as a proxy for the true LRMC. - 155 - the second mine (A2 ) and so on, until it reaches US$78/toe for the last unit from the fifth mine (A 5 ). This approach to pricing would provide surplus revenue for the large mines with lower LRAIC such as A1 , followed by A2 and so on, until A5 , which would receive sufficient revenue to cover the cost of production but leave a relatively lower level of internal contribution towards the cost of its expansion program. In other words, if we adjust the price based on the LRAIC of the mine producing at the margin to ensure that this mine achieves adequate level of self-financing, it then follows that mines with lower LRAIC would secure a higher level of self-financing, which under the Yugoslav system would resolve the following three issues. First, it would enable economic mines to reduce their dependence on consumer contributions for finances and avoid delays in the implementation of their development programs. Second, it would gravitate OALs towards developing the lower cost mines and induce OALs operating mines with higher LRAIC and relatively lower levels of self-financing to voluntarily delay their investment plans, particularly during periods characterized by shortages of financial resources. Third, the higher net revenue of the more economic mines would allow for the retention of more of its income which would attract more skilled workers and possibly allow for the use of the surplus beyond that required for investment in making the process more capital intensive and thus improving productivity. Alternatively, it can also be argued that, since the markets for lignite and brown coal are geographically segmented, which constrains the flow of resources between markets, setting the price for each mine at its own LRAIC would allow for the development of all mines whose LRAICs are below the border price of coal. In the Yugoslav setting, this would be detrimental to the development of the sector as it will promote the concurrent development of min es with lower and higher LRAICs and fail to provide the means for channelling resources collected through market operation for the accelerated development of least cost mines. Figure 7.2 shows the LRAIC of the lignite and coal mines. It is estimated that if the price of lignite was set at LRAIC of production the additional financial resources that would be mobilized, based on the 1982 level of production, would amount to approximately US$148 million. 1/ 1/ This is approximately the additional amount that would be mobilized by pricing lignite at the LRAIC. For the entire coal and lignite subsector, the additional amount would be US$189 million. These figures are illustrative. A more comprehensive study by the Coal Mining Association and the Bank is underway as agreed under the SAL I. - 156 - Figure 7. 1 Long Run Average Incremental Cost (LRAIC) of Open Pit Lignite Mines LRAC (US$/to) 85- 80- s A6 75- 70- 65- 60- 55- 45- 40- -~wJ------A4 35- - 30 Supply Word Bar*I-27232 - 157 - Figure 7.2- Long RunAverage Incremental Cost (LRAIC) of Productionfrom Marginal Mines LRAC (USS/toe) HardCoal 100- Undergrounldbrown Coal Open Ptt Bron Coal 90- Underground Lignite 80- Open Pit Lignite| 7- Supply Word Bank-27231 - 158 - This same principle is also followed for pricing underground brown coal and lignite and open pit brown coaLl mines. Although these products were differentiated in the analysis, lhe LRAIC for lignite and brown coal emerges as a step function which, as discussed earlier, increases to parity with the border price of hard coal. By following the economic pricing rule and setting the price of each group at its LRAIC, the economic cost of the entire subsector rises to the border price of hard coal in the following order. open pit lignite, underground lignite, open pit brown coal and underground brown coal. As shown in Figure 7. 2, the differential in price will induce a higher demand for open pit mines within the constraints of scale of operation and the quality of the resource. Ultimately, as marginal mines within each group are developed, the gap in the price with the next higher cost coal would narrow and the whole structure would eventually reach the border price of hard coal. Table 7.8 shows the relationship between LRAIC for each group and the prevailing price. Annex 7.5 presents the estimates of LRAIC with codes assigned to the mines as requested by the Yugoslav authorities. Under the stabilization measures, the prices of coal and lignite are projected to increase to their respective economic costs of supply by 1987. An agreement was reached with the Bank in April 1983 in connection with SAL I to mdertake a joint study for the pricing of lignite and coal. The results presented herein are based on the methodology developed for that study, thich was completed in 1984. Based oni the estimates of LRAIC presented in Table 7.8, the domestic price of hard coal should be increased, in real terms, from their present level of US$87.8/toe to US4100/toe, for brown coal from US479/toe to US392/toe, and for lignite from US$63/toe to about US$80/toe. These increases would ensure a structure for prices consistent with the structure dictated by economic Costs. Increases, in addition to these may be necessary to provide adequate levels of self-financing. These increases should be uniform in order to maintain an optimal mix of consumption. Table 7 .8 Prevailing and Long Run Averae Increme:ntal Cost-Based Prices of Domestic Coal and Lignite (US$/toe) Prevailing (Actual) LRAIC-Based P rice Hard coal 87.8 100.0 /1 Brown coal Open pit 89.0 Underground 95 .0 Weighted average 7 8.6 92.0 Limgite Open pit 78.0 Underground 89.0 Weighted average 62.67 80.0 /1 Border price of imported hard coal. - 159 - Ele ctricity Historical Movement in Electricity Tariffs The average electricity tariff for the Yugoslav interconnected system as of July 1983 was paras 174.7/kWh (UScl.94/kWh), having increased in nominal terms at an average annual rate of 25% between 1973 and 1983. In real terms, however, the annual rate of increase was only 1.3%. Table 7.10 summarizes the developments in tariffs between 1973 and 1983 for the interconnected system, and for the republics and provinces. The increases in tariffs varied significantly among the republics and provinces, reflecting the pricing policies of their CIs. Table 7.10 Developments in Electricity Tariffs, 1973-1983 (average annual growth rates %) Average Av. Revenue at Average Revenue at Revenue the Bulk Level Distribution Level Current Real /1 Current Real Current Real Prices Prices Prices Prices Prices Prices Yugoslavia 25.0 1.3 24.8 1.2 25.0 1.3 Bosnia-Herzegovina 24.0 0.5 26.3 2.5 22.7 -0.5 Montenegro 23.5 0.2 23.5 0.2 24.1 0.7 Croatia 26.0 2.2 22.5 -0.6 26.7 2.8 Macedonia 23.4 0.1 23.5 0.2 23.4 0.1 Slovenia 27.1 3.0 20.0 -2.7 27.2 3.2 Serbia 23.7 0.3 24.1 0.7 23.4 0.1 Kosovo 25.7 1.9 26.2 2.4 25.1 1.5 Vojvodina 26.6 2.7 25.6 1.9 25.1 1.5 /1 Expressed in 1973 prices. Details of the developmIents in average tariffs at the bulk supply and distribution voltage levels are summarized in Annex 7.5. The current tariffs at all voltage levels and in all republics and provinces are significantly below the Bank's estimate of the economic costs of supply. At the bulk supply level, the 1982 average tariff was about 43% of the economic cost. This is discussed in detail later in the chapter. The relationship between the rates of increase in the overall average bulk tariff and the prices of fuels used in power generation is summarized in Table 7.11. As shown, between 1973 and 1983, the bulk - 160 - supply tariff increased, in real terms, at an average annual rate of 0.4%, ,while fuel prices increased at a much faster rate, ranging between 0.6% for hard coal to 15.5% for diesel oil Instead of adjusting electricity tariffs to reflect the increases in fuel prices and thereby providing consumers with appropriate Table 7 .11 Average Real Rate of Increase in Tariffs and Domestic Prices of Fuels used for Power Generation 1977-1983 (%) Average for Yugoslavia Bulk Electricity Tariffs 0.4 Fuels Used. Hard coal 0 .6 Brown coal 13.0 Lignite 8.3 F'uel oil 12.0 Diesel oil 15.5 Natural gas: Domestically produced 1.0 Impor ted 14.0 signals regarding the cost of supply, the fue:L price increases were absorbed by the power subsector. This lowered the level of self-financing needed for the implementation of the power development programs. The relatively high level of self-financing for the 1976-1980 plan period, estimated at about 30% of the cost of investment, was achieved mainly because over 50% of the ongoing projects had slipped to the 1981-1985 plan period. Moreover, the lower rates of increase in the bulk supply tariffs in Slovenia and Croatia reflect, to a large extent, the success of the major industrial consumers, who play an extremely important role in their respective CIs, in maintaining the successive increases in tariffs below the rate of increase in the general price level. This, in turn, allowed the electric utility in the two republics to argue for lower prices for domestically produced gas. Details of the movement in prices of fuels for power generation are presented in Annex 7.6. A maore detailed discussion of the impact of CIs on pricing and investment decisions is presented in Chapter IX. Consumer Classification A uniform tariff structure for electricity sales was first introduced in Yugoslavia in 1965. It involves three main consumer categories: bulk supply, medium voltage and low voltage. The bulk sales - 161 - category includes industrial consumers such as steel, cement, aluminum, etc. (220-kV and llO-kV), and OALs responsible for the distribution of electricity at the medium and low voltage levels. The medium voltage category includes small industries, municipalities etc., whose maximum demand ranges between 10-kV and 35-ky. The low voltage category encompasses all domestic consumers, street-lighting, institutions, etc. Bulk Supply Tariffs. The bulk supply tariffs include the following charges. (a) Maximum Capacity Charge (kW) based on two seasons, winter and summer. The winter season spans the period between September and February, and the summer season covers the period between March and August; (b) Energy Charge (kWT) is divided into peak energy charge for the periods 7:00-14:00 and 17:00-22:00 and off-peak energy charge for all other periods. The peak and off-peak energy charges are also differentiated by the 2 seasons (winter and summer); and (c) Reactive Energy Charge (kVrh) is differentiated by season (winter and summer) and time of day, (peak and off-peak). Annex 7.8 shows details of structure of bulk supply tariffs. Medium Voltage Tariffs. The medium voltage tariffs vary according to two voltage levels namely, 35-kV and 10-kV, two seasons of the year (winter and summer) and time of day similar to those used in specifying the tariff structure for bulk sales. The present structure is shown in Annex 7.9. Low Voltage Tariffs. The low voltage tariff has three consumer categories; household consumers, public lighting and all other consumers. The tariff structure for sales to households involves a rated capacity charge (kW) and one or more energy charges. The rated capacity charge is set on the basis of the number of rooms, and the energy charges range from a flat rate per kWh, without variation with respect to seasor and time of day to peak and off-peak rates per kWh that are identical across seasons but vary by time of day and season. Tariff for public lighting involves a flat rate per kit. The tariffs for sales to the rest of the low voltage consumers, in most republics and provinces, follow the structure of the tariffs for bulk sales with capacity and energy charges that vary by season and by time of day. Details are given in Annex 7.10 . In addition to the tariffs, consulmers at the bulk supply and medium voltage levels are required to contribute to the cost of the development programs of their suppliers. The amDunt of the contribution is based on each consumer's share of total sales. These contributions are consistent with the institutional setting of the Yugoslav economy which requires consumers in CIs to finance their share of the cost of the suppliers' investment program. In terms of electricity pricing, these contributions represent a prepayment by the consumers for part of the capacity charge. Consequently, the capacity charges for bulk supply are lower than would otherwise be required. - 162 - Economic Cost of Supply The LRMCof electricity supply refers to ihe change in the total cost associated with the development of the system to supply an extra kilowatt-hour of electricity. The cost of electricity supply involves two elements, capacity and energy. The capacity cost covers the investments in new generating facilities required to optimally meet the forecast incremental demand for electricity to ensure against disruption of supply. This encompasses a time horizon of about seven years to allow for the gestation period involved in the construction of a hydro or coal based thermal power 'plant. Energy cost, on the other hand, refers to the operating and maintenance cost associated with the new and existing facilities. As was stated earlier, LRMC refers to the cost associated with increasing output by an extra unit. However, due to the nature of the productive process for the generation of electricity, the cost of an extra kilowatt-hour cannot be easily identified. Consequently, the long run average incremental cost (LRAIC), calculated as the average cost per additional kWh produced, is taken as a proxy for LRMC. The estimated IRAIC for bulk supply, medium voltage and low voltage in 1982 prices are as follows'. Bulk supply 254 paras/k% (US4 4.95/kWh) Medium voltage 313 paras/kWh (US4 6 .10/kWh) Low voltage (domestic) 452 paras/kWh (US4 8.81/kWh) The assumptions and calculations of LRAIC are described in detail in Annex 7.11. The average bulk supply tariff in eaclh republic and province is compared to economic cost of supply in Table 7 .12. The average level Table 7.12 Comparison of Bulk Tariffs to Economic Cost Average Tariff as Average Tariff /1 Z of Average Economic paras/k%h Cost of Supply /2 Bosnia-Herzegovina 96 38 Croatia 175 69 Macedonia 140 55 Montenegro 50 20 Serbia 89 35 KsDovo 115 45 Vojvodina 122 48 Slovenia (Step 2) 98 39 Average of Tariff for Yugoslavia 110 43 /1 Effective price is coverage price plus consumer contribution. 72 Effective economic cost is estimated at 254 paras/kWh. - 163 - of bulk supply tariffs is about 43% of economic cost. However, the deviation of bulk supply tariffs from LRAIC vary widely, ranging from 20% of economic cost in Montenegro to 69% in Croatia. Annex 7.12 provides a more detailed comparison of existing tariffs with the LRAIC by republic and province. The 1982 average tariff at the MV level for Yugoslavia is at about 44% of the LRAIC; however, as shown in Table 7.13, there are substantial variations among republics and provinces. Montenegro and Serbia, are at about 27% of economic cost, whereas Macedonia is at 70% of economic cost. A comparison of tariff levels at the medium voltage level and economic cost is presented in Annex 7.13. Table 7.13 Comparison of MV Tariffs to Economic Cost Average Tariff as Average Tariff /1 % of Average Economic paras/klb Cost of Supply /2 Bosnia-Herzegovina 114 36 Croatia 206 66 Macedonia 218 70 Montenegro 82 26 Serb ia 85 2 7 Kosovo 154 49 Voivodina 14 6 47 Slovenia 100 32 Average of Tariff for Yugoslavia 138 44 /1 Effective price is coverage price plus consumer contribution. T2 Effective economic cost is estimated at 313 paras/kWh. As shown in Table 7.14, the average domestic tariff is about 40% of economic cost of supply. However, there are wide regional variations, ranging from 23% in Montenegro to 72% in Vojvodina. Comparison of tariff at the low voltage level and economic cost of supply is given in Annex 7.13. - 164 - Table 7.14 Comparison of LV Tariffs to Economic Cost Average Tariff as Average Tariff /1 % of Average Economic paras/k4i Cost of Supply /2 Bosnia-H erzegovina 12 7 28 Croa tia 149 33 Macedonia 274 61 Montenegro 105 23 Serbia 114 25 Kosovo 224 50 Vojvodina 324 72 Slovenia 138 30 Average Tariff for Yugoslavia 182 40 /1 Effective price is weighted average price of capacity and energy. 72 Effective economic cost is estimated at 452 paras/kWh. Economic cross-subsidization among consumers is substantial in all republics and provinces. With the exception of Kosovo, Vojvodina and Macedonia, domestic consumers in all republics and provinces are the most highly subsidized group, with most of the subsidy being provided by the commercial and small industrial consumers. In all republics and provinces, the tariffs to the commercial and small industrial categories of consumers are highest, ranging from 104% of economic cost in Vojvodina to 48% of economic cost in Slovenia. Table 7.15 shows a comparison of tariffs to economic costs and the extent of economic cross-subsidization among consumer groups. As agreed under SAL I, the movement of electricity prices towards parity with the economic cost ofE supply (LRAIC) by 1987 would eliminate the prevailing cross-subsidization. - 165 - Table 7.15 Comparison of Tariffs to Economic Costs Showing Also Extent of Cross Subsidization Among Consumer Groups Average Tariff Level % of Economic Cost Bulk MV Domestic Other Bulk MV Domestic Other Economic Cost 254 313 452 373 100 100 100 100 Bosnia-Herzegovina 96 114 127 228 38 36 28 61 Croatia 175 206 149 226 69 66 33 61 Macedonia 140 218 274 317 55 70 61 85 Montenegro 50 82 105 163 20 26 23 44 Serbia 89 85 114 270 35 27 25 72 Kosovo 115 154 224 175 45 49 50 47 Vojvodina 122 146 324 389 48 47 72 104 Slovenia 98 100 138 179 39 32 30 48 Average 110 138 182 243 43 44 40 65 Overall, the tariff structure is consistent with the structure dictated by the principles of marginal cost pricing; that is, tariffs are differentiated by time of day and season to reflect the differences in the cost incurred by OALs in meeting consumer demand for electricity. However, for households, basing the capacity charge on the nunber of rooms is inappropriate as it does not adequately reflect to changes in demand. As noted above, the tariff levels do not reflect the economic cost of supply. If electricity is to be consumed efficiently, the level and structure of tariffs must coincide with the economic cost of supply. Since the authorities have decided to move toward economic pricing, electricity tariffs should be raised to reflect the LRAIC. Additional upward adjustments in LRAIC, however, may be needed if LRAIC-based tariffs fail to provide an adequate level of self-financing for the producers. Under the agreements with the Bank for SAL I and the Third Power Transmission Loan, the authorities have agreed to achieve parity with IRAIC by the end of 1987. In real terms, this would mean that tariffs at all levels would have to be doubled over the next five years. The authorities implemented a 16% increase in March 1983 and plan to introduce further adjustments 1/ based on a methodology developed in collaboration with the Bank for determining LRAIC. There are two main issues to be addressed in setting electricity tariffs in Yugoslavia. These are. 1/ In Novenber 1983, a 50 paras/kwh increase in the energy charge and the passage of the resulting winter tariff through the following summer was introduced by the authorities. - 166 (a) whether tariffs should be set independently by each republic and province based on their respective LRMCs; (b) whether a unified tariff structure and level should be instituted for the country as a whole at the 220-ky level and above, based on the LRMC associated with the national integrated power system, and differentiated tariffs at the ll0-kV'level and below based on variations in republican and provicial economic costs of supply and the financial obligations of the power entities. 1/ Theoretically, either of these approaches wouldl lead to the least cost development of the sector. Under the first approach, the differential in the LRMCs would induce a higher demand for the lower cost electricity, which would signal the need for the development of economic sources of supply. This, in turn, would lead to specialization in the types and duration of operation of power plants. For examlple, thermal lignite-fired capacities would be operated and developed in Kosovo and Serbia, the major source of supply of lowest cost lignite and possibly hydro power stations in Bosnia-Herzegovina, followed by brown coal etc., leaving Croatia and Vojvodina to meet peak as well as emergency demand by burning gas or fuel oil. Since OALs have agreed to operate the system as a fully integrated network, this specialization would lead to the development of the power subsector along the least cost path. Under the second approach, a unified tariff structure and level would be introduced at the 220-W level and above. This would be based on the least cost development of the bulk supply system 2/ treated as a fully integrated power system. Republics and provinces would have access to public supply of electricity at a price that would reflect economic cost of bulk supply to the entire economy. This would assist republics and provinces in determining generating capacity additions to the system. Moreover, by setting tariffs at the 110-W level and below in consideration of variations in republican and provincial LRAICs of sub-transmission and distribution and the financial obligations of power entities it would ensure both economic efficiency and financial viability of the subsector. In the Yugoslav context, the first approach has the following shortcomings: (a) the differentials in tariffs could lead to the purchase of low cost electricity for export at a higher price to capture the surplus and thereby maximize income. Such transactions are likely to be more frequent during periods characterized by a shortage of foreign exchange as was the case in 1979, when electricity was purchased from Serbia and exported at twice the price. Thests exchanges would deprive OALs whose cost of supply is low of the needed foreign exchange, which ultimately would lead to disputes-, (b) the second shortcoming is that LRMC could be artificially understated by scaling down the investment program 1/ As used here, an integrated power system refers to technical rather than administrative integration. 2/ 220-W level and above. - 167 - to promote republican and provincial energy self-sufficiency and infrastructural devel oent through backward and forward linkages. In the Yugoslav context, fe fil-st approach to pricing would not lead to the efficient use of electricity and rational investment planning. The freedom accorded to OALs in setting their LRMC and the prevalence of CIs would ultimately distosrt the values of LRMC in the pursuit of guaranteed deliveries and energy self-sufficiency. Moreover, given the relatively weak role that is played byp RCPs and the technical nature of investment planning and pricing in the power subsector, it is unlikely that these comnunities would be abLe to technically advise or monitor the pricing agreements of OALs, (Sly JU EL is equipped to undertake the task of integrating least cost investment plans and the pricing of electricity. Its capabilities can be strengthened in a relatively short period of time to allow for the forrulation of a least-cost national plan for the power subsector and the derivation of a pricing structure that would convey to the consumers the economic cost of supply to the country. The long term strategy for the energy sector calls for the development of the power subsector as a fully integrated and unified technical system. The development of a least cost plan for the entire country would ensure rational investment in the power subsector. The dispatch centers financed by the Bank would allow for the development and operation of the network as a single system. Only a unified tariff structure and level at the 220-kV level and above would be consistent with such a plan. Therefore, the authorities should give high priority to the formulation of a country-wide pricing policy for electricity based on the unified pawer system, and ensure that supplies to all republics, provinces and other bulk consumers at 220 kV and above would be priced uniformly at the economic cost. At the lower-voltage levels, tariffs should be differentiated by republic and province and by voltage level, taking into consideration local variations in the economic cost of supply and financial obligations of the power entities. Similar to the arguments put forth on coal pricing and investment, the institution of a tariff on the basis of LRMC would set tariffs at the cost of developing marginal power plants. In the case of Yugoslavia, this would be gas turbine or a pumped storage hydro plant. Such a tariff would also ensure that OALs would secure adequate levels of self-financing and promote the development of the more economic sources of power supply. This approach to pricing coupled with the same approach to pricing coal and lignite would lead to rational investment in power and coal subsectors by providing the resources needed for their development. - 168 - CHAPTERVIII ENERGYPLANNING AND INVESTMENT The first five-year plan for 1947-1951 set the stage for what eventually evolved into the decentralized system of social planning that characterizes the Yugoslav economy today. Following the adoption of the then new constitution in 1946, all means of prodLuction were put under the control of the State. Nevertheless, the roles of the republics and provinces in formulating and implementing the plan was pronounced. They collaborated with the central authorities in formulating the national plan and outlined their own five-year plans to provide the means for achieving the national objectives. l/ Federal, republican and provincial commissions for planning, established to monitor the implementation of the plan, were entrusted with the management of the economy. During the 1947-1951 plan period, a concerted effort was made to define the role of the workers in the nationalized enterprises. Two views prevailed-. on one hand, there were those who favored a highly centralized system, where decisions on output, pricing and investment were to be made by the authorities and strictly adhered to by the producers; on the other, were those who believed that workers were a source of enormous energy and innovation and consequently, they should set the pace for the development of the economy rather than the planners. The creation of workers' councils in the large enterprises and commercial concerns signalled the emergence of the decentralized system. Initially, these committees were responsible for th e wel far e of their member s. However, th eir responsibilities were gradually increased to include the review of the annual production quotas, salaries, appointment of line managers, etc. In 1950, the national assembly passed the first law on workers' self management which formalized the responsibilities and the role of the workers' committees . As the decision making powers of the workers' committees increased so did their differences with the authorities over investment decisions and distribution of income. The workers were dissatisfied with the authorities ' control over investment decisions and compensation, because a disproportionate share of their income was allocated to investment. In response, the 1957-1961 plan set as its main objective the improvement of the workers' well-being. The use of profits as success indicators was abandoned and replaced by income as an incentive to workers. Although income was now determined by workers, the authorities still retained control not only over the means of production but also over the setting of investment targets. In so doing, they retained indirect 1/ J. Sirotkovic, "Planning in the Yugoslav Economic System" in Lang, Richard, et. al., Essays on the Polit:ical Economy of Yugoslavia, Informator, Zagreb, Yugoslavia 1982, p. 122. - 169 - control over income as well. This was a source of increased tension between the workers and the authorities, which culminated in the suspension of the 1961-1965 plan. In 1965, a major reform was introduced, whose objective was the transfer of decision making power from the authorities to the workers on matters affecting production and investment. These changes led to the adoption of a new constitution in 1974. It provided the blue print for the workers' self-management system and outlined the basis of social planning. Under the new constitution, the role of the state was limited to setting macro-economic targets. OALs emerged as the decision makers with complete autonomy in the economic sphere. The decentralized approach to planning, referred to as social planning, was henceforth to be based on the individual plans drawn at the level of BOALs, the smallest decision-making units under that system, and harmonized by the workers themselves on the basis of mutual interest and equality. 1/ 2/ The constitution gave OALs the right to plan and for the federal, repullican and provincial, and communal agencies to ensure that these plans were harmonized. 3/ Under social planning, workers operate to maximize their income, which is the only measure of economic profitability. Planning and implementation of investments is left to the workers themselves since it is regarded as means for increasing future income. The planning agencies at the federal and the republican and provincial levels, on the other hand, serve in an advisory capacity without any decision making powers. They are coordinating bodies who set indicative targets. OALs have the constitutional right to initiate and implement their plans without the concurrence of either the federal or the republican and provincial agencies for planning. They are also expected to finance their own plans through credits and by pooling their resources when such a union is of mutual interest. This system for investment planning and project selection provided the blue print for the 1976-1980 social plan. It has had only five years to test its effectiveness. The subsequent three years have been beset by economic difficulties, both internal and external, some of which were caused by the new approach to investment planning and economic management. These led to the adjustment of the target of the 1981-1985 social plan, also promulgated under the new planning system. These difficulties set in motion a process of reassessment aimed at restructuring the institutions and instruments of economic management. This chapter begins with a brief review of the basic features of the system of social planning to provide a context for examining the 1/ Kardelj, E., Self-Management Planning, second edition, STP, Belgrade, 1980, pp. 28 and 29. 2/ Miljevic, D., "Social Planning" in Constitutional System of Yugoslavia, Jugoslovenska Stvarnost, Belgrade, 1980, p. 36. 3/ In the Yugoslav context the world harmonization has a special meaning. It refers to aggregation of equal parts. It is the opposite of integration where parts are put together in a manner where components are not distinguishable. - 170 - performance of the 1976-1980 and the 1981-1985 social plans. These are then used to identify the main constraints responsible for the shortfall in achieving targets for the energy sector. Finally, an assessment of the "revised" 1981-1985 plan is provided. Social Planning The principles of social planning outlined in the 1976 law 1/ are-. continuity, unity, democracy, simultaneousness, and comprehensive- ness. 2/ Continuity is intended to ensure that the targets of the five-year social plans are consistent with those of the medium-term and long-term progrars. It provides for a dynambic reassessment of the medium-term targets and the performance of the ongoing five-year plan. Unity refers to uniformity and consistency in the objectives of the plans fornulated by OALs, communities, republics and provinces and the federal authorities, etc. It also ensures the uniform application of the principles and processes, phases, methodology, procedure, implementation and supervision. Simultaneousness implies the concurrent initiation of the planning process involving analysis, formulation, harmonization and the adoption of the plan. It covers the bi-directional flow of information from OALs to the chambers of economy, professional associations, planning boards, etc. 3/ It specifies the deadlines for completing the analysis, presentation and adoption of the plan. DemDcracy, in essence, is the cornerstone of social planning in Yugoslavia. It guarantees equality at all levels of planning, i.e., there is no hierarchy in planning and consequently there are no higher or lower order plans. All S4As and SCs on plans are concluded on the basis of equality. Majority rule or coercion is not allowed. 4/ This principle recognizes that plans come into existence through democratic confrontation 5/ of interests and objectives referred to as convergent planning. The conflicting interests are then harmonized through negotiations. Comprehensiveness refers to the scope of planning, encompassing OALs, corminities, chambers of the economy, etc. The process of planning starts with the passage of a law on the preparation of the plan, and is implemented in two steps. 6/ These steps 1/ "Law on Underlying Premises Qf the System of Social Planning and Social Plan of Yugoslavia", Belgrade, 1976. 2/ Sindjic, M., Planning in Yugoslavia, Belgrade, 1981, pp 38-50. 3/ Kardelj, E. "The System of Socialist Self Management in Yugoslavia" in Socialist Self Management in Yugoslavia (eds), Boskovic B and Dasic David, Belgrade, 1980 . 4/ According to the law on planning only the delegate assemblies at the communal, republican and provincial and federal levels can exercise coercion but only within the constraints set forth in the constitution. 5/ This statement usually implies negotiations between equal parities with opposing views. 6/ Pasic, v., et. al., Workers' Management in Yugoslavia, Recent Development. and Trends, ILO, Geneva, 1982, pp 126-128, 139,-136. - 171 - are summarized in Figure 8.1, which is reproduced from an article by Professor Stojanovic. 1/ The first step outlines the work program for the plan's preparation, specifies a timetable for the planning process and identifies the issues to be addressed in setting the plan targets. The federal and the republican and provincial authorities involved in this planning phase are shown in the first two rows of Table 8.1. The second step involves the harmonization of the targets set by the federal, and the republican and provincial authorities and the plans prepared by the entities at the regional level which are shown in the last two rows of that table. Table 8.1 Schematic Diagram of the Organizations Involved in Social Planning Planning of Development Policy Preparation of Development Plan Territorial I ndus tr ial Planning Planning Adoption of Plan Planning Technology 1. Planning Board Federal Federal Federal Administra- of Federal Economic Assembly tion for Social Assembly Chamber Planning 2. Planning Republican and Republican and Republican and boards of provincial provincial assem- provincial adminis- republican and economic blies trations for social provincial chambers planning 3. Planning City and muni- City and muni- City and municipal boards of city cipal economic cipal assemblies administrations for and municipal chambers social planning 4. Enterprise Enterprise Workers' councils Enterprise planning Planning Board planning and development (a body of boards and sector workers' associations councils) Source. Stojanovic, Radmila; "Planning Economic Development in Yugoslavia", in Eastern European Economics A Journal of Translations, Vol. 20, 2, Winter 1981-1982, page 27. 1/ Stojanovic, Radmila; "Planning Economic Development in Yugoslavia", in Eastern European Economics A Journal of Translations, Vol. 20, 2, Winter 1981-1982, page 27. - 172 - The first step also involves the identification of development priorities, both macro-economic and sectoral, for the next plan period based on alternative scenarios of the domestic and world markets. These are outlined by FISP in collaboration with its counterparts at the republican and provincial levels. A general outline of the development priorities for the economy and for the various sectors is submitted by the Federal Executive Council (FEC) to the Federal Assembly. However, prior to submission, FEC has to harmonize the differing points of view of the republics and provinces in order to formulate common economic policies. If no agreement can be reached by a prespecified date mutually agreed upon by FEC and the Federal Assembly, the former is obliged to report to the latter the reasons for failure to reach accord. FEC may then request the president of the Federal Assembly to adopt special legislation providing temporary measures pending a resolution of the disputed issues. The plan outline submitted by FEC is enacted by the Federal Assembly, after the republican and provincial assemblies have approved of its content. Once approved, social compacts are concluded to outline the basic principles of the plan, the common objectives to be promoted, the macro-economic targets to be attained in the plan period and the economic policies relating to interest rates, structure of investments, and financing arrangements to be adopted by the federal, republican and provincial authorities. These social compacts are then submitted on behalf of the federal, republican and provincial authorities to OALs for approval. Once signed, the plan becomes the basis for decision making by OALs and sets the objectives to be pursued by the republican and provincial authorities. These objectives are essentially indicative in that complianceby OALs cannot be legally enforced. The basic premise of indicative planning is that OALs, by maximizing their income, would promote national welfare. TAbile the plan is in effect FEC may, if necessary, suggest that changes and supplementsbe introduced or that the targets be adjusted to reflect changing conditions. The procedure for introducing these changes is essentially the same as that for enacting the plan. The requirement that the planning process be reinitiated is one of the major limitations of the planning process. The responsibility for formulating the necessary regulations and implementing economic measures to ensure the fulfillment of the plan rests with the federal, republican and provincial authorities, including the executive councils. FEC must report to the assembly annually on th e progress made in the implementation of the plan, give estimates of the development possibilities for the forthcoming year and suggest any new measures iihich may become necessary for realizing the plan targets. A draft resolution covering such measures is submitted to the assembly by the end of October of that year. As in the preparation of the plan, the executive councils of the republics and prov nces actively participate in the preparation of this resolution. Thus making planning an ongoing process. However, in reality this is not tlhe case because of the protracted process of negotiation. As noted, once agreement is readhcd ond the mcro-economic targets and the development scenario set fort in t1he outlne, the elaboration of - 173 - the actual plan begins. In this, the second step, each OAL prepares its own plan to expand its productive capacities in a manner that maximizes its earnings and in turn, its contribution to the national output. The plan is promulgated by the workers' council after it has been approved by the majority of workers by referendum. The plan covers issues such as'. (a) the pooling of labor and resources; (b) the programming and organization of production, operating costs, sale of products and services, and imports and exports of goods; (c) the earning and distribution of income, the main elements of prices and the conditions under which purchases and sales are conducted and services rendered; and (d) the pooling of labor and resources with other organizations to secure financial resources and, equipment and material on favorable terms. In work and composite organizations, plans are formulated through equal participation of their constituent OALs on the basis of SMAs. Plans of the work and composite organizations encompass essentially the same expectations and assumptions as are covered by the plans of BOALs. In CIs, plans are prepared and adopted by assemblies in which producers and consumers have equal representation. At the republican and provincial levels a draft plan is prepared by the executive body of the assenbly. Since these authorities coordinate economic and social development, their draft has to take into consideration the operation of the market forces, while seeking to diminish differences in conditions of work and level of income in different sectors of the economy. The purpose of the draft plan, therefore, is to provide for the pooling of labor and resources, the development of production and for the steady increase in the standard of living. The draft plan also identifies the conditions, possibilities and requirements for the development of the federation and its various regions and areas, and also establishes the obligations of CIs within its territory. If OALs and CIs feel that the obligations and targets set in the draft plan do not correspond with those established by the social compacts on the outlines of the plan or those laid down by law, they are entitled to renegotiate until all issues are resolved. Once accord is reached, the plans of these organizations are consolidated. The republican and provincial plans are then harmDnized to yield the social plan for the country as a whole. The 1976-1980 Investment Plan for Energy The 1976-1980 social plan called for a substantial change in the structure of the Yugoslav economy, emphasizing import substitution in the industrial and energy sectors. This was to be achieved through increased investments in specific sectors, referred to as priority sectors. In the priority sectors, investments were to increase from 53% of gross investmentin fixed assets for the period 1971-1975to 64.6% in the - 174 - Table 8.2 Share of Energy Investment as a Percentage of the Total Irnvestments in Fixed Assets in the Economic Sectors for the Periods 1971-1975 and 1976-1980 197 1-1975 1976- 1980 Power 9.4 12.1 Coal and Lignite 1.3 1.8 Oil and Gas 1.8 6.1 Total 12.5 20.0 Source-. Berry, S. et. al., "Yugoslavia: Adiustment Policies and Developnent Perspectives", 1982 World Bank Report No. 3954-YU, page 9. 1976-1980 plan period. 1/; 2/ The energy sector's share of gross investment in the economic sectors was projected to increase from 12.5% in 1971-1975 to 20% in 1976-1980. As summarized in Table 8.2, the share of investment in the oil and gas subsector was to increase from 1.8% to 6.1%, and in the power subsector from 9.4% to 12.1%. The coal subsector's share, however, was expected to remain virtually unchanged, increasing only slightly from 1.3% to 1.8%. The plan implied that, as a percentage of overall investment in the priority sectors, the share of the energy sector was to increase from 23% in the period 197:1-1975 to 31% during the 1976-1980 plan period. Actual investment in the priority sectors was lower than forecast, 59.5% compared with a target: of 64.6%. However, in the energy sector, the investment targets were surpassed by about 2.7%. The share of investments in energy during 1976-1980 was 33,7% of total investments in the priority sectors. The share of electricity and coal were higher than targeted, 14.9% and 2% compared to the targets of 12.1% and 1.8%, but that of oil and gas was only 4.8%, representing about 70% of the target of 6.9%. In spite of the increase in the share of investments, the energy sector was unable to achieve its output targets. The largest shortfall was in the power subsector followed by the oil and gas, and coal subsectors. The energy targets of the 1976-1980 social plan together with 1/ Berry, S. et. al., "Yugoslavia. Adjustment Policies and Develoinent Perspectives,"' Vol II, The World Bank, November 1982, Table 1.3, p. 9. 2/ Based on 1975 prices. - 175 - Table 8.3 1976-1980 Targets for the Energy Sector Target Actual Actual as % of Tar get P ower (M) Thermal 6 ,911 3 ,393 49 Hydro 2,742 1,339 49 Coal (million tons) 55-58 47 86 Oil (thousand tons) Domestic 4 ,734 4,226 89 Imports 11,477 10 ,804 94 Gas (million m3 ) Domestic 3 ,126 2,148 69 Imports - 1,982 Source. Federal Institute for Social Planning outturn figures are given in Table 8.3. During the 1976-1980 plan period, 9,653 MW of generating capacity, consisting of 6,911 MW of thermal capacity and 2,742 MW of hydro capacity, was to be commissioned. The thermal capacity consisted of 4,794 MW of lignite capacity, 1,233 MW oil-fired, 110 MW gas turbine, 110 MW coal-fired and 664 MW nuclear capacity. Only 49% of the planned hydro and thermal capacity and 46% (2,200 MW) of the lignite capacity, which was expected to be commissioned, was actually brought on stream by December 31, 1980. All of the planned coal-fired and gas turbine capacity was commissioned by the end of that plan period. The planned commissioning of the nuclear power station at Krsko was delayed by at least two years to the end of 1981. Out of the planned commissioning of 1,233 MW oil-fired capacity, 953 MW was commissioned. Delays in the commissioning of coal fired power plants had a significant impact on the coal subsector. Coal production was projected to reach 55 to 58 million tons by 1980. Although the mining capacity commissioned during this period was sufficient to exceed the minimum output target for lignite and to reduce the shortfall in the case of brown coal to about 1 million tons, there was a 14% shortfall in production based on the 1980 planned output of 55 million tons. The largest absolute shortfall (5.1 million tons) was in the production of lignite, mainly due to slippages in the commissioning of power stations noted above. The social plan set a target for the output of domestic crude oil of 4,734 tons in 1980, an average rate of increase of 5.5% a year, and for imports - 176 - of crude of 11,477 tons, an annual rate of increase of 9.6%. The actual output of domestic crude oil in 1980 was 4,226 tons, 89% of the target. Imports were 94% of the target at 10 ,804 tons. The share of oil in total imports of goods and services increased from 10.2% in 1976 to 17.8% in 1980. The production of natural gas in 1980 was 2,148 million m3 , only 69% of the target of 3,126 million m3. Domestic production of gas increased at an average annual rate of 6.7% compared to the target of 15%. As shown in Table 8.3 above, the major shortfall during the 1976-1980 plan period was in achieving the production targets for electricity. This was mainly due to the shortage of financial resources and delays in the deliveries of materials and equipment, especially the import intensive domestic products. The shortage of financial resources was precipitated by the softening of the demand for electricity which, in turn, reduced the overall revenues of the power subsector. Slightly more than one-half of the projected electricity sales were realized, 47 thousand GWh compared to the projected target of 65 thousand GWh. As discussed in Chapter VI, this once again reaffirms the critical role played by the planning agencies, at both the federal and republican and provincial levels, in signalling higher levels of consumption than is likely to occur. The shortage of financial resources was further aggravated by the fact that, in real terms, electricity tariffs had failed to keep abreast of the increase in the general price level. The growth in average revenue for electricity was virtually stagnant in real terms between 1976 and 1980, increasing by less than one-half of 1% during that period. 1/ Concurrently, because of the delays in the commissioning of lignite-fired power plants, the power sector increased its dependence on imported oil, whose domestic price increased in real terms at an average annual rate of about 12% for fuel oil and 14% for natural gas. In addition, the real price of lignite and brown coal also increased at an average annual rate of 13% and 8%, respectively. Since OALs for power generation were unable to transmit these increases to consumers, the power subsector had to absorb these real increases in the cost of production at the expense of its self-financing. Consequently, iLn order to maintain the 30% level of self-financing required under law, major investments in generation and transmission projects, whose financial requirements were substantial, were postponed. Instead, relatively small uneconomic power stations were commissioned to meet the demand for electricity. _/ Annex 7.6. - 177 - As shown in Table 8.4 below, Slovenia had the highest level of self-financing, almost twice the level specified under the compact for the Table 8.4 Self-financeas a Percentage of Investment Average 1976-1980 (%) Bosnia-Herzegovina 34 Croatia 31 Macedonia 32 Montenegro 49 Serbia 35 Sloven ia 63 Yugoslavia (total) 44 Source: JUCEL financing of the subsector. This was due to significant slippages in its development program, rather than sound financial planning. In fact, Slovenia was one of the two republics and provinces in which the real bulk tariff for electricity declined during this period. Montenegro, the other republic with a high level of self-financing, about 49%, had the second highest slippage rate. Similar financial difficulties were experienced by the gas subsector. Its failure to meet the production targets was entirely due to the policies followed by the communities for pricing in Croatia and Vojvodina, which enabled the consumers to keep the level of prices for domestic gas at a fraction of its border price. In fact, between 1976 and 1979, when the prices of all petroleum products were increasing, the consumers managed to reduce the real price of natural gas. The shortfall in revenues was so severe that the development of the infrastructure needed for the transportation and delivery of gas was postponed. As a result, gas was delivered to consumers not on an economic basis, but based on proximity to suppliers. Critical links needed to deliver existing gas to the market could not be brought on stream. In fact, Yugoslavia's interconnected gas pipeline system is still inadequate. The problem was further exacerbated by the shortage of foreign exchange, Which became acute in 1979 and 1980, and as a result the gas subsector was unable to secure critical materials and equipment needed to maintain production in some fields at their optimal level. The coal subsector, whose actual output was about 86% of the planned target, also suffered from the shortage of financial resources, which necessitated severe curtailments in its investment plans. It achieved a high percentage of its target mainly because investments that were initiated in the preceding plan period came on stream in the 1976-1980 plan period. As - 178 - noted, the shortfall was primarily in the production of lignite (10 million tons) because of the inability of the power subsector, the main consumer of lignite, to provide the revenues for investment agreed to in the S4As. Since real prices for coal sold to the power suibsector were kept low, the coal subsector was deprived of the badly needed financial resources. The second reason for the shortfall in achieving the targets of the plan was the delays in the delivery of domestically produced materials and equipnent. Several OALs undertook heavy investments for import substitution which, in the energy sector, covered large bucket-hieels, conveyors, stackers, boilers, drilling platforms, etc. These investments taxed the implementation capabilities of some OALs. Others, because of delays in reaching agreement with the patent holders, and the difficulties in raising the foreign exchange, were unable to meet their production and delivery deadlines. This resulted in severe bottlenecks in the implementation of energy projects, particularly in the power and coal subsectors. In addition, the widespread initiation of energy projects, especially hydropower plants throughout the republics and provinces also taxed the implementation capabilities of small OALs, particularly in less developed areas. These projects suffered shortages of skilled manpower and construction material and equipment. Similar problems were experienced by the gas subsector where some OALs attempted to produce highly specialized equipment in which Yugoslavia lacked technical expertise and comparative advantage. The 1981-1985 Investment Plan for Energy The 1976-1980 social plan was the fir st of its kind to be implemented under the new system of social planning. The plan evolved under a state of continuous change. OALs and thLe authorities were both anxious to set the new system in place. Inconsistencies between the model and the actual setting of the economy and its institutions were resolved on an ad hoc basis during its implementation without the benefit of an overall scheme. OALs were eager to redefine their new role and clearly outline their new economic power and the extent of control over their resources, investments, distribution of income, prices, etc. The authorities, on the other hand, were anxious to rid themselves of any economic decision making powers, deferring always to OALs. In the process, all instruments of economic management were removed, justified or not, and the powers of economic decision-making was passed to OALs, whose autonomy was fully guaranteed and protected by the constitution. OALs, finding themselves with access to credit never experienced before, initiated investments aimed at expanding their lproductive capacities to increase their future earnings. Since there was minimal economic and financial discipline, and because of the general nature of the aggregate economic targets, a large number of projects were duplicated. - 179 - In addition to emphasizing the autonomy of OALs, the new system, contrary to its objectives, inadvertently created an atmosphere conducive to the pursuit of regionalization, and prompted OALs to seek either vertical or horizontal linkages within their own regions. Inv es tmen ts were made to promote regional development and local economic interdependence. At times, the pursuit of regional objectives and targets was inconsistent with the country's goals and aspirations. The construction of oil and gas based power plants in Vojvodina and Croatia as well as the initiation of the refinery in Skopje, which were not in the national interest, are a few examples of the regional autonomy that emerged. The localization of domestic and imported gas consumption is another example of the pursuit by the republics and provinces of their own economic interest which, as mentioned earlier, has been detrimental to the development of the Yugoslav economy. Yugoslavia's industrial push, which started after World War II, focused on heavy industry based on the mining sector. A large share of the investment was allocated to the construction of heavy industry for the production of capital goods. The gradual liberalization of the economy and the increased emphasis on consumer goods and services brought about a second industrial push aimed at import substitution. By the late 1960s and the early 1970s, Yugoslavia had started to penetrate foreign markets, particularly those of the industrialized market economies. The comparative advantage of the economy was, in part, artificial as it was based on underpriced domestic resources and relatively cheap imports of oil. The latter also contributed to the development of a major petrochemical industry, directed solely at developed and developing countries. By the time of the first oil crisis in 1973, the country depended on imports for more than 60% of its energy requirement. The shock of this crisis on Yugoslavia's main trading partners and on the domestic industry was regarded as a once-and-for all shock resulting in a temporary stagnation in the world market and the Yugoslav economy. The second round of increases in 1976 underscored the need for adjusting the economy to cope with the relatively larger share of the outlays for imported energy. This was reflected in the 1976-1985 medium-term program which called for increased exports and decreased dependence on imported energy. This was to be achieved through the accelerated development of the domestic energy resources. 1/ The program gave priority to energy, basic chemistry and metallurgy, specifying the targets to be achieved during the first five years of the medium-term program. The objectives, however, were too ambitious given the domestic constraints. Moreover, there were inconsistencies between the targets and the projected deliveries of goods and services needed to achieve them. 2/ In addition 1/ Federal Assembly, "Draft Outline of a Common Policy for the Long-term Development in Yugoslavia until 1985" Yugoslav Survey, Vol. 16, No. 4, November 1975, pp. 19-90. 2/ Schrenk M., et al. Yugoslavia. Self-Management Socialism, Challenges of Development, Johns Hopkins University Press, 1979, page 93. - 180 - to the internal and external constraints, the program also lacked a coherent and integrated set of policies needed to cope with, what in essence were, structural imbalances. The plan only identified sectors that were pivotal to achieving the targets of the medium-term program and required OALs and their Banks to complete S4As to ensure that resources were secured by the priority sectors. 1/ As mentioned earlier these priorities were reflected in the shift of share of investment in fixed assets in the economic sectors between 1971-1975 and 1976-1980. The softening of the demand for Yugoslavia's exports in the industrialized economies between 1976-1980 was offset by a buoyant growth in domestic consumption. Exports of goods and non-factor services increased at a real annual rate of 5.3%, representing 66% of the planned targets. By contrast, imports of goods and non-factor services increased at 78% of the planned target. The bulk of the imports were for the production of import substitutes for the domestic market. Moreov er, during this plan period there was a significant shift away from official to commercial sources of finance, with increased dependence on short-term commercial borrowing, which started to increase after the 1973 oil crisis. Between 1976 and 1980, the short-term credits secured for five years or less increased, as a percentage of total external debt outstanding, from 50% in 1976 to 70% in 1980, reflecting the difficulties experienced by the Yugoslav economy in securing medium and long-term credit and increased reliance on short-term borrowing to finance long-term investments. By 1981, a large number of these short-term debts became due and precipitated the balance of payments difficulties. The structural difficulties and institutional constraints outlined above saw Yugoslavia into the 1981-1985 plan period. Again the macro-economic and sectoral targets were optimistic, although they were scaled down relative to the previous plan to accommodate the downturn in the performance of the economy. The targets of the plan were presented in Chapter VI. In keeping with the principle of continuity, the 1981-1985 plan adhered to the objective of the medium-term program for 1976-1985. Specifically, for the energy sector, it emphasized the reduction of imported energy and the accelerated development of domestic energy, particularly coal and lignite and hydro power. ILike its predecessor, the 1981-1985 plan allocated more than half the investment for the priority sectors to energy, although the actual share dropped from 54.4% to 52.5%. The total investment in fixed assets projected for the energy sector amounted to Dinars 335 billion, 2/ of iwich Dinars 200 billion were for investment in power, representing 60% of the total investment in energy. For the coal and oil and gas subsectors, the investment was projected at 1/ Berry, S., et al., Yugoslavia, Adjustment Policies and Development Perspectives, 1982 World Bank Report No. 3954-YU, page 9. 2/ In 1980 prices. - 181- Dinars 70 billion and Dinars 65 billion, respectively. Table 8.5 shows the share of investment in each subsector for the plan period 1976-1980 and 1981-1985. As shown, there was a reordering of priorities between the coal and petroleum subsectors. Specifically, the share of investment in coal and lignite increased from 9% during the 1976-1980 plan to 21% under the 1981-1985 plan, while the share of the petroleum subsector decreased correspondingly, from 31% to 19%. The share of planned investment in energy as a percentage of the investment in the social sector was 21%, Dinars 335 billion compared to Dinars 1,582 billion, representing a 1% increase over the investment under 1976-1980 social plan. 1/ Table 8.5 Investments in the Energy Subsectors Under the 1976-1980 and Original Plan for 1981-1985 1976- 1980 198 1- 1985 (%) Investment /1 Share P ower 60 200 60 Coal & Lignite 9 70 21 Oil & Gas 31 65 19 Total Sector 100 335 100 /1 In billions of 1980 dinars. The total investment projected by OALs under the social plan for 1981-1985 are presented in Annexes 8.1, 8.2 and 8.3. Investment in the power subsector was projected at Dinars 270 billion 2/, and for the coal and petroleum subsectors it was expected to reach Dinars 80 billion and Dinars 75 billion, respectively. These investments totalled Dinars 425 billion compared to the planned target of Dinars 335 billion, representing a 27% increase over the targets set by the social plan and agreed to by OALs. This is a concrete example of the dichotomy between the plan targets and the targets set by OALs. It also reflects the absence of a ecihanism for identifying priorities and establishing consistency between the two sets of targets. It is noteworthy that Dinars 99 billion, 1/ Berry, S., et al., Yugoslavia, Adjustment Policies and Development PersDctives, 1982 World Bank Report No. 3954-YU. 2/ In 980 prices. - 182 - representing about 37% of the investment in the lpower subsector were for the completion of projects that had slipped from the 1976-1980 plan. About 60Z of total energy investment was to be divided almost equally in Bosnia-Herzegovina, Croatia and Serbia. Croatia's investment plans are three times higher than those of Kosovo. In the absence of any significant reserves of coal in that republic and the existing arrangement for financing projects in other republics and provinces, at least 30% of the investment in Croatia could have been used to cover the development of power stations in Kosovo or Serbia, the two most economic sites for the production of lignite. Moreover, of the total investment of Dinars 42 billion planned for Croatia, only 4% was for joint investment in other republics and provinces. Slovenia, another energy deficit republic, had joint investments 1/ amounting to 9% of total investment in power. Specifications of joint investments are presented in Annex 8.4. These two examples illustrate the tendencies of the republics and provinces to achieve self-sufficiency in energy. The sources for financing the investment plan, summarized in Table 8.6, show that the energy sector had a projected self-financing of about 25%, and non-reinibursable consumer contributions of about 10%. Another 35% are in the form of reimburseable loans from CIs. The rest in local and foreign-credits. As shown, 45% of the projected investment in the energy sector was to be secured from CIs. In fact, the higher the level of industrialization of a given republic and province, the more pronounced is its dependence on CIs. This is mainly because the beneficiaries of the development program are fasily identified, e.g., cement industry, steel, fertilizer, etc. This dependence is more prevalent in the power and coal subsectors than in the petroleum subsector. Slovenia, the most highly industrialized republic depends on 70% of its total financing requirements from consumer contributions. As the level of industrialization drops so does the share of consumer contributions, from 65% for Croatia, 50% for Serbia, 40% for Vojvodina, 30% for Bosnia-Herzegovina and Macedonia, 20% for Montenegro and 8% for Kosovo. This dependence between consumers and producers has been responsible for the major slippages experienced by the power subsector in the 1976-1980 plan period. Once consumers fail iin securing revenues from their projected sales because of the softening in the demand for their products, they are unable to provide the finances agreed to under SMAs. This, in turn, results in delays in the implementation of the investment plan. As noted, Slovenia, which has the highest level of conssumer 1/ For details on joint investments see Annex 8.6. 183 - Table 8.6 Projected Sources of Financing under the Original 1981-1985 Social Plan Prepared by OALs In Billion of Dinars /1 Internal Cash Generation 106.2 25 Consumer Contributions /2 42.5 10 Reimbursable Contributions 148.8 35 Credits /3 127.5 30 Total 425.0 100 Source: Mission's estimates. /1 1980 prices. /2 Non-reimbursables. /3 Local and foreign. contribution also had the highest rate of slippage in the implementation of its 1976-1980 plan. The impact of the prevailing practices for financing investment programs is discussed later in this Chapter. Issues in Planning Formulationand Implementationof the Plan The implementation of the plans hinges largely on the targets set by the authorities. Unless these targets are technically realistic, over investments by OALs is inevitable. The rationalization of investment planning would require adjustments in the planning process in two areas. First, involves reducing the time required for the ratification and adoption of plans. The second, involves some modifications in the two steps presently being used. It is to be noted that neither of these would require a fundamental change in the principles of the system of workers' self-management. The time imrolved in harmonization usually extends into the first year or two of the plan being implemented and consequently, projects which are being negotiated are either started or delayed. By the time consensus is reached, it is too late to stop the projects already under construction or start those delayed by one or two years. These - 184 - delays have had a deleterious effect on the orerall performance of the economy. OALs with access to financial resources tend to initiate their projects to optimally use the idle resources available to them. Others have been known to initiate projects as a means of ensuring that the rest of the financing required could be secured from CIs, banks, etc., since it would constitute an ongoing project. Such projects usually are viewed favorably and given preferential treatment in the allocation of resources. This induces OALs to enulate each other and compete for the favorable status. As a result, priority projects are, at times, delayed and instead, some of the less attractive projects are allocated the scarce resources which should have been allocated to the priority projects. If delays in investment decisions and project implementation are to be avoided within the context of the Yugoslav economic setting, then the investment plans of OALs should be initiated twc years prior to launching the new plan to allow for the lengthy negotiating and harmonizing process. Therefore, in view of the delays usually experienced in harmonizing the investment plans of the economic agents at all levels and given the negative effects these delays have had on project implementation and the achievement of targets, the authorities should consider initiating the planning cycle at least two years before the start of the next plan. Targets of the Social Plans As shown in Figure 8.1, the selection of basic strategy for development, wnich includes all the processes involved in the first step of social planning, takes place in Box A. The zone of convergence, or social coalition as its known, covers the second step and takes place in Box B. The processes in Box B depict the bi-directional nature of social planning in Yugoslavia. The flow of information from A to B is unidirectional. It is in the flow of information from A to B that the rigidities of the system, referred to in Chapter IV, lie. Macro-economic and sectoral targets are set within A, and it is up to the entities involved in Box B to identify the means to achieve these targets. A major shortcoming of this approach is that once compacts relating to the macro-economic and sectoral targets are concluded, they cannot be changed without reinitiating the process even when they are unattainable. This rigidity is the principal source of inconsistency between the plan targets set by the authorities and the targets set by OALs, which in the past has prouDted ov er investment. This rigidity is inconsistent with the principles of social planning, particularly co0ntinuity. Therefore, all that is required is to adjust the prevailing practice to allow for the bi-directional flow of information between A and B, and a mechanism for adjusting the targets, as and when required, without reinitiating the harmn,nization process. This flexibility could lbe achieved by completing the planning process in four instead of two steps. The first step would be for FISP to set technically attainable macro-economic and sectoral targets. These targets should be set in consultation with RPISPs, but not harmonized. In other words, the interaction between FISP and RPISP is for consultation only to further refine the targets. These, in turn, would be discussed with and approved by FEC. The approval is only tentative and should be aimed at setting a framework for negotiations with Figure 8.1 DiagrammaficPresentaton of Processes InvolvedIn SocialPlanning … I~~~~~~~ I | wsv _ ~~~~~~Enterprses i I r m t _ l ' l _ \I I POlas of ILarge Econamc recastng In PIa Of Zoned d Sclentiftc- Lonrg-tnrm Enterprises Enterpses Convergence teheBasicSratg technicle rofSciangl _ J CoalitionSocial T o Developrnent Forecastinga Deveoment Plansof Dweventlon / | nSmaller r ofFucinrg Sci r ed I IReeakns t + I 1 I B A Source: Stoarrvic. Redmila: "PlannfngEconomic Devebtpmentin Yugoslava", In Eastern EuropeanEconomics a Jaurnal of Transkations.Vad 20,#2. wnter 1981-1982.page 30. World Bank-27233 - 186 - the other agencies. In the process of fine tuning, FISP would collaborate with the republican and provincial agencies as is presently being done. An advantage of setting draft targets is that it allows FISP to consult with those involved in Box B without being tied to a fixed and rigid set of numbers. Step two would involve a review of the draft targets with the professional associations for technical consistency only as they are best qualified, from a national view point, to prcvide an assessment of the country's capabilities for achieving the draft targets. This would establish a dialogue between professional plannesrs and practitioners. The professional associations, in turn, would be responsible for the formulation of least cost plans for achieving the global targets. It is at this level that the viability of implementing the targets would be assessed and if unrealistic could be sent back with revised values based on technical constraints. The advantage of this step is that it would provide FISP and its republican and provincial counterparts with a first measure of the investments required to achieve the draft targets. If inconsistent with the forecast, the inconsistency would be resolved in an iterative fashion. Thus ensuring consistency between the sectoral and investment targets. The third step would require OALs to fornulate their own plans to achieve the targets set by FISP, RPISP and the professional associations. QALs, through their representatives in the professional associations and in collaborationwith RPISPs and other regional authorities, would submit their investment plans to ensure that overall sectoral targets are achieved at least cost to the Yugoslav economy. At this stage negotiations among OALs within and across republics and provinces should be initiated to ensure that the overall investments are consistent with the plan targets. Moreover, each professional association in consultation with all of its members should ensure the adoption of a uniform methodology for project evaluation and investment planning. OALs would be required to rank their priorities based on a uniform measure, for example rate of return. This would ensure that each proposed project is part of the national least cost plan and is ranked. This would allow decision-makers to identify, in consultation with OALs, the projects with the lowest rate of return which, in case of resource constraints or When the targets need to be scaled down, could be poistponed. The fourth step would involve the initiation and conclusion of compacts and SMAs, relating to the pooling of resources, the sharing of income, etc., to ensure that, as a minimnum, the priority projects of each OAL (high rate of return) are financed. FISP would put together the necessary measures and policies required to ensure that priority projects would receive preferential access to credit, resources, foreign exchange, import licensing, etc. This could be easilyr accomplished by FISP and RPISPs, since they would have information on cross-sectoral interdependenceof projects. Projects that are to receive preferential treatment, in view of their critical role to the achievement of the national plan targets, would constitute the core program. All others with - 187 - their own plans could proceed, knowing well in advance that if not included in the core program would receive only the remaining resources. With this package FISP and RPISPs should go back to their Executive Councils and upon approval proceed to the republican and provincial, and ultimately, the Federal Assembly for the ratification of the plan. At this point flexibility should be ensured to allow FISP and RPISPs the right to revise the plan targets, in consultation with OALs whose projects have low economic rate of return, without requiring the reinitiation of the planning process. National Versus Regional Plans for the Energy Sector The promotion of regional plans whose targets are, at times, at variance with the national objectives was identified as another shortcoming of the prevailing approach to social planning. For instance, in the power subsector although JUGEL was created to coordinate plans and ensure that demand is met at least cost, republics and provinces have developed their own systems based primarily on regional priorities. As a result, the power subsector and, in turn, the coal subsector, its principal supplier, have been responsible for some of the most uneconomic investments from the national point of view. Optimization of plans at the republican and provincial levels has prevented these subsectors from realizing the economies of scale, which could have been achieved by concentrating on the development of the economic hydro sites and the large reserves of lignite. Instead, the power subsector became more dependent on fuel oil, one of the most expensive fuels for power generation. Consequently, rather than shifting the economy away from imported oil, the country's dependence on imported oil increased. As noted, this pursuit of energy independence was responsible for the initiation of a large number of projects under the 1976-1980 and the 1981-1985 social plans. Instead of concentrating on a few projects required for the structural change, it spread the limited resources among a large number of projects dictated by regional interests. For example, the construction of the oil and gas fired power stations in Vojvodina and Croatia are a reflection of the pursuit of independence at the regional level at the expense of the national goals of reducing dependence on hydrocarbons. The development of hard coal mines in Croatia and brown coal mines in Bosnia-Herzegovina to operate power plants whose supply could have been met at lower cost by power plants fueled by lignite produced from open pit mines in Serbia and Kosovo are other examples of the uneconomic path followed in the development of the power and coal subsectors. Table 8.6 shows the average fuel cost/kW used by each republic and province for 1975 and 1982. It clearly demDnstrates that even at the subsidized prices that prevailed during 1975-1982 the cost of energy produced in Croatia and Vojvodina was 235% and 266% higher than the cost in Kosovo. In fact, the cost of fuel to the economy is substantially higher than is reflected in the table. If only the price of domestically produced natural gas is increased to its border price, the cost of fuel used in Croatia would be twice as high as the economic cost of lignite in Serbia and Kosovo. Similar arguments could be extended to Macedonia which uses oil derivatives to generate part of its electricity when it could have imported electricity from another - 188 Table 8.6 Cost of Fuel Used for Production of Electricity by Republics and Provinces, 1975, 1980, 1982 (para/k%) Re pub lic/ Prov ince 1975 1980 1982 Bosnia-Herzegovina 24.10 59.19 124.83 Croatia 3 0.72 117 .44 2 03.36 Macedonia 130 .82 128 .89 Montenegro 28.15 107.28 185.77 Slovenia 26.65 73.93 145.55 Serbia 19.94 56.98 95.87 Kosovo 17.56 46.52 86.34 Vojvodina - - 230.07 Source: JUGEL republic or province dependent on lignite or brcwn coal to supplement its own production. Slovenia provides another example of the pursuit of energy independence by the republics and provinces. This aspiration for energy independence has also been responsible for the development of either marginal coal and lignite mines or those with relatively high economic cost of supply (LRAIC). For example, the underground mine at Poljainer in Slovenia, was developed to provide primary energy for power generation at a substantially higher economic cost than Kolubura in Serbia, i.e., Dinars 51/toe compared with Dinars 30/toe. This resulted in higher cost of electricity production wihich was absorbed by the power subsector at the expense of its self-financing. As noted, to maintain the required level of self-financing a number of large economic projects were postponed. The argument here is not that Slovenia, Croatia or Macedonia or any other republic or province should not develop its power and coal subsectors. To the contrary, they should do so but only hien dictated by a least cost development plan for the country as a whole. This would imply that it would be possible for Croatia to develop its power capacities to meet peak demand by burning natural gas and rely on the flow of energy from the other republics and provinces for base load. It would also imply that the most economlic plants (units with the lowest cost) would be dispatched first on the basis of cost on a national rather than a regional basis. This would require the operation and development of the power subsector as a fully integrated system, where all OALs pool their resources, as called for under the constitution, to achieve their material well-being, and hence, that of the society. The operation of the power and coal suibsector as a unified market, would require an extensive trm smission network. The 380-W - 189 - system financed by the Bank has enhanced the capabilities for the increased exchange of power among republics and provinces and the operation of the generation and transmission facilities as a fully integrated power system. Despite the importance of the 380-kV network to improving the overall operation of the power facilities, the implementation of the first two phases has been delayed because of the emphasis of the republican and provincial power industries on developing their generation facilities. The Bank's involvement in these two phases has been primarily directed towards providing the means for improving the exchange of power. The Bank has also been insisting since 1974 on the development of a least cost national plan for the development of the power subsector. Delays in fully complying with this request have been experienced. However, it is now becoming increasing clear that a national plan is needed to ensure that the sector develops along a least cost path. A national plan would assist in identifying priorities on technical basis and facilitate the mobilization of resources for their implementation. It would also provide the means for improving the procedures for social planning. To demonstrate the impact of a least cost development program on investment, an optimization model was used to determine the least cost investment for Serbia taken in isolation from the entire system. The expansion program was defined over the period 1991-2005. It was based on an annual growth of 4.9Z in electricity consumption for the same period. Moreover, the economic cost of lignite, natural gas and fuel oil rather than domestic prices were used. The results summarized in Table 8.8 show that the majority of the new capacity, totalling 4,900 MW, would be lignite based. Only 700 MW (14%) would be in the form of gas turbines. Not a single pumped storage or hydro scheme was identified in the least cost program. This clearly demonstrates that future developnent of the power subsector in Serbia should be based on its vast reserves of lignite. The gas turbines appearing in the plan have specific implications, namely they are a proxy for power which could be imported from other republics and provinces during peak periods and for system security reasons. Details of results of optimization program for the power subsector are presented in Annex 8.5. If the optimization is carried out with Serbia as a part of an integrated system, which could not be done presently because of data constraints, two changes would occur. One, the gas turbines would disappear since Serbia could import energy during peak hour from Vojvodina or Croatia, both with domestic supply of natural gas and substantial installed capacity. The second would involve an upward shift in a nunber of the lignite plants which would then be used to meet the base load demand of other republics and provinces. - 190 - Table 8.8 Results of an Optimization Program for the Power Subsector of Serbia To tal Reserve Remaining Original Capacity Margin Year Peak Load Capacity Capacityddded (MWe) (%) 1991 6,057 6,719 0 6,719 10.9 1992 6,314 6,719 3 x GT 100 7,019 11.2 1993 6,583 6 ,663 1 x LIG 600 7 ,563 14.9 1993 6,863 6,663 0 7,563 10 .2 1995 7 ,154 6,551 1 x LIG 600 8 ,051 12.5 1996 7,375 6,551 1 x GT 100 8,151 10.5 1997 7,603 6,551 1 x LIG 600 8,751 15.1 1998 7,839 6 ,55 1 0 8,75 1 11.6 1999 8,081 6,551 2 x GT 100 8,951 10.8 2000 8,331 6,551 1 x LIG 600 9,551 14.6 2001 8,668 6,551 0 9,551 10.2 2002 9,011 6,551 1 x GT 100 9,951 10.4 2003 9,371 6,461 1 x LIG 600 10,461 11.6 .2004 9,746 6,461 1 x LIG 300 10 761 10 .4 2005 10,135 6,348 1 x LIG 600 11,248 11.0 Source-. Mission'a estimates. Like power, coal and lignite should also follow a least cost national plan for development. The economic cost of supply (LRAIC) from each mine should be estimated on the basis of a unified methodology and the mines raiked on the basis of the estimated cost. Their development would begin with the mine with the lowest LRAIC and continue up the schedule of economic cost until the supply required is reached. Again, this does not imply curtailing the autonomy or independence of OALs, but requires their cooperation in the pooling o:E financial and physical resources to ensure that the overall cost of supply is minimized. Once these resources are valued at their economic price, adequate to cover the LRAIC and provide the financial resources for the development of mines, these prices would serve as inputs in the formulation of a least cost development plan for power as well, mainly because 80% of the lignit, an5d 50% of the brown coal are consumed by the power subsector. - development plan will determine the location, size and type o e -- plant which, on technical basis, automatically identifies the mines to be developed. This approach would ensure an optimal and integrated development of the coal and power subsectors. As for coal used by other consumers, once economic prices are set, the ir demand would also be rational ized . - 191 - It is the rationalization of the refinery subsector which would pose the greatest challenge to the authorities. At present, the capacity utilization of the refineries is on the average about 50%. A national plan is needed to ascertain the demand for each petroleum product by quantity and location and optimize the existing facilities in order to produce these products at least cost to the Yugoslav economy. This would involve investments in storage facilities, transport and the restructuring of the product mix of each refinery. The Bank project for technical assistance would address the structure of the refineries and identify the potential for investments in technologically changing the processes and improving the energy efficiency of each refinery. Identification of Priorities As the Law of Planning stands, the Yugoslav system lacks a mechanism whereby priority projects are identified and resources mobilized for their implementation. Identification of priority projects implies a centralized decision-making body which is contrary to social planning in Yugoslavia. However, once clearly defined and consistent targets are set, the formulation of a national plan based on technical criteria would provide the framework within waich the harmnnization process can take place. If Yugoslavia is to succeed in structurally adjusting the economy, the energy sector as well as other sectors should follow a least eost path. The projects identified to meet the targets are not unique in that several combinations could meet the least cost criteria, particularly in the power subsector whi ch generally accounts f or over 50% of the investment in energy. For example, the least cost development plan could call for the construction of 1,200 MW of coal-fired capacity. This could be implemented by installing four blocks of 300 MW each in Kosovo, or possibly two in Serbia and two in Kosovo, or alternatively one in Kosovo, two in Serbia and divide the remaining block between two republics, Slovenia and Macedonia to balance the technical operation of the grid. Therefore, the identification of priorities, in the technical sense, does not imply central control, but instead identifies clear means for achieving the plan targets and provides the framework for the harmonization process. The priority projects should always be those which, together, would meet the demand at acceptable technical levels and at the mininum possible cost. If this exercise is to be meaningful, the prices of inputs including the cost of capital should also be set at levels that reflect the economic cost of supply. If domestic costs are used without adjustments they would lead to suboptimal analysis. The identification of priorities for the power subsector is a fairly straight forward process. It requires optimization on a national rather than regional level based on a unified methodology and a uniform set of economic prices. A nunber of optimization packages are available which could be used to optimize the system in Yugoslavia. As far as the development of coal subsector is concerned it is the LRAIC 1/ which 1/ As a proxy for the LRMC. - 192 - identifies the priorities. Again, uniform economic prices would have to be used and a clearly set procedure for estimating; these costs would have to be agreed on. With respect to the oil and gas subsector, particularly the refining subsector, reliance on the economic rate of, return is essential. This is because each refinery could be adapted, within technical limits, to produce a range of products with differing border prices, provided there is an adequate infrastructure for storage and transport. The criterion here should be to rationalize and invest in the restructuring of the refinery sector in a manner that would minimize cost. This would be the case only if we have a set of predetermined products for which there is a demand. Alternatively, if one is seeking to rationalize the structure of the refineries by producing a mix of products that would best benefit the economy, then it is the rate of return criterion that should be used for the optimal configuration. The configuration with the highest rate of return, provided that it is higher than the opportunity of capital, should be selected. The least cost estimates and the rates of return should be based on shadow prices. In the case of the oil and gas subsector, the options for development are limited. Given the dependence on imported hydrocarbons, proven reserves whose development would provide the supply at a lower cost than imports should be given priority. Consequently, selectiona of priority would not be an issue here unless there are financial constraints in which case the reservoirs with the lowest LRAIC should be given priority. Financial Discipline The creation of the communities of interest was intended to overcome the difficulties that could arise from total dependence on market forces and set prices equitable to both consumers and producers. The communities of interest are in fact a forum for ensuring that the demand of all member consumers is met and that the cost to the producers of meeting that demand is covered. The Yugoslav law states that OALs shall not be denied access to inputs needed for their economic activities. Theoretically, deliveries of goods and services by the producers to the consumers in a community of interest are ensured under SMAs. In return, consumers contribute to the producers' total investment needed to expand the output to meet their demand. The contribution of consumers to the investments of the suppliers through credits, non-reimbursable funds and interest free loans is one of the main sources for financing the five-year development plans. This unique arrangement constitutes a prepayment for goods to be delivered some time in the future. It is a form of advanced contracting which ties consumers and producers not only with respect to the delivery of goods but also into financial arrangements. Consequently, failure in implementation of plans or delays in completion of projects results in a net loss to the economy. It depleteEs the financial resources of the consuming OALs and restricts their freedom in seeking alternate suppliers, once the funds have been disbursed for projects that are delayed. Since consumers had contributed to the investments of the suppliers of equipment and allocated their foreigrL exchange to other uses, the purchase of foreign replacement was virtually impossible and consequently, delays in the implementation of plans are experienced. - 193 - Similarly, delays by the consumers in completing their projects reduces their purchases below the level called for under SMAs, which diminishes the revenues of suppliers and hinders their orderly development. For example, delays in the completion of the major lignite power plants reduced the purchases of lignite from suppliers uho successfully completed their development program. Similar difficulties were experienced in the refinery subsector (Montenegro) where, because of the increase in the price of oil and slippages in the investment plans of consumers, a new refinery had to be delayed, although mothballing that refinery would have been a better course to follow given the excess refining capacity. The contribution of the consumers to the financing of investments by the suppliers are sanctioned by Yugoslav law which states that economic entities are not required to use their own resources to contribute to the output of other economic entities. Hence, producers are reluctant to use their own resources to ensure that the products are produced and delivered. They regard the expansion of their own productive capacities as a contribution to the well-being of the consuming economic entities and require payment for investing in expanding their capacities. Therefore, considering the adverse impact that SMAs and customer contribution are having on the achievement of targets set out in the five-year plans and the financial positions of OALs in CIs, it is imperative that CIs submit to the Chambers of Economy complete financing packages for major projects in prioritysectors prior to the disbursementof funds. Financial planning in Yugoslavia is based on constant prices expressed in terms of the base year of a five-year plan. For the disbursement of investments an official inflation rate is published by the authorities,which for the past decade has been out of step with domestic as well as the international inflation rate. The official rate of inflation is ratified by FEC and is one of the components of the compacts concluded in the first step of the planning process and represents one of the macro-economic targets to be considered. Consequently, all SIAs involved in the second step of planning forecast their deliveries on the basis of the official inflation rate. Once real inflation exceeds the rate set in the compacts, the producers request the negotiation of prices agreed to earlier. Their success, however, is usually minimal because of the criteria on pricing discussed earlier. As a result, producers tend to fall behind in securing the level of self-financingneeded to implement their plans. The fixed rate of inflation, which differs significantly from market determined inflation rate, tends to trigger uncertainties in the financial planning of OALs. Cost overruns in the power subsector, attributable only to delivery prices, for the past six years have been twice the renegotiated prices. Given this disparity and its effects on financial planning, the authorities should consider the setting of target inflation on the basis of a revolving plan to allow FISP to re-estimate inflation. By maintaining it within the first step of planning it introduces rigidities which ultimately lead to severe distortions in financial planning of OALs. Therefore, in order to minimize the uncertainties involved in financial planning and the conclusion of SMAs, the authorities should allow for a clause that would adjust prices in these agreements for the differences between forecast and actual - 194 - inflation. Moreover, the authorities should seek to project rates of inflation which are more realistic to assist OALs in improving the accuracy of their financial planning. Foreign Exchange Allocation In 1978, the federal and republican and provincial communities for foreign economic relations were created to balance the demand for and the supply of foreign exchange. However, because of the severe shortage of foreign exchange, stemming from the softening of the demand for Yugoslavia's export, these communities were superseded by a complex system of rationing. Two main forms of rationing were in place, in varying degrees, until 1982: simple quantitative restriction on foreign exchange and imports; and premium rationing which was applied differently depending on consumers. Earners of foreign exchange were allowed to negotiate SMAs for the supply of foreign exchange at equitable prices to suppliers and consumers. A unique feature of premium rationing was that it allowed OALs with shortage or no access to foreign exchange to obtain the required quantities at an effective price higher than the official exchange rate. Consequently, subsectors such as coal, power and oil and gas, which were not export oriented, could purchase the needed foreign exchange through this market. However, following the adoption of the stabilization measures, a new system of foreign exchange allocation was introduced. Under this system, export earners were given preferential access to foreign exchange with some provisions made for the priority sectors, including energy. The provisions, however, have fallen short of providing the needed foreign exchange for the import of essential equipment and material, particularly spare parts. In 1982, the oil and gas subsector received Dinars 17 billion, all of which was absorbed by the country's imports of oil. Consequently, production of gas declined because spare parts could not be imported. The shortage of foreign exchange for spare parts amounted to US$35 million for INA and US$12 million for Naftagas. The already discovered fields such as Privlaka, Deletovci, and Ilaca, involving 30 wells of depths less than a 1,000 m, located near transport facilities, could not be brought on stream because of a shortage of US410 million. In the last quarter of 1982, to simply keep production at the 1981 level about US$30 million was needed, of which only half was obtained. In 1983, despite the dependence on imported oil, INA in violation of the law exported some of its domestic production to generate the foreign exchange needed to service its debt on commercial loans. The coal and power subsectors also suffered similar difficulties, although less severe because a large proportion of the existing equipment is from Eastern European countries which allow Yugoslavia to pay for imports in manufactured goods. However, the shortage of foreign exchange has started to have a negative impact on these two subsectors by forcing the industrial sector to manufacture large scale equipment e.g. large bucket-Ibeels under foreign licensing, where Yugoslavia does not have a comparative advantage. In some cases, the coal and power subsectors have been forced to buy locally manufactured and Eastern European equipment which is technically incompatible with currently operating equipment. The prevailing system of foreign exchange allocation, biased solely on whether - 195 - the beneficiary is an exporter or a priority sector, would impede the development of the energy sector along the least cost path. The authorities should devise a mechanism that would enable a critical sector like energy to have all the foreign exchange it needs for the exploration, development and production of the domestic energy resources. However, such mechanism should be viewed as an interim measure to be used only during the period required for restructuring the economy. Ultimately, plans should be made to liberalize the system and provide OALs the opportunity to freely purchase their foreign exchange requirement at prices determined by the forces of supply and demand. This liberalization would be consistent with the policies being pursued by the authorities in moving the economy toward a rational economic approach to pricing. Distortion in the Relative Prices Consumption and investment decisions are primarily determined by relative prices. Distortions in relative prices result in suboptimal decisions on the mix of goods consumed and on the allocation of resources used to supply the goods. The policies for pricing energy and for setting the level of interest rates have been responsible for the uneconomic investment decisions in the energy sector. Nominal interest rates have been kept low to promote developmnent; however, with the sustained increase in the general price level, the real interest rates on credits and loans have been negative at least since 1976. The interest rate of both the publicly guaranteed and private non-guaranteed loans are summarized in Table 8.9 below. The table also includes the average increase in the retail prices. In view of the relationship between the price levels and interest rates, it was rational for OALs to borrow at what in essence was a negative interest rate. The authorities have agreed under SAL I to move the lending rate to a positive level over a period of two years. This will be discussed in detail in Chapter IX. Table 8.9 Average Interest Rates on Credits and Loans and the Rate of Increase in the Retail Prices between 1975 and 1982 1976 1977 1978 1979 1980 1981 1982 Weight average interest rate 7.3 7.6 9.3 11.0 15.2 18.0 18 Annual average increase in retail prices 10 13 14 22.0 30.0 47.0 45 Source. Berry, S. et. al., Yugoslavia. Adjustment Policies and Developnent Perspectives, World Bank Report No. 3954-YU. - 196 - As for energy pricing, the differences between domestically produced natural gas and that of hard and brown coal and lignite, have been maintained at a minimum since 1977. As shown in Table 8.10, domestic gas was priced at US$42/toe in 1977, which is US3110/toe lower than that of hard coal and less than US$10/toe above the price of brown coal and lignite. Table 8.10 Relative Prices of Fuels for Power Generation 1977- 1983 ------US$/itoe ------1977 1978 1979 198C0 1981 1982 1983 Domestic natural gas 52 51 55 49 66 63 50 Imported natural gas 77 74 139 198 195 189 170 Fuel oil 93 93 141 192 242 177 149 Hard coal 62 76 1D1 80 74 75 58 Brown coal 45 57 67 77 82 67 50 Lignite 46 55 64 66 67 59 42 Source; JUCEL In 1983 the price of domestic natural gas was USJ8/toe above that of hard coal, and at parity with the price of brown coal and about US$8/toe higher than price of lignite. The differential between the price of domestic and imported gas, and the practice of averaging their price has led to the uneconomic use of gas. The inability of the policy makers to increase reliance on solid fuels can be explained largely by the distortion in the relative prices of fuels used by industry and the power subsector. In the Yugoslav system, where workers produce to maximize their income, th e decision to increase the consumption of natural gas rather than switch to hard and brown coal is a rational economic decision, reflecting the behavior of an economic entity responding to relative prices. In view of the prevailing differential in prices, OALs consuming fuel oil would have gradually shifted away from this product to natural gas, particularly domestic gas. The price of fuel oil has on the average ranged between twice and three times the price of domestically produced natural gas. OALs who had access to both domestic and imported natural gas had no incentive to switch to hard or brown coal. For example, the cement and steel industries which are amenable to the consumption of coal have instead shifted to natural gas, i.e. Zenuo, Jesenice, Ravne and Sisak. Given the potential for the substitution of solid fuels for hydrocarbons, the shift would have been achieved had the relative prices of competing fuels been set at their economic cost of supply. In other words, if the price of domestic gas was at parity with imported gas and that of hard and brown coal and lignite at parity with their economic cost of supply, the differential between the price of gas and hard coal and gas and lignite - 197 would have been US$70/toe and US$90/toe, respectively, enough to render the switch economic. The power subsector in Croatia clearly illustrates the impact of distortions in relative prices on the investments in that s ubsector. OALs responsible for power generation in Croatia, with its supply of natural gas and hard coal, made a rational economic decision in 1977-1978 by commissioning their awn power plants, instead of purchasing electricity from the neighboring republics and provinces, who generate electricity by burning lignite. Therefore, in order to ensure that economic investments are made voluntarily, relative domestic prices should be adjusted to reflect the cost of these resources to the economy. Costs of Uneconomic Decisions Following the adoption of the system of workers' self management the elements of solidarity funds were initiated. Solidarity funds are used to compensate workers ihose income has been adversely affected by circumstances outside their control. This includes failure to secuwe financing, inability to implement projects because of delays in delivery of critical equipment and material, unexpected increases in the prices of inputs, etc. These are usually more a reflection of uneconomic investment decisions than of decisions made by resource owners that attempt to take all factors into consideration in order to minimize risk. Similarly, workers whose income increases because of unexpected events are also denied the use of these windfalls. To demonstrate the effects of these rules on the operation of the energy sector, consider an OAL responsible for the operation of an existing oil-fired power plant which decides to expand its capacity contrary to the objectives of the energy plan. According to the guidelines of the communities of interest, SMAs set the contribution by consumers and the amount of electricity to be delivered by the enterprise. Concurrently, assume another OAL, responsible for the operation of a hydropower station made a decision to expand its capacity in compliance with the authorities' overall policies and that SMA settled the quantities to be delivered and the contribution of consumers to the cost of the expansion. If the hydrological conditions are favorable the power generated by OAL with the hydro station would exceed the agreed level, while the enterprise with thermal power station would deliver less than the amount called for in SMA. According to the law, the enterprise that complied with the policies of the authorities is denied the use of extra funds and OALs that took a decision contrary to the established policies are compensated for their losses. This illustrates clearly that OALs that make uneconomic decisions are not made to bear the consequences of such decisions. If the system allowed for material rewards and punishment for investment and pricing decisions, OAL with the thermal power station would have refrained from the expansion of its capacity to minimize its risk of loss in income and pooled its resources with those of OALs with the hydropower station, thus improving the chances for higher income and concurrently complying with the targets of the authorities to decrease the use of petroleum products in power generation. Under th e decentralized system prevailing in Yugoslavia, efficiency in investment would be achieved by satisfying two conditions. First, as discussed above, all inputs should be priced at their cost to the economy. Second, - 198 - decision-makers should incur the cost or reap the benefits of their economic decision. Therefore, in order for authorities to rationalize investment, rules governing the disbursement of solidarity fund should be streamlined to ensure that beneficiaries undergo changes in structure involving management, pricing, investment, etc., that would enable them to become viable both economically and financially. "Revised" 1/1981-1985 Investment Plan for Energy In recognition of the difficulties in implementing the social plan since 1976, a stabilization committee was formed to address the structural problems confronting Yugoslavia and reorient the economy toward a set of consistent and achievable goals. Investment plans, priorities, pricing, exports, etc., were all to be examined. In July 1983, the Assembly approved a measure totally abandoning the need to go through the official procedure to ratify a "revised" plan. Instead, the economy was to be managed on the basis of a yearly plan until 1985. The "revised" plan focuses on reducing investments, particularly in the non-social sectors. The total investment in the energy sector is now projected to reach Dinars 285 billion, representing a 15% reduction relative to the Dinars 335 billion planned for the same period under the plan. Most of the reduction was in the. power subsector, from Dinars 200 billion to Dinars 160 billion. The reduction in both the coal subsector and the petroleum subsector were Dinars 5 billion each. These are shown in Table 8.11 below. Table 8.11 Reductions in Investment in the Ener Sectorgy (In Billion of Dinars) Original Plan "Revised" Plan Reduction P ower 200 160 20 C oal 70 65 7 Oil and Gas 65 60 7 Total 335 285 15 Source: Federal Institute for Social Planning 1/ The word "revised" is used in this report merely for ease of reference. The new targets for the 1981-1985 period are referred to as observations on the plan for Yugoslavia. 199 - In keeping with &he d9 jectives of the "revised" plan for 1981-1985, OALs also reduced their investment targets. However, their total investments are still substantially higher than the investment targets of the "revised" plan. The total investment is about Dinars 385 billion, which is about 15% hi&ner than Dinars 335 billion projected under the plan but 10% lower than Dinars 425 billion projected by OALs under their plan. As shown in Table 8.12, the largest reduction was in the coal subsector (12%), followed by power and the petroleum subsectors, 9% and 7%, respectively. Details of the projects in power and coal subsectors and sources of financing are presented in Annexes 8 .6 and 8.7, respectively. It is to be noted that the distribution of the sources of financing has not changed significantly from those associated with the original forecasts. These inconsistencies once again demonstrate the shortcomings of the system of social planning. Table 8.12 original and "Revised" Investment Targets Set by OALs and the FISP for 1981-1985 "Revised" Plan OALs X FISP Original Revised Reduction P ower 160 270 245 9 Coal 65 80 70 12 Oil and Gas 60 75 70 7 285 425 385 9 Source: Federal Institute for Social Planning. During the appraisal of SAL I, the Bank and the Yugoslav authorities agreed that in an effort to bring investments under control, the energy sector would be used as a test case for the rationalization of the investment program. For that purpose a core program of investments, which is critical to the achievement of the "revised" plan targets, would be identified. The authorities would then use this core program to ensure that credit is available and that in the foreign exchange allocation preference would be given to the projects included in the core program. A review of these projects would be undertaken during the supervision of SAL I and the a list of projects, as well as disbursements, foreign cost requirements, etc., would be added to this report before forwarding it to the Yugoslav authorities. The core program would then be used to monitor the success of the policies agreed under SAL I in restructuring the sector. - 200 - CHAPTERIX STRATEGYFOR RESTRUCTURINGTHE ENERGYSECTOR In March 1983, the Federal Assembly adopted the economic program prepared by the stabilization commission for restructuring the Yugoslav economy. Since energy was one of the sectors that was considered critical for the structural adjustment, the stabilization commission formulated a long-term strategy for its development. 1/ It outlines in general terms the priorities and objectives to be considered in the formulation of the future 5-year social plans. The strategy elaborated the objectives set out in the medium-term program for 1976-1985 and to a large extent supersedes them. The main thrust of the strategy is to rationalize the developmentand consumptionof energy through efficiency pricing, economic investment and effective financial planning. It is based, among other things, on the detailed framework outlined in "The Program of the Long-Term Measures for the Rationalization, Conservation and Substitution of of Energy" (MRSCE) adopted in 1980. MRSCE attempts to set out the Objectives to be achieve~din all areas relating to energy and the measures to be taken by OALS and the authorities to achieve them. However, in the view of the mission, the MRSCE is over-ambitiousand lacks a specific plan of action for achieving the targets outlined. This chapter discusses the measures, identifies some of their shortcomings, and provides recommendations that would promote the optimal development of the energy sector. These recommendations, it is to be noted, are designed to supplement and also to provide a more realistic approach to the program adopted by the authorities. Program of Long-Term Measures for the Rationalization Conservationand Substitutionof Energy Primary Energy The measures relating to primary energy focus on the efficient exploitation of the known reserves, new reserves, and the assessment of the potential for the developmentof new sources of supply. Specifically, the measures are to. (a) accelerate the development of new pit mines and, if necessary, open presently closed mines to increase the domestic output of coal and lignite; (b) introduce enhanced recovery techniques for increasing the output from existing fields; 1/ Strategy for the Long-Term Development of Energy in Yugoslavia. - 201 - (c) assess the remaining hydropower potential and accelerate its developmentt; (d) accelerate the development of oil shale; (e) assess the potential for using wood shavings as a substitute for liquid fuels; and (f) prohibit the constructionof public housing and other structures on sites containing deposits of energy and hydro potential. Secondary Energy The measures for the rationalization, substitution and conservation of secondary energy concentrate on the benefaction of coal, displacement of fuel oil by coal in the generation of heat and electricity and on the joint production of steam and electricity. The measures proposed are to,. (a) increase the production of coal gas and drying of coal for consumption by the household and industrial sectors, and develop the technology for the production of semi-coke briquettes from domestic coal; (b) accelerate the construction of facilities for secondary refining to change the structure of petroleum products produced; (c) increase the number of coal based plants constructed near large consumer centers for the combined production of steam and electricity; (d) examine the potential for the economic use of waste heat; (e) assess the feasibility of constructing large scale facilities fueled by coal, waste heat, or other waste products for the combined production of electricity and steam;- (f) prepare a program for rehabilitatingand convertingboiler-houses from oil to coal in smaller cities and urban subdivisions; (g) establish a criteria for channelling natural gas to locations ,where it is suitable for direct use in households, to displace the more costly forms of secondary energy, namely electricity; (h) ensure that power stations, heating plants and other installations consuming large quantities of fuel oil, located up to 50 km from coal mines with calorific value of coal up to 3,000 kcal/kg, or up to 100 km from coal mines with calorific value of coal above 3,000 kcal/kg, immediately convert to coal; and - 202 - (i) collect waste motor and other oils in the industrial and transport sectors for recycling. Energy Storage, Transport and Distribution Measures affecting the transport of energy were designed to reduce losses in transmission and distribution of electric energy and in the transport of oil. The proposed measures also address the problems stemming from insufficient concentration of production and consumption at either entry or exit side of pipelines, unbalanced exploitation of oil and gas, lack of coordination between the development of transmission and distribution networks, bottlenecks in transmission and transformation, and the inadequate use of railways and inland waterways. The measures designed to address these problems are to,. (a) promote the optimal use of the Yugosliv oil pipeline, and expand the domestic fleet of tankers and ships for the transport of oil; (b) increase the rate of utilization of vehicles which were previously used in the transport of oil-; (c) promote the use of railways and inland waterways for the transport of oil, and particularly coal of up to 30 million tons per year; (d) develop a system for the centralized supply of thermal energy in cities to reduce energy consumption and transport costs to final consumer; (e) develop facilities for the production, transport, transmission and distribution of energy to eliminate bottlenecks and losses of energy in transmission and distribution during the reconstruction of power installations; (f) undertake a load management study for electric power and natural gas to update their tariffs, and (g) reduce losses in the distribution network; Energy Consumption The objective of these measures is to improve the efficiency of energy utilization and to change the pattern of energy consumption in the industrial, transport and household sectors and to increase dependence on domestic energy sources. The measures are to. (a) Industry (i) install measuring and regulating devices, including micro-processors by industry and other large consumers, to monitor energy consumption; - 203 - (ii) provide incentives for the production of fuel efficient vehicles; (iii) introduce regulations to stimulate the use of smaller and more fuel efficient passenger mutor vehicles; (iv) assess the energy conservation potential of electricity and gas based household appliances; 1/ (v) prepare regulations and technical guidelines that will oblige investors to comply with specific parameters regarding energy losses in processing and consumption when designing and constructing new facilities, especially those consuming large quantities of energy; (vi) accelerate the insulation of housing, business and industrial premises; (vii) promote the use of furnaces in industries such as cement industry, construction material industry, manufacture of non-metals, non-ferrous industry, etc. that can, with small alterations, operate by burning coal; (viii) monitor specific energy consumption per unit of production across plants producing the same output to enhance the timely discovery of inefficient use of energy, especially by large consumers such as ironworks, producers of aluminum, ferro-alloys, chemical industry, cement works, etc.; (ix) undertake measures for the conservation, rationalization and substitution of petrochemical raw materials and petroleum based products; (x) promote the development of innovative approaches for conservation, rationalization and substitution of energy among consumers; and (xi) utilize the mass media to promote the use of insulation and appliances that bear the trademark of good quality or have the reputation of being energy efficient; (b) Transport (i) modernize railways and waterways to promote their use for the transportof freight over medium and long distances; 1/ The procedures were set forth in the "Medium-term program for preparing regulations regarding obligatory testing". - 204 (ii) upgrade the public transit systems in cities to increase their carrying capacities, and to change the composition of the vehicles in use in favor of electricity operated vehicles, (iii) increase the flow-through capacity of city streets by giving priority to public transit vehicles, bicycle lanes, extending pedestrian zones and to other measures in the area of transport and urban planning in order to reduce the consumption of fuel; (iv) accelerate the development of modern highways in areas where the volume of traffic justifies it; (v) implement a program for unifying and standardizing transport vehicles, and for changing the structure of vehicles, particularly of lorries, in favor of more fuel efficient vehicles; (vi) introduce integrated transport systeTE designed to enhance energy conservation both directly and indirectly. (c) Construction of Houses and Public Utilities (i) establish energy consumption guidelines to be observed in designing and constructing homes and other residential premises, and in the production of construction and insulationmaterials; and (ii) accelerate the use of insulation by business and residential premises to reduce the consumption of heat; (d) Price Policy for Liquid Fuels (i) formulate a pricing policy for liquid fuels to ensure that the price of petroleum derivatives serve as a permanent disincentive for manufacturing low value added petroleum products by the refineries, and set their retail price at levels that would discourage the purchase of such products; and (ii) use part of the tax revenues to finance the construction and maintenance of major highways, expansion of city transit systems, acceleration of the conversion of power facilities from oil to coal, and development of new pit and open cast mines and modernize the existing ones; (e) Miscellaneous (i) Set norms and standards of energy consumption, and examine the need for establishing special energy services, whose task would be to prepare and the implementation of energy balances, and monitor the production process for conserving energy and improving energy efficiency; and - 205 - (ii) use the appropriate media on a permanent basis to keep the public informed of the need for, and the possibilities and financial effects of, rational use of energy in industry and households. MRCSE is fairly comprehensive and reflects the extensive work undertaken by FCEI and RPCEI in mapping the strategy for the development of the sector. It covers virtually all aspects of energy, from development of primary energy to final consumption. Although the scope of the program and its objectives are technically sound and commendable, the mission believes that a more concrete project specific plan of action was needed to avoid some of the problems experienced in the implementation of the 1976-1980 and 1981-1985 social plans. In its present form, the program is fairly general and only provides an indicationof the direction to be taken and hence suffers from essentially the same weaknesses as those associated with the 1976-1980 and 1981-1985 social plans, namely, over-ambitious targets, absence of priorities, lack of financial discipline, etc. As noted, these factors resulted not only in the initiation of projects dictated by regional rather than national concerns, but also in the initiation of a larger nunber of projects than the economy was able to either finance or implement. These shortcomings of MRSCE together with the other constraints to the optimal development of the energy sector identified in the previous chapters and the recommendations to address them are discussed below under the following sub-headings. priorities in the development of primary energy, energy pricing, financial discipline, priorities in the development of secondary energy, planning and macro-economicmanagement and institutionalsetting. Priorities in the Developmentof Primary Energy Resources In terms of domestic energy resources, high priority should be given to the development of those resources where Yugoslavia has a comparative advantage in terms of availability of reserves or potential, and expertise in a proven technology. This would involve a sustained effort in developing the proven reserves of coal and lignite, harnessing the hydropower potential and the continued exploration for oil and gas. The developmentof oil shale reserves should be reconsidered in view of the unproven technology for its development. The accelerated development of uranium should also be reconsidered until the supply is in fact needed. Some application of solar energy and biomass should be given priority; however, in view of the fact that their potential contribution to the future supply of energy ia limited, the postponement of their exploitation, in case the shortage of financial resources persists, is not likely to have a significant impact on the structural adjustment currently underway. Hard Coal-. Domestic production of hard coal is not expected to be significantly higher than the level achieved in 1982 largely due to geological constraints and the relatively small size of the proven reserves. Consequently, the relative contribution of domestic hard coal to the future supply of energy is expected to decline as the domestic - 206 - production of other resources, such as lignite, brown coal and hydropower, increases. In last six years, output of hard coal declined primarily due to the reduction in the rate of capacity utilization of existing mines precipitated by the shortage of financial resources needed to maintain the output at its optimal level. The shortage of financial resources has also increased the danger associated with mining and resulted in a drastic reduction in the number of skilled underground miners. Despite the recent measures introduced to retain and attract underground miners by improving their compensation packages, the poor structural state of the mines continues to be a major deterrent. Unless financial resources are made available to upgrade and expand existing mines and to undertake a comprehensive exploration program, Yugoslavia's domestic output of hard coal would continue to decline. Therefore, resources should be channelled for the rehabilitation of the Rasa mines in Croatia, and the Ibrskia mine in Serbia in order to increase their rate of capacity utilization. Presently, over 70% of the domestic production is used for power generation, and the rest is used either for steam generation or is mixed with imported coal for coking. The use of hard coal for power generation is uneconomic given the relative abundance of lignite which is a relatively cheaper source of primary energy for power generation and the potential for substituting hard coal for higher value products. Hard coal could substitute for electricity and heating oil currently being used by the household sector for space heating. It is estimated that the economic cost of briquettes would amount to USJ120/toe which could displace electricity at US$600/toe and heating oil at US$267/toe. Since the consumption of energy for household heating is divided equally between electricity and heating oil, the average economic cost of energy used for that purpose is about US$433/ toe. 1/ The saving that would accrue to the economy from substituting hard coal briquettes for energy used by the household for space heating is about US3313/toe. The production of Rasa and Ibrski used for power generation amounts to 250 ,000 tons which is equal to 140,000 toe 2/ per year. Therefore, the substitution of coal briquettes for some of the energy used for space heating would yield a saving to the economy of about US$44 million/year. Moreover, the use of lignite to generate the electricity that would otherwise be produced by burning hard coal would generate a net saving to the economy of about US$14 million per year. The total annual savings to the economy of substituting coal briquettes for household space heating and of substituting lignite for hard coal in power generation would amount to about US458 million. In view of the potentia:L savings to the economy associated with the briquetting of hard coal currently being used for the generation of electricity which could substitute for higher value energy 1/ Based on 11,860 kWi/toe and taking 452 para/kl%b as the economic cost of supply at the household level, and a border price for heating oil of about US$267. 2/ Assuming an average calorific value of about 5 ,200 kcal/kg. - 207 - products such as electricity and heating oil, the authorities should give high priority to undertaking a feasibility study for this purpose and implement the program at the latest by the beginning of the 1986-1990 social plan. Brown Coal: Brown coal accounts for about 6% of the proven reserves of solid fuels. About 70% of the proven reserves are located in structures which require underground mining. The geological condition of these reserves are such that output cannot be expanded significantly. The other 30% are produced from open pit mines whose output is expected to increase because of new discoveries and increased mechanization. The output of open pit mines account for about 50% of the domestic output of brown coal. Recently, new reserves have been discovered which would allow for the expansion of several major producing mines in Bosnia-Herzegovina. However, since 1976 the output of these mines has decreased steadily also because of shortage of financial resources which delayed the commissioning of a number of mine extensions. The potential for increasing the output of open pit brown coal mines is good and with access to both domestic resources and foreign exchange, output could be increased. The remaining 50% of the brown coal is produced in underground mines, which like hard coal mines, have structurally deteriorated because of the shortage of imported equipment and material and as a result the output of these mines has declined. According to the energy strategy, production of brown coal is expected to double over the next 15 years, with output from new mines increasing at an average annual rate of about 4.7%. However, despite the projected increase in the output of brown coal, its share in the future supply is expected to decline because of the size of the reserves compared to the size of lignite reserves whose development is currently being accelerated. Unless financial resources are made available to upgrade and expand existing mines and to undertake a comprehensive exploration program, Yugoslavia's domestic output of brown coal would decline. Therefore, in view of the potential for increasing its output it is recommended that resources should be made available for the rehabilitation and expansion of brown coal mines. Currently, about 40% of the annual production of brown coal is used for power generation. This percentage is expected to increase with the commissioning of Kakanj power plant (230 MW) in 1986 and the completion of a new plant at Tuzla (1 x 600 NW) whose construction is currently under consideration. Although the calorific value of brown coal is lower than that of hard coal, its use for power generation is also uneconomic in view of the fact that it could substitute for higher value energy products and that the available reserves of lignite are large enough to accommodate virtually all of the new plants projected to operate on solid fuels. Brown coal could substitute for electricity and heating oil in the household sector and for fuel oil and natural gas in the industrial sector, particularly in the production of cement, steel and building materials. Briquetting the brown coal mainly for industrial use would be justified, particularly for the output of the underground mines which have a higher calorific value. It is estimated that about 10% of the total supply of brown coal in 1982 of 3.3 million toe could have been 208 - briquetted for household use. The cost of briquettes is estimated to be at most US$120/toe. Since these briquettes would. substitute for energy used for household space heating which costs about, US$433/toe, 1/ the net saving to the economy would amount to about US$142 million. Moreover, it would imply a reduction in the consumption of the pcwer subsector of brown coal of about 24%, from 1.3 million toe to I million toe. The reduction in the use of brown coal by the power subsector to operate a power plant of 160 MW could be compensated for by increasing the consumption of lignite by about 1.6 million tons. This could be easily achieved in Tuzla where both lignite and brown coal mines are located side by side. Moreover, and more importantly, the 600 MWpower plant planned for Tuzla whose consumption of brown coal is expected to ameunt 3.8 million tons could be placed in Serbia for the exclusive use of Bosnia-Herzegovina to leave the 3.8 million for briquetting and for the supply of industrial consumers. In view of the potential for using brown coal as a substitute for higher value energy products and the relatively large size of the lignite reserves, whose use for prwer gene'cati m iis economic, the authorities should review their policy regarding the u.seof brown coal for power generation. Lignite. Lignite accounts for 92% of Yugoslavia's reserves of solid fuels. Most of it can be produced in open pit mines, some of which are large enough to allow for economies of scale because of the low stripping ratio and the size of the reserves. The two largest and most economic sites are located in Serbia and Kosovo. Production from these is expected to account for 80% of the total output of lignite. Delays in their development were precipitated by underpricing. In the past some of the investments in the coal subsector were uneccRowic mainly because of the practice of regional energy independence, which continues to be contrary to the declared policy, and distortions in the prices of inputs and outputs. Future development of solid fuels should be based on a national least cost investment program formulated by using prices which reflect the opportunity cost of the resources to the economy. Moreover, a methodology should be developed, under the aegis of OUIRU, FCP and RPCPs, for use by OALs and the planning agencies for assessing the LRMC of these resources. Once the methodology has been adopted it would serve as a basis for identifying national priorities. All development should start with mines with the lowest LRMC and move up the T,J,^ schedule until the demand is met. The function of the authorities w,ul d be to ensure that priority is given to projects dictated by least cco in the allocation of foreign exchange, credit, etc. Therefore all, L,-astments for future development of solid fuels should be dictated cy a national least cost program and as a general rule, their economic tisne sh'ould be governed by the substitutability for higher value product?. ec authorities have prepared a methodology jointly -it h Banlk fsr c-etermining LRMC of 1/ Based on the economic cost of supoly for ecr city of 477 para/kUi and a border price for hacting lie:f To- §T:?^ tae ich w ould give a net saving of about USS348/toes - 209 - Table 9.1 Long-run Marginal Cost of Five Lignite Mines Annual Output LRAIC Mine kc al/kg '000 tons toe US$/ toe Sibovac A1 1,800 18,000 3,176 26.14 Tamnava A2 1,800 12,000 2,117 28.96 Druno A3 1,760 6,500 1,121 30.42 PljevIja A4 2,700 500 132 31.69 Girikovac A5 1,650 700 113 65.89 supply. According to the preliminary results of that study, summarized in Table 9.1 above, LR4C of open pit lignite mines ranges between US$26.14/ toe for A1 to US465 .89/ toe for A5 (Annex 7.5). If the results are used to demDnstrate how the economic cost of supply could be used to outline priorities or least cost development plan, then A1 should be developed first, A2 next, and so on. The ranking further shows that A5 should not be developed unless the demand exists and the output of 700 thousand tons could not be met from a mine with a lower L1H4C, e.g. A1, A2 , A3 , etc. A1 is the new Sibovac mine to be developed in Kosovo under financing from the Bank which has the lowest LR4C. A2 designates the extension of the mine in Kolubara, Serbia, with the second lowest LRMC, and the third lowest LRMC is that of Kostolac, also in Serbia. These together would produce about 36 million tons, representing about 49% of the mission's forecast demand in 1990 of about 73 million tons in 1990. Based on the estimated economic cost of supply for each of the mines, priority in order of importance for achiving national output targets for lignite at least cost to the economy should be giv en to the expansion and development of-. (a) the Sibovac mine located in the northern part of the Kosovo basin to achieve the following production targets - 3 million tons/year by 1989, 6 million tons/year by 1990 and 9 million tons/year by 1995; (b) the Tamuava mines in the Kolubara basin to reach an output of 3 million tons/year by 1988, 6 million tons/year by 1989, 12 million tons/year by 1991; and (c) the Drmo mines in the Kostalac Basin in Serbia to reach an output of 3 million tons/year in 1986, 5 million tons/year in 1987 and 6.5 million tons/year in 1988. In view of the fact that the potential out from Pljevlja and Girikovac is small and given the shortage of financial resources t'he authorities should postpone the development of these mines until the potential of the economic mines is fully exploited. - 210 - Presently, about 80% of the total output is used for power generation and only 5% is used for district heating and in boiler plants. Another 5Z i8 either dried or used for the production of coal gas. Lignite is non-tradeable and its transport, beyond a radius of 50 km, -is uneconomic. Its main economic use would be as a source of primary energy for the production of steam and the generation of electricity in mine-mouth type plants. Lignite from economic mines could be used to generate power for export to the interconnected European network at a price above the economic cost of generation but slightly below the cost to the importer of generating electricity by burning hydrocarbons. A group of European power producers organized under the Swiss Central European Dispatch Union have agreed to cofinance with the Bank the cost of developing several blocks of 300 MWeach to be operated by burning lignite produced at Kosovo's largest reserves in exchange for the future firm supply of electricity. In view of the potential for increasing the foreign exchange earnings of the economy by developing the lignite mining industry and using it for the generation of power for use in the production of electricity, intensive exportable products or for direct export of electricity, the authorities should give high priority to the development of lignite and power for export of electricity by seeking joint venture with potential importers to expedite that development. Moreover, consideration should be given to the possibilities of financing the foreign exchange cost of the plants through expcrt of electricity. aydro. In response to the declared objectives of the 1976-1985 medium term program of accelerating the development of hydropower potential, JUGEL updated the 1955 study in 1978 and concluded that only 55 TWh of the originally estimated 63 TWh could be developed economically. The development of the remaining 8 TWh was not viable as it was located in close proximity of densely settled areas. Despite this conclusion, the long-term strategy formulated by the stabilizationL commission, projected the development of a total of 55 TWh by the year 2000, 56 TWh by 2010, and 57 TWh by 2020. In addition to being inconsistent with the findings of JUGEL, the targets set by the stabilization commission are also unrealistic. They imply that an additional 24.6 TWh of potential would be developed by 1990, representing a 300% increase over the potential dev el ope d during the past two decades. This pace of development is not likely to materialize in view of the expected shortage of foreign exchange and local financing which the economy is expected to face during its structural adjustment process. Even if the r esources were to be nvbilized, the concurrent development of about 3 00 sites would tax the implementation capabilities of OALs, particularly in the less developed regions. Moreover, to this date the estimated potential at each site has only been crudely determined. A more extensive evaluation of the potential at each site, the nature of the geological structure and the cost of development is needed before such a development plan can be implemented. Therefore, as a first step in implementing the plan for achieving the commission's targets, the authorities should undertake a detailed evaluation of the hydro potential at each of the remaining sites to be developed and catalogue these in order of importance in preparation of a more extensive engineering and geological analysis. - 211 - Since 1976, the development of hydro potential has been undertaken on an ad hoc basis, dictated by the availability of resources at the disposal of OALs. This, as was the case with coal and lignite, resulted in the development of sites requiring modest investment, while the larger scheme, wuose development would have been in the national interest, were postponed because of the failure of OALs' in reaching agreement on cost-sharing and riparian rights. A large percentage of the remaining hydro potential is suitable for multi-purpose schemes. The approach used for determining the power potential and for allocating joint cost of such schemes varies considerably between republics and provinces. In several instances, the assessments were deliberately biased in favor of certain sites by unrealistically reducing the share of the power component in the joint cost in order to justify development that would contribute to the energy self-sufficiency sought by OALs. Given the autonomy of OALs, the first step in the rationalization of investment in hydro power development is to unify the methodology used for assessing the potential. JUGEL in its capacity as the coordinator of the development of the power sub-sector should be entrusted by the authorities to outline such a methodology and ensure its adoption by all of its menbers. This would ensure that OALs follow a systematic and consistent approach in evaluating the economic viability of developing hydro sites and provide the authorities with the means for comparing alternative hydropower investments proposed by OALs. The development of hydropower potential in Yugoslavia has been undertaken in isolation of the republican and provincial plans for the development of thermal capacities. Preference is universally given to hydropower plants and thermal capacities are developed only if the hydropower is unavailable or could not be developed to meet demand in time. This has had the effect of duplicating investments resulting in the deviation of the power development plans from their least cost path. The development of hydropower potential should be dictated by a national least cost plan that integrates investments in hydro and thermal capacities, giving preference to one aver the other, only on the basis of economic merit. So far, Yugoslavia has not been able to formulate a least cost plan for power which largely explains the delays that have been experienced in commissioning power plants, both hydro and thermal. The authorities have recently come to realize the cost to the economy of the absence of such a plan. For that reason, the long-term strategy proposed by the stabilization commission calls for the development of the power subsector as a single technically unified system. JUGEL, in collaboration with the Bank, has prepared the first iteration of an optimal investment plan for the power sub-sector. A critical input needed for refining this plan is the cost/KWh at each potential site. Unless these data are compiled and categorized, the results of the plan would not constitute the least cost alternative. Therefore, in order to comply with the guidelines of the long-term strategy and ensure that the first iteration of the least cost plan is formulated for the development of the power, sub-sector is refined, the authorities should give high priority to the use of the methodology to be developed by JUGEL in cataloguing and classifying the remaining hydro sites on the basis of their economic cost per unit of output. - 212 - Petroleum; In the past, despite the encouraging prospects, Yugoslavia's exploration and development program progressed on a piecemeal basis. Co-ordination among OALs in the subsector across republics and provinces was inadequate and there were moves to establish new OALs which would acquire operating expertise in exploration and production. Activities, facilities and resources available for exploration and development had not been utilized effectively from the national viewpoint, delaying the development of already proven reserves. This was aggravated by the shortage of financial resources on the whole, which together with the constraints on the availability of foreign exchange had brought the exploration and development program in the, country to a virtual standstill. According to the long-term strategy, the production of oil and gas is forecast to increase. This necessitates a streamlined exploration and development program which would identify priorities in term of the overall contribution to the supply of oil and gas for Yugoslavia. More recently, significant improvements towards co-ordination among OALs in the subsector has taken place to establish the priorities for Yugoslavia for the exploration and development envisaged in the Federal Asseubly's resolution for 1985. Oitside of the existing producing areas as of Croatia and Vojvodina, other republics (Bosnia-Hercegovina and Montenegro) have set up small administrative organizations to manage the republican resource rights, promote and co-ordinate exploration activities within these republics. These administrative organizations have been relying on the technical expertise and the operating capabilities of the already well established oil and gas producing companies (INA Naftaplin and Nafta-Gas) in Croatia and Vojvodina, respectively, and when feasible, they have formed foreign joint ventures to implement their programs. In order to avoid duplication of facilities for oil and gas exploration and development, the other republics and autonomous provinces should continue to rely on the technical expertise of INA Naftaplin and Nafta-Gas and should not create independent operating enterprises. Presently, there are several fields whose potential for increasing Yugoslavia's output of hydrocarbons over the next 5 years should be evaluated. In the small fields in the general Novo Malshevo area in Vojvodina 11 wells were drilled in 1978, of which 9 had shows. Another 14 testing and production wells are planned. The estimated reserves are put at about 2.8 million toe and it is estimated that initial production could be as high as 0.2 million toe/year, representing 11% of the domestic output in 1982. Work in this area was suspended because of the shortage of foreign exchange. In addition, there are potential offshore reserves which need to be evaluated. So far 24 wells have been drilled from 7 platforms, ranging in depths 1,000 and 2,500 meters. Preparation for production would take between 2 to 3 years; however, the economic merit of producing this gas has not been proven. As for oil, there are three onshore structures at Privlaha, Diletoric and Illaca with potential recoverable reserves of about 2 million tons with initial yearly output potential of about 200,000 tons, representing 5% of' the total output in 1982. These structures are located between Zagreb and Belgrade in shallow fields of about 1,000 meters. In view of the potential for contributing to the output of hydrocarbons tleir economic viability should be re-assessed. - 213 - Energy Pricing Law on Pricing% The law on pricing, ratified in 1980, outlined six criteria which are to be used by OALs in negotiating and concluding self-management agreements. These criteria are-. (a) market clearance; (b) economic efficiency; (c) productivity; (d) distribution; (e) development; and (f) inflation. The criteria when used together result in an overdetermined system with conflicting objectives. Any one criterion could be used to counteract the other, and consequently, with the prevalence of CIs, there is no assurance that OALs would not resort to alternative criteria to achieve their goals. Unless the law on pricing is amended to ensure that economic prices are introduced and maintained, distortions in the level and structure of prices would re-emerge once the special measures in effect are removed. The amendments to the law on pricing, currently under review, give priority to the achievement and maintenance of domestic prices at parity with border prices. Again, the emphasis on priority is vague and is unlikely to remain as the main criterion once OALs face a potential loss in income. Unless more specific targets are set for domestic prices, the distortions that the amendments are expected to address would reappear. Optimally, domestic prices should be set at levels that reflect the cost of the resources to the economy. In the absence of intervention, prices would be set at parity with border prices plus delivery cost in the country for tradeable goods and at a level that, as a minimum, cover the economic cost of supply of non-tradeables. This could be achieved by assigning weights to each of the criteria. Since the authorities aim to achieve parity with economic prices, the criterion on economic efficiency should be assigned a weight of say 80% so that no matter what other criterion OALs resort to the weight would always tip in favor of the criterion of economic efficiency; that is, all criteria comibined would have a lower weight than that criterion. This would imply that the maximum deviation of domestic prices from border prices, adjusted for internal transport, would be at a maximum of 20%. Therefore, in view of the objectives set by the authorities in achieving parity with economic prices to ensure efficient resource allocation, the law on pricing should be amended to allow for a maximum deviation between domestic and economic prices of 20% wihich could be partially or totally applied on the basis of criteria other than efficiency . Communities for Pricing; With the ratification of the 1980 Law on Pricing, communities for pricing were established at the federal (FCP) and the republican and provincial levels (RPCPs), to review and monitor the prices set by OALs. The pricing of crude oil, petroleum products and imported natural gas are under the jurisdiction of the FCP, while domestic natural gas, coal, lignite and electricity are under the jurisdiction of the RPCPs. The division of responsibility for mDnitoring the pricing of energy products -is dictated by the fact that crude oil, petroleum products and imported natural gas are considered of relevance to the development of the entire economy while the others are not. Clearly this is not the - 214 - case. Relative prices of primary energy determine the configuration of consumption, magnitude and location. Failure in the past in maintaining relative prices of domestic energy products at parity with their cost to the economy has led to uneconomic investments. Given the pivotal role of the energy sector in the future development of Yugoslavia and the potential for using domestic energy to gradually restructure the economy, the law on pricing should be amended to include coal, lignite, domestic natural gas and electricity as products of interest to the development of the entire country. FCP should be responsible for setting the prices of all energy resources and products. This would ensure that national policies for pricing lignite, brown and hard coal and electricity are developed and relative prices of these products are maintained at levels that would facilitate the achievement of the targets set for the economy. It would also make possible the setting of prices based on national plans. Historical Developments in Pricing: The differences in the price of domestically produced natural gas and that of hard and brown coal and lignite, have been maintained at a minimum since 1977. As shown in Table 9.2, in 1977 domestic gas was priced at US$52/toe, which is US$10/toe lower than that of hard coal and only US47/toe and US$6/toe above the price of brown coal and lignite, respectively. Table 9.2 Relative Prices of Fuels for Power Generation 1977-1983 …------US$/toe ------1977 1978 1979 1980 1981 1982 1983 Domestic natural gas 52 51 55 49S 66 63 50 Imported natural gas 77 74 139 198 195 189 170 Fuel oil 93 93 141 192 242 177 149 Hard coal 62 76 101 80 74 75 58 Brown coal 45 57 67 77 82 67 50 Lignite 46 55 64 66 67 59 42 Source: JUGEL In 1983 the price of domestic natural gas was US'I8/toe below that of hard coal, and at parity with the price of brown coal and about US$8/toe higher than price of lignite. The differential between the price of domestic and imported gas, and the practice of averaging their price has led to the uneconomic use of gas. The inability of the policy makers to increase the reliance on solid fuels can be explained largely by the distortion in the - 215 - relative prices of fuels used by industry and the power subsector. In the Yugoslav system, where workers produce to maximize their income, the decision to increase the consumption of natural gas rather than switch to hard and brown coal was a rational economic decision, reflecting the behavior of an economic entity responding to relative prices. OALs consuming fuel oil would have gradually shifted away from this product to natural gas, particularly domestic gas in view of the pr evail in g differential in prices. The price of fuel oil has on the average ranged between twice and three times the price of domestically produced natural gas. OALs who had access to both domestic natural gas and hard coal or brown coal had no incentive to switch from the former to the latter. Given the potential for the substitution of solid fuels for hydrocarbons, the shift would have been achieved had the relative prices of competing fuels been set at their economic cost of supply Therefore, in order to ensure that economic investments are made voluntarily, relative domestic prices should be adjusted to reflect the cost of these resources to the economy. Relationship Between Domestic and Economic Prices. The relationship between domestic and economic prices of energy products, as of July 1983, is as presented in Table 9.3. Table 9.3 Comparison of Prices of Energy Products With Economic Costs (July 1983) Domestic Economic Domestic Prices as Product Price Cost % of Economic Cost (Din/toe) (Din/toe) (%) Natural Gas 4,500 15 ,300 29 Fuel Oil 13 ,500 15,300 88 Hard Coal 7,902 9,000 88 Brown Coal 7 ,074 8,280 85 Lignite 5 ,640 7,200 78 Electricity (paras/ kWh bulk supply level) 110 254 43 Petroleum Products; Yugoslavia has invested in secondary refining facilities, which are currently underutilized, and given the sustained demand for middle and light distillates and the availability of domestic substitutes for fuel oil, namely coal and lignite, the opportunity cost of fuel oil is higher than its border price. Based on the configuration of the refining capacity, it is estimated that the economic value of each ton of fuel oil is equal to the weighted average opportunity cost when used as a feedstock and its border price when used as a source of energy. This would amount to about US$190, representing a 21% increase in its domestic price in July 1983. Moreover, an additional - 216 - tax of US$30/tu iould b'e levied without risking a shift to the consumption of ke :oset@ and diesel. The increase would maintain the relative domestic prices of diesel and fuel oil at or near the level dictated by the border prices, which, if taken as a reflection of the true relative scarcity of resources, would ensure that diesel and fuel oil are consumed in an optimal mix. Therefore domestic price of fuel oil should be raised from its level of US4150/toe to US$210/toe (July 1983 prices and exchange rate) to mobilize resources and reduce its consumption to allow for its refining into higher value products. The tax on kerosene is disproportionate'Ly low relative to the tax on other fuels used by the household and transport sectors (diesel, gas oil, gasoline, LPG) The differential in the dlomestic price of kerosene and diesel oil is about US3135/ton, which is sufficient incentive for the consumers of diesel to switch to kerosene. Consequently, there is economic merit in raising the price of the product to parity with the price of diesel as it would mobilize resources for the authorities and ensure that increased consumption is not stimulated by the price differential. The ratio of the border prices of kerosene and diesel are close to unity. In contrast, the ratio of the domestic prices of these same products is about 0.7. To ensure that the mix of petroleum products consumed is optimal the tax on kerosene should 'be raised to maintain the relative domestic prices at, or close to, parity with relative border prices. Therefore the domestic price of kerosene should also be raised from its level of US$301/ton to US4435/ton to be at parity with the domestic price of diesel. This would mobilize more resources and ensure that the prevailing differential between the price of kerosene and diesel does not encourage the increased consumption of the former. The prices of petroleum products should be adjusted periodically to ensure that their levels relative to their border prices are maintained unaltered in real terms. These adjustments should take place in accordance with a predetermined schedule which would allow OALs to take these projected changes into consideration when negotiating and concluding SMAs. Natural Gas; Yugoslavia's output of gas has a value to the economy which exceeds the price set by OALs and RPCPs. Alternatively, since Yugoslavia is a net importer, the cost to the economy of meeting a unit of extra demand at the margin is equal to the border price. Therefore, in order to ensure that natural gas is allocated optimally between competing ends, the authorities should increase the price of domestic gas to reach parity with the price of imported gas. The stabilization committee has recently acknowledged the pivotal role of economic pricing in the structural adjustment process of the economy, and as a result, an agreement under the Bank's f'irst loan for structural adjustment (SAL I) was reached in April 1983 to move the real price of domestic gas upwards to achieve parity with the border price of imported gas by 1987. Since then, the price of domestic natural gas has been increased by 60% in Croatia and 39% in Vojvodina, and 37% across the board in October 1983. A third increase of 23% is planned for January 1984. Additional increases would be required to close the prevailing gap between the price of domestically produced gas and its 'border price by 1987. In - 217 - order to achieve this objective the authorities should automatically adjust the domestic price once every three months for changes in the rate of inflation and exchange rate and move the price closer to its border price through additional quarterly increases in accordance with a predetermined timetable. Specifically, the price of domestic natural gas should be increased, in real terms, by about 340%, from US450/toe to US4170/toe over a period of 5 years, ending 1987. As for imported gas, domestic price should be maintained at parity with its border price adjusted for domestic transport and allow for periodic upward corrections to compensate for the depreciation of the exchange rate and the increase in the general price level. Achievement of parity between the prices of domestic and imported gas, however, is only the first step in formulating a pricing policy that would ensure its optimal allocation between competing ends. Gas is a storable commodity whose consumption varies by season, time of day and location. Transmission, storage and distribution of gas would allow for efficient supply. This would require the development of an infrastructure that would ensure economic management of the resource throughout Yugoslavia by interconnecting the gas pipeline network in order to move the product (domestic and imported) to meet demand at least cost to the national economy. Price structure and level should be based on a national plan which would ensure that consumption of gas is optimally allocated, rather than on a regional basis guided by nunber unconnected and uncoord'inated development programs. Therefore, in order to ensure the efficient supply and consumption of natural gas throughout the country, it is recommended that high priority be given to the formulation of a pricing policy based on a least-cost national plan for the supply of gas. Hard Coal,. In terms of domestic supply, the output of hard coal is constrained by the geological setting of the reserves. Its underpricing in the past has been responsible for its uneconomic use. Since, at the margin, an increase in demand would have to be imported and given the fact that each ton diverted from domestic use could be exported, the economic cost of this resource to the country is equal to its border price. In order to ensure the efficient use of hard coal and to mobilize resources for the rehabilitation of mines, its domestic price should be increased from US$87.8/toe to US4100/toe. Brown Coal and Lignite: The domestic price of lignite should be set at LRMC of supply since it is not economically tradeable. The potential for increasing the supply of brown coal is fairly limited and its calorific value is almost at parity with the calorific value of underground lignite. Moreover, imported hard coal would be a superior substitute for brown coal. Therefore, the price of lignite should, at a mininuim, be set at its LRMC. The price of brown coal, on the other hand, could be set anywhere between its LRMC and the border price of hard coal, depending on the consumers' willingness to pay and availability of substitutes. The domestic price of brown coal should be increased from US$70/toe to US$92/toe to cover its LRAIC and that of lignite from US463/ toe to cover its LRAIC of US$80/toe. Moreover, all prices should be adjusted to ensure that an adequate level of self-financing of not less than 40% is achieved. - 218 - Electricity: The prevailing tariff structure is consistent with the structure dictated by the principles of marginal cost pricing; that is, tariffs are differentiated by time of day and season to reflect the differences in the cost incurred by OALs in meeting consumer demand for electricity. However, the tariff levels do not reflect the economic cost of supply. If electricity is to be consumed efficiently, the level and structure of tariffs must coincide with the economic cost of supply. Under the agreements with the Bank for SAL I and the Third Transmission loan, the authorities have agreed to achieve parity with the LRAIC by the end of 1987. In real terms, this would mean ithat over the next 5-year period, tariffs at all levels would have to be doubled. Due to the substantial economies that can be realized through rationalization of investment in the power subsector and other related sectors by setting electricity tariffs at the LRAIC of supply from the national interconnected system, electricity tariffs should be increased at all voltage levels to reach parity with LRAIC by 1987. This would involve increases as follows8. Bulk supply: increase from paras llO/kVaL to paras 254/k%i Medium voltage. increase from paras 138/kWh to paras 313/kWl Low voltage. increase from paras 182/kWh to paras 452/kWh, in real terms. Financial Discipline Pricing of Social Goods. The creation of the commnnities of interest was intended to overcome the difficulties that could arise from total dependence on market forces to balance demand and supply, and set prices equitable to both consumers and suppliers. Theoretically, the deliveries of goods and services by the producers to the consumers in CIs are ensured under SMAs. In return, consumers contribute to the producers' total investment needed to expand the output to meet their demand. The contribution of consumers to the investments of the suppliers througfi credits, non-reimbursable funds and interest free loans is one of the main sources for financing the 5-year development plans. It is a form of advanced contracting which ties consumers and producers not only with respect to the delivery of goods but also into financial arrangements. In so doing, it depletes the financial resources of the consuming OALs and restricts their freedom in seeking alternate suppliers once funds have been disbursed for projects that are delayed. Consequently, failure in implementation of plans or delays in completion of projects results in a net loss to the economy. Considering the adverse impact that SMA's and customer contribution are having on the achievement of the targets set in the 5-year plans and the financial positionsi of OALs in CIs, it is imperative that CIs should submit to the Chambers of Economy complete financing packages for the major projects in the priority sectors before disbursement of funds to ensure efficient implemlentation of these plans. Solidarity Fund. Solidarity funds are used to compensate workers 18ose income has been adversely affected by circumstances outside their - 219 - control. This includes failure to secure financing, inability to implement projects because of delays in delivery of critical equipment and material, unexpected increases in the prices of inputs, etc. These are usually more a reflection of uneconomic investment decisions than of decisions made by resource owners that attempt to take all factors into consideration in order to minimize risk. Similarly, workers whose income increases because of unexpected events are also denied the use of these windfalls. To demonstrate the effects of these rules on the operation of the energy sector, consider an OAL responsible for the operation of an existing oil-fired power plant which decides to expand its capacity contrary to the objectives of the energy plan. Consider another OAL, responsible for the operation of a hydropower station, that makes a decision to expand its capacity in compliance with the authorities' overall policies. According to the guidelines of CIs, the contribution of consumers to the expansion of the generating capacity and the amount of electricity to be delivered in return are set in SMAs for both OALs. If the hydrological conditions are favorable the power generated by OAL with the hydro station would exceed the agreed level, while OAL with thermal pawer station would deliver less than the amount called for in 9MA. According to the law, the enterprise that complied with the policies of the authorities is denied the use of extra funds and OALs that took a decision contrary to the established policies are compensated for their losses. This illustrates clearly that OALs that make uneconomic decisions are not made to bear the cost of such decisions. If the system allowed for material rewards and punishment for investment and pricing decisions, OAL with the thermal power station would have refrained from the expansion of its capacity to minimize its risk of loss in income and pooled its resources with those of OALs with the hydropower station, thus improving the chances for higher income and concurrently complying with the targets of the authorities to decrease the petroleum products used in the power generation. Under the decentralized system prevailing in Yugoslavia, efficiency in investment could be achieved by satisfying two conditions. First, as discussed above, all inputs should be priced at the cost to the economy. Second, decision-makers should incur the cost or reap the benefits of their economic decision. Therefore, in order for authorities to rationalize investment, rules governing the disbursement of solidarity fund should be streamlined to ensure that beneficiaries undergo changes in structure involving management, pricing, investment, etc., that would enable them to become viable both economically and financially. Official Versus Actual Rates of Inflation: Financial planning in Yugoslavia is based on constant prices, expressed in terms of the base year of. the plan. The official rate of inflation is ratified by the FEC and is one of the components of the compacts covering the first step of the plan and represents one of the macroeconomic targets to be considered. Consequently, all SMAs involved in- the second step of planning forecast their deliveries on the basis of the official inflation rate. Once real inflation exceeds the rate set i'2 the compacts, the producers request the negotiation of prices agreed to earlier. Their success, however, is usually minimal because ou-f-U.e criteria on pricing discussed earlier. As a result, producers tend,to s e d in securing - 220 - the level of self-financing needed to implement their plans. The fixed rate of inflation, which differs significantly from market determined inflation, tends to trigger uncertainties in the financial planning of OALs. Given this disparity and its effects on financial planning, the authorities should consider setting a target inflation on the basis of a revolving plan to allow FISP to re-estimate inflaition. Cost of Capital:, Consumption and investment decisions are primarily determined by relative prices. Distortions in relative prices result in suboptimal decisions on the mix of goods consumed and on the allocation of resources used to supply the goods. The policies for pricing energy and for setting the level of interest rates have been responsible for the uneconomic investment decisions in the energy sector. Nominal interest rates have been kept low to promote development;however, with the sustained increase in the general price level, the real interest rates on credits and loans have been negative at least since 1976. The interest rate of both the publicly guaranteed and private non-guaranteed loans are summarized in Table 9.4 below. The table also includes the average increase in the retail prices. Table 9.4 Average Interest Rates on Credits and Loans and the Rate of Increase in the ReTalTT ces between 1975 and 1982 1976 1977 1978 1979 1980 1981 1982 Weighted average interest rate (%) 7.3 7.6 9.3 11.0 15.2 18.0 18 Annual average increase in retail prices (%) 10 13 14 22.0 30.0 47.0 45 In view of the relationshipbetween the price levels and interest rates, it was rational for OALs to borrow at what in essence was a negative interest rate. The authorities have agreed umder SAL I to move the lending rate to a positive level over a period of two years. Foreign Exchange Allocation: Following the adoption of the stabilization measures, a system of foreign exchange allocation was introduced,replacing the old system which provided for OALs with shortage or no access to foreign exchange to obtain the required quantities at an effective price higher than the official exchange rate. Under this new system, export earners were given preferential access to foreign exchange with some provisions made for the priority sectors, including energy. The provisions, however, have fallen short of the requirements of foreign exchange needed for imports of essential equipment and material, particularly spare parts. The prevailing system of foreign exchange - 221 - allocation, based on whether the beneficiary is an exporter or a priority sector, should not be the only criterion as it would impeded the development of the energy sector along the least cost path. The authorities should devise a mechanism that would enable a critical sector like energy to have all the foreign exchange needed for exploration, development and production of the domestic energy resources. However, this mechanism should be viewed as an interim measure to be used only during the period required for restructuring the economy. Ultimately, plans should be made to liberalize the system and provide OALs the opportunity to freely purchase their foreign exchange requirement at prices determined by the forces of supply and demand. This liberalization would be consistent with the policies being pursued by the authorities in moving the economy towards a rational economic approach to pricing. Priorities in the Development of Secondary Energy Current plans to expand the output of coal gas are not justified on economic grounds. The gasification plant at Kosovo has been riddled with technical problems. In 1982, the cost of coal gas averaged about US$250/toe. This gas is used mainly by households. A more economic alternative would be to substitute electricity generated by lignite-fired power plants for this type of gas. It is estimated that one toe of electricity would cost about US$212. In view of its economic cost, this gas should not be produced, and if produced, it should not be used by industry. The production of coal gas would also require imports of equipment and material which have been used in the industrial countries in pilot schemes only. In view of its high cost of production and the unproven technology for commercial use, the authorities should reconsider all plans for expanding Yugoslavia's capacity for the production of coal gas, until the commercial application of the technology is proven elsewhere. The stabilization commission's long-term plan also calls for the development of the natural gas pipeline to substitute for electricity in households. At present, this would be premature First, the geological potential of presently proven gas reserves should be assessed to determine the extent of future supply. The plan for the development of gas network, including storage and distribution, should follow. At that point, it would be possible to identify areas where substitution for electricity is economic. For the next few years, however, the proposed substitution should not be a high priority in view of the current and projected shortage of financial resources, and given the fact that the development of a network for distribution of gas in urban areas is fairly capital intensive. A more economic option would be to develop the national gas grid and supply the large industrial and commercial consumers once it is determined that such supply is economic. Refinery-. one of the main issues facing the energy sector is the rationalization of the oil refining subsector. The installed refining capacity is grossly underutilized. In 1982, the capacity utilization was on the average about 50%. As a result, the energy efficiency of most refineries was lower than would have been under full utilization, In addition, most of Yugoslavia's refineries are based on technologies which - 222 - by today's standards are energy inefficient. Retrofitting and investment in recently developed equipnent could reduce the energy used in conversion by about 30%. However, the refineries in Yugoslavia have not been able to take advantage of the new technologies mainly because of the shortage of foreign exchange. In 1982, the refining of 12.6 million tons of crude involved losses in conversion amounting to 0.8 mi'Llion tons, representing about 6.1% of the total oil refined. The mission estimates that, as a mininuim, these losses could be reduced to about 4%. This represents a reduction in conversion losses of about 242,000 tons, which if valued at about US4200/ton, would amount to an annual saving of about US448 million in foreign exchange. Obviously, as the amount refined increases so would the savings. The improvement of energy efficiency of refineries is a fairly straightforward task; however, in order to ensure the rational development and operation of the subsector, the existing refinery capacity and its mix of products should be optimized together with a program for the development of infrastructure for transport, storage and delivery of petroleum products. Such optimization should be carried out on a national basis to ensure that the refining capacities are fully integrated and developed to meet the future demand for petroleum products at least cost to the economy. Therefore, a study for restructuring the petroleum refining subsector should be undertaken with a view to identifying the investments required to adapt the existing refining capacities to correspond with the forecast mix of demand for petroleum products and its location; to replace the existing technologies with new more energy efficient processes and equipment; and to retrofit existing equipment in or der to improve the energy efficiency. Least Cost National Plan for Power and Coal The power subsector accounts for slightly more than one half of the investments in the energy sector. Investment for the development of the subsector under the revised 1981-1985 social plan amounts to Dinar 161 billion which is about 27% more than the projected investments in the coal and petroleum subsectors combined (Din 125 billion), In fact, if the development of the mining capacities by integrated OALs for power and solid fuels are considered, the share of the power subsector would rise to 68% of the investment in the energy sector. Consequently, the rationalization of investment in the power subsector would go a long way in addressing the majority of the constraints experienced by the energy sector. Past development of the sector has been suboptimal from the national point of view. The pursuit of energy self-sufficiency has contributed to the shortfall in achieving the production and investment targets. If investments in power and solid fuels are to be rationalized, their development should be dictated by a least-cost national plan. In view of its importance for thhe rationalization of investment in the power and coal subsectors, JUMEL, in collaboration with the Bank, has prepared the first iteratia . of a least cost national plan for the development of the pow er s u' S e C- or - refined, this plan could serve as a basis for pricing electricity would link pricing and investment decisions and assist in the identification of national priorities. It could also provide a framework within which the associations of power and coal producers could harmonize their views and settle on a mix of investments whose magnitude would not - 223 - exceed the level dictated by the national plan. The refinement of this plan would require an extensive data base for the power subsector. Currently, JUGEL collects a fairly standardized set of data on the subsector covering generation, by plant, type of fuel, fuel consumed, station use, losses etc. However, data orn consumer load characteristics is very limited. The available data fall short of providing the necessary inputs for the formulation of a national least cost plan for the subsector. Moreover, the data available would not allow for the efficient operation of the integrated network once the dispatch centers are commissioned. JUGEL should therefore increase its efforts at compiling comprehensive data on the subsector and to establish a data bank as an input for a national energy sector data base to be developed by FISP. Rationalization of Secondary Energy: The potential for energy savings in the power subsector is also high. especially in power plants in the transformation of primary energy into electricity and in the distribution system. Conversion losses in most of the large thermal power plants range from about 76% to 72% of total primary energy consumed in electricity production. In other words, the efficiency of most of these plants ranges from about 24% to about 28%. The low level of efficiency is due mainly inadequate to maintenance caused by extensive use of plants in an attempt to meet demand, and the age of some of the plants. This has resulted in low levels of plant availability (Annex 9.1). The mission estimates that, the efficiency of these coal and lignite-fired power plants could be increased from the prevailing weighted average of 26% to about 33% for plants with unit sizes less than 100 MW and to about 35% for plants with unit sizes greater than 100 MW. Based on the 1982 data on solid fuels consumed in the production of electricity, the improvement in the average efficiency level could result in fuel savings of about I million toe per year made up of 5.5 thousand toe of harc coal, 202 thousand toe of brown coal and about 812 thousand toe of lignite. The total estimated value of US384 million (Din 4.3 billion) per year. In present value terms, based on an opportunity cost of capital of 10%, the estimated savings over a 5 year period would amount to US4266 million (Din 14 billion). Table 9.5 shows the estimated fuel saving by type of solid fuel used. The potential savings in solid fuel-fired thermal power plants could be regarded as equivalent to the release of 5.1 million tons of lignite, representingabout 16% of the total annual lignite consumption of the power subsector and equivalent to one and half times the output of Kolubra 5. Saving that could be realized through efficiency improvements in hydropower plants has not been considered since information on hydropower plant efficiencies was not available to the mission. The improvement in overall plant efficiency would also lead to a reduction in the self consumption of power plants which, based on data provided by JUGEL, is estimated as 12% in 1982. Efficiency improvements in oil and gas fired plants have not been included since all such plants are being rapidly phased out of the system. However, should it become necessary to improve the efficiency of such plants for future operation, total savings that could be realized is estimated at about 175 thousand toe per year. At the border price of US3170/toe for fuel oil, the savings would amount - 224 - Table 9.5 Estimated Value of Fuel Savings Discounted Present Value of Savings Economic Annual (10% Discount Rate) Savings Cos t Sav in gs Over Five Years Type 0'000 Tons '000 Toe (US$/Toe) (US4 Million) (US$ Million) Hard coal 7.97 5.5 100.0 0.55 1.74 Brown coal 505.25 202.1 92.0 18.59 58.94 Lignite 4 059.00 811.8 80.0 64.94 205.87 Subtotal 4,572.22 1,019.4 82.0 84.08 266.55 (av er age) Oil/gas 175 170 29.75 94.30 Total 1,194.4 113.83 360.85 to about US$29.7 million (Din 1.5 billion) per year. The potential saving that could be realized in efficiency improvements of thermal power plants is estimated at US113.8 million (Din 5.8 billion) per year. The present value of savings over 5 years at 10% discount rate amounts to about US$360.8 (Din 18.5 billion) in 1982 prices equivalent to about 12% of,. total investment in the power subsector over the 1981-1985 plan period. Investments in retrofitting and rehabilitation of power plants to improve their efficiency are relatively lower than investments in additional generating facilities. In view of the substantial savings that could be realized the authorities should assign high priority to efficiency improvements of power plants, first in the oil and gas-fired plants to reduce the consumption of oil in power generation, followed by coal-fired plants since coal can be briquetted to displace hydrocarbons in domestic and industrial uses and finally in lignite-fired plants. A study should first be undertaken to identify all the plants that need rehabilitation. On the basis of 1982 data on thermal plant efficiency (Annex 9.1) the mission program to rehabilitate the thermal plants should cover the following plants in order of priority as shown in Table 9.6. - 225 - Table 9.6 Tentative Ranking of Thermal Plants for Rehab ilitation Ins talled 1982 Capacity Type of Efficiency Plant Name Location (MW) Fuel (%) Sisak 1 & 2 Croatia 188 Oil 26 Zagreb Croatia 110 Oil 26 Rijek a C roa tia 303 Oil 31 Tulza 5, 4, 3 B/H 198-91 Brown coal 31.1-28.4 Kanj 6, 5 B/H 95, 90 Brown coal 29.1 Bitola Slovenia 189 Lignite 24.1 Kosovo 2, 3, 4, 5 Kosovo 113-182 Lignite 27.7-28.5 Trborlje Slovenia 145 Lignite 27.2 Infrastructure for Transport and Distribution of Power. As a result of the delays in the completion of Phases I and II of the 380-kv network and the emphasis given in the past to the development of power generation facilities at the expense of transmission and distribution networks, several critical 380-kv lines are being operated at the 220-kv level. Moreover, the 220-kv, 110kv and lower voltage lines and substations have in the past not been adequately maintained and as a result, are currently in need of reinforcement and rehabilitation. Consequently, losses in the transmission and distribution of electric energy have been higher than need be. In 1982, the mission estimates that losses in both networks most of which are technical in nature amounted to about 12% of total electricity available for consumption or 7,946 GWh out of total supply of about 66 ,217 GWh. Currently, losses in the transmission system constitute about 40% of the total losses in the transmission and distribution systems due to the current overloading of sections of the 220-k and llO-W networks. Transmission losses would be drastically reduced initially below the technically acceptable level due to the initial excess capacity that would prevail upon the full completion of 380-ky system. Overloading of the 380-kV system resulting in increased transmission losses is not expected in the foreseeable future. However, the potential exists for reducing losses at the medium and low voltage levels by about 3% of net generation equivalent to 1986 GWh. Based on economic cost of supply at the medium voltage level of USc 5 .79/k'Wh (paras 257/kit) reduction in losses would amount to a saving of US$115 million (Din 5.9 billion) 1/ per year in 1982 prices. In terms of energy used for l/ The savings are a minimum since they are based on 1982 level of electricity supply. Moreover, the savings at the low voltage level are higher than estimated since the LRMC is 533 paras/kwh rather than the LRIC of 296 paras/kwh for the medium voltage; however, details on the low voltage level sales by the distribution OALs are not available. - 226 - power generation, the reduction in losses would amount to about 497 thousand toe, representing about 78% of the 640 thiousand toe consumed by the oil and gas thermal plants for power generation in 1982. Therefore, by reducing losses in the distribution network, the power subsector could reduce its use of primary energy and decrease the investments required. However, more importantly, it could reduce the sdusector's dependence on liquid hydrocarbons. Losses could be reduced. by a) operating the networks at their optimal capacity levels and by using the mDst economic design and size of equipment, i.e. conductors, insulators, transformers etc.; and b) by matching the sources of supply and demand to reduce the distances irvolved in delivering electricity to iits ultimate consumers. At the high voltage level the optimal design and material have been determined in the feasibility study for the 380-kv network. Efficient dispatch of power plants to reduce the distance f-or the transmission of electricity would be achieved once Phase II is completed to allow for economic dispatching of power plants on a national basis, and consequently the emphasis above on the need to mobilize all resources needed for the timely implementation of the critical phase. However, at the lower voltages of transmission and at the distribution levels, variation in the design and equipment used is quite high. The development of these networks have been dictated by the availability of finances from consumers and suppliers credit rather than a consistent development plan integrated in order to deliver power at least cost. Moreover, coordination between OALs, particularly at the distribution level, has not been adequate, and has resulted in some cases, in duplication of facilities (lines, substations, etc.) most of which are under utilized and overloading in others resulting in relatively high levels of losses. Consequently, there is a clear need for JUGEL in collaboration with its members to initiate steps for standardizing equipment and adopt these throughout the country. Moreover, overloaded facilities should be identified and a plan laid out for rehabilitating them. The development of the transmiss ion and distribution network should be based on a least cost development plan, however, given the autonomy of OALs these plans can. not be formulated by a central authority. JUGEL should take the lead in outlining the methodology and steps irvolved in the formulation of least cost plans for the development of subtransmission and distribiution networks. This methodology should cover the parameters and standards of design, economic costs for estimating network configurations and their associated costs, specification and range of capacities and equipment to be used. The fornulation of least coat plans for generation, transmission, subtransmission and distribution would require an extensive data base for the power subsector. Currently, JUGEL collects a fairly standardized set of data on the subsector covering generation, by plant, type of fuel, fuel consumed, station use, losses etc. However, data on consumer load characteristics is very limited. The available data is only partially adequate as statistics on the subsector and falls short of providing the necessary inputs for the formulation of a national least cost plan for the subsector. Moreover, the data available would not allow for the efficient operation of the integrated network once the dispatch centers are commissioned. JUGEL should therefore increase its efforts at compiling - 227 - comprehensive data on the subsector and to establish a data bank as an input for a national energy sector data base to be developed by the Federal Statistical Office. In industry, the potential for conservation and substitution of coal and lignite for fuel oil and natural gas, is high. In 1982, the industrial sector consumed about 1.3 million toe of natural gas and 1.5 million toe of fuel oil. It is estimated that at least 35% of this coubined consumption could be switched to lower value products, such as hard and brown coal and, at times, lignite. This would amount to a net annual saving of about US478.4 million. More importantly, it would release about 0.5 million tons of fuel oil for secondary refining which represents 25% of the 2 million tons installed secondary refining. The 980 thousand toe of hard and brown coal which would displace fuel oil and natural gas represent 60% of the hard and brown coal consumed by the power subsector (1.4 million tons). Their withdrawal from the power subsector can be replaced by lignite which would amount to 10% of total production in 1982. The industries whose consumption of natural gas and fuel oil can not be shifted to lower value products are candidates for energy saving through retrofitting and investment in changes of technology. Of the total energy consumption of 8.7 million toe, 1/ it is estimated that, with conservation measures, a mininum of about 205% saving in overall energy consumption could be achieved. In terms of the energy consumption of industry in 1982, this would amount to 1.7 million toe, representing US4204 million. 2/ In view of the economic potential for shifting the industrial sector and the power subsector to the consumption of lower value product as substitutes for fuel oil and natural gas, and the scope for energy conservation, FCEI and RPCEI should identify OALs where the substitution and conservation would be economic, and take measure to ensure that these OALs have access to financing the technological changes needed. In recognition of the need to restructure energy consumption in the large energy intensive industries, the authorities have agreed with the Bank, under SAL I, to prepare a technical assistance project to be financed by the Bank. Under this project several OALs in energy intensive industries would be audited to determine the potential for improving their energy efficiency and the scope for the substitution of solid fuels for hydrocarbons. In addition, the extent of the investment required to achieve this objective and the economic viability of these investments would also be determined. Following the review of the results, the targeted OALs would be ranked in terms of their overall contribution to the national economy. It is expected that the implementation of this project would set the stage for the creation of a fund which would lend to OALs both foreign and local costs, needed to implement their programs. It I/ equal to the consumption of energy industry of about 9.7 million (Table 5.8) less 0.98 million toe which would be substituted. 2/ valued at US4 135/toe based on the following weights: natural gas (13%), fuel oil (15%), solid fuels (10%), electricity (21%), district heating (26%). - 228 d would also serve as a means for strengthening the institutional capabilities of agencies at all levels in implementing and monitoring similar projects in the future. Transport, Storage and Distribution of Energy. The increased use of domestic natural gas in Vojvodina and Croatia was stimulated largely by the maintenance of its prices low in real terms; however, short term gas supply constraints and the absence of an infrastructure for the storage and transport of natural gas, whether domestic or imported, have also been responsible for concentrating gas use in the producing republics and provinces. As a result, to date, Yugoslavia does not have an interconnected pipeline network for the transport of natural gas between the sources of supply and the main demand centers. The network has been expanded on an ad hoc basis, justified by the needs of existing or new consumers rather than a least cost national plan that would dictate the optimal size of pipes, economic number of compiressorstations and the strategic location of storage facilities. In 1982, Yugoslavia paid about US$5 million in foreign exchange, divided almost equally between Hungary and Austria, to store part of the imported natural gas which it could not utilize because of the unavailability of adequate storage facilities. Consequently, part of the gas was stored abroad and the rest was sold at a discount to domestic consumers. The operation of the gas supply system in an optimal fashion would require storing the gas during off-peak periods and using it to supplement domestic production and imports during peak periods. Two storage facilities have already been identified and preparation has started; however, because of the shortage of foreign exchange their construction has been postponed. The first site is at 40 Km from Zagreb which would require the drilling of about 40 wells at a depth of 1,100 meters to store between 350-500 million mi/year in each well. This store is on the main transport system connecting the main demand centers of Zagreb, Sesak and Kourtina. The second site is at Tilva north of Belgrade. It is about 35 km. from Batajnica where the junction with the pipeline from the soviet Union is located. The capacity of storage would be about 400 million m3. In view of the possibilities for increasing gas supply through additional imports or domestic production, the formulation of a program for the optimal development of a national gas transport, storage and distribution network in relation to potential uses of gas is essential for the efficient use of natural gas. FCEI and RPCEI should give the initiation and adoption of that plan high priority. Studies of gas utilization, transmission, and development planning in the context of their evaluation of new proposals for expanding gas imports. The formulation and implementation of a national least-cost development program for power and lignite, as well as, the efficient operation of existing and new generating capacities would require a fully interconnected system operated at a voltage level that would minimize losses and the probabilityof outages. Technical studies have determined that the 380-kW transmission network is at present optimal for Yugoslavia. The network would evacuate the electric power from the surplus to the deficit republics and provinces in order to minimize the overall cost of meeting the demand for electricitythroughout Yugoslavia. - 229 - This would allow for the dispatch of the power plants on the basis of their operating cost and ensure that at each point in time the most economic combination is used. In recognizing the critical role of the 380 kV network, the Bank financed all three phases. The implementation of the first and the initiation of work on the second phase were delayed because of the shortage of foreign exchange. The timely implementation of the remaining work on the second phase and the commissioning of the third phase are by far the most critical. They would ensure the success of the development plan for the power subsector and since power accounts for the bulk of energy investments, the entire energy plan. Delays in the future would hinder the efficient operation of the system by forcing the OALs to transmit power at lower voltages which would increase losses or by operating the standby oil- and gas-fired capacities to compensate for the shortage of power that could otherwise be purchased from other republics and provinces. Therefore, in view of its pivotal role for ensuring the least cost development and operation of the subsector the authorities should ensure that all foreign and local currency requirements are met. Planning and Macroeconomic Management Formulation and Adoption of Plans: The time involved in the harmonization of plans usually extends into the first year or two of the plan being implemented, and consequently, projects which are being negotiated have either started or are delayed. By the time consensus is reached, it is too late to stop the projects already under construction or start those delayed by one or two years. OALs have been known to initiate projects as a means of ensuring that the rest of the financing required could be secured from the CIs, banks, etc., since they constitute ongoing projects. Such projects usually are viewed favorably and given preferential treatment in the allocation of resources. This induces OALs to euulate each other and compete for the favorable status. As a result, priority projects are, at times, delayed and instead some of the less attractive projects are allocated the scarce resources. In view of the delays usually experienced in harmonizing the investment plans of the economic agents at all levels and given the negative effects these delays have on project implementation and the achievement of targets, it is recomnended that the authorities consider initiating the planning cycle at least two years before the start of the next plan. Targets: The implementation of the plans hinges largely on the targets set by the authorities. Unless these targets are technically realistic, over investments by OALs is inevitable. A major shortcoming of this approach is that once compacts relating to the macroeconomic and sectoral targets are concluded, they cannot be changed without reinitiating the process, even when they are unattainable. The lack of flexibility is the principal source of the inconsistency between the plan targets set by the authorities and the targets set by OALs, which in the past has prouDted over-investment. Therefore, all that is required is to adjust the prevailing practice to allow for the bi-directional flow of information between the first and the second steps and a mechanism for adjusting the targets, as and when required, in order to imprcve the - 230 - efficiency of planning and shorten the time required for reaching agreement. The latter could be achieved by requiring OALs to rank their priorities based on a uniform measure, for example rate of return. This would ensure that each project put forth is part of the national least cost plan and is ranked. Decision-makers could then identify, in consultation with OALs, the projects with the lowest rate of return which, in case of resource constraints or when the targets need to be scaled down, could be postponed. Overambitious Forecasts. Forecasts of the demand for energy prepared by the authorities are based on a relatively simple linear equation relating GDP and energy consumption. This equation takes no account of the impact of prices on energy consumiption. The exclusion of prices from the equation reflects the view, adhered to until recently by the authorities, that prices of social goods, which are determined within CIs, do not serve an allocative function. Although this view has now come under scrutiny, prices have not been accorded their proper role in determining the mix and level of products consumed. Moreover, the equation also does not take into account the mix of energy products consumed and the differentials in the growth of value added for the main energy consuming sectors. In the past, this aplproach to forecasting has resulted in the overestimation of energy targets and, in turn, in the initiation of a larger nuiber of projects than the economy could either finance or implement. Therefore, as a firsit step in rationalizing investment planning in the energy sector, the authorities should adopt existing macro-economic models to provide a more disaggregated forecast of energy consumption by taking into account the changes in the structure of fuels used and the development of the main energy consuming sector. However, until a macro-economic model is adopted the MEADdeveloped by the International Atomic Energy Agency, which is available upon request should be used to provide the support needed in formulating the 1986-1990 social plan. It would allow the authorities to simulate and assess the impact of alternative growth scenarios on the energy sector. Hence, the acquisition of MEADshould be given high priority by the authorities and steps should be taken to train Yugoslav professionals in one of the research institutes in the use of the model. Concurrently, in order to achieve economies in both time and manpower, the same institute should also be assigned the task of training Yugoslav professionals in the use of the macroeconomic model adopted. Institutional Setting of the Sector The organization of the energy sector is similar to that of the other sectors in the Yugoslav economy. It involves the autonomous OALs, the professional associations and the federal, republican and provincial committees for energy and industry, institutes for planning and communities for pricing. Some of the agencies are understaffed which hinders the efficient operation and developmentof the sector. FCEI, for example, is grossly understaffed, and hence its limited but competent staff is spread across a large number of tasks none of which is performed adequately The president of FCEI is assisted by 2 vice-presidents, one 231 - for industry and the other for energy. They, in turn, are supported by a team of experienced and well qualified advisors. In the case of energy, there is an advisor for each of the main subsectors;, e.g., coal, power, petroleum, etc. However,the advisors are supported by a few qualified technicians whose number is determined by regional consideration and the availability of financing. Moreover, the staff suffers from the shortage of equipment and resources needed to adequately execute its functions. Consequently, the advisors rely heavily on information provided by the professional associations which they then integrate into national plans and policies without adequate analysis and review. In addition, since FCEI is supposed to harmonize the plans of RPCEIs, the advisors allocate most of their time to protracted discussions needed to reach consensus. Hence, very little time is devoted to the technical evaluation of the plans prepared by RPCEIs. In fact, because of the need to achieve consensus, FCEI tends to accept whatever plans are agreeable to all concerned to avoid the reinitiation of the lengthy process involved in reaching agreement. Similarly, RPCEIs are also understaffed, except in their case they suffer from shortage of qualified advisors. As a result, RPCEI tend to accept whatever emerges from OALs in the form of plans, restricting their role to the achievement of consensus in their jurisdiction. The professionalassociations are supposed to provide technical expertise for evaluating and integrating the development plans of their members. The coal mining association, OURU, is managed by an extremely competent and experienced president. The rest of the staff, about 7 technicians,with wide range of specialties are required to evaluate the plans put forth by member OALs. As a result, OURU has to rely heavily on the coal mining institute for technical support. Although its staff is of a high caliber, the use of the mining institutes'capabilities is dictated by the availabilityof funds and the agreement of OURU's meibers to the terms of reference for the tasks to be undertaken. Moreover, since the mining institute is an autonomous OAL which must taximize its earnings, it tends to avoid contentious issues that could alienate its potential clients and induce them to establish their own technical branches and compete with the institute.The oil and gas association,OUNP, is by far the weakest of the three associations. Its size is extremely small and its staff lacks the technicalexpertise needed to efficiently execute the functions outlined in its charter. OUNP also has the added disadvantage of not having a technicalbody such as the mining institute,which it can depend on for technical support. All technical expertise in oil and gas in the country is divided among OALs that are fully integrated in INA, Naftagas, etc. In fact, this integration is one of the main constraints to the efficient development of the petroleum subsector. For example, unless INA is willing to cooperate,Naftagas would have no access to the expertise acquired by INA and vice versa, which results in duplication of facilities seen throughout the Yugoslav system. Technically, JUGEL is the most competent association in the energy sector. Its technical expertise is strong because of three reasons. The first is that the operation and development of the power subsector requires a minimum level of technical knowhow below which a coordinating agency such as JUGEL could not execute - 232 - its functions properly. The second is that failure by JUGEL in executing its functions would have implications(brown and black-outs) which cannot be isolated or confined to a specific area as is the case with oil and gas fields and coal mines. The third is that the Bank has, since its first operation in the subsector, emphasized JUGEL's critical role in the efficient development and operation of Yugoslavia's interconnectedand unified power system. Despite its relative strength, JUGEL still needs further strengthening in the areas of systems planning, tariff design, forecasting and financial planning. FISP is also grossly understaffedand its personnel have limited experience in energy planning and development. Consequently, at the federal level, the institute depends on the FCEI and the professional associations for technical input to the plans; however, as explained above, the technical expertise of these agencies is itself strained because of staffing and organizational problems. At the republican and provincial levels, the same shortcomings are also experienced. RPISPs and RPCEIs are generally weak in energy planning and development. As a result, the entire systems for energy planning in Yugoslavia is inadequate which is largely responsible for some of the major constraints experienced in achiving the targets of social plans; i.e. unrealistic targets, dichotomybetween macroeconomic and energy plans, etc. FCP and RPCPs are ill-equipped in handling complex pricing policies for energy. The communities are entrusted with the review of prices of all goods and services in the economy. Consequently, the time allocated by the RPCPs to the intricacies involved in the pricing of electricity, domestic gas and coal and lignite is limited and usually undertaken on an ad hoc basis. Moreover, because of the technical details imFolved in the pricing of these energy products, the communities tend to fall victims to CIs whose familiarity is far more advanced than that of RPCPs. The institutional shortcomings outlined above are likely to hinder the implementation of the structural adjustment of the energy sector currently underway. Unless the staffing of the agencies responsible for energy planning, coordination, development and pricing are strengthened and the processes involved in energy planning and pricing are streamlined, the implementation of the measures aimed at rationalizing energy demand and supply would not materialize. As a minimum, the following steps should be undertaken to strengthen the planning and pricing capabilities of the agencies involved in the energy sector. (a) FCEI and RCEIs should be strengthened by the appointment of a planning group in each comprising at Least 10 professionals at the federal level and 3 professionals at the republican and provincial level with proven experience in energy planning and energy economics. These should then be further trained in the areas of forecasting, energy planning, project selection and energy conservation; (b) the energy planning capabilities of FISP should be increased by about 10 professionals and the staff trained in the use of - 233 - macroeconomic models with fairly detailed energy components to use in the simulation of the interaction between the energy sector and the rest of the economy, particularly the impact of different scenarios for energy development and pricing on the balance of payments; and (c) RPISPs' capabilities should also be upgraded by recruiting for each institute at least one professional with proven experience in energy planning; and (d) to strengthen its capability, FCP should also appoint, as a minimum, 4 experts with proven experience in the pricing of coal, oil, gas and electricity. Constitutionally, the system of workers' self-management accords complete autonomy to OALs in decision relating to pricing, investment, planning, etc. These decisions reflect their desire to maximize their income. Moreover, the constitution also precludes any interference by the authorities in the workings of OALs. Economic plans and policies and the compacts guiding them are only indicative and, as such, they are taken into consideration only when OALs decide that such action is in their interest. Therefore, movement by OALs cannot be initiated and sustained by compacts but by economic interests only. Herein lies the key to economic management in Yugoslavia and the instruments with which to move the entire economy in the direction desired. OALs should be given proper signals regarding the cost of resource used and left to optimize their income knowing well in advance that the cost of uneconomic decisions would be fully borne by their members and not the system in general through solidarity fund and other funds set up to ease the workers' burden of responsibility. In the energy sector as well as in all other sectors, this would require the amendment of the law on pricing, movement towards positive interest rates, amendments to the law on bankruptcy and the adoption of least cost national strategies for the development of the sector. A plan of action for restructuring the energy sector is s ummarized in Annex 9.2. - 234 - ANNEX 2.1 Page 1 of 3 Organizationof the Electric Power Subsector 1. Until 1965, the operation and management of the power subsector in Yugoslavia was under federal control. Following the Economic Reform of that year it became subject to the same policy of decentralization and self-managementas the rest of the economy. The new policies relating to the power subsectorwere given formal expression in the Electricity Act of 1965. This Act, in conjunctionwith subsequent;measures such as the Law of Associated Labor (1973), the Yugoslav Constitution (1974) and the Law on Association in the Union of Yugoslav Electric Power Industry (1978), governs the organizationof the power subsector (,seeAttachment 1). 2. In accordance with the principles of decentralization and self-management, individual republics and autonomous provinces are responsible for meeting the electricity requiresmentswithin their area. In theory this could mean eight separate power systems operating independently of each other. However, to ensure optimum conditions of security, economy and quality of service the law requires that the power subsector operate and function as a single integrated system, and that all organizations of associated labor engaged in the generation and transmissionof electricity be members of the tUnionof Yugoslav Electric Power Industry (JUGEL). As of 1982, JUGEL had about 100 such members (see Attachment 2), including some lignite mines engaged in the supply of fuel to power stations and 12 voluntary members representing organization associatedwith the power industry. The Role of JUGEL 3. JUGEL's primary function is to coordinate the operation and development of the interconnectedpower system,but since it does not have executive authority, decisions on important matters generally are secured through consensus. The coordinationof the interconnectedsystem is based on a "Self-ManagementAgreement for Joint Operation". It provides for the management of eight dispatch centers in the republics and provinces by a federal dispatch center operated by JUGEL. Under the original version of this agreement made in 1971, power exchanges between republics/provinces were based on long-term contracts for the sale of power or supply from jointly financed power plants, supplemented by short-term (weekly or daily) agreements. A revised version of this agreement, approved by the members of JUGEL in 1981, has made it possible to gradually move towards economic load dispatching. Such an arrangement,moreover, will permit the substitution of expensive thermal generation in one republic/provinceby less expensive generation from another. The achievement of this objective would be realized when current work on the construction of the Energy Management System (EMS) to improve dispatching is completed. The EMS is - 235 - ANNEX 2.1 Page 2 of 3 being built under the Third Transmission Project for which the Bank provided a loan of $120 million in August 1983. 4. JUGEL's other main responsibilitieswith regard to the operation of the power system are: (a) to exercise a country-wide load frequency control so as to promote efficient utilization of the power generation and transmissionfacilities; (b) to take decisions on internationalpower transfers; (c) to establish standards for the construction and operation of generationand transmissionfacilities; (d) to coordinate the operation and maintenance schedules of the major generationand transmissionfacilities; and (e) to keep records of plant availability, water flows and power exchanges between the various electricity organizations. JUGEL is also responsible for establishing the basic principles of the electricitytariff. 5. JUGEL's role in the development of the interconnectedsystem is based on a provision of the 1978 JUGEL law requiring member organizations to "enter into a self-management agreement on the principles of coordination of their plans and development programs". Under this agreement, JUGEL's coordinatingrole may be summarizedas follows: (a) To coordinate the annual and long-term electric power balances of the power industries of the individual republics and autonomous provinces so as to establish the power balance for Yugoslavia, and to take the necessary measures for its implementation. For this purpose, the initial balances of the republics and provinces are required to be based on agreed uniform criteria for electricitygeneration and consumption planning. The coordinated national balance is drawn up both by months and for the year. It incorporates electricity transfers between surplus and deficit republics/provinces, as well as exchanges with neighboring countries. (b) By the end of each year, to approve a generation plan for the following year. This is based on the use of the central load dispatching center in Belgrade and forecasts generation at the individual power stations by day, week and month, as well as for the whole year. If there is any conflict between the least-cost - 236 - ANNEX 2.1 Page 3 of 3 operation of the supply system and the financial objectives and interests of the various BOALs, then priority is supposed to be given to the least-cost objective. In the event of a fundamental disagreement between republics and autonomous provinces on the future supply of electricity, the Arbitration Department of JUGEL is required to mediate. (c) If the expected Yugoslav electricity production falls short of projected requirements, to arrange for the necessary imports and/or secure agreement on measures to limit the consumptionof electricity. A republic or province wishing to import electricity from another country must arrange for this through JUGEL. (d) To harmonize the development plans of the republics and provinces, and present an agreed plan for the power subsector to FCEI, which is responsible for harmonizing this plan with the plans for the other energy subsectors. (e) To provide information on the agreed power subsector plan to the Federal Chamber of Economy, for coordination with the plans of industry. (f) In harmonizing the plans of the republics and provinces, to take into account the constructioncapabilities of the Yugoslav heavy construction industry and the production potential of domestic manufacturers of power station equipment. If the electric power industry wishes to import equipment available from domestic manufacturers, it must obtain the prior approval of the Association of Yugoslav Machine Industry (JUMEL)e 6. JUGEL is required to present annual reports to the Federal Assembly of Yugoslavia, the Federal Executive Council and FCEI. Should the self-managementagreements required by law Eor the power industry not be concluded, or should JUGEL fail to discharge its legal responsibilities,the Federal Executive Council has the power to ensure the technologicalintegrity of the Yugoslav power system. - 237 - ANNEX2.1 Attachment1 ORGANIZATIONOF JUGEL UNION OF YUGOSLAV ~~~~~~~ELECTRIC POWER| Councilof Experts INDUSSRT .I.D_STR' Assembly Nucrea |SpecialServices ASSEI /BLY _Executive General _ ewr _Board Mana8er Ne_wk LExpertCommissions Coite Tariffs / \/ \Jl \ \ ~~~~Distribucion~ HdProblems / I \/1 \ \ \ ~~~~Seudyand lResearch ElectricPower Induscry I Electric Power //j\\Industry |Electric Pow~erPotzerisribusc Indusery ory1 of Bosniaand //I\\\ of Vo.jvodina Herzegovina Despatchin\ Electric Power Industry / l \ \ Electric Power Industry of Bosatia an of Sverbia Ele-ctricElectric PowierPower Industry fElectric ectric PowerP'ower Industry of Kosovo \|of Serbia Electric Pouer Indusrty ,Electric Power Industry of M:acedonia of Mlontcne6roj - 238 - ANNEX 2.1 Attachment 2 Page 1 of 4 List of Electric Power Organizationsand Other Organizations Associated in the Union of Yugoslav Electric Power Industry (October 1983) A. Electric power organizations in charge of generation, transmissionand distribution,which are obliged to be members of JUGEL SR BOSNIA AND HERZEGOVINA 1. Composite Organization of Associated Labor (COAL) "Electric Power Industry of Bosnia and Herzegovina" - Sarajevo, for generation, transmissionand distribution,with constituenltwork organizations: 1.1 Thermal Power Station "Kakanj" - Catici 1.2 Thermal Power Station "Tuzla" - Tuzla 1.3 "Hydro Power Stations on the Neretva River" - Jablanica 1.4 "Hydro Power Stations on the Vrbas River" - Jajce 1.5 "Hydro Power Stations on the TrevisnjicaRiver" - Trebinje 1.6 "Elektroprenos"- Sarajevo (transmissionorganization) 1.7 "Elektro-Krajina"- Banja Luka (distributionorganization) 1.8 "Cascade on the Una River" - Bihac (distributionorganization) 1.9 "Elektro-Doboj"- Doboj (distributionorganization) 1.10 "Elektro-Herzegovina"- Mostar (distributionorganization) 1.11 "Elektro-Tuzla"- Tuzla (distributionorganization) 1.12 "Vladimir Peric - Valter" - Sarajevo (distribution organization) 1.13 "Middle Bosnia Distribution"- Zenica 1.14 "Hydro Power Stations on the Drina River" - Sarajevo (being established) 1.15 "Mine and Thermal Power Station Ugljevik" - Tuzla (being established) 1.16 "Mine and Thermal Power Station Gacko" - Gacko (being established) SR CROATIA 2. "Union of Electric Power Organization of Croatia" - Zagreb, with constituentwork organizations: 2.1 Hydro Power Station "Dubrovnik"- Dubrovnik 2.2 "Electric Power Industry - Rijeka" - Rijeka 2.3 "Electric Power Industry of Dalmacia" - Split 2.4 "Electric Power Industry - Zagreb" - Zagreb 2.5 "Elektroslavonia" - Osijek 2.6 "Elektroprimorje"- Rijeka (distributionorganization) 2.7 "Elektrodalmacia"- Split (distributionorganization) - 239 - ANNEX 2.1 Attachment 2 Page 2 of 4 2.8 "Elektra"- Sisak (distributionorganization) 2.9 "Elektra"- Karlovac (distributionorganization) 2.10 "Elektroistra"- Pula (distributionorganization) 2.11 "Elektra"- Zagreb (distributionorganization) SR MACEDONIA 3. Composite Organization of Associated Labor (COAL) "Electric Power Industry of Macedonia" - Skopje, for generation, transmission and distribution,with constituentwork organizations: 3.1 Hydro Power Stations "Mavrovo" - Gostivar 3.2 Hydro Power Station "Splilje" - Debar 3.3 Hydro Power Station "Tikves" - Kavadarci 3.4 Hydra Power Station "Globocica"- Struga 3.5 Hydro power Station "Kalimanci"- Delcevo 3.6 "Elektroprenos"- Skopje (transmissionorganization) 3.7 Thermal Power Station "Negotino"- Negotino 3.8 Thermal Power Station and Mine "Oslomej" - Kicevo (being established) 3.9 "Mining-EnergeticsCombine Bitola" - Bitola (being established) 3.10 "Elektro-Macedonia"- Skopje (distributionorganization) 3.11 "Elektromontaza"- Ohrid (constructingorganization) SR MONTENEGRO 4.1 Work Organization (WOAL) "Electric Power Industry of Montenegro" - Niksic, for generation and transmission and construction of power facilities, with constituent basic organizations of associated labor: 4.1.1 Hydro Power Station "Perucica"- Niksic 4.1.2 Hydro Power Station "Piva" - Mratinje 4.1.3 "Elektroprenos"- Titograd (transmissionorganization) 4.1.4 "Elektrogradnja"- Titograd (Elektro-construction) 4.2 Thermal Power Station "Pljevlja"- Pljevlja (being established) 4.3 Mine "Pljevlja"- Pljevlja (being established) 4.3 Work Organization (WOAL) "Elektrodistribucija Crne Gore" - Titograd (distributionorganization) SR SERBIA PROPER 5.1 Composite Organization of Associated Labor (COAL) "Associated Power Industry" - Beograd, with constituentwork organizations: 5.1.1 Hydro Power Station "Djerdap" - Kladovo - 240 - ANNEX 2.1 Attachment 2 Page 3 of 4 5.1.2 Hydro Power Station "Bajina Basta" - Perucac 5.1.3 Hydro Power Station "Zvornik" - Mali Zvornik 5.1.4 Hydro Power Station "Elektromorava"- Cac:ak 5.1.5 Hydro Power Station "Vlasina" - Surdulica 5.1.6 "Hydro Power Station on the Lim River" - Nova Varos 5.1.7 Thermal Power Station "Nikola Tesla" - Obrenovac 5.1.8 Thermal Power Station "Koiubara" - Veliki Crlieni 5.1.9 Industrial-EnergeticsCombine "Kostolac"- Kostolac 5.1.10 "Belgrade'sPower Stations" - Beograd 5.1.11 "Elektroistok"- Beograd (transmissionorganization) 5.1.12 Thermal Power Station "Morava" - Svilajnac 5.2 "Business Community of Serbia Distribution" - Beograd, with work organizations: 5.2.1 "ElektrodistribucijaBeograd" - Beograd 5.2.2 "Elektrosrbija" - Kraljevo 5.2.3 "Elektrodistribucija24 September"- Titovo Uzice 5.2.4 "ElektrodistribucijaNis" - Nis 5.2.5 "ElektrodistribucijaLeskovac" - Leskovac 5.2.6 "Elektromorava" - Pozarevac 5.2.7 "ElektrodistribucijaVranje" - Vranje 5.2.8 Elektroimok" - Zajecar 5.2.9 "Elektrosumadija"- Kragujevac 5.2.10 "ElektrodistribucijaPriboj" - Priboj 5.2.11 "ElektrodistribucijaIvanjica" - Ivanjica 5.2.12 "ElektrodistribucijaPrijepolje" - Prijepolje 5.2.13 "ElektrodistribucijaUzicka Pozega" - Uzicka Pozega 5.2.14 "ElektrodistribucijaBajina Basta" - Bajina Basta 5.2.15 "ElektrodistribucijaNova Varos" - Nova Varos SAP KOSOVO 6. Composite Organization of Associated Labor (COAL) "Electric Power Industry of Kosovo" - Pristina,with constituentwork organizations: 6.1 Thermal Power Station "Kosovo A" - Obilic 6.2 Thermal Power Station "Kosovo B" - Obilic (being established) 6.3 Mines "Kosovo" - Obilic 6.4 "Eneregetika i Hemija - Kosovo" - Obilic 6.5 Hydro Power Station "Gazivode"- Gozivode 6.6 Transmissionand Distribution"Kosovo" - Pristina SAP VOJVODINA 7. Composite Organization of Associated Labor (COAL) "Elektrovojvodina"- Novi Sad, with constituentwork organization: - 241 - ANNEX 2.1 Attachment 2 Page 4 of 4 7.1 "ElektrodistribucijaVojvodina" - Novi Sad 7.2 Thermal-District Heating Station "Novi Sad" - Novi Sad (being established) 7.3 Thermal-District Heating Station "Pancevo" - Pancevo (being established) 7.4 Thermal-District Heating Station "Zrenjanin" - Zrenjanin (being established) 7.5 "Elektroprenos"- Novi Sad (transmissionorganization) 7.6 "ElektroizgradnjaVojvodine - Novi Sad (constructingorganization) 7.7 "Novi Sad's Heating Station" - Novi Sad 7.8 "Subotica'sHeating Station" - Subotica SR SLOVENIA 8. Composite Organizationof "Associated Electric Power Organizations of Slovenia" - Maribor, with constituentwork organizations: 8.1 "The Drava's Power Stations" - Maribor 8.2 "The Sava's Power Stations" - Ljubljana 8.3 "The Soca's Power Stations" - Nova Gorica 8.4 Power Station "Brestanica" - Brestanica 8.5 Thermal Power and District Heating Station "Ljubljana"- Ljubljana 8.6 Thermal Power Station "Sostanj" - Sostanj 8.7 Thermal Power Station "Trbovlje"- Trbovlje 8.8 DistributionOrganization of Slovenia - Ljubljana 8.9 Nuclear Power Station "Krsko" - Krsko (being established) 8.10 "Elektrogorenjska"- Kranj B. Research Institutes, Engineering,Consulting and other Organizationof associated labor, which are the voluntary members of JUGEL: 1. "Energoinvest",Research Institute - Sarajevo 2. "Elektroprojekt",Enterprise for Engineering acd Consulting Services - Zagreb 3. "Electric Power Industry Institute" (Institut za Elektroprivredu)- Zagreb 4. Elektroinstitute"M. Vidmar" - Ljubljana 5. EngineeringBureau "Elektroprojekt"- Ljubljana 6. ElektrotechnicalInstitute "N. Tesla" - Beograd 7. "Iskra" - Development Institute - Ljubljana 8. Institute "M. Pupin" - Beograd 9. "Institute for Economy of Industry" - Beograd 10. Mining Institute - Zemun 11. "Energoproject"- BOAL for Design, Consulting and Engineering of Power and Industrial Plants - Beograd 12. "Institute for Energy" - Pristina - 242 - ANNEX 2.2 Page 1 of 2 Organization of the Oil and Gas Subsector 1. In Yugoslavia, the exploration and production of oil and gas has been entrusted to four composite organizations of associated labor whose activities generally are confined to the republicsi and provinces in which they are located. INA-Naftaplin, located in the republic of Croatia, is the largest Composite Organization of Associated Labor (COAL) in Yugoslavia today. It comprises 14 working organizations dealing with oil exploration and development, oil transport, refining, petrochemicals, etc. Naftagas Kombinat which is located in the autonomous province of Vojvodina also is a large COALconsisting of 12 enterprises dealing with oil exploration and development, gas transport, refining, distribution of petroleum products, chemicals, etc. Energoinvest, in Bosnia-Herzegovina, is a conglomerate of 46 Work Organization of Associated Labor (WOAL) covering some 40,000 workers. It is involved in essentially the same activities as INA and Naftagas. In addition, it also was granted permission in 1973 for the exploration of oil and gas. Jugopetrol, situated in Montenegro, is primarily an importer and distributor of petroleum products, although it did receive approval in 1969 for a joint venture with foreign partners for developing its offshore acreage in the Southern Adriatic. The organizations of labor associated with these four enterprises are described in Attachment 1. 2. In accordance with the law, all organizations of associated labor engaged in the exploration and production of oil and gas are required to be members of the Association of Oil and Gas Producers (OUNP). At the beginning of 1983, OUNP had 26 such members from the four enterprises. Like other national associations in Yugoslavia, OUNP represents the petroleum and gas industry in the Chamber of Economy, the Federal Committee for Energy and Industry, and the Federal Committee for Pricing. It concerns itself primarily with questions of mutual interest to the industry such as coordinating the activities and investments of its members with other sectors of the economy and providing a forum to its members for exchanging views on technical and financial matters. In addition, by the end of each year, OUNPalso makes decisions regarding the allocation of inputs to the various enterprises based on the energy forecasts for the following years. Specifically, the criteria used in making these allocations include items such as the refining and processing capacity of each enterprise, the structure of that capacity and last but not least, the forecast demand for the various petroleum products and gas in individual republics and provinces. The iimport quotas for each enterprise also are established by OUNP. Since the association does not have executive power, decisions generally are secured through consensus, as they are in all other associations. - 243 - ANNEX 2.2 Page 2 of 2 3. OUNP comprises four committees and two commissions. The bulk of the activities of OUNP, except for administrativetask which are performed by the commissions, are the responsibilityof the committees which are composed of 6 or 7 members each. One of the committees, for example, is responsible for harmonizing the development plans of the various enterprisesprior to the submission to the FCEI of a plan for the oil and gas industry which is then harmonized with the plans for the other energy subsectors. Another committee is concerned specifically with the questions of foreign trade including general trade policy, import quotas, sources of imports, etc. A third committee is responsible for translating the energy balance and establishing input allocation priorities. The fourth committee deals with organizationaland public relations problems. - 244 - ANNEX 2.2 Attachment 1 Page 1 of 2 Members of the Association of Oil and Gas SOUR INA - Zagreb, ProleterskihBrigada 78 INA - Naftaplin, Zagreb, Subiceva bb INA - Rafinerija Rijeka, Industrijska26 INA - Rafinerija nafte Sisak, B.Kidrica bb INA - Rafinerija nafte Zagreb, Radnicka cesta 175 INA - Rafinerija nafte Lendava INA - Naftovod Zagreb, Frankopanska1l/II INA - InzinjeringZagreb, ProleterskihBrigada 78 INA - Trgovina Zagreb, Savska 41 INA - Plin Zagreb, A.V.Holjevcabb INA - Commerce Zagreb, Savska 41 INA - Petronafta Solin SOUR "NAFTAGAS" Novi Sad, Sutjeska 1 "Naftagas" - Rafinerija nafte, N.Sad, Kacki put bb "Naftagas" - Rafinerija nafte Pancevo, Spol;jnostarcevackabb "Naftagas" - "Naftagas" N.Sad, Sutjeska 1 "Naftagas" - RO "Gas" Novi Sad, Narodnog Fronta 45 "Naftagas" - Montaza, Zrenjanin, Tomasevackldrum 40 "Naftagas" - Inzinjering,N.Sad, A.Santica 71-a "Naftagas" - Promet, N.Sad, Bul. 23 oktobra 27 "Naftagas" - "Butangas",Beograd, Djure Dja]kovica24-a "Naftagas" - Rafinerija Beograd, Pancevackiput 83 SOUR "ENERGOINVEST",Sarajevo, Bratstva jedinstvabb "Energoinvest" PZ nafte i hemije, Sarajevo, Bratstva Jedin. bb "Energoinvest" Rafinerija B.Brod "Energoinvest" Rafinerija ulja, Modrica, V.Bakulica bb "Energoinvest" Sarajevo,M.Tita 36 SOUR "JUGOPETROL",Beograd, Masarikova 5 "Jugopetroll"Export-Import, Beograd, Masarikova 5 "Jugopetrol" unutrasnja trgovina, Beograd, M.Tita 36 SOUR "PETROL", Ljubljana, Titova 66 "Petrol" DO Trgovina, Ljubljana, Titova 66 "Petrol" DO Zemeljski plin, Ljubljana, Cesta ljubljanskihbrigada 11 "Petrol" DO Rafinerija,Maribor, Linhartova 17-a - 245 _ ANNEX 2.2 Attachment 1 Page 2 of 2 "Ostra-Benz"Kopar, Vojkovo Nabrezje 10 'Makpetrol"Skopje, M.Hadzivasilev- Jasmin bb "Rafinerija"Skopje, Koste Novakovica 6 "Jugopetrol"Kotor "Petrolinvest"Sarajevo, Zeleznickabb "Sarajevo-gas"Sarajevo, S.V.Cice 2/II Jugoslovenskinaftovod, Rijeka, Teslina 9 "Nafta" PZ, Zagreb, Savska cesta 64 "Geofizika"Zagreb, Savska cesta 64 "Industroprojekt"Zagreb, Savska cesta 88-a Fabrika maziva, Krusevac, Jastrebackabb Petrolunion,Beograd, Bul.Revolucije62 "Geozavod" Geofizicki institut, Beograd, Karadjordjeva48 "Petrolgas"Ovca, Lole Ribara 12 "Plinara" Pancevo, Paje Marganovica 8 - 246 - ANNEX 2.3 Page 1 of 3 Organizationof the Coal Subsector 1. The General Associationof Yugoslav Coal Mines (OURU) was founded in accordance with the law on Association of Organizationsof Associated Labor in General Association and in the YugosLav Chamber of Economy. According to the law, OALs involved in coal mining are required to become members of OURU. Like other national associations,OURU is a legal entity with a General Assembly in which each OAL is represented by a delegate. In addition to' representing the coal subsector in the Chamber of the Economy, the Federal Committee for Energy and Industry and the Federal Community for Pricing, OURU concerns itself with: improving the operation of coal mines especially with respect to safety and management; and increasing productivityof labor by promoting the optimal utilization of existing capacities. It reviews and comments on production plans prepared by OALs, conducts feasibility studies and makes recommendations to appropriateagencies to adopt or amend existing regulationsaffecting coal exploration,production, processing and trade. The other responsibilities of OURU include: relations among member OALs, pricing of coal and lignite, cooperation with other sectors of the economy and associations particularlyJUGEL, and internationalorganizations such as the commission for Easter European countries, EEC and UN. Like other national associations,OURU has no executive power and hence all decision relating to the activities of the coal and lignite subsector are secured through consensus. In addition to OURU, there are other scientific and research institutions that are associated with the coal subsector including the Mining Institute in Belgrade, Mining Research Institute in Tuzla and the Mining Institute in Ljubljana. Research work in the area of coal mining is also carried by the Faculty of Mining and Geology in Belgrade, Faculty of Mining and Geology in Tuzla, Faculty of Mining in Ljubljana, Faculty of Mining, Petroleum Studies and Geology in Zagreb and Faculty of Mining in Titova Mitrovica. 2. As of March 1983, OALs represented in OURU were organized as follows at the republican and provincial level. Bosnia and Herzegovina. In this Republic all coal mines, with the exception of the lignite mine Stanari, which belongs to BOAL Elektrobosna",Jajce and the mines under construction"Gacko"and "Ugljevi", whose investor is ElektroprivredaBosne i hercegovine (Bosnia and Herzegovina Power Industry)are organized within the Composite Organization of Associated Labour (COAL) "Titovi Rudnici Uglja" (Tito's Coal Mines) in Tuzla. Fifteen working organizationswith 53 basic organizations of associated labour (BOALs), 19 working communities and about 26,000 workers are associated within COAL Tito's Coal Mines. "Tito's Coal Mines" and "ElectroprivredaBiH" have entered into a self-management agreement on the formation of a community of associated labor for common planning and business cooperation. - 247 - ANNEX 2.3 Page 2 of 3 3. Montenegro. There are two coal mines in Montenegro -- the lignite mine "Pljevlja" and the Brown Coal Mine in Ivangrad. "Pljevlja" is a working organizationwith several BOALs. So far this mine has served a number of consumers, both industrial and households. A thermal electric power station with 210- MW has recently been constructed in Pljevlja, and the capacity of the "Pljevlja"mine has been increased to a total of about 2.0 m tons by the addition of a new opencast mine "Borovica". 4. Croatia. Only one hard coal mine -- Istarski Ugljenokopi (Istria Coal Mines) "Rasa" in Labin is in operation. Ths mine produces about 300,000 tons of coal per annum. Its main consumer is TE "Plomin", which accounts for about two thirds of the total production, while the balance is used by the industry (cement works, RTB Bor( and a certain quantity of large size coal is used by the railways. 5. Macedonia. Currently there are two opencast coal mines -- "Oslomej",near Kicevo and "Suvodol" near Bitola with a total capacity of about 4M. tonnes in the first phase of production. Both mines were constructed by "Elektrostopanstvo",Skopje which is an organization of associated labor for the production and transmission of power in the is republic. These two mines are an integral part of the power industry and will produce coal exclusively for the needs of thermal power stations which were constructedconcurrently with the mines in Oslomej and Suvodol. 6. Slovenia. Principal coal producers in Slovenia are the Zasavski Brown Coal Mines ("Zagorje", "Trbovlje", Hrasnik") and the lignite mine "Velenje". In addition to these, brown coal mines "Senovo", "Lasko", "Kocevje" and "Kanizarica"are in operation with a total production of only 350,000 tons of coal per annum. The Zasavski Mines have been integrated with the thermal power station Trbovlje since the beginning of 1976, later on, all other brown coal mines join the COAL REK (Rudarsko-energetski kombinat (Mining and Power Kombinat)?)"Edvard kardelj" - Trbovlje. The lignite mine "Velenje", together with the thermal power station "Sostanj" and other working organizations,is also a part of COAL REK "Velenje" in Titovo Velenje. 7. Serbia Proper. There are two large lignite basins in this region namely: REIK "Kolubara", IEK "Kostolac" with opencast mines and a number of underground brown coal and lignite mines. COAL Mining-Power-Industry Kombinat "Kolumbara" consists of 12 working organizations (3 organizations-at-foundation)with 25 BOALs and about 14,500 workers. The mines and the thermal power station "Kolubara" are also a part of COAL ZEP, Belgrade. The working organization Industrial-Power Kombinat "Kostolac"is integratedwith the thermal power station, and as a kombinat it is a part of COAL ZEP (Zdruzena Elektroprivreda in Belgrade). The Kombinat has 6 BOALs and the working community Common Services. Underground brown coal and lignite mines (a total of 10 working organization) are associated in the Servian Business Community of - 248 - ANNEX 2.3 Page 3 of 3 UndergroundMines in Belgrade. In addition to the working organizations, a COAL consisting of the so called Timocki Rudnici (Mines) "Soko", "Bogovina", "Vrska Cuka" and "Lubnica" are also associated within this Community. 8. Kosovo. COAL "Elektroprivreda" Kosova consists of all thermal power stations, coal mines and coal processing facilities and organizations for the transmissionand distributionof power. The working organizationfor the production of coal has 3 BOALs. - 249 - ANNEX 3.1 GeographicalDistribution of Total Reserves of Coal and Lignite Proven Reserves Potential Reserves Total Reserves Hard Brown Hard Brown Hard Brown Coal Coal Lignite Coal Coal Lignite Coal Coal Lignite In Million Tons Bosnia- Herzegovina - 1,128 2,118 - 758 1,460 - 1,886 3,578 Croatia 14 - - 24 - - 38 - - Kosovo - - 7,302 - - 1,281 - - 8,583 Macedonia - - 499 - - 121 - - 620 Montenegro - - 140 - - 290 - - 430 Serbia 47 75 2,776 30 325 2,272 77 400 5,048 Slovenia - 75 243 - 97 427 - 172 670 Vojvodina - 195 _ 466 _ - 661 TOTAL 61 1,278 13,273 54 1,180 6,317 115 2,458 19,590 In Millions of Toe Bosnia- Herzegovina - 396 561 - 266 386 - 662 947 Croatia 9.3 - - 16 - - 25.3 - - Kosovo - - 1,933 - - 339 - - 2,272 Macedonia - - 132 - - 32 - - 164 Montenegro - - 37 - - 77 - - 114 Serbia 31.3 26 735 20 114 601 51.3 140 1,336 Slovenia - 26 64 - 34 113 - 60 177 Vojvodina - - 52 - 123 175 TOTAL 40.6 448 3,514 36 414 1,671 76.6 862 5,185 Source: Report of the Federal Council on Stabilization. -250 - ANNEX 3.2 Page 1 of 4 Hydropower Sites Planned for Developmentbetween 1986-2000 Average Installed Annual Republic or Province Capacity Production Power Station Type Water Basin (MW) (GWh) BOSNIA-HERZEGOVINA 1. Buk Bijela H (S) Drina 320 845 2. Nevesinje H (PS) Zalomka 40 115 3. Dabar H (R) Zalomka 160 478 4. Ustikolina H (R) Drina 103 380 5. Konjic H (S) Neretva 257 441 6. Ulog H (S) Neretva 177 352 7. Bileca H (R) Trebisnjica 33 122 8. Fatnica H (S) Trevisnjica 60 209 9. Cernica H (R) Trevisnjica 8 24 10. Gorazde H (R) Drina 81 301 11. Krupa H (R) Vrbas 48 141 12. Banja Luka H (R) Vrbas 31 150 13. Klijuc H (S) Sana 48 210 14. Ustipraca H (R) Drina 80 314 15. Foca H (R) Drina 49 182 16. Mrsovo (78% BiH) H (S) Drina 72 274 17. Han Skela H (S) Vrbas 47 183 18. Jablanica II H (S) Neretva 109 65 19. Ugar H (PS) Ugar 358 571(672)/1 20. Mostarsko Blato H (PS) ... 300 209(290)7T 21. Modrac I H (PS) Spreca 200 .. 22. Modrac II H (PS) Spreca 280 ... Subtotal 2,861 /1 Facility shared with another republic. Number in parenthesisrefer to total long term average productionwhich is to be shared with another republic. Source: The DevelopmentProgram of the 380 kY TransmissionSystem of Yugoslavia,July 1981 Belgrade, Annex 11.1, Attachment 6, pp. 11-13, H(S) - Storage, H(R) - Run of River, H(PS) - Pumped Storage. - 251 - ANNEX 3.2 Page 2 of 4 Average Installed Annual Republic or Province Capacity Production Power Station Type Water Basin (MW) (GWh) CROATIA 1. Dubrava H (R) Drava 77 340 2. Podsused H (R) Sava 39 212 3. Jarun H (R) Sava 40 203 4. Rugvica H (R) Sava 41 215 5. Senj II H (S) Lika-Gacka 500 1,100 6. Djurdjevac H (R) Drava 116 647 7. Jasenovac H (R) Sava 25 130 8. Barc H (R) Drava 55 170 9. Moslavina H (R) Drava 60 288 10. Lucice H (S) Korana 29 77 11. BVarilovici H (R) Korana 4 24 12. Zvecej H (R) Mreznica 10 48 13. Djale H (R) Cetina 34 137 14. ManojilovacII H (S) Krka+Zrmanja 103 257 15. Marjanovici H (S) Krka+Zrmanja 25 84 16. Rijecina H (R) Rijecina 11 58 17. Otocac H (S) Lika 6 29 18. Brodarci H (R) Kupa 7 38 19. Krcici H (R) Krka+Zrmanja 29 32 20. Vinodol H (PS) Lokvarka-Licanka 375 662(916) Subtotal 1,586 MACEDONIA 1. Kozjak H (S) Treska 38 160 2. Gradec H (R) Vardar 54 301 3. Titov veles H (R) Vardar 57 282 4. Cebren H (S) Crna Reka 167 353 5. Galiste H (S) Crna Reka 123 224 6. Boskov Most H (R) Radika 30 120 7. Poloske Power Stations H (R) Vardar 70 298 8. Matka II H (S) Treska 36 111 9. Makarija H (R) Crna Reka 16 50 10. Krivolak H (R) Vardar 27 137 11. Negotino . H (R) Vardar 26 130 12. Demir Kapija H (R) Vardar 16 80 13. Djevdjelija H (R) Vardar 16 85 14. Zgrapolci H (R) Vardar 17 86 15. Pena H (R) Pena 25 110 16. Belice (Kaludjerice) H (R) Treska 17 62 17. Smokvica H (R) ... 19 102 18. Zirovnica H (R) Zirovnica 9 40 252 - ANNEX 3.2 Page 3 of 4 Average Installed Annual Republic or Province Capacity Production Power Station Type Water Basin (MW) (GWh) MACEDONIA (Contd.) 19. Jagmular H (R) ... 14 22 20. Vakuf H (R) ... 12 42 21. Ohrid I H (PS) Crni Drim 230 22. Ohrid II H (PS) Crni Drim 335 23. Cebren H (PS) Crna Reka 160 ... 24. Radika H (PS) Radika 335 Subtotal 1,849 MONTENEGRO 1. Kostanica H (S) Tara 552 1,427 2. Andrijevo II H (S) Moraca 75 237 3. Milutinovici H (R) Moraca 44 119 4. Bijeli Brijeg H (S) Tara 274 758 5. Andrijevica H (S) Lim 79 331 6. Titograd H (R) Moraca 44 198 7. Botun H (R) Moraca 20 129 8. Savnik H (S) Piva 64 169 9. Lonci H (S) Piva 67 163 10. Vaskovo H (S) Tara 187 469 Subtotal 1,396 SERBIA 1. Roge H (S) Veliki Rzav 33 63 2. Veliko Tegare H (S) Drina 648 1,753 3. Zvornik Extension H (R) Drina 80 67 -4. Kozluk H (R) Drina 67 361 5. Bijeljina H (R) Drina 172 900 6. Brodarevo H (S) Lim 100 325 7. Kraljevo H (R) Ibar 114 402 8. Lakat H (S) Ibar 274 462 9. Djunis H (R) J.Morava 72 146 10. Zaton H (R) Lim 69 216 11. Prijepolje H (R) Lim 31 116 12. Bistrica H (PS) Lim 624 982(1420) 13. Djerdap III H (PS) Dunav 1,200 2,032(2774) 14. Zvornik-Mladjevac H (PS) Drina 260 358(478) 15. Zvornik-Bucevo H (PS) Drina 300 432(600) 16. Zvornik-Bucevo H (PS) Drina 300 483(644) 17. Velika Vlasina H (PS) Vrla 208 332(405) Subtotal 4,552 - 253 - ANNEX 3.2 Page 4 of 4 Average Installed Annual Republic or Province Capacity Production Power Station Type Water Basin (MW) (GWh) KOSOVO 1. Zur I H (S) Priz.Bistrica 284 397 VOJVODINA 1. Dunav I & II H (R) Dunav 600 SLOVENIA 1. Kobarid H (R) Soca 63 183 2. Vuhred II H (R) Drava 250 460 3. Brezno I H CS) Drava 250 250 4. Apace H CR) Mura 15 89 5. Radgona H (R) Mura 14 80 6. Radenci H (R) Mura 28 160 7. Ljutomer H (R) Mura 42 249 8. Mursko Sredisce H (R) Mura 16 94 9. Truovo H (S) Soca 108 330 10. Trebusa It (R) Idrica 200 221 11. Renke H (R) Sava 26 110 12. Trbovlje H (R) Sava 26 110 13. Suhodol H (R) Sava 31 134 14. Vrhovo a (R) Sava 31 134 15. Bostanj H (R) Sava 31 135 16. -Blanca H (R) Sava 31 137 17. Krako H (R) Sava 32 148 18. Planina H (S) Ljubljanica 189 253 19. Doblar II H (R) Soca 50 145 20. Jesenice H (R) Radovna 19 86 21. Breznice H CR) Brezuica 19 94 22. Libna H (R) Sava 21 105 23. Osp H (S) Notranjska Reka 100 200 24. Prevalje R CR) ... 35 45 25. trsavec a (R) Koritnica 22 50 26. Radovljica H CR) Sava 34 109 27. Pozarje H (PS) Sava 200 28. Pohorje II H (PS) Drava 140 180(255) Subtotal 2,023 TOTAL 15,151 - 254 - ANNEX 3.3 Page 1 of 10 Petroleum Geology and Exploratloni' A. Topography 1. The heart of the country, covering almost three quarters of the terrain, is dominatedby the Dinaride-Carpathianmountain system. It is made up of a series of fold belts, running parallel to each other behind the sea coast. The mean elevation of the fold ranges is about 2,000 m; rivers are deeply entrenched in extensive gorges, a factor that has lent an isolated character to much of the region. 2. The mountain ranges can be further subdivided into several subregions. In Slovenia, the northern tip of the ccuntry, there are trends of very high terrain that are extensions of the main Alpine ranges. To the south, a narrow irregularbelt of limestone plateaus, ranging from 1,000 to 5,000 ft in height, runs across the country parallel to the coast to the Albanian border. The surface is almost entirely dry, but the action of undergroundwater has deeply eroded these limestone formations to form a remarkable series of potholes, caverns and cave systems. (Such features,when encounteredin the subsurface,can become excellent reservoirs for oil and gas.) This barren zone is so distinctivethat the name given to it has been appropriatedfor similar areas all over the world. 3. To the east of the Karst belt and followingthe Albanian border southward is a zone composed of a variety of sedimentaryand metamorphic/plutonicrocks. The morphology is one of broken plateaus and precipitousslopes, deeply dissectedby the drainage patterns. Heights range from 3,000 ft in the west to two or three times this amount further south. 4. The East Serbian Highlands (being part of the Carpathianmountain system) are another distinctive subregion;the valley of the Danube cuts through the uplands in a series of major gorges, the sites of large hydroelectricplants. 5. The coastal zone of the Adriatic has its owfndistinctive topography. The mountain ranges and valleys have been submergedhere by geologically recent changes of sea level; the mountain ranges became peninsulas,islands or island chains while the valleys became gulfs or sea channels,often complex and interconnected. The Dalmatian coast, like the Klarstarea inland, is known as the classic example of this type of drowned topolgraphy. 6. Plains cover about a quarter of Yugoslavia. The most important is the Pannonian Basin which lies between the central highlands and the northern frontier and centers on the .lowlandflood plains of the Drava, Sava and Danube Rivers. Terraces made of gravel and loess (ancient windblowndeposits) rise above the flood plains and extensivehilly regions rise above these again. 1/ Based on informationgathered by mission from the Associationof Oil and Gas Producers (OUNP). - 255 - AJNE= 3.3 Page 2 of 10 The plains have been most importantin attracting settlementsand are open to roadways leading to the north and hence to central Europe, to the east (through the Danube valley and the Iron Gate) to the Black Sea. 7. This morphologicalsumary demonstratesthat the geologicalstructure of Yugoslavia is complex and varied. The mountain areas, being part of the Alps, are composed of thick masses of sedimentsand metamorphic rocks which are complexly folded, thrusted and imbricated. Access is generallyvery difficult; in those areas which are prospectivefor hydrocarbons,exploration operationsare very costly and cumbersome. On the other hand, along the coastal irea and in the inland basin thick sequencesof sedimentaryrocks have been depositedwhich have been little affected by geological forces. Like similar basins elsewhere these areas have attracted the interest of the petroleum industry as the oil geologicalparameters were found to be very favorablehere. Access is easy and the area lends itself to the application of modern explorationtools. Explorationoperations have indeed been conducted in various areas; notable successeshave been achieved in Croatia and Vojvodinaas well as in the offshore. B. Petroleum Geology 8. The morphologicalunits reflect the presence of a number of geologicalrealms. These are from southwestto northeast: The Adria and its coastal areas, the Alpine/Dinaridemountain system and the Pannonian area. 9. The Dinaride mountain system is part of the Alpine fold belt connecting the Austrian Alps with the Hellenides. Like the Alpine chains, they contain a wide variety of sedimentaryand metamorphicrocks. The former are arranged in a wide belt approximatelyparalleling the coastline. They- consist of thousandsof meters of marls, limestonesand evaporitic rocks of Paleozoic/Mesozoicage; during the latest phases of mountain building these rocks were deformed into elongated fold belts and thrust sheets. Toward the interior, similarto the central Alps, metamorphicand basement rocks predominate. These are the sites of Yugoslavia'smining industry. Toward the Adriatic, the Dinaride system submerges; along the coastal area it still manifests itself by island chains and peninsulas (anticlinalfeatures) which re separatedby sea inlets or bays and waterways (synclines). 10. In the deeper offshore, the Dinaride system submerges further and is overlain by marls and sandstoneof Younger Tertiary age. Toward the median line the intensityof structuraldeformation diminishes; the Dinaride equivalentsform an extensive carbonate platform overlain by Tertiary sands and shales. 11. The Pannonian Basin to the northeast of the Dinarides is a sedimentarybasin which began forming some 20-30 million years ago. It is one of the many depressionswhich fringe the Alpine chains on either side. Indeed, the rocks occurring below the Younger Tertiary sedimentaryseries find their equivalentin the neighboringmountainous areas; they are fracturedand frequently folded,the older units being altered by metamorphism. 12. These Neogene/YoungerTertiary rock sequenceshave been less affected by compressionalfolding. Insofar as anticlinal folds do occur, they are the results of compactionover basement highs or they representdisplacements along fault planes. - 256- ANNEX 3.3 Page 3 of 10 Developmentof the Oil Geological Parameters 13. In the Yugoslav part of the Adriatic, numerous gas finds have been made in very young formationsand at very shallow depths. Gas occurs in conventional,anticlinal structures but also in sand lenses unrelated to structures. As has been proven in the Italian part of the Adria, this gas is of bacterialorigin. Since such gas was formed at the place of its present occurrence,it can occur in locationsunrelated to geological structures,as in sand stringersor lenses interbeddedin shales. At shallow depths they can be readily identifiedon seismograms(bright spots/seismicamplitude anomalies);exploration for such gas accumulationscalls for special seismic acquisitionmethods and processing. The gas potential in these shallow -sediments in the Adria could be large, but systematicmapping of such prospects is at its very beginning. In deeper layers (2,000-3,000m) thermal gas has been encounteredbut so far in small quantities. 14. At greater depths (3,000-6,000m) sedimentsbelonging to the Dinaride mountain system have been penetrated. Seismic records indicate the presence of large anticlinal trapping structureswhich form the explorationtargets of several joint ventures. The Dinaride section contains rich source rocks and reservoirrocks. Chances are thus good that the "Adira deep" play may develop into an importantoil province. Some oil has, in fact, been discoveredby Chevron in the joint venture area operated by Jugopetrol offshore Dubrovnik. An explorationwell, J-13, near Dugootoc,has recently encounteredgood oil shows in fracturedJurassic limestones. 15. In the Dinaride mountain system source rocks and reservoirrocks have long been known. Abundant asphalt occurrences,oil seeps and gas seeps are proof that generation and migration of hydrocarbonshave taken place and are still active. However, very accentuatedtopography and geological complicationsrender systematic oil and gas explorationpractically impossible with present tools. Much of Slovenia, Croatia, practicallyall of Bosnia-Herzegovinaand Montenegro belong to the Dinaride/Alpinemountain system. Chances of finding oil and gas production in the near future are considered low. The southeasternpart of the country, belonging to the Carpathianmountain system, is equally unattractivefor petroleum exploration. 16. Differentoil geologicalconditions prevail in the northern part of the country, in north Slovenia, north Croatia and Serbia-Vojvodina. In Late Tertiary times a series of geological basins developed in which up to 6,000 m of sands, shales and limestoneswere deposited. Thick source rocks developed locally. Fractured limestonesand sandstonesare the main reservoirbodies. A multitude of trapping structures is present here, ranging from broad anticlines to basement highs to small fault blocks and stratigraphictraps. Oil explorationhas been concentratedin these basinal areas and, over the past 20 years, many oil and gas fields have been discovered. All of Yugoslavia'soil and gas production,amounting to 80,000 BD of oil and 365 M1SCFD of gas, comes from this area. Further explorationwill no doubt lead to the discovery of additional oil and gas reserves. However, due to a serious shortage of foreign exchange, several promising importantexploration projects cannot be actively pursued now. -257- ANNEX 3.3 Page 4 of 10 C. Past Exploration 17. Systematic explorationfor oil and gas commenced only after World War II with the establishmentof Energoinvest,INA-Naftaplin and Naftagas. However, small-scaleoil geologicalsurveys were carried out much earlier. The first recorded activitieswere by Austrian geologistsaround the turn of the century, when field surveys were carried out in the Dinaride area, mostly near known surface oil and gas occurrences. A number of shallow wells were drilled, all near existing oil seeps. Some of these wells produced small quantitiesof oil and gas. 18. Momentum in oil and gas explorationwas only achieved with the establishmentof state controlledenterprises which were entrustedwith the carrying out of exploration,production, refining and marketing operations (INA-Naftaplinexplores the land areas of Croatia and Slovenia,as well as most of the Adriatic offshore;Energoinvest is entrusted with exploring Bosnia-Herzegovina;Naftagas is exploring in the Vojvodina autonomousarea--it also acts as a technicaladviser to Jugopetrol whose area of operations covers the rest of Serbia and Montenegro--bothland and offshore). 19. Naftaplinhas actively explored in the Dinaride area, particularly along the coastal stretch, where access is generally easy. Their first effort focused on regional explorationand led to the drilling of deep stratigraphic holes in a more or less grid-like fashion. This effort has now come to an end as the geology of the area is very complex and impossibleto unravel without the most sophisticatedgeophysical methods; yet, numerous oil and gas shows were encountered. On the island of Brac, a small (albeit uncommercial)gas field was discovered in Jurassic limestonesat a depth of 6,000 m. 20. In the Adriatic, where Naftaplin has almost exclusivecontrol, in excess of 32,000 line-km of seismic have been profiled. This work resulted in the definitionof a large number of geological basins in which many trapping structureshave been mapped. Naftaplin's offshore drilling effort remained concentratedin the northern part of the Adriatic where water depths are less than 90 m. A series of strategicwells were drilled that resulted in the discovery of four gas-bearinggeological complexes, similar to the gas depths which are producing in the Italian part of the Adria. Gas reserves found so far may not yet be sufficientfor development,mainly due to the shallow occurrencesof many gas reservoirsand irregularsand development. Explorationdrilling continues,however. 21. The main thrust of Naftaplin'sland operationswas directed toward exploring the basinal areas north and southeastof Zagreb (Mura, Drava and Sava Basins). Of these three geological units, the Mura Basin is the least prospectiveand productionwas insignificantin comparisonwith the other areas. Drilling of about 50 explorationwells resulted in two small fields, now practicallyexhausted. Explorationis virtually at a standstill. 22. The Drava Basin is to the southeastand on trend with the Mura area. This basin is about 200 km long and 50 km wide. The Younger Tertiary sedimentsattain thicknessesof 6,000 m in the deepest part. They consist of an alternationof sandstones,shales, marls and limestones. Geological trapping structuresare plentifuland many oil and gas finds have been made in the depth intervalbetween 500 and 3,000 m. Due to repeated geological movements a large variety of trapping structureshave been formed. - 258- ANNEX 3.3 -- Page 5 of 10 23. Naftaplinhas conductedextensive geophysicalsurveys here. To date about 15,000 km of seismic lines have been profiled. No exact figures could be obtained as-to past explorationdrilling, but it is estimated that at least 150 wildcats have been drilled during the last 10 years. At present about 50 oil and gas fields are producingor in the process of being delineated. 24. For the last two years explorationhas focused on deep prospects (3,500 a or deeper) where, in basement and basement related trapping structures,important gas reserves have been discovered. Three fields have been delineatedand Naftaplin is confident that large reserves can eventually be established(several TCF). High temperaturesand pressures,combined with a hi8h C02 content, make explorationdrilling hazardous and costly. As special drilling equipment is required, costs of deep explorationwells (3,500 m and deeper) amount to over USg5 million. 25. The Sava Basin, southeastof Zagreb, is similar to the Drava area with respect to oil geologicalhabitat. The basin also reaches a thicknessof several thousand meters. Intensive drilling led to the discoveryof prolific oil and gas fields, and oil productionhere amounts to about 30,000 BD. 26. Practicallyall of Naftaplin'sexploration has been directed toward "Pannonian"structures. Deep, basement related structureswhich now form an importantobjective in the Drava area, have not been explored aggressivelyin the past. Equally, a large area southwestof the Sava River remains practicallyunexplored. 27. Energoinvestis now entrustedwith explorationoperations in Bosnia-Herzegovina.Mountainous terrain over much of the republic is the main deterrent for active locations,exploration would be very costly and difficult with the methods availablenow. However, in the northern part of the republic a strip some 50 km wide has been identifiedwhere access and working conditionsare easier. Several geologicalbasins have been recognizedhere. Geozavod, Belgrade,on behalf of Energoinvest,has profiled some 1,500 km of seismic lines on which numerous trapping structureshave been identified. No drilling has been carried out to date. 28. Naftagas explores mainly in Vojvodina. On behalf of Jugopetrol it carries out work in Serbia and Montenegro. 29. Systematicexploration of the Vojvodina area began in 1949 after the establishmentof Naftagas. Oil and gas discoverieswuere made in rapid succession. Over 20,000 line-km of seismic are available. To date, 1,300 wells have been drilled, 300 of which were "exploration"wells. A total of 55 fields were discovered,of which 35 are in production. Most of the fields have a rather small areal extent, generally5 km2, and all have multiple reservoirs. Reserves of most of the fields range between 5 and 15 MM bbl. Depth rane of the hydrocarbonaccumulations is 250 mito 3,300 m. Presence of CO2 and high temperaturesare the main hazards for deep exploration drilling. 30. The Tertiary section reaches a thicknessof about 4,000 m and contains rock sequences similar to the Sava Basin and the Drava Basin in Croatia. Productionhas been establishedfrom Younger Tertiary sediments, - 259 - ANNEX 3.3 259 - Page 6 of 10 where many small traps (anticlinesand fault traps) have been found productive. Production at present amounts to 20,000 BD of oil and 115 MMCFD of gas. Naftagas believes that these production levels can be sustained through 1985. D. Present Situation 31. The state companies'intensive explorationeffortrs during the last 30 years have resulted in the discovery of importantoil and gas provinces. Production,which at present is all on land, comes mostly from relatively simple trapping structures,in Youn er Tertiary sediments such as anticlines and fault blocks, at depths of between 500 and 3,000 m. These trapping domains have now been fully evaluatedand exploration is directed toward subtle traps (wedgeouts,statigraphic traps) related to existing fields and toward gas prospectsat basement level or related to basement. Mapping of such trappingconfigurations will not be easy as a substantialamount of new seismic will be required. Equally important,advanced processingof available and new seismic is a condition for mapping such traps. In each producing basin chances are good for discoveringsubstantial oil and gas reserves. In addition,there are several underexploredareas (much of the Adria, Croatia southwestof the Sava River and the northern part of Bosnia). Future explorationrequires more sophisticatedtools and methods than presently availableto the operatingcompanies. The prospectivityof several high potentialareas will be discussedin the followingparagraphs. E. Naftaplin Area 32. The company explores actively in the Drava Basin and in the Sava Basin where it produces 60,000 BD of oil and 250 MHCFD of gas. In the northern Adria gas has been discovered,but mostly in small reservoir; developmentis under study. 33. All three areas have good prospects for additionaloil and gas discoveries. Furthermore,there are several areas which are underexploredand where chances are good for finding oil and gas. Drava Basin 34. Naftaplin's thrust of explorationis directed toward deep gas. A string of objectivehas been tested/identifiedin the deepest part of the basin extendingover an area of 100 km by 20-30 km. Trapping structuresare essentiallyburied hills being composed in their core of basement rocks (phyllites,schists and granites). These rocks are overlain by a variety of sedimentaryrocks ranging from limestonebreccias to dolomites and dolomitic tuffs. All of these rock units, includingbasement, can be strongly fractured,resulting in high initial production rates. The limestonebreccias and some basement rocks often contain good primary porosities,a prerequisite for continuedhigh production rates. 35. Naftaplin has discoveredthree gas fields: Molve, Kalinovac and Starigradac. In all three fields, the reservoir section is below 3,500 m and is strongly overpressured;the condensate content of the gas is generallyhigh - 260 - ANNEX 3.3 Page 7 of 10 as is the CO content. High temperaturesare an addiitionalhazard. Reserves at Molve are given as 0.6 TCF (partly appraiised),those of Kalinovac are indicatedas 0.5 TCF; Starigradac,with 0.2 TCF is the smallest. 36. Recently, yet another deep gas discovery wasimade at Oresac, some 30 km southwestof Starigradac. The well reached 6,100 m; importantreservoirs were penetratedbetween 4,000 and 5,500 m. Due to lack of special equipment, the main intervalscould not be tested. 37. A prospect map compiled by Naftaplin geologistsshows the presence of at least 20 base Tertiary structures. Most appear to be of a size comparable to Kalinovac or larger; all need additional seismic processingfor better delineation. As seismic coverage is not uniform, a tighteningof the existing grid may well increase the number of prospects. Naftaplin geologistsestimate that at least 3-5 TCF of additionalgas could be found in these structures. 38. With regard to deep gas in the Drava Basin, Naftaplin faces major problems: (a) production: developmentof Kalinovac and Starigradacis a high priority item. The initial developmentplan calls for completion of seven wells at Kalinovac and five wells at Starigradac. Expected production is 1.9 MHCMD, which is about 25Z of Naftaplin'scurrent gas production. Development plans are delayed as Naftaplin is unable to raise the necessary foreign currency for crucial equipment; this amount to US¢70 million for drilling and US$20 million for surface equipment; (b) explorationsurveys: development of a structural inventoryis rendered difficult as seismic resolution of deep structuresremains very poor. Additional,high resolution seismic is a requirementfor further deep exploration. Equally, the geophysicalprocessing employed is inadequate for resolution of the various reservoirbodies which is necessary for delineationdrilling. A cautious estimate indicatesthat at least 2,000 km of high resolution seismic is needed; (c) explorationdrilling: a full evaluationof the deep gas potential of the Drava Basin requires an aggressivedrilling effort. Naftaplin geologistsestimate that at least 20 structuresneed to be drilled; if it is further assumed that 10 structureswill be found to be gas bearing, at least 20 delineationwells will be needed for a determinationof reserves; and (d) cost of explorationprogram: a 2,000-km seismic survey is the minimum program envisagedfor determiningthe amount and size of remainingprospects. At US$4,000 per kilomLeter,total seismic expenditureswould amount to US$8 million. For drilling a 3,500-4,000-mexploration well, a total cost/wellof US$8 million is assumed. The expendituresfor a 40-well drilling program would thus amount to US$320 million. - 261- ANNEX 3.3 PTage8 of 10 Slavonsko-SrijemkoArea 39. A basinal area southwestand in echelon with the Drava depression. The area has been somewhat neglected as Naftaplin concentratedon exploring in the Drava and Drava areas. Recently a string of oil discoverieswere made; in excess of 30 prospects and leads are known. The prospective intervalsare in Lower Tertiary and Basement. (Contraryto the other producingbasins in Yugoslavia, there are no pay zones in the Younger Tertiary section.) Expectationsfor the undrilled structures amount to 150-200million bbl. 40. Exploration/productionprogram. Naftaplin plans to develop three recent discoveries: Deletovci,Privlaka and Llaca; combined reserves are on the order of 15 million bbl of oil and 3.5 billion cu ft of gas. Reservoirs are in fracturedbasement and clastic rocks immediatelyoverlying basement. Present plans call for installationof a gathering and transportationcenter at Deletovciwhich will be able to handle production from the three existing discoveriesbut which can also accommodateproduction from future finds. Parallel with these development plans, further aggressive explorationis called for. 41. There is an urgent need for a regional geochemicalsurvey, the results of which will enable the formulationof an overall exploration strategy. As seismic coverage is insufficientover much of the area and as there are many indicationsof subtle traps (along the flanks of structures), geophysicalsurveys must have a high priority. It is estimated that expendituresfor a 3-year explorationprogram (1,500 km of seismic lines, 20 explorationwells) would amount to about US$50 million. 42. The Sava Basin remains the most importantproducing area in Yugoslavia with a daily production of over 40,000 barrels. The main producing horizons are in Younger Tertiary sandstonesand limestones;the density of trapping structuresis much higher than in the other Yugoslav basins; many subtle traps still await delineation. Deep seismic data indicate the presence of structuressimilar to Kalinovac but so far there has been no systematic explorationfor deep gas. By analogy with the Drava Basin, some 2-3 TCF of gas could be present in such deep structures. 43. An extensivearea between the Sava River and the Dinaride mountain front is underexplored. A few explorationwells drilled previously are inconclusiveas they were located on the basis of poor Cold) seismic data. There is an urgent need to re-evaluatethe prospectivenessof this large area. This would include regional geochemicalsurveys, acquisitionof modern seismic data and the drilling of some 10 key explorationwells; costs of such a projectwould amount to some US$50 million. Adriatic 44. In the northern part of the Adria, some 50 km from Pula (Istria), Naftaplin intends to develop two gas discoveries. Gas has been found in shallow (elastic)reservoirs and in deeper (Cretaceouslimestone) reservoirs. Total reserves are given as 0.7 TCF. Short-term tests yielded up to 10 million cu ft/day. The shallow reservoirs are in unconsolidated - 262 -A X 3.3 Page 9 of 10 Quarternary/Pliocenereservoirs. Sand influx presents a major problem which has not yet been brought under control. The deep (limestonereservoirs) average some 40 m in thickness; they are fracturedwith little apparent matrix porosity. The fracture patterns extend into the water level; water coning will thereforebe a serious risk, requiring close control of production rates. 45. In addition, there is no firm developmentplan yet. Also, there have not been any discussionswith consumerswhich presumablywould be in the Istria/Rijekaarea. Naftaplin is confident,however, that an overall production/distributionplan will be availableby October 1983. F. EnergoinvestArea 46. Northeast Bosnia is the only area of immediate oil exploration interest. The area is, from a geological point of view, transitionalbetween the Dinarides and the southern part of the Pannonian Basin. Energoinvesthas acquired some 1,500 km of reconnaissance/semidetailseismic and conducted intensive geologicalstudies. They have thus delineated three geological basins; there are indicationsof additional prospectiveareas, the delineation of which would require additional seismic. With the informationavailable, chances are fair that a carefully conducted explorationprogram will lead to the discoveryof some oil and gas. 47. In Energoinvest's1983-85 plan a total of 10 explorationwells is shown. None of these qualifies as a bona fide exploration test, as they are testing concepts rather than well defined prospects. There is thus an urgent need to acquire additional seismic data, a point which has not been considered by Energoinvest'smanagement. 48. In the course of intensivediscussions of the proposed program, Bank staff suggested'an alternate explorationstrategy containing the following elements: complete regional studies by conducting geochemical surveys; drill one stratigraphictest on a structural lead; this will provide crucial geological data on deeper formation;and acquire additionalseismic data (some 2,000 km) for proper prospect delineation. The Bank mission indicatedto Energoinvestthat a project along these lines could be appraised in the near- future. There would be no chance for Bank assistance in Energoinvest's present plan. G. Naftagas Area 49. Oil and gas operations are concentratedin the central/easternareas of Vojvodina. Geologicallythe area belongs to the sodtheasternpart of the Pannonian Basin. Past explorationhas identified three subbasins, the Boska, Srjem and Banat subbasins, of which the latter is the most important. 50. The Tertiary section reaches a thickness in excess of 4,000 m and contains similar rock sequence as the Sava Basin and Drava Basin in Croatia. Productionhas been establishedfrom Younger Tertiary sedimentswhere many small traps (anticlinesand fault traps) have been found productive. - 263 - ANNEX 3.3 Page 10 of 10 Productionat present amounts to 20,000 BD of oil and 120 million cu ft/day of gas Naftagas expects that it can maintain these production levels through the the mid term if their exploration/producionoperations are not curtailedby lack of crucial equipment/technologies. 51. Naftagas has arrived at the stage where conventionaltrapping domains in the depth range of say to 3,000 m have been almost fully explored. Prospects at greater depths, either related to basement as in the Drava area, or Mesozoic intervals,have remained largely untouched due to lack of adequate seismic and drilling equipment. Equally subtle trapping structures in the Younger Tertiary section have not been systematically explored as seismic processing has not focused on such prospects. These are discussed in the following paragraphs. 52. Base Tertiary structures. These are related to basement irregularities/upliftsin a depth range of 1,000-2,500a. They are usually well expressedon seismogramsand their mapping offers no problems. This trappingrealm is well explored and most of the structures so detected have been tested. Attention now focuses on what Naftagas geologistscall satellite structures. These are usually small structural irregularitiesnear the main structure; often they are noses and other linear features jutting into the basin from the main uplift. If faulted, such features could contain oil and gas accumulationsas has recently been demonstratedin several plays. Mapping of such trapping structures requires dense seismic grids (0.5 x 1 km) which are availableonly in a few areas. A "new", relatively untested trapping realm pertains to wedgeouts against basement noses/flanks. Equally dense seismicgrids are required to properly map such subtle traps. Naftagas geologistsestimate that several thousandkilometers of line seismic will be required for proper delineation of such traps (they have already established 50 apparent leads). 53. Mesozoic realm. Mesozoic rock units have been encounteredall over Vojvodina but they are of particularprospective interest in the southern part of the country. The Lower Cretaceous consists of clastic intervals which alternatewith limestoneswhich exhibit karat surfaces. These rock units grade into pelitic sedimentswhich have the apperanceof source rocks. There are indications that these rock sequence are structured; due to lack of adequate seismic penetration this prospective realm has not been explored systematically. 54. Younger Tertiary realm. The geological section is similar to the one encounteredelsewhere in the PannonianBasin. There are indications,however, that the stratigraphictrap potential is higher than elsewhere. There are numerous occasionswhere gas finds have been made in reservoirsunrelated to structures. In some instancesthis could be biogenic gas. Naftagas is aware that this could become an importantexploration objective; a systematic pursuit of such prospects awaits availabilityof special seismic acquisition techniques. The mode of depositionof the Younger Tertiary sequences in Vojvodina resulted in large lenticular featuresclearly expressedou seismograms. These may be related to old drainage patterns;efforts are undertakento map such features on a regional scale. - 264 - ANNEX4.1 s~NI~ I ~-| ~ ~~~1 ~ 0 ff N°RN|^ I4I o,111*,2t 1 0 1 0 0lc@X o ~* .~ ~ ~ CN__ 0 N L | I - I g ^ N I~ * 1 1 1 e I If 11_ 1S 1 _ I N N N -| t I ~~I_ 11 1 1 _ II _ gn o 31 , ,- N N _ _I |o 0II 1I '11I I _ II _I 'N 3 fi|8zze @ N O |~~NII 1. N 0 _1 ; 'ON -| e . | > I 8N1 ,I I I N N WI III|| .1 N o 0 0 f |R @$@° NO Is N N - 1111 e~ I 11111 N * III , I IN l J e I| ,,I I 0 I 0 0 11 1 s1. 1 1 Energy Balance1980 (Thousand Tonnes of Oil Equivalent) Primary Energy Petroleum Products Hard Brown Nydro- Crude Natural Non-Energy Electri- Aviation Fuel Line Coal Coal Lignite power Oil Gas Coke Products city Steam LPG Gasoline & Kerosene Oiesel Fuel Oil Other 'Total Total Sourcesof Supply Domestic Production 403 3.158 6.946 2,828 4.226 1,557 ------19,118 lports 2,236 - - - 10,804 1436 - - 108 - - - - 732 - 1.035 15,619 Exports ------Stock Changes - 403 _------403 GROSSSUPPLY 2,639 3,158 7.349 2,828 15,030 2.993 - - 108 _ _ 161 - 142 732 _ 1,035 35.140 Conversion Petroleum Refining - - - - (14.329) - - 792 - - 393 2,035 298 4,089 6,341 381 13,537 0 Coking (2,236) - - - - 251 1,679 306 ------0 Power Electric (133) (1.138) (5,571) (2.828) - (318) - - 11,194 _ _ _ _ - (1.084) (122) (1,206) 0 Combined Generation of which: Electricity - (28) (14) - - (47) - - 200 - - _ - (111) - (111) 0 Steam (70) (410) (145) - - (151) - - - 1.442 - _ (666) - (666) 0 Boiler Plants (150) (675) (458) - - (436) - - _ 2,424 (13) - - - (692) - (705) 0 b Self-Consumption - - - - (114) - - - (215) - - - - - (329) 0' Conversion Losses - - (587) _ (112) - (6,642) (796) (8,137) t_n Transmission/Distribution Losses------(480)------(480) NETSUPPLY 50 907 1.161 _ - 2,292 1.567 - 4,165 3,070 380 2,196 298 4,231 4,520 259 11.884 26,194 Secondary Exports ------(146) ------(146) BunkerSales ------NET DOMESTIC 50 907 1,161 _ - 2,292 1,567 1,098 4,019 3,070 380 2,196 298 4,231 4,520 259 11,884 26,048 Consumption by Sector Industry 50 329 409 _ - 1,561 1,567 - 1,955 2,564 207 - - - 3,930 205 4,342 12.777 Energy - 110 92 - - 290 - - 463 400 ------1,355 Non-EnergyUse - - - - _ - - 1,098 - - - ______1,098 Transport - - 90 - - - 84 - - 2,089 208 1,988 - 54 4,339 4,513 Households - 357 411 - 204 _ - 1,136 106 173 - - 1,170 502 - 1.845 4,059 Public/Other - 111 159 - _ 69 - - 332 - - - 90 373 - - 463 1,134 Agriculture - - - - - 168 - - 49 - - 107 - 700 88 - 895 1.112 Source; Prepared by mission based on data provided by the Federal Bureau of Statistics. Eotroy11l4MCe IE2 /1 (ThousandTowmes of Oil Equivlent) PriSy EwGY HIard Petrolem Products grln Nydro Crude Natral aon-Energy Electri- Coal Coal Aviation FLIl Line Lignite pr oil Gas Uranium Coke Products city Stem LP6 Gasoline 6 Kearosene DieSel Fuel 01i other Total Total SOcaN of SWly2 i stic Prdaction 210 3.491 8.563 2,335 4,256 1.919 lIports . 2.610 - - - 8,401 1,886 619 17 8- 201,774 - 270 104 - _ _ Exprts - (203) (181 - 1,294 - 1,398 15.201 ------St kChange" - - (306) (221) - (122) - 5 - - - - - (173) - (170) (590) a6055 SwULl 2,820 3.291 8,239 2,335 12,535 3.805 619 22 - 270 - 107 - - _ 1,121 - 1,228 35,164 Ctawersit Petroleu Reftaieg - - - - (11,767) 269 - - 1,476 CablIng - - 229 1617 225 Z,907 (2.656) - - - - 4,744 300 10,022 0 36t7 2,040 256 - - Electric P m G ,eratici (h8) (1.347) - (6,607) (2,335) - (256) (619) - - 11.951 - Cb1ed liGaeratit - - (699) - (699) 0 of whch. Electricity 7)(Ia - (52) (26) - - (218) - - - 367 - - - - - Ste - (584) (178) - (71) - (71) 0 - (600) - - - - 2,120 jl) oi11e Pltts - _ _ (757) _ (758) 0 (11) (470) (243) - - (773) _ - - - 2824 (13) - - Se1f-coasawtim - (10) (11) - (196) - (1,314J - (1,3Z7) 0 (240) - - (321) - - Canversiam Lasses - _ . _ _ _ (778) - - (572) - - (133) - (7,864) (970) Tranumissin/Distributit( - - _ _ _ _ (8,738) Loses - - - _ - _ _ _ _ (506) ______(808) METSUPPLY 65 828 1,120 - - 2,403 - 1,929 1,732 4,695 3,974 322 1,617 225 2,907 3.024 30t 8,396 25,141 Secrday Exports - - - - . (314) - (105) - - - - (281) - _ -las - - _ _ _ _ (281) (700) ______NETDOUESTIC 65 828 1,120 - - 2,403 - 1.615 1,732 4,590 3,974 322 1.617 225 2,626 3.024 300 8,114 24,441 Coumption by Sector lnIsty 65 401 483 - 1,374 - 1.615 - 2,075 2,574 213 - - - E"WV - - 3,01 279 3,507 12,094 ------499 lam-emrgyUse 1,078 ------446 - 25'78 - - 1,732 - - - - Tra"pert - - - 2,176 - - 87 - - - - 142 - - 1,504 195 1,407 Iieaaselds _ 326 397 - _ 21 3.2e7 3.436 - 313 - - 1,452 216 109 _ Puilic/Obrth _ _ 862 9 _ 95) 3,684 101 153 - _ 69 - - - 352 106 - - 30 63 - Agriculture - - * - - 93 874 - 201 - - - 70 - - 33 - 294 - _ 3 5eance: PreWred by missionbase on dataprovided by tht Federal au ofitOStatistics. /I To retain copaability data with for 1975 _i 1920, so categarieswere collapsed, and as result tshreare Sell diffnrancs betwe this anorgy balance and the ae presented In Table 5.8, Growth of Total Net Electricity Consumptionby Republic andAutonomous Province Bosnia- Serbia Serbia Yugoslavia Herzegovina Croatia Macedonia Montenegro (Total) Proper Kosovo Vojvodina Slovenia (Total) Yar GMh S 6H S GWH S 6Hh S GWh S GWH % 6GWh S Wh % GWh S BlWh S 19S5 494 14 1,068 29 100 3 20 1 809 22 - - - 1,115 31 3,606 100 1960 1,134 15 1,932 26 367 5 114 2 1.840 25 1.426 20 105 1 309 4 1,942 27 7,329 100 1965 1,941 15 3,164 24 751 6 323 2 3,960 30 2,646 20 217 2 1,097 8 3,119 23 13,258 100 1970 2,634 12 5,000 23 1,849 8 515 2 7.363 34 4,779 22 570 3 2,014 9 4,496 21 21,857 100 1975 4,748 14 8,050 23 2,975 9 1,493 4 11.665 34 7,566 22 945 3 3.154 9 5,750 16 34,681 100 1976 5,305 14 8,313 22 2,857 8 1,581 4 12,769 35 8,385 23 1,028 3 3,356 9 6,247 17 37,077 100 1977 5,692 14 8.837 22 3,321 8 1,621 4 13,985 35 9,198 23 1,109 3 3,698 9 6,661 17 40,117 100 1978 6,462 15 9,628 22 3,575 8 1,766 4 15,260 35 9,732 22 1,178 3 4,350 10 7,026 16 43,717 100 1979 6,471 14 10,502 23 3,607 8 1,822 4 16,438 36 10,585 23 1,189 3 4,664 10 7,048 16 46,248 100 1980 7,064 14 11,242 22 4,040 8 2,308 5 18,413 36 11,771 23 1,326 3 5,316 10 7,835 15 50,902 100 Met Electricity ConsumptionPer Capita (inkWh/capita) -J Republic/Province 1955 1960 1965 1970 1975 1976 1977 1978 1979 1980 1 Bosnia and Herzegovina 166 350 540 711 1,193 1,394 1,441 1,564 1,686 1,670 Croatia 266 467 739 1,134 1,783 1,837 1,953 2,104 2,226 2,450 Macedonia 74 264 499 1,138 1,694 1,552 1,760 1,947 1,958 2,210 Nontenegro 46 245 632 981 2,661 2,764 2,840 3,034 3,107 3,890 Serbia Total 112 243 496 878 1,329 1,449 1,557 1,690 1,793 2,010 - Serbia Proper 132 297 531 882 1,338 1,507 1,499 1,793 1,902 2,120 - Kosovo 59 111 200 611 820 840 870 900 970 830 - Vojvodina 108 168 577 1,035 1,594 1,592 2,103 2,173 2,284 2,640 Slovenia 728 1,229 1,891 2,617 3,239 3,496 3,732 3,875 4,100 4,290 Yugoslavia 206 398 680 1,073 1,623 1,718 1,848 1,990 2,100 2,290 Source. JUGEL"Feasibility Study', Annex 1.4.3, Attachment 1. - 268 - ANNEX4.5 ElectricityGenerating Capacity 1975-80 1975 1976 1977 1978 1979 1980 1982* I. PublicSupply System Hydro (MW) 4,673 5,023 5,048 5,277 5,783 5,995 7,250 Thermal(MW) 3,699 4,391 4,836 5,889 6,736 7,098 9,178 of which: Coal-fired(MW) 3,216 3,519 3,964 4,487 5,214 5,545 6,737 Oil and NaturalGas (MW) 483 872 872 1,402 1,522 1,553 1,780 Nuclear ------661 Total installedcapacity(MW) 8,372 9,414 9,884 11,166 12,519 13,093 16,428 Maximumdemand (MW) 6,600 6,970 7,690 8,160 8,670 9,300 - Systemload factor (X) 78.83 74.04 77.80 73.03 69.25 71.08 - II. Others Distributivehydro (MW) 120 120 120 120 120 125 - Industrialsteam (MW) 545 545 545 545 545 861 - Total installedcapacity (MW) 665 665 665 665 665 986 - Grandtotal installed 9,037 10,079 10,549 11,881 13,184 14,079 16,428 capacity Source: JUGEL * 1982 data includescapacity owned by self producers; Source: ElectricPower Industry, 1982, published by JUGEL. - 269 - ANNEX 4.6 Page 1 of 2 ElectricityProduction and Consumption 1975 1976 1977 1978 1979 1980 Generation(GWh) A. Country Hydro 19,310 20,553 24,354 25,416 26,551 28,536 Thermal 20,723 23,018 24,226 26,339 28,407 31,210 TotalGross Generation 40,033 43,571 48,580 51,755 54,958 59,746 B. PublicSupply System (interconnected system) Hydro 18,829 19,889 23,846 24,907 26,023 27,956 Thermal: Coal& lignite 15,382 16,685 17,094 18,702 20,284 23,362 Oil & gas 1,380 2,060 2,637 2,905 2,946 2,250 Stationuse 1,895 2,016 2,035 2,232 2,529 2,778 Subtotal(Thermal) 18,657 20,761 21,766 23,839 25,759 28,390 TotalGross Generation PublicSupply System 37,486 40,650 45,612 48,746 51,782 56,346 Less:overall station use 1,923 2,114 2,221 2,423 2,739 2,913 Net Generation 35,563 38,536 43,391 46,323 49,043 53,433 Add: Imports 1,642 1,271 340 642 1,088 1,282 Less; Exports 549 1,064 1,505 1,294 1,951 1,735 Less: T & D losses 3,666 4,587 5,077 4,963 5,109 5,127 Net Availablefor Consumption3/ 32,990 34,156 37,149 40,708 43,071 47,853 Stationuse (%) /1 5.13 5.20 4.87 4.97 5.29 5.17 T & D losses(X) /2 9.3 10.9 11.0 10.0 10.2 8.9 C. SelfProducers GrossGeneration (GWh) Hydro 481 664 508 509 528 580 Steamthermal 2,066 2,257 2,460 2,500 2,649 2,550 Total 2,547 2,921 2,968 3,009 3,177 3,130 - 270 - ANNEX 4.6 Page 2 of 2 1981 1982 A. Country Hydro 28,985 30,060 Thermal 31,780 32,958 Total Gross Generation 60,765 63,018 1. Public Supply System Hydro 28,641 29,703 Thermal: Coal & lignite 23,934 22,472 Oil & gas 2,305 2,391 Nuclear 291 /4 2,350 Station use 2,841 2,951 29,080 30,164 Total Gross Generation Public Supply System 57,727 59,867 Less: overall station use 2,886 2,993 Net Generation 54,841 56,874 Add: Imports 2,455 3,199 Less: Exports 1,067 1,243 Less: T & D losses 4,754 4,820 Net Available for Consumption 51,475 54,010 Station use (%) 5.0 5.0 T & D losses (%) 7.9 7.6 2. Self Producers (GWh) 2,712 3,120 1/ Station use is measured as percentage of gross public supply system generation. 2/ Transmission and distribution (T & D) losses have been calculated as percentage of gross public supply system generation plus gross imports. T & D losses include statistical discrepancies and unaccountedfor energy. The levels of T & D losses calculated on this basis differ from those provided by the Federal Institute for Social Planning (FISP). The basis of FISP's determination of losses is not known. 3/ Inconsistenciesoccur in the data provided by Jugel and by the Federal Institutefor Social Planning. /4 Source: United Nations - Yearbook of World Energy Statistics, 1981. - 271 - ANNEX4.7 IAt*r-republicanEnergy Exchange in the Period 1976-1980 (GWh) Year Republic/Province 1976 1977 1978 1979 1980 3eeia aad export 2,113 2,264 2,250 2,670 2,329 lerseoeviia import 136 40 173 361 202 total +1,977 +2,224 +2,077 +2,309 +2,127 Mbeteaegro export 132 1,381 1,475 1,682 1,356 import 309 1,096 1,131 1,164 1,273 total -177 +285 +344 +518 +83 Croatia export 68 99 153 345 261 import 1,755 1,552 1,827 3,152 3,488 total -1,687 -1,453 -1,674 -2,807 -3,227 Nmeadbnia export 5 18 20 55 24 import 2,031 2,323 2,273 1,803 1,945 total -2,026 -2,305 -2,253 -1,748 -1,921 Slevemia export 69 79 297 136 104 import 558 884 862 1,031 981 total -489 -805 -565 -895 -877 Serbia, Proper export 5,422 6,449 7,052 8,684 10,206 import 1,184 2,376 2,559 2,932 2,282 total +4,238 +4,073 +4,493 +5,752 +7,924 Uiseve export 1,841 1,119 2,139 1,849 1,491 i-Ort - - total +1,841 +2,119 +2,139 +1,849 +1,491 V.jvedina export - - - - import 3,681 4,138 4,561 4,978 5,600 total -3,681 -4,138 -4,561 -4,978 -5,600 Yugoslavia total 9,650 12,409 13,386 15,421 15,771 turnover - _ 1 g.uX& (in X) -6.1 +28.6 +7.7 +15.2 +2.7 - S ef prei"th m 25.0 23.6 28.9 31.4 29.4 Source: JUGEL "FeasibilityStudy", pages 11-19. (Thuand Tomre o Oil gquivalent) 1hd on tbe 0 Inal SoAG Plan Hard Nm Cinle Crude Natural Electri- Aviation Fuel Line CSM Coa U lta CaaL Hydra Cnv OiSl citya k ili. KUAm r Dieselon FufO t l hear Totals Totals Production 495 5.3.7 13.407 - 2.870 1.8 8 8.123 4.310 - 32.579 X orts 1.467 - - 1.959 - - 14608 2.515 Z37 ------20,225 Pri_ ry Exports - - - - ______Stok Changes - ______ Total Available 1.602 6.373 13.407 1.9S0 2.870 1,000 19,123 6.481 237 - - - - _ _ _ 52,U3 Petroleu ftintn ------10.740 - - 698 4.491 451 5s777 5.85 1,465 18.740 0 CharcoalProduction ElectricPoer Genration (287) (3.160) (11,265) - 2.870 (1,00) - (697) 21.74U - - (2,312) (257) (2.669) 0 ConversionLsm - -8- - - - ) - (14.987) ------(15.370) TranswissionAbistributian Losses ------(616) - - - - (516) N) Nat SuPPly Available 17' 2.273 2,152 1.9l,ffO - 6.154 6.401 698 4.491 451 5.777 3.6K 1.248 15.171 36.917 _ Secnary Exports - 224 ------124 _dor Sale - - Nat DomesticConsmtion 1,78 2.273 2.152 1.950 _ _ 6.1 4 6.357 6.257 698 4.491 451 5,777 3,54K 1,200 - 36,793 Cumion hy 9-tar Industry 43 270 818 1.90 _ - 4.254 2.093 350 - - - 2.137 417 2,904 13.816 En"rgy USS 93 131 - - - - r, 6U - - - - :, ru :,::7 Non-EnergyUse - - - 106 - 0 - 108 - _ 19S 304 Transport 54 12 - - - - - 131 - 4.170 266 2.338 35 165 6,965 7.340 Nouseholds ------S 1.79 34 - - 1.363 238 - 1.9U 4.,05 Public/Other 418 1.a20 1,195 - - - - 1 526 - 152 195 1.098 607 307 2.359 5.715 Agriculture ------295 78 - 79 - $70 62 - 1,012 1.405 Statistical Discrparncy ------ Sawgo: Prepargd by the mission on Uth basis Of informtion rovided by the Fedr l Cittee for Enrgy and ndstry. - 273 - ANNEX6.2 Coal MiningCapacities ('000tons/year) 1980 1985 GrowthRate (X) Republic& Provinces Total Total Lignite Brown Hard 1976-19801981-1985 Bosnia-Herzegovina 13,536 22,445 10,178 12,267 - 1.6 10.6 Montenegro 1,256 2,800 2,500 300 - 16.8 17.4 Croatia 242 550 - - 550 -7.4 17.8 Macedonia 1,200 5,200 5,200 - - - 43.1 Slovenia 6,380 6,610 4,700 1,910 - 0.3 0.6 Serbia 25,516 40,758 38,385 2,069 294 19.3 9.8 Kosovo 9,100 13,700 13,700 - - 5.1 8.5 Voivodina 400 400 - - - - YUGOSLAVIA 57,230/1 92,463 75,073 16,546 844 4.4 10.0 Source; FederalCommittee for Energyand Industry. /1 Accordingto the MiningInstitute, the capacityfor 1980is 60 milliontons. Sources of Domestic Productionof Oil and Its DistributionBetween Republicsfor 1980 and 1985 ('000 tons) Growth Rate (X) 1980 1985 1981-1985 Distri- Distri- Distri- Republics& Provinces Domestic pmoort bktion Domestic ImDort bution Domestic Import hution Bosnia-Herzegovina - 2,040 2,076 - 2,534 2,534 - 4.4 Montenegro ------ Croatia 3,059 5,545 8,604 3,403 6,286 9,689 2.1 2.5 Macedonia - - - - 1,358 1,358 - - Slovenia ------ Serbia - Total 1,167 3,219 4,386 1,720 3,822 5,542 8.0 3.4 Serbia - Proper ------_ Kosovo ------_ Vojvodina 1,167 3.219 4.386 1.720 3.822 5.542 8.0 3.4 - YUGOSLAVIA 4,226 10,804 15,030 5,123 14,000 19,123 3.9 5.22 source: FederalCommsittee for Energy and Industry. asenf l_1 Products by ReaDuhltead Prnvince fAr 19ao and 198 ('000 tons) Growth Rates (S) 1980 1985 1981-1985 Feed Feed Feed Republic & Provi nGe$ Enera S.tnk Total Enery $Ck Iotal Engrga Stock Total Bosnia-Herzegovina 1,791 196 1,987 2,021 278 2,299 2.3 7.2 2.8 Montenegro 306 25 331 412 26 438 6.3 0.8 5.7 Croatia 3.792 719 4,511 4,193 1,631 5,824 2.0 17.8 5.2 Macedonia 1,130.5 88.5 1,219 1,336 76 1,412 3.3 -3.2 2.8 Slovenia 1.865 228 2,093 1,895 350 2,245 0.2 9.4 1.4 Serbia - Total 4,806 653 5,459 5,170 1,345 6,522 1.4 15.5 3.5 Serbia - Proper 2,926 231 3,157 2,902 500 3,402 -0.2 16.6 1.4 Kosovo 309 13 322 528 17 545 11.7 9.0 11.0 Vojvodina 1L571 409 1.980 1.747 734 2575 2.1 12.3 5.3 Ul YUGOSLAVIA 13,912 1,909.5 15,821 15,034 3,706 18,740 1.9 14.2 3.71 Source: Federal Comittee for Energy and Industry. M Consumtton o? P.tralumm Productsf or Enaray Use ('000 tons) 6rowth Rate (X) 1980 1985 1981-1985 ReDublic& Provinces Gasoline Diesel Kersene* LefE Gasoline Diesel Kerssne * LfE DienhinaQesel Kerosene * jE Bosnia-Herzegovina 265 459 6 45 270 730 1S 70 1.0 9.9 20.1 9.3 Montenegro 62 73 7 6 63 107 11 15 3.8 8.0 9.4 20.1 Croatia 577 775 173 145 625 900 195 246 2.9 3.0 2.5 11.2 macedonia 127 216 6 35 130 246 10 41 0.4 2.5 10.8 3.2 Slovenia 3e 325 25 64 405 38S 48 90 0.8 3.4 11.5 8.4 Serbia - Total 713 1.158 114 134 757 1,746 177 236 1.2 8.5 9.2 12.0 Serbia - Proper 466 697 110 97 520 1,850 176 100 1.3 8.5 9.1 0.6 Kosovo 50 86 4 a 56 142 7 16 2.3 10.5 11.8 14.9 1 Vojvodina 173522 2 lEl _ 120 0.4 8.2 - 32.8 cb YUGOSLAVIA 2,114 3,001 331 425 2,250 4,113 451 698 1.2 6.5 6.3 10.4 * Includes aviationfuel. Source: Federal Comittee for Energy and Industry. - 277 - ANNEX 6.5 Page 2 of 3 Consumptionof PetroleumProducts for EnergyUse ('000tons) GrowthRate (X) 1980 1985 1981-1985 Light Light Light Republic& Provinces FuelOil Fuel Oil FuelOil Fuel Oil FuelOil FuelOil Bosnia-Herzegovina 194 637 320 387 10.5 -9.7 Montenegro 24 144 28 188 3.2 5.4 Croatia 387 1,384 360 1,093 -1.4 -4.85 Macedonia 84 662 80 680 -1.0 0.4 Slovenia 330 718 359 591 1.7 -3.9 Serbia- Total 615 1,937 517 1,514 -3.4 -4.8 Serbia- Proper 41 1,190 200 862 19.5 -6.3 Kosovo 41 120 100 207 19.5 11.4 Vojvodina 228 627 217 445 -1.0 -6.8 YUGOSLAVIA 1,634 5,482 1,664 4,453 0.4 -4.1 Source: FederalCommittee for Energyand Industry. Consumtion of Petroleum Products as Feedstocks ('000 tons) Growth Rate (S) 1980 1985 1981-1985 PrimaryLl Primary Primary _RUbic& Provinces iLJJM Bi3mtumen Othbers lfiai Di tWmn Others gL1in 1rtumen Others Bosnia-Herzegovina - 133 63 - 220 58 - 10.5 -1.65 Montenegro - 20 5 - 20 6 - 0.0 3.7 Croatia 101 193 425 1,231 Li 200 200 64.9 0.7 -13.5 Macedonia - 71.5 17 - 56 20 - -4.9 3.2 Slovenia 34 94 100 120 95 135 28.7 0.2 6.1 Serbia - Total 354 151 148 890 278 177 20.2 13.0 3.9 Serbia - Proper 14 105 112 220 170 110 73.5 10.1 -0.4 I", Kosovo - 4 9 - 7 10 - 11.8 -4.8 00 Vojvodina 340 42 670f.7 101 5 14.5 19.1 16.1 YUGOSLAVIA 489 662.5 758 2,241 869 596 35.6 5.6 -4.6 Source: Federal Comittee for Energy and Industry. LI First fraction of crudes - feedstock for petrochemical plants (Naphtha). Li Kirk - Petrochemical Plant DOWchemical/Dina. Ias 0. oM n (At - 279 - ANNEX 6.6 Supplyof NaturalGas Underthe OriginalPlan for 1981-1985 (millionm 3) 1980 1985 Domestic Total Domestic Total Republicand Province Production Import Supply Production Import Supply Bosnia-Herzegovina - 187 187 - 320 320 Montenegro ------ Croatia 983 462 1,445 3,278 600 3,878 Macedonia ------ Slovenia 8 556 564 40 750 790 Serbia - 62 62 - 1,065 1,065 Kosovo ------ Vojvodina 850 431 1,281 1,710 265 1,975 Yugoslavia 1,841 1,698 3,539 5,028 3,000 8,028 Source: FederalCommittee for Energyand Industry. New Power GenerationCapacities Planned Under the Oriainal 1981-1985Plan Hydro Thermal Run of Punp Indust- Republic& Provinces Totah River Storaae Storane Total oa1 Oil & Gas Nuclear rial Bosnia-Herzegovina 499 499 - - 830 830 - - - Montenegro - - - - 210 210 - - - Croatia 364 88 - 276 636 245 - 332 L/ 59 Macedonia 48 - 48 - 437 420 - - 17 Slovenia 74 74 - - 388 56 - 332 La - Serbia 810 216 - 594 1,576 1.576 - - - Kosovo 34 - 34 - 678 678 - - - 00 Vojvodina 10 10 - 200 - YUGOSLAVIA 1,839 887 82 870 5,090 4,215 135 664 76 Source: FederalComittee for Energy and Industry. La Krsko Generation at Bus Bars for 1985 Undgr the Qriainal Plan for 1981-1985 l~) Hvdroa Thermal Distri- Indus- Growth 1985 Growth Hembers bution trial Total Rate(S) Fuel Oil Rate(S) of Genera- Gene- 10 + 11 Renub ics 8 Prov1nces 1985 81-85. 1980t ItR Col and_Ga_ Nuclear 81-85 JUGEL mUon + 1213on 1 2 3 4 5 6 7 8 9 10 11 12 13 Bosnia-Herzegovina 5,760 6.6 6,030 10.084 10,084 - - 10.8 15.844 100 1,000 16,944 Montenegro 2.040 0.0 - 1.180 1.180 - - - 3.220 25 110 3.355 Croatia 6,327 0.5 2,631 3.956 661 1,450 1.845 8.5 10,283 77 350 10,710 Macedonia 1,421 0.7 451 3,256 3,056 200 - 48.3 4,677 80 100 4,857 Slovenia 3.472 1.3 4,260 7,065 4.880 30 2.155 13.5 10.537 - 547 11,084 Serbia 9,822 9.7 11,829 17,417 17,417 - - 8.0 27,239 60 500 27,799 KosOvo 103 - 3,367 7,026 7,026 - - 15.9 7,129 30 32 7,191 Vojvodina _ - - ...... I620 - 6Z0 - - 620 440 1.060 YUGSLAVIA 28,945 0.7 28,565 50,604 44,304 2,300 4,000 12.1 79,549 372 .3,079 83.000 Source: Federal Committee for Energy and Industry. 0% EnDr- balance 1985 (Thousand Tonnes of Oil Equivalent) m41ssion-, Estioetes asEd on the friainal 19 1-1985 Forecast erl.uPout Prt_re Eneran Line Crude Natural Electri- Aviation Fuel Hard ellrA Coking lutlear oil Other Totals Toals city i Gsolse *L Kerosene Die-sl Fuel lM1I CmaL Luinte coaL Hydro Energy all Gas Grrss SUOD1 - - - 26,172 2.844 1.000 5.123 3.696 - Produiction 343 3.975 9.191 - _ 1,018 600 1,613 18.986 - 14,000 - 400 - - Iprorts 1.-1a - - 1.950 - Primry EsPorts------_ _ _ _ _ - _ Stock Changes - _ _ _ _ 1.018 600 1.618 45,158 1.000 19.123 3.696 400 - - - Total Available 1.361 3.975 9.191 1.950 2.544 6.836 1.349 18.740 0 - 18.740 - - 542 3,593 452 5,968 Petroleum Refining - - - - Calrcoal Production - - (1.489) (151) - o - (43) 15.630 - - - - Electric Power Gneration (1662 (2.074) (2.644) - (2.844) (1.000) (10.251) _ (383) - (9. 68) _- Conversion Losses - _ _ _ (435) _ _ - (435) _ _ Transuission/DistributiOn - - _ - - Losses 00 452 5,968 6.365 1.798 18.718 34.472 - _ - 3,242 5.727 542 3.593 met SuPPly Available 1.195 1.901 1,738 1,950 - - 167 - 167 - - - Seconary Exports - - - - - witer Sales 5,968 6.365 1.798 18.718 34.305 _ _ 3.242 5560 542 3.S93 452 not Domestic Consaption 1.19S 1.901 1.738 1.950 _ tnsumtion by Sector - 3,819 613 4,710 12.873 _ _ _ 2.246 2,728 278 - - Industry 294 303 642 1,950 - 832 470 1,302 3,490 - - - 41t 552 - - - Energy , 5 1:2 - - - 163 275 - 92 _ 71 - 112 Use ------6.534 6.877 don-Eneray 128 3.355 264 2,604 69 242 Transport 53 ISS 7 - 1.295 405 - 1.964 ' 754 - - 280 1.510 264 - - Households - - - - - 473 3.055 5.806 103 486 - 114 188 1,146 1,134 298 877 987 - - - - 970 1.229 Public/Other 195 64 - 53 _ 811 106 - Agriculture ------Statistical Discrepany Source: Mission's Esti_tes. ,,,ye Bxlanee I19lS (Thousand Tes :jilf E,u1ivalent) Yu.olar Bavived Plan for Enrer Ermrmray PetrlnPout Hard Brown Celigrs luclear Crude Natural Electri- Aviation Fuel Line Qoa C2L_ Lnite coal Hidra EnIZv 11l _fGcs t L; G11neln_ L eraGsl Diessel fuel oil Other Tt-Is Totals Grmos Sz ol Production 253 3.726 10.936 287 2.577 1.000 S.123 4.310 - 2o rts 46 - - 1.530 - - 10.643 2.540 200 ------25.212 Prinry Exports ------1 5759 Stock Changes - - Total Available 1.09 3.726 10.936 1.617 2.577 1.000 15.766 6.800 200 ------43.971 fetroleu Refining - - - - 15.49 - - 44 2,825 346 4,952 5,748 1.172 15,489 0 Charcoal Production ------Electric Power Generation (155) (2.321) (9,436) - (2.577) (1.000) - (1.115) 18.69-3 (1.892) (170) (2,062) 0 Conversion tosses- -- - - (277) - (12.322) - - 12. 59) Transmission/Distribution - - (610) ------(610) (. Losses O net Supply Available 914 1.40S 1.500 1.817 - - - 5,735 5.964 446 2,825 346 4,952 3.1156 1.002 13.427 30.762 Secondary Exports - Bunker Sales - Net 0emstic Consumption 914 1.405 1,500 1,817 - - - 5.735 5.f4 446 2,825 346 4,952 3.856 1,002 13,427 30,762 _oostionby Sector Industry 205 217 554 1.817 - - - 3.813 2.866 209 - - - 2.077 392 2.678 12.180 Energy 4°7 521 101 - _ - 707 581 2 - - 2516 301 817 3.214 llon-Energy Use - - - - - Transport 34 99 6f - 124 - 2,681 201 1,9S1 39 110 4.982 5.245 Households - - _- 548 1.80 237 - - 1.245 165 1.647 4.003 Public/Other 188 566 809 - - - - 182 495 - 93 145 o1l 959 199 21197 4.439 Agriculture ------485 90 - 51 - 955 100 - 1,106 1.681 Source: Constructed by the mission based an new targets provided by the Federal Bureau of Social Planning, July 1983 (ThousandTmes dof011 Equivalent) Nines Etimeasas~ I aHaasosi*of the Davis"d pl,, Prir .na arl rdit Hard Wn r r inE Nulor CrudeNaturl Electri- Aviation F1 Line Cad C11- Umat -CLR im Lmcu. JIL -Ias- _AUY2__ LeStv 66$pUMl AmLnsg Osriesel FuaLi Gther Toals Totals Production 236 3.462 11.626 239 2.3S6 740 5.123 2.319 ------25.121 Ixwrts 787 - - 1.432 - - 8.848 1.9u6 7-- 11.312 Primry Exports - - - _ _ _ - ______Stock Oanus - - - - - _ - ______ Total Available 1.923 3.462 10.626 1.671 2.3U5 74U 11.963 4.296 279 ------36.436 Canersia Petrol Rfning ------11.726 - - 382 2,336 297 4,160 3,545 1.006 11.726 a Charcoal Production - Electric Pe_r Eneration (172) (2.166) (9338) - (2.34) (740) - (480) 15.439 - - _ (158) (1.712) 0 Conversion Losses ------(237) - (10,133) ------(10.370) 00 Tr1aission/Distribution Losses - - - (391) - - - - (391) Het Supply Available 851 1.296 1.2U8 1.671 - - - 3.816 S.18 382 2,336 297 4,160 3.545 848 11.568 25.675 Secondary Exports - - - - - 105 - 389 389 777 - - - 105 Ei*er Sales ------ Hat DomesticConsuvPtion *51 1.296 1,2U8 1,671 - - - 3.516 5,050 382 2,336 297 4.160 3.545 848 11,568 25.570 Consumtion by Sector Industry 213 212 488 1.671 - - 2.522 2.388 174 - - - 2.136 292 2.602 10.096 Energy 397 398 76 - - - - 469 483 - - - - 465 224 689 2,512 Mon-Energy Use ------Transport 34 9' 5 - - - - - 107 - 2,217 170 1.640 35 116 4.17a 4.422 Households ------352 1.590 205 - - 1,069 235 - 1.515 3.487 Public/Other 207 58a 719 - - -129 439 - 77 127 694 606 216 1,720 3.502 Agriculture - 314 73 - 42 - 757 65 - 864 1.251 Seurc: Hission's Estimtes. Energy Helence 1990 (Thousng Tones oft Oil Equivalent) Primary Earev Petrole.Lm Products ard grewn Coking Nuclear Crude Natural Electri- Aviation Fuel Line coal coal Liita Cl fHydra vur_ _L 6e5 c1ty Les GuASi AKerosene ilesel Fuel Oil Othar Toits Totals Gross SUIID1 Production *59 4.264 14.477 337 3.087 1.0.0 5.884 4.421 ------33.829 Imports 980 - - 1.246 - - 8,120 2.07 ------12.353 Primry Exports ------Stock Chngs ------ Total Available 1.259 4.264 14.477 1.683 3.087 1.000 14.004 6.506 ------46.182 Petroleum Hafining ------13725 - - 471 3,035 376 5,024 3.005 1,814 13.725 a CharcoalProduction - - - - Electric Pmarr Cnrat1on t388) 13.304) 113.473) - (3.087) (1.00) - (1,687) 23.221 - - - - (258) (258) 0 Conversion Losse ------(279) - (14.915) ------(15.450) TranisssionkOistributimn Loss ------(828) ------(828) Net Supply Available 879 960 1.004 1.83 - - - 4.816 7.188 471 3.035 376 5,024 3.005 1.556 13,467 29.904 SecondaryExorts ------250 ------205 0unker Sales - _------ Met Domestic CPAmptian 879 960 2.004 1.583 - - - 4,216 6.938 471 3,035 376 5,024 5.948 1.556 13,467 29,654 Cmi.t1f n b Sector Industry 218 155 219 1,583 - - - 3.314 3.507 247 - - - 1,704 483 2,4)4 11.430 Energy 487 293 36 - - - - 615 710 - - - 423 370 793 2.854 Hon-fnerUse ------Transport 42 82 12 - - - - - 1610- - 2,891 226 2,211 34 203 5.565 6.128 Households ------415 1.894 224 - - 1.105 171 171 1.671 3.980 Public/Oter 212 438 773 - - - - 147 571 - 92 ISO 882 607 329 2.060 4,193 Agricult - - - - - 330 95 - 52 - 826 66 - 944 1.369 Source: 1sshin-s Estimtes. Prices of petroleumProducts. 1971-1283 (Din/ton) RegularGasoline Refineryprice 730 896 1,988 3,206 3,206 3,206 4,421 4,159 5,440 10,969 13,244 16,879 20,803 Distributioncosts 190 224 269 365 365 365 405 426 615 683 650 1,100 1,375 Taxes and toll 1,510 2,320 3,041 3,041 3,041 3,041 4,216 4.991 8,732 10,637 12,606 20,021 26,822 Retail price 2,430 3,440 5,298 6,612 6,612 6,612 9,042 9,576 14,787 22,289 26,500 38,000 49,000 Premium Gasoline Refineryprice 870 1,032 2,251 3,410 3,410 3,410 4,625 4,306 5,838 12,202 14,960 19,068 23,601 Distributioncosts 220 258 310 365 365 365 405 419 593 670 650 l,loo 1,375 Taxes and toll 1,610 2,560 3.242 3,242 3,242 3,242 4,417 5,138 8,763 11,504 12,890 19,832 27,024 Retail price 2,700 3,850 5,803 7,017 7,017 7,017 9,447 9,863 15,194 24,376 28,500 40,000 52,000 Diesel Oil Refineryprice 690 846 1,910 2,620 2,620 2,620 3,156 3,179 4,380 8,853 12,659 16,247 19,761 Distributioncosts 90 115 138 203 203 203 226 231 361 477 550 1,000 1,250 oo Taxes and toll 770 839 813 813 1,289 1,289 1,624 2,227 4,884 6,840 10,791 15,753 17,789 c Retail price 1.550 1,880 2,861 3,636 4,112 4,112 5,006 5,637 9,625 16,170 24,000 33,000 38,800 Fuel Oi1 Refinery price 410 510 992 1,580 1,580 1,580 1,580 1,594 2,200 4,297 8,103 8,343 11,852 Distributioncosts 30 40 48 95 95 95 95 96 132 160 204 158 198 Taxes 50 50 - - - - - 45 350 335 1,397 601 1,370 Retail price 490 600 1,040 1,675 1,675 1,675 1,675 1,735 2,682 4,792 9,704 9,102 13,420 Jet Fuiel Refinery price 890 690 1,570 2,045 2,255 2,255 2,660 2,660 4,025 8,795 13,622 16,417 23,072 Distributioncosts 120 170 150 205 225 225 260 260 399 540 2,082 2,953 3,660 Taxes and toll ------2,221 150 Retail price 1,010 860 1,720 2,250 2,480 2,480 2,920 2,920 4,424 9,335 14,461 21,591 26,882 mIO'Qm 0. t-h Ra1 Rtail Brims of PetraleurP ra&ita LCamant 197 Priaa]s"II-1993 (uin/ton) 12Zl ii1 Jill 1974 Jill 117& 1i97 Ji97 1i97 1i9 1i1 190t Jill Reaular Gasoline Refinery price 948 1,079 1,984 2,845 2,274 1,897 2,300 1,922 2,079 3,197 2,758 2,705 2,565 Oistribution costs 247 270 269 324 259 216 211 197 236 199 135 176 160 Taxes and toll 1,961 2,795 3,H41 2,698 2,157 1,799 2,196 2,306 3,337 3,101 3,675 3,206 3,307 Retail price 3,156 4,144 5,298 5,867 4,690 3,912 4,707 4,425 S,656 6,496 5,518 6,090 6.042 PremiLm Gasoline Refinery price 1,130 1,243 2,251 3,026 2,418 2,018 2,406 1,990 2,231 3,556 3,115 3,056 2,910 Distribution costs 286 311 310 259 259 216 211 194 227 195 135 176 169 Taxes and toll 2,091 3,084 3,242 2,877 2,299 1,918 2,298 2,374 3,348 3,353 2,684 3,178 3,332 Retail price 3,506 4,638 5,803 6,226 4,976 4,145 4,915 4.558 5,806 7,105 5,935 6,410 6,412 Diesel Oil Refinery price 896 1,019 1,910 2,325 1,858 1,547 1,642 1,469 1,674 2,580 2,636 2,604 2,437 1 Distribution costs 117 138 138 180 144 126 117 107 138 139 114 160 154 t3 Taxes and toll 1,000 1,010 813 721 914 761 845 1.029 1,866 1,994 2,248 2,524 2,193 C Retail price 2,013 2,265 2,861 3,226 2,916 2,429 2,604 2,605 4,442 4,713 5,000 5,288 4,784 Fuel Oil Refinery price 532 614 992 1,402 1,120 933 822 736 841 1,252 1,687 1,337 1,461 Distribution costs 39 48 48 84 67 56 49 44 50 47 - 25 24 Taxes 65 60 - - - - - 21 134 98 - 125 169 Retail price 636 723 1,040 1,486 1,188 989 871 774 1,025 1,397 - 1,459 1,655 Jet Fuel Refinery price 116 831 1,570 1,814 1,599 1,332 1,384 1,229 1,538 2,564 2,838 2,631 2,845 Distribution costs 156 205 150 182 159 133 135 120 152 157 - 473 451 Taxes and toll ------356 19 Selling price 1,312 1,036 1,720 1,996 1,759 1,465 1,519 1,349 1,690 2,721 - 3,460 3,315 LI Nominal prices were adjusted by GOP deflators with 1973 as the base year. I- Fh) Structureof Prices of PetroleumProducts. By Percentaae tRi19g 173 1974 197 19im7 2l 179 90 18 9g 18 Regular Gasoline Refineryprice 30.1 26.0 37.5 48.5 48.5 48.5 48.9 43.4 36.8 49.2 47.3 44.4 42.5 Distributioncosts 7.8 6.5 5.1 5.5 5.5 5.5 4.5 4.4 4.2 3.1 2.5 2.9 2.8 Taxes & toll 62.1 67.5 57.4 46.0 46.0 46.0 46.6 52.2 59.0 47.7 50.2 52.7 54.7 Retail price 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Premium Gasoline Refineryprice 32.2 26.8 38.8 48.6 48.6 48.6 49.0 43.7 38.4 50.1 49.3 47.7 45.4 Distributioncosts 8.2 6.7 5.3 5.2 5.2 5.2 4.3 4.2 3.9 2.7 2.3 2.8 2.6 Taxes & toll 59.6 66.5 55.9 46.2 46.2 46.2 46.7 52.1 57.7 47.2 48.4 49.6 52.0 Retail price 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Diesel Oil Refineryprice 44.5 47.0 66.8 72.1 63.7 63.7 63.0 56.4 45.5 54.8 48.8 52.7 50.9 1 Distributioncosts 5.8 6.4 4.8 5.6 4.9 4.9 4.5 4.1 3.8 2.9 2.3 2.3 3.3 Il Taxes & toll 49.7 46.6 28.4 22.3 31.4 31.4 32.5 39.5 50.7 42.3 48.9 45.0 45.8 °° Retail price 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 oo Fuel Oil Refineryprice 83.7 85.0 95.4 94.3 94.3 94.3 94.3 91.9 82.0 89.7 83.5 91.7 88.3 Distributioncosts 6.1 6.7 4.6 5.7 5.7 5.7 5.7 5.5 4.9 3.3 2.1 1.7 1.5 Taxes 10.2 8.3 - - - - - 2.6 13.1 7.0 14.4 6.6 10.2 Selling price 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Jet Fuel Refineryprice 88.1 80.2 91.3 90.9 90.9 90.9 91.1 91.1 91.0 94.2 85.6 76.0 85.8 Distributioncosts 11.9 19.8 8.7 9.1 9.1 9.1 8.9 8.9 9.0 5.8 14.4 13.7 13.6 Taxes ------10.3 0.6 Selling price 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Jugopetrol Ib4 0.--h w Tax Revenus fr he Sale of Petrolm Products. 1971-1979 (MillionDinars) 19n 17 17 1974 1975 1976 1977 Jr nu Gasoline Total 2269.3 3.401.4 4.800.2 5.11.2 5,551.0 6,016.0 9,258.9 11,937.0 20,372.9 57,633 54,788 70,699 95,522 Taxes 2,107.5 3,147.3 4,376.1 4,5S6.8 4,949.0 5,363.8 8,267.4 10,791.6 18,627.3 52,695 50,076 64,619 87,308 Toll 1U8.8 254.1 424.1 554.4 602.0 652.2 991.5 1,145.4 1,745.6 4,938 4,712 6,080 8,215 Accruing to: Fed. Government 1,053.8 1,573.7 2,1U.0 2,278.4 2,474.5 2.681.9 4,133.7 5,395.8 9,313.7 26,347 25,038 32,309 43,654 Republics 1,242.5 1,827.7 2,612.2 2,832.8 3,076.5 3,334.1 5,125.2 6,541.2 11,059.2 31,285 29,750 38,389 51,869 Diesel Total 2.052.1 2,090.8 2,079.7 2,215.4 4,444.5 4,681.6 6,390.4 9,907.9 23,418.8 31,703 39,405 45,321 51,179 Taxes 1,804.3 1,821.7 1.640.6 1.620.9 3,593.8 3,785.5 5,208.5 8,403.2 20,649.7 27,962 34,755 39.973 45.140 Toll 247.8 269.1 439.1 594.5 850.7 896.1 1,181.9 1,504.7 2,769.1 3,741 4,650 5,348 6,039 Accruing to: Fed. Goverrment 902.1 910.9 820.3 810.4 1,796.9 1,892.8 2,604.3 4,201.6 10,324.8 13,981 17,377 19.986 22,570 Republics 1.1150.0 1,179.9 1,259.4 1,405.0 2,647.6 2,788.8 3,786.1 5,706.3 13,094.0 17,722 22,027 25,334 28,609 ~ 40 Fuel Oil Taxes 146.5 149.6 - 288.1 2,413.6 1,705 6,045 2,211 5.040 Accruing to: Fed. Government 73.3 74.8 - - - - 144.1 1,206.8 852 3,022 1,lOS 2,520 Republics 73.2 74.8 - - - - - 144.0 1,206.8 853 3,023 1,106 2,520 PetroleumProducts Li Total 4,494.9 5,641.8 6,879.9 7,326.6 9,995.5 10,697.6 15,649.3 22,133.0 46,205.3 91,041 100,238 118,231 151,742 Taxes 4,058.3 5,118.6 6,016.7 6,177.7 8,542.8 9,149.3 13,475.9 19,482.9 41,690.6 82,360 90,876 106,803 137,488 Toll 436.6 523.2 863.2 1,148.9 1,452.7 1,548.3 2,173.4 2,650.1 4,514.7 8,679 9,362 11,428 14,254 Accruing to: Fed. Government 2,029.2 2,559.4 3,008.3 3,088.8 4,271.4 4,574.7 6,738.0 9,741.5 20,845.3 41,180 45,438 53,401 68,744 Republics 2.465.7 3,082.4 3.871.6 4,237.8 5,724.1 6,122.9 8,911.3 12,391.5 25,360.0 49,859 54,800 64.829 82,998 Petrolem Products Li (in real terms) 1973 prices Total S,837.6 6,797.3 6,879.9 6,501.0 7,088.7 6,318.7 8,142.2 10,227.8 17,655.9 26,534.8 20,878.6 18,947.3 18,710.5 1i Excludes kerosene, jet fuel and LPG. b | o .) Tax Revenues from the Sale of Petroleum Products hY Sector In Mill]ns of Dinars As a Pe*mentae of Tgtal Tax Revenues 1975 !976 li7 97 9ND7lZA JiZi 1977 JillD iZ Industry - - - 140.9 1,110.2 - - - 0.6 2.4 Energy - - 82.1 674.5 - - - 0.4 1.4 Transport 7,026.4 7,486.8 11,131.6 15,121.9 29,554.5 70.3 70.0 71.1 68.3 64.0 Agriculture 919.5 926.3 1,286.7 1,793.2 3,922.1 9.2 8.6 8.2 8.1 8.5 Households 1,142.1 1,205.2 1,434.0 2,337.4 5,733.5 11.4 11.3 9.2 10.6 12.4 Othersectors 207.7 _l.QZ2,L _.,Z2ZJ. _Ai5L1 5.210.6 .l1 lQJ.1 11.5 12.Q 11.3 TOTAL 9.995.7 I0.6917.615.649.4 Z2.2133.ZI6.f5A 1QQLQ lOO.Q 100.0 1.Q1Q IOIJ As a Percentage IN In Millions of Oinars of Total Tax Revenues O Industry 1,267 4,410 1,582 3,607 1.3 4.3 1.2 2.3 Energy 350 1,183 412 939 0.4 1.2 0.3 0.6 Transport 67.687 66,177 87,189 113.289 68.6 64.5 68.1 69.0 Aariculture 8.720 7.716 9,687 11,234 8.8 7.5 7.6 6.8 Households 9,069 12,518 14,900 16,917 9.2 12.1 11.6 10.3 Othersectors 11.523 10.670 14.335 18.091 11.7 10. 11.2 11.0 TOTAL 92i616 102.674 128.105 164,077 100.0 100.0 100.0 100.0 5nucg: Jugopetrol OQ| 0. - 291 - ANNEX 7.3 I. Current Retail Prices of Natural Gas (Di1n1,000m 3 ) Slovenia and Croatia Voivodina Households Industry Feedstock Households Industry 1976 4,915.7 798.80 713.41 1,032.30 706.00 1977 5,653.0 918.60 820.40 1,032.30 706.00 1978 5,653.0 918.60 820.40 1,032.30 706.00 1979 5,653.0 918.60 820.40 1,032.30 706.00 1980 5,653.0 918.60 820.40 1,750.60 1,296.60 1981 5,653.0 1,858.54 1,393.91 1,750.60 3,715.20 1982 5,653.0 2,509.03 1,881.77 4,169.20 4,644.00 1983 5,653.0 4,014.53 3,010.84 5,361.40 5,877.10 II. Real Retail Prices /1 of Natural Gas Dint1,000m3 (1983 prices) Households Industry 1976 290.35 466.51 421.39 609.75 417.01 1977 294.12 542.59 426.85 536.94 367.33 1978 261.23 477.94 378.93 477.03 326.25 1979 216.01 351.01 313.49 394.34 269.78 1980 164.76 267.81 239.11 510.23 377.73 1961 117.77 387.04 290.34 364.56 773.84 192 905.9 402.09 301.57 668.14 744.23 1983 697.0 495.01 371.25 661.09 724.67 /1 GDP deflators have been used to adjust current prices to real prices (1973 * 100). Current Retail Prices of Hard and Brown Coal and Lignite.1975-1982 (D1nars/ton) 1121 1121 JILl 1121 1122 JIM Jill Jill ai Jl La Hard Coal I Irregularshape 645.82 717.09 824.98 853.87 1,055.00 1,547.00 2,556.00 3,027.10 4,117.28 Cubes 662.74 731.30 840.94 886.21 1,016.00 1,475.00 2,536.00 3,387.45 4,606.93 Pebbles 641.36 708.98 815.44 847.09 991.32 1,457.00 2,493.00 3,510.11 4,773.75 Granules 636.67 694.00 798.01 841.16 956.80 1,416.00 2,479.00 3,647.25 4,960.26 Rough powder 544.87 613.87 706.31 744.88 847.38 1,192.00 1,996.00 3,653.72 4,969.06 Fine powder 612.66 887.33 1,081.00 1,084.00 1,298.00 1,558.00 1,626.39 1,651.26 2,245.71 grown Coal Irregularshape 415.95 467.94 534.62 567.69 683.61 1,045.00 1,585.00 2,263.87 3,079.02 Cubes 411.67 447.80 504.95 548.72 658.24 1,021.00 1,601.00 2,182.43 2,968.11 Pebbles 363.85 393.27 445.11 475.16 565.27 889.81 1,306.00 2,341.32 3,184.19 Granules 342.75 367.19 422.53 455.69 545.40 832.70 1,270.00 1,903.12 2,588.24 Rough powder 269.99 304.30 367.05 402.14 476.04 726.36 1,160.00 1,432.25 1,947.86 Fine power 156.50 167.47 192.46 228.18 637.67 943.53 1,375,00 1,256.01 1,708.16 For boilers 185.83 222.33 241.00 261.24 287.36 872.98 1,202.00 1,103.12 1,500.24 Lianite Irregularshape 234.49 260.18 281.09 294.20 346.88 568.72 852.32 1,076.23 1,463.67 Cubes 202.67 194.24 205.07 220.62 251.12 374.90 635.78 856.67 1,165.07 Pebbles 169.85 162.30 176.56 199.05 225.70 372.32 600.12 692.21 941.41 Granules 165.41 176.35 198.43 215.69 251.37 502.45 825.71 1,038.37 1,412.18 Roug,h pow--der 111.00 119.88 132.83 150.79 161.26 216.25 354.80 558.15 759.08 Fine powder 201.25 205.19 231.98 255.44 334.79 438.02 713.13 826.23 1,123.67 X Estimates. 0. t-h4 U' - 293 - ANNEX7.4 Page 2 of 5 Pricesof Coal for HouseholdUse 1975 1976 1977 1978 1979 1980 1981 1982/1 1983 /1 ------Dinars/ton ------… ------ Browncoal 602.06 647.57 720.17 787.00 976,00 1,390.00 2,047 2,719 3,698 Lignite 406.45 436.06 483.21 538.00 660.00 926.00 1,332 1,869 2,542 ------Dinars/toe ------ Browncoal 1,580.62 1,700.11 1,890.71 2,066.16 2,562.35 3,649.25 5,374 7,138 9,707 Lignite 1,524.00 1,635.02 1,811.81 2,017.25 2,474.69 3,472.07 4,994 7,008 9,531 /1 Estimates. - 294 - ANNEX7.4 Page 3 of 5 Pricesof Coal for PowerStations 1975 1976 1977 1978 1979 1980 1981 1982/1 1983/1 ------Dinars/ton ------ Hardcoal 429.09 500.05 596.92 752.57 1,010.59 1,404 2,222 3,065 4,168 Browncoal 226.57 261.81 295.84 386.35 464.54 763 1,145 1,504 2,045 Lignite 128.55 148.53 158.95 200.61 237.44 373 601 761 1,035 ------Dinars/toe ------…-- Hard coal 808.69 929.98 1,124.80 1,418.61 1,919.81 2,669 4,224 5,826 7,923 Browncoal 632.52 726.04 816.11 1,067.86 1,344.15 2,210 3,316 4,356 5,923 Lignite 623.42 748.26 831.76 1,028.77 1,217.64 1,915 3,085 4,052 5,509 /1 Estimates. - 295 - ANNEX 7.4 Page4 of 5 Pricesof Coalfor Industry(Including Power Generation) (Dinars/Ton) 1975 1976 1977 1978 1979 1980 1981 1982 1983 HardCoal Irregularshape 645.82 717.09 824.98 853.87 1,055.00 1,547.00 2,448.40 3,376.88 4,593.03 Cubes 662.74 731.30 840.94 886.21 1,016.00 1,475.00 2,334.55 3,219.34 4,378.30 Pebbles 641.36 708.98 815.44 847.09 991.32 1,457.00 2,306.06 3,180.06 4,324.88 Granules 636.67 694.00 798.01 841.16 956.80 1,416.00 2,241.17 3,090.57 4,203.17 Roughpowder 544.87 613.87 706.31 744.88 847.38 1,192.00 1,886.64 2,601.67 3,538.27 Fine powder 812.66 887.33 1,081.001,084.00 1,298.00 1,554.00 2,479.48 3,419.20 4,650.11 BrownCoal Irregularshape 415.95 467.94 534.62 567.69 683.61 1,045.00 1,570.57 2,108.11 2,867.17 Cubes 411.67 447.80 504.95 548.72 658.24 1,021.00 1,533.36 2,058.29 2,799.27 Pebbles 363.85 393.27 445.11 475.16 565.27 889.81 1,336.34 1,793.81 2,439.56 Granules 342.75 367.19 422.53 455.69 545.40 832.70 1,250.57 1,678.68 2,283.00 Roughpowder 269.99 304.30 367.05 402.14 476.04 726.36 1,090.87 1,464.31 1,991.46 Finepowder 156.50 167.47 192.46 221.18 637.67 943.53 1,416.95 1,902.11 2,586.87 For boilers 185.83 222.33 241.00 201.24 287.36 872.98 1,311.06 1,759.88 2,393.44 Lignite Irregularshape 234.49 260.18 281.09 294.20 346.88 568.72 916.61 1,161.35 1,535.57 Cubes 202.67 194.24 205.07 220.62 251.12 374.90 604.36 765.73 1,012.37 Pebbles 169.85 162.30 176.56 199.05 225.70 372.32 600.20 760.46 1,005.32 Granules 165.41 176.35 198.43 215.69 251.37 502.45 809.98 1,026.10 1,356.47 Roughpowder 111.00 119.88 132.83 150.79 161.26 216.25 348.61 441.68 583.91 Finepowder 201.25 205.19 231.98 255.44 334.79 438.02 706.12 894.41 1,182.33 - 296 -ANNEX 7.4 Page5 of 5 Pricesof Coal for Industry(Including Power Generation) (Dinars/toe) 1975 1976 1977 1978 1979 1980 1981 1982 1983 Hard.Coal Irregularshape 1,217.15 1,333.62 1,554.51 1,609.56 2,004.18 2,938.83 4,651.96 6,416.07 8,726.75 Cubes 1,249.04 1,360.05 1,584.59 1,670.52 1,930.092,802.05 4,435.64 6,616.75 8,318.78 Pebbles 1,208.74 1,318.54 1,536.54 1,596.78 1,883.21 2,767.86 4,381.52 6,042.12 8,217.28 Granules 1,999.91 1,290.68 1,503.69 1,585.60 1,817.63 2,689.97 4,258.22 5,872.08 7,986.03 Roughpowder 1,026.89 1,141.66 1,330.90 1,404.11 1,609.76 2,264.44 3,584.61 4,943.18 6,722.72 Fine powder 1,531.59 1,650.23 2,036.93 2,043.36 2,465.81 2,976.00 4,711.01 6,496.48 8,835.21 BrownCoal Irregularshape 1,161.22 1,290.87 1,474.81 1,569.07 1,978.04 3,023.73 4,538.94 5,963.84 8,111.22 Cubes 1,149.27 1,235.31 1,392.96 1,516.64- 1,904.632,954.28 4,431.42 5,822.89 7,919.13 Pebbles 1,015.77 1,084.88 1,227.89 1,313.32 1,635.62 2,574.68 3,862.02 5,074.69 6,901.51 Granules 956.87 1,012.94 1,165.60 1,259.51 1,578.13 2,409.43 3,614.14 4,748.78 6,458.61 Roughpowder 753.74 839.45 1,012.55 1,111.50 1,377.43 2,101.74 3,152.61 4,142.53 5,633.84 Finepowder 436.91 461.99 530.92 562.88 1,845.11 2,730.12 4,095.18 5,381.07 7,318.25 For boilers 518.79 613.32 664.83 653.10 718.40 2,525.98 3,788.97 4,978.71 6,771.05 Lignite Irregularshape 1,137.19 1,310.73 1,470.91 1,508.72 1,778.87 2,916.51 4,700.39 5,955.39 7,874.43 Cubes 982.88 978.54 1,073.10 1,131.38 1,287.79 1,922.56 3,099.17 3,926.65 5,191.03 Pebbles 823.71 817.63 923.91 1,020.77 1,157.44 1,909.33 3,077.84 3,899.62 5,155.30 Granules 802.18 888.41 1,038.36 1,106.10 1,289.08 2,576.67 4,153.59 5,261.85 6,956.17 Roughpowder 538.31 603.93 695.08 773.28 826.97 1,108.97 1,787.66 2,264.96 2,994.28 Fine powder 975.99 1,033.70 1,213.92 1,309.95 1,716.87 2,246.26 3,620.97 4,586.54 6,063.41 - 297 - ANNEX 7.5 Estimated Long Run Average IncrementalCosts of Various Coal and Lignite Mines Total Total Cap. Cap. LRAIC /1 LRAIC LRAIC LRAIC/2 Example Kcal/kg '000 t '000 t Din/ton Din/Mcal US$/Toe US$/Toe Al 1,800 18,000 3,176 415.26 230.70 26.14 31.38 A2 1,800 12,000 2,118 459.94 255.52 28.96 34.75 A3 1,760 6,500 1,122 472.39 268.41 30.42 36.50 A4 2,700 500 132 754.90 279.59 31.69 38.02 AS 1,650 700 113 959.22 581.34 65.89 79.06 B1 2,856 600 168 1,230.80 431.07 48.86 58.62 B2 2,700 670 177 1,323.08 490.03 55.54 66.64 B3 3,408 150 50 1,788.63 524.83 59.48 71.38 B4 2,950 95 27 1,943.62 658.85 74.67 89.61 C' 4,000 2,000 784 2,640.00 660.00 78.80 89.76 Dl 4,300 1,250 527 1,611.51 374.77 42.47 50.97 D2 4,200 200 82 1,833.44 436.54 49.47 59.37 D3 4,330 200 85 2,449.00 565.60 64.10 72.13 D4 3,429 64.8 22 2,417.39 704.98 79.90 95.87 /1 Long Run Average IncrementalCost (LRAIC). /2 LAIC adjusted for environmentalcosts associatedwith mine development. A = Lignite open pit B = Lignite underground C = Brown coal open pit D = Brown coal underground - 298 - ANNEX7.6 Page 1 of 3 WeightedAverage Revenue Per Kilowatt-Hour Sold for 1973,1980, 1983 (paras/kWh) A. CurrentPrices Wt. Av. Bosnia- Year Yugoslavia HerzegovinaMontenegro Croatia MacedoniaSlovenia Serbia Kosovo Vojvodina 1973 18.91 17.56 16.97 19.32 19.09 18.85 18.96 18.67 18.6 1980 78.63 69.89 56.84 81.54 86.45 83.07 76.59 76.56 82.30 1983 174.66 150.56 141.0 194.44 156.70 207.47 158.86 183.93 196.84 2. Real Prices 1973 18.91 17.56 16.97 19.32 19.09 18.85 18.96 18.67 18.60 1980 22.92 20.37 16.57 23.77 25.20 24.21 22.32 22.31 23.99 1983 21.54 18.56 17.39 23.97 19.32 25.58 19.59 22.68 24.27 - 299 - ANNEX7.6 Page 2 of 3 AverageRevenue at the BulkSupply Level 1973-1983 (paras/kWh) A. CurrentPrices Wt. Av. Bosnia- Year Yugoslavia HerzegovinaMontenegro Croatia MacedoniaSlovenia Serbia Kosovo Vojvodina 1973 15.37 13.60 15.33 15.60 17.06 17.68 17.68 17.68 17.68 1974 19.96 20.09 21.11 17.19 22.98 22.75 22.75 22.75 22.75 1975 28.27 27.05 28.36 22.46 31.03 30.45 30.45 30.45 30.45 1976 28.84 30.90 24.82 23.51 35.26 34.95 34.95 34.95 34.95 1977 32.54 34.48 28.38 26.76 37.66 40.32 40.32 40.32 40.32 1978 36.09 37.98 30.92 30.14 43.01 45.41 45.41 45.41 45.41 1979 43.46 44.45 37.95 37.72 47.23 53.02 53.02 53.02 53.02 1980 59.91 55.50 53.21 53.54 70.46 68.71 68.71 69.03 73.92 1981 85.92 79.36 86.17 76.02 93.71 99.63 99.63 111.23 100.48 1982 117.12 117.70 105.89 99.17 117.71 91.25 127.96 150.76 143.87 1983 140.50 141.24 127.07 119.00 141.25 109.50 153.55 180.91 172.64 B. RealPrices /1 1973 15.37 13.60 15.33 15.60 17.06 17.68 17.68 17.68 17.68 1974 17.71 17.83 18.73 15.25 20.39 20.19 20.19 20.19 20.19 1975 20.05 19.50 20.11 15.93 23.01 21.60 21.60 21.60 21.60 1976 17.04 18.25 14.66 13.89 20.83 20.64 20.64 20.64 20.64 1977 16.93 17.94 14.77 12.37 19.59 19.59 19.59 19.59 19.59 1978 16.68 17.55 14.29 13.93 19.87 20.98 20.98 20.98 20.98 1979 16.98 16.98 14.27 14.41 18.05 20.26 20.26 20.26 20.26 1980 17.34 16.18 15.51. 15.60 20.54 20.03 20.03 20.12 21.54 1981 17.90 16.53 17.94 15.83 19.51 20.75 20.75 23.17 20.92 1982 18.77 18.86 16.97 15.89 18.86 14.62 20.51 24.16 23.06 1983 17.32 17.42 15.67 14.67 17.42 13.50 18.93 22.31 21.29 /1 Constantin 1973prices. - 300 - ANNEX 7.6 Page 3 of 3 AverageRevenue per Kilowatt-HourSold at Distributionand Low VoltageLevels /1, 1973-1983 (paras/kWh) A. CurrentPrices Wt. Av. Bosnia- Year Yugoslavia HerzegovinaMontenegro Croatia MacedoniaSlovenia Serbia Kosovo Vojvodina 1973 20.15 20.80 19.78 20.56 20.72 19.25 20.04 20.04 20.04 1974 26.23 26.98 24.08 26.89 22.98 17.08 26.05 26.05 26.05 1975 34.09 35.69 31.16 35.45 31.03 21.87 34.07 34.07 34.07 1976 37.67 40.88 36.17 38.20 38.92 33.16 38.03 38.03 38.03 1977 44.35 46.46 43.30 43.98 37.66 29.18 40.32 40.32 40.32 1978 50.78 52.35 49.69 50.67 52.15 51.63 49.37 49.37 49.37 1979 61.59 61.07 57.75 66.36 62.14 61.82 59.80 59.80 59.80 1980 84.88 81.67 64.21 90.88 86.73 88.12 84.49 88.35 76.20 1981 122.98 113.39 73.88 138.50 115.65 144.41 112.97 122.54 115.05 1982 155.05 134.00 143.32 182.99 141.12 178.15 136.82 156.90 157.31 1983 186.06 160.80 171.98 219.59 169.34 213.78 164.18 188.28 188.77 2. Real Prices /2 1973 20.15 20.80 19.78 20.56 20.72 19.25 20.04 20.04 20.04 1974 23.27 23.94 21.37 23.86 20.39 15.15 23.11 23.11 23.11 1975 24.18 25.31 22.10 25.14 22.01 15.51 24.16 24.16 24.16 1976 22.25 24.15 21.36 22.60 23.03 19.59 22.50 22.50 22.50 1977 23.07 24.17 22.53 22.88 19.59 15.18 20.98 20.98 20.98 1978 23.47 24.19 22.96 23.41 24.10 23.86 22.81 22.81 22.81 1979 23.53 23.34 23.34 25.36 23.74 23.62 22.85 22.85 22.85 1980 24.74 23.80 23.80 18.71 25.68 25.68 24.62 25.75 22.21 1981 25.61 23.61 15.38 28.84 24.09 30.07 23.53 25.52 23.96 1982 24.85 21.47 22.97 29.32 22.61 28.55 21.93 25.14 25.21 1983 22.94 19.83 21.21 27.08 20.88 26.36 20.24 23.22 23.28 /1 Voltagelevels from 35 kV to 0.4 kV. /2 In constant1973 prices. -301 - ANNEX 7.7 Current Relative Prices of Fuels for Power Generation /1 1977-1983 ______------(Din/toe) … --- …------ Fuel 1977 1978 1979 1980 1981 1982 1983 Domestically produced natural gas 936 949 1,045 1,220 2,343 3,232 4,500 Imported natural gas 1,386 1,376 2,641 4,930 6,919 9,696 15,300 Fuel oil 1,675 1,735 2,682 4,792 8,598 9,102 13,420 Hard coal 1,125 1,419 1,920 1,994 2,626 3,846 5,231 Brown coal 816 1,068 1,284 1,922 2,918 3,444 4,495 Lignite 832 1,029 1,218 1,636 2,386 3,033 3,791 ------(US$/toe) ------ Domestically produced natural gas 52 51 55 49 66 63 50 Imported natural gas 77 74 139 198 195 189 170 Fuel oil 93 93 141 192 242 177 149 Hard coal 62 76 101 80 74 75 58 Brown coal 45 57 67 77 82 67 50 Lignite 46 55 64 66- 67 59 42 Exchange rate Din/US$ 18 18.6 19 24.9 35.5 51.3 90 / Prices paid by the power subsector and some of the major industries for coal and lignite are lower than the national average prices of these fuels as shown below: Current National Average Relative Prices of coal and Li nite (Din/toe) 1977 1978 1979 1980 1981 1982 1983 Hard coal 1,224 1,067 1,504 2,089 3,307 4,560 6,187 Brown coal 1,061 1,152 1,512 2,486 3,732 4,903 6,669 Lignite 1,020 1,115 1,310 2,060 3,320 4,205 5,560 Bulk Tariffs and Rates for Sales of Electricity Effective since: 1/IX/80 12/IX/80 20/IV/80 1/III/79 1/VI/80 1/VI/80 4/IV/81 15/IX/80 Voltage Unit Season Time of Currency BOSNIA CROATIA MACEDONIA MONTENEGRO SERBIA KOSOVO VOJVODINA SLOVENIA KV Day and HERZEGOVIMA 220 kW Winter - Dinar 282.82 314.58 207.51 172.60 313.84 313.84 430.48 427.80 Sumter - Dinar 188.53 157.29 140.24 15.07 156.92 156.92 215.24 213.90 kWh Winter Peak Para 76.19 76.00 123.60 40.14 83.30 83.30 114.25 75.60 Off-Peak Para 38.12 38.00 84.10 20.07 41.65 41.65 47.12 37.80 Summer Peak Para 50.45 41.00 89.90 26.76 41.65 41.66 57.12 37.80 Off-Peak Para 25.25 20.00 44.80 13.38 20.85 20.85 28.60 18.90 ------__------__------kVARh Winter Peak Para 15.38 29.00 22.35 10.60 17.60 17.60 24.14 16.00 Off-Peak Para - 15.00 11.25 5.30 3.85 8.85 12.14 8.00 Sunmer Peak Para 10.21 15.00 11.25 7.06 8.85 8.85 12.14 16.00 Off-Peak Para - 9.00 5.45 3.53 4.40 4.40 5.03 8.00 I kW Winter - Dinar 299.82 353.93 219.71 182.96 332.64 332.64 225.35 444.80 o Summer - Dinar 199.54 176.95 148.88 121.97 166.32 166.32 120.60 222.40 a ------___------__------First kWh Winter Peak Para 80.72 96.00 130.70 42.56 88.45 88.45 128.85 94.00 Transfor- Off-Peak Para 40.38 48.00 89.40 21.28 44.30 44.30 91.20 47.00 mation Summer Peak Para 53.65 50.00 95.35 28.36 44.30 44.30 93.75 47.00 Step Off-Peak Para 26.82 25.00 47.95 14.18 22.10 22.10 61.56 24.00 Below ------.------110 kV kVARh Winter Peak Para 16.35 35.00 21.20 11.24 18.65 18.65 23.91 18.00 Off-Peak Para - 18.00 11.85 5.62 9.25 9.25 13.10 9.00 Summer Peak Para 10.89 18.00 11.85 7.50 9.25 9.25 26.03 18.00 Off-Peak Para - 9.00 6.35 3.75 4.70 4.70 10.56 9.00 Source: JUGEL -J Medium Voltaae Tariffs and Rates for Sales of Electricity Effectivesince iiixiao 12/IX/80 20/IX180 1111I/79 1/1X/80 11IX/80 4/IV/81 15/IX/80 BOSNIAL CROATIA MACEDONIA MONTENEGRO SERBIA KOSOVO VOJVOWINA SLOVENIA Voltage Tim of HERZEGOVINA KV Unit Season Day Currency Rates Rates Rates Rates Rates Rates Rates Rates kW Higher - Dinar 326.69 353.93 175.94 226.04 262.70 162.70 225.35 444.80 Lower - Dinar 218.70 - 176.96 100.74 150.70 136.35 91.60 120.60 222.40 Higher Higher Para 108.00 96.00 143.00 80.73 88.18 148.00 128.85 94.00 Lower Para 55.00 48.00 78.00 40.36 44.00 83.00 91.20 47.00 35 kV kWh Lower Higher Para 73.00 50.00 89.00 53.82 44.00 82.00 93.75 47.00 Lower Para 38.00 25.00 43.00 26.91 22.00 52.00 61.56 24.00 Higher Higher Para 33.00 35.0 30.00 12.10 18.90 32.00 23.91 18.00 Lower Para - 18.00 18.00 6.06 - 9.40 16.00 13.10 9.00 1 kVARh Lower Higher Para 22.00 18.00 18.00 8.07 9.40 16.00 16.03 18.00 W Lower Para - 9.00 14.00 4.03 4.70 9.00 10.56 9.00 Higher - Dinar 326.69 412.94 175.94 244.58 i75.80 191.70 227.92 444.80 kW Lower - Dinar 218.70 206.46 105.17 162.50 137.90 106.15 125.97 222.40 Higher Higher Para 108.00 129.00 157.00 87.45 100.70 175.00 158.24 94.00 Lower Para 55.00 64.00 82.09 43.72 50.40 102.00 115.37 47.00 Lower Higher Para 73.00 64.00 134.00 56.85 50.40 100.00 118.17 47.00 Lower Para 38.00 33.00 66.00. 28.92 25.20 60.00 83.19 24.00 10 kV Higher Higher Para 33.00 41.00 31.00 13.45 25.20 32.00 32.18 18.00 Lower Para - 20.00 19.00 6.72 12.60 16.00 18.57 9.00 kVARh Lower Higher Para 22.00 20.00 23.00 8.88 12.60 16.00 24.17 18.00 Lower Para - 10.00 14.00 4.44 6.30 9.00 13.10 9.00 _a Low Voltaae Tariffs and Rates for Sales of Electricitv Effectivesince l/IX/80 12/IX/80 20/IX/80 1/III/79 1/IX/80 1/IX/80 4/IV/81 15/IX/80 BOSNIA& CROATIA MACEDONIA MONTENEGRO SERBIA KOSOVO VOJVODINA SLOVENIA Voltage Time of HERZEGOVINA KV Unit Season Day Currency Rates Rates Rates Rates Rates Rates Rates Rates kW Higher - Dinar 56.69 76.68 12.07 14.80 9.40 4.45 6.37 8.90 Lower - Dinar 56.69 - - 14.80 4.70 4.45 - 8.90 Domestic Higher Higher Para 164.00 162.00 271.00 126.47 176.30 140.00 226.42 136.00 Lower Para 81.00 81.00 271.00 63.23 88.20 78.00 129.74 136.00 kwh Lower Higher Para 108.00 - - 126.47 88.20 140.00 - - Lower Para 55.00 - - 63.23 44.10 78.00 - - Higher - Dinar 324.00 221.23 112.13 181.64 152.40 75.30 169.13 41.90 Lower - Dinar 215.90 - - 121.09 76.20 75.30 - - kW Higher Dinar 188.92 196.63 112.13 - - - - - Lower Dinar 188.92 ------0 Higher Higher Para 194.00 198.00 294.00 226.04 176.30 223.00 258.60 244.00 Other Lower Para 96.00 99.00 294.00 113.02 88.20 118.00 209.88 122.00 Con- sumers Lower Higher Para 131.00 - - 150.70 88.20 223.00 - - kWh Lower Para 64.00 - - 75.35 44.10 118.00 - - Higher Higher Para 322.00 265.00 294.00 - - - - - Lower Para 164.00 133.00 294.00 - - - - - Lower Higher Para 217.00 ------Lower Para 108.00 ------ Higher Higher Para 39.00 59.00 37.00 22.87 31.60 32.00 42.99 36.00 kWARh Lower Para 21.00 29.00 26.00 11.44 15.80 16.00 26.71 18.00 Group 1 Group 2 m Lower Higher Para 26.00 - - 14.80 15.80 32.00 - - Lower Para 14.00 - - 7.40 7.90 16.00 - - Public o Lighting kwh - - - 200.00 - - - - - 231.50 164.00 - 305 - ANNEX 7.11 Page 1 of 9 Derivation of the Economic Costs of ElectricitySupply at Different Voltage Levels Economic Cost of Supply 1. As discussed in Annex 7.15, the welfare of society is maximized when the prices of goods and services are set at parity with the cost to the economy of the resources used in their production. The cost to the economy when the production of an additional unit of output requires an increase in the production capacity is referred to as the long run marginal cost (LRMC). The LRMC has two components;a capacity cost which is based on the least-cost investment in additional production, transportationand distribution facilities and a variable operation and maintenance cost that would be incurred in meeting the unit increase in demand. Similarly, for power systems, the capacity cost is based on the least cost investment in additional generation, transmission and distribution facilities required to meet a sustained increase in kilowatt demand and the variable operation and maintenance cost of producing the incrementalkilowatt-hour. Marginal Capacity Costs 2. The LRMC of capacity is given by the net increase in the discounted present value of capital, fixed operation and maintenance cost required to meet the incremental kilowatt demand. Since investments in power systems by their nature are rather lumpy and computational difficulties arise in determining the change in present value system's costs associated with a unit increase in demand, the long run average incremental cost (LRAIC) is used as a proxy for the LRMC. As already discussed, a full methodology for calculating LRMC for the Yugoslav electrical power system is currently being developed. The LRAIC may be defined as follows: - 306- ANNEX 7.11 Page 2 of 9 n n Ct = capital cost in year t Mt = incrementalfixed operatingand maintenance cost associated with the incrementalin,vestment Dt = change in maximum demand in year t r = discount rate The LRAIC was calculated for the Yugoslav interconnectedsystem using the consolidatedcosts for generation, transmission,dispatch and distribution of all the republics and provinces provided by JUGEL (Attachment2). The power systems of the republics and provinces together constitute the Associated Electric Power Industry. LRAICs were calculated for each of the three voltage levels, bulk supply (380-kV, 220-kV and llO-kV), and low voltage (0.4 kV) for the combined electric power system. Investments between 1980 and 1983 were regarded as sunk costs and only the costs from 1984 were taken into consideration. Normally, the cost to be used in the computation of the LRAIC are those that would be incurred over the lifetime (say, 15 years) of investmentsmade by consumers who create the change in demand. However, since investment data for the Yugoslav interconnected system was not available beyond 1987, only investment outlays from 1984 to 1987 were used. Although the investment data is limited, the LRAIC calculated on the basis of the data provides a good approximation of the true LRAIC since future investment in additional generating capacitieswould be similar in hydro and lignite-firedplants. 3. In the foreseeable future, generating capacity additions to the interconnectedsystem would be only in hydro and lignite-firedplants with a higher proportion in lignite-fired plants. No additional nuclear, oil or gas-fired capacities are expected to be added to the system. As more efficient lignite-firedand hydro plants are introduced into the system fuel saving arising from the reduction in hours of operation of less efficient plants is expected to be minimal since such saving would be captured through the recommended thermal plant efficiency improvement program. In this regard, fuel saving associated with the incremental investment is expected to be minimal and has not been taken into account. However, this would be investigated further during the implementationof the methodology being developed for the estimation of the LRMC of supply from the integrated Yugoslav power system. - 307 - ANNEX 7.11 Page 3 of 9 Forecast Demand by Voltage Level 4. The load forecast is based on the mission's projected growth rate for electricity consumption assumed for the revised 1981-85 Social Plan. This is provided in Attachment 1. Electricity demand is forecast to grow at 4.9% per year from 10,360 MW, in 1983 to 11,400 MW in 1985 and then at 6.4% per year thereafter. Maximum demand in 1987 is estimated at 12,906 MW. Imports are derived as residual between the demand that can be met by the Yugoslav system and the total demand on the system. Imports are therefore subject to uncertainty arising from a combination of load forecast errors, hydro plant availability, plant breakdowns and delays in commissioning of plants. Although no precise information on maximum demand by voltage level was available, it was possible to make reasonably accurate estimates of demand at the generation and transmissionlevels and considerablyless accurate estimates of MV and LV demand. These estimates are shown in Attachment 1. The underlying assumptions for forecast of maximum demand by voltage level were: (a) maximum demand is defined as gross generation (MW) plus net imports from abroad; (b) peak power (MW) used in station auxiliaries is estimated at about 6.3% of gross generation which is 115% of self-consumptionat off-peak periods; (c) peak transmission losses is estimated at about 4.5% of total generation delivered to the transmission system including imports. Currently, transmissionlosses are at about 5.2% due to the overloading of certain portions of the 220-KV and llO-KV lines. However, with the gradual reinforcement of the interconnected system through 380-KV system transmission losses are expected to decline; (d) no long-term past reliable data on MV or LV losses are available. Based on the 1982 levels of average MV and LV losses, 6% and 8% peak losses were assumed for MV and LV levels. These are 150% of the average off-peak losses at each voltage level; (e) peak power (MW) demand of direct consumers was taken to be the same percentage of bulk supply as energy (GWh); and (f) LV sales were assumed to be 68% of MV sales. Investment 5. Annual investment outlays, expressed in 1980 prices, were provided by JUGEL. These were broken down into foreign and local componentsas follows: - 308 - ANNEX 7.11 Page 4 of 9 Percentage of Capital Cost Local Foreign Hydro 80 20 Thermal 75 25 Nuclear 40 60 Transmission 60 40 Distribution 90 10 Other 80 20 These ratios are based on actual projects in Yugoslavia. Foreign and local components were adjusted to 1982 prices in accordance with the following rates of inflation based on the GDP deflator for the local components and international investment goods index for the foreign components. 1981 1982 Local 40 30 Foreign 8.0 6.0 Annual investment outlays in 1982 prices are shown in Attachment 2. No breakdown of the distribution investment by voltage level was available. Based on information on several Bank projects, it was assumed that distributioninvestment was divided equally betweernMV and LV. Economic Costs 6. The local components of the annual financial outlays were expressed in their economic value equivalents by using the following conversion factors: Standard conversion factor (SCF) 0.93 Consumption conversion factor (CCF) 0.93 Intermediategoods 0.93 Investmentgoods 0.82 Construction 0.80 Shadow wage rates (SWR) unskilled urban 0.80 unskilled rural 0.42 skilled 0.93 Foreign costs have a conversion factor of 1.0. Local costs were assumed to comprise of mainly construction,unskilled labor and other inputs. For example, hydro was estimated to have a conversion factor of 0.83, calculated as follows: - 309 - ANNEX 7.11 Page 5 of 9 Local costs 80% of which construction70% 0.7 x 0.80 = 0.56 rural labor 10% 0.1 x 0.42 = 0.04 others 202 0.2 x 0.93 = 0.19 0.79 x 0.8 = 0.63 Foreign costs 20% 1.00 x 0.2 = 0.20 Hydro conversion factor 0.83 The conversion factors used for each cost item were: Hydro 0.83 Thermal 0.86 Nuclear 0.92 Transmission 0.85 Dispatch 0.75 Distribution 0.89 IncrementalOperating and MaintenanceCosts 7. Incrementalfixed operating and maintenance cost was estimated as percentage of the respective discounted present value of annual economic investment outlays since no detailed breakdown of incremental fixed operating and maintenance costs was available. The percentages are as follows: Hydro 1% Thermal 2% Nuclear 2Z Transmission 1% Distribution 1% Other 0.5% Calculationof LRAICs 8. LRAICs were calculated from the data in Attachments 1 and 2 by the following steps: (a) present values to 1982 of the annual economic investment outlays in 1982 prices were calculated at discount rate of 10X. The present values are shown in Attachment 3; (b) present values were also calculated for the increases in maximum demand at each voltage level (Attachment3); (c) the total present value of the investment outlay was then annuitized over the life of the asset as shown in Attachment 4; - 310 - ANNEX7.11 Page 6 of 9 (d) present values of incremental 0 & M costs, shown in Attachment 4, were calculated by multiplying the present value of investment shown in Attachment 3 by the percentages of capital costs allocated to fixed (O&M); (e) LRAICs of generation, transmission, MV% distribution and LV distribution were calculated by dividing the sum of the discounted present values of investment and the associated fixed 0 & M costs by the present value of incremental maximum demand at each voltage level of the system (Attachment 4); and (f) LRAIC of capacity at each voltage level was calculated by adjusting the LRAIC of each element for losses and adding the LRAIC of the elements which supply a particular voltage level. Attachment 5 shows the results at the .10X (liscount rate. 9. The LRAIC's of generation, transmission and distribution are shown by voltage level in Attachment 5. At low the voltage, the LRAIC is 98% higher than at the bulk supply level at lC'% discount rate. The difference is accounted for by distribution costs and losses. 1/ The LRAIC's estimated for the three broad voltage levels; bulk supply (generation and transmission), medium voltage and low voltage at a 10% discount rate are as follows: Bulk supply 5,186 Din/kW/a Medium voltage 7,181 Din/kW/a Low voltage 10,278 Din/kW/a Marginal Energy Costs 10. The marginal cost of energy is the cost of producing an additional kilowatt-hour (kWh) at a specified time of day and season. Its calculation involves firstly determining what plant is in operation at the margin, i.e. which generating unit will produce the additional kWh, and secondly determining the cost of generating the additional kWh from the marginal plant. Marginal energy cost calculations should ideally be derived from a simulation of system operation, suclh as is carried out for- operations planning. This would schedule hydro and pumped storage energy to achieve maximum value and would identify and determine the cost of operating thermal plants in the system at each time of the day by season and year. 1/ Losses at all voltage levels are assumed to be technical in nature. Although some non-technical losses occur at the low voltage level, the level of such losses are assumed to be relatively very low compared to the level of technical losses. - 311- ANNEX7.11 Page 7 of 9 11. In the Yugoslav power system all oil and gas fired plants have been phased out and are not expected to be in operation in the foreseeable future under normal operating conditions. Generation to meet future demand would be provided by lignite-firedand hydro plants. Since a power system optimizationmodel for simulatinggeneration to meet demand has not as yet been developed for the Yugoslav interconnected system, the determination of plant operating at the margin was done by examining typical summer and winter daily load curves in relation to assumptionson available hydro energy and the availability of thermal plants. Marginal energy costs were calculated assuming a single interconnected system without transmission constraints and consequently the resulting marginal energy cost at the bulk supply level would be the same for all republics and provinces since all the republican and provincial power systems are being gradually interconnected through 380-kV system, into a technically unified power system. Therefore assuming the same marginal energy cost at the bulk supply voltage level for all republics and provinces is not unrealisticand should be a reasonable indication of marginal energy costs in the future after the completion of the extensions to the 380 kV transmissionsystem. The marginal costs were calculated on the basis of pumped hydro plant providing the incremental kilowatt-hour (kWh) during winter peak, conventional hydro during the summer off-peak period and lignite-firedplant at other times. The calculationat 10% discount rate, using Din 821/ton ($16/ton)as the marginal cost of lignite 1/ is shown in Table 1. The cost of pumped hydro energy reflects the energy cost of lignite fired plants that would provide the energy for water pumping during off-peak hours. Table 1 Calculationof Marginal Energy Cost (Din/kWhgenerated, 1982 prices) Fuel Fuel Marginal Cost Consumption Fuel Variable Period Plant (Din/ton) (kg/kWh) Cost 0 & M Total Winter Peak Pumped Hydro 821 1.6 1.70 0.10 1.80/1 Winter Off-Peak Lignite 821 1.6 1.36 0.34 1.70 Summer Peak Lignite 821 1.6 1.36 0.34 1.70 Summer Off-Peak Hydro - - - 0.10 0.10 /1 Efficiency of pumped hydro plant has not been taken into account since informationon pumped-hydroplant efficiency was not available. Other systems studied elsewhere indicate a difference of about 30% in efficiency between pumping for storage and generation in pumped-hydro plants. 1/ 1982 prices based on the cost of production from marginal underground lignite mines. - 312 - ANNEX 7.11 Page 8 of 9 12. The total cost in each period by season given in Table 1 is the marginal cost per kilowatt-hour at the generation bus bars without adjustment for station use. Each cost is then adjusted for losses between the generating plant and each supply voltage level to obtain the marginal cost at the various voltage levels. Costs at peak and off-peak periods were adjusted respectivelyby peak and off-peak losses. Losses at peak periods are estimated at 150% of average losses at off-peak periods. The marginal costs at peak and off-peak by season at the various voltage levels are shown in Table 2. Table 2 Marginal Energy Costs by Voltage Level (Din/kWh,1982 prices) Period Generation Bulk Supply MV LV Winter Peak 1.91 2.00 2.12 2.29 Winter Off-Peak 1.80 1.85 1.92 2.02 Summer Peak 1.81 1.89 2.00 2.16 Summer Off-Peak 0.105 0C.11 0.11 0.12 Off-Peak Average losses (%) 5.4 /1 3.0 4 5.3 /i Station use for summer and winter off-peaks (15% below estimated station use at peak periods). 13. A comparison of the weighted average economic tariff in paras/kWh to the 1982 weighted average tariff at each voltage level by republic and province is presented in Table 3. The weighted average tariffs at the bulk and medium voltage supply levels include consumer contributions to investment which are levied as surcharges per kilowatt-hour. The weighted average tariff is a sum of the capacity charge converted into a kilowatt-hourcharge and the weighted average energy charge. The reason for the comparison is to show the divergences lbetweeneconomic costs and existing tariffs (on average basis) across republicsand provinces. -313 - ANNEX 7.11 Page 9 of 9 Table 3 Comparison of Average Tariff to Economic Cost (paras/kWh,1982 prices) Average Tariff Level X of Economic Cost Bulk MV Domestic Other Bulk MV Domestic Other Economic Cost. 254 313 452 373 100 100 100 100 Bosnia- Herzegovina 96 114 127 228 38 36 28 61 Croatia 175 206 149 226 69 66 33 61 Macedonia 140 218 274 317 55 70 61 85 Montenegro 50 82 105 163 20 26 23 44 Serbia 89 85 114 270 35 27 25 72 Kosovo 115 154 224 175 45 49 50 47 Vojvodina 122 146 324 389 48 47 72 104 Slovenia 98 100 138 179 39 32 30 48 Average 110 138 182 243 43 44 40 65 - 314 - ANNEX7.11 - Attachment1 MaximumDemand Forecast by VoltageLevel (MW) --- Actual------Forecast------1980 1981 1982 1983 1984 1985 1986 1987 DemandBalance 1. Maximumdemand 9,300 9,542 9,876 10,360 10,867 11,400 12,130 12,906 2. Stationuse 485 495 562 642 674 706 776 851 3. Net demand 8,815 9,047 9,314 9,718 '10,193 10,694 11,354 12,055 4. Net imports -75 229 323 390 409 430 482 539 5. Deliveredto system 8,740 9,276 9,637 10,109 10,604 11,124 11,836 12,594 6. Transmissionlosses 454 482 481 465 477 500 532 567 7. Bulk supplydemand 8,286 8,794 9,156 9,644 10,127 10,624 11,304 12,027 of which: 8. Directsales 2,154 2,374 2,564 2,700 2,835 2,975 3,165 3,367 9 Salesto distributors6,132 6,420 6,592 6,974 7,292 7,649 8,139 8,660 of which: 10 MV losses 307 449 395 417 437 458 488 520 11. MV demand 5,825 5,971 6,197 6,527 6,855 7,191 7,651 8,140 of which: 12. MV sales 1,456 1,494 1,549 1,632 1,714 1,798 1,913 2,035 13. LV losses 408 415 432 519 547 575 612 652 14. LV sales 3,961 4,062 4,216 4,376 4,594 4,818 5,126 5,453 Incrementaldemand 15. Net demand - 232 267 404 475 501 660 701 16. Bulk supply - 508 362 488 483 497 680 723 17. MV demand - 146 226 330 328 336 460 489 18. LV sales - 101 154 160 218 224 308 327 Lossesand Assumptions 19. Stationuse as % of 5.2 5.2 5.7 6.2 6.2 6.2 6.4 6.6 grossgeneration 20. Transmissionlosses as 5.2 5.2 5.0 4.6 4.5 4.5 4.5 4.5 % of amountdeli- veredto system 21. MV lossesas % of 5.0 7.0 6.0 6.0 6.0 6.0 6.0 6.0 salesto distributors 22. LV lossesas % of 7.0 7.0 7.0 8.0 8.0 8.0 8.0 8.0 MV demand 23. Directsales as % of 26 27 28 28 28 28 28 28 bulk supply 24. LV salesas % of MV 68 68 68 67 67 67 67 67 demand - 315- ANNEX 7.11 Attachment 2 InvestmentProgram of the AssociatedElectric Power Industries1981-1985 1982 Prices (Dinar million) 1981 1982 1983 1984 1985 1986 1987 1. Financial Costs Hydro 4,391 6,490 9,415 7,199 4,036 10,792 9,038 Thermal 8,410 15,275 18,430 10,888 5,837 16,500 14,167 Nuclear 1,819 1,299 - - - - Transmission 4,329 6,083 6,599 6,600 6,600 6,231 6,874 Dispatch 856 1,243 1,998 3,586 3,146 671 121 Distribution 14,172 15,497 15,835 15,640 13,094 11,478 12,508 Total 33,977 45,887 52,277 43,913 32,713 45,672 42,708 2. Economic Costs Hydro 3,644 5,387 7,814 5,975 3,350 8,957 7,501 Thermal 7,233 13,136 15,849 9,037 4,845 14,190 12,184 Nuclear 1,673 1,195 - - - - - Transmission 3,939 5,535 6,005 6,006 6,006 5,670 6,255 Dispatch 642 932 1,498 2,689 2,359 503 91 Distribution 12,613 13,792 14,093 13,920 11,654 10,215 11,132 Total 29,744 39,977 45,259 37,627 28,214 39,535 37,163 - 316 - ANNEX 7.11 Attachment 3 Present Values Investmentand IncrementalDemand 10% Discount Rate Investment (EconomicCosts) (Dinar million, 1982 prices) Hydro 18,229 Thermal 28,364 Dispatch 4,393 Transmission 17,232 Distribution 34,147 IncrementalDemand (MW) Net generation 1,756 Bulk supply 1,685 MV demand 1,140 LV sales 761 - 317 - ANNEX 7.11 Attachment 4 Page 1 of 2 Calculationof Long Run Average IncrementalCosts Economic Shadow Prices Life Conversion Discount Rate (a) Factor 10% Generation PV Investmentcosts (Din. million/a) Hydro 50 0.83 1,841 Steam thermal 30 0.86 3,035 Total 4,876 PV 0 & M costs (Din. million/a) Hydro 0.93 204 Thermal 0.93 613 Total 817 Total Investmentplus 0 & M 5,693 PV Change in maximum demand (MW) 1,756 LRAIC Generation (Din./kW/a) 3,242 Transmission PV investmentcosts (Din. million/a) Transmission 30 0.91 1,844 Dispatch 15 0.75 597 Total 2,411 PV 0 & M costs (Din. million/a) Transmission 0.93 176 Dispatch 0.93 54 Total 230 Total investmentplus 0 & M 2,671 PV Change in maximum demand (MW) 1,685 LRAIC transmission(Din./kW/a) 1,585 - 318 - ANNEX 7.11 Attachment 4 Page 2 of 2 MV distribution PV investmentcost (Din. million/a) 40 0.89 1,741 PV 0 & M cost (Din. million/a) 0.93 178 Total investmentplus 0 & M 1,919 PV change in maximum demand (MW) 1,140 LRAIC MV distribution(Din./kW/a) 1,684 LV distribution PV investmentcost (Din. million/a) 40 0.89 1,741 PV 0 & M cost (Din. million/a) 0.93 178 Total investmentplus 0 & M 1,919 PV change in maximum demand (MW) 761 LRAIC MV distribution(Din./kW/a) 2,522 Notes 1. PV denotes present value to 1982 at the l0S discount rate shown. 2. PV's of investment costs and changes in maximum demand are from Attachment 3. Investment costs shown in Attachment 3 have been annuitized using the economic lifes shown. 3. PV's of 0 & M costs were calculated by multiplying the PV of investment costs shown in Attachment 3 by the percentages shown in para. 9. 4. Costs at financial prices were translatedLinto shadow prices by multiplyingby the conversion factors shown. 5. "Other" costs, assumed to be incremental overheads were added to generation costs so as to be born by all consumers in proportion to their demand. - 319 - ANNEX7.11 Attachment5 LongRun AverageIncremental Capacity Cost by VoltageLevel (at 10% discountrate shadow prices, 1982 price level) (Din./kW/a) LRAICComponent Peak /1 Voltage Losses MV LV Level (X) GenerationTransmission Distribution Distribution Total Generation 6.3 /1 3,446 - - - 3,446 Bulksupply 4.5 3,601 1,585 - - 5,186 MV 6.0 3,817 1,680 1,684 - 7,181 LV 8.0 4,123 1,814 1,819 2,522 10,278 /1 Peak kilowattlosses are estimatedat 50% aboveaverage kilowatt-hour losses at off-peakperiods. /2 Stationuse at peaktimes estimated at 15% aboveaverage station use at off-peakperiods. Comparison of Tariffs to Economic Co5t Bulk Tariffas Effective Price Max1mum LI Energy Rates (oaras/kWh) Average Consumer LI Effective Et as % of Demand Winter Summer Price LI Contribution Price Economic ByDin/kWLal Eak Off-Pake eak Off-Peak (£aras/kWh) (Daras/kWh) (Daras/kWhb Cost Bulk SUDD1V(220kV) EconomicCost 5,186 200 185 189 11 254 254 100 Bosnia-Herzegovina 2,262 76 38 50 25 88 8 96 38 Croatia 2,265 76 38 41 20 85 90 175 69 Macedonia 3,607 112 68 29 22 128 12 140 55 Montenegro 1,381 40 20 27 13 50 - 50 20 Serbia 2,260 83 42 42 21 89 - 89 35 Kosovo 2,260 83 42 42 21 89 26 115 45 w Vojvodina 3,099 114 57 57 29 122 - 122 48 Slovenia 3,080 76 38 38 19 98 - 98 39 Average of Tariffs 2,527 83 43 42 21 94 110 43 Average as X of Economic Cost 49 41 23 22 191 37 La Equivalent annual maximumdemand charge calculated assuming a ratio of mean monthly maximum demand to seasonalmaximum demand of 0.8. LZ Average price calculatedassuming: load factor 60%, 60% of energy sold in winter, 40X in summer; and 50X of energy sold during peak period. 50% sold during off-peakperiod. LI Non-reimbursablecontributions to investmentlevied as a surcharge. LI Effectiveprice is coverageprice plus consumer contribution. 1§I- "3 Comarison of Tariffs to EconomicCost NV Tariffs Effective Price Maximum L7 Energy Rates (paras/kWhl Average Consumer LI EffectiveLA as X of Demnd Winter Summer Price LZ Contribution Price Economic (Din Wa Penk Off-Peak enk Off-Peak (aras/kLWh (oaras/kWhl (aarasLkWhl Cost NV SuDDlY (lOkV) EconomicCost 7,181 212 192 200 11 313 0 313 100 Bosnia Herzegovina 2,945 108 55 73 38 106 8 114 36 Croatia 3,345 129 64 64 33 116 90 206 66 Macedonia 1,285 252 174 218 134 206 12 218 70 Montenegro 2,201 87 44 58 29 82 - 82 26 Serbia 2.234 101 50 50 25 85 - 85 27 Kosovo 1,240 190 101 110 60 128 26 154 49 Vojvodina 927 177 134 139 94 146 - 146 47 Slovenia 3,603 94 47 47 24 100 - 100 32 Average of Tariffs 2,223 142 84 95 55 121 138 44 Average as % of EconomicCost 31 67 44 47 500 La Equivalent annual maximumdemand change calculated assuming a ratio of mean monthly maximum demand to seasonal maximum demand of 0.8. LZ Average price calculatedassuming: load factor 50%; 55% energy sold in winter, 45% in summer; and 40% of energy sold in peak period, 60% off-peak. LI Non-reimbursable contributions to investment levied as a surcharge. LI Effective price is coverageprice plus consumercontribution. - 322 - AMNEX7.14 Page1 of 2 Comparisonof Tariffsto EconomicCost LV Tariffs Maximum/1 EnergyRates (paras/kWh)_ Average As % of Demand Winter Summer Price /2 Economic (Din/kW/a)Peak Off-Peak Peak Off-Peak(paras/kWh) Cost Domestic EconomicCost 10,278 229 202 216 12 452 100 Bosnia-Herzegovina 544 164 81 10.8 55 127 28 Croatia 736 162 81 162 81 149 33 Macedonia 116 271 271 271 271 274 61 Montenegro 142 126 63 126 63 105 23 Serbia 68 176 88 88 44 114 25 Kosovo 43 223 223 223 223 224 50 Vojvodina 61 322 322 322 322 324 72 Slovenia 85 136 136 136 136 138 30 /1 Equivalentannual maximum demand charge calculated assuming a ratioof meanmonthly maximumdemand to annualmaximum demand of 0.8. /2 Assumptionsused to calculateaverage price: Domestic Other PublicLighting Loadfactor (X) 35 40 50 Coincidencefactor tX) 80 75 100 Energy(X) - Winterpeak 36 20 38.5 - Winteroff-peak 24 30 16.5 - Summerpeak 24 20 31.5 - Summeroff-peak 16 30 13.5 Total 100 100 100.0 - 323 - ANNEX 7.14 Page 2 of 2 Comparisonof Tariffsto EconomicCost LV Tariffs Maximum/1 EnergyRates (paras/kWh) Average As % of Demand Winter Summer Price /2 Economic (Din/kW/a)Peak Off-Peak Peak Off-Peak (paras/kWh) Cost Other (Group2) EconomicCost 10,278 229 202 216 12 373 100 Bosnia-Herzegovina 181.4 322 164 217 108 228 61 Croatia 1,888 265 133 265 133 226 61 Macedonia 1,076 294 294 294 294 317 85 Montenegro 1,453 226 113 151 75 163 44 Serbia 1,840 308 308 154 154 270 72 Kosovo 723 223 118 223 118 175 47 Vojvodina 979 368 368 368 368 389 104 Slovenia 402 244 122 244 122 179 48 PublicLighting EconomicCost 10,278 229 202 216 12 425 100 Bosnia-Herzegovina - 200 200 200 200 200 47 Croatia - 201 201 201 201 201 47 Vojvodina - 232 232 232 232 232 55 Slovenia - 164 164 164 164 164 39 - 324 - ANNEX 8.1 Pzojected Invest /1 in Coal and Paor Uectors. driiu1 Plan Disotch Dimtri- Tdtal Repblice/PwAmes Gmeration Nut Trahiun Cetters Wximi Otlr g 1981-1985 Bosia & flergqayina 20,366 * 4,904 1,146 13,508 3,040 3,336 43,300 1{_emgw 1,619 - 1,161 180 1,800 1,040 6,395 13,295 Croatia 12,208 884 8,128 1,277 13,565 3,927 7,165 47,154 Madoia 3,066 2,866 1,688 1,151 7,000 369 5,510 21,650 Slovnia 14,405 10,558 4,874 992 2,820 3,389 4,674 41,712 Serbia 30,012 7,369 3,300 1,417 15,924 5,876 12,3S6 76,2V4 Vojwvdina 13,876 - 1,773 824 7,285 1,588 10,036 39,382 Koewo 4,353 1,164 3,834 878 1,38O 2,129 XD0 14,238 Ylavia (irll. jaixt inwve ) 106,295 22,841 29,662 7,985 61,282 21,358 49,962 299,365 Joint INurt 6,390 6,390 Y¢o.1eavia Net 99,905 22,841 29,662 7,965 61,282 21,358 49,962 292,975 /1 In oillimu of 1980 dinars. * r clu in ge rtim - 325 - ANNEX8.2 OriginalPlan Total Installed Investment Republics/ Capacity (In Millions Provinces Type (MW) 1980Dinars) A. From the Plan 1976-1980 HE Bocac B and H R 110 1976 1981 2,665 HE Salakovac B and H R 210 1977 1982 4,449 HE Grabovica B and H R 113 1977 1982 2,506 HE Tikves Macedonia S 47 1977 1981 127 HE Bajinabasta Serbia PS 594 1975 1982 5,298 HE Gazivode Kosovo S 35 1973 1981 - HE TrebinjeII B and H R 7 1975 1981 145 TE Gacko (incl.mine) B and H Coal 300 1977 1983 9,294 TE BitolaI and II Macedonia Coal 420 1977/80 1982/84 5,675 TE Kosovo BI and BlI Kosovo Coal 678 1977 1983/84 15,925 TE-TONovi Sad I Vojvodina Liquified 135 1976 1981 2,204 Fuel NE krsko Croatia& Uranium 664 1974 1981 20,806 Slovenia TE Ugljevik(incl. mine) B and H Coal 300 1977 1984 9,404 TE Pljevlja Montenegro Coal 210 1977 1982 3,553 TE N. TeslaBI Serbia Coal 614 1978 1983 12,358 TE-TOLjubljana Slovenia Coal 50 1978 1983 2,094 TE-TONovi Sad II Vojvodina Liquified 100 1981 1984 1,420 Fuel and Gas TE-TOOsijek Croatia Liquified 45 1980 1983 1,244 Fuel TOTAL 4,632 99,167 New Capacities HE Golubici Croatia R 7 1979 1981 345 HE Cakovec Croatia R 82 1977 1982 3,832 HE Otilovici Montenegro S 4 1980 1983 150 HE Obrovac Croatia PS 276 1977 1983 150 HE Solkan Slovenia R 21 1977 1983 4,337 HE Mostar B and H R 64 - 1984 3,441 HE Mavcic Slovenia R 38 1979 1984 1,684 HE Bistrica Slovenia R 12 - 1985 391 HE Male Slovenia R 3 - 1985 109 HE DjerdapII Serbia R 216 1977 1984/85 6,891 HE Novi Becej Vojvodina R 10 - 1985 300 TE KakanjV B and H Coal 230 - 1985 4,277 TE N. TeslaBII Serbia Coal 614 1978 1985 7,808 TE DrmnoI Serbia Coal 348 - 1985 7,282 TE-TOZrenjanin Vojvodina Liquified 100 - 1985 2,592 TE Plomin Croatia Coal 200 - 1985 4,495 TOTAL 2,225 50,314 - 326 - ANNEX 8.3 Specificationof Joint Investments (Original 1981-1985Plan) From To 106 Din Croatia Bosnia and Herzegovina 1,906 (TE GACKO) Slovenia Bosnia and Herzegovina 1,914 (TE UGEJEVIK) Slovenia Kosovo 894 (TE Kosovo BI) TOTAL 4,714 - 327 - ANNEX 8.4 Revised Investment in Developmentof Coal Mining by the OALs Between 1981-1985 in 1980 Prices (In Million Dinars) No. Mine Total 1981 1982 1983 1984 1985 1. Rasa 1,421 396 552 391 82 - 2. Titovi rudnici 13,828 2,627 3,319 2,766 3,042 2,074 3. REK "Edvard Kardelj" 5,236 436 1,076 1,256 1,175 1,293 4. Rembas 2,452 - - 966 951 535 5. Dobrnja - Lukavac 3,259 619 782 652 717 489 6. Kreka 4,611 876 1,107 922 1,014 692 7. Gacko 1,840 661 1,179 - - - 8. Velenje 5,993 972 1,363 1,411 1,107 1,140 9. Kolubara (Tamn. East) 9,913 3,899 1,257 1,768 1,289 1,700 10. Kostolac 7,252 588 1,847 2,499 1,521 797 11. Kosovo (Dobro Selo) 8,720 1,026 2,457 2,387 2,187 663 12. Other 5,475 900 550 500 1.100 2,425 TOTAL 70,000 13,000 15,489 15,518 14,185 11,808 DETAILED RESULTS FROM WASP FOR THE OPTIMIZATION PROGRAM (Increased Load Case) SUt*ARYREPORT ON A 6ENERATIONEXPAISION PLAII FOR UZEPBEOGRADO INCREASEO LOADS FOR HARGItIAL COST CALCULATION PROCESSEDBY THE UASP-111COItPUTER PROCRAN PACKAGE OF THE IAEA STUOY PERIOD 1984 - 2005 PLANIIINGPERIOD 1984 - 2005 COtISTRUCTIOIICOSTS oc III IIILLIWI $ AREREPORTED ONLY FOR PLANTSCOIIIISSIOtIED DtIPNG THE PLAIMIIIIGPERIOD. ALL OTPERIINFO.RHATION IS GIVEN EORTHE NMOLESTUDY PERIOO. OQa 0. DATEOF REPORT : JULY-OCTOBER1933 STUDYCARRIED OUT BY : JU5EL.ZEP.IBK,IHDB TABLEOF COIITENTS PAGE INFORJ1ATIONSUPPLIED BY USER 3 TYPESOF ELECTRICFOIER PLANTSUSCD 4 I ANNUALLOAD DESCRIPTION 5 2 FIXEO SYSTEM DESCRIPTIOI OF TlERMALPLANTS 6 DESCRIPTIONOF COIPOSITEHYDRO PLANTS 7 THER;iAL GADITIOIISAtlD RETIREIIENTS 10 SUHI1ARYOF INSFALLEDCAPACITIES ll 3 VARIABLESYSTEH DESCRIPTIONlOF THERtlALPLAtIT CANIDIDATES 12 DESCRIPTIO:OF CO(IP. HYDROPLANT CAtlD. 13 4 CONSTRAINTSON COIIF16IATIOIIS GEIIERATED 17 5 OPTIHII SOLUTIDH4 AIJAL ADDITIONISOF CANDIDATES 20 Shl*lARYDESCRIPTION OF SYSTEHCAP. A ENERGY 21 6 ECO:IlIC PAR,N&IETERSAIM CGNSTRAINTS UII&ARY OF CAPITALCOSTS OF ALTERNATIVES 22 INITIAL PARAMETERSAlHD CONSTRAINITS 23 7 EXPECTEDCOST OF OPERATION 'D FUELCOST DO!IESTIC 25 FUELCOST FOREIGN 26 O&HAND ENS COST DOHESTIC 27 TOTALCOST DOYESTIC AID FORE1611 28 8 CASHFLOW OF COI1STRUCTIOiANID FUEL IINVESTHENTCOST CONSTRUCTIONCOST - COHciSTIC 29 - FOREIGN 31 INTERESTDURING CONSTRUCTION (IDC) - DOMESTIC 33 - FOREINti 35 COISTRUCTIONCOST AND IOC - DOI:ESTIC 37 - FOREICN 39 CAPITALCASI FLOWS uAY 41 'V. 0. IIIFCRHATICNSUPPKIED BY USER THIS STUDYIS A HETHCOOLOGYDEIIOIISTRATIOH COtlDUCTED BY THE (UION OF ELECTRICPOIIER IIJUSrRY OF YU6OSLAVIAAIM IlE IORLD BAlIC PARTICIPANTS: A. KOCIC, D. 60LUllOVIC. W. BUEHRRII 0. DIKIC. 1. ELUA, 0. VARICAK. AID B. BESIREVIC 09 I0a THIS IS A LIST OF TIIEDIFFEREIIT TYPES OF ELECTRICPOWER PLANTS USEOIll TIHESTUDY. THEIlJIERIC CCOESARE US[D DY THECOMPUTER PROGRAHS 0 IIUKL I LIGII ALL PRICES ARE 2 COAL IN UNITS OF 100 3 TOIL DMtIARSAS OF JAN. 4 IGAS 1983 162.3 0/$) PROT RUI-OF-RIVERPLANT AKUL LWt-TERH STORAGE (-A ao n AIhAL LOADDESCRIPTION PERIODISIPER YEAR : 12 YEAR PEAKLOAD6R.RATE HIN.UOAD 6R.RATE ENER6Y 6R.RATELOADFACTOR ma Zx e Giml X x 1954 46S5.0 - 1191.2 - 25176.1 - 61.34 1985 4937.0 5.4 1255.2 5.4 26530.3 5.4 61.34 1936 5135.0 4.1 1306.3 4.1 27610.5 4.1 61.34 1987 5;90.0 4.9 1370.4 4.9 28964.7 4.9 61.34 1958 5640.0 4.6 1434.0 4.6 30305.1 4.6 61.34 19G9 5560.0 3.9 14S9.9 3.9 31490.3 3.9 61.34 1990 6111.0 4.3 1553.7 4.3 32839.2 4.3 61.34 1991 6357.0 4.0 1614.4 3.9 34143.0 4.0 61.32 1992 6614.0 4.0 1677.4 3.9 35514.6 4.0 61.30 1993 5883.0 4.1 1743.0 3.9 36937.1 4.0 61.26 1994 7163.0 4.1 1811.7 3.9 38415.1 4.0 61.22 1995 7454.0 4.1 1E33.1 3.9 39955.5 4.0 61.19 1996 7675.0 3.0 1937.3 2.9 41133.4 2.9 61.18 1997 7903.0 3.0 1993.2 2.9 42341.5 2.9 61.16 1995 8139.6 3.0 2050.5 2.9 435r8,.4 2.9 61.14 1999 U3S1.0 3.0 2110.5 2.9 44870.5 2.9 61.12 2000 8631.0 3.0 2171.6 2.9 46196.8 3.0 61.10 2001 8968.0 3.9 2256.4 3.9 48000.6 3.9 61.10 2002 9311.0 3.8 23'2.7 3.8 49836.5 *3.S 61.10 2003 9671.0 3.9 2433.2 3.9 51763.4 3.9 61.10 Lo 2004 10046.0 3.9 2527.6 3.9 53770.5 3.9 61.10 2005 10435.0 3.9 2623.5 3.9 55852.6 3.9 61.10 La 0 IL FIXED SYSTEN SUOAURYDESCRIPTIOII OF THERMALPLATS IN YEAR1984 BEAT RATES FUELCOSTS FAST ?K). 1HN.CAPA KCAL/011 CENTS SPIN FOR DAYS HAIN OH O1 OF LOAD CITY BASE AVGE HILLIM4 KCAL FUEL RES SCIL CLAS(FIX IYAR I NO. HANE SETS H1 NA LOAD INCR DIISTC FORM6NTYPE X X ItAIN 114 $/K1 $/MM 3 TESL 4 150. 275. 3038. 2762. 375.0 0.0 1 10 17.7 60 400. 0.91 0.12 4 TESA 2 130. 191. 3107. 2825. 375.0 0.0 1 10 3.6 60 200. 0.91 0.12 5 K053 1 130. 191. 3107. 2825. 375.0 0.0 1 10 5.0 60 200. 0.91 0.12 6 1OL5 1 60. 191. 3545. 3223. 375.0 0.0 1 10 10.7 30 200. 1.20 0.20 7 KOS2 1 37. 90. 3545. 3223. 375.0 0.O 1 10 0.4 30 100. 1.20 0.20 8 KOL3 1 32. 58. 4106. 3773. 375.0 0.0 1 10 1.3 30 10. 1.20 0.20 9 HORA 1 80. 113. 3338. 3035. 516.6 0.0 2 10 4.9 30 200. 1.20 0.20 10 KOLA 3 26. 28. 4106. 3733. 375.0 0.0 1 10 5.1 30 50. 1.20 0.20 11 BEGA 3 1. 26. 5093. 4638. 0.0 1904.0 3 10 3.7 30 50. 0.02 1.94 12 TESB 1 300. 564. 2936. 2669. 375.0 0.0 1 10 12.0 60 600. 0.91 0.12 13 RmI 0 150. 320. 3038. 2762. 375.0 0.0 1 1O 8.0 60 400. 0.91 0.12 14 KOLB 0 150. 300. 3038. 2762. 375.0 0.0 1 10 8.0 60 400. 0.91 0.12 iv oD hW . FIXED SYSTEM StUtI3iRYDESC!IPTICI OF COllPOSITEIIYDROELECTRIC PLANT TYPE PROT *** CAPACITYINIl l * ENERGYIH 61it"* FIXED OA" COSTS: 1.790 $VKH-HONTH P HYDROCOIDITION1 HYDROCO1I0ITION2 HYOROCOtUITION3 HYDROCONDITION4 HYOROCONOITION5 R P PPOB.: 0.10 PROU.: 0.20 PDOB.: 0.40 PRoe.: 0.20 PROS.: 0.10 0 E CAPACITY EtlERGY CAPACITY ElJERGY CAPACITY ENERGY CAPACITY ENERGY CAPACITY ENERGY YEAR J R BASE PEAK BASE PEAK BASE PEAK BASE PEAK BASE PEAK 19 . 2 1 303. 0. 221. 502. 0. 366. 495. 0. 361. 605. 0. 442. 592. 0. 432. 2 446. 0. 326. 484. 0. 353. 542. 0. 396. 566. 0. 413. 654. 494. 501. 3 593. 0. 433. 576. 0. 420. 628. 520. 482. 752. 396. 573. 743. 406. 566. 4 640. 0. 467. 655. 492. 502. 715. 433. 546. 833. 315. 633. 873. 275. 662. 5 494. 0. 361. 619. 530. 475. 699. 450. 534. 791. 358. 601. 870. 278. 660. 6 513. 0. 375. 576. 0. 421. 633. 511. 435. 701 447. 535. 762. 336. 580. 7 459. 0. 335. 493. 0. 360. 544. 0. 397. 64.2 0. 469. 749. 400. 570. 8 354. 0. 259. 375. 0. 274. 458. 0. 334. 433. 0. 353. 658. 482. 504. 9 . 226. 0. 209. 332. 0. 243. 405. 0. 295. 412. 0. 300. 533. 0. 393. 10 244. 0. 178. 335. 0. 245. 410. 0. 299. 460. 0. 336. 491. 0. 359. 11 348. 0. 254. 449. 0. 318. 482. 0. 352. 555. 0. 405. 623. 0. 455. 12 572. 0. 417. 461. 0. 336. 523. 0. 382. 526. 0. 384. 773. 369. 5S8. INST.CAP.1149. TOTAL ENERGY 3834. 4322. '.63. 5443. 6270. 1985 3 1 328. 83. 244. 532. 78. 404. 524. 78.' 398. 641. 72. 487. 627. 73. 476. 2 473. 81. 359. 513. 79. 389. 574. 76. 436. 600. 74. 456. 696. 561. 552. 3 628. 73. 477. 610. 74. 463. 668. 589. 531. 802. 454. 631. 792. 465. 624.. 4 679. 69. 515. 697. 559. 553. 762. 495. 601. 893. 364. 697. 940. 317. 730. 5 524. 78. 398. 653. 599. 523. 744. 513. 5S8. 845. 411. 663. 936. 321. 728. 6 544. 77. 413. 611. 73. 464. 673. 579. 535. 746. 510. 590. 813. 443. 640. 7 487. 80. 369. 523. 78. 397. 577. 75. 438. 681. 69. 517. 799. 453. 629. A 379. 83. 285. 400. 13. 302. 4S6. 80. 369. 513. 79. 389. 701. 547. 556. 9 311. 83. 230. 357. 83. 268. 430. 82. 326. 437. 82. 331. 571. 76. 434. 10 269. 83. 196. 360. 83. 270. 436. 82. 330. 4883. 80. 370. 521. 78. 396. 11 372. 83. 280. 477. 80. 362. 512. 79. 388. 588. 75. 446. 660. 71. 502. 12 606. 74 4 89. 80 371 555. 77. 421. 557. 77. 423. 826. 424. 649. INST.CAP.1257. TOTALEtERGY 4227. 4766. 5361. 6001. 6914. 00 FIXED SYSTEl1(CONTOJI SLRUIARYCESCRIPTIOII OF CO:IfOSITEHYDROELECTRIC PLANT TYPE PROT *** CAPACITYIN lNl * EtlEl:GYIII 6H *N* FIXED O'H COSTS 1.790 S/H-hoiiTH P HYDROCOI3ITIOI1 HYDROCOAIOITIOl2 HYDROCOtIITION3 HYDROCONDITION4 HYDROCONDITION5 R P PROS.: 0.10 PROB.; 0.20 PROB.: 0.40 PROS.: 0.20 PROB,: 0.10 0 E CAPACITY EtERGY CAPACITY EIIERGY CAPACITY ENERGY CAPACITY EtERGY CAPACITY ENERGY YEAR J R BASE PEAK 0ASE PEAK BASE PEAK BASE PEAK BASE PEAK 1986 4 1 353. 167. 266. 562. 156. 441. 554. 156. 435. 677. 144. 532. 662. 146. 520. 2 500. 162. 392. 512. 153. 425. 606. 152. 476. 634. 149. 498. 737. 627. 603. 3 664. 145. S11. 644. 148. 506. 703. 657. 580. 852. 512. 690. 841. 524. 682. 4 717. 139. 563. 739. 625. 604. 808. 555. 657. 952. 412. 762. 1006. 359. 799. 5 554. 156. 435. 697. 668. 572. 789. 576. 643. 899. 465. 725. 1001. 363. 796. 6 575. 154. 451. 646. 147. 507. 714. 647. 535. 792. 573. 645. 865. 500. 699. 7 515. 160. 404. 553. 156. 434. 610. 150. 479. 720. 139. 565. 849. 516. 687. 8 404t. 167. 312. 425. 167. 331. 514. 160. 403. 542. 157. 426. 743. 612. 608. 9 335. 167: 252. 382. 167. 293. 456. 165. 356. 463. 164. 362. 603. 151. 474. 10 293. 167. 215. 334. 167. 295. 461. 165. 361. 516. 160. 404. 551. 156. 433. 11 397. 167. 306. 505. 161. 395. 541. 157. 424. 621. 150. 435. 693. 141. 548. 12 641. 147. 504. 517. 160. 405. 586. 153. 460. 5M8. 153. 462. 880. 478. 710. INST.CAP.1365. TOTAL EtIERGY 4621. 5209. 5860. 6559. 7559. 0o0 FIXED SYSTEH SU:IIRY DESCRIPTIONOF COIIPOSITEHYDROELECTRIC PLANT TYPE AKUN CAPACITYIII t11 * ENERGYIN 6G1 11 FIXED Ot" CCSTS 1.790 $/KII-I1ONTH P HYDROCOIIDITI011 IHYDRC'ON4DITIO1I2 HYDROCOIDITIOI3 HYDROCOIIDITIOH4 HYDROCOIDITIOH5 R P PROS.: 0.10 PROD.: 0.20 PROS.: 0.40 PROB.; 0.20 PROB.; 0.10 0 E CAPACITY EtIERGY CAPACITY ENERGY CAPACITY EIIERGY CAPACITY ENERGY CAPACITY ENERGY YEAR J R BASE PEAK BASE PEAK BASE PEAK BASE PEAK BASE PEAK 1984 3 1 78. 1536. 164. 110. 1555. 205. 158. 1507. 298. 151. 1514. 321. 203. 1462. 383. 2 84. 1536. 199. 123. 1541. 243. 147. 1518. 321. 197. 1467. 418. 188. 1477. 421. 3 121. 1554. 292. 160. 1504. 346. 203. 1462. 411. 2Ž9. 1436. 516. 248. 1417. 513. 4 171. 1513. 333. 205. 1459. 410. 258. 1407. 434. 274. 1391. 541. 300. 1365. 611. 5 155. 1540. 303. 241. 1453. 437. 267. 1427. 527. 297. 1397. 546. 274. 1421. 575. 6 174. 1535. 364. 153. 1570. 303. 196. 1513. 488. 215. 1493. 484. 203. 1506. 476. 7 115. 1579. 524. 18. 1586. 523. 130. 1564. 564. 149. 1545. 578. 118. 1577. 479. 8 67. 1617. 506. Oa. 1616. 353. 79. 1605. 485. 96. 1539. 594. 79. 1605. 543. 9 55. 1620. 303. 74. 1601. 412. 75. 1599. 424. 78. 1596. 451. 85. 1590. 468. 10 73. 1592. 172. 96. 1569. 263. 119. 1545. 286. 125. 1540. 286. 128. 1477. 361. 11 197. 1467. 393. 145. 1519. 356. 166. 1499. 381. 210. 1455. 462. 244. 1421. 562. 12 173. 1492. 395. 174. 1491. 427. 159. 1506. 425. 221. 1444, 549. 336. 1329. 672. IIlST.CAP. 1709. TOTALENERGY 3960. 4276. 5093. 5745. 6065. 1988 4 1 M3. 1651. 168. 115. 1619. 209. 163. 1571. 302. 156. 1578. 325. 208. 1526. 387. 2 89. 1650. 203. 129. 1605. 247. 152. 1582. 325. 203. 1531. 423. 193. 1541. 427.. 3 127. 1618.. 296. 166. 1563. 351. 209. 1526. 416. 235. 1500. 522. 254. 1480. 520. a 4 178. 1576. 333. 213. 1522. 415. 265. 1470. 492. 281. 1453. 550. 307. 1427. 620. 5 162. 1602. 314. 2.9. 1516. 443. 275. 1490. 537. 305. 1459. 557. 282. 1483. 587. 6 12. 1596. 371. 147. 1632. 310. 204. 1574. 497. 223. 1555. 495. 211. 1567. 489. 7 124. 1640. 531. 118. 1647. 534. 139. 1625. 577. 159. 1606. 592. 127. 1637. 494. 8 76. 1678. 513. 78. 1677. 363. 89. 1666. 498. 105. 1649. 609. 89. 1666. 560. 9 63. 1681. 314. 82. 1662. 422. 84. 1661. 435. 86. 1658. 464. 93. 1651. 482. 10 80. 1655. 178. 103. 1631. 268. 126. 1608. 295. 132. 1603. 296. 195. 1540. 372. 11 203. 1531. 398. 151. 1583. 361. 172. 1563. 333. 216. 1519. 469. 250. 1434. 568. 12 178. 1556. 399. 180. 1555. 433. 165. 1570. 431. 226. 1508. 555. 341. 1393. 679. INST.CAP. 1779. TOTALENIERGY 4023. 4355. 5193. 5855. 6187. : 0.NIC o hU FIXED SYSTEI TIIERMilLADDITIOIID AHO RETIREHENTS IJMBER OF SETS ADDEDME RETIREDI-) 1934 TO 2005 YEARt 19.. 1200./20..) NO. HAHE 8 87 8389 90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 7 KOS2 ...... - a KOL3 . . ..- 1 9 HoRA ...... - 1 10 KOLA ...... -2.- 11 BEGA ...... -1 ...... 12 TESB I ...... 13 DRH . . 1 14 KOL4 . . . . 1 1. Io- OQY at A FIXED SYSTEH StUVARYOF Iib3TALLEDCAPACITIES (IKOIIIIALCAPACITIES (M3)) HYDROELECTRIC TIIERHAL TOTAL PROT AKUH F U E L T Y P E 0 1 2 3 4 YEAR PR. CAP FR. CAP HUKL LI6H COAL TOIL T6AS 1984 2 1149. 3 1709. 0. 2570. 113. 78. 0. 5618. 1985 3 1257. 3 1709. 5726. 19S6 4 1365. 3 1709. 0. 3134. 113. 78. 0. 6398. 1988 4 1365. 4 1779. 0. 3454. 113. 78. 0. 6788. 1990 0. 3754. 113. 78. 0. 70S3. 1991 0. 4054. 113. 78. 0. 7338. 1993 0. 3998. 113. 78. 0. 7332. 1995 0. 3912. 113. 52. 0. 7220. 2003 0. 3S22. 113. 52. 0. 7130. 2005 0. 3822. 0. 52. 0. 7017. LO) A) OD S.-. VARIABLESYSTEH StRIHARYDESCRIPTION OF TIIERHALPLAHTS IIEAT RATES FUELCOSTS FAST thU. HIM. CAPA KCAL/KI%W CENTS/ SPIN FOR DAYS HAIN O&H ODN OF LOAD CITY BASE AVGE MILLION KCAL FUEL RES SCHL CLAS (FIX) (VAR) NO. NAHE SETS HH H1 - LOAD ItiXR DtISTC FOR6N TYPE X X HAIN 104 SKIH $/MIN 1 LI6I 0 150. 300. 3038. 2762. 375.0 0.0 1 10 8.0 60 400. 0.91 0.12 2 L162 0 300. 600. 2936. 2(69. 375.0 0.0 1 10 12.0 60 600. 0.91 0.12 3 OILI 0 75. 300. 3115. 2190. 0.0 1003.0 3 10 8.0 50 200. 0.13 1.30 4 6ASI 0 100. 100. 3530. 3539. 0.0 1904.0 4 0 20.0 12 100. 0.02 1.94 5 NUC1 0 300. 600. 2760. 2480. 0.0 204.5 0 10 21.7 61 600. 1.35 1.30 6 tLC2 0 225. 450. 2760. 2'20. 0.0 204.5 0 10 21.7 61 400. 0.92 0.89 7 NUC3 0 300. 600. 2760. 2480. 0.0 122.7 0 10 21.7 40 600. 1.78 1.71 a NLCII4 0 225. 450. 2760. 24a8. 0.0 122.7 0 10 21.7 40 400. 1.21 1.17 IA o oo VARIABLESYSTE" StMtARY DESCRIPTIONOF COMIPOSITEHYDROELECTRIC PLANT TYPE PROT *** CAPACITY INI Mi ENERGYIN GSIMNM* FIXED 0I" COSTS a 1.790 S/KI-IITII P HYDROCOtIIITION1 HYDROCCINITION2 HYDROCOtIITION3 HYDROCOOITION 4 HYDOOCONDITION5 R P PROs.,0.10 PROD.: 0.20 PROS.: 0.40 PROB.90.20 PRO8.: 0.10 0 E CAPACITY El:ERSY CAPACITY ENlER6Y CAPACITY ENERGY CAPACITY ENERGY CAPACITY ENERGY YEAR J R BASE PEAK BASE PEAK BASE PEAK BASE PEAK BASE PEAK 1992 1 1 11. 23. 8. 14. 21. 10. 23. 11. 17. 21. 14. 16. 27. 7. 20. 2 11. 23. 8. 18. 16. 13. 26. 8. 20. 17. 17. 20. 15. 19. 19. 3 17. 17. 13. 22. 12. 16. 26. 8. 19. 30. 4. 23. 32. 2. 24. 4 22. 12. 16. 27. 7. 20. 33. 1. 25. 33. 1. 25. 33. 1. 25. 5 16. 16. 13. 31. 4. 23. 33. 1. 25. 33. 1. 25. 33. 1. 25. 6 21. 13. 16. 17. 17. 13. 25. 9. 19. 26. 8. 19. 26. 8. 19. 7 19. 15. 14. 17. 17. 13. 20. 14. 15. 22. 13. 16. 16. 18. 12. 8 15. 19. II. 8. 26. 6. 13. 21. 10. 18. 16. 13. 15. 20. 11. 9 10. 25. 7. 12. 22. 9. 12. 22. 9. 14. 21. 10. 15. 20. 11. 10 10. 24. 7. 13. 21. 10. 16. 18. 12. 17. 17. 13. 27. 7. 20. 11 29. 5. 22. 18. 16. 14. 23. 11. 17. 28. 6. 21. 33. 1. 24. 12 24. 10. 18. 25. 9. 19. 20. 14. 15. 29. 5. 22. 33. 1. 25. INST.CAP. 34. TOTALENERGY 154. 164. 201. 221. 233. 1993 2 1 22. 46. 16. 27. 41. 21. 47. 22. 35. 41. 27. 31. 55. 14. 41. 2 22. 46. 17. 36. 33. 26. 52. 16. 39. 34. 35. 40. 30. 38. 37. 3 34. 34. 25. 44. 25. 33. 52. 16. 39. 61. 8. 45. 64. 4. 48. 4 44. 25. 32. 53. 15. 40. 67. 2. 49. 67. 2. 49. 67. 2. 49. 5 36. 32. 27. 61. 7. 45. 67. 2. 49. 67. 2. 49. 67. 2. 49. 6 42. 26. 32. 35. 34. 26. 51. 18. 33. 52. 17. 38. 52. 17. 38. 7 36. 31. 28. 34. 34. 25. 39. 29. 29. 43. 25. 32. 32. 36. 24. £ 30. 38. 22. 16. 52. 12. 27. 42. 20. 36. 32. 27. 29. 39. 22. 9 19. 49. 14. 25. 44. 18. 24. 45. 18. 27. 41. 20. 29. 39. 22. 10 19. 49. 15. 25. 43. 19. 33. 36. 24. 35. 34. 26. 54. 14. 40. 11 59. 10. 43. 36. 32. 27. 46. 23. 34. 56. 12. 41. 66. 2. 49. 12 49. 20. 36. 50. 18. 37. 40. 23. 30. 59. 9. 43. 67. 2. 49. INST.CAP. 69. TOTAL ENERGY - 307. 329. 403. 442. 466. o uX O tn VARIABLESYSTEH (CaNTO.) SJIARY DESCRIPTIO4OF CO"POSITEHYDROELECTRIC PLANT TYPE PROT -* CAPACITYIli fgl EIERGYIN G&01** FIXEOOl6 COSTS1 1.790 $/K-iUTlH P HYDROCWOI)TION1 HYDYROCOOYDITION2 HYDROCONIITION 3 HYDROCCODITION4 HYOROCONDITION5 R P PROD.: 0.10 PrOB.: 0.20 PRO8.; 0.40 PROS.: 0.20 PROS.: 0.10 0 E CAPACITY ENERGY CAPACITY ENER6Y CAPACITY ENERGY CAPACITY ENERGY CAPACITY ENERGY YEAR J R BASE PEAK BASE PEAK BASE PEAK BASE PEAK BASE PEAK 1994 3 1 33. 70. 24. 41. 62. 31. 70. 33. 52. 62. 41. 47. 82. 20. 61. 2 33. 70. 25. 53. 49. 39. 78. 25. 59. 50. 52. 60. 45. 58. 56. 3 51. 51. 33. 66. 37. 49. 78. 25. 58. 91. 11. 68. 97. 6. 72. 4 66. 37. 49. 80. 22. 60. 100. 2. 74. 100. 2. 74. 100. 2. 74. 5 54. 48. 40. 92. 11. 68. 100. 2. 74. 100. 2. 74. 100. 2. 74. 6 64. 39. 48. 54. 51. 39. 76. 27. 56. 77. 25. 57. 77. 25. 57. 7 57. 46. 42. 51. 51. 38. 59. 43. 44. 65. 38. 48. 48. 54. 36. 8 45. 57. 3i. 25. 7a. 18. 40. 62. 30. 54. 48. 40. 44. 59. 32. 9 29. 74. 21. 37. 66. 28. 36. 67. 27. 41. 62. 31. 44. 59. 32. 10 29. 73. 22. 38. 64. 29. 49. 53. 37. 52. 50. 39. 81. 22. 59. 11 88. 15. 65. 55. 48. 41. 69. 34. 51. 84. 13. 62. 99. 4. 73. 12 73. 29. 54. 75. 27. 56. 60. 43. 44. 88. 14. 65. 100. 2. 74. IIST.CAP.103. TOTALEtIERGY 461. 493. 604. 663. 699. 1995 4 1 44. 93. 32. 55. 82. 41. 93. 44. 70. 82. 55. 62. 110. 27. 81. 2 44. 93. 33. 71. 66. 52. 104. 33. 78. 67. 70. 80. 60. 77. 74. 3 63. 68. 51. 8S. 49. 65. 104. 33. 78. 122. 15. 90. 129. 8. 96. X- 4 8S. 49. 65. 107. 30. 80. 134. 3. 98. 134. 3. 98. 134. 3. 98. 5 72. 64. 53. 122. 15. 90. 134. 3. 98. 134. 3. .98. 134. 3. 98. 6 85. 52. 64. 69. 68. 52. 101. 35. 75. 103. 34. 76. 103. 34. 76. 7 76. 61. 5S. 68. 6S. 51. 79. 55. 58. 86. 51. 64. 65. 72. 43. 8 60. 77. 45. 33. 104. 24. 54. 83. 40. 72. 64. 54. 58. 79. 43. 9 38. 98. 28. 49. 87. 37. 48. 89. 36. 55. 82. 41. 58. 79. 43. 10 39. 98. 29. 51. 85. 38. 66. 71. 49. 70. 67. 52. 108. 29. 79. 11 117. 20. 86. 73. 64. 54. 92. 45. 68. 112. 24. 83. 132. 5. 97. 12 98. 39. 72. 100. 37. 74. 80. 57. 59. 118. 19. 87. 134. 3. 98. INST.CAP.137. TOTALENIERGY 614. 658. 806. 884. 932. 0U VARIABLESYSTEN tCOItno. SlIIARY DESCRIPTIO',OF CO:U5OSITEHYOROELECTRIC PLANT TYPE PROT *1M CAPACITYIN tlH R ENRGY IH 61J1*** FIXED CANCOSTS 1.790 */KH-HOIMTH P HYDROCOIDITIO1I1 HYDROCOIDITIOl2 HYDRDCOtIITION3 HYDROCONWITION4 HYDROCONOITION5 R P PR90.: 0.10 PROS.: 0.20 PROS.: 0.40 PROS.: 0.20 PROI.: 0.10 0 E CAPACITY EtIEPGY CAPACITY EtIERGY CAPACITY ENERGY CAPACITY ENERGY CAPACITY ENERGY YEAR J R BASE PEAK BASE PEAK BASE PEAK BASE PEAK BASE PEAK 1995 5 1 53. 130. 39. 67. 115. 50. 112. 70. 84. 104. 78. 78. 130. 52. 96. 2 53. 129. 40. 83. 99. 61. 126. 56. 95. 88. 94. 96. 90. 92. 96. 3 84. 98. 62. 111. 71. 83. 132. 51. 98. 149. 34. 110. 160. 23. 113. 4 112. 70. 83. 137. 45. 102. 169. 13. 124. 172. 10. 126. 17a. 4. 131. 5 92. 90. 67. 156. 26. 115. 171. 11. 125. 173. 9. 127. 178. 4. 131. 6 101. 81. 76. l6. 96. 64. 122. 60. 90. 126. 56. 93. 127. 55. 94. 7 84. 98. 62. 77. 106. 57. 92. 90. 68. 97. 86. 71. 76. 106. 57. 8 65. 117. 48. 38. 145. 28. 61. 121. 45. 79. 104. 58. 64. 118. 48. 9 43. 139. 32. 54. 128. 40. 55. 127. 41. 62. 120. 46. 65. 117. 48. 10 46. 136. 35. 61. 121. 45. 76. 106. 56. 91. 91. 68. 125. 58. 91. 11 141. 41. 104. 94. 88. 70. 106. 76. 78. 138. 44. 102. 170. 12. 125. 12 121. 61. 90. 119. 64. 88. 98. 84. 72. 153. 29. 113. 155. 27. 114. IHST.CAP. 183. TOTALENERGY 738. U03. 977. 1088. 1149. J~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~J Z..- I~ ~~~~ ~ ~ ~ ~~~~~~~~~~~ ~~ I-. VARIABLESYSTEH SWIHARYOESCRIPTIO:4 OF CCtIPOSITEHYOROELECTRIC PLAIT TYPE AKUH *N CAPACITYIII 11ll EIIERGYIiiN 6111** FIXED O3i1COSTS; 1.790 VIH-101TH P IIYDROCUIlDITION1 HYDROCOtMITION2 HY0R0COIIITIOH 3 HYDROCOIITIoI 4 HYDROCO1UITIOH5 R P FROS.; 0.10 PRCD.: 0.20 PROB.; 0.40 PROB.: 0.20 PROB.: 0.10 0 E CAPACITY EHER6Y CAPACITY E1AERGY CAPACITY ENERGY CAPACITY EHIER6Y CAPACITY ENERGY YEAR J R BASE PEAK BASE PEAK BASE PEAK BASE PEAK BASE PEAK 1995 1 1 17. 36. 12. 21. 31. 16. 36. 17. 27. 32. 21. 24. 42. 10. 31. 2 17. 36. 13. 27. 25. 20. 40. 13. 30. 21. 32. 31. 19. 33. 28. 3 26. 26. 20. 34. 19. 25. 40. 13. 30. 47. 6. 35. 49. 3. 37. 4 34. 19. 25. 41. 11. 31. 51. 1. 38. 51. 1. 38. 51. 1. 33. 5 23. 25. 20. 47. 6. 35. 51. 1. 33. 51. 1. 38. 51. 1. 38. 6 33. 20. 24. 26. 26. 20. 39. 13. 29. 39. 13. 29. 39. 13. 29. 7 29. 23. 22. 26. 26. 20. 30. 22. 22. 33. 19. 24. 25. 28. 18. 8 23. 29. 17. 13. 40. 9. 21. 32. 15. 28. 25. 21. 22. 30. 17. 9 15. 38. 11. 19. 33. 14. 18. 34. 14. 21. 31. 16. 22. 30. 17. 10 15. 37. 11. 20. 33. 15. 25. 27. 19. 27. 26. 20. 41. 11. 30. 11 45. 7. 33. 28. 24. 21. 35. 17. 26. 43. 9. 32. 51. 2. 37. 12 37. 15. 28. 38. 14 28. 31. 22. 23. 45. 7. 33. 51. 1. 38. INST.CAP. 53. TOTALEIiER6Y 236. 252. 309. 338. 357. 1998 2 1 57. 120. 42. 71. 106. 53. 120. 56. 90. 106. 70. 80. 141. 35. 105. 2 57. 120. 42. 92. 8i. 68. 134. 42. 101. 70. 106. 103. 65. 111. 95. 3 88. M. 66. 113. 63. 84. 134. 42. 100. 157. 19. 116. 166. 10. 123. 4 113. 63. 8't. 1.'3. 39. 103. 172. 4. 126. 172. 4. 126. 172. 4. 126. 5 93. 83. 68. 157. 19. 116. 172. 4. 126. 172. 4. 126. 172. 4. 126. 6 109. 67. 82. 89. 87. 67. 131. 46. 97. 133. 43. 98. 133. 43. 98. 7 98. 79. 72. 8e. 88. 66. 102. 75. 75. 111. 65. 82. 83. 93. 62. 8 78. 99. 53. 42. 134. 32. 69. 107. 51. 93. 83. 69. 75. 101. 56. 9 49. 127. 37. 64. 113. 47. 61. 115. 46. 71. 106. 52. 75. 101. 56. 10 50. 126. 38. 66. 110. 49. 85. 92. 63. 90. 86. 67. 139. 37. 102. 11 151. 25. 111. 94. 22. 70. 118. 58. 87. 145. 32. 107. 170. 6. 125. 12 126. 51. 93. 129. 47. 95. 103. 73. 76. 152. 24. 112. 172. 4. 126. IHST.CAP. 177. TOTALENIERMY 792. 848. 1038. 1138. 1199. I-d09 o D F~h C 0 N 6 E N COtISRAUIlTSON1 C0tWFIGRATIMIS GENERATED Ceti: INJlBEROF COllFIQARATICNS XCLOLPtAXIIUI PERIODLO!P; tIIHI:Mj - RES.IARGIN, - COHFIGRATION ..ALOLPIIAXIIrJH AItIJAL LOLP; IIMMAXI - RES.tARHINp- COIUFIGURATION RES. PERHITTEDEXTREHE COtFIGLRATIONS OF ALTERNIATIVES ZCLOLP PAR- LIGI DILI taxU1 KJC3 PROT YEARCiOl ZALOLP f1li L162 GAS) NUC2 NUC4 AKtM 1984 1100.000 2 0 0 0 0 0 0 0 0 0 0 100.000 30 0 0 0 0 0 0 0 0 0 0 1985 1100.000 2 0 0 0 0 0 0 0 0 0 0 100.000 30 0 0 0 0 0 0 0 0 a 0 1986 1100.000 2 0 0 0 0 0 0 0 0 0 0 100.000 30 0 0 0 0 0 0 0 0 0 0 1987 1100.000 10 0 0 0 3 0 0 0 0 0 0 100.000 17 0 0 0 3 0 0 0 0 a 0 1988 1100.000 10 0 0 0 3 0 0 0 0 0 0 100.000 17 0 0 0 3 0 0 0 0 0 0 19 91100.000 10 0 0 0 4 0 0 0 0 0 0 100.000 17 0 0 0 4 0 0 0 0 0 0 1990 I100.0Q0 10 0 0 0 4 0 0 a a O 0 100.000 17 0 0 0 4 0 0 0 0 0 0 1991 1100.000 10 0 0 0 4 0 0 0 0 0 0 100.000 17 0 0 0 4 0 0 0 0 0 0 192 1100.000 10 0 1 0 4 0 0 0 0 0 0 100.090 17 0 1 0 4 0 0 0 0 0 0 1993 1101.000 10 0 1 0 4 0 0 0 0 0 0 100.000 17 0 1 0 4 0 0 0 0 0 0 I-. o U' C O N 6 E H (COHID.) CMiSTPAI"TSoJ COWfICURATIOSGENIERATEO COtl: IUtBER OF CCHFI6WATIOtS XCLOLPIIAXIIUI PERIODLOLPi HIHIIItN - RES.IARSGIN.- CONFIGIRATION XALOLPIHAXItUJH ANIAL LOLP; HNAXII - RES.HARGIN.- CONfIGURATION RES. PERI1TTEDEXTREHE CONFIGRATIONS OF ALTERNATIVES Y.CLOLPHAR- L l1 OIL NUCi "IIC3 PROT YEARCO" XALOLP 6IH LI62 GASI NUC2 NUC4 AKUI 1994 1 100.000 16 0 2 0 4 0 0 0 0 0 0 100.000 17 0 2 0 4 0 0 0 0 0 0 1995 1 100.00 10 0 2 0 5 0 0 0 0 0 0 100.0M 17 0 2 0 5 0 0 0 0 0 0 199 1 100.000 10 0 3 0 5 I 0 0 0 0 0 100.000 17 0 3 0 5 0 0 0 0 0 0 17. 1 100.000 16 0 3 0 5 0 0 0 0 0 0 100.000 17 0 3 0 5 0 0 0 0 0 0 1998 1 100.*00 10 0 3 0 7 0 0 0 0 0 0 100.006 17 0 3 0 7 0 0 0 0 0 0 19W 1 10.00 10 0 4 0 7 0 0 0 a 0 0 100.000 17 0 4 0 7 0 ° 0 ° 0 0 2006 1 1i0.006 1 0 4 0 7 0 I 0 0 0 0 100.000 17 0 4 0 7 0 0 0 0 0 0 2001 1 108.000 10 0 5 6 7 0 0 0 0 0 0 100.000 17 0 5 0 7 0 0 0 0 0 0 2002 1 100.00 16 0 5 0 7 0 0 0 0 0 0 100.000 17 0 5 0 7 0 0 0 0 0 0 2003 1 100.000 10 0 6 0 7 0 0 0 0 0 0 100.000 17 0 6 0 7 0 0 0 0 0 0 4am o U in~ C O N G L N (CONTO.) CO11lTRAIRTSOil CVItFIGRATIOtISGEIERATED COII: IIIt!BER OF CONFIGMATIOUS XCLOtPHtXIMtJ PERIODLOLP; HIWIXUJ - RES.MHR6UI.- CONFIGUATION Y.ALOLPtUXIjlU AXIUJA LOLP; MARIIIJII - RES.ItARGIN,- CO;FIGIRATION RES. PEQHITlEDEXTRE"E COtIFIGURATIOtIS OF ALTERtlATIVES XCLOLP "AlR- LIGI OILl "ml NLJC3 PROT YEARCON YALOLP GIN L162 GASI NUC2 NUt4 AKU 2004 1 100.000 10 0 6 1 7 0 0 0 0 0 0 100.000 17 0 6 1 7 0 0 0 0 0 0 2005 1 100.000 10 0 7 1 7 0 0 0 0 0 0 100.000 17 0 7 1 7 0 0 0 0 0 0 22 TOTALI#lIER OF COIIFIGURATIONSGEllERATED o ' th OPTIIJH SOLUTION AtIIAL ADIITI'IS: CAPACITYItl'i AtEID BEROF UNITS OR PROJECTS FOR DETAILSOF IIfIVIDUAL UtIlTS OR PI.OJECTSSEE VARIABLE SYSTEM REPORT SEEALSO fIXED SYSTE" PEPORTFOR OTIIER ADDIT1NS ORRETIREMENTS. NAHE: 1IG1 OIL1 NUC1 NUC3 PROT L162 GASI NUC2 HUC4 AKUH SIZE IHUNI: 300. 300. 600. 600. 0. XLOLP 600. 100. 450. 450. 0. YEAR HAINT NOIiIT CAP 1984 8.017 0.466 0...... 198S 14.501 0.756 0. 1986 1.473 0.188 0...... 1987 1.120 0.180 300. . . . 3 . . . 1988 0.470 0.110 0...... 1939 1.013 0.173 100. . . . 1 . . . 1990 0.623 0.149 0...... 1991 0.492 0.127 0...... 1992 0.091 0.070 600. . 1 . . . . . 1993 0.560 0.179 0...... 1994 0.144 0.098 600. . 1 . .I. 1995 0.582 0.243 100. . . 1i . 1996 0.173 0.112 600. . 1 . . . . 1997 0.39D 0.204 0...... 1998 0,456 0.238 200. , . . 2 1999 0.192.0.119 600. . 1 . 2000 0.374 0.221 0. . . . 2001 0.242 0.142 600. . 1 . . . . . 2002 0.592 0.315 0...... 2003 0.478 0.268 600. . 1 . . . . . 2004 0.572 0.313 300. . . 1 2005 0.563 0.294 600. . I . TOTALS 5200. , 7 1 7 . . ocg o Co O - SM21ARAYOF FIXED SYSTEIIPLUS OPTIIiM SOLUTIOtI (HOHliHALCAPACITY IN II3, ENERGYIN G6iHI HYDPOELECTRIC TIIERIIAL FUEL TYPE TOTAL SYSTE" EHERGYNOT SERVED PROT A:lH1 CAPACITIES CAP RES. LOLP. HYOROCCtUITIONi YEAR 0 1 2 3 4 1 2 3 4 5 PR. CAP PR. CAP IIUKL LIGCI COAL TOIL T6AS X X 1984 2 1149 3 1709 0 2570 113 78 0 5618 19.9 8.017 790 462 187 10 2 1985 3 1257 3 1709 0 2570 113 78 0 5726 16.014.5011321 894 505 73 23 1986 4 1365 3 1709 0 3134 113 78 0 6398 24.5 1.473 307 53 3 2 1 1987 4 1365 3 1709 0 3134 113 78 300 6698 24.3 1.120 245 28 3 2 1 1988 4 1365 4 1779 0 34t54 113 78 300 70tS 25.7 0.470 123 2 2 1 0 1989 4 1365 4 1779 0 3454 113 73 400 7188 22.7 1.013 220 25 3 2 1 1990 4 1365 4 1779 0 3754 113 78 400 74U5 22.5 0.623 150 3 3 2 1 1991 4 1365 4 17;9 0 4054 113 78 400 7783 22.5 0.492 106 3 2 2 1 1992 4 1365 4 1779 0 4654 113 78 400 83S8 26.8 0.091 2 1 1 1 0 1993 4 1365 4 1779 0 4598 113 78 400 8332 21.1 0.560 105 5 4 3 1 1994 4 1365 4 1779 0 5198 113 78 400 8932 24.7 0.144 3 3 2 2 1 1995 4 1365 4 1779 0 5112 113 52 500 8920 19.70.532 86 7 6 5 2 1996 4 1365 4 1779 0 5712 113 52 500 9520 24.0 0.173 4 3 3 2 1 1997 4 1365 4 1779 0 5712 113 52 500 9520 20.5 0.390 31 7 5 5 2 1998 4 1365 4 1779 0 5712 113 52 700 9720 19.40.456 39 8 6 6 2 1999 4 1365 4 1779 0 6312 113 52 700 10320 23.1 0.192 5 4 3 3 1 2000 4 1365 4 1779 0 6312 113 52 700 10320 19.60.374 14 8 6 6 3 2001 4 1365 4 1779 0 6912 113 52 700 10920 21.8 0.242 7 5 4 4 2 2002 4 1365 4 1779 0 6912 113 52 700 10920 17.30.592 35 13 10 9 4 2003 4 1365 4 1779 0 7422 113 52 700 11430 18.20.478 15 12 9 8 4 2004 4 1365 4 1779 0 7422 113 352 700 11730 16.80.572 19 15 12 10 5 2005 4 1365 4 1779 0 8022 0 352 700 12217 17.10.563 19 15 12 10 5 I 'L o u> 0 Y 14P R 0 SINI$ARYOF CAPITALCOSTS OF ALTERNATIVESIN S/KH CAPITAL COSTS IIICLUSIVE C04STR. PLANT CAPITAL COSTS PLANT (DEPRECIABLEPART) InC TIIIE LIFE (NYOI-DEPREC.PART) DHIIESIIC FOUEIS6I x (YEARS) IYEARS) DOIESTIC FOREIGN THERHALPLANT CAPITAL COSTS LISt 239.5 239.5 20.75 5.00 30. 0.0 0.0 L162 93.2 279.7 20.75 5.00 30. 0.0 0.0 OILI 185.6 135.0 20.75 5.00 30. 0.0 0.0 6ASI 69.0 206.2 5.00 2.00 20. 0.0 0.0 tIJai 566.6 850.0 46.75 8.00 30. 0.0 82.7 HUc2 469.6 704.4 46.75 8.00 30. 0.0 82.7 l1JC3 566.6 850.0 46.75 8.00 30. 0.0 128.0 HUC4 469.6 704.4 46.75 8.00 30. 0.0 128.0 PROT- HYDROPROJECT CAPITAL COSTS. PROJECTLIFE: 40. 1 1013.8 53.4 40.35 7.00 2 1144.8 60.2 40.35 7.00 3 1253.0 66.2 40.35 7.00 4 1355.3 71.3 40.35 7.00 5 945.4 49.9 40.35 7.00 AKUH - NYDROPROJECT CAPITAL COSTS. PROJECTLIFE: 40. 1 1159.M 62.6 40.35 7.00 2 1074.0 56.5 40.35 7.00 4:u* 0 Y II P R O ECOft4IIC PARAETERSAND CONSTRAINTS ALL COSTSHILL DE DISCWIlTEDTO YEAR 1983 BASEYEAR FOR ESCALATI01iCALCULATI0H1 IS 1983 1984 INITIAL VALUES: 4XX) = IIOEX lIJIIERi ( 01 a NO IHQEXREAO AMgEOF ALTERIIATIVES LI61 LIG2 OIL1 GASI tlUC1 NUC2 HiUC3 HJC4 PROt AKU1 DISC0UIT RATEAPPLIED TO ALL DOMESTICCAPITAL COSTS - K/YR 10.0 DISCOUNTRATE APPLIED TO ALL FOREIGi CAPITALCOSTS - 7/YR 10.0 ESCALATIOIPATIOS FOR CAPITAL COSTS C 01 DO1ESTIC1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 FOREIGN 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 NAXTIUI MEER gf WI1TSUNIO CAll BE ( 01 50 50 50 50 50 50 50 50 50 50 tlHlDt§M IUER UllITS MICHR MUSTPE ADDEDI 03 0 0 0 0 a 0 0 0 0 0 Io'I D Y N P R OICONTO.I ECOtOtlIC PARMIETERSAtf CONSTRAINTS 1984 INIlTIAL VALUES: (XXI = INDEXIAIIBER; I 0) = NO INDEX READ FUEL TYPEs T N E R I A L HYDROELECTRIC ENERGY NKL LIGH COAL TOIL TGAS PROT AKtUH NOTSERVED DISCOUNTRATE APPLIED TO ALL DOtMESTICOPERATION COSTS - Z/YR 114) 10.0 DISCOUNTRATE APPLIED TO ALL FOREIGNOPERATION COSTS - Z/YR (15) 10.0 ESCAIATIONRATIOS fOR OPEPAT1116COSTS I 0) DOSTI 1.01 1.00 1.00 1.00 1.00 1.00 1.00 1.00 FORESTIC 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 IJLTIPLYTIII FACTO FS FUFtLCOSTS I 0) D1HESTIC 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 FOREI6N 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 COEFFICTEtISOc EllERGYHOT SERVEOCOST FiICTIO 1111 CFI CF2 CF3 1$Kilal) 0.0250 0.0 0.0 PEHALTYFACTOR OH FOREI6HEXPEIDITURE I 01 1.0000 L CRITICAL LOSSOF LOADPROBABILITY IN X 112) 100.0000 DEPRECIATIONOPTION 116 ; 1 SItIIG FUl) Fh o i CDv EXPECTEDCOST OF OPERATION FUEL COST DOHESTIC TYPE OF PLANTt IUKL LICN COAL TOIL T6AS PROT AKUH YEAR TOTAL COSTBY PLANTTYPE 11000$) 1984 167110 0 162292 4818 0 0 0 0 1985 173459 0 167260 6199 0 0 0 0 1986 181857 0 180498 1359 0 0 0 0 1987 196307 0 192791 3516 0 0 0 0 1985 210255 0 207X45 2410 0 0 0 0 1919 222054 0 217860 4194 0 0 0 0 1990 237279 0 234031 3248 0 0 a 0 1991 251723 0 249405 2518 0 0 0 0 1992 263;93 0 253646 347 0 0 0 0 1993 279329 0 273113 1716 0 0 0 0 1994 29373 0 293390 323 0 0 0 0 1995 310304 0 30a3;0 1964 0 0 0 0 1996 321592 0 321220 373 0 0 0 0 1997 334637 0 334012 625 0 0 0 0 1998 343094 0 345945 2149 0 0 0 0 1999 36e684 0 360219 465 0 0 0 0 2000 3749s8 0 374061 937 0 0 0 0 2001 3932f8 0 392859 409 0 0 0 0 2002 413063 0 411945 1117 0 0 0 0 2003 432426 0 431829 597 0 0 0 0 2004 453379 0 453321 2558 0 0 0 0 2005 474267 0 474267 0 0 0 0 0 TOTALS 6694480 0 6652639 41841 0 0 0 0 I"3i oiui in a EXPECTEDCOST OF OPERATION FUEL COST FOREI6t TYPEOF PLAtT a IlJiL LIEI COAL TOIL TGAS PROT M YEA TOTAL COSTBY PLAHTTYPE (1000$) 1984 12900 0 0 0 12900 0 0 0 1985 19552 0 0 0 19552 0 0 0 1986 2439 0 0 0 2439 0 0 0 1937 16905 0 0 0 1953 14952 0 0 1988 . 8169 0 0 0 1064 7105 0 0 1989 24273 0 0 0 1723 22550 0 0 1990 15578 0 0 0 1093 14485 0 0 1991 8779 a 0 0 435 8343 0 0 1992 1695 0 0 0 198 1497 0 0 1993 6777 0 0 0 594 6184 0 0 1994 1746 0 0 0 184 1562 0 0 1995 8108 0 0 0 386 7722 0 0 1995 i1Oi 0 0 a 46 1759 0 0 1997 4523 * 0 0 242 4281 0 0 1998 10712 0 0 0 233 10459 0 0 19S9 3029 0 0 0 52 2977 0 0 2000 6S99 0 0 0 195 6704 0 0 2001 3015 0 0 0 63 2952 0 0 2002 8207 0 0 0 356 7851 0 0 2003 5514 0 0 0 129 53°5 0 0 2004 10670 0 0 0 4405 6265 0 0 2005 8426 0 0 0 2714 5712 0 0 TOTALS 19719 0 0 0 50976 138742 0 0 IX. EXPECTEDCOST OF OPERATION OPERATIONA HADITElIACE At3 EIERGYHOT SERVED (ENS) boIiESTIC TYPEOF PLANT: NUL LIOt COAL TOIL T6AS PROT AKUiH ENS YEAR TOTAL. COSTBY PLAIT TYPE41000s) l984 100636 8 31069 1684 301 0 24678 36698 6205 1985 110227 0 31132 1701 446 0 26998 3669t 13251 1986 105225 0 37418 1643 72 0 29318 36698 1076 1987 106619 0 37571 1669 61 504 29318 36698 797 1988 111059 0 41224 1656 42 277 29318 38202 340 1989 112067 0 41347 1677 56 747 29318 33202 720 1990 114965 0 44794 1666 43 514 29318 38202 429 1M1 118036 0 4S234 1657 28 337 29318 38202 310 1992 124271 0 54929 1631 23 139 29318 38202 28 1993 124113 0 54298 1648 32 274 29318 38202 341 1994 130380 0 61014 1631 23 141 29318 38202 51 1995 129826 0 59951 1650 21 343 29318 30202 341 1996 136049 0 66646 1632 13 171 29318 38202 67 1997 136402 0 66794 1635 18 244 29318 38202 193 1993 136330 0 66934 1653 18 470 29318 33202 236 1999 143141 0 73643 1633 14 254 29318 35202 78 2000 143513 0 73103 1633 17 362 29318 38202 173 2001 15009S 0 80570 1632 14 253 29318 38202 105 2002 150680 0 80789 1640 20 395 29318 38202 316 2603 156606 6 86270 1634 15 323 29318 3S202 244 4n 2004 157006 0 864Z4 1658 693 349 29318 38202 302 2005 162076 a 91305 0 615 333 29318 38202 303 TOTALS 2860263 0 1318216 34668 2586 6429 638035 834429 25907 o ui a- EXPECTEDCOST OF OPERATION TOTALCOST DOIIESTICAIM FOREIGN TYPEOF PLANTs IIIEL LIGHi COAL TOIL TGAS PROT AKU1 ENS YEAR TOTAL COSTBY PLANTTYPE (100003 1984 280646 0 193361 6502 13201 0 24678 36698 6205 1985 303238 0 198391 7900 19999 0 26993 36698 13251 1986 290521 0 217915 3002 2511 0 29318 36698 1076 1987 319S30 0 230362 5185 2015 15455 29318 36693 797 19U8 329'82 0 249069 4065 1106 7382 29318 38202 340 1989 353393 0 259207 5871 17&0 23297 29318 38202 720 1990 367821 0 27=25 4913 1135 14999 29318 38202 429 1991 378787 0 297639 4175 464 8630 29318 38202 310 1992 359958 0 31'576 1978 221 1636 29313 38202 28 1993 410719 0 332411 3364 625 64'58 29318 38202 341 1994 425539 0 35440' 1954 207 1704 29318 38202 51 1995 448238 0 368291 3614 407 8064 29318 38202 341 1996 459446 0 387866 2004 60 1929 29318 38202 67 1997 475562 0 40e006 2260 259 4525 29318 38202 193 1998 495636 0 412879 3802 271 10929 29318 38202 236 1999 506854 0 433862 2098 66 3231 29318 38202 78 2000 525410 0 447865 2575 212 7066 29318 38202 173 2601 546377 0 473123 2041 76 3205 29318 38202 105 2002 571950 0 492735 2751 376 8246 29318 38202 316 2003 593946 0 513098 2231 145 5708 29318 38202 244 U, 2004 621055 0 537305 4216 5098 6614 29318 38202 302 Ln 2005 644769 0 567572 0 3330 6044 29318 38202 303 TOTALS 9744468 0 7970855 76509 53563 145171 638035 834429 25907 P0I OD01ESTICCOHSTRUCTION COSTS YEAR U PLANT1985 19£6 1987 1988 19S9 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Sun 1987 3 6ASI 6.2 13.5 ...... 19.7 1989 1 GASI . . 2.1 4.5 ...... 6.6 1992 1 LIG2 . . 1.6 6.7 15.2 15.7 5.1 ...... 44.3 1994 1 LIC2 . . . . 1.6 6.7 15.2 15.7 5.1 . . . . . 44.3 1995 1iGAS ...... 2.1 4.5 . . . . . 6.6 1996 1 L162 ...... 1.6 6.7 15.2 15.7 5.1 . . . . 44.3 1998 2 6AS1 ...... 4.1 9.0 . . 13.1 1999 1 L162 ...... 1.6 6.7 15.2 15.7 5.1 . 44.3 ENDTOTAL 6.2 3.7 16.8 21.9 22.3 11.8 31.4 24.1 13.5 11.2 22.5 22.5 21.8 20.9 21.9 Un 0a oN o U Fh DOHESTICCallSTRUCTIOH COSTS (CalTS. I YEAR A PLAiT 1996 1997 1998 19992000 2001 2002 2003 2004 SUN 2001 1 162 1.6 6.7 15.2 15.7 5.1 . . . . 44.3 2083 1 L162 . . 1.6 6.7 15.2 15.7 5.1 . . 44.3 2004 1 OILI . . . 1.6 6.7 15.0 15.6 5.0 . 44.0 2005 1 L162 . . . . 1.6 6.7 15.2 15.7 5.1 44.3 EW TOTAL 20.9 21.9 28.5 35.9 5.1 31.4 24.1 37.5 20.8 400.1 -n S. rI Aco FOREIGNCOIISTRLICTIOtI COSTS YEAR # PLAIIT1985 1936 1937 19881989 1990 1991 1992 1993 1994 1995-1996 1997 1998 1999 SUN 19873 "ASi 18.5 40.3 ...... 58.8 1989 1 6AS1 . . 6.2 13.4 ...... 19.6 1992 1 L162 . . 4.9 20.2 45.5 47.2 15.3 ...... 133.0 1994 1 LI62 . . . . 4.9 20.2 45.5 47.2 15.3 ...... 133.0 1995 1 6AS1 ...... 6.2 13.4 . . . . . 19.6 1996 1 L162 ...... 4.9 20.2 45.5 47.2 15.3 . . . . 133.0 1998 2 ASI ...... 12.3 26.9 . . 39.2 1999 1 L162 ...... 4.9 20.2 45.5 47.2 15.3 . 133.0 EtlD TOTAL 18.5 11.0 50.3 65.6 66.9 35.4 94.3 69.0 40.3 33.6 67.4 67.4 65.5 62.6 65.6 LA I*) 4 t I-c FOREIGNC04STRUCTION COSTS (CONTO.) YEAR I PLANT 1996 1997 1995 1999 2000 2001 2002 2003 2004 SUn 2001 1 L162 4.9 20.2 45.5 47.2 15.3 . . . . 133.0 2003 t LIG2 . . 4.9 20.2 45.5 47.2 15.3 . . 133.0 2004 1 DIL1 . . . 1.6 6.7 15.0 15.6 5.0 . 44.0 2005 1 L162 . . . . 4.9 20.2 45.5 47.2 15.3 133.0 ENDTOTAL 62.6 65.6 72.3 76.4 15.3 94.3 69.0 82.4 52.3 1112.1 Ln ko ID O D 0b DOIESTICIlT. OUDIBSCONSTR. YEAR * PLANT1985 1986 1907 1938 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 SU" 1987 36AS1 0.8 0.9 ...... 1.7 1989 1 GAS1 . . 0.3 0.3 ...... 0.6 1992 1 L162 . . 1.0 2.6 4.0 2.6 0.3 ...... 10.5 1994 1 L162 . . . . 1.0 2.6 4.0 2.6 0.3 ...... 10.5 1995 1SASI ...... 0.3 0.3 . . . . . 0.6 1996 1 1162 ...... 1.0 2.6 4.0 2.6 0.3 . . . . 10.5 1998 2 6ASI ...... 0.6 0.6 1.2 1999 1 162 ...... 1.0 2.6 4.0 2.6 0.3 10.5 EII TOTAL 0.8 1.2 5.0 5.3 4.6 2.9 5.8 6.2 0.9 2.9 5.2 5.2 3.9 -5.5 5.3 IOD DOMESTICIHT. DURII16C0IsTR. ICOIITD.I YEUR PLJJIT1996 1997 1995 1999 2000 2001 2002 2003 2004 Stm 2001 1 LIG2 1.0 2.6 4.0 2.6 0.3 . . . 10.5 2003 1 LIGZ . . 1.0 2.6 4.0 2.6 0.3 . . 10.5 2004 1 OILI . . . 1.0 2.6 4.0 2.6 0.3 . 10.5 2005 1 L162 . . . . 1.6 2.6 4.0 2.6 0.3 10.5 EtH TOTAL 5.5 5.3 7.9 7.0 0.3 5.8 6.2 9.2 3.0 88.3 l Sb.- FOREIGNINT. DURliGCOtISIR. YEAR S PLtIT 1985 1956 19871908 19S3 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 S 19a7 3 SAS1 2.5 2.7 . . 5.2 1909 1 GASI . . 0.8 0.9 ...... 1.7 1992 1 L162 . . 2.9 7.7 12.1 7.9 1.0 ...... 31.6 1994 1 L`62 . . . . 2.9 7.7 12.1 7.9 1.0 ...... 31.6 1995 1 6ASI ...... 0.8 0.9 . . . . . 1.7 1996 1 L162 ...... 2.9 7.7 12.1 7.9 1.0 . . . . 31.6 1998 2 6AS1 ...... 1.7 1.8 . . 3.4 1999 1 L162 ...... 2.9 7.7 12.1 7.9 1.0 . 31.6 EIHDTTAL 2.5 3.7 15.0 16.0 13.9 8.7 17.4 16.6 2.7 8.6 15.6 15.6 11.7 16.6 16.0 oo i O .n Fh FOREIGIIINT. DURIIUCOIISTR. (COUTO.) YEAR PLANT1996 1997 1998 19)9 2000 2001 2002 2003 2004 st5i 2001 1 LI62 2.9 7.7 12.1 7.9 1.0 , . . . 31.6 2003 1 L162 . . 2.9 7.7 12.1 7.9 1.0 . . 31.6 2004 1 OIL . . . 1.0 2.6 4.0 2.6 0.3 . 10.5 2Q05 1 L162 . . . . 2.9 7.7 12.1 7.9 1.0 31.6 ENDTOTAL 16.6 16.0 18.5 15.7 1.0 17.4 16.6 19.6 8.2 243.9 CO o uj lh I-h OD0iESTICCOtSTRUCTICH & IDC YEAR I PLAHT1985 1986 1987 1938 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 SUN 1987 3 GASI 7.0 14.4 ...... 21.4 1989 1 GASI . . 2.3 4.8 ...... 7.1 1992 1 LIG2 . . 2.6 9.3 19.2 18.4 5.4 ...... 54.9 1994 1 L162 . . 2..6 9.3 19.2 18.4 5.4 ...... 54.9 1995 1 6AS1 ...... 2.3 4.8 . . . . . 7.1 1996 1 L162 ...... 2.6 9.3 19.2 18.4 5.4 . . . . 54.9 1998 2 GASI ...... 4.7 9.6 . . 14.3 1999 1 L162 ...... 2.6 9.3 19.2 18.4 5.4 . 54.9 EI0TOTAL 7.0 4.9 21.8 27.2 26.9 14.7 37.3 30.2 14.4 14.1 27.7 27.7 25.7 26.4 27.2 00. Co% o @ Mi DOBIESTICCOISTRUCTION A lDC I COtITD. YEAR U PLANT1996 1997 1998 1999 2000 2001 2002 2003 2004 SUH 2001 1 162 2.6 9.3 19.2 18.4 5.4 . . . . 54.9 2003 1 L162 . . 2.6 9.3 19.2 18. 5.4 . . 54.9 2004 1 OIL . . . 2.6 9.2 19.0 18.2 5.4 . 54.4 2005 1 L162 . . . . 2.6 9.3 19.2 18.4 5.4 54.9 ENDTOTAL 26.4 27.2 36.4 42.8 5.4 37.3 30.2 46.7 23.7 488.3 OQ 00 ILa o tn I., FOREIGNCO1SIRtXTIOIf A IoC YEAR a PLANT1985 1986 1987 198 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 SU" 1987 3 6ASI 20.9 43.0 ...... 63.9 1939 1 6ASI . . 7.0 14.3 ...... 21.3 1992 1 L162 . . 7.7 27.9 57.6 55.1 16.3 ...... 164.6 1994 1 L162 . . . . 7.7 27.9 57.6 55.1 16.3 ...... 164.6 1995 1 GASI ...... 7.0 14.3 . . . . . 21.3 1996 1 L162 ...... 7.7 27.9 57.6 55.1 16.3 . . . . 164.6 1998 2 GASI ...... , . . 14.0 28.7 . . 42.6 1999 1 L162 ...... 7.7 27.9 57.6 55.1 16.3 . 164.6 ENDTOTAL 20.9 14.7 65.3 81.6 80.8 44.2 111.7 85.6 43.0 42.2 83.0 83.0 77.2 79.3 81.6 as Ftb FORE16IICOtlSTRUCTION *AIOC COHTO.3 YEM a PLANT1996 1997 1998 1999 2000 2001 2002 2003 2004 SU" 2001 1 L162 7.7 27.9 57.6 55.1 16.3 . . . 164.6 2003 1 L162 . . 7.7 27.9 57.6 55.1 16.3 . . 164.6 2004 1 IL1 . . . 2.6 9.2 19.0 18.2 5.4 . 54.4 2005 1 L162 . . . . 7.7 27.9 57.6 55.1 16.3 164.6 E11 TOTAL 79.3 81.6 90.8 92.1 16.3 111.7 85.6 102.1 60.5 1356.0 a' -J o u F0C) 0 CAPITALCASH FLOCSUMHARY FUEt CONSTRUCTION IoC YEAR OOH. FOR. TOTAL DCO. FOR. TOTAL DON. FOR. TOTAL SR. TOT. 1984 *.0 0.0 0.0 0.0 6.0 0.0 0.0 0.0 0.3 0.0 1985 0.0 0.0 0.0 6.2 18.5 24.6 0.8 2.5 3.3 28.0 1986 0.0 0.0 0.0 13.5 40.3 53.8 0.9 2.7 3.6 57.4 1987 0.0 0.0 0.0 3.7 11.0 14.7 1.2 3.7 5.0 19.6 1988 0.0 0.0 0.0 11.2 33.6 44.8 2.9 8.6 11.5 56.3 1989 0.0 0.0 0.0 16.8 50.3 67.1 5.0 15.0 20.0 $7.1 1998 0.0 0.0 0.0 22.5 67.4 89.8 5.2 15.6 20.9 110.7 1991 0.0 0.0 0.0 21.9 65.6 87.5 5.3 16.0 21.3 108.8 1992 0.0 0.0 0.0 22.5 67.4 89.8 5.2 15.6 20.9 110.7 1993 0.0 0.0 0.0 22.3 66.9 89.2 4.6 13.9 18.6 107.8 1994 0.0 0.0 0.0 21.8 65.5 87.4 3.9 11.7 15.6 102.9 1995 0.0 0.0 0.0 11.8 35.4 47.3 2.9 8.7 11.7 58.9 1996 0.0 0.0 0.0 20.9 62.6 83.5 5.5 16.6 22.2 105.7 1997 0.6 0.0 0.0 31.4 94.3 125.7 5.8 17.4 23.2 149.0 1998 0.0 6.0 6.0 21.9 65.6 87.5 5.3 16.0 21.3 1M8.8 1999 0.0 0.0 0.0 24.1 69.0 93.1 6.2 16.6 22.8 115.8 2000 0.0 0.0 0.0 28.5 72.3 100.8 7.9 18.5 26.4 127.2 2001 0.0 6.0 0.0 37.5 82.4 119.9 9.2 19.6 28.9 148.8 2002 0.* 0.0 0.0 35.9 76.4 112.2 7.0 15.7 22.7 134.9 2003 0.0 0.0 0.0 20.8 52.3 73.0 3.0 *8.2 11.2 84.2 2004 0.0 0.4 0.0 5.1 15.3 20.3 0.3 1.0 1.3 21.7 0.0 0.0 0.0 400.1 1112.1 1512.2 88.3 243.9 332.2 1844.3 °° oamM ANNEX8.6 -369 - Page 1 of 2 Revised Inwst in Pw and COwlSub9tor by Rqublic aid Prmd=" (In iiilim of 1960DinM) Diqatch Distri- Coxti- Total Raublis/ProViUes Gemti'm MNi Trmmnsua Ceiters butin Other mitet 1981-1935 Bosia 6 Herzravina 9,769 * 5,211 1,146 9,689 613 9,762 36,190 1,rtmo 2,312 - 1,438 450 2,800 1,040 4,60 12,690 Ciratia 9,364 776 5,540 1,277 13,016 7,311 5,057 42,341 Maeonia 3,066 1,312 1,688 1,151 7,000 364 7,064 21,645 Slovenia 8,902 10,264 2,533 1,194 1,210 3,398 6,419 33,92D Sabia-W per 23,136 7,369 3,300 1,417 15,927 5,876 19,222 76,244 Vojyodim 6,266 - 1,773 84 5,786 1,588 19,111 35,348 KboA 4,311 12,650 1,775 878 1,725 2,210 960 24,509 Yugoslavia (it:l. joirt imeaft) 67,126 32,371 23,258 8,337 57,150 22,400 72,245 282,887 Joint Im it 4,714 4,714 Yugoslavia Net 62,412 32,371 23,258 8,337 57,150 22,400 72,245 278,173 Include in gmeetio. ANNEX8.6 -370- Page 2 of 2 RevisedPlan Total Installed Investment Republics/ Capacity (In Millions Provinces Type (MW) 1980Dinars) A. From the Plan 1976-1980 HE Bocac B and H R 110 1976 1981 2,665 HE Salakovac B and H R 210 1977 1982 4,449 HE Grabovica B and H R 113 1977 1982 2,506 HE Tikves Macedonia S 47 1977 1981 127 HE Bajinabasta Serbia PS 594 1975 1982 5,298 HE Gazivode Kosovo S 35 1973 1981 - HE TrebinjeII B and H R 7 1975 1981 145 TE Gacko(incl. mine) B and H Coal 300 1977 1983 9,294 TE BitolaI and II Macedonia Coal 420 1977/80 1982/84 5,675 TE KosovoBI and BII Kosovo Coal 678 1977 1983/84 15,925 TE-TONovi Sad I Vojvodina Liquified 135 1976 1981 2,204 Fuel NE krsko Croatia& Uranium 664 1974 1981 20,806 Slovenia TE Ugljevik(incl. mine) B and H Coal 300 1977 1984 9,404 TE Pljevlja Montenegro Coal 210 1977 1982 3,553 TE N. TeslaBI Serbia Coal 614 1978 1983 12,358 TE-TOLjubljana Slovenia Coal 50 1978 1983 2,094 TE-TONovi Sad II Vojvodina Liquified 100 1981 1984 1,420 Fuel and Gas TE-TOOsijek Croatia Liquified 45 1980 1983 1,244 Fuel TOTAL 4,632 99,167 New Capacities HE Golubici Croatia R 7 1979 1981 345 HE Cakovec Croatia R 82 1977 1982 3,832 HE Otilovici Montenegro S 4 1980 1983 150 HE Obrovac Croatia PS 276 1977 1983 150 HE Solkan Slovenia R 31 1977 1983 4,337 HE Mavcic Slovenia R 38 1979 1984 1,684 HE DjerdapII Serbia R 216 1977 1984/85 6,891 TE N. TeslaBII Serbia Coal 614 1978 1985 7,808 TOTAL 1,268 25,197 Sources of Financingfor Powerani Coal Revised Plan (In Million Dinars) Self Fin. CoDrumers Local Banks Foreign Credits Other Total Republic/Prosiiwe Total Z Total X Total i Total Z Total X Total X Bosniaard Hbrzegovina 10,135 28 10,404 29 5,000 14 4,451 12 6,200 17 36,190 100 Mbntenegro 3,672 29 2,340 18 660 5 1,580 12 4,438 36 12,690 100 Croatia 13,988 33 26,233 62 - - 1,122 3 998 2 42,341 100 M?cedonia 2,224 10 6,324 29 6,149 29 3,471 16 3,477 16 21,645 100 Slouenia 8,920 26 23,512 70 802 2 686 2 - - 33,920 100 Serbia 19,082 25 37,785 50 3,185 4 11,000 14 5,192 7 76,244 100 Kosouo 2,884 12 2,038 8 4,207 17 4,951 20 10,429 43 24,509 100 Vojvodina 1,500 4 13,150 37 6,600 19 1,3D0 4 12,798 36 35,348 100 Yugoslavia 62,405 22 121,786 47 26,603 11 28,561 11 38,818 9 278,173 100 ; . - <~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~- - 372 - ANNEX9.1 rh.- Pl..t Effi.j.-y~ ~ ~ ~ ~ ~ ~ ~ ~ ~ on foo / Pave Co.ew..ction Cn.to. lprcoo Cnrt Ga-raioo Fl flod tffioiady Ifticianay S-naga P"on L t-o oo M46 CJ/kWh, Xral/bk, hr. r wA/roa '000 to/y. 000 tr/y..r 2 000 too '000tn Tool-I RO..nia-It.ra.go-io 5.-. Coal L128.0 14.241 3,411 6,070 1I" 15.0 61.0 20.0 66.0 14. toals-2 Boonia-lterongonip. IromnS,Coal 1a28.0 14,281 3,411 6,303 120 10.0 40.1 230 30.3 9.6 tools-i loeois-We~~~~Rongnn Bro- Cool 1o81.0 12,66 3.025 0,919 50 0. 159 I841. 21. 4,967 904 76.2 240.4 ?o...4Oooirta..ttnoiao a-me C0.l 1.182.0 11,393 2.769 31.3 219.4 26.0 tol-IBo.s. 0ramota Oa Coal 1.100.0 11,393 2,766 5,002 1,006 84.0 272.1 31.1 242.7 30.4 Bodo-lSaie-H..r.agonios Bro- Go.L 106.3 14,900 2,160 6,230 165 13.1 17.0 24.1 42.2 05.3 ZZkaaj2 B..aio-Ror...go-io loom CoaL 1026.0 14,005 2,0560 6,283 166 16.0 07.9 24.1 42.4 10.5 bokaj-3 .. ania-Mor....6ia Bro- C0.1 1o26.3 14.905 2,560 0,040 13 10.3 46.8 24.1 34.2 12.6 Koa.. Oooe8.oorin Bo Coal 1x26.5 14,9000 2,360 6,270 166 141.0 07.9 24.1 42.4 13.5 to4aa-34 OoaaIoagoioa.. Br-. Coal 1*90.0 12.311 2,9S0 4,231 061 41.3 160.0 29.2 143.3 18.7 bakao j- BOoanis-ltr.oio Sr- Coal 1*90.0 12.201 2,900 6,040 601 04'.0 198.3 29.1 166.L 20.2 PLoaje Cr...ti. 8ard6-CoaL 1.62.0 11,108 7,011 2,177 2102 17.1 57.3 29.7 01. 3.5 fo.L-mj Maood-oio Lignite 1o107 12,201 3,160 4,843 S16 4:1.7 160.7 27.2 124.9 30.0 Loblja.-l Olo....i. LiS.tit loU9 11.723 2,000 4,711 137 IL.3 40.3 28.0 34.0 3.3 Loblja.-.2 S ...v.tio Lia.ito loll 11.723 2,000 4,169 126 L(1. 36.5 08.5 31.5 0.0 8Wikola tools-i Sorbie Lignite 1*191 11,304 2,700 0,620 1.005 940.6 204.3 31.8 208.3 26.0 64o1IT*..- BarSbie Ligoits I.Ll 11,304 2,790 6,670 1.273 107. 0337.3 31.8 306.60. 804*15L tel-i OS-bio Lig.itio 1bib 11.49 2,030 6,664 1,033 154.3 008.6 30.4 441.7 66.0 loSi tol- oboLigaita 1*280 11,049 2,030 4,416 1,236 1016.2 342.9 00.4 297.8 45.1 ikol. tal-0 Seebio Ligait [alt0 11,049 2,030 6,943 1,044 L16.9 129.4 30.6 4653S0. Tio.:To-6 Sebia Lignite 1.280 11.049 2,030 7,171 2,036 171.7 064.9 30.4 400.6 74.93 CoLobor-1 Sorbia Lifoite loll 13,629 3,733 4.983 144 12.1 52.7 22.9 36.7 16.0 t.oloer- S-rbi Lisoit. 1.292 10,629 2,733 4,983 144 12.1 02.7 22.9 36.7 16. Kooao3 oris Lignie 1o 9 13,629 2,733 4.983 164 12.1 00.7 22. 36. 18. 1o1o6.ro-4 SebaLignita L.58 15.629 2.723 4,983 289 24.4 105.0 0'3.1 73. 311.9 .boloor-0 Sarbi. Ligaito 10100 16.306 2,010 6,600 .460 5161 163.6 34.3 160.3 3.3 Noo.. S-rbi. Lignita 1*113 12,024 3.063 6.389 723 60.9 226.8 20.1 174.0 42.8 K.ocola-L lorbia Ligitro I." 13,493 3.223 3,399 306 20.7 06. 26.6 77. 18.3 too-oLe-2 S-hdb Lignite L.191 11,028 2,820 2.042 1.116 94.1 309.1 30.4 268.0 60.6 Rogor- K..... Lignite 1.50 14,235 2,400 3.949 306 19.3 70.3 23.3 538.5 17.8 K.eon-2 Oa.oLiginc L.113 12.979 2.100 3,010 341 187 103.6 27.7 82021.6 Roe..-3 K.or Ltgaita 1*182 12,627 3,016 3,007 636 73: 1i.s2.8.6 153.6 350. boao.o-4 1000vo . ~~~~~~~~Lignitn1*1a2 12,627 3.016 4.387 630 7~0.4 2469 8. 20.0 40.9 koaans-1 boaooo ~~~~~~~~~Lignita1.182 12.02? 3,016 3.702 674 168 99.3 28.5 163.3 337.0 Sotor1 l-aia Lignita Wo7 13.390 3,200 3.09" 100 0.9 22.9 27.1 26.90. OtS.. 2 l tisLgna 1027 13.390 3.200 4,300 116 9836.4 26. 29.66. Oota- loroio Lignit lo8 13,398 3,200 4,0k62 7 3.2 86.2 26.70310 Onetaaj-4BIo.aoie ~~~~~~~Lignite1.333 10,806 2.600 3,964 1,304 126.8 203.4 33.1 363.6: 20. kootonrO Blooie Lignite 19.20 10.686 2.600 6,24 1,803 132.4 460.6 33.1 43. 25. irborIja LIgnlto talkS 13,200 3.138 3.469 303 42.4 130.8 Z 2.218 278 titol. Linilto 1.189 14,900 3,364 359 fie 27.9 24.0 34.1 17.01 6.5 Zogreb/32 Croo..n. Oil 3z9 10,300 2,464 3,026 231 18.6 70.3 36 56.3 132 06ra Cr-on. oil 16 9,300 2.225 3.360 34 2.9 10.7 27 6.7 2.0 Zagnob cotois oil 270 R,0 1.938 2,007 19 3.0 18.3 27 15.1 3.04 C..rb Croatin oil IIO 11,100 2.600 1.304 143 13.3 66.2 276 36.4 9.9 Blea-I Croaia oiM0 10,200 2.440 41,477 640 7To 273.7 26 214.8 579 flask-iCrootin Oil 108 10.~~~ ~ ~~~~~~3,640 ~~~~~~200 2.379 463 408 16926 123.6 33.3 lioa Cr-tia Oi1 303 9,800 2,366 2.772 840 79.3 230.4: 31 214.5 13.9 Neastion Kondania oil 190 11,300 2.701 173 34 2.9 9.3 31 8.7 0.6 tna..n 0." Voyo-dioa oil so 15.706 3,277 4,460 333 18.8 72.3 26 06.9 154 a,. n.ynoo23 9.3 2.1 04huck-I Croo.tia G.. 23 14.200 3,297 1.602 37 3.1 12.4 25 3.8 4.2 oeijeb-z Crotia s 23 14,200 3,39? 1,063 26 2.0 8.0 20 - - Saarl Coo-ois lo 13 17.300 4,115 - 0- 1Jnto,--01 CroatIa G.. it 17,200 4.115 1.389 13 -1.3 6.3 20 0.4 . Jtmo3 Crotois G.# it 17.200 4.115 449 5 0.4 2.1 201.0. Jtoc4* C,ooIIe 31 14,100 3,23 1,0 21 4.3 17.2 23 13.0 4. Jnto.oo-3 Croa~tiatL Ga 31 14,100 3,373 a0 00 1.7 6.8 251 0.1 1I Sreaasniaa-1Olotonia Gsa ~~~~~~~~2n10.5)1930 46171 3861 24 0.) .0 191 6.1 1.9 Brost1:.alo21 Il=eis 3n2t1 13.'3'00 2,:18201 270 Irb-nIja OIor-i. Ga. 2039.3 13,100 3,134 .- - - 27- - Navi 054 fljeineCn 2 1,0 2,560 0,221 637 5337 162.2 33 160.7- Oer lR=bia a 329 18406 4.6402 60 5. 0.4 2. 19 1.3 0.9 Iraso Oloyanis) Oroo~~~~~~Ut.ium630 tO10700 2,060 3,718 2.300 198 600 32 0 - Croatisf- 1 il st.. 0 h.I 3 Z1 30ofoatysamdfrln,nte1000co100 NW1no 23 E.,lo.yaeosoit-- etnee Ie than 100 98. 1X-z^>,C . 1j- 2rb ~~~~~~~~~~~~~~~~~~~~~FEDRE'OF~0 {EHSO t FBUARY 1983 A U S T R I A FRANCE_,PGERPAANY,0zrv\U R |~~~~ ~ ~~~~~U N G A R Y 72 r' .. , . 6. / _ I' BELGRADEy < )~~~~~~ .~~~~~~~~~~~~~~~~ N 0< ML>A I A Y~~~~~~~~~U S 0 x\N A !MoS ~E/ - ; C~~~~~ ~~~oe2ilLgHHdooe R>-Z E G V f A/ A ior s S Repubilc andProvinciolcaptois % -> < ,/ 6 7 'a 2 2 5 . FD O / Mlles~~~~~~ ~~~ ~~~ ~~~~~~~~~ \/ Pristina10 r aHydrot;powerb ThoWNtebnk6tiaeXluvtrhs e TitOra . FJs)o RNPNTh bl aenotNstdPoicalt capitolb~shbtNhFt onlI- (J)m Nton arlb c.hrd hohtNakapiIFanNNlbl n/dmn Rep.blicFa boarrrounda^rienatrsa 0 \ ~ /r SkopjenesU' t - ~~ITtA L Y o 2 CO CO H ~~~~HH~~~H ~~m N~~~~N 0~~~~C Iii ~~~~~~~~WJ~~~~W'~~~~~~C) >O z~~~~~, ~rCl .... 0 ... .. O 0~~~~~~~~~~~~~~~~ .. .. . -~~~~~ o 0 0 ~~~~~~~~~~~~~~~~~~~~'P o Co- O P~~~~~~~~~JQ>~...... N~~~...... 9. 000 ~~~~~~~~~~~~~~~~~~~~~~~~~ N 0 pp~~~~~~~~~~ ~~~~N N~~~~~~