ENERGY AND WATER SERVICES REGULATORY COMMISSION OF THE REPUBLIC OF NORTH MACEDONIA

ANNUAL REPORT

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2019 Energy and Water Services Regulatory Commission of the Republic of North Macedonia (ERC) Annual Report

Annual Report on operations of the Energy and Water Services Regulatory Commission for 2019, prepared in accordance with Article 36 of the Law on Energy* (“Official Gazette of the Republic of Macedonia” no. 96 / 2018, and “Official Gazette of the Republic of North Macedonia” no. 96 / 2019), submitted to the Assembly of the Republic of North Macedonia, on April 30th, 2020.

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Terms of use

Data published in the 2019 Annual Report are acquired by the MM-Central Information System for monitoring energy markets functioning, as well from other reports submitted to the Energy and Water Services Regulatory Commission of the Republic of North Macedonia. Data presented in this Report may be freely used by any interested party with full citation: Annual Report on operations of the Energy and Water Services Regulatory Commission of the Republic of North Macedonia for 2019

© ERC 2020

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C O N T E N T

RESUME 13

I. INSTITUTIONAL DEVELOPMENT 17

1.1 ORGANIZATION 17 1.2 ORGANOGRAM OF THE ENERGY REGULATORY COMMISSION 19 1.3 HUMAN RESOURCES 20 1.4 IT-RESOURCES 20 1.5 QUALITY SYSTEM MANAGEMENT 22

II. ELECTRICITY 26

2.1 BALANCE OF ELECTRICITY DEMAND AND SUPPLY 26 2.2 ELECTRICITY PRODUCTION 28 2.3 RENEWABLE ENERGY SOURCES 31 2.3.1 MEASURES TO SUPPORT RENEWABLE ENERGY SOURCES 32 2.3.1.1 PREFERENTIAL TARIFF 32 2.3.1.2 PREMIUM 42 2.4 ELECTRICITY CONSUMPTION 43 2.5 ELECTRICITY IMPORT AND EXPORT 43 2.6 GRID SERVICES 44 2.6.1 CERTIFICATION OF THE ELECTRICITY TRANSMISSION SYSTEM OPERATOR 45 2.6.2 ELECTRICITY DISTRIBUTION 46 2.6.3 ELECTRICITY TRANSMISSION SYSTEM 46 2.6.3.1 DEVELOPMENT AND INVESTMENT PLAN 47 2.6.3.2 ELECTRICITY TRANSMISSION SYSTEM LOSSES 48 2.6.4 ELECTRICITY DISTRIBUTION SYSTEM 49 2.6.4.1 DEVELOPMENT AND INVESTMENT PLAN 51 2.6.4.2 ELECTRICITY DISTRIBUTION SYSTEM LOSSES 52 2.6.4.3 CHANGE OF CONNECTIONS CATEGORY 54 2.6.5 QUALITY OF ELECTRICITY SUPPLY 55 2.6.6 NETWORK SERVICE CHARGES 57 2.7 ELECTRICITY MARKET 59 2.7.1 ELECTRICITY MARKET OPERATOR 60 2.7.2 WHOLESALE MARKET 61 2.7.2.1 MARKET ON BILATERAL AGREEMENT 61 2.7.2.2 DOMESTIC PRODUCERS 62 2.7.2.3 TRADERS AND SUPPLIERS 63

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2.7.2.4 BALANCE ENERGY MARKET 65 2.7.2.5 ORGANIZED ELECTRICITY MARKET 67 2.7.3 ELECTRICITY CONSUMPTION STRUCTURE 67 2.7.4 RETAIL MARKET 69 2.7.4.1 LIBERALIZED MARKET 70 SWITCHING SUPPLIER 70 SUPPLY OF END CONSUMERS 71 SMALL CONSUMERS SUPPLY 73 PRICE COMPARISON TOOL SWITCH.MK 74 2.7.4.2 REGULATED MARKET 75

III. NATURAL GAS 81

3.1 NETWORK SERVICES 82 3.1.1 NATURAL GAS TRANSMISSION SYSTEM 82 3.1.1.1 DEVELOPMENT AND INVESTMENT PLANS 86 3.1.1.2 NATURAL GAS TRANSMISSION TARIFF 87 3.1.2 NATURAL GAS DISTRUBUTION SYSTEMS 88 3.1.2.1 DISTRIBUTION SYSTEM DEVELOPMENT PLANS 90 3.1.2.2 NATURAL GAS DISTRIBUTION TARIFF 91 3.2 WHOLESALE MARKET 92 3.2.1 AVERAGE MONTHLY SALE PRICES IN 2019 94 3.3 RETAIL MARKET 95 3.3.1 AVERAGE MONTHLY SALE PRICES IN 2019 95

IV. DISTRICT HEATING 99

4.1 DISTRICT HEATING PRODUCTION 101 4.2 DISTRICT HEATING DISTRIBUTION 103 4.3 DISTRICT HEATING SUPPLY 105 4.3.1 DISTRICT HEATING PRICES 108 4.4 DEVELOPMENT AND INVESTMENT PLANS 109 4.4.1 DISTRICT HEATING PRODUCTION BE DOOEL SKOPJE 110 4.4.2 DISTRICT HEATING DISTRIBUTION BE DOOEL SKOPJE 110 4.4.3 DISTRICT HEATING SUPPLY BE DOOEL SKOPJE 110 4.4.4 AD ESM SKOPJE, PODRUZNICA ENERGETIKA 111 4.4.5 SKOPJE SEVER AD SKOPJE 111

V. OIL DERIVATIVES 113

5.1 OIL SECTOR GENERAL DATA 113 5.1.1 CRUDE OIL PROCESSING AND OIL DERIVATIVES PRODUCTION 114 5.1.2 TANSPORTATION OF CRUDE OIL THROUGH OIL PIPELINE 114 5.1.3 BIOFUELS PRODUCTION 115

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5.1.4 RETAIL NETWORK 115 5.1.5 STORAGE CAPACITIES 115 5.2 OIL AND OIL DERIVATIVES MARKET STATUS 115 5.2.1 MARKET PARTICIPANTS 116 5.2.2 PRODUCTION, PURCHASE AND SALE OF OIL DERIVATIVES 118 5.3 APPROVED PRICES ON CERTAIN OIL DERIVATIVES 126

VI. MARKET CONCENTRATION 136

VII. WATER SERVICES 138

7.1 WATER SERVICES GENERAL DATA 138 7.2 SUPPLY WITH RAW WATER ENVISAGED FOR WATER SUPPLYING OF THE POPULATION 139 7.2.1 GENERAL DATA 139 7.2.2 RAW WATER SUPPLY TARIFFS 139 7.3 SUPPLY WITH DRINKING / POTABLE WATER OR WATER SUPPLYING 141 7.3.1 GENERAL DATA 141 7.3.2 NON - REVENUE WATER IN 2019 141 7.3.3 TARIFFS FOR DRINKING WATER SUPPLY OR WATER SUPPLY TO AREAS WITH OVER 10.000 (EQUIVALENT) RESIDENTS 142 7.3.4 TARIFFS FOR DRINKING WATER SUPPLY OR WATER SUPPLY IN AREAS WITH LESS THAN 10.000 (EQUIVALENT) RESIDENTS 147 7.4 COLLECTION AND DISCHARGE (DISPOSAL) OF URBAN WASTEWATERS 151 7.4.1 GENERAL DATA 151 7.4.2 TARIFFS FOR COLLECTION AND DISCHARGE (DISPOSAL) OF URBAN WASTEWATERS IN AREAS WITH OVER 10.000 (EQUIVALENT) RESIDENTS 151 7.4.3 TARIFFS FOR COLLECTION AND DISCHARGE (DISPOSAL) OF URBAN WASTEWATERS IN AREAS WITH LESS THAN 10.000 (EQUIVALENT) RESIDENTS 155 7.5 WASTEWATERS PURIFICATION (WASTEWATER TREATMENT) 159 7.5.1 GENERAL DATA 159 7.5.2 TARIFFS FOR WASTEWATERS PURIFICATION (WASTEWATER TREATMENT) IN AREAS WITH OVER 10.000 (EQUIVALENT) RESIDENTS 159 7.5.3 TARIFFS FOR WASTEWATERS PURIFICATION (WASTEWATER TREATMENT) IN AREAS WITH LESS THAN 10.000 (EQUIVALENT) RESIDENTS 162

VIII. LEGAL AFFAIRS 165

8.1 LEGAL ACTS 165 8.1.1 GENERAL ACTS 166 8.1.2 ACTS IN THE FIELD OF ELECTRICITY 167 8.1.3 ACTS IN THE FIELD OF NATURAL GAS 170 8.1.4 ACTS IN THE FIELD OF DISTRICT HEATING 171 8.1.5 ACTS IN THE FIELD OF OIL DERIVATIVES 172

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8.2 LICENSES 173 8.2.1 LICENSES IN THE FIELD OF ELECTRICITY 173 8.2.2 LICENSES IN THE FIELD OF NATURAL GAS 174 8.2.3 LICENSES IN THE FIELD OF DISTRICT HEATING 174 8.2.4 LICENSES IN THE FIELD OF OIL DERIVATIVES 175 8.3 PROTECTION OF CONSUMERS 176 8.3.1 COMPLAINTS TO DISTRICT HEATING SUPPLIERS 176 8.3.2 COMPLAINTS TO ELECTRICITY SUPPLIERS 177 8.3.3 CONNECTION TO AND DISCONNECTION FROM THE ELECTRICITY DISTRIBUTION SYSTEM 179 8.3.4 DISPUTES AND COMPLAINTS 180 8.3.5 APPLICATIONS (COMPLAINTS) 181 8.3.6 CONSUMER’S REMINDER 181 8.4 COURT PROCEDURES 182 8.4.1 ADMINISTRATIVE DISPUTES 182 8.4.2 OTHER COURT PROCEDURES 182 8.5 INFORMATION OF PUBLIC INTEREST 183 8.6 IMPLEMENTATION OF THE LAW ON WISTLEBLOWERS PROTECTION 184

IX. INTERNATIONAL ACTIVITIES 186

9.1 ENERGY COMMUNITY REGULATORY BOARD (ECRB) 187 9.2 COUNCIL OF THE EUROPEAN ENERGY REGULATORS (CEER) 190 9.3 ENERGY REGULATORS REGIONAL ASSOCIATION (ERRA) 190 9.4 EUROPEAN WATER REGULATORS (WAREG) 193 9.5 EUROPEAN INTEGRATION 194 9.6 BALKAN ADVISORY FORUM (BAF) 195 9.7 IMPLEMENTATION OF PROJECTS AND PARTICIPATION IN OTHER EVENTS 195

X. FINANCIAL OPERATIONS (ACTIVITIES) 199

10.1 FINANCIAL RESULTS FROM THE ENERGY REGULATORY COMMISSION OPERATIONS (ACTIVITIES) 199 10.1.1 REVENUES 199 10.1.2 EXPENDITURES 201

XI. ACTIVITI E S I N 2 0 2 0 205

XII. APPENDIXES 208

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Glossary of Macedonian legal (business) entities’ acronyms:

AD – Joint Stock Company DOOEL – Limited Liability Company (Sole Proprietorship) DOO- Limited Liability Company JPV- Public Water Enterprise JP – Public Enterprise JPHS – Hydro System Public Enterprise JKP – Public Municipal Enterprise KJP – Municipal Public Enterprise MJP – Intermunicipal Public Enterprise JKPD – Public Enterprise of Municipal Activities OJP – Municipal Public Enterprise DU – Service Company DKU- Municipal Service Company

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F ORE WORD

Distinguished,

The Annual Report of the Energy and Water Services Regulatory Commission of the Republic of North Macedonia for 2019, is further disclosed to your attention. The Report, in detail and according to sectors, elaborates all activities undertaken in 2019 by the Commission in regard to electricity and district heating, natural gas, oil derivatives and water services, and information on procedures providing protection to consumers.

In the course of 2019, the Energy and Water Services Regulatory Commission has held 170 main sessions, and in addition, public hearings were organized including public experts in adopting best solutions to secure safe and stable delivery of energy, fuels, and water supply to consumers. The Commission has adopted over 30 by-laws stipulating the implementation of obligations in accordance with the Third Energy Package on the Internal Energy Market of the European Union and were adopted by the Energy Community.

In the past year, the price on electricity for households remained stable, due to the profitable operations by the companies, and due to the efficient maintenance and investment in the Energy System. The implementation of the Electricity Universal Supplier has proven to represent a successful model for providing the best price for small consumers and households, and simultaneously, the liberalization of the Electricity Market has contributed to lower expenses amounting to 30 % for specific consumers. Households have recorded reduction of electricity bills by 5 %, as a result to the introduction of the cost-effective daily tariff. Citizens entirely benefit from the cost-effective electricity daily period. The new Network Rules on electricity distribution have reduced the costs on connections to the Electricity Distribution Grid Network by 25 %, i.e., from 500 EUR to 370 EUR. The costs on re- connecting of disconnected consumers is reduced for almost 75 %, i.e., instead of 1.740,00 MKD, the price is 440,00 MKD. The costs of separation / allocation of metering point is reduced by 60 %, i.e., from 500 EUR to 200 EUR. With the technical assistance by the USAID and NARUC, the Energy Regulatory Commission has created the Switch.mk, an online platform for electricity price comparison. Thus, the Republic of North Macedonia has become the first state within the Energy Community to introduce this functional tool.

The above mentioned is only a fragment of the results within the envisaged by the Energy and Water Services Regulatory Commission as a goal, and the achievement is based on professionalism, experience, and enthusiasm of all employees. Results, but also the synergy among employees, has contributed, once again, the Energy and Water Services

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Regulatory Commission to be awarded by the Energy Community with the acknowledgement as the best regulatory body within the Energy Community member countries. The previous year, I was honored, unanimously, to be elected for President of the Energy Community Regulatory Board of the Energy Community. This is a recognition to the reform processes we implement, and the capacity and professionalism we apply into creating and leading the energy regulatory frame.

Today, when the world is fighting against the Covid-19 pandemic that has caused global health and economy crisis, and the priorities are protection of citizens’ health and reduction of economy crisis effects, the Energy Regulatory Commission is pursuing its prime goal to provide permanent, safe and stable supply of energy, and different types of fuels, even in a state of emergency. In the course of achieving the goal, the most vital is the creativity and solidarity of all energy companies through best practices and transformation of their services to employ maximum efforts in the energy and fuels supply to maintain permanent in regular manner, even in a state of emergency.

We stay solid before the challenge to assist the most vulnerable consumers, as their number increases on daily basis due to reduced income, or unemployment as a result of the economy crisis, thus preventing payment of bills for electricity, water and district heating in due deadlines. The energy companies have responded positively to our appeal not to disconnect consumers due to unpaid bills during the state of emergency. I, hereby, share my gratitude to all citizens regularly fulfilling their payment of energy and water bills, and by doing so, have enabled energy companies and water supply providers to maintain their financial stability.

The upcoming report shall summarize the effects of the current economy crisis within the energy sector, and the undertaken measures and activities to bridge the adverse consequences caused by the crisis. The acquired experience, I believe, shall be a positive guideline to manage future crisis.

In the upcoming 2020, I wish the Energy and Water Services Regulatory Commission to continue in reaching positive outcomes, and to maintain the leading role among the regulatory bodies of the Energy Community member countries.

Sincerely,

Marko Bislimoski

President of the Energy and Water Services Regulatory Commission

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ENERGY AND WATER SERVICES REGULATORY COMMISSION OF THE REPUBLIC OF NORTH MACEDONIA

The Energy and Water Services Regulatory Commission of the Republic of North Macedonia (hereinafter: The Energy Regulatory Commission) is a sole, non-profitable, regulatory body, regulating and controlling the manner on performing energy activities in the fields of electricity, natural gas, district heating , raw oil, oil derivatives and transportation fuels, and also, in the establishment of the tariffs and prices on water services. The institution is independent in maintaining operations and decision-making processes within its competencies, and is in capacity of a legal entity, individual (legal entity which is separated and functionally independent) in regard to organization and decision- making from the bodies of the state and local authorities, and the entities performing energy activities. The Energy Regulatory Commission, at least once a year, reports to the Assembly, the Government of the Republic of North Macedonia, the Ministry responsible for energy affairs, and to the Energy Community Secretariat. The competencies of the Energy Regulatory Commission are regulated by the Law on Energy* (“Official Gazette of the Republic of Macedonia” no. 96 / 18, and the “Official Gazette of the Republic of North Macedonia” no. 96 / 19), the Law on Water Services Prices (“Official Gazette of the Republic of Macedonia” no. 7 / 16), other by-laws, and the Statute and its Rulebook. The acts of the Energy Regulatory Commission are published in the Official Gazette of the Republic of North Macedonia” and on the web-page of the Energy Regulatory Commission https://www.erc.org.mk/default.aspx.

MEMBERS OF THE ERC

M.Sc. Marko Bislimoski, President M.Sc. Kushtrim Ramadani, Vice-president Enver Elmazi, member Panche Orcev, member PhD Atanasko Tuneski, member M.Sc. Natasha Veljanovska, member Andrijana Nelkova – Chuchuk, member

April 2020

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RESU ME The past 2019 has marked significant changes in the Energy Sector of the Republic of North Macedonia. The Energy Regulatory Commission, within its competencies, has substantially contributed to achieving the earmarked goals in the energy sector by implementing the respective regulatory frame created under the obligations arising from the Third Energy Package on the Internal Energy Market of the European Union, thus adopted by the Energy Community. In 2019, the Energy Regulatory Commission was awarded with the Certificate of Quality ISO 9001:2015, confirming the fundamental dedication to providing services adequate to the requirements of consumers, and providing high quality in the systematic management of the institution. In 2019, the Energy Regulatory Commission has performed the current administering and improvement of the Information System, has advanced the operational data bases, administration and maintenance of the data bases, the systems of operation and the hardware system, and maintenance of the applicative software in close cooperation with software entities, and the Faculty of Electrical Engineering and Information Technologies engaged for its development and maintenance. The Electricity Sector records significant changes in 2019 since starting from January 1st, 2019 all electricity consumers, including households, were entitled to the right to choose their own electricity supplier, and to arrange terms and prices of the energy supply under mutual agreement. Commencing on July 1st, 2019, the price for electricity generation by the largest electricity producer, AD Elektrani of the Republic of North Macedonia, is no longer subjected to a price determination by the Energy Regulatory Commission, thus enabling complete opening of the Electricity Wholesale Market. In accordance with the Law on Energy*, two new entities emerged on the Electricity Market, i.e., the EVN HOME DOO Skopje with obligations to provide supply of electricity as universal service and supply of electricity as a last resort, and the MEMO DOOEL Skopje entrusted with organization and management of the Electricity Market. In 2019, a successful certification was granted to the Electricity Transmission System Operator AD MEPSO Skopje, based on the model of ownership unbundling, established by the Law on Energy*. 2019 has marked enlargement of electricity consumers installing photovoltaic power plants to generate electricity to secure their own electricity needs. The same year, 2019, the Energy Regulatory Commission has issued 22 new Licenses for electricity production from Photovoltaic Power Plants. Compared to the two previous years, amongst the most significant trends in 2019 is the substantial increase of traders / suppliers purchasing electricity from domestic producers. The number of domestic producers active on the market of bilateral agreements in the period of 2018 / 2019 has enlarged by 18 new participants. In accordance with these correlations, and the gradually reduction of the average annual price on this part within the market, its continuant reinforce of functionality and transparency is evident. The full liberalization of the Electricity Market was followed by enlarged number of procedures of electricity suppliers switch, and compared to 2018, in 2019 the number increased by 66,46%. According to the annual consumption, in 2019, the rate of supplier switch is 7,86 %. The rate of supplier switch, compared to the respective rate data in 2018 - 13 - published by the CEER for European countries, indicates that the Macedonian Electricity Retail Market, according to this indicator, is better ranked than the respective markets of Bulgaria, Luxemburg and Greece, i.e., is on the same level with Austria, Denmark and Finland. In 2019, the trend of increased transmission of natural gas in the amount of 295 million nm3 continued, and it was mainly due to the Combined Cycle Power Plants and Heat Plants operating on natural gas. These are record quantities of natural gas transmission, since the transmission system operations has commenced, indicating growth by 16 % in relation to the natural gas quantities transmission in 2018. In 2019, the state-owned Joint Stock Company for performing energy activities National Energy Sources Skopje has performed activities in the realization of the main gas pipelines from Stip to Negotino and Bitola, and the gas pipeline from Skopje to Tetovo and Gostivar. The price of the natural gas on the retail market was stable, and amounted round 20 MKD / nm3, thus, compared to 2018, for consumers connected to the natural gas transmission system was noted slightly lower price. 2019 is the year of continuous positive trend in enlarging the number of connected consumers to the district heating system, thus showing growth in number of consumers by 4%. The Energy Regulatory Commission has adopted the new Rules on District Heating Supply, where amongst other, changes were stipulated in regard to the rights and obligations for the part of an individual ownership in buildings, where the allocation of the fee is according to one metering device. In 2019, The Assembly of the Republic of North Macedonia has adopted the amendments to the Law on VAT, thus lowering the VAT rate on district heating from 18 % to 5 %. Due to the reduced VAT, in 2019 the total charge on district heating towards end consumers, on average, dropped by 5,71 %. The most significant event in the Republic of North Macedonia, that signified 2019 on the market of crude oil, oil derivatives, biofuels and transportation fuels, is the adoption of the new Rulebook on Highest Retail Prices Calculation of certain oil derivatives and transportation fuels, thus introducing a new and pinpoint approach to calculating retail prices on certain oil derivatives. With this Rulebook, for the first time in 20 years, since the application of the Methodology for setting highest prices on certain oil derivatives, defined with the Annex D in the Share Purchase and Concessions Agreement for the OKTA Refinery, has announced commencement of the new Methodology application of the Retail Prices Calculation on oil derivatives in the Republic of North Macedonia. The regulation of tariffs for water services is one integral part of the reforms within the Water Sector Development in the Republic of North Macedonia. In a territory with below 10.000 (equivalent) residents, for the first time in 2019, the Water Service Providers have started the application of tariffs established by the Energy Regulatory Commission. Other Water Service Providers mark 2019 as second year within the first period of regulation. Also, remarkable for this year and compared to 2018, is the reduction of the level of unpaid water for about 3 %, leading to significant improvement of the unpaid water status in the entire country. During 2019, the Energy Regulatory Commission has enacted, or approved 28 legal acts, five referring to general acts, 16 acts in the field of electricity, three in the field of the district heating, and one Rulebook in the field of oil derivatives. In 2019, the Energy Regulatory Commission has issued 54 Licenses for performing energy activities, 50 on activities in the field of electricity, two in the field of natural gas, and two in the field of oil derivatives. Within the total of 194 procedures on disputes resolution initiated before the Energy Regulatory Commission in 2019, all in the field of electricity, 80 were adopted, 92 were rejected,

- 14 - dismissed or halt, but 22 disputes shall continue procedure in 2020. Within the 21 requests on free access to information of public interest submitted to the Energy Regulatory Commission during 2019, all requests had been responded to, where 18 received response during 2019, and three are in procedure in 2020. The Energy Regulatory Commission has recorded one exquisite and successful year on international level. In the course of active participation in the work of the regular international associations, and their operational bodies in the field of energy and water services, as well as the participation in several successful international projects delivering specific and recognizable outcomes, the Energy Regulatory Commission hosted two international events in cooperation with the partner organizations ERRA and NARUC, held in Skopje. Foremost, is the recognition by the Energy Community Secretariat, second year in a row, in their Annual Reports referring to the implementation of the Contract arising from the Treaty for Establishing the Energy Community, to signify the leading role of the Energy Regulatory Commission in the energy sector reforms within the Energy Community. Therefore, on July 30th, 2019, the Energy Regulatory Commission has applied to the Agency for Cooperation of Energy Regulators to undertake participation in the operational groups of ACER, with the status of an observer. Financial assets spent in 2019 by the Energy Regulatory Commission for its operations, and in accordance with the competences deriving from the Law on Energy* and the Law on Water Service Prices, amounted with 63.837.750 MKD, and are by 23,13 % lower than the planned financial assets for 2019. The reduction is due to the unrealized part of the planned activities for 2019 based on objective reasons. The most valuable asset of the Energy Regulatory Commission are the employees with their experience and the multidisciplinary knowledge they possess. The total number of employees, as of December 31, 2019, is 30, of which seven are members of the Energy Regulatory Commission, 20 people are in the professional and administrative services and three employees are support and technical staff.

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INSTITUTIONAL

DEVELOPMENT

ENERGY AND WATER SERVICES REGULATORY

COMMISSION OF- THE16 REPUBLIC- OF NORTH MACEDONIA

I. INSTITUTIONAL DEVELOPMENT

1.1 ORGANIZATION The Energy Regulatory Commission is composed by seven members, one as President. Following the proposal by the Government of the Republic of North Macedonia, the members and the President of the Energy Regulatory Commission are nominated and suspended (dismissed) by the Assembly of the Republic of North Macedonia, considering respective and equal participation of representatives from all communities. The organizational structure and competencies of the Energy Regulatory Commission are in compliance with the regulatory bodies in the neighboring countries and the region and respond to the requirements for complete and full accomplishment of its obligations, as well as the level of energy markets development in the Republic of North Macedonia. As a result, and to the new competences in accordance with the Law on Energy* and the Law on Water Service Prices, as well as to the magnified volume of operations, on November 12th, 2019, the Energy Regulatory Commission has adopted the Rulebook on Internal Organization of the Energy and Water Services Regulatory Commission of the Republic of North Macedonia under no. 01 – 3402 / 1, and the Rulebook on Systematization of Working Posts at the Energy and Water Services Regulatory Commission of the Republic of North Macedonia under no. 01 – 3403 / 1, date November 12th, 2019, approved with a written consent by the Ministry of Information and Administration, under no. 12 / 6 – 5099 / 2, on December 23rd, 2019. In accordance with the new Rulebook on Internal Organization of the Energy Regulatory Commission, the sectors and departments listed below were established enabling employees to perform professional, administrative, and technical assistance affairs.

1. Electricity Sector 1.1 Electricity Market Department 1.2 Grid / Network Infrastructure, Renewable Sources and Public Relations (Customer Relations) Department

2. Natural Gas, Liquid Fuels and District heating Sector 2.1 Natural Gas, Liquid Fuels and Public Relations (Customer Relations) Department 2.2 District heating Market and Public Relations (Customer Relations) Department

3. Water Services Sector 3.1 Economy Affairs in the Field of Water Services Department 3.2 Technical Affairs in the Field of Water Services Department

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4. Legal Affairs Sector 4.1 Normative – legal Affairs and Licenses Department 4.2 Complaints and Protection of Consumers Department 5. Economy Affairs Sector 5.1 Economy Affairs in the Field of Electricity Department, 5.2 Economy Affairs in the Fields of Natural Gas, Liquid Fuels and District heating

6. Monitoring, Investigations and Misdemeanors Sector 6.1 Energy Markets Monitoring, Analyses and Publications Department, and 6.2 Investigations and Misdemeanors Department

7. Information Technology and Statistics Department 7.1 IT Support Department, and 7.2 Software Development Department

8. Human Resources, Logistics, Finance and General Affairs Sector 8.1 Human Resources Management and General Affairs Department; 8.2 Finance and Accounting Department, and 8.3 Logistics and Public Relations (Customers Relation) Department The Internal Organization of the Energy Regulatory Commission envisages working posts exempted within the sectors (organizational units), but are of immediate connection to the work of the President and the members of the Energy Regulatory Commission, and are listed below: 1. Advisor to the President and members of the Energy Regulatory Commission on Legal Affairs 2. Advisor to the President and members of the Energy Regulatory Commission on Economy Affairs 3. Advisor to the President and members of the Energy Regulatory Commission on Electricity 4. Advisor to the President and members of the Energy Regulatory Commission on Natural Gas, Liquid Fuels and District heating, and 5. Internal Auditor.

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1.2 ORGANOGRAM OF THE ENERGY REGULATORY COMMISSION

1.3 HUMAN RESOURCES The most valuable capital of the Energy Regulatory Commission are the employees with their experience and multidisciplinary knowledge they acquire. The total number of employees, as by end of December 31st, 2019, is 30 persons, whereby, seven are members to the Energy Regulatory Commission, 20 are persons employed within the professional and administration sections, and three persons are employed as technical assistance staff. The education structure of the members of the Commission and the employees within the professional and administration sections, as by the end of December 31st, 2019, is composed of 12 engineers, nine economists, five legal, and one person with other university education. On July 9th, 2019, the Assembly of the Republic of North Macedonia adopted the Decision on Suspension of the function member of the Energy Regulatory Commission under no. 08 – 3978 / 1, published in the “Official Gazette of the Republic of North Macedonia” no. 140 / 19, which later, is followed with the Decision on Nomination of a member with a mandate of five years, under no. 08 – 4703 / 1, adopted on August 27th, 2019, also published in the “Official Gazette of the Republic of North Macedonia”, no. 178 / 19. In November 2019, the Energy Regulatory Commission initiated an employment procedure of eight persons within the professional and administration sections through the Administration Agency, and during January 2020, six employments were realized. In December 2019, in accordance with the newly established acts on organization and systematization, procedures were commenced for the employment of four persons within the professional and administration sections. Professional, ambitious, quality and in high-capacity personnel is an imperative to every institution striving towards successful work and high results accomplishment within the domain of their activities. During the reporting 2019, a great attention was dedicated to the professional capacity development and improvement of employees through participation in trainings, seminars and workshops in the field of the legal, electricity, renewable energy sources, natural gas, economy, and public procurement organized in the Republic of North Macedonia, and abroad. The mentioned activities are presented in the chapter on International Activities. The number of training, workshops, and events, actively participated by the employees of the Energy Regulatory Commission, is in continuous development. That symbolizes the persistent commitments of the Energy Regulatory Commission to employ highly professional and quality staff with continuous improvement and reinforcement, as well as to present its accomplishments before different institutions, respectively. The employment of the right persons to respective work posts, the ability of their adjustment to the organizational culture, the systems, and the values of the institution, not neglecting their continuous improvement in knowledge, is one of the prime goals of the successful governance by the Energy Regulatory Commission.

1.4 IT-RESOURCES In 2019, the Energy Regulatory Commission has conducted a regular administering and upgrading of the Information System, optimization of operational data bases, administration and maintenance of data bases, the operational systems and the hardware

- 20 - system, and maintenance of the applicative software in cooperation with software companies engaged for its maintenance. Also, current administering and maintenance is applied to the regular hardware equipment, including server machines with applicative software operation, personal computers, and portable computers. Main activities by the Information Technology Sector in 2019 refer to the projects listed below: - Development and implementation of new modules for the electronic web- platform on Water Services by introducing electronic submission of reports and requests on Water Service Tariffs by the Water Service Providers. The software is in two parts: Portal (https://voda.erc.org.mk) accessible to all Water Service Providers to electronically submit reports and requests by entering all required data, additional documents, and fulfilling respective tables defined in accordance with the bylaws. System on processing the submitted data by the auditors / controllers at the Energy Regulatory Commission with a possibility for simulation of submitted data, i.e., their change in the simulation in order to receive final results for water services tariff for the respective Water Service Provider. The entire system is developed by the application of ASP.NET technology and the MS SQL Database Server. - Development and upgrade of the MM-Central, information system, for collection and processing data for monitoring energy markets functionality. It is a process established since 2016, and is led by the Department for Monitoring, Investigations and Misdemeanors in cooperation with the Faculty of Electrical Engineering and Information Technologies (FEIT) in Skopje. The Energy Regulatory Commission, as of 2019, is the single regulatory authority within the Energy Community and the neighboring countries that possesses a Market Monitoring Software. In addition to this activity, is the project for developing and testing the new front-end web platform for submitting energy market data (https://monitoring.erc.org.mk), and the back-end platform for data analysis, and generating reports. The system for submitting energy markets data is developed with ASP.NET technology and the MS SQL Database Server. - Improvement and completion of the official Energy Regulatory Commission website (https://erc.org.mk) in the perspective of its functionality and uploading a new module on management and transparency of procedures by the Energy Regulatory Commission, as well as for tracking all procedures with the support of the web calendar (preparatory sessions, main sessions and other events). - The Energy Regulatory Commission is the pioneer in the region with the introduction of the functional web tool for electricity price comparison (https://www.switch.mk). Switch.mk provides transparency in the retail prices, enabling direct benefits to consumers in reduction of their electricity costs by comparing the electricity prices offered by the suppliers. The web tool is developed by applying the PHP-technology and MySQL Database Server. In addition, a media campaign is organized to promote the web tool by renting

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(lease) of an advertising space on the internet page for the promotion requirements of the switch.mk tool. - Development of an Information System on License Management for the requirements of the Energy Regulatory Commission. The system shall be hosted locally within the Energy Regulatory Commission and is expected to be released for use in 2020. This system shall enable electronic management of procedures processed by the employees at the Energy Regulatory Commission regarding the requests for issuance / change of licenses for energy activities, in accordance with the law legislation and the Rulebook on Licenses. - The Energy Regulatory Commission, in 2019 through the mutual project (Effective Regulation of Cyber Security) with the NARUC (National Association of Regulatory Utility Commissions), and the USAID, has developed a draft - text of the Cyber Security Strategy for the Electricity Sector in the Republic of North Macedonia, and the draft – list on recommendations for the electricity companies, as a core priority in the protection against new threats and risks to the cyber – space, and advancing its safety. Taking into consideration the gravity and the cyber – defense necessity as an integral part of the entire cyber – security , the Energy Regulatory Commission has employed efforts in the development and adoption of the Strategy, with concentrated standards of the cyber – security in the electricity sector, the measures and activities on establishing cyber culture, public awareness on possible threats against all stakeholders within the electricity sector and wider, including the definition of manners and instruments to secure fast response in case of an incident. The Cyber Security Strategy shall be adopted and presented in public by the Energy Regulatory Commission in 2020. - The Energy Regulatory Commission has fully migrated the old e-mail server towards Office 365 Microsoft tool, which is based on cloud solution, and shall enable users one centralized spot to entirely organize day-to-day activities by using applications, such as: Outlook, Word, Excel, SharePoint, Teams, Power BI and Flow. Office 365, in fact, is a contemporary office based on cloud, and require no infrastructure, but an internet connection. The Business e-mail of Office 365 enables clear and organized display of business communication, calendar, and contacts. - Implementation and maintenance of the Network infrastructure managed by cloud, a Cisco production, is the unique solution in providing wire, wireless and secure network infrastructure in the premises of the Energy Regulatory Commission.

1.5 QUALITY SYSTEM MANAGEMENT In 2019, the Energy Regulatory Commission was awarded with the Certificate of Quality ISO 9001:2015, confirming the fundamental dedication to providing services with high quality in the systematic institution management in accordance with the requirements by consumers. Since 2014, the operations of the Energy Regulatory Commission have been following the Standard on Quality Management ISO 9001:2008, i.e., equivalent to MKC EN ISO 9001:2009 in the Republic of North Macedonia.

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In 2019, the focus of the Energy Regulatory Commission was on the System of Quality transition, and its compliance with the requirements deriving from the new standard ISO 9001:2015. The same year 2019, the operations of the Energy Regulatory Commission, were harmonized with the 58 procedures in accordance with the new standard ISO 9001:2015. Also, in 2019, an audit by external auditors was conducted to all procedures within the System of Quality Management and their realization in accordance with the standard, outreaching a result to confirm fulfilment of all criteria by the Energy Regulatory Commission required for the certification in accordance with the Standard ISO 9001:2015. Foremost, the certificate is a confirmation for the operation quality performance by the Energy Regulatory Commission and represents a benchmark to further improve services towards consumers and providers of energy activities. ISO 9001 is an International Standard stipulating requirement for systems on quality management, and the certificate and the certification enable organizations to organize processes, increase efficiency on quality management, and to continuously improve.

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ELECTRICITY

ENERGY AND WATER SERVICES REGULATORY COMMISSION OF- THE25 REPUBLIC - OF NORTH MACEDONIA

II. ELECTRICI TY

In 2019, the Electricity Sector has recorded significant changes, foremost due to the fact that since January 1st, 2019, all consumers of electricity, including households, were eligible to select the electricity supplier, and mutually to arrange the terms and prices regarding the electricity supply. The full liberalization of the Electricity Market in 2019, contributed to enlarge the number of active suppliers / traders with electricity, by four new entities, compared to year 2018. This change was followed by numerous procedures on switching of the electricity supplier, and in 2019, the increase is by 66,46 % compared to the year 2018. This indicates growth in the competition on the Electricity Retail Market, providing better offers by the suppliers / traders to consumers. Since July 1st, 2019, the electricity production price by the largest electricity producer AD Elektrani of the Republic of North Macedonia, is no longer subjected to determination of the price on electricity by the Energy Regulatory Commission, thus enabling full market opening of the Wholesale Electricity Market. In accordance with the Law on Energy*, two new entities emerged on the Electricity Market, i.e., the EVN HOME DOO Skopje with obligations for providing electricity supply as universal service, and electricity supply as a last resort; and the MEMO DOOEL Skopje entrusted with the organization and management of the Electricity Market. One of the significant activities implemented by the Energy Regulatory Commission, was the successful certification of the Electricity Transmission System Operator, AD MEPSO Skopje, based on the model of ownership unbundling, established by the Law on Energy*. In this manner, the Energy Regulatory Commission, based on data, information and evidence, established that AD MEPSO Skopje has fulfilled the criteria stipulated in the Directive 2009 / 72 / EC of the European Parliament and Council, since July 13th, 2009 concerning common rules for the internal market in electricity, and the Regulation (EC) 714 / 2009 of the European Parliament and Council, since July 13th, 2009 on conditions for access to the network for cross- border exchanges in electricity, and has appointed the above mentioned AD MEPSO for Electricity Transmission System Operator of the Republic of North Macedonia. 2019 is the year of significant enlargement by electricity consumers installing photovoltaic power plants to generate electricity for securing their own electricity needs. In 2019, the Energy Regulatory Commission has issued 22 Licenses on Electricity Production by Photovoltaic Power Plants with the total of 5,4 MW installed capacity, without exploitation of supporting mechanisms.

2.1 BALANCE OF ELECTRICITY DEMAND AND SUPPLY In 2019, the Electricity Transmission and Electricity Distribution System in the Republic of North Macedonia, has in total delivered 8.130 GWh, whereby 5.658 GWh electricity was produced by domestic producers, which compared to 2018, show increase by 3,5 %, or expressed in absolute value, in the amount of 190 GWh higher electricity production than in 2018.

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Table 2.1 Balance of electricity demand and supply in the period from 2017 to 2019 (in GWh)

Year Year Year 2019/18 2019/17 GWh 2017 2018 2019 (%) (%) Delivered into the power system 7.817 7.902 8.130 2,89 4,00 Production 5.447 5.468 5.658 3,47 3,87 The Largest Producer 4.177 4.198 4.250 1,24 1,75 Other Producers 943 893 1.059 18,59 12,30 Producers with preferential tariff 327 377 349 -7,43 6,73 Total Import 2.370 2.434 2.472 1,56 4,30 Gross Consumption 7.415 7.391 7.483 1,24 0,92 Net Consumption 6.408 6.395 6.504 1,70 1,50 Direct consumers of transmission 866 903 963 6,64 11,20 Regulated Supplier 4.107 3.871 3.807 -1,65 -7,30 Other Distribution Consumers 1.435 1.621 1.734 6,97 20,84 Losses 1.007 996 979 -1,71 -2,78 Transmission 111 125 120 -4,00 8,11 Distribution 896 871 859 -1,38 -4,13 Import 403 512 646 26,17 60,30 Net Import 1.968 1.923 1.825 -5,10 -7,27 Import Dependence (Dependence on Import) 26,54 26,02 24,39 % Shares on Free Market % 44,10 47,31 49,13 The production of electricity from renewable energy sources, in 2019, including, large Hydro Power Plants, is 1,368 GWh, indicating an amount of less than 32 % compared to 2018, but, the production of electricity by the Thermal Power Plants is 4.289 GWh, which is by 856 GWh higher than in 2018, i.e., growth by 25 %. The decrease of electricity production from renewable energy sources is due to the adverse meteorology conditions, clearly visible in the electricity production of 1.183 GWh by the Hydro Power Plants in 2019, whereas, compared to 2018, the production was 1.839 GWh. In 2019, in the Electricity Distribution Systems, a total of 475 GWh electricity was delivered by the electricity producers connected to the Electricity Distribution Network, which is less by 59 GWh compared to year 2018. The Net Consumption of electricity, i.e., the consumption of electricity by end consumers in 2019 was 6.504 GWh, indicating growth by 109 GWh compared to 2018, i.e., an increase by 1,7 %. The losses of electricity in the Electricity Transmission Systems and the Electricity Distribution Systems in 2019 are in the amount of 979 GWh, a reduction by 17 GWh compared to 2018, i.e., by 1,7 %. The Gross Consumption of electricity, including the Net Consumption of electricity and the losses of electricity in 2019, is in the amount of 7.483 GWh, indicating increase by 92 GWh compared to 2018, i.e., by 1,2 %. 76 % of the electricity consumption in 2019 is provided by domestic electricity production, and 24 % are provided by import.

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2.2 ELECTRICITY PRODUCTION The production of electricity in the Republic of North Macedonia is enabled by the Thermal Power Plants utilizing lignite, mazut (fuel oil) and natural gas as prime source of energy, and also, the Power Plants by utilizing renewable energy sources: water power, the wind, the solar energy, biomass and biogas. The total installed capacity of the Power Plants in 2019, is 2.087,8 MW, indicating increase by 10,9 MW compared to the installed capacity in 2018.

1,200.0 1,034.0

1,000.0

800.0 698.0

600.0

400.0 287.4

200.0 24.0 49.53 13.77 33.43 1.15 36.8 1.76 6.8 0.34 0.6 0.03 0.0 TEC TETO HEC FEC VEC TEC - biogas TEC - biomass

MW %

Chart 2.1 Installed capacity and share of technologies on electricity production in 2019 (in MW and %) In the total of the installed capacity, the Thermal Power Plants participate with highest percentage of 49,53 %, followed by the Hydro Power Plants with 33,43 %, and followed by the combined plants for electricity and district heating production with 13,77 %, whereas all the remaining contribute with 3,27 %. In 2019, new electricity producers with installed capacity of 10,9 MW were connected to the Electricity Power System, and all are connected to the Electricity Distribution Network. The largest part of the Power Plants is the Photovoltaic Power Plants with installed capacity of 5,4 MW, followed by the Small Hydro Power Plants with installed capacity of 4,9 MW, whereas the 0,6 MW is the installed power of the biomass Thermal Power Plant. None of the existing Power Plants was closed in 2019. The production of electricity from renewable energy sources is unstable on annual level, foremost depending on the meteorology conditions. In the total production of electricity for 2019, the renewable energy sources participate with 24,15 %, indicating less than 34 % compared to 2018, while the production of electricity by the Thermal Power Plants participate with 75,85 %, i.e., by 17 % higher in relation to 2018.

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60

50

40

% 30

20

10

0 TEC TETO HEC FEC VEC TEC - biogas TEC - biomass % 58.2 17.6 20.9 0.5 1.8 1 0

Chart 2.2 Shares in the production of electricity in 2019 under technologies (in %) In 2019, the largest participation in the production of electricity with 58,2 %, is by the Thermal Power Plants, followed by the Hydro Power Plants with 20,9 %, and by the combined plants for electricity and district heating production with participation of 17,6 %, whereas all the remaining participate with 3,3 %. In 2019, the four companies: AD Elektrani of the Republic of North Macedonia (hereinafter: AD ESM Skopje), AD TE – TO Skopje, AD TEC Negotino, and EVN Makedonija Elektrani DOOEL Skopje, have managed the Power Plants with installed capacity higher than 10 MW. Notwithstanding, in 2019, the state-owned AD ESM Skopje, remains the largest producer of electricity in the Republic of North Macedonia, with shares governed by the Government of the Republic of North Macedonia.

Table 2.2 Installed capacity and production of electricity in 2019

Number of Installed Production Share Producer Power Share (%) Capacity (MW) (GWh) (%) Plants AD ESM Skopje 15 1.478,61 70,82% 4.283,73 75,71% TEC 4 824,00 39,47% 3.293,81 58,21% HEC 8 557,40 26,70% 879,48 15,54% VEC 1 36,80 1,76% 101,81 1,80% TE-TO 2 60,41 2,89% 8,63 0,15% AD TEC Negotino 1 210,00 10,06% 0,00 0,00% TEC 1 210,00 10,06% 0,00 0,00% TE-TO AD Skopje 1 227,00 10,87% 987,03 17,44% TE-TO 1 227,00 10,87% 987,03 17,44%

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EVN Elektrani 11 58,56 2,80% 125,86 2,22% HEC 11 58,56 2,80% 125,86 2,22% Other 235 113,02 5,44% 261,64 4,62% Mali HEC 92 82,03 3,93% 178,13 3,15% FEC 140 23,99 1,15% 28,40 0,50% Biogas 3 7,00 0,34% 55,10 0,97% Biomass 1 0,60 0,03% 0,00 0,00% Total 264 2.087,19 100,00% 5.658,25 100,00% In the Republic of North Macedonia, and in accordance with the Decision on participation in the National mandatory goals on energy produced from renewable energy sources in the gross – final energy consumption, and the participation in energy produced from renewable energy sources in the final transportation consumption, the percentage of the renewable energy sources participating in the gross-final consumption of energy by the end of 2020, should be 23 %. In accordance with the Third Progress Report on the Promotion and Use of Energy from Renewable Sources of North Macedonia, prepared by the Ministry of Economy in May 2019, the participation percentage of renewable energy sources in the gross- final consumption of energy in 2016 is 18,1 %, followed by 19,7 % in 2017. Appendix 12.1, as an integral part of this Report, presents an overview of the electricity production in the Republic of North Macedonia for the period of ten years, from 2010 to 2019. The displayed data do not include the quantities of electricity that the largest producer has used for its own consumption, and for the mines’ electricity needs, thus differing from the data enclosed in Table 2.1. The Review presents significant decrease of the domestic production from 6.744 GWh in 2010 to 5.655 GWh in 2019, indicating reduction by 16 %, or by 1.080 GWh. Largest influence on the mentioned reduction is the production by the AD ESM Skopje, which in 2010 was 6.476 GWh, while in 2019 it amounted with 4.283 GWh, i.e., decrease by 2.193 GWh, or by 34 %. Since 2014, AD ESM Skopje produces electricity below 5.000 GWh. The reduction in the electricity production is noticed in both, by the Hydro Power Plants and by the Thermal Power Plants. The production of electricity by the Hydro Power Plants foremost is dependable on the meteorology conditions, and the period of review shows variations by 2.185 GWh in 2010, followed by 816 GWh in 2017. Hence, the production of electricity was never reached as in 2010, although in 2012 the new Hydro Power Plant “Sveta Petka” enters in operations. The production of electricity by the Thermal Power Plants records downfall, too. In this period, the largest production of electricity is recorded in 2011 with 4.776 GWh, whereas the lowest electricity production is noticed in 2018 in the amount of 2.613 GWh. This situation is due to several reasons, such as: the life cycle of the Thermal Power Plants, already overdue, or in shortest time of overdue, causing numerous defects and employing longer period for malfunctions elimination, refurbishments, lower efficiency, the mines condition, i.e., reduction of excavations, lignite poor quality, and etc. Based on the mentioned reasons, and foremost, the exploitation of the entire lignite excavations at “Oslomej”, the Thermal Power Plant “Oslomej” almost fail to produce any electricity. In this period, the largest electricity production by the Thermal Power Plant “Oslomej” is in 2011 with 587 GWh, while the least, was the production in 2017 with only 27 GWh.

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2.3 RENEWABLE ENERGY SOURCES The portfolio of producers of electricity from renewable energy sources is composed by the large Hydro Power Plants (HEC), the small sized Hydro Power Plants (MHEC) with installed capacity lower than 10 MW, the Wind Power Plants (VEC), the Photovoltaic Power Plants (FEC), the Biogas Thermal Power Plants, and the Biomass Thermal Power Plants. The number of Power Plants based on technology, their installed capacity and production, are displayed in the table below: Table 2.3 Installed capacity and production of electricity in 2019 according to technology

Number Installed Type of Share Production Share of Power capacity Power Plant (%) (GWh) (%) Plants (MW) Total 264 2.087,87 100,00% 5.658,01 100,00% TEC 5 1.034,00 49,52% 3.293,81 58,22% TE-TO 3 287,41 13,77% 995,66 17,60% Renewable energy sources 256 766,46 36,71% 1.369 24,19% HEC 10 586,65 28,10% 920 16,26% VEC 1 36,80 1,76% 101,81 1,80% Mali HEC 101 111,43 5,34% 263 4,65% FEC 140 23,99 1,15% 28,4 0,50% Biogas 3 6,99 0,34% 55,1 0,97% Biomass 1 0,60 0,03% 0 0,00% Within the total number of Power Plants in the Republic of North Macedonia, 256 use renewable energy sources for the production of electricity, whereby 197 Power Plants use preferential tariffs, and the remaining 59 Power Plants do not use the measures of support to the production of electricity. The entire electricity produced by the Wind Power Plants, the Biogas Thermal Power Plants, and the Biomass Thermal Power Plants, is purchased by the Electricity Market Operator under preferential tariffs. Within the total number of the Small Hydro Power Plants, 90 sell the produced electricity under preferential tariffs, while the remaining 11 Power Plants sell the produced electricity on the electricity market. The number of preferential producers dominate in both, the Small Hydropower Plants, and the Photovoltaic Power Plants. Namely, 102 Photovoltaic Power Plants use the preferential tariff, while the remaining 38 Photovoltaic Power Plants sell the produced electricity on the Electricity Market. Taking into consideration that the large Hydro-Power Plants operate on installed capacity not lower than 10 MW, thus, failing to acquire the status of preferential producers, the entire production is sold on the Electricity Market. Notwithstanding the fact that 97 % of the total number of electricity production by the Power Plants use renewable energy sources, or expressed in absolute numbers, 256 out of 264 Power Plants use renewable energy sources, and their participation percentage in the total of the installed capacity, is with 36,71 %. The participation of the renewable energy in the total of electricity produced by domestic producers, is even lower, and amounts with 24,19 %.

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The participation of preferential producers operating under preferential tariffs in the total of the installed capacity by renewable energy sources, is 18,35 %, whereof, the total installed capacity in the Republic of North Macedonia, is 6,73 %. The preferential producers operating under preferential tariffs, take part in the produced electricity by domestic producers with 6,17 %, whereas, in the production part with renewable sources, the preferential producers participate in with 25 %. In case, the large Hydro Power Plants are exempted from the portfolio of the renewable energy sources, due to the proportionality of the comparison, in 2019 the production of 445.769 MWh is from renewable energy sources, while 349.167 MWh is a production by the preferential producers. The commencement of 2019 in the field of renewable energy sources signifies the adoption of numerous bylaw acts in the course of creating conditions for further promotion of the renewable energy sources, and in the increase of participation by renewable energy sources in the end consumption of energy. During 2019, in accordance with the Law on Energy*, six bylaw acts in the field of renewable energy sources were adopted and are displayed in Attachment 12.2. 2.3.1 MEASURES TO SUPPORT RENEWABLE ENERGY SOURCES Measures to support the production of electricity from renewable energy sources are aiming to encourage investments in the optimal usage of available potential of renewable energy sources in the Republic of North Macedonia, support to the accomplishment of the National mandatory goals on renewable energy sources participation in the total energy consumption, and support to conditions for environment protection and mitigation of climate changes. The preferential tariff as a measure to support electricity production from renewable energy sources was introduced in 2007, and the first Power Plants to sell the produced electricity under preferential tariff, has started operation in 2010. In addition to the preferential tariff, in accordance with the Law on Energy*, since 2018, the Premium tariff is also introduced as a measure for support.

2.3.1.1 PREFERENTIAL TARIFF The preferential tariff is a regulated purchase price of electricity produced by a preferential electricity producer by the electricity market operator. Preferential producers operating under preferential tariff are guaranteed with the tariff of each kWh produced electricity under which the Electricity Market Operator is obliged to purchase the total of electricity produced by the preferential producers in a period of 15 to 20 years, depending on the type of the Power Plant. The benefit for the preferential producers that use the preferential tariff is that the electricity market operator takes the balance responsibility for these producers. The Decree on the measures to support the electricity production from renewable energy sources, establishes the types of technologies awarded with preferential tariff, the special criteria to be fulfilled by the Power Plant in order the producer to obtain the status of preferential producer, the upper limit of the installed capacity in the Power Plant, and the amount and period for utilizing the preferential tariffs displayed in Appendix 12.3.

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The Decision on total installed capacity for the preferential producers of electricity stipulates the total installed capacity of the Power Plants to be awarded with preferential tariffs. The total installed capacity for each type of technology is presented in the review below: Prescribed total installed Type of Power Plant capacity

Wind Power Plant 160 MW

Biomass Thermal Power Plant 10 MW Until December 31st, 2019 Total of 7 MW Biogas Thermal Power Plant As from January 1st, 2020 Total of 20 MW The preferential producer operating under preferential tariff, shall be entitled to the right of utilizing the preferential tariff in accordance with the manner and procedure prescribed by the Rulebook on preferential producers operating under preferential tariff. As by the end of December 31st, 2019, the number of preferential producers is 197, whereas the larger number refers to the 102 Photovoltaic Power Plants, i.e., approximately 52 % of the total number of preferential producers operating under preferential tariff. Table 2.4 Installed capacity, electricity production, and paid amounts to preferential producers operating under preferential tariff according to technology in 2019 Type of Number Installed Share Production Share Payments Share Power of Power capacity (kW) (%) (kWh) (%) (MKD) (%) Plant Plants Mali HEC 90 79.630 56,58 % 169.032.224 48,41 % 841.711.395 36,62 % VEC 1 36.800 26,15 % 101.807.280 29,16 % 557.415.411 24,25 % Biomass 1 600 0,43 % 337 0,00 % 3.110 0,00 %

Biogas 3 6.999 4,97 % 55.102.011 15,78 % 610.141.358 26,55 % FEC 102 16.713 11,87 % 23.225.436 6,65 % 289.122.502 12,58 % Total 197 140.742 100 % 349.166.951 100 % 2.298.393.776 100 % The first power plants whose produced electricity is purchased at preferential tariffs start operating in 2010, and their number doubles from year to year in the period from 2010 to 2014. The trend of enlarging the number of preferential producers in the mentioned period, signifies that the highest influence is made by the enlarged number of Photovoltaic Power Plants in the period from 2010 to 2014, increased by almost 30 times. The trend of enlarging the number of preferential producers operating under preferential tariffs continues its course in the upcoming years, but with lower intensity. The reason for this progress is the achievement of the prescribed installed capacity by the Photovoltaic Power Plants according to the Decision on total installed capacity by the preferential producers of electricity produced by each individual source of energy (“Official Gazette of the Republic of Macedonia”, no.56 / 13). New decisions do not envisage preferential tariff for the mentioned type of Power Plants.

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One Wind Power Plant and two Biogas Thermal Power Plants have started operations in 2015. In 2019, the first Biomass Thermal Power Plant has started operations in our country. The dynamics of the movement of the number of preferential producers that use a preferential tariff is shown in the following chart.

101 102 102 102 102 89 120 90 79 73 100 64 58 80 34 33 60 16 27 8 3 13 40 5 8 2 3 3 3 3 20 1 1 1 1 1 1 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Biomass thermal power plant Wind power plants Biogas thermal power plant Hydro power plants Photovoltaic power plant

Chart 2.3 Number of preferential producers using preferential tariff according to technologies, in the period from 2010 to 2019 The total installed capacity of the 197 preferential producers operating under preferential tariffs, as by the end of December 31st, 2019 is 140,74 MW. Small Hydro Power Plants with the installed capacity of approximately 80 MW in 2019, i.e., 57 %, are dominant in the total installed capacity of the preferential producers operating under preferential tariff. A substantial growth of the installed capacity of the preferential producers with approximately 76 MW, is recorded in 2015 with the start of operations by the Wind Power Plant PVE “Bogdanci”, with 36,8 MW installed capacity. Following 2015, no changes are noted in the installed capacity of the Wind Power Plants, and in accordance with the issued decisions for obtaining temporary preferential status by the end of 2019, the installed capacity of the Wind Power Plants in the upcoming years is anticipated to grow with additional 83,2 MW. The Photovoltaic Power Plants, even dominating in the total number of Power Plants operating under preferential tariffs, have installed a capacity of only 16,7 MW, which is approximately 12 % out of the total installed capacity of the preferential producers. The installed capacity of the Biogas Thermal Power Plants is 6,9 MW, indicating no increase of installed capacity in this type of Power Plants in the period from 2017 to 2019. The reason for the status-quo position is the utilization of the quota of the prescribed 7 MW installed capacity by the Biogas Thermal Power Plants. In accordance with the outmost - 34 -

Decision on the total installed capacity of the preferential producers of electricity, the installed capacity, as of January 1st, 2020 for the Biogas Thermal Power Plants is increased by additional 13 MW, thus expecting results in increasing the installed capacity of the Biogas Thermal Power Plant in the upcoming years. The status of the Biomass Thermal Power Plants differs, i.e., even the prescribed 10 MW installed capacity for the Biomass Thermal Power Plants, as with the end of 2019, is only 0,6 MW installed capacity. The installed capacity for the preferential producers according to the type of Power Plants in the period from 2010 to 2019, is presented in the chart below:

140,000

120,000

100,000

80,000

60,000

40,000

20,000

0 201 201 201 201 201 201 201 201 201 201 0 1 2 3 4 5 6 7 8 9 Photovoltaic power plant 110 1,467 3,787 7,229 12,851 16,663 16,713 16,713 16,713 16,713 Biogas thermal power plant 3,999 5,999 6,999 6,999 6,999 Biomass thermal power plant 600 Wind power plants 36,800 36,800 36,800 36,800 36,800 Hydro power plants 2,572 3,689 6,377 17,299 26,750 57,948 60,887 67,509 72,460 79,630

Chart 2.4 Installed capacity of Power Plants using preferential tariffs (in kW Despite the enlarged number of preferential producers operating under preferential tariff, and the increased installed capacity in 2019 compared to 2018, i.e., the preferential producers of electricity in 2019 have produced 349.166.951 kWh electricity, thus indicating 7,5 % decrease of production than in 2018. Compared to 2018, in 2019 there is a significant growth in the production of electricity by all types of Power Plants, with the exemption of the Small Hydro Power Plants with lower production and causing downfall of the trend in the total produced electricity by the preferential producers. The cause for the decreased production of electricity by the Small Hydro Power Plants is due to the adverse meteorology conditions in the country during the 2019.

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400,000,000

350,000,000

300,000,000

250,000,000

200,000,000

150,000,000

100,000,000

50,000,000

0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Photovoltaic power plant 26,193 1,120,656 2,826,640 8,689,949 13,267,032 21,782,436 23,699,114 23,751,471 22,788,332 23,225,436 Biogas thermal power plant 17,708,234 36,033,307 51,551,388 54,049,728 55,102,011 Biomass thermal power plant 337 Wind power plants 115,477,42 109,482,53 110,480,28 97,338,130 101,807,28 Hydro power plants 2,188,160 8,503,516 15,279,391 29,751,814 68,680,964 108,645,09 189,152,98 141,186,77 202,962,18 169,032,22

Chart 2.5 Electricity produced by preferential producers using preferential tariffs in the period from 2010 to 2019 (in kWh) Графикон 2.5 What characterizes the production of electricity from renewable energy sources by the preferential producers in our country, is the dominant production of electricity from renewable energy sources in the first half of the year, compared to the second half. Namely, the first half of 2019 records production of 63,05 % in the total of produced electricity by preferential electricity producers. The reason for the mentioned outcome is the increased production of energy by the Small Hydro Power Plants in this period of the year, especially in March, April, and May. In 2019, within the total amount of produced electricity by preferential producers using preferential tariff, the Small Hydro Power Plants participate with 48 %, the Wind Power Plant PVE “Bogdanci” with 29 %, the Biogas Thermal Power Plants by 16 %, the Photovoltaic Power Plants with 7 %, while the participation of produced electricity by the Biomass Thermal Power Plant is insignificant due to its recent commencement of operations, as of September 2019. The Chart below displays the monthly production of electricity by preferential producers in 2019, according to the type of technology.

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Decmber 17,032 11,275 4,862 714

0.222 0 November 8,762 4,180 4,617 888 0.033 October 3,178 5,140 4,903 2,049

0.082 September 4,329 7,307 4,720 2,341

August 4,635 5,893 4,208 2,801

July 9,039 8,825 4,595 2,734

June 21,204 8,073 4,636 2,613

May 32,250 9,031 4,845 2,304

April 28,544 6,266 4,750 2,145

March 21,712 8,194 5,011 2,417

February 11,008 13,937 4,285 1,484

January 7,337 13,685 3,670 737

0 10,000 20,000 30,000 40,000 50,000 60,000

Hydro Power Plants Wind Power Plants Biomass Thermal Power Plants Biogas Thermal Power Plants Photovoltaic Power Plants

Chart 2.6 Monthly production of electricity by preferential producers in 2019 (in MWh) Within the entire period of the preferential tariffs’ application, with exemption of 2015, the Small Hydro Power Plants have dominant role in paid amounts for the produced electricity, compared to the other types of Power Plants. The paid amounts for the measures to support the preferential producers using preferential tariffs in the period from 2010 to 2019, and according to the type of Power Plants, are displayed in Chart 2.7.

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3,110 841,711,395 557,415,411 610,141,358 289,122,502 2019

970,301,537 532,902,132 598,468,979 283,312,886 2018

721,298,920 605,728,865 571,609,122 296,764,884 2017

899,881,564 600,053,787 399,442,019 294,829,383 2016

557,179,075 633,149,914 278,938,770 2015

196,439,070 356,522,994 208,036,061 2014

158,855,605 2013 165,521,324 64,517,561 2012 89,401,070.00 28,001,578 2011 49,730,337 660,710 2010 13,288,645 0 500,000,000 1,000,000,000 1,500,000,000 2,000,000,000 2,500,000,000

Hydro power plants Wind power plants Biomass thermal power plant

Biogas thermal power plant Photovoltaic power plant

Chart 2.7 Repayments to preferential producers operating under preferential tariffs in the period from 2010 to 2019 (in MKD) The Electricity Market Operator sells the purchased electricity produced by preferential producers to suppliers and traders with electricity, which is further sold to end consumers. The suppliers and traders purchase the quantity of electricity produced by the preferential producers from the Electricity Market Operator on daily basis, in respective manner with participation as notified in the electricity needs by their consumers within the total forecasted electricity needs by consumers of electricity in the Republic of North Macedonia.

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The Chart below displays the purchase of electricity produced by preferential producers, expressed in percentage for each electricity supplier and trader which sell electricity to end consumers individually.

ELEM TREJD 0.01% EVN HOME - last resort 0.08% EVN HOME - US 21.03% CEMENTARNICA USJE 0.23% OKTA 0.01% ENERGIA GAS END PAUER 0.20% MIST ENERGY D 0.24% U POVER 0.69% ELNOR 0.22% EVN Makedonija 39.96% EDS 21.97% Elektrosnabduvanje 12.90% AD ESM 0.10% SOLARPRO HOLDING 1.42% ENERGY ACTIVE 0.93%

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% 45.00%

Chart 2.8 Shares of suppliers / traders in the purchase of electricity produced by preferential producers The price per kWh at which the electricity market operator sells electricity to suppliers and traders is calculated at the end of the month as the average price at which the electricity market operator purchased electricity from preferential electricity producers using a preferential tariff. The average price for the electricity produced by the preferential producers using preferential tariff in 2019 amounts with 6,58 MKD / kWh, indicating growth compared to the price of 6,32 MKD / kWh in 2018. The Small Hydro Power Plants and the Wind Power Plants, compared to other three technologies that comprise the portfolio of preferential producers using preferential tariffs, represent a significantly cost – effective source of electricity produced from renewable sources. The analyzed period indicates that the average price of the produced electricity by the Small Hydro Power Plants is approximately 5 MKD / kWh, whereas, by the Wind Power Plants is approximately 5,5 MKD / kWh, which is below the average realized price for the preferential producers. The average price of the Photovoltaic Power Plants in the first three years, in the analyzed period, is significantly higher from the average price within the last five years in the analyzed period. The reason for this drastic difference in the average price of electricity produced by photovoltaic power plants is the reduction of preferential tariffs for electricity produced by photovoltaic power plants with the 2013 Decree on preferential / feed-in tariffs for electricity.

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Table 2.5 Number of preferential producers of electricity produced by Photovoltaic Power Plants Total Installed Preferential Tariff Capacity 3 Producers 46 €¢/kWh 71,425 kW 2 Producers 41 €¢/kWh 1246,7 kW 2 Producers 38 €¢/kWh 99,44 kW 9 Producers 26 €¢/kWh 5.863,325 kW 19 Producers 30 €¢/kWh 833,905 kW 59 Producers 12 €¢/kWh 8.212,6 kW 8 Producers 16 €¢/kWh 385,27 kW The average price for electricity produced by the Biogas and Biomass Thermal Power Plants, also shows growth above the average realized price of electricity produced by all types of Power Plants. The Chart below, displays in detail the dynamics of electricity average prices for each renewable source individually, and for each year in the analyzed period.

30.00

25.00

20.00

15.00 8.08 8.50 8.44 10.00 6.30 6.89 6.32 6.12 6.71 6.32 6.58 5.00

0.00 201 201 201 201 201 201 201 201 201 201 0 1 2 3 4 5 6 7 8 9 Hydro Power Plants 6.07 5.85 5.85 5.56 5.19 5.13 4.76 5.11 4.78 4.98 Wind Power Plants 5.48 5.48 5.48 5.47 5.48 Biomass Thermal Power Plants 9.23 Biogass Thermal Power Plants 11.09 11.09 11.09 11.07 11.07 Photovolataic Power Plants 25.22 24.99 22.82 18.28 15.68 12.81 12.44 12.49 12.43 12.45 Average Preferential tariff 6.30 8.08 8.50 8.44 6.89 6.32 6.12 6.71 6.32 6.58

Chart 2.9 Average price of electricity produced by preferential producers in the period from 2010 to 2019 (MKD / kWh)

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Graph 2.10 displays the ratio of payments to support preferential producers using preferential tariff with the quantity of electricity produced for each individual renewable source of electricity.

kWh 48% 29%

2019 0% 16% MKD 37% 7% 24% 0% kWh 27% 13% 54%

2018 26% MKD 41% 14% 6% 22% 25% kWh 43% 12%

2017 34% MKD 33% 16% 7% 28% kWh 26% 53% 14%

2016 MKD 31% 41% 10% 7% 27% kWh 18% 41% 13% 2015 MKD 33% 44% 7% 8% kWh 38% 12% 84% 17% 2014 MKD 63% 16% kWh 77% 37% 2013 MKD 51% kWh 23% 49% 2012 MKD 84% 58% kWh 16% 42% 2011 MKD 88% 64% kWh 12%

2010 MKD 99% 36% 95% 0% 10% 1% 20% 30% 40% 5% 50% 60% 70% 80% 90% 100%

Hydro power plants Wind power plants Biomass thermal power plant Biogas thermal power plant Photovoltaic power plant

Chart 2.10 Ratio of paid amounts to preferential producers and the quantity of electricity produced according to type of technology The ratio of paid amounts to support, and the quantity of electricity produced is in favor of electricity produced by the Hydro Power Plants and the Wind Power Plant PVE Bogdanci. This implies that expenses for supporting the production of electricity by the Hydro Power Plants and the Wind Power Plants, on average, are lower per unit of produced electricity than expenses for sources of production where the participation of assets are designed for repayments to support specific renewable source within the total amount of assets designed to support preferential producers and indicates higher share than the share of the same renewable source in the production of electricity by preferential producers. Less

- 41 - favorable is the ratio between payments for support and the produced energy by the Photovoltaic Power Plants and the Biogas Thermal Power Plants.

2.3.1.2 PREMIUM The Law on Energy* introduced the Premium tariff, as a new measure to support the producers of electricity utilizing renewable energy sources, along with the already existing preferential tariffs. The Premium tariff signifies additional amount above the price achieved of the preferential producer in selling of the produced electricity on the Electricity Market. The preferential producer using Premium is selected with a Tender Procedure and Auction conducted by the Ministry of Economy. The Degree on measures to support electricity production from renewable energy sources, establishes the types of technologies submissible for the acquisition of the Premium tariff by fulfilling the special criteria by the Power Plant in obtaining eligible status of preferential producer, the principle on determining the amount of the Premium, the principle of payment, and the manner of conveying the Tender Procedure and Auction for granting premiums. In February 2019, the Government of the Republic of North Macedonia has adopted a Decision on the total installed capacity of the preferential producers of electricity, according to which for the total of installed capacity of 200 MW by the Photovoltaic Power Plants, shall be granted with Premium tariffs. Therefore, during 2019, the Ministry of Economy has launched two Public Open Calls for granting the right to use the Premium tariffs on electricity, produced by the Photovoltaic Power Plants. The first Public Open Call on granting Premium tariffs on electricity, produced by the Photovoltaic Power Plants, was designed for Photovoltaic Power Plants envisaged to be built on state-owned property of the Republic of North Macedonia. The property parcels for the construction of the Photovoltaic Power Plants, offered by this tender, were on two locations, i.e., Amzabegovo – Municipality of Sveti Nikole, and Manastirec – Municipality of Makedonski Brod. The total installed capacity of the Photovoltaic Power Plants, was in the amount of 35 MW, divided to 11 Photovoltaic Power Plants in accordance with the Public Open Call on granting Premium tariffs. Following the conducted auction, one part of the mentioned locations was granted under negative auction, and the remaining part of the property parcels, due to the admission of large number of offers with a Premium value of 0,001 EUR / MWh, was realized by additional auction with positive bidding. Unlike the first, the second public announcement for granting the right to use the premium for electricity produced by photovoltaic power plants, was designed for the Photovoltaic Power Plants envisaged to be built on property not in ownership by the Republic of North Macedonia. The total of the installed capacity of the Photovoltaic Power Plants was 27 MW, in accordance with the Public Open Call on granting Premium tariffs.

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2.4 ELECTRICITY CONSUMPTION In 2019, the net consumption of electricity is in the amount of 6.505 GWh, whereby, the consumption of electricity by consumers directly connected to the Electricity Transmission System, amounts with 963 GWh, including the own consumption of electricity by the Power Plants. This consumption of electricity is increased by 6,64 % in relation to the consumption of 903 GWh in 2018. Foremost, the mentioned is due to the connection of two new consumers to the Electricity Transmission Network, and due to increased activities by the industrial capacities of the consumers connected to the Electricity Transmission Network. The consumption of electricity by consumers connected to the Electricity Distribution Network is in the amount of 5.541 GWh, showing growth by less than 1 %, or by 49 GWh in relation to the consumption of 5.492 GWh electricity in 2018. The consumption by the Electricity Distribution Network has recorded downfall in the delivery of electricity on the regulated market on the account of the growth of electricity consumption on the free market.

2.5 ELECTRICITY IMPORT AND EXPORT The Republic of North Macedonia is import – dependable country in satisfying the electricity requirements. The import of electricity, in the past years, is in the range of 20 % to 30 % of the total consumption of electricity, and the country depends on the domestic production of electricity, foremost, on the production by the Hydro Power Plants and the consumption of electricity. In 2019, the total import of electricity is in the amount of 2.472 GWh. It should be emphasized that these quantities of electricity are not entirely consumed by the consumers of the Republic of North Macedonia, but one part were only transited through the country, thus, to be re-imported by electricity traders. In 2019, these quantities amount with 61 GWh, and compared to 2018, show reduction by 55 %. Also, the total production of electricity is not fully used for the needs of consumers in the Republic of North Macedonia, but part of it is exported through the Macedonian Electricity Power System by the traders. In 2019, the calculated export of electricity obtained by the electricity producers is in the amount of 586 GWh, indicating growth by 55 % than in 2018, when the export was in the amount of 376 GWh, or by 77,76 % increase in export of the production of electricity compared to 2017, amounting with 329 GWh, thereof. Therefore, the mentioned signifies that the total import of electricity in 2019 is 646 GWh, indicating increase by 26,17 % in relation to 2018, i.e., by 60 % in relation to 2017. The import dependance of the Republic of North Macedonia is determined based on the ratio between the domestic production of electricity and the gross – consumption of electricity. The gross – consumption of electricity includes the electricity consumption by the end consumers and the electricity requirements to cover electricity losses in both, the Electricity Transmission Network and the Electricity Distribution Network.

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The Graph below displays the production of electricity used for consumers of electricity in the Republic of North Macedonia, the consumption of electricity, and the import dependance.

7927 8000 7461 7415 7390 7484 7000 5658 6000 5271 5384 5447 5468 5000 4000 MWh 3000 2656 2077 1968 1922 1826 2000 1000 0 2015 2016 2017 2018 2019 Consumption Generation Net Imports 0.40 33.51% 27.84% 26.54% 26.01% % 24.40% 0.20 Import depandance

Chart 2.11 Consumption, production, net import of electricity, and shares in the net import of electricity consumption in the period from 2015 to 2019 (in MWh and %) The import of electricity required to cover the total consumption of electricity in 2019, is in the amount of 1.826 GWh, indicating reduction by 5,1 %, or by 96 GWh in relation to 2018, while in relation to 2017, the reduction was by 7,17 %, or by 142 GWh. The mentioned reduction is due to the enlargement of the electricity production which is higher than the increase of the gross – consumption of electricity.

2.6 GRID SERVICES In accordance with the Law on Energy*, the Electricity Transmission System Operator and the Electricity Distribution System Operator perform regulated energy activities, thus implying performance of activities according to criteria, in a respective manner and if justified in accordance with prescribed prices and tariffs, i.e., approved by the Energy Regulatory Commission in accordance with the Public Service Obligation of the Law on Energy*. The energy activity referring to electricity transmission, based on the License issued by the Energy Regulatory Commission, is performed by the Electricity Transmission System Operator of the Republic of North Macedonia, the State-Owned AD for Electricity Transmission and Power System Management – Skopje (hereinafter: the AD MEPSO Skopje). The energy activity referring to electricity distribution is entrusted to performance by two individual legal entities, i.e., the Elektrodistribucija DOOEL Skopje (hereinafter: Elektrodistribucija) and AD ESM Skopje, also based on licenses issued by the Energy Regulatory Commission.

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Aiming to provide transparency, objectivity and nondiscrimination to all systems users and Electricity Market participants, the Law on Energy* prescribes that the Electricity Transmission System Operator and the Electricity Distribution System Operator shall be independent in performing the energy activity referring to transmission of electricity, i.e., the energy activity referring to distribution of electricity.

2.6.1 CERTIFICATION OF THE ELECTRICITY TRANSMISSION SYSTEM OPERATOR In the first half of 2019, the Energy Regulatory Commission has conducted the procedure on Certification of the Electricity Transmission System Operator, commenced with the submission of the Request for Certification by the Electricity Transmission System Operator AD MEPSO Skopje, on November 27th, 2018. In accordance with the Law on Energy* and the Rulebook on Certification of the Electricity Transmission System Operator and the Natural Gas Transmission System Operator, on March 27th, 2019, the Energy Regulatory Commission has developed Draft-Decision on Certification of the Electricity Transmission System Operator, the AD MEPSO Skopje, and has submitted to further opinion to the Energy Community Secretariat. On June 17th, 2019, the Energy Regulatory Commission has received the Opinion no. 3 / 19 on the Certification of the AD MEPSO Skopje, issued by the Energy Community Secretariat. The Opinion issued by the Energy Community Secretariat discloses a full support to the process on Certification of the AD MEPSO Skopje by highlighting further accuracy of certain parts in the Decision related to evidence of unbundling and independence by the Ministry of Transport and Communications, as the proprietor of the AD MEPSO Skopje, from other bodies of the state authority. The Energy Regulatory Commission considered the proposed indications by the Energy Community Secretariat, and following the joint harmonization, on August 15th, 2019, has adopted a Decision on Certification and nomination of the Electricity Transmission System Operator of the Republic of North Macedonia, under no. 02 – 2851 / 1, August 15th, 2019. The Energy Regulatory Commission has published the Decision in the “Official Gazette of the Republic of North Macedonia”, and on its webpage, also enclosing the Opinion received by the Energy Community Secretariat. The Decision adopted by the Energy Regulatory Commission has established that AD MEPSO Skopje: 1) is the owner of the Electricity Transmission Network in the Republic of North Macedonia; 2) is in ownership of the Ministry of Transport and Communications, but is a sole entity in the process of decision making for the election of Supervisory Body, i.e., Management Body of the Association, and shall fail to adopt guidelines or directions by the Government, or other state authority; 3) is granted with the License on performing energy activity referring to electricity transmission; 4) shall fail to perform, and shall fail to depend on performing energy activities related to production, distribution, trade, and supply of electricity, and in the supply of natural gas, and 5) is independent in governance and management of the Association in relation with other associations performing energy activity in the Republic of North Macedonia.

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2.6.2 ELECTRICITY DISTRIBUTION In the Republic of North Macedonia there are two individual electricity distribution systems, one in ownership by the Elektrodistribucija, and the second in ownership by the AD ESM Skopje. Elektrodistribucija is a sole legal entity, established by the EVN Makedonija AD Skopje to perform the activity of electricity distribution, and does not possess a license for performing energy activities referring to production, transmission, organization and governance of the Electricity Market, the trade and / or supply of electricity. On November 15th, 2019, the Compliance Officer of the Elektrodistribucija has submitted to the Energy Regulatory Commission, the Annual Report on the implementation of the Program on compliance of activities by the Elektrodistribucija in providing objectivity, transparency and prevention of discriminatory conduct in the performance of electricity distribution. The Annual Report was approved by the Energy Regulatory Commission on March 30th, 2020. AD ESM is entrusted with performing electricity distribution activity to certain geographical area, more exactly, to the area of the industrial complex of former “Rudnici i Zelezarnica – Skopje”, on territory of the municipalities Butel and Gazi Baba. The Electricity Distribution Network on the mentioned territory operates with less than 100.000 connected consumers.

2.6.3 ELECTRICITY TRANSMISSION SYSTEM The Electricity Transmission System connects larger production capacities, along with the two electricity distribution systems in the country. The Electricity Transmission Network Operator operates with voltage levels of 400 kV and 110 kV. The main pillar of the Electricity Transmission Network are 400 kV transmission lines. They assemble a 400 kV ring to connect the north part of the country, where the largest number of electricity consumers are located, with the south part, where the number of electricity consumers is significantly lower, but it is the part of the country to accommodate the largest production facilities. Simultaneously, the 400 kV transmission lines serve as an interconnection with the neighboring power systems. The Energy Transmission System of the Republic of North Macedonia is connected to the Energy Transmission Systems of all neighboring countries, with the exemption of Albania, through five 400 kV interconnections, accountable for the below countries: - In Kosovo, through the 400 kV transmission line TC Skopje 5 – TC Ferizaj 2 (Uroshevac); - In Serbia, through 400 kV transmission line TC Shtip – TC Vranje 4; - In Bulgaria, through 400 kV transmission line TC Shtip – TC Mogila; - In Greece, through two 400 kV transmission line TC Bitola 2: TC Meliti and TC Dubrovo – TC Thessaloniki To connect our Electricity Transmission System to the Electricity Transmission System of Albania, the Energy Community Secretariat has adopted as priority the project on construction of 400 kV transmission line Bitola – Elbasan. This project shall finalize the construction of the corridor eight, and shall enable interconnection of the North Macedonia,

- 46 -

Bulgaria, Albania, Montenegro, and Italy. The completion of this project is anticipated to be realized by 2023. The Electricity Transmission Network of 110 kV is the most expanded and the most developed and represents a connection of the large hydro and thermal power plants, the electricity distribution systems, so as all larger industrial capacities connected on the electricity transmission voltage level. The interconnection of the 400 kV and 110 kV transmission grid is achieved by the five Transformer stations: TS Skopje 4, TS Skopje 5, TS Bitola 2, TS Dubrovo, and TS Stip. The Electricity Transmission System on 110 kV level enables electricity supply to small number of consumers directly connected to the Electricity Transmission System, whereas the Electricity Distribution Systems connect smaller production capacities along with consumers connected to the Electricity Distribution System. AD MEPSO Skopje is an owner of overall five Transformer stations TS 400 / 110 kV / kV, nine Transformer stations TS 110 / xx kV / kV entirely owned, and 42 Transformer stations TS 110 / xx kV / kV in mixed ownership with Elektrodistribucija. AD MEPSO Skopje manages the Network with 577,06 km length of 400 kV grid, and 1.609,76 km length of 110 kV grid.

2.6.3.1 DEVELOPMENT AND INVESTMENT PLAN Pursuant to the Law on Energy*, the Electricity Transmission System Operator shall be obliged, on annual basis, to submit a Plan on Electricity Transmission System Development for a period of 10 years, to the Energy Regulatory Commission for authorization. On May 22nd, 2019, the Energy Regulatory Commission has approved the Plan on Electricity Transmission System Development for the period from 2019 to 2029, with anticipated projects and activities such as: construction of new elements in the Electricity Transmission Network, construction of interconnection transmission line with Albania, reconstruction and revitalization of the Electricity Transmission Network, modernization, research, new connections, and etc. One of the most significant projects of the AD MEPSO Skopje, related to both, the significance for the Electricity Transmission System and the investment perspective, is the construction of the new 400 kV transmission line to Albania. This project shall provide reduction in the electricity losses, growth of the cross – border transmission capacity, increase of the electricity transit within the systems in the region, and alignment of the electricity price differences in the region. In addition to these benefits, there are other positive effects such as: increase in the security of supply, reduced investments in production facilities designated for the National System Reserves, regional dispatching and cost-effective production, as well as generating reactive capacity. The project is in its realization phase and is anticipated to be finalized by 2023. The Energy Regulatory Commission, following the adopted Decision on the authorization of basic revenues for 2018, 2019 and 2020, the regulated maximum revenues for 2018, the regulated average tariff and tariffs on calculation elements for 2018 in performing regulated energy activity referring to energy transmission of AD MEPSO Skopje, on June 29th, 2018, has approved the investments by the AD MEPSO Skopje, for the next three years within the regulated period, displayed in the Table below.

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Table 2.6. Authorized amount of investments by the AD MEPSO Skopje in the period from 2018 to 2020 AD MEPSO Skopje 2018 2019 2020

MKD 2.223.857.319 2.416.521.322 1.491.975.432

2.6.3.2 ELECTRICITY TRANSMISSION SYSTEM LOSSES The losses of the Electricity Transmission Network are estimated as difference between the quantity input of the Electricity Transmission Network (Grid), acquired by import and domestic production, and the overall quantity output of the Electricity Transmission Network. During the analyzed period, i.e., from 2010 to 2019, the losses of electricity of the Electricity Transmission Network (Grid), have recorded significant downfall in both, the percentage and in quantities of electricity required to cover losses. In 2019, the quantity of electricity to cover losses of the Electricity Transmission Network, is 119,9 GWh, indicating reduction by 41% since 2010, when the quantity of electricity for covering losses was 204,4GWh. The mentioned is due to undertaken activities by the Electricity Transmission System Operator related to reconstruction and modernization of the Electricity Transmission Network, and with optimizing procedures on electricity purchase required to cover the losses. Additionally, the Electricity Transmission System Operator is motivated to reduce losses on electricity, considering that the Energy Regulatory Commission approves costs on electricity purchase in accordance with the approved percentage on losses. The Chart below shows an overview of the net consumption and the electricity losses by the Electricity Transmission Network, and the Electricity Distribution Network in the last 10 years.

8,000.0 7,614 7,220 6,897 6,989 6,960 6,853 7,000.0 6,455 6,408 6,395 6,504 6,000.0

5,000.0

4,000.0 GWH

3,000.0

2,000.0 1,186 1,107 1,075 990 914 903 890 896 871 859 1,000.0 204 201 187 159 152 131 116 111 125 120 0.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Net consumption ETSO Losses DSO Losses

Chart 2.12 Net consumption and network (grid) losses in the period from 2010 to 2019 (in GWh)

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The Electricity Transmission System Operator is under obligation to purchase electricity to cover the losses of the Electricity Transmission Network, according to market terms in transparent and non-discriminatory manner. The Electricity Transmission System Operator shall purchase electricity pursuant to the Rules on electricity purchase to cover losses of the Electricity Transmission Network, approved by the Energy Regulatory Commission. In 2019, the AD MEPSO Skopje has purchased electricity to cover the losses of the Electricity Transmission Network from traders with electricity in a transparent procedure. The Table below displays data on electricity purchase for 2019, including purchase prices. Table 2.7 Purchase of electricity to cover losses of the Electricity Transmission Network (Grid) in 2019 (in MWh and MKD / MWh) MWh MKD / MWh Total / Average 120.999,0 3.929,14 EFT 81.961,0 3.947,40 EDS 19.628,0 3.991,40 GEN – I Prodazba 11.400,0 3.665,83 ENERDZI VIND (ENERGY 8.010,0 3.964,60 WIND) The Energy Regulatory Commission in the approval of the regulated maximum revenue, the average tariff and the tariffs on calculation elements for performing regulated energy activity referring to electricity transmission, shall determine the costs to cover losses of the Electricity Transmission Network (Grid) by authorizing respective quantity of electricity. Quantities of electricity to cover limited authorized losses of electricity of the Electricity Transmission Network shall be accepted in percentage established by the Plan on electricity losses reduction of the transmission network, authorized by the Energy Regulatory Commission. The percentage refers to the overall quantity input of electricity in the Electricity Transmission Network from domestic production and by import, as well as the quantities of energy transiting through the transmission network (grid). For 2019, the Energy Regulatory Commission has established the percentage of authorized losses to be in the amount of 1,79 %.

2.6.4 ELECTRICITY DISTRIBUTION SYSTEM The Electricity Distribution Network in the Republic of North Macedonia refers to the voltage levels, such as: 110 kV, 35 kV, 20 kV, 10 kV, 6 kV and 0,4 kV. The overall length of the Electricity Distribution Network is 28.587 km, whereby, 99,40 % or 28.417 km, are governed by Elektrodistribucija. The remaining 170 km are governed by AD ESM Skopje. During 2019, Elektrodistribucija has built 38 new Transformer stations 10 (20) / 0,4 kV / kV. The grid with 35 kV shows reduction in length by 4 km, due to the gradually abandonment of this voltage level, and transferring to the voltage level of 20 kV. The 35 kV network suffers redistribution in the overhead and cable network, i.e., there is a reduction in the length of the overhead 35 kV network by approximately 11 km, and increase in the cable 35 kV network (grid) by approximately 8 km. The 10 (20) kV network signifies construction of new lines with 69 km length. This voltage level also suffers reduction of the overhead network with respective increase of the cable network (grid). The network of 0,4 kV voltage level shows

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enlargement in length by new 225 km, whereas, 101 km are overhead network, and 124 km refer to cable network. In the overall length of the medium-voltage network (grid), 35 kV and 10 (20) kV, the cable network participates with only 27,25 %. The cabling of the network is significant from the aspect of improvement of the safety of electricity supply by lowering the outdoor impacts on the lines. Table 2.8 Length of the Electricity Distribution Network according to voltage level of Elektrodistribucija in 2019 110 kV 35 kV 20(10) kV 0,4 kV 35 kV 20(10) kV 0,4 kV above- above- above- above- Voltage cable cable cable ground ground ground ground level (kV) network network network network network network network (grid) (grid) (grid) (grid) (grid) (grid) (grid) Length 188 905 149 7,57 3,025 12,312 4,268 (km)

Table 2.9 Percentage of participation in the above-ground and cable network (grid) according to voltage level of Elektrodistribucija in 2019 110 kV 35 kV 20(10) kV 0,4 kV 35 kV 20(10) kV 0,4 kV above- above- above- above- Voltage cable cable cable ground ground ground ground level (kV) network network network network network network network (grid) (grid) (grid) (grid) (grid) (grid) (grid) % 100 85,86 14,14 71,45 28,55 74,26 25,74 Further enclosed is the data on the number of Transformer stations, and the number of consumers connected to the Electricity Distribution Network (Grid) of Elektrodistribucija.

Table 2.10 Number of Transformer stations of Elektrodistribucija in 2019 110/хх kV/kV Voltage Joint ownership with 110/хх kV/kV 35/(20)/10 kV/kV 10/0,4 kV/kV level (kV) MEPSO Number of 41 13 76 7,333 TS The Electricity Distribution Network of Elektrodistribucija accounts in overall 868.444 connection points, whereby, 867.295 connection points are with low voltage, and the remaining of 1.149 refer to connection points with medium voltage. This number includes estimated metering points with active meters; however, no electricity consumption is recorded. In the overall number of consumers, 765.963 are households, while 102.518 are other consumers. Table 2.11 Number of connection points of the Electricity Distribution Network of Elektrodistribucija in 2019 Category MV1 MV2 LV1.1 LV1.2 LV.2 Total connections Total 82 1.067 5.782 3.305 858.208 868.444

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Table 2.12 Number of consumers of the Electricity Distribution Network of Elektrodistribucija in 2019 Consumers Large consumers Small consumers Households Total Total 24.148 78.370 765.963 868.481 Tariff 11.301 73.550 765.963 850.814 Qualified 12.847 4.820 0 17.667 AD ESM Skopje fails to record changes in the length of the network, and the same status is with the number of transformer stations, i.e., there is absence of any construction of new power facilities within this Electricity Distribution Network. The mentioned is due to the performance of the energy activity, i.e., the distribution of electricity by AD ESM Skopje is performed on strictly defined territory of the industrial facility. Further enclosed is the data on the number of transformer stations, the length of the Electricity Distribution Network, as well as the number of consumers connected to the Electricity Distribution Network of AD ESM Skopje. Table 2.13 Number of Transformer stations of AD ESM Skopje in 2019

Transformation of voltage 110/35/6 110/6 35/10/0,4 10/0,4 6/0,4 levels (kV)

Number of TS 1 1 1 1 4

Table 2.14 Length of distribution network (grid) of AD ESM Skopje, according to voltage level in 2019

Voltage level (kV) 110 35 10 6 0,4 Length (km) 20 10 0,1 90 50

Table 2.15 Number of consumers connected to the Electricity Distribution Network of AD ESM Skopje, in 2019 Total 110 kV 35 kV 10 kV 6 kV 0,4 kV 56 2 2 0 11 48

2.6.4.1 DEVELOPMENT AND INVESTMENT PLAN The Electricity Distribution System Operator shall be obliged, on annual basis, to develop a Plan on the Development of the Electricity Distribution System for the next five years, and to submit to the Energy Regulatory Commission for approval. The largest part of the investments shall refer to high voltage equipment and transformer stations, new measurement devices, projects for new customers, etc. The Energy Regulatory Commission, following the Decision on the approved basic revenues for 2018, 2019 and 2020, the regulated maximum revenue for 2018, the regulated average tariff and the tariffs on the calculation elements for 2018 in performing regulated

- 51 - energy activity – distribution of electricity of Elektrodistribucija, on June 29th, 2018, has approved the investments by Elektrodistribucija for the next three years within the regulated period, further displayed in the Table below. Table 2.16. Authorized amount for investments by Elektrodistribucija, in the period 2018-2020 година

Elektrodistribucija 2018 2019 2020

MKD 2.159.308.155 2.246.772.726 2.221.392.749

Table 2.17 Authorized amount for investments by the AD ESM Skopje, in the period 2018-2020 година AD ESM Skopje 2018 2019 2020

MKD 56.128.022 58.718.482 60.647.073

2.6.4.2 ELECTRICITY DISTRIBUTION SYSTEM LOSSES The Electricity Distribution Network Losses are calculated as a difference between the quality input of the Electricity Distribution Network by the Electricity Transmission System and the producers connected to the Electricity Distribution Network and the overall quantity output from the Electricity Distribution Network. The percentage of electricity losses of the Electricity Transmission Network and Electricity Distribution Networks in the last 10 years are displayed in the Chart below.

20.00% 18.10% 18.00% 17.17% 17.40% 16.42% 15.50% 16.00% 14.77% 14.68% 14.74% 14.20% 14.00% 13.40%

12.00%

10.00%

8.00%

6.00%

4.00% 2.52% 2.25% 2.22% 1.99% 1.94% 1.74% 1.55% 1.80% 2.00% 1.49% 1.20%

0.00% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

ETSO Losses (%) DSO Losses (%)

Chart 2.13 Anticipated losses in the period from 2010 to 2019 (in %) The Chart clearly expresses that electricity losses in the Electricity Distribution Network, within the period of the past years have significantly reduced, starting with 17,17 %

- 52 - in 2010 and reaching 13,40% in 2019. Considering the quantities of electricity losses by the Electricity Distribution System, in the period of 10 years, remarkable is the reduction by 215,5 GWh, or by 20,05 %. The mentioned is due to the fact that the Electricity Distribution System Operator, Elektrodistribucija, has firmly undertaken measures to reduce losses, foremost by grouping as measures and activities on joint dislocation of metering devices, individual dislocation of metering devices, technical control of metering devices, replacement of meters, revealing manipulation of meters, etc. The electricity losses of AD ESM Electricity Distribution System Skopje are insignificant in relation to the electricity losses of Elektrodistribucija and are in the limits from 1 to 2 GWh on annual level. The Electricity Distribution System Operator is obliged to purchase electricity to cover losses of the Electricity Distribution Network, under market terms, in transparent and non- discriminatory manner. The Electricity Distribution System Operator purchase electricity in accordance with the Rulebook on electricity purchase to cover losses of the Electricity Distribution Network, approved by the Energy Regulatory Commission. In 2019, Elektrodistribucija has purchased electricity to cover losses of the Electricity Distribution Network from electricity traders in a transparent procedure. The Table below displays the data on electricity purchase for 2019, with purchase prices enclosed.

Table 2.18 Purchase of electricity to cover losses of the Electricity Distribution Network in 2019 (in MWh and MKD / MWh)

MWh MKD / MWh

Total / Average 856.929,4 3.807,29 GEN-I Prodazba 365.005,0 3.954,98 ELEM Trejd 101.665,0 3.671,05 ALPIK 90.197,0 3.665,32 Danske Komoditis 86.800,0 3.930,69 TERNA Energy 55.160,0 3.892,13 HSE 54.245,0 3.766,70 Interenergo 17.395,0 4.031,48 Petrol 16.960,0 3.379,61 AD ESM 16.400,8 3.368,35 EFT 14.880,0 3.540,25 MVM 14.400,0 3.723,90 Green Energy 10.440,0 4.573,02 AD MEPSO 8.668,2 0,00 EDS 3.720,0 3.765,30 Energy Wind 3.715,0 3.681,80 AD EVN Makedonija -2.721,6 3.468,80

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The costs on electricity purchase to cover allowed losses of the Electricity Distribution Network are determined by the Energy Regulatory Commission by approval of the respective quantity of electricity. The quantities of electricity to cover allowed electricity losses of the distribution network (grid) are acknowledged in a percentage established with the Plan on reducing electricity losses of the distribution network approved by the Energy Regulatory Commission. The percentage refers to the overall input quantity of electricity into the distribution system. The Energy Regulatory Commission, for the year 2019, has established the percentage of allowed losses to be 13 %, based on the Plan on reducing electricity losses of Elektrodistribucija Electricity Distribution Network, for the period 2017-2020, and was approved by the Energy Regulatory Commission on June 23rd, 2017.

2.6.4.3 CHANGE OF CONNECTIONS CATEGORY In 2019, the Energy Regulatory Commission, has issued 61 Decisions on approval of Requests for change of connections category and one Decision rejecting the Request for change of connection category. The Energy Regulatory Commission has acted upon the Requests for approval of the change of connection category, submitted by Elektrodistribucija. Unlike 2018, when the number of submitted Requests was 10, in 2019, the number of submitted Requests is multiplied, i.e., it amounts with 62 Requests. The mentioned enlargement is since the Energy Regulatory Commission, in accordance with the Law on Energy*, entered into force in June 2018, was granted with a competence to approve the connections category switch. Elektrodistribucija submits Requests for approval of change of connection category due to several reasons, such as planed dislocations by the Electricity Distribution System Operator, Requests by consumers, and due to the wrongful established status in the Register of the Electricity Distribution System. Table 2.19 Review of Requests for change of connections category in 2019 Number of LV2 to LV1.2 LV1.2 to LV2 LV2 to MV2 LV2 to LV1.1 LV1.2 to MV2 MV2 to MV2 overall Requested / Requested / Requested / Requested / Requested / Requested / submitted Approved Approved Approved Approved Approved Approved Requests

62 42/42 2/2 1/1 14/14 2/2 1/0

The Table clearly displays data on the largest number of Decisions on approval of change of connection category moving from LV2 to LV1.2. The mentioned Requests for the switch are due to the new Tariff System on electricity distribution to consumers connected to the Electricity Distribution System of Elektrodistribucija DOOEL Skopje, since May 10, 2019, and according to which, the category LV1.2 is established to integrate connections if no other consumer is connected to the place, and the transferred energy shall not be used for public lightning. Additionally, significant is the number of connection category switch from LV2 to LV1.1. The mentioned is due to the fact that municipalities, whereby the public lightning is under jurisdiction, have been already preparing for the selection of electricity supplier on the free market, and was required accurate identification of the measurement points with the connection category.

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2.6.5 QUALITY OF ELECTRICITY SUPPLY The quality of electricity supply is assessed by the quality of voltage, continuity of supply, and the commercial quality. This part of the Report reveals the status of continuity of electricity supply, i.e., the planned and unplanned interruptions, the duration, and the voltage level at which they occurred. The data, regarding the commercial quality is displayed in the part of Legal Operations, in the chapter referring to Protection of Customers. The quality of voltage in the Electricity Distribution Networks should be following the Standard MKS 50160:2012, as established by the Grid Code for Electricity Distribution. The quality of the voltage in the Electricity Transmission Grid is established by the Grid Code for Electricity Transmission. The Energy Regulatory Commission monitors the quality of electricity through the Market Monitoring System, whereas, the Electricity Distribution System Operators are obliged to submit monthly reports on the levels of voltage interruptions, according to category of planned and unplanned interruptions, rapid and slow voltage deviations, asymmetric voltage, flickers, voltage distortions, as well as the parameters on permanent supply SAIDI (System Average Interruption Duration Index – Index of average timeframe interruption duration in the system per consumer), and SAIFI (System Average Interruption Frequency Index – Index of the average number of interruptions in the system per consumer). In 2019, the submission of data was only on level voltage interruptions, and the planned and unplanned interruptions according to category. Elektrodistribucija, in accordance with the plans, starting from 2020, shall submit data on continuity of supply indicators. In 2019, the Electricity Transmission System has suffered 634 interruptions in an overall timeframe of 9.259 hours, whereby, 416 interruptions referred to planned interruptions due to regular inspections or maintenance, while the remaining 221 interruptions were due to defects or particular accidents within the Electricity Transmission System. Table 2.20 Number and timeframe of planned and unplanned interruptions in the Electricity Transmission System, in the period from 2015 to 2019 Power Power Power Power Transformer Type of / Pipelines – Pipelines – Year Indicator Pipelines Pipelines stations Total interruptions Junction Measureme 400 kV 100 kV 400/100 kV field nt field Number 53 551 0 0 37 641 Planned (min) 33.495 158.859 0 0 29.832 222.186 2015 Number 22 298 0 0 5 325 Unplanned (min) 405 26.773 0 0 452 27.630 Number 53 383 0 0 27 463 Planned (min) 51.659 116.950 0 0 8.099 176.708 2016 Number 22 275 0 0 6 303 Unplanned (min) 385 7.874 0 0 120 8.379 Number 50 404 0 0 20 474 Planned (min) 32.790 244.073 0 0 9.809 286.672 2017 Number 19 229 0 0 3 251 Unplanned (min) 156 3.428 0 0 56 3.640

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Number 56 426 0 0 23 505 Planned (min) 39.929 274.251 0 0 878 315.058 2018 Number 15 283 0 0 6 304 Unplanned (min) 242 20.048 0 0 144 20.434 Number 37 364 0 0 15 416 Planned (min) 154.380 379.368 0 0 5.156 538.904 2019 Number 15 203 0 0 3 221 Unplanned (min) 1.469 15.077 0 0 98 16.644

In 2019, the overall number of interruptions within the Electricity Distribution System of Elektrodistribucija, is 37.307, in a timeframe of 126.442 hours. In the overall number of interruptions, 3.507 hours fall in the category of Planned interruptions, and are due to the regular inspections, maintenance and additional connection of new users to the Electricity Distribution Grid, while 33.800 interruptions were due to occurred defects and other circumstances in the operation of the Electricity Distribution Grid. Compared to 2018, the number of interruptions shows reduction by 10,4 %, but the timeframe of interruptions has increased by approximately 3,4 %. The average timeframe of a single interruption is estimated to 198 minutes, i.e., approximately 3,3 hours.

Table 2.21 Number and timeframe of planned and unplanned interruptions within the Electricity Distribution System of Elektrodistribucija, in the period from 2015 to 2019 Type of Year Indicator Total interruptions 35 kV 10 (20) kV 0,4 kV Number 94 3.233 0 3.327 Planned (min) 16.538 672.810 0 689.348 2015 Number 638 11.071 17.549 29.258 Unplanned (min) 36.140 1.773.743 2.192.319 4.002.203 Number 69 3.240 0 3.309 Planned (min) 10.129 685.997 0 696.126 2016 Number 547 10.458 20.855 31.860 Unplanned (min) 36.393 1.187.949 2.946.646 4.170.988 Number 98 3.025 NA 3.123 Planned (min) 16.130 658.039 NA 674.169 2017 Number 502 9.939 23.344 33.785 Unplanned (min) 25.275 1.193.693 4.308.453 5.527.421 Number 106 3.225 NA 3.331 Planned (min) 24.187 682.188 NA 706.375 2018 Number 589 10.577 26.697 37.863 Unplanned (min) 54.623 1.532.722 5.051.916 6.639.261 Number 112 3.395 NA 3.507 Planned (min) 18.323 621.899 NA 640.222 2019 Number 471 10.011 23.318 33.800 Unplanned (min) 24.644 1.105.335 5.816.320 6.946.299

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2.6.6 NETWORK SERVICE CHARGES In the process of the adoption of the Decision on determination of regulated maximum revenue, the regulated average tariff and tariffs on calculation of elements for regulated energy activity performance – transmission of electricity, i.e., distribution of electricity, the Energy Regulatory Commission is applying the provisions stipulated by the Rulebook on the manner and conditions for determining the regulated maximum revenue and regulated average tariffs for electricity transmission, organization and electricity market management and electricity distribution. Additionally, taken into consideration are the Tariff Systems for electricity transmission and the electricity market, i.e., the Tariff System for electricity distribution to consumers connected to the Electricity Distribution System of the Elektrodistribucija DOOEL Skopje, and the Tariff System on electricity distribution to consumers connected to the Electricity Distribution System of the AD ESM Skopje. The charges for the electricity TSO and DSOs services are set by the Energy Regulatory Commission on annual basis, referring to undertaken procedures on approval of regulated maximum revenue, the average tariff and tariffs of accounting elements for regulated energy activity performance referring to transmission of electricity, i.e., for regulated activity performance referring to the distribution of electricity. Decisions adopted by the Energy Regulatory Commission shall apply from July 1st, of the current year. The latest three-year regulated period for regulated activity performance referring to transmission of electricity, and the regulated activity referring to distribution of electricity, relates to the years of 2018, 2019 and 2020. The regulated basic revenue for the mentioned regulated period is determined for each year individually, including determination of operational expenses, amortization, and the return on regulated assets. Each year, the Energy Regulatory Commission establishes the regulated maximum revenue, whereby, along with the basic revenue, also are included the expenses on electricity purchase to cover losses, liquidity assets, transferred costs, and the factor of correction on the difference of actual and planned costs. The tariffs for the calculation of elements on the basis of which AD MEPSO Skopje, as a performer of the energy activity of electricity transmission, invoices the fee for use of the electricity transmission system, consist of maximum active power, active electricity and reactive electricity. The fee for usage of the Electricity Transmission System is paid by consumers directly connected to the Electricity Transmission System, which are independent on the Electricity Market, by producers of electricity connected to the Electricity Transmission System for electricity for their own needs, by suppliers to consumers directly connected to the Electricity Transmission System, which are not independent on the Electricity Market, by the Electricity Distribution System Operators, and by suppliers of electricity to consumers connected to the Electricity Distribution Systems. The average regulated tariffs for electricity transmission in the past five years are shown in the following table and graph.

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Table 2.22 Average tariffs for transmission of electricity in the period from 2015 to 2019 (in MKD / kWh, and in %) Year 2015 2016 2017 2018 2019 5/4 (%) 5/3 (%) 1 2 3 4 5 6 7 Average tariff for electricity transmission 0,2463 0,2315 0,2169 0,2052 0,1757 -14,44 -18,99 (MKD / kWh)

0.3 0.2463 0.25 0.2315 0.2169 0.2052 0.2 0.1757 kWh

/ 0.15 mkd 0.1

0.05

0 2015 2016 2017 2018 2019

Graph 2.14 Average tariffs on transmission of electricity in the period from 2015 to 2019 (in MKD / kWh) The tariffs of accounting elements of AD MEPSO Skopje in the last five years, are presented in Appendix 12.6. The tariffs of accounting elements per customer category, based on which the electricity DSO Elektrodistribucija, is invoicing grid charges include capacity, active electricity and reactive electricity. Electricity DSO grid charges are paid by the consumers connected to the electricity distribution systems and include service fee as well for electricity transmission. The electricity DSOs are entitled to conclude a Contract for authorizing suppliers or traders to collect the charges accrued to consumers for using of the electricity distribution system. The regulated average tariffs for electricity distribution with included average tariff for electricity transmission in the past five years, are presented in the Table and the Chart below. Table 2.23 Elektrodistribucija average tariffs on distribution of electricity in the period from 2015 to 2019 (in MKD / kWh, and in %) Year 2015 2016 2017 2018 2019 5/4 (%) 5/3 (%) 1 2 3 4 5 6 7 Average tariff on distribution of electricity 1,6154 1,4589 1,3729 1,4084 1,4963 6,24 8,99 (MKD / kWh)

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1.65 1.6154 1.6

1.55 1.4963 1.5 1.4589 kWh / 1.45 1.4084 mkd 1.4 1.3729

1.35

1.3

1.25 2015 2016 2017 2018 2019

Chart 2.15 Average tariffs of the Elektrodistribucija on distribution of electricity in the period from 2015 to 2019 (in MKD / kWh) The tariffs calculation elements for electricity distribution by Elektrodistribucija in the last five years are presented in Appendix 12.4. The regulated average tariffs for distribution of electricity with included average tariff for transmission of electricity, in the last five years is displayed in the Table below. Table 2.24 AD ESM Skopje average tariffs for distribution of electricity in the period from 2015 to 2019 (in MKD / kWh, and in %) Year 2015 2016 2017 2018 2019 5/4 (%) 5/3 (%) 1 2 3 4 5 6 7 Average tariff on distribution of 0,3240 0,3331 0,3332 0,2258 0,1943 -13,97 -41,67 electricity (MKD / kWh) The AD ESM Skopje, Podruznica Energetika tariffs of accounting elements for electricity distribution in the past five years, are presented in the Appendix 12.5

2.7 ELECTRICITY MARKET In 2019, the Wholesale Electricity and Retail Electricity Market in the Republic of North Macedonia has experienced a full transformation, i.e., it became a fully liberalized market. Amongst the numerous reforms in 2019, as an independent legal entity was the positioning of the Electricity Market Operator, the National Electricity Market Operator – MEMO DOOEL Skopje, acquiring the status of an individual legal entity established by the Electricity Transmission System Operator. The full liberalization of the Electricity Wholesale Market commenced on July 1st, 2019, and since than the Energy Regulatory Commission no longer determines the price on electricity production to the largest producer of electricity, AD ESM Skopje. In addition to the most significant trends in 2019, is the substantial increase of traders / suppliers purchasing

- 59 - electricity from domestic producers, compared to the previous two years. On the other hand, the number of active domestic producers on the Market with Bilateral Agreement, in the period of 2018/19, has expand by 18 new market participants. The mentioned correlations, including the gradual reduction of average price on this part of the market, indicates continuant reinforcement of its functionality and transparency. The full liberalization of the Retail Market, has commenced on January 1st, 2019, enabling each consumer to be eligible to the right to (choose) the electricity supplier, and to arrange mutual terms on supply and price of the electricity. During 2019, all consumers that fail to (choose) supplier of electricity, and some, until June 30th, 2019, were supplied by the electricity supplier of tariff consumers, EVN Makedonija AD Skopje, while since July 1st, 2019 the supply was enabled, under identical terms, with the Universal Electricity Supplier EVN HOME DOO Skopje. The gross-consumption in 2019 has recorded growth by 1,26 % in relation to 2018, whereas the net-consumption in 2019 compared to 2018, has recorded growth by 1,72 %. The overall percentage of the electricity gross-consumption, provided by the open electricity market in 2019, amounts with 49,13 %. The mentioned share compared to 2018 has recorded an increase, when 47,48 % of the electricity requirements were provided on the open market. In 2019, the number of the completed procedures on Supplier Switch was 7.231, indicating an increase by 66,46 % compared to 2018, when the number of completed procedures on electricity Supplier Switch was 4.344. In 2019, the regulated supplier (EVN Makedonija AD Skopje and EVN HOME DOO Skopje) has shown permanent reduction in the overall sale of electricity, which is in correlation with the process of full liberalization of the electricity market. In addition, the average purchase price on electricity by the regulated supplier in 2019 is by 8.31 % lower than the average price in 2018.

2.7.1 ELECTRICITY MARKET OPERATOR In 2019, as an independent legal entity was the positioning of the Electricity Market Operator, the National Electricity Market Operator – MEMO DOOEL Skopje, with the status of a sole individual legal entity, established by the Electricity Transmission System Operator. On September 25th, 2019, the Energy Regulatory Commission has issued a License to MEMO DOOEL Skopje for performing energy activity to organization and management of the Electricity Market. On October 1st, 2019 the MEMO DOOEL commenced its activity. On annual level, The Energy Regulatory Commission, approves the regulated maximum revenue and the regulated average tariff for regulated energy activity performance referring to organization and management of the Electricity Market. The Table below displays the usage fees for the electricity market in the last five years. Table 2.25 Usage fees for the electricity market in the period from 2015 to 2019 (in MKD / kWh)

2015 2016 2017 2018 2019

0,0150 0,0089 0,0018 0,0018 0,0049

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The usage fee for the electricity market on behalf of consumers in the Republic of North Macedonia, is paid by the suppliers or traders under concluded contract on supply, i.e., sale of electricity, as well as consumers, which in accordance with the Rules on Electricity Market, are registered to participate on the Electricity Market. The usage fees for the Electricity Market are paid by both, the Electricity Transmission System Operator and the Electricity Distribution System Operators in purchasing electricity to cover losses.

2.7.2 WHOLESALE MARKET The Electricity Wholesale Market includes the Market on Bilateral Agreement, the organized market, day ahead and an intra-day market, and balancing market. In 2019, the Market on Bilateral Agreement has continued its function, while on the balancing market final preparation were made for its functioning beginning on January 1st, 2020. In regard to the organized market (the day-ahead market and the intra-day market), in 2019 final preparational activities were conducted, and have also continued in the beginning of 2020. The Wholesale Electricity Market, since July 1st, 2019 is fully liberalized, i.e., the suppliers, traders, and producers of electricity without prior consents, i.e., approvals by the Energy Regulatory Commission, are entitled to conclude mutual agreements on electricity purchase and sale. This is due to the dissolution of the Energy Regulatory Commission in regulating the electricity production price of the largest electricity producer in the Republic of North Macedonia. As a result of this reform, a new member has emerged on the Wholesale Electricity Market, i.e., EVN HOME DOO Skopje, a legal entity founded by a Consortium of EVN Makedonija AD Skopje and EVN Elektrosnabduvanje DOOEL Skopje. This Consortium was selected for as a Universal Supplier, as first in rang under the Public Open Call conducted by the Government of the Republic of North Macedonia, according to which, and in accordance with the Law on Energy*, the Universal Supplier shall be a sole legal entity. On May 8th, 2019, the Energy Regulatory Commission issued a License to EVN HOME DOO Skopje for energy activity performance referring to electricity supply under obligations for providing electricity supply as a universal service and electricity supply as a last resort. July 1st, 2019 is the date of the energy activity commencement.

2.7.2.1 MARKET ON BILATERAL AGREEMENT In 2019, there were 61 active participants on the electricity Bilateral Agreement Market, whereby 33 appeared as traders / suppliers, and 28 as producers of electricity. Table 2.26 Number of active domestic producers and traders / suppliers on the Bilateral Agreement Market in 2017, 2018, and 2019

YEAR 2017 2018 2019 TOTAL ACTIVE DOMESTIC PRODUCERS 11 10 28 TOTAL ACTIVE TRADERS / SUPLIERS 30 32 33 Traders / Suppliers purchase 3 13 18 from domestic producers Traders / Suppliers purchase 25 25 24

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from other Traders / Suppliers Traders / Suppliers of Import 21 22 20 Traders / Suppliers selling 24 25 21 to other Traders / Suppliers Traders / Suppliers of Export 12 15 14 Traders / Suppliers of Transit 21 22 19

The review in Table 2.26, clearly indicates that in 2019, there is a significant enlargement of the number of traders / suppliers purchasing electricity from domestic producers, compared to the previous two years. On the other hand, the number of domestic producers active on the Market on Bilateral Agreement in the period of 2018 / 19, has increased by 18 new market participants.

2.7.2.2 DOMESTIC PRODUCERS The review in the Chart below, shows the share of electricity sold by domestic producers on the electricity Market on Bilateral Agreement in 2019, and in order to preserve the consistency with the review displayed in Table 2.27, without the quantities of electricity sold by AD ESM Skopje for the needs of EVN HOME DOO Skopje required in the second half of the year. EVN Elektrani Other Producers 125,855 MWh 11,239 MWh 8.6% 0.8%

ESM AD Skopje TE-TO AD Skopje 337,181 MWh 987,031 MWh 23.1% 67.5% Chart 2.16 Shares of domestic producers on the electricity Bilateral Agreements Market in 2019 (in MWh) The above attached review displays that the largest share in the sale on the Market on Bilateral Agreement is by TETO AD Skopje with 67,5 %, followed by AD ESM Skopje with 23,1 %, EVN Elektrani with 8,6 %, and other 25 small-sized producers with only 0,8 % share on the Market on Bilateral Agreement. Table 2.27 Achieved sale and average prices of domestic producers on Electricity Market on Bilateral Agreement in 2017, 2018, and 2019 Year 2017 2018 2019 MWh MKD / MWh MWh MKD / MWh MWh MKD / MWh

Total / Average 926.721 3.796,60 1.242.718 3.712,30 1.461.306 3.460,53

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The analysis of data in the Table highlights two reverse-proportional trends in the period from 2017 to 2019. The achieved sale by domestic producers on the electricity Market on Bilateral Agreement is in continuant increase, indicating that in 2019 is by 17,6 % higher than in 2018, but is by 57,7 % higher compared to 2017. The selling prices indicate reverse trend, i.e., the average sale price on annual level in 2019 is by 6,8 % lower than in 2018, while in relation to 2017, the downfall is by 8,8 %. These correlations clearly indicate permanent reinforcement of functionality and transparency by this significant part of the Wholesale Electricity Market.

2.7.2.3 TRADERS AND SUPPLIERS The overall quantity of electricity traded on the Wholesale Electricity Market in 2019 is 2.775.653 MWh, which is by 14,1 % lower in relation to 2018. The change is due to the significant increase of sales by domestic producers on the Wholesale Electricity Market in 2019, whereby, part of the quantities falls in the Import share, indicating increase, and are excluded from the trade transactions of the traders / suppliers on the Domestic Wholesale Electricity Market presented with this Report. The largest share in the traded quantities on the Domestic Market in 2019, are by TE- TO AD Skopje with 36,47%, followed by EVN Trejding with 28,32%, and GEN-I Prodazba with 20,51 %. GEN-I Prodazba 20.51% EVN TREJDING 28.32% PETROL ENERGETIKA 2.55% ENERDJI UIND 2.41% EDS TE-TO Skopje 36.47% 1.80% ELEM TREJD 1.57%

OTHER HSE MAK ENERDJI 3.57% TERNA ENERDJI 1.43% TREJDING 0.67% ALPIK ENERGIJA 0.68% Chart 2.17 Market share of traders / suppliers in the achieved sale on the Electricity Bilateral Agreement Market within the Electricity Market in 2019 The Tables 2.28 and 2.29 attached below, provide an overall review of achieved sale and market shares in trading transactions on the Wholesale Electricity Market in 2019, as well as a review of the achieved sale and average prices by traders / suppliers on the Electricity Market on Bilateral Agreement in 2017, 2018, and 2019. Table 2.28. Achieved sale and market shares by traders / suppliers on the Bilateral Agreement Market in 2019 РБ Trader / Supplier MWh %

TOTAL 2.775.653 100,00 1 TE – TO Skopje 1.012.294 36,47 2 EVN TREJDING 786.158 28,32

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РБ Trader / Supplier MWh % 3 GEN – I Prodazba 569.348 20,51 4 PETROL ENERGETIKA 70.823 2,55 5 ENERDZI UIND 67.012 2,41 6 EDS 49.981 1,80 7 ELEM TREJD 43.680 1,57 8 HSE MAK ENERDZI 39.662 1,43 9 ALPIK ENERGIJA 18.786 0,68 10 TERNA ENERGY TRADING 18.683 0,67 11 ENEKOD 18.469 0,67 12 GRIN TREIDING 16.429 0,59 13 INTERENERGO 14.348 0,52 14 EFT 12.110 0,44 15 ENERGIA GAS END PAUER 8.522 0,31 16 U POVER 7.673 0,28 17 SOLARIS PAUER 7.080 0,26 18 DANSKE KOMODITIS 6.602 0,24 19 SOLARPRO HOLDING 5.373 0,19 20 ENERDZI SUPLAJ M 2.278 0,08 21 ENERDZI AKTIVE 342 0,01 The average selling price of electricity by traders / suppliers on the Wholesale Electricity Market in 2019, is in the amount of 3600,7 MKD / MWh, i.e., 58,55 € / MWh, and is by 7,6 % higher than the price in 2018 (3.346,2 MKD / MWh; 54,41 € / MWh), i.e., by 22,6 % higher than the respective price in 2017, in the amount of 2.936,5 MKD / MWh, i.e., 47,75 € / MWh. Table 2.29. Achieved sale and average prices by traders / suppliers on the Electricity Market on Bilateral Agreement t in 2017, 2018, and 2019 Year 2017 2018 2019 MKD / MKD / MKD / MWh MWh MWh MWh MWh MWh

Total / Average 2.158.401 2.936,5 3.230.316 3.346,2 2.775.653 3.600,7

In order to clear present, the correlation of trade activities on the Wholesale Electricity Market in the country within the part of imported electricity, Table 2.30 attached below provides a review of the average annual prices on base day-ahead energy, and peak day- ahead energy reached on the Hungarian Power Exchange (HUPX), which is considered to present an exchange stock market for cross-reference of Wholesale Electricity Market movements in the Republic of North Macedonia. The review below indicates that in 2019 the average import price on electricity is by 8,9 % higher than the average price on base day-ahead energy reached on HUPX, while in the two previous years, the average import price was lower compared to the average annual

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prices on base energy reached on HUPX based on the day-ahead by 6,1% in 2018, i.e., by 2,9 % in 2017. Table 2.30 Review of average HUPX DAM prices on Base and Peak energy, and the average import price on electricity in 2017, 2018, and 2019 (in € / MWh) 2017 2018 2019 Average Annual Prices €/MWh € / MWh € / MWh HUPX Base Trimmed Mean 50,12 51,05 50,23 Price HUPX Peak Trimmed Mean 59,17 57,39 56,83 Price Import Price 48,63 47,94 54,70 On the other hand, the cross-reference of the average import price and the average price on Peak day-ahead energy reached on the HUPX, highlights that in 2019 the average import price is by 3,7 % lower than the price on the Hungarian Power Exchange HUPX, while in 2018 and 2017, the import prices on Peak day-ahead energy were by 16,5 %, i.e., by 17,8 % lower in relation to the prices on Peak day-ahead of the HUPX. The mentioned data indicates that in 2019, compared to the previous two years, there was a certain growth of the average import price on the peak energy in satisfying the domestic electricity requirements.

2.7.2.4 BALANCE ENERGY MARKET During 2019, both entities entrusted with regulated energy activity performance, AD ESM Skopje, and AD TEC Negotino, were not balance responsible parties. All the other participants on the Wholesale Electricity Market have acquired the balance responsibility, i.e., have undertaken the balance responsibility from their consumers. The referential price on imbalances is connected to the price on the day-ahead market of the Hungarian Power Exchange (HUPX) multiplied by a coefficient. The Energy Regulatory Commission determined the coefficient of estimation of the reference price on deviations, and for 2019, the coefficient was 1,4. In 2019, there was an establishment of 11 balancing groups, which is a higher number in relation to 2018 and 2017, when the number of balance groups was nine, i.e., seven. The increase of the number of balance groups corresponds with the increase of participants on the Electricity Market, all due to the liberalization of the Electricity Market. Table 2.31 Review of activities according to balancing groups, in the period from 2017 to 2019 Positive deviations Negative deviations currency Number of BG Hours ЕЕ (MWh) currency (MKD) Hours ЕЕ (MWh) (MKD) 2019 11 33.499 29.430 0 45.251 83.916 353.551.521 2018 9 26.728 25.366 0 38.876 69.961 301.295.205 2017 7 18.268 21.798 0 35.193 104.080 422.473.115 The above Table indicates increase in hours and increasing quantities of electricity with included imbalances within the balancing groups in both directions, also as a result of

- 65 - increasing nominated quantities of electricity. In addition, both, the positive and negative imbalances show growth during 2019 in relation to 2018, by 16%, i.e., by 20%, accordingly. The overall financial implication of the balancing groups due to the negative imbalances, amounts with 353.551.521 MKD (cca 5,7 million euros), and is higher by 17,3 % in relation to 2018. Commencing with 2019, the Energy Regulatory Commission with the support by the MM-Central Software System on monitoring the functioning of the Electricity Market, keeps track of the data on imbalances by the balance groups according to the balance responsible party. Therefore, in 2019, the largest balance group was the balancing group for which balance responsible party is the EDS DOOEL Skopje with negative imbalances in approximate value of 44 GWh, followed by the balancing group of EVN Makedonija Elektrosnabduvanje DOOEL with deviations of 26GWh, Energy Active with 4,53GWh imbalances, and etc.

TETO 2,576 ELEM TREJD 33 ELNOR 842 TITAN USJE 185 GASandPOWER 569 MIST ENERGY 716 U POVER 1,856 ENERGY ACTIVE 4,535 SPH AD 2,594 EVN Snabduvanje 26,013 EDS 43,999

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000

Chart 2.18 Review of imbalances per balance responsible party, in 2019 (in MWh) Activities on the functioning of the Balancing Energy Market in 2019, have resulted foremost, with the adoption of the Rules on Balancing of the Power System, enabling for the first time the introduction of transparency and market oriented way for auxiliary services purchase by the Electricity Transmission System Operator, as well as the Methodology on transparent and non-discriminatory manner in the determination of the price on imbalances within the nominated and completed quantities by the participants on the Electricity Market. Additionally, the mentioned acts also regulate the financial clearing of the Balance Service Providers and the balance responsible parties, the rights and obligations of the Balance Service Providers and the Balance responsible parties, etc. According to the new Rules, all participants on the market, including the regulated companies, shall be balance responsible. In December 2019, AD MEPSO Skopje has conducted an Auction on Annual Purchase of Reserves for Secondary Regulation for 2020, and the Auction on Monthly Purchase of Reserves for Tertiary Regulation for January 2020. AD ESM Skopje was the only bidder on these auctions.

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2.7.2.5 ORGANIZED ELECTRICITY MARKET During 2019, preparational activities were undertaken for commencement of functionality of Organized Electricity Market, i.e., followed by a nomination of an Organized Electricity Market Operator, whereas at the same time shall be nominated electricity market operator. The Government of the Republic of North Macedonia, following the proposal submitted by the Energy Regulatory Commission, and upon prior opinion by the Electricity Transmission System Operator submitted to the Energy Regulatory Commission, shall adopt a Decision on: 1) Designating Electricity Market Operator in accordance with Article 88 of the Law on Energy* for Organized Electricity Market Operator, or 2) Conduction of a Tender Procedure under Public Open Call, in accordance with the provisions regulating the purchase of public service on selection of an Organized Electricity Market Operator. Pursuant to Article 90, paragraph (3) of the Law on Energy*, the Government of the Republic of North Macedonia has adopted the Regulation on Operation by the Organized Electricity Market Operator, and the required technical, personnel and financial conditions for eligibility (“Official Gazette of the Republic of North Macedonia” no. 227 / 19) (hereinafter: Regulation) On January 17th, 2019, and in accordance with Article 8 of the Regulation, MEMO DOOEL Skopje as an Electricity Market Operator has submitted to the Energy Regulatory Commission, a Notification on eligibility according to the conditions to be appointed with the status of Nominated Electricity Market Operator. The Energy Regulatory Commission is reviewing the current analysis of the Notification by MEMO DOOEL Skopje and is anticipated to be completed in the first half of 2020, which shall be followed by a respective proposal to the Government of the Republic of North Macedonia.

2.7.3 ELECTRICITY CONSUMPTION STRUCTURE The 2019 has recorded growth in the electricity consumption, compared with 2017 and 2018. The displayed data in Table 2.32 show the gross-consumption growth by 1,26 % in 2019 compared to 2018, while in relation to 2017, the growth amounts with 0,94%. The net- consumption in 2019 compared to 2018 indicates growth by 1,72 %, while in relation to 2017, the growth amounts with 1,52 %. Table 2.32. Gross and Net Consumption of electricity in 2017, 2018, and 2019 (in MWh) 2019/18 2019/17 Year 2017 2018 2019 (%) (%) Gross consumption 7.413.803 7.390.510 7.483.619 1,26 0,94

Net consumption 6.407.090 6.394.701 6.504.575 1,72 1,52

Transmission consumers 865.596 902.692 963.342 6,72 11,29 Tariff consumers 4.116.563 3.881.214 3.806.597 -1,92 -7,53 Other consumers 1.424.931 1.610.795 1.734.635 7,69 21,73

Losses 1.006.713 995.810 979.044 -1,68 -2,75

Transmission 111.058 125.269 119.721 -4,43 7,80

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2019/18 2019/17 Year 2017 2018 2019 (%) (%) Distribution 895.655 870.541 859.323 -1,29 -4,06 Elektrodistribucija 893.360 869.545 858.426 -1,28 -3,91 ESM – Energetika 2.295 996 897 -9,86 -60,91 Typical for 2019, in relation to the previous two years, is the significant growth of consumption by consumers directly connected to the Electricity Transmission Network, in the amount of 6,72 % in relation to 2018, and high 11,29 % compared to 2017. In addition, remarkable is the growth of consumption by other consumers on the free market supply, in the amount of 7,69% in relation to 2018, and growth by even 21,71 % compared to 2017. The mentioned trend is logical and is in correlation with the decrease of consumption on the regulated market, whereby in 2019 in relation to 2018, the reduction amounts with 1,92 %, i.e., by 7,53 % compared to 2017. 2019 has recorded decrease in the quantities of electricity to cover losses within respective grids, in the amount of 1,68% in relation to 2018, i.e., by 2,75 % compared to 2017. Table 2.33. Structure of Net consumption of electricity in 2017, 2018, and 2019, according to types of connections (in MWh) 2019/18 2019/17 Year 2017 2018 2019 (%) (%) Connected to transmission 865.596 902.692 963.342 6,72 11,29 grid (110 kV) MV1 330.558 340.965 306.938 -9,98 -7,15 MV2 851.840 904.174 926.890 2,51 8,81 LV1.1 – Public Lighting 98.671 100.727 99.873 -0,85 1,22 LV1.2 419.917 415.371 417.182 0,44 -0,65 LV2 - Households 3.090.345 2.989.008 3.038.217 1,65 -1,69 LV2 - Other 750.163 741.765 752.132 1,40 0,26 LV2 Connected to Other transmission grid 752,132 MWh; (110kV) 11.56% 963,342 MWh; 14.81% MV1 306,938 MWh; 4.72% MV2 926,890 MWh; 14.25%

LV2 LV1.1 Households LV1.2 Public Lighting 3,038,217 MWh; 417,182 MWh; 99,873 MWh; 46.71% 6.41% 1.54% Chart 2.19 Structure of the Net consumption of electricity in 2019 according to types of connections (in MWh)

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At the end of 2019, the total number of end electricity consumers according to the number of metering points within the electricity system is 868.614, indicating an increase by 126.579, or by 17,06 % compared to 2018.

Table 2.34 End consumers of electricity in 2017, 2018, and 2019, according to metering points

2019/18 2019/17 Year 2017 2018 2019 (%) (%)

Total 734.135 742.035 868.614 17,06 18,32

Transmission Grid Consumers 11 12 14 16,67 27,27

Electricity Distribution Grids 734.124 742.023 868.600 17,06 18,32 Consumers MV1 76 76 84 10,53 10,53

MV2 978 1.023 1.131 10,56 15,64 LV1.1 5.119 5.361 5.799 8,17 13,28 LV1.2 2.859 2.912 3.305 13,50 15,60 LV2 Households 643.884 658.687 765.963 16,29 18,96

LV2 Other 81.208 73.964 92.318 24,81 13,68

In 2019, the number of consumers connected to the Electricity Transmission Grid is 14, i.e., additional two new consumers compared to 2018. The number of consumers connected to the Electricity Distribution Grids is 868.600. The mentioned number refers to the number of connected by 765.963 households in 2019, indicating growth by 16,29 % compared to 2018. The number of other consumers connected to the Electricity Distribution Grid in 2019, is 102.637, showing increase by 19.301 metering points, in relation to 2018. The difference in numbers appearing in 2019 are due to the inclusion of data of all metering points, i.e., including metering points of the inactive consumers.

2.7.4 RETAIL MARKET The Electricity Retail Market includes the purchase and sale of electricity by traders / suppliers of electricity, and the end consumers of electricity. In 2019, not all of the consumers have chosen their electricity supplier, and some, until June 30th, 2019, were supplied by the electricity supplier of tariff consumers, i.e., EVN Makedonija AD Skopje, but as from July 1st, 2019, under identical terms, to continue their supply through the Electricity Universal Supplier EVN HOME DOO Skopje.

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2.7.4.1 LIBERALIZED MARKET The overall percentage of the electricity consumption, as provided on the open market of electricity in 2019, is 49,13 %. The mentioned percentage includes the electricity required to cover losses of electricity within the Electricity Transmission Grid, i.e., of the Electricity Distribution Grids. Also, this share has recorded growth in relation to 2018, when 47,48 % of the electricity requirements were provided on the liberalized market.

SWITCHING SUPPLIER The number of completed switching electricity supplier procedures in 2019 is 7.231, which is by 66,46 % higher than in 2018, when the number of completed switching procedures was 4.344. In 2019, for the first time there is a switching procedure in the category of households, although it has to be clarified that these cases refer to residential facilities owned by legal entities, whereby, with switching supplier for their core business activities, at the same time they have switched electricity supplier to the residential facilities. Considering that in 2019 all consumers were eligible to choose the supplier, for the first time, the Energy Regulatory Commission is enabled to publish supplier switching rates for the whole electricity retail market, as one of the key indicators for assessing retail market functioning. Table 2.35. Overview of the switching electricity supplier procedures in 2019 by consumers connected to the System operated by Elektrodistribucija DOOEL Skopje Number of switches Number of switches Annual volume Consumers (entities) (connection points) (MWh) Large consumers 392 3.108 418.257,47 Small consumers 1.932 4.064 92.882,08 Households 23 59 366,15 Total 2.347 7.231 511.506

The supplier switching rate per metering points in 2019 is 0,83 %, while the supplier switching rate per annual volume is 7,86 %. The Chart below shows the annual supplier switching rates by commercial consumers per annual volume among the CEER1 members. The cross-refence of the supplier switching rate of 7,86 %, achieved per annual volume on the domestic retail market in 2019, with the data by respective rates for 2018 published by CEER referring to the European countries, highlights the Macedonian Retail Electricity Market, according to the mentioned indicator, to be of better ranking than the respective markets of Bulgaria, Luxemburg and Greece, i.e., is on the level with Austria, Denmark and Finland.

1 CEER Monitoring Report on the Performance of European Retail Markets in 2018, p. 36

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Chart 2.20 Cross-reference with annual supplier switching rates by commercial consumers per annual volume among CEER members

SUPPLY OF END CONSUMERS The Chart below shows the electricity suppliers and traders share in the electricity supply to large and small consumers on the liberalized electricity market in 2019, including sales towards the operators of respective systems for covering electricity losses. In order to keep the consistency in the timeframe presentation, the share of EVN HOME DOO Skopje as a supplier of last resort with electricity, with sales of 4.928 MWh in the second half of 2019, is excluded from the Chart below ,.

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6.64% OSTANATI 12 224,823 MWh 1.63% TERNA ENERGY TREJDING 55,165 MWh ENERGY ACTIVE 1.75% 59,114 MWh

DANSKE KOMODITIS 2.56% 86,800 MWh SOLARPRO HOLDING 2.66% 89,971 MWh ALPIK ENERGIJA 2.66% 90,197 MWh EFT 2.86% 96,841 MWh ELEM TREJD 3.02% 102,174 MWh 11.12% GEN-I Prodazba 376,405 MWh

EVN Snabduvanje 24.80% 839,594 MWh 40.29% EDS 1,364,007 MWh

0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000

Chart 2.21 Market shares of traders and suppliers in the electricity sale to end consumers on the liberalized market in 2019 (in %, and in MWh) The average sales price of traders and suppliers for electricity sales to end consumers, i.e., to all large and small consumers on the liberalized market in 2019, is 3.900,44 MKD / MWh, or is 63,42 € / MWh. The reached price is by 11,79 % higher than the average price on the liberalized market in 2018, amounting with 3.489,09 MKD / MWh, i.e., is 56,73 € / MWh. The next Chart displays the continuant trend of market forces stabilization during 2019, commenced in 2018, i.e., following the extremely difficult 2017 affecting significant operational losses by large number of traders and suppliers.

5,000 3,900.44 4,000 3,242.24 3,489.09 2,736.03 MWh / 3,000 3,537.48 3,017.70 3,311.61 mkd 2,000 2,544.70

1,000 2016 2017 2018 2019

Average Purchase Price Average Sale Price Chart 2.22 Average purchase and sale prices by traders and suppliers in the electricity sale to end consumers on the liberalized market, in the period from 2016 to 2019 (in MKD / MWh)

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In 2019, the average trade margin was 362,97 MKD / MWh, or 5,90 € / MWh, i.e., is 9,3% of the average selling price. As for cross-reference, in 2018 the trade margin was 177,48 MKD / MWh, or 2,88 € / MWh, reaching 5,1% of the average sale price.

SMALL CONSUMERS SUPPLY During 2019, there were ten active electricity suppliers providing supply to the small consumers on the liberalized market. The dominant supplier in this segment on the retail market, is the EDS with a share of 64,39%, followed by EVN Elektrosnabduvanje with 18,49 %, Energy Active with 6,79 %, Solarpro Holding with 4,72 %, and other six electricity suppliers with a share lower than 2 %.

OKTA ELEM TREJD EDS 857 MWh; 509 MWh; MIST ENERDJI 560,368 MWh; 0.10% 0.06% 6,997 MWh; 64.39% 0.80% U POVER 11,514 MWh; 1.32% ENERGIJA GAS END PAUER 14,233 MWh; 1.64% EVN SOLARPRO Elektrosnabduvanj ENERDJI AKTIVE ELNOR HOLDING e 59,114 MWh; 14,685 MWh; 41,064 MWh; 160,936 MWh; 6.79% 1.69% 4.72% 18.49%

Chart 2.23 Market shares of suppliers in the sale of electricity to small consumers on the liberalized market in 2019 (in %, and in MWh) The Chart below is an overview of the average purchase prices of suppliers, including the costs on energy purchase from preferential producers, as well as the average sale prices on electricity supply to small-sized consumers on the liberalized market.

5,000 4,076.16 4,000 3,395.32 3,416.16 2,690.03

MWh 3,652.44 / 3,000 3,421.20 mkd 2,762.60 2,000 2,786.97

1,000 2016 2017 2018 2019

Average purchase price with included expenses or PPEE Average sale price for small-sized consumers

Chart 2.24 Average prices on purchase and sale by suppliers in the electricity sale to small-sized consumers on the liberalized market, in the period from 2016 to 2019 (in MKD / MWh)

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The enclosed data reveal that the average selling price of electricity to small consumers on the liberalized market in 2019, is 4.076,16 MKD / MWh, or is 66,28 € / MWh, and is by 19,32% higher than the average price on the liberalized market in 2018, amounting with 3.416,16 MKD / MWh, i.e., with 55,55 € / MWh. The general trend in the sale price movement on the liberalized electricity market to end users, it also applies to small consumers. In fact, the average margin on supply for 2019, is in the amount of 423,72 MKD / MWh, or is 6,89 € / MWh, reaching 10,4 % of the average selling price. The mentioned, indicates that during the past year, the stabilization of the market forces of suppliers on the liberalized market is evident when compared to 2018, and especially with 2017, thus reducing risks to their illiquidity and insolvency. The presented average prices reached on the liberalized electricity market exclude the electricity transmission and distribution system charges, i.e., in accordance with the Electricity Supply Rules, for the use of respective systems, consumers receive separate invoices by the respective operators.

PRICE COMPARISON TOOL SWITCH.MK The Energy Regulatory Commission with the technical assistance provided by the USAID and NARUC, in an entirely inclusive process of consultations with active electricity suppliers, in November 2019 has successfully completed the two-year project in the development of the first price comparison tool, the Switch.mk. The Republic of North Macedonia became the very first state within the Energy Community to implement the mentioned functional tool.

Switch.mk is designed, foremost, for the small-sized consumers and households to assist in their selection of electricity supplier. The web platform is available in three languages: the Macedonian, Albanian and the English Language, and provides to consumers a cross- reference of available offers by active suppliers on the Retail Electricity Market, i.e., provides clear, comprehensive and updated information on prices of electricity, the timeframe of the contract for supply, the invoicing, as well as other services referring to the electricity supply. The platform, also offers other useful information to consumers for better understanding the functioning of the electricity market, the rights and obligations to/by consumers, energy savings tips, etc. Within the first period of the Switch.mk functioning, the largest part of published competitive offers were by suppliers, foremost directed to companies of the II tariff level, or

- 74 - to the LV2 connection category, which by the beginning of 2019, were entitled to the right to choose a supplier on the liberalized market. The mentioned category, in practice includes the largest number of commercial consumers, i.e., the small-sized and middle-sized companies in the country. The difference between the lowest and the highest offer, within the offers for this category of consumers, published by 9 active suppliers, per average consumer is 31 % highlighting significant potential for saving companies assets.

2.7.4.2 REGULATED MARKET The electricity market reform, whereas its preparations has commenced in 2018, and was implemented in 2019, through its full liberalization, i.e., enabling all consumers to be entitled to the right to freely choose a supplier, has also included the customers protection component by introducing the Universal Service of electricity supply. EVN HOME DOO Skopje, as an Electricity Universal Supplier, and the Electricity Supplier of Last Resort, has commenced its operation on July 1st, 2019, and has provided the required protection to small consumers and households in case neither has chosen a supplier on the liberalized market, or due to certain circumstances were without electricity supplier, thus enabling supply by the Universal Supplier, EVN HOME DOO Skopje, under prices and tariffs approved by the Energy Regulatory Commission. Other consumers deprived of the right to use the universal service, in cases due to specific reasons fail to acquire supply on the liberalized market, shall be entitled to the right to use the electricity supply as a last resort by EVN HOME DOO Skopje within 90 days, unless they conclude a new contract with any supplier on the liberalized market. In such a case, the electricity selling prices are not regulated by the Energy Regulatory Commission, i.e., these prices are set each month based on the monthly prices reached on the day-ahead market of the Hungarian Power Exchange (HUPX), increased by 50 %. Table 2.36. Volume and average prices on electricity purchase from the regulated supplier, in 2019 (in kWh, and in MKD / kWh) Price (MKD / Quantity (kWh) kWh) Total / Average 3.806.597.464 2,5350

AD ESM Skopje 3.596.962.486 2,2947 Elektrodistribucija 2.747.370 3,4837 Preferential Producers from OIE/RES 208.903.153 6,6373 AD MEPSO Skopje -2.015.545 In the first half of 2019, EVN Makedonija AD Skopje, and EVN HOME DOO Skopje in the second half of the year (hereinafter: Regulated Supplier), the largest volume of the electricity required for households and small consumers supply, have provided from AD ESM Skopje. The remaining electricity needed for regulated supply in 2019, was provided by the preferential producers of electricity from renewable sources, while small portion was purchased from Elektrodistribucija, from the surplus volume of the purchased electricity for covering electricity losses.

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Table 2.37. Quantities and average prices of electricity purchase from regulated supplier, in the period from 2017 to 2019 (in MWh, an in и MKD / MWh) Year 2017 2018 2019 MKD / MKD / MKD / MWh MWh MWh MWh MWh MWh

Total / Average 4.106.644 2.744,2 3.871.270 2.764,7 3.806.597 2.535,0

AD ESM (former AD ELEM) 3.878.977 2.524,5 3.484.704 2.483,0 3.596.962 2.294,7

Elektrodistribucija 4.863 2.626,2 28.517 3.426,3 2.747 3.483,7

Preferential producers 222.804 6.572,4 241.730 6.158,7 208.903 6.637,3 from OIE Purchase on liberalized 116.320 3.988,0 market

AD MEPSO -2.016

The presented data in Table 2.37, for 2019 compared to 2018, reveal that no electricity was purchased on the liberalized market. During 2017, there were some quantities of electricity purchased on the liberalized market, but the purchase of the required quantities in the mentioned year, were made by the former AD ELEM Skopje, thus not included in the respective Table. Additionally, the Table above shows the continuant reduction in the overall purchased quantities by the regulated supplier, which is in correlation with the process of gradual liberalization of the electricity market. At the same time, the average price on electricity purchase in 2019 is by 8,31 % lower in relation to the average price in 2018, i.e., is by 7,62 % lower than in 2017. In regard to the sale of electricity by the regulated supplier in 2019, the Table 2.38 below presents sold quantities, the average selling prices, and the selling shares per customer categories, defined with the Tariff System on electricity sales to consumers supplied by the universal supplier and supplier of last resort. In 2019, the regulated supplier has reached 3.806.597.419 kWh sale, under the average price of 4,4473 MKD / kWh, with all fees on grids services included.

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Table 2.38. Quantities, average prices, and shares of electricity sold by the regulated supplier according to category of consumers, in 2019 (in kWh, in MKD / kWh, and in %)

Quantity Price Share (kWh) (MKD / kWh) (во %) Total / Average 3.806.597.419 4,4473 100,00

Consumers - 35 kV 7.332.205 2,1837 0,19 Consumers - 10(20) kV 131.001.653 2,5498 3,44 Other I level 166.874.050 2,8989 4,38 Other II level 376.212.451 8,6300 9,88 Public Lighting 86.960.039 5,5600 2,28 Households 1Т 70.044.864 4,4400 1,84 Households 2Т 2.968.172.157 4,0611 77,97

The largest sale shares of electricity in 2019, fall on the category of Households (79,81%), whereas 77,97% is by households with double tariff meters, while 1,84% is the sale shares by households with single tariff meter.

Households 1Т Households 2Т 1.84% 77.97%

Public Lighting 2.28%

Other II level / degree 9.88%

Other I level / degree 4.38% Consumers - 10(20) kV Consumers - 35 kV 3.44% 0.19% Chart 2.25 Structure of the sale according to tariff categories of consumers, with the regulated supplier in 2019 (in %) The category of other consumers participates with overall of 20,19 % in the sales by the regulated supplier, whereby the largest part of other consumers is the second tariff level, i.e., the small consumers with 9,88 %.

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The Chart 2.26 below displays the structure of the sale by the regulated supplier according to tariff categories in the period from 2017 to 2019, while Table 2.39 is an overview of the average selling prices, with included fees on grid services, the supplier to tariff consumers in 2017 and 2018, i.e., the supplier to tariff consumers, and the universal supplier in 2019.

Households 2Т

Households 1Т

Public Lighting

Other II level / degree

Other I level / degree

Consumers - 10(20) kV

Consumers - 35 kV

0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 Consumers - Consumers - Other I level / Other II level Public Households Households 35 kV 10(20) kV degree / degree Lighting 1Т 2Т year 2017 12,670 166,210 259,673 480,792 90,720 101,346 2,995,233 year 2018 12,328 132,452 201,713 435,977 90,026 83,166 2,915,608 year 2019 7,332 131,002 166,874 376,212 86,960 70,045 2,968,172

year 2017 year 2018 year 2019

Chart 2.26 Structure of sale according to tariff categories of consumers with the regulated supplier in the period from 2017 to 2019 (in MWh)

The key findings in the last Table of the Electricity Chapter indicate that the average selling price on supply to tariff consumers in 2019 is by 1,59 % in lower compared to 2018, whereby, in relation with 2017, the drop is 4,08 %.

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Table 2.39 Average selling prices by a supplier to tariff consumers / universal supplier in 2017, 2018, and 2019 (in MKD / kWh, and in %)

Year 2017 2018 2019 2019/18 2019/17

(MKD / kWh) (MKD / kWh) (MKD / kWh) (%) (%)

Average 4,6364 4,5193 4,4473 -1,59 -4,08

Consumers - 35 kV 2,3030 2,2586 2,1837 -3,31 -5,18

Consumers - 10(20) kV 2,6380 2,6154 2,5498 -2,51 -3,34

Other I level 2,9792 2,9818 2,8989 -2,78 -2,69

Other II level 8,6504 8,6355 8,6300 -0,06 -0,24

Public Lighting 5,5785 5,5600 5,5600 0,00 -0,33

Households 1Т 4,4554 4,4454 4,4400 -0,12 -0,35

Households 2Т 4,2190 4,0715 4,0611 -0,26 -3,74

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NATURAL GAS

ENERGY AND WATER SERVICES REGULATORY COMMISSION- 80 OF - THE REPUBLIC OF NORTH

MACEDONIA III. NATU RAL GA S

In 2019, the trend on increase of natural gas quantities transmission has reached 295 million nm3, foremost due to the cogenerated plants and the heating plants operating on natural gas. These are record-breaking quantities of natural gas transmission since the commencement of the transmission system operation and indicate growth by 16 % in relation to quantities of natural gas transmission in 2018. Pursuant to the Law on Energy*, the Energy Regulatory Commission has adopted new Rules on the Natural Gas Market and has changed and amended the Tariff System on Natural Gas Transmission, but has postponed the introduction of the Entry – Exit Tariff System for one year, i.e., until 2021. The Joint Stock Company for energy activities performance, the Nacionalni Energetski Resursi Skopje (National Energy Resources Skopje), state-owned (hereinafter: NER), has entered into an investment cycle, and shall continue with construction of the new main gas pipelines enabling connectivity of all main urban centers, in the state, to the Natural Gas Transmission System. In 2019, there were some activities on realization of the main gas pipelines starting from Shtip towards Negotino and Bitola, and the gas pipeline from Skopje towards Tetovo and Gostivar. In future, the envisage is on the construction of a main gas pipeline from Gostivar towards Kichevo and Ohrid. In regard to the additional interconnections, closest is the realization of the interconnection pipeline with the Republic of Greece, whereas a feasibility study has been developed by the NER and the Greek Operator DESFA, along with the route predicted by the project. In 2019, the investment grant in the amount of 20 % within the value of the project has been approved by the Western Balkan Investment Fund (WBIF) mechanism. Also, a grant by the European Commission was approved for the preparation of the project documentation and the technical – economy analysis. The AD GA – MA, operating under the existing gas pipeline, continues with the expansion of the gas network around the City of Skopje, and implements software solutions for monitoring losses of the system, telemetric systems for readings of the main metering station, the main metering and regulatory gas stations, as well as the metering and regulatory stations of natural gas consumers. In December 2019, a new tariff on Natural Gas Transmission for 2020 was adopted. The average tariff is 1,3641 MKD / nm³ and indicates growth by 6,7% in relation to the tariff for 2019, which amounted with 1,2783 MKD / nm³. The mentioned increase is foremost, due to costs on the enlarged maintenance of the system, and to the investment costs. In the Republic of North Macedonia, the below listed Natural Gas Distribution Systems are built, located in: − the Technology and Industry Development Zone (TIRZ) Skopje 1 and Skopje 2, located in the village Bunardzik, with 5,6 km length of the Distribution Grid; − the Municipality of Kumanovo, with 16 km length of the Distribution Grid, and − the Municipality of Strumica, with 34 km length of the built Distribution Grid. The above-mentioned Natural Gas Distribution Systems serve to deliver the natural gas requirements to industrial and commercial consumers, to public institutions and households.

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In 2019, all distribution systems indicate slow increase in the number of consumers and delivered quantities. During 2019, the Government of the Republic of North Macedonia has established the Commission to develop Tender Documentation on Competitive Dialogue for granting Public Private Partnership on financing, design, construction, management, maintenance and development of the Natural Gas Distribution System in the Republic of North Macedonia. The mentioned procedure is ongoing, and continues in 2020. The Energy Infrastructure in the Natural Gas Sector in the Republic of North Macedonia, displayed in the Graph 3.1, enables overview of: − Natural Gas Import; − Natural Gas Transmission; − Natural Gas Distribution, and − Natural Gas Supply.

Chart 3.1 Energy Infrastructure in the Natural Gas Sector of the Republic of North Macedonia The Republic of North Macedonia fails to provide its own natural gas sources, and the entire quantity of natural gas is imported from Russia, through the gas pipeline system of the Republic of Bulgaria. NETWORK SERVICES 3.1.1 NATURAL GAS TRANSMISSION SYSTEM The transmission system in the Republic of North Macedonia is composed by one main interconnection gas pipeline with the Republic of Bulgaria, entering the Republic of North

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Macedonia at Deve Bair / Zidilovo, and extends in length of 98,197 km through Kriva Palanka, Kratovo and Kumanovo, reaching Skopje. Also, there is a gas pipeline distribution network from the magistral / main pipeline to the cities of Kriva Palanka, Kratovo, Kumanovo, the Technology and Industry Development Zone – Skopje (Bunardzik), and the City of Skopje with 32 km in length, and the City Gas Pipeline Network with 72,613 km in length (Kriva Palanka, Kratovo, Kumanovo and Skopje), with an overall of 202,22 km. The Transmission System is composed by GMS (main metering station), located on the entrance to the Republic of North Macedonia, by six GMRS (main metering and regulating stations), allocated on the entrance to the cities of Kriva Palanka, Kratovo, Kumanovo, two in Skopje, i.e., Skopje Sever (North) and Skopje Jug (South), and one in the Technology and Industry Development Zone Skopje, 52 MRS (metering and regulating stations), and three MS (metering stations). The overall capacity of the Natural Gas Transmission System is 800 million nm3 / annually, with operational pressure of 54 bar, and a diameter of the magistral / main pipeline of 530 mm. The capacity of the system provides ability to 1.200 million nm3 / annually increase, affordable with the construction of a compression station on the first part of the magistral / main gas pipeline. The maximum flow of the magistral gas line is 180.000 nm3/per hour. Further below is a Table review of the overall quantities of Natural Gas Transmission within the past three years, according to months. Table 3.1. Review of Natural Gas Quantities Transmission in 2017, 2018, and 2019 2019/2017 2019/2018 Month 2017 2018 2019 (%) (%) January 54.094.284 39.135.873 43.078.500 -20,36 10,07 February 37.899.734 41.263.024 26.484.400 -30,12 -35,82 March 13.495.158 26.141.728 11.679.600 -13,45 -55,32 April 8.058.045 6.152.732 7.447.900 -7,57 21,05 May 4.109.473 4.082.727 4.245.000 3,30 3,97 June 3.564.617 4.097.401 26.459.800 642,29 545,77 July 20.283.288 4.127.965 36.369.000 79,31 781,04 August 22.129.804 19.344.371 31.257.200 41,24 61,58 September 13.319.169 21.802.853 35.293.900 164,99 61,88 October 23.718.588 24.577.370 20.045.600 -15,49 -18,44 November 36.415.314 28.925.564 20.667.900 -43,24 -28,55 December 37.985.185 33.976.481 32.178.200 -15,29 -5,29 Total 275.072.659 253.628.089 295.207.000 7,32 16,39

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60,000,000

50,000,000

40,000,000

30,000,000

20,000,000

10,000,000

0

2017 2018 2019

Chart 3.2 Monthly dynamics on Natural Gas Quantities Transmission in the Republic of North Macedonia in 2017, 2018, and 2019 The largest consumption of natural gas is in the winter months, which is expectable considering that natural gas is mostly exploit in the production of district heating. The highest influence on the profile of consumption is by the cogeneration plant, owned by the TE-TO AD Skopje. The above enclosed Chart review clearly displays that in the period from July to September, the consumption of natural gas has increased, due to the operations in the mentioned months by the TE-TO AD Skopje, while, in the winter period, the heating plants and other cogeneration plants in the state are included as big-sized consumers. The months indicating minimum consumption of natural gas is due to the industrial consumers exploiting natural gas for self-requirements and are operable during the entire year. The display in Chart 3.3 below, draws conclusions that in the past years there has been a significant growth of the natural gas consumption in the Republic of North Macedonia. The annual consumption for the previous 10 years is below 100 million nm3, while reaching its maximum with 295 million nm3 in 2019.

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400,000,000

300,000,000

200,000,000

100,000,000

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Chart 3.3 History of natural gas consumption in the period from 2004 to 2019 (in nm3) The nominal capacity of the Transmission Grid is 800 million nm3 on annual level. Considering the difference in dynamics of the natural gas consumption between the winter and summer months, the exploitation of the system varies during the year indicating that in the past years, least exploitation of the system is in the months of April and May, escalating with 5 % to 15 %, while in the winter months, when practically is the season on high natural gas consumption, the escalation is significantly higher, and on daily base is in the range of 50 % to 80 % exploitation of the Natural Gas Transmission System.

57 60 55 56 56 53 48 50 45 41 40 36 37

30

20

10

0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Chart 3.4 Number of connections to the Natural Gas Transmission System in the period from 2010 to 2019 The number of connections to the Natural Gas Transmission System in the late years also indicates growth, starting with more than 30 connections in 2010, and growing up to 60 connections in 2019.

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3.1.1.1 DEVELOPMENT AND INVESTMENT PLANS The Development and Investment Plans shall secure safe and permanent natural gas transmission, distribution and supply, enlarge the efficiency of the systems under respective planning, construction and maintenance of the gas pipeline, the metering regulatory stations and equipment, by observant management and supervision of the Transmission Grid, and by auditing all works within the protection area of the gas pipeline. NER shall continue with the construction of the new magistral / main gas pipelines providing connectivity of all main urban centers in the country to the Natural Gas Transmission System. In 2019, the NER has continued with the construction of the magistral / main gas pipelines within Phase 1 route: - Shtip – Negotino – Bitola, and - Skopje – Tetovo – Gostivar (deadline of realization in 2020). Projects envisaged to realization by NER within Phase 2, are: - The Magistral / Main Gas Pipeline, section Gostivar – Kichevo (deadline for realization in 2022), - The Magistral / Main Gas Pipeline, section Kichevo – Ohrid (deadline for realization in 2022). Ongoing is the initiative on the construction of more interconnection lines, which shall enable connection of the Republic of North Macedonia with the neighboring countries, whereby, interconnections are forecasted with Greece, Kosovo, Serbia, Albania and Bulgaria. The best envisaged perspective is the interconnection to Greece, an interconnection line for natural gas transmission connecting the Republic of North Macedonia and Greece, and shall provide additional quantities of natural gas acquired by other source of supply for the Republic of North Macedonia, along with the existing with Bulgaria, and also diversification, security of supply, and an opportunity for reducing the price on the import of natural gas considering the providing of natural gas availability by number of diverse producers and suppliers. The realization of the project, with a feasibility study already developed, is in authorization of the NER. Plan on Development and Expansion of the Natural Gas Transmission System by GA-MA AD Skopje, in the period of 2020-2024 With aim of providing development and reconstruction of the Natural Gas Transmission System, as well as development and expansion of the Transmission Grid, the main activities planned for the period from 2020 to 2024 are listed below: - Expansion of the City Gas Pipeline Network (Grid) in the City of Skopje, in order to connect new consumers; - Completion of the Gas Line Ring in Skopje with junction / distribution gas pipelines for connection of interested consumers, enabling increase of natural gas consumption, and decrease in the emission of harmful gases on the territory of the City of Skopje; - Construction of a new connection enabling the TE-TO AD Skopje to connect to the magistral / main gas pipeline, and by that, reduce energy losses; - System on monitoring and detecting gas leakage in the gas pipeline network (grid),

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enabling reduction of losses of the transmission system; - Installation of three stations for data transmission into the central unit in Skopje; - Installation of respective software on detecting and reporting of losses, and system balancing, - Telemetric system and SCADA-system in facilities to provide remote metering, and management of the system in GMS Zidilovo, all GMRS, and part of the MRS through one single dispatching center. Table 3.2 Development and Investment Plan of the AD GA-MA Skopje

Year 2020 2021 2022 2023 2024 Planned Investments 300.000.000 193.000.000 179.000.000 126.000.000 105.000.000 (in MKD)

3.1.1.2 NATURAL GAS TRANSMISSION TARIFF The AD GA-MA Skopje, in accordance with the Rulebook on the manner and conditions for regulation of the tariffs for transmission and management of the natural gas transmission and distribution systems (“Official Gazette of the Republic of Macedonia” no. 201 / 16, 87 / 17, and 142 / 18), and the Natural Gas Transmission Tariff System (“Official Gazette of the Republic of North Macedonia”, no. 274 / 19), on November 26th, 2019, has submitted to the Energy Regulatory Commission a Request for approval of regulated revenue and tariffs on natural gas transmission activity for 2020. On December 30th, 2019, The Energy Regulatory Commission has adopted the Decision on approving the average tariff of 1,3641 MKD / nm³ for natural gas transmission activity performance. In accordance with the mentioned Decision, the tariffs according to category of consumers are: - Producers of district heating and electricity in combined plant, whereby electricity and district heating and / or mechanical energy is simultaneously and in a single process produced, the tariff amounts with 1,3059 MKD / nm³ of natural gas; - Producers of district heating, and industrial consumers with a tariff in the amount of 1,4365 MKD / nm³ of natural gas, and - Other consumers with natural gas consumption lower than 150.000 nm³ in the previous year, the tariff is in the amount of 1,5018 MKD / nm³ of natural gas. The tariff on natural gas transmission, in the past years, escalates in the range of 1,2 to 1,5 MKD / nm3. Considering the small size and insufficiently developed system, the tariff on transmission is dependable by the quantities of natural gas transmission. The Table below reviews the history data on the amount of average tariff for natural gas transmission, in the period from 2010 to 2020.

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Table 3.3 Average tariff for natural gas transmission, in the period from 2010 to 2020 (in MKD / nm3) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2,2170 1,0935 1,1753 1,2465 1,4642 1,5375 1,5918 1,5359 1,4530 1,2783 1,3641 3.1.2 NATURAL GAS DISTRUBUTION SYSTEMS The Natural Gas Distribution Systems in the country are still in the early stages of development. Notwithstanding, the distributed quantities of natural gas within the systems are low, there is a continuant noticeable growth during the years. There are three Natural Gas Distribution Systems in the Republic of North Macedonia: - The Head Office of the Technology and Industry Development Zones - JP Strumica Gas, and - JP Kumanovo Gas.

Further below is the table-review displaying quantities of natural gas distribution referring to the above-mentioned. Table 3.4 Quantities of natural gas distribution in 2017, 2018, and 2019 in the distribution grids of JP Kumanovo Gas, JP Strumica Gas, and the DTIRZ Skopje

2019/18 2019/17 Distribution System 2017 (nm³) 2018 (nm³) 2019 (nm³) (%) (%)

DTIRZ Skopje 4.207.423 4.715.736 5.001.800 6,07 18,88

JP Strumica Gas 504.108 590.737 544.300 -7,86 7,97

JP Kumanovo Gas 492.748 505.043 683.100 35,26 38,63

The largest quantities of natural gas distribution are within the distribution system of DTIRZ Skopje, where industrial consumers are located, and use the natural gas within their production processes, and for district heating.

nm3 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 (nm³) (nm³) (nm³) (nm³) (nm³) (nm³) (nm³) (nm³) (nm³) (nm³) DTIRZ Skopje JP Strumica Gas JP Kumanovo Gas Chart 3.5 Quantities of natural gas distribution in the DTIRZ, JP Strumica Gas and JP Kumanovo Gas, in the period from 2010 to 2019

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Typical for the distribution system of JP Kumanovo Gas is the continuant growth of consumption in the period from 2017 to 2019, while JP Strumica Gas in 2019 has recorded a certain decline in the consumption compared to the previous 2018, but is higher in relation to the consumption in 2017. The Chart 3.5 reveals that the quantities of natural gas distribution in the distribution systems are in permanent growth in the past years, whereby the highest share is by the DTIRZ where larger industrial consumers are located. Further below is the review on the number of consumers, according to connection in the distribution systems, within the past 10 years. Table 3.5 Number of consumers in the Natural Gas Distribution Systems, in the period from 2010 to 2019

ODS 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

DTIRZ Skopje 2 3 5 7 6 7 8 7 10 9

PE Strumica Gas 0 0 14 37 55 202 202 240 263 294

PE Kumanovo 0 8 12 13 11 37 40 57 69 86 Gas

Total 2 11 31 57 72 246 250 304 342 389

The highest number of consumers are in the distribution system managed by the PE Strumica Gas, in 2019 with overall of 294 consumers. Next is JP Kumanovo Gas with the overall of 86 consumers, and the least, i.e., only 9 consumers are registered with the distribution system of DTIRZ Skopje.

nm3 400 350 300 250 200 150 100 50 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

DTIRZ Skopje JP Strumica Gas JP Kumanovo Gas

Chart 3.6 Number of consumers in the gas distribution systems, in the period from 2010 to 2019 Typical for the number of consumers in JP Strumica Gas and JP Kumanovo Gas, is the continuant increase in the past period, and the most significant rebound is in the 2015 with further continuant growth. These data indicate that the natural gas supply to small-sized consumers and households implies significant potential to be utilized in the expansion of the distribution grids, and to creating better and more appealing conditions on wider use of natural gas in households and by the small-sized consumers. - 89 -

3.1.2.1 DISTRIBUTION SYSTEM DEVELOPMENT PLANS The development of the Natural Gas Distribution Systems, foremost depends on the number of consumers, i.e., on the interest and requirements of the new natural gas consumers to connect to the distribution systems. During 2020, the DTIRZ Skopje has planned a construction of a branch from the main internal gas pipeline network (grid) in TIRZ Skopje 1, followed with the construction of connections for two new consumers, as well as the extension to the new construction plot with a connection installation. Table 3.6 Development and Investment Plan of DTIRZ Skopje for the period of 2020- 2024 (in MKD) Description 2020 2021 2022 2023 2024 Equipment procurement 4.000.000 2.000.000 2.000.000 2.000.000 2.000.000 Construction of thigh / branch for connection of new users in TIRZ- 2.000.000 / / / / Skopje 1 Construction of thigh / branch for connection of new users in TIRZ- 2.000.000 / / / / Skopje 2 In 2020, the DTIRZ Skopje has also planned some investment operations in the TIRZ Skopje 2, i.e., the construction of a branch from the main internal gas pipeline network (grid), as well as connections for new consumers. The required assets for investments, the DTIRZ Skopje has planned to be provided by the Budget of the Republic of North Macedonia, and assets from self-financing activities of the Head Office – Directorate. The development of the Natural Gas Distribution System of JP Kumanovo Gas in the forthcoming five years, envisage construction of the secondary gas pipeline with 30 km in length, designed to supply approximately 3.000 consumers, whereby 5 % belong to enterprises and institutions, while 95 % of the new network (grid) shall be planned for households’ connections. The number of connections, by 2025, is expected to grow with approximately 1.500 connections. The distribution system of the JP Strumica Gas is not connected to the Natural Gas Transmission System of the Republic of North Macedonia, and the natural gas is taken from the decompressing station. The mentioned distribution system represents, the so-called virtual gas pipeline system, i.e., a system of compressed natural gas in transportation modules under pressure of 200 bar to 250 bar, which are later transported to the decompressor station of the JP Strumica Gas, close to Strumica, where the natural gas is decompressed. During 2019, a new distribution gas pipeline network (grid) with 1,05 km in length was built, 52 connections in the category of households, and three connections in the category of industry. The plan for 2020 envisages construction of new 7 km secondary gas pipeline distribution network (grid) with 65 km in length, with forecasted connections of individual and collective residential facilities, commercial premises in the City of Strumica, whereby in the newly projected industrial zones, including connections of agricultural producers in the Strumica Agriculture Area for production of horticultural crops. The planned investments during 2020, shall be in a value of approximately 80 million MKD, as part of the Budget of the

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Municipality Strumica, and part provided by JP Strumica Gas from assets under collection of the tax fee on connection to the distribution gas line grid, and by natural gas sale.

3.1.2.2 NATURAL GAS DISTRIBUTION TARIFF The Energy Regulatory Commission at the end of December 2019, has adopted Decisions on new tariffs on Natural Gas Distribution referring to the three active distribution system operators, commencing application from 2020. Table 3.7 Tariffs on Natural Gas Distribution for 2020 (MKD / nm3)

DTIRZ Skopje JP Strumica Gas JP Kumanovo Gas 2,6603 2,8700 3,0000

Further below, a review displaying tariffs on Natural Gas Distribution referring to individual distribution systems, authorized by the Energy Regulatory Commission for the period from 2010 to 2019, Table 3.8 Tariffs on Natural Gas Distribution in the period from 2010 to 2020 (MKD / nm3) Year DTIRZ Skopje JP Strumica Gas JP Kumanovo Gas 2010 3,4423 2011 3,4423 2012 3,1338 2013 3,0785 2,8700 2014 2,8859 2,8700 2015 2,6213 2,8700 2016 2,2879 2,8700 2017 2,8418 2,8700 3,0000 2018 2,7957 2,8700 3,0000 2019 2,7127 2,8700 3,0000 2020 2,6603 2,8700 3,0000

DTIRZ Skopje is with the longest period in history data in relation to the tariff on distribution, revealing gradual reduction of the tariff on distribution within this distribution system operator. Compared to JP Kumanovo Gas and JP Strumica Gas, the tariff is fixed considering the relatively low quantities distributed through these systems.

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3.2 WHOLESALE MARKET Since January 1st, 2015, the Natural Gas Market in the Republic of North Macedonia is fully liberalized. The Energy Regulatory Commission only establishes the tariffs on transmission and distribution of the natural gas. As by the end of 2019, five years are completed since the full liberalization of the Natural Gas Market, without any disturbances noticed in the status among the participants on the market. During 2019, the below listed participants have individually appeared on the Natural Gas Market in the purchase of natural gas: − Producer of the district heating for the supply requirements of district heating to consumers in the City of Skopje; − Combined plants for the production of electricity and district heating, and − Traders. The Chart below displays a review of the participants on the Natural Gas Market in the Republic of North Macedonia, in 2019.

Chart 3.7 Participants on the Natural Gas Market in the Republic of North Macedonia in 2019

The next Chart reviews that in the consumption of natural gas in the Republic of North Macedonia, dominant share is by the producers of electricity and district heating, i.e., the combined plants of electricity and district heating production, and the heating plants. Their shares in the end consumption of natural gas in 2019, is 82 %.

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Natural Gas for Distribution Natural Gas for Companies Industrial 2% Consumers 16%

Natural Gas for Production of Heating Energy and Electricity 82%

Chart 3.8 Percentage of shares in the consumption of natural gas, according to type of consumption in 2019 The metal industry is dominant in the field of industrial consumers. The lowest share by only 2 % in the final consumption is by consumers connected to the systems for natural gas distribution. In regard to the import and wholesale trade of natural gas, dominant share in 2019 is reached by TE-TO AD Skopje with 77 %, while the shares of the Makpetrol AD Skopje are with 23 %.

MAKPETROL Skopje 23%

TE-TO Skopje 77%

Chart 3.9 Market shares of traders on the Wholesale Natural Gas Market in 2019

Typical for TE-TO AD Skopje, as dominant participant on the Wholesale Natural Gas Market is the exclusion of regular trade activities, i.e., imported natural gas to be exploited for self-requirements in the part of the combined production of electricity and district heating, but lower quantities are individually sold to the regulated producer of district heating.

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3.2.1 AVERAGE MONTHLY SALE PRICES IN 2019 The liberalization of the Natural Gas Market in 2015 represents a significant market reform enabling free formation of prices by the participants on the market. Hence, the Natural Gas Market still remains insufficiently developed with relatively low consumption of natural gas, and with small number of active traders and suppliers with natural gas. In 2019, there are two entities importing natural gas, the Makpetrol AD Skopje and the TE-TO AD Skopje. The data enclosed displays the average monthly import prices represent weighted average price of these two market participants. Further below is a review of the average monthly prices of natural gas on the Wholesale Market in 2019. Tariffs on transmission and distribution are excluded, and prices are with VAT exempted. Table 3.9 Average monthly prices on Wholesale Natural Gas Market in 2019 (MKD / nm3) Average purchase price Average price on natural Average for producers of district Month gas on the Wholesale Import Prices heating and combined Market plants January 16,2116 16,7572 18,2144 February 16,2222 16,8995 18,2928 March 16,4628 18,3731 18,3806 April 16,1910 18,0987 18,0990 May 16,3549 18,1999 18,2463 June 12,9946 12,4882 18,3579 July 11,6329 11,1680 17,7493 August 11,6243 11,1769 18,1626 September 11,6986 11,1710 18,1836 October 15,5936 15,6636 17,9196 November 15,6962 16,2975 17,8709 December 15,4949 16,0330 17,8603 Prices of the natural gas during 2019 are rather stable, with low range of variations. Producers of district heating, and the cogenerate plants have recorded lower price on the natural gas, considering they are the largest consumers of natural gas.

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3.3 RETAIL MARKET The retail market includes consumers connections to the Natural Gas Distribution Systems, as well as the small-sized consumers with direct connections to the Natural Gas Transmission System. In 2019, the dominant share on the Retail Natural Gas Market is by Makpetrol Promgas DOOL Skopje with 75 % of the market shares, DTIRZ Skopje with 20 % of market shares, followed by Strumica Gas with 3 %, and Kumanovo Gas with 2 % of market shares. Makpetrol Promgas performs the supply of natural gas to consumers connected to the transmission system, while DTIRZ Skopje, Kumanovo Gas and Strumica Gas supply natural gas to consumers on the level of distribution system. DTIRZ Skopje and Kumanovo Gas purchase natural gas from the Makpetrol Promgas.

KUMANOVO-GAS STRUMICA-GAS KUMANOVO STRUMICA 2% 3%

DTIRZ Skopje 20%

MAKPTEROL PROM-GAS Skopje 75%

Chart 3.10 Market shares of suppliers on the Retail Natural Gas Market, in 2019

3.3.1 AVERAGE MONTHLY SALE PRICES IN 2019 On the Retail Natural Gas Market, the dominant supplier is the Makpetrol Promgas providing supply to consumers connected to the Natural Gas Transmission System in Skopje, while consumers connected to the distribution systems managed by JP Kumanovo Gas, DTIRZ Skopje and JP Strumica Gas acquire supply by the mentioned entities, which in accordance with the Law are holders of a License for natural gas supply. The revealed data in Table 3.10 draws the conclusion that the increase of natural gas on the retail market during 2019 is rather stable, and the amount is approximately 20 MKD / nm3. Unlike the average prices on households, the category of other consumers records some lower price, foremost due to the connection to the Natural Gas Transmission System by large number of these consumers. On the other hand, households are supplied by the Natural Gas

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Distribution Systems, whereby, the end price to pay includes the margin of their end supplier, i.e., distributer. The average prices for consumers connected to the Natural Gas Distribution System of JP Strumica Gas are excluded from the review in Table III.10, as the mentioned is a so-called virtual distribution system with proper specifics. The average price on the natural gas within this system in 2019, is approximately 32 MKD / nm3. Further below, in 2019, the average monthly prices on the Retail Natural Gas Market are enclosed and referring to the category of households’ consumers and other, and the average retail prices are with VAT exempted, and excluded tariffs on transmission and distribution.

Table 3.10 Average monthly prices on Retail Natural Gas Market, in 2019 (MKD / nm3)

Month Households Other

January 21,1772 19,5638 February 21,2039 19,6845 March 21,3323 19,6751 April 21,0338 19,3004 May 21,1999 19,3194 June 21,2874 19,4438 July 20,6278 18,8546 August 20,9121 19,0581 September 21,0516 19,1836 October 20,8028 18,9828 November 20,7314 19,1328 December 20,7056 19,1006

Further below is the review of average monthly prices on natural gas in the period from 2015 to 2019, reached on the retail market for natural gas consumers connected directly to the transmission system. Prices are with VAT exempted, but with included tariff on transmission. Within this segment, dominant natural gas supplier is Makpetrol Promgas, and the Chart display reveals that in 2019 the retail price on the natural gas is rather stable, and in relation to 2018, has recorded a moderate increase by approximately 6,1%.

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30.0000

25.0000

20.0000 nm3

/ 15.0000 mkd

10.0000

5.0000

0.0000 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19

Chart 3.11 Average monthly prices of the natural gas on the Retail Market with included tariff on transmission, in the period from 2015 to 2019 (MKD / nm3)

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DISTRICT

HEATING

ENERGY AND WATER SERVICER REGULATORY COMMISSION OF- THE98 REPUBLIC - OF NORTH MACEDONIA

IV. DISTRICT HEATING

In the Republic of North Macedonia, the active heating systems are located only on the territory of the City of Skopje, an area of three functional heating systems: The largest heating system is managed by the BALKAN ENERDZI GRUP AD Skopje, which in 2019 has had 53 thousand consumers connected, with overall of engaged capacity of 475 MW. The system of the AD ESM, Podruznica Energetica had over 3.700 consumers connected, with overall of engaged capacity of approximately 50 MW, while the system of Skopje Sever AD Skopje with connected consumers of 8 MW of the overall engaged capacity. In 2019, on the District heating Marked, the regulated energy activity performers located on the territory of the City of Skopje, are: - Balkan Enerdzi GRUP AD Skopje (Balkan Energy Group AD Skopje); - District heating Production BE DOOEL Skopje; - District heating Distribution BE DOOEL Skopje; - District heating Supply BE DOOEL Skopje; - AD ESM Podruznica Energetika, and - Skopje Sever AD Skopje. Associations in property of the Balkan Enerdzi Grup AD Skopje in 2019 are managing the largest District heating System in the Republic of North Macedonia. The production of district heating is performed with the basic assets taken over by Toplifikacija AD, inherited in the overtake in 2012/ with a lease agreement. The distribution of the district heating is performed with basic assets that are leased with an agreement from Joint Stock Company for Construction and Management of Residential and Business Premises of State Importance – Skopje in 2012 In 2019, continues the positive trend on magnifying numbers of consumers connected to the system, where the number of consumers in the largest system has increased by over 4 %. The Energy Regulatory Commission has adopted new Rules on District heating Supply, among all, changes are prescribed referring to the rights and obligations of owners of individual part within the facility where the dissemination of the fee is through one metering device. In addition, in 2019 the new Rulebook on District heating Price Regulation was adopted, envisaging regulated period to be in a period of three years, and the adoption of the new Tariff System on District heating Sale, in accordance with the Law on Energy*. In 2019, the Assembly of the Republic of North Macedonia adopted the amendments to the Law on VAT, by which the rate on the VAT on district heating was reduced from18 % to 5 %. During the month of July, 2019, decisions were adopted on the prices referring to all regulated companies, and considering the reduced VAT, the overall fee on the district heating towards end consumers, on average, has declined by 5,71 %.

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Chart 4.1 Review of the District heating Distribution System of the (Distribucija na toplina) BE DOOEL Skopje

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4.1 DISTRICT HEATING PRODUCTION There are three regulated producers of district heating, and one unregulated producer of district heating operating on the territory of the City of Skopje. The capacities for district heating production of the District Heating Production BE DOOEL Skopje, are: − Toplana Istok, with a production capacity of 279 MW, located in the east industrial zone of the City; − Toplana Zapad, with a production capacity of 171 MW, located in the Taftalidze Settlement, and − Toplana 11 Oktomvri, with a production capacity of 28 MW, located in the Kisela Voda Settlement. The overall active production capacity of the District Heating Plants, managed by the District heating Production BE DOOEL Skopje, is 478 MW. Natural gas is used for the production of the district heating. The combined producer of district heating and electricity, TE-TO AD Skopje, accommodates 160 MW of district heating production capacity as an unregulated producer of district heating. AD ESM Skopje, Podruznica Energetika provides availability of an overall production capacity of 96 MW. In 2018, AD ESM Skopje became an owner of the combined district heating and electricity plant, formerly owned by the KOGEL STIL DOO Skopje. The district heating production capacity is 13,5 MW, thereof. Skopje Sever AD Skopje performs the district heating production with two boilers, each of 23 MW, or with an overall production capacity of 46 MW. Further below is the table review of the district heating production capacities.

Table 4.1 Production capacities of district heating Company District Heating Plant / Boiler Fuel Technology Capacity [MW] BE Production (BE TO Istok Natural gas ТО 279.12 Proizvodstvo) BE Production (BE TO Zapad Natural gas ТО 170.97 Proizvodstvo) BE Production (BE TO 11 Oktomvri ТО Natural gas ТО 28.21 Prizvodstvo) TE-TO Skopje TE-TO Skopje Natural gas ТЕ-ТО 160

ESM ESM Energetika K1 Natural gas ТО 32 ESM ESM Energetika K2 Natural gas ТО 32

ESM ESM Energetika K3 Natural gas ТО 32

ESM TE-TO KOGEL TE Natural gas ТЕ-ТО 13.58 SKOPJE SEVER Skopje Sever K1 Natural gas ТО 23

SKOPJE SEVER Skopje Sever K2 Natural gas ТО 23

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The district heating overall production capacity is 793,88 MW, whereby, the engaged capacity of users is approximately of 510 MW. The mentioned status opens connection possibilities for new district heating consumers. The district heating production is dependable on the meteorology conditions, and usually the largest production is reached in the months of December and January.

Table 4.2 District Heating produced according to months and producers, in 2019

BE Production Month TE-TO Skopje ESM Energetika Skopje Sever Total (Proizvodstvo BE) January 67.455.499 69.823.099 10.887.000 2.244.000 150.409.598 February 55.112.299 36.707.400 9.844.000 1.485.000 103.148.699 March 52.641.598 0 5.103.000 831.000 58.575.598 April 27.609.400 0 2.623.000 448.000 30.680.400 October 6.612.200 6.118.099 1.514.000 268.000 14.512.299 November 36.600.700 17.882.000 4.938.000 976.000 60.396.700 December 56.208.899 50.658.900 12.015.000 1.802.000 120.684.799 Total 302.240.595 181.189.498 46.924.000 8.054.000 538.408.093

Further below is the Chart of the overall district heating production, according to months and producers, in 2019.

kWh

160,000,000 140,000,000 120,000,000 100,000,000 80,000,000 60,000,000 40,000,000 20,000,000 0 January February March April October November December Skopje Sever ESM Energetika TETO Skopje Proizvodstvo BE

Chart 4.2 District Heating Production according to months and producers, in 2019 (in kWh)

All producers of district heating exploit natural gas as fuel, influencing positive contribution to the ecological aspect. Further below is the table review of natural gas consumption according to producer and months. - 102 -

Table 4.3 Natural gas consumption according to months and producers, in 2019

Production BE ESM Energetika Skopje Sever Total Month (Proizvodstvo BE) January 7.282.090 1.205.576 1.089.633 9.577.298 February 5.908.826 1.089.633 167.294 7.165.753 March 5.487.466 564.093 94.550 6.146.109 April 2.748.646 289.486 49.940 3.088.072 October 744.695 166.976 30.807 942.478 November 3.832.457 541.566 113.711 4.487.734 December 5.990.033 1.325.998 203.310 7.519.341 Total 31.994.213 5.183.327 1.749.245 38.926.785

The delivered district heating and the consumed natural gas quantities, are in tight correlation with the external temperatures reached in the period of the district heating season, from October to April.

°C 10 8.85 8.48 7.82 7.56 7.60 8 7.00 7.00 5.97 6.16 6

4

2

0 1 2 3 4 5 6 7 8 9

Chart 4.3 External temperatures reached in heating season in the period from 2011 to 2019 In 2019, the achieved average temperature for the district heating season, is 8,85 °C. The mentioned temperature is higher than the average forecasted temperature of 6,23 °C. In the past years, continuously, the achieved average temperatures in heating season, are above 7 °C. The late year of achieved average temperature in heating season was below 7 °C, was the 2012.

4.2 DISTRICT HEATING DISTRIBUTION Active distribution systems on the territory of the City of Skopje, are: - District heating Distribution BE DOOEL Skopje;

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- AD ESM – Podruznica Energetika, and - Skopje Sever AD Skopje Скопје. The energy balance on overtaken and delivered district heating quantities, expressed in MWh, by distributors, according to months in 2019, is displayed in the Table below. Table 4.4 Energy Balance of district heating distributors, according to months and companies, in 2019 BE Distribution January February March April October November December Total (Distribucija BE) Input 137.279 91.820 52.642 27.609 12.730 54.483 106.868 483.430 Output 121.186 83.604 47.344 25.074 9.762 47.384 94.104 428.458 Realized losses 11,72% 8,95% 10,06% 9,18% 23,32% 13,03% 11,94% 11,37% ESM Energetika Input 12.456 11.384 6.033 3.063 2.551 6.407 14.667 56.561 Output (exit) (calculation) 10.961 10.018 5.309 2.695 2.245 5.638 12.907 49.774 Losses 12,00% 12,00% 12,00% 12,00% 12,00% 12,00% 12,00% 12,00% Skopje Sever Input 2.244 1.485 831 448 268 976 1.802 8.054 Output 2.039 1.266 594 330 145 742 1.541 6.658 Realized losses 9,20% 14,70% 28,50% 26,20% 45,90% 24,00% 14,50% 17,30% Total Input 151.979 104.689 59.506 31.120 15.549 61.866 123.337 548.045 Output 134.186 94.888 53.247 28.100 12.152 53.764 108.552 484.889 Table 4.4 reviews the overtaken and delivered quantities of district heating by distributors of district heating, as well as the realization of losses in 2019, thereof. In accordance with the Rulebook on District heating Price Regulation, the Energy Regulatory Commission shall approve up to 12 % of losses within the systems of district heating distribution. The decisions on prices since July, 2019, have made forecasts on the annual losses for 2019, and shall be subjected to an Audit in July, 2020. For the system managed by the District heating Distribution BE DOOEL, in 2019 the envisaged losses are on the level of 11,2 %, while the systems for district heating distribution governed by the ESM Energetika and Skopje Sever, envisage losses of 12 % for 2019. In line with the GIS recordings of the District Heating Distribution BE DOOEL, the overall length of the distribution network (grid), including the length of connection points of facilities, as by the end of December 31, 2019, is 227 km. The length of the distribution network (grid) of the other two distributers, is also enclosed in Table. Table 4.5 Length of Distribution Network (Grid) (in km) Length of Distribution Network Distributer (Grid) BE Distribution (Distribucija BE) 227 ESM Energetika 38 Skopje Sever 10 Total 275

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4.3 DISTRICT HEATING SUPPLY Suppliers of district heating are the District heating Supply BE DOOEL Skopje, ESM Energetika, and Skopje Sever AD Skopje.

Table 4.6 Number of consumers of district heating according to category and supplier

Supplier Households Education Other Total BE SUPPLY (BE 52.164 93 1.024 53.281 Snabduvanje) ESM Energetika 3.654 18 68 3.740 Skopje Sever 480 8 8 496 Total 56.298 119 1.100 57.517

The largest number of district heating consumers, or 53.281 consumers, as by the end of December, 2019, received supply by the District heating Supply BE DOOEL Skopje, which is with 92,5% of the overall number of 57.517 consumers. Next is the supplier ESM Energetika, providing supply to 3.740 consumers, and the Skopje Sever AD Skopje with 496 consumers. Largest number of consumers belong to the category of households, but considering that these are small-sized consumers, significant part of the district heating consumption is by the categories of other consumers and education.

Other; 18%

Education; 5%

Households; 77%

Chart 4.4 Share of delivered quantities of district heating, according to categories of consumers, in 2019 The category of household consumers is with a share of 77% in the delivered district heating, followed by the category of other consumers with the share of 18%, and the least share is by the category of education with 5%.

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Table 4.7 Delivered district heating according to category and supplier Supplier Households Education Other Total BE Supply 327.545.167 17.595.511 82.373.547 427.514.225 (Snabduvanje BE) ESM Energetika 42.302.987 3.423.702 4.044.874 49.771.563

Skopje Sever 3.732.192 1.826.372 1.099.045 6.657.609

Total 373.580.346 22.845.585 87.517.466 483.943.397

Shares of suppliers in the overall of the delivered district heating, is presented with the Chart below.

Skopje Sever 2% ESM ENERGETIKA 10%

Snabduvanje BE 88%

Chart 4.5 Shares of suppliers in the overall of delivered district heating in 2019

The enclosed Chart reveals that the District Heating Supply BE DOOEL Skopje is with the largest share of 88 % in the overall of the delivered quantities of district heating. Next, is the system of AD ESM Podruznica Energetika with the share of 10 %, and as last is the Skopje Sever with the share of 2 % in the overall delivered quantities of district heating.

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kWh

140,000,000

120,000,000

100,000,000

80,000,000

60,000,000

40,000,000

20,000,000

0 January February March April October November December Skopje Sever ESM Energetika Chart 4.6 Delivered district heating, according to months and supplier, in 2019 In line with the produced district heating is the largest delivery of district heating in the months of January and December, when the external temperatures are at the lowest. The delivered quantities of district heating in the past 10 years, according to supplier, are presented with the Chart below.

kWh

600,000,000

500,000,000

400,000,000

300,000,000

200,000,000

100,000,000

0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Skopje Sever AD Skopje AD ESM, Porduznica Energetika Chart 4.7 Delivered district heating according to supplier in the past 10 years

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4.3.1 DISTRICT HEATING PRICES Pursuant to the Rulebook on District Heating Prices and System Services (“Official Gazette of the Republic of North Macedonia”, no. 116 / 19), the District Heating Production BE DOOEL Skopje, the District Heating Distribution BE DOOEL Skopje, and the District Heating Supply BE DOOEL Skopje on June 10th, 2019 have submitted regular requests for adjustment of the approved maximum revenue for 2019. Additionally, in accordance with the Rulebook, requests were also submitted by the Skopje Sever AD Skopje and AD ESM Skopje – Podruznica Energetica. On July 31st, 2019, the Energy Regulatory Commission has adopted five decisions upon submitted requests by the enterprises. Further below is the data review of the tariffs on district heating, and the engaged district heating capacity, for the individual suppliers. Table 4.8 Tariffs on district heating, according to suppliers, adopted in 2019

Supplier Households Education Other MKD / MKD / kW / MKD / MKD / MKD / MKD / kW / kWh year kWh kWh kWh year District Heating Supply BE DOOEL (Snabduvanje 1,9382 999,79 1,9382 999,79 2,7135 1.399,70 so toplina BE DOOEL) ESM Energetika 1,7852 967,91 2,3207 1.258,28 3,0348 1.645,45 Skopje Sever 2,2196 950,50 4,2287 1.818,89 4,2287 1.818,89

For cross-reference of the fee on the district heating and its changes with the existing suppliers of district heating, as a model is used a regular flat with heating area of 50 m2, and average annual consumption of district heating of 7.500 kWh, and engaged capacity of 6,25 kW.

Table 4.9 Review of average fee on district heating for the category of households, for the District heating Supply BE DOOEL, AD ESM Skopje, Podruznica Energetika and Skopje Sever AD Skopje, in 2017, 2018, and 2019

Year 2017 Year 2018 Year 2019 Supplier 19/17(%) 19/18(%) [MKD] [MKD] [MKD] District Heating Supply BE DOOEL (Snabduvanje so 20.243 19.615 20.785 2,68% 5,97% toplina BE DOOEL) ESM Energetika 20.141 20.251 19.438 -3,49% -4,01%

Skopje Sever 22.871 22.697 22.588 -1,24% -0,48%

The overall fee with VAT included for end consumers supplied by the District Heating Supply BE DOOEL Skopje, is reduced by 5,71 %, while to consumers of the AD ESM –

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Podruznica Energetika, the reduction is by 13,14 %. Also, the overall fee with VAT included, was reduced with consumers providing supply by Skopje Sever AD Skopje, in the amount of 11,45 %. Further below, the history data is enclosed in relation to the average fee on district heating for the District Heating Supply BE DOOEL.

ден 60,000

50,000

40,000

30,000

20,000

10,000

Households Education Others

Chart 4.8 Change of district heating fees for the period 2010 – 2019 for District heating Supply BE DOOEL The Chart above-attached, clearly reviews that in the late years there has been a continuant downfall of the price on district heating. Especially, the downfall is recorded by categories of other consumers and the education, where the tariff ratio in the past was 1:2, gradually reaching ratio of 1:1. The category education is already aligned with the level of the category of households, unlike the category of other, where the tariff ratio, at the moment, is 1:1,4. The decline of the fee on the district heating, contributes to larger number of consumers connections to the system, positive in relation to the system energy efficiency, reduction in the exploitation of electricity for heating purposes, reduction in the burden of the electricity system, as well as in relation to the ecological aspect considering that district heating plants operate on natural gas.

4.4 DEVELOPMENT AND INVESTMENT PLANS The aim of the Development and Investment Plans is to provide safe and continuant production, distribution and supply of district heating, as well to increase efficiency of the systems and of the personnel. The realization of the Development and Investment Plans shall lead to decline of costs required for the systems’ function. The development plans are directed towards safety in the operation of the system elements, monitoring and remote control of the parameters.

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4.4.1 DISTRICT HEATING PRODUCTION BE DOOEL SKOPJE The District Heating Production Balkan Enerdzi, in accordance with the Development Strategy, in the forthcoming five-year period, has envisaged investment of 3.000.000 EUR, in the areas listed below: − Modernization and automatization of the overall production process, aiming towards management and supervision by centralized SCADA System; − Reconstruction, modernization and automatization of gas / pumping stations, and replacement of gas / pump aggregates and supporting equipment; − Reconstruction and modernization of the electric powered units and the equipment of the heating plants; − Construction of a new source of district heating – boiler room / place in the yard of the Faculty of Social Science; The target of the envisaged investments is the assurance of secure, safe, continuant and quality production of district heating, and increased efficiency of the entire process. The realization of the envisaged investments and the modernization of the facilities in the Heating Plants, shall prolong the life cycle of the District Heating Plants for the next 20 years. The expectations are to reinforce the sustainability of the District heating Plants to a degree which shall provide secure and quality production of district heating at any time of the heating season.

4.4.2 DISTRICT HEATING DISTRIBUTION BE DOOEL SKOPJE The District Heating Distribution Balkan Enerdzi DOOEL, in the period of the forthcoming five years, has envisaged development of the distribution system in the aspects listed below: − Optimization of the distribution system through integration of the distribution network (grid) aiming to fulfil the criteria on efficient central / district heating, in accordance with the European Directive on Energy Efficiency, with the Law on Energy Efficiency and to increase reliability; − Capacity growth of the existing grid, and construction of new lines, in accordance with the city development, and the adoption of the new Detailed Urban Plans; − Modernization (replacement) of the existing, aged, SCADA System in the heating stations, − Investments within heating stations and the supporting equipment, aiming to assure secure, safe and continuant delivery of district heating.

4.4.3 DISTRICT HEATING SUPPLY BE DOOEL SKOPJE The District Heating Supply BE DOOEL Skopje, in the forthcoming five-year plan supported by the amortization assets, envisages investment of the amount acquired with the annual amortization purchasing new basic assets in the purchase of servers and grid

- 110 - equipment for high availability and backup of the systems of collection, permanent renewal of the IT Equipment, connection of disconnected consumers, increasing consumes, etc.

4.4.4 AD ESM SKOPJE, PODRUZNICA ENERGETIKA AD ESM Skopje, Podruznica Energetika within the upcoming five years, i.e., in the period from 2020 to 2024, shall forecast investments in basic assets required for production, distribution and supply of district heating, aiming to assure secure, safe and continuant supply of district heating, and reinforcing processes efficiency, by: − Purchase and installation of gas thermal power plant – heating plant (160 MWel and 80 MWte); − Purchase and installation of energy boilers (2x40t); − Re-vitalization of the metering and regulatory equipment; − Installation of calorimeters to users of district heating; − Purchase and installation of cooling facility (100 MW); − Reinforce of energy efficiency of plants by improving the technology process; − Development and expansion of the distribution network (grid), − Construction of secondary regulation.

4.4.5 SKOPJE SEVER AD SKOPJE Skopje Sever AD Skopje is facing financial troubles and downfall of the consume, due to increased operational losses of the entire system of production, distribution and supply of district heating. Based on the mentioned reasons this system, for the time being, fails to create any Development and Investment Plans.

Crucial for the systems of district heating production, distribution and supply of the Skopje Sever AD Skopje and ESM Podruznica Energetika, is that in future all effort should be dedicated to activities on increasing the consume on district heating exploitation, as well as decline of losses in production and distribution of district heating.

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`

OIL

DERIVATIVES

ENERGY AND WATER SERVICES REGULATORY COMMISSION OF THE REPUBLIC OF NORTH MACEDONIA - 112 -

V. OIL DERIVAT IVES

The market on crude oil, oil derivatives, biofuels and transportation fuels in the Republic of North Macedonia, is evolving through import and export of crude oil and oil products, transportation of crude oil through oil pipeline, processing of crude oil, production of oil products, production of biofuel, and distribution and sale of oil products. Significant event, which announced 2019 on the market of crude oil, oil derivatives, biofuels and transportation fuels in the Republic of North Macedonia, is the adoption of the new Rulebook on Highest Retail Prices formation for Certain Oil Derivatives and Transportation Fuels, enabling a new and exact approach in the formation of the retail prices on certain oil derivatives. Namely, in accordance with Article 24, and Article 28 of the Law on Energy*, the Energy Regulatory Commission, on May 23rd, 2019, has adopted the Rulebook on Highest Retail Prices Formation for Certain Oil Derivatives and Transportation Fuels (hereinafter: the Rulebook). The Rulebook, for the first time after 20 years application of the Methodology on establishing highest prices on certain oil derivatives defined with the Annex D of the Shares Purchase and Concessions Agreement for the OKTA Refinery, introduced new Methodology based on the actual movements on the Oil and Oil Derivatives Market in the Republic of North Macedonia. The Rulebook reflects the manner on functionality of the market in the purchase and sale of oil products in our country and abroad by wholesale traders with crude oil, oil derivatives, biofuels, and transportation fuels. The new approach assures stability and predictability in the formation of retail prices on oil derivatives and the transportation fuels, as well as the transparency of the procedure on establishing retail prices on oil derivatives. The so-far application of the Rulebook, and based on the acquired data on monitoring conditions and functionality of the market, has contributed the Energy Regulatory Commission to analyze the impact of the Rulebook application on the operation by wholesale traders with crude oil and oil derivatives, and in accordance with the mentioned, the defined elements within the Rulebook, provide: • Balance of interests between the Energy Activity Performers and the consumers; • Protection of consumers against mistreatment by any dominant position on the market, and • Creating measures to encourage efficient operations by the Energy Activity Performers on the market of crude oil and oil derivatives through compensation and acquisition of respective equity revenue.

5.1 OIL SECTOR GENERAL DATA The energy infrastructure of the oil sector in the Republic of North Macedonia enables import, export and transportation of crude oil and oil derivatives, crude oil processing, biofuel production, distribution, transportation and oil derivatives sale.

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5.1.1 CRUDE OIL PROCESSING AND OIL DERIVATIVES PRODUCTION OKTA Refinery was built in 1980 and commenced operations in 1982. The Refinery is designed as a hydro skimming refinery with projected capacity of 2,5 million tons annually, i.e., with 5480 bbl / day. The maximum capacity of 1,36 million tons was reached in 1988. The technology structure refers to numerous processing plants, such as: atmospheric distillation, hydrodesulphurization of primary petroleum, catalytic reforming, high-temperature isomerization, hydrodesulphurization of kerosene, hydrodesulphurization of mid-distillates, and recuperation of liquid oil gas. Since 1999, OKTA Refinery is a Joint Stock Company, with a private majority share package by the strategic investor EL.P.ET Balkanika, Republic of Greece. OKTA Oil Refinery AD Skopje has the capacity to produce unleaded petrol with 95 octanes – Euro V, unleaded petrol with 98 octanes – Euro V, diesel fuel with 10 ppm Sulphur – Euro V, jet-engine fuel – JET A-1, liquefied petroleum gas (TNG) – a mixture of propane - butane gas with commercial butane. In addition, the mazut (fuel oil) with 2 % Sulphur, and the extra light oil with 1000 ppm Sulphur for the households.

Chart 5.1 Energy infrastructure of the oil sector in the Republic of North Macedonia

5.1.2 TANSPORTATION OF CRUDE OIL THROUGH OIL PIPELINE In 2002, the Thessaloniki – Skopje oil pipeline commenced its operations with a length of approximately 213,5 km, 16-inch NPS, with transport capacity of 2,5 million tons of oil on annual level. The transportation of crude oil starts from the Terminal HELP.PE.-TIC (Hellenic Petroleum, Industry Complex – Thessaloniki) to the Terminal OKTA. The route of the oil pipeline is continuant between the terminals of the HELP.PE.-TIC and OKTA with 15 block ventilation stations (three located in the Republic of Greece, and 12 located in the Republic of North Macedonia) in providing separate oil pipeline sections.

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The control and monitoring of the operations by the oil pipeline is organized through the SCADA System. The oil pipeline is managed by the Joint Macedonian – Greek Enterprise VARDAX, with Headquarters in Thessaloniki, and an Office in Skopje.

5.1.3 BIOFUELS PRODUCTION The Refinery of Biofuel production is in ownership by the Makpetrol AD Skopje. The Refinery commenced its production in 2007, and the capacity is 30 thousand tons on annual level. To produce the Biodiesel Fuel, the Refinery exploits unrefined oil from rapeseed, purchased by import.

5.1.4 RETAIL NETWORK There are approximately 371 gas stations, with an ongoing operation in the Republic of North Macedonia. Even though the ownership structure in the retail sector is changed, Makpetrol AD Skopje is the owner of numerous gas stations, i.e., with 127 gas stations. Next is Lukoil Makedonija DOOEL Skopje with 31 gas stations, the OKTA brand with 27 gas stations, while the remaining of approximately 186 gas stations are in private ownership by many domestic small-sized companies. Part of the companies in property of gas stations, along with the main activity for fuel sale to their gas stations, also appear as wholesale traders, i.e., part of the purchased liquid fuels is directly sold to end consumers.

5.1.5 STORAGE CAPACITIES The overall capacity of the oil and oil products reservoirs in the Republic of North Macedonia is approximately of 382 thousand m3. The reservoirs capacities in the Republic of Macedonia are sufficient for 90 days of an ongoing average consumption of each type of oil products. OKTA Oil Refinery AD Skopje, Makpetrol AD Skopje, Lukoil Makedonija DOOEL Skopje, the State Stock Reservoirs of the Republic of North Macedonia, and other small-size private and state stock companies, possess their own reservoirs storage facilities, and they all compose the reservoirs capacities in the Republic of North Macedonia. The formation, storage, restocking and the use of the mandatory stocks of oil and oil derivatives are regulated in accordance with the Law on Mandatory Reserves of Oil and Oil Products, and by the Directives of the European Union.

5.2 OIL AND OIL DERIVATIVES MARKET STATUS The Oil and Oil Derivatives Market in the Republic of Macedonia, along with the regulation prescribed by the Law on Energy*, is also regulated by the laws further listed: The Law on Trade, the Law on Competition Protection, the Law on Customs, the Law on Value Added Tax (VAT), the Law on Excise, and the Law on Market Inspection. Besides the mentioned laws, the Oil and Oil Derivatives Market, also underlines regulation with the Rulebook on Liquid Fuels Quality, the Technical regulations (storage and transportation of oil

- 115 - derivatives, standards, etc.), as well with the ratified international agreements: The Stabilization and Association Agreement with the European Union, the Energy Charter Treaty, and the Treaty establishing the Energy Community. In addition, great influence on the relations within this market, is the accession of our country to the World Trade Organization.

5.2.1 MARKET PARTICIPANTS Pursuant to the Law on Energy*, activities in the field of crude oil, oil derivatives, biofuels and transportation fuels, shall refer to: − Crude oil processing, and oil derivatives production; − Biofuels production; − Production of fuels designated to transportation, with mixture of fossil fuels and biofuels; − Transportation of crude oil through oil pipelines; − Transportation of oil derivatives through oil product lines, and − Wholesale Trade of crude oil, oil derivatives, biofuels and transportation fuels.

The above-mentioned activities are subject to performance by domestic and / or foreign entities under issued licenses by the Energy Regulatory Commission. Within this Sector is the import and export of crude oil and oil products, the transportation of crude oil through oil pipeline, the crude oil processing, the biofuel production, the oil products distribution and sale. Relations among participants on the market, are displayed in the Chart below.

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Chart 5.2 Interrelations of participants on Oil and Oil Derivatives Market in the country

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5.2.2 PRODUCTION, PURCHASE AND SALE OF OIL DERIVATIVES In the Republic of North Macedonia, the Crude Oil and Oil Derivatives Market, i.e., the supply and sale thereof, is monitored by the Energy Regulatory Commission on regular basis, through monthly and annual reports submitted by the licensed entities to the Energy Regulatory Commission, in accordance with the issued licenses. The Oil and Oil Derivatives Market comprises numerous participants, i.e., Energy Activity Performers, and there is a balance in the offer and demand, despite the dominant role by some participants in certain segments of the market. In 2019, OKTA Oil Refinery AD Skopje didn’t import crude oil in the Republic of North Macedonia, and due to that there wasn’t processing of crude oil and production of oil derivatives on the domestic market. The overall imported quantities of oil derivatives in the Republic of North Macedonia, in 2019, amount with 1.143.276 tons, which is by 15,76 % higher in relation to the imported quantities of oil derivatives in 2018 (987.662 tons). The largest importer, in the current year, is again OKTA Oil Refinery AD Skopje with a share of 68,85%, followed by Lukoil Makedonija DOOEL – Skopje with 10,06%, Supertrejd Skopje with 7,19%, OM Petrol Skopje with 3,04%, and other traders with approximately 10% share in the overall import of oil derivatives for 2019. 78 1,100,000 57,617 1,000,000 76,234 79 151 39,306 900,000 36,058 93,887 73,746 72,947 800,000 63,879 66,228 700,000 ) 600,000 tons ( 500,000 729,598 640,330 652,082 400,000

300,000

200,000

100,000 113,449 113,042 140,747 0 2017 2018 2019 ---(Engine) Gasoline ---Diesel Fuels ---Mazut ---LPG ---Jet fuel ---Biofuel

Chart 5.3 Oil derivatives Import in the RSM for 2017, 2018, and 2019 (tons / annually)

In 2019, the largest import is on diesel fuel, i.e., 63,82 % of the overall import, followed by the import of unleaded petrol types with 12,31%, the mazut (fuel oil) with 8,21 %, the propane – butane (TNG) with 6,67%, the extra light fuel (EL-1) with 3,95%, the jet fuel with 5,04%, and a rather small percentage of biofuel import.

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The above-attached Chart review, indicates that the import of oil derivatives in 2019 records significant increase in relation with the previous two years. The increase of the petrol imported quantities is by 24,5% higher in relation to 2018, while the diesel fuels import in 2019 is increased by 11,9% compared with the previous 2018. Significant growth, in 2019, by even 41,8% is recorded in the import of mazut fuel oil (as compared to 2018, while the TNG increase is by 4,5%. In 2019, the largest import is on diesel fuel, i.e., 63,82 % of the overall import, followed by the import of engine petrol with 12,31%, the mazut with 8,21 %, the propane – butane (TNG) with 6,67%, the extra light fuel (EL-1) with 3,95%, the jet fuel with 5,04%, and a rather small percentage of biofuel import.

FAME 78 LPG 76,234

Jet Fuel 57,617

Mazut 93,887

ELМ 45,115

Diesel 729,598

140,747 Gasoline 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 тони

Chart 5.4 Oil derivatives Import in 2019 (tons)

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During 2019, in the Republic of North Macedonia, the import of oil derivatives by wholesale traders with crude oil, oil derivatives, biofuels and transportation fuels was made from 13 countries, whereby, largest quantities of oil derivatives were imported from the neighboring countries, such as Greece with 79,75%, Bulgaria with 10,82%, Serbia with 2,91 %, Bosnia and Herzegovina with 2,60 %, Albania with 2,06 %, Romania with 1,02 %, and a rather small percentage of import from other countries.

Others Romania Albania BIH Serbia Bulgaria Greece

0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 (Engine) Gasoline Diesel ELM Mazut Jet fuel LPG FAME

Chart 5.5 Certain oil derivatives Import, according to countries, in 2019 (tons)

The purchase and sale of oil derivatives in the Republic of North Macedonia, during 2019, was actively performed by 27 legal entities licensed for wholesale trade with crude oil, oil derivatives, biofuels and transportation fuels.

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The Chart below reveals each share in the overall purchase of oil derivatives in the country.

UNION-GAS IVEL MINKA OIL SIMOV AVTO-SEL EUROPETROL MT NAS MBD MOBI PETROL TRITEROL PETROL ALOV GPOIL TOP-TRADE GULIVER EKONIK MARKET MARIJA TREID BASINO-GAS JAVOR SPED PERTINAKS EVROTIM OMPETROL PUCKO PETROL DETOIL CRNA REKA PETROL DADI OIL LUKOIL SUPERTREJD OKTA MAKPETROL

0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000

Import (tons) Purchesed from Traders (tons)

Chart 5.6 Overall oil derivatives purchase in the country, according to traders, in 2019 The Export of oil derivatives in 2019 is 194.417 tons and compared to 2018 (140.445 tons) is increased by 38,43 %. The largest exporter of oil derivatives in 2019, is OKTA Oil Refinery AD Skopje with 81,90 %, Makpetrol AD – Skopje with 13,31%, OM Petrol Skopje with 3,13%, and the export with 1,66 % made by other traders. In 2019, the sale of oil derivatives on the domestic market is 938.356 tons, indicating growth by 10,17% in relation to the oil derivatives sale in 2018 (851.770 tons).

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1,000,000

900,000

800,000

700,000

600,000

500,000 (tons) 400,000

300,000

200,000

100,000

0 2017 2018 2019 Diesel 574,955 571,893 642,742 (Engine) Gasoline 103,495 100,724 103,402 Biofuel 76 1,748 1,748 Jet fuel 3,058 593 593 LPG 72,172 71,900 73,201 Mazut 60,538 60,248 72,240 ELM 51,339 44,564 44,431

Chart 5.7 Sale of oil derivatives on Domestic Market in 2017, 2018, and 2019 (tons / annually) Additionally, in 2019, the sale of diesel fuels shows growth by 12,4% compared to 2018, while the consumption of petrol is by 2,7 % higher in relation to the previous year, i.e., the consumption of petrol is approximately on a same level with 2017. In 2019, significant growth is recorded in the consumption of mazut (fuel oil) with a sale of 20 % higher than the sale reached in 2018. The sale of other oil derivatives is on approximately same level with 2018, i.e., with 2017. In 2019, the diesel fuels by 68,50 % dominate in consumption of oil derivatives on the domestic market, followed by the consumption of unleaded petrol with a share of 11,02 %, mazut (fuel oil) with 7,70 %, and liquefied petroleum gas with 7,80%. Next are the extra light oil (EL-1) with 4,73 %, the biofuel with 0,19 %, and the jet fuel with 0,06 %.

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Engine Gasoline Diesel Fuels 11.02% 68.50%

Jet fuel 0.06%

Biofuel 0.19%

Propane - butane Mazut M1-HS Ekstra light 1 (TNG) 7.70% 4.73% 7.80%

Chart 5.8 Participation of oil derivatives in the overall consumption of oil derivatives in the Republic of North Macedonia, in 2019

The individual participation by wholesale traders with crude oil, oil derivatives, biofuel and transportation fuels, in the wholesale and retail sale of oil derivatives in our country during 2019, including their export, is displayed in the Chart 5.9 below. The review reveals that dominant share in the overall sale is made by OKTA Oil Refinery AD Skopje, followed by Makpetrol AD Skopje, Lukoil, Supertrejd, Dadi Oil, Crna Reka Petrol, Detoil, Pucko Petrol, and other small-size wholesale traders with oil derivatives. - In the wholesale trade, OKTA is with dominant share of 92,5 %. - In the retail trade, Makpetrol is with dominant share of 33,28 %, followed by Supertrejd with 10,77 %, and Lukoil with 10,69 %, whereas the three companies together are with 54,73 % share in the retail trade.

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UNION-GAS IVEL

MINKA OIL

SIMOV

AVTO-SEL

EUROPETROL MT

NAS MBD

MOBI PETROL

TRITEROL PETROL

ALOV

GPOIL

TOP-TRADE

GULIVER

EKONIK MARKET

MARIJA TREJD

BASINO-GAS

JAVOR SPED

PERTINAKS

EVROTIM

OMPETROL

PUCKO PETROL

DETOIL

CRNA REKA PETROL

DADI OIL

LUKOIL

SUPERTREJD

OKTA

MAKPETROL

- 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000

Export (tons) Wholesale Trade (tons) Retail Trade (tons)

Chart 5.9 Overall sale of oil derivatives, import included, in 2019 (per traders)

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Table 5.1 Review of purchase of crude oil, purchase and sale of oil derivatives in 2019, in tons

Status of Status of stock stock / PURCHASE SALE TOTAL / reserves at reserves at Available the end of Type of oil and oil the beginning year derivative of year

In the country TOTAL In the country TOTAL Purchase TOTAL EXPORT Sale OKTA Refinery IMPORT Gas End Production. (3+4) (2+5) Stations Consumers (7+8) (9+10) (6-11)

1 2 3 4 5 6 7 8 9 10 11 12

Crude oil ------

Unleaded petrol 4.060 - 140.747 140.747 144.807 99.916 3.486 103.402 36.491 139.893 4.914

Diesel Fuels 14.106 - 729.598 729.598 743.704 453.661 189.082 642.742 81.126 723.868 19.836

Extra Light 1 (EL - 1) 2.379 - 45.115 45.115 47.494 7.748 36.682 44.431 - 44.431 3.063

Mazut (Fuel oil) M1-HS 1.756 - 93.887 93.887 95.643 - 72.240 72.240 20.146 92.386 3.257 Propane – Butane 2.698 - 76.234 76.234 78.932 57.837 15.364 73.201 3.242 76.443 2.489 (TNG) Jet fuel 2.161 - 57.617 57.617 59.778 - 896 896 56.413 57.309 2.469

Biodiesel 2.106 - - - 2.106 1.497 122 1.619 - 1.619 487

FAME 145 - 78 78 223 99 - 99 - 99 124

- 125 -

5.3 APPROVED PRICES ON CERTAIN OIL DERIVATIVES The formation and approval of highest retail prices on certain oil derivatives by the Energy Regulatory Commission until May 27, 2019, i.e., until entering into force of the Rulebook on Highest Retail Prices Formation for Certain Oil Derivatives and Transportation Fuels (“Official Gazette of the RSM” no. 103 / 2019 and 212 / 2019), was in accordance with the Methodology prescribed by the Annex D of the Purchase Contract for Shares and Concessions with the Refinery AD “OKTA” – Skopje, signed between the Government of the Republic of North Macedonia and the Joint Stock Company “EL.P.E.T. – Balkanike”, as strategic investor. In accordance with the mentioned Methodology on determination of oil derivatives’ prices, and with the applicable legal acts in the country on liquid fuels, the Energy Regulatory Commission since the beginning of 2004 until April 30th, 2019 (the validity expiration of the Purchase Contract for Shares and Concessions with the Refinery AD OKTA – Skopje) , on every fourteen days, was determining the highest refinery and retail prices on certain oil derivatives by adopting Decisions on determination of highest prices on certain oil derivatives, established in accordance with the Methodology. The elements included in the formation of refinery prices on oil derivatives in accordance with this Methodology, are the listed below: - The average price on crude oil type “brent” on the London Stock Exchange Market, as well as the movement on referent prices on certain oil derivatives, published in the Stock Exchange Report Platt`s Crude Oil Spot Price, in the past 14-day period; - The value of manipulative costs, transportation costs, insurance, customs duties, shipping, bank provision fees, costs for quality inspection of the crude oil, and the refinery price on processing crude oil per ton; - The average exchange rate of the dollar for the past 14-day period. Integral elements included in the structure of the retail oil derivatives prices, are the listed below: - Refinery price on the oil derivatives – the same was calculated in accordance with the Methodology prescribed by Annex D of the Purchase Contract for Shares and Concessions with the Refinery AD OKTA – Skopje; - The costs on trading (trade margin) – value of margin is diverse, and depends on the selection of the group of retail prices made by the company trading with oil derivatives; - The transportation costs - the average value of the mentioned costs is 0,50 MKD / L, with an exemption of the MAZUT M-1, where the average value of the costs was not determined; - Excise on oil derivatives – the Law on Excise regulates the excises indirectly or directly payable on the consumption of mineral oils (unleaded petrol, diesel fuel, heating gas oil, extra light, jet fuel, engine petroleum, lighting petroleum, for airplanes and engines) on the territory of the Republic of North Macedonia. - The Value Added Tax (VAT) – in accordance with the Law on Value Added Tax (VAT), the tax rates of the VAT are calculated with the application of proportional tax rates to the tax base for taxation of goods and services trade, in accordance with the general tax base of 18 %, applicable to all types of energy products;

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- Fee on financing activities in the field of the Environment – in accordance with the Law on Environment, this fee is payable by taxpayers established by this Law; - Fee on the mandatory oil and oil derivatives stock reservoirs – in accordance with the Law on Mandatory Oil and Oil Derivatives Stock Reservoirs payable by taxpayers established by this Law in the import and / or production of oil derivatives. In accordance with Article 24 and Article 28 of the Law on Energy*, on May 23rd, 2019, the Energy Regulatory Commission has adopted the Rulebook on Highest Retail Prices formation on Certain Oil Derivatives and Transportation Fuels, published in the “Official Gazette of the Republic of North Macedonia”, no. 103 / 2019 (hereinafter: The Rulebook). According to the Rulebook, on May 27th, 2019, the Energy Regulatory Commission, for the first time, has adopted the Decision on Establishing Highest Retail Prices on Certain Oil derivatives and Transportation Fuels. In accordance with the provisions stipulated in the Rulebook, every seven days highest retail prices shall be established on certain oil derivatives, under individual determination of: - Highest purchase prices (based on stock exchange prices on oil products published in the Platt’s European Marketscan, parity FOB Med), - Fees on wholesale and retail margin including transportation costs from storage to gas stations and end consumers; - Values of specific excises, and other fees established by law and other secondary legislation. This approach assures stability and predictability in the formation of retail prices on oil derivatives and transportation fuels, as well as transparency in the procedure on establishing retail process on oil derivatives. Respecting all above-mentioned parameters, and the existing law acts in the country on liquid fuels, the Energy Regulatory Commission shall establish prices on certain oil derivatives on every seven days. On October 10th, 2019, the Energy Regulatory Commission adopted the Rulebook on amendments to the Rulebook on Highest Retail Prices formation on Certain Oil Derivatives and Transportation Fuels, published in the “Official Gazette of the Republic of North Macedonia”, no. 212 / 19. The amendments enabled harmonization of costs acquired by wholesale traders in the import of processed oil products, i.e. reduction of transportation costs made to the storage in the Republic of North Macedonia. The amendments to the Rulebook, also revised, i.e., have decreased the highest fee on costs on operation storage and trade margin. In addition, the amendments made respective revision, i.e., increasing the density of certain oil derivatives, based on received data on monitoring the conditions and market functionality, as well as the foreseeability for the upcoming six months period, i.e., from the middle of October, 2019 to the middle of April 2020.

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Table 5.2 Average prices of crude oil, and average currency rate of MKD / USA in the period from 1.1.2019 to 1.5.2019

Date $ / barel MKD / $ 9.1.2019 51,847 53,8222 22.1.2019 59,299 53,8800 5.2.2019 61,469 54,1845 19.2.2019 62,626 54,4530 5.3.2019 65,615 54,1127 19.3.2019 65,085 54,3486 2.4.2019 67,381 54,3287 16.4.2019 70,422 54,6727 1.5.2019 71,891 54,5452 85.000 80.000 75.000 70.000 65.000 60.000 55.000 50.000 45.000 40.000

$/barel DEN/$

Chart 5.10 Average prices of crude oil, and average currency rate of MKD / USA in the period from 1.1.2019 to 1.5.2019

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Table 5.3 Average Stock Exchange prices of referential oil derivatives, and average currency rate of MKD / USA in the period from 27.5.2019 to 31.12.2019

Prem Unl 10ppm 10ppm ULSD Gasoil 0.1 % Fuel Oil 1.0 % MKD / Date ($/t) ($/t) ($/t) ($/t) USD (NBM) 28.5.2019 665,350 621,250 694,100 427,300 55,0914 4.6.2019 637,800 593,700 580,300 414,350 55,0842 11.6.2019 577,900 546,700 534,850 396,800 54,8626 18.6.2019 592,000 552,650 540,550 387,600 54,4125 25.6.2019 591,150 562,850 550,800 388,850 54,6868 2.7.2019 625,600 586,100 576,500 419,000 54,1287 9.7.2019 627,950 572,600 561,500 415,200 54,3523 16.7.2019 660,200 587,400 577,050 432,600 54,7199 23.7.2019 636,450 579,300 570,800 402,900 54,7288 30.7.2019 631,900 582,250 574,850 400,350 55,0304 6.8.2019 628,250 584,850 579,000 415,850 55,3010 13.8.2019 573,000 548,050 542,150 371,750 55,1000 20.8.2019 571,200 559,250 554,500 362,100 54,9470 27.8.2019 567,700 561,750 555,300 372,100 55,4543 3.9.2019 576,850 561,350 555,000 360,600 55,4358 11.9.2019 564,150 566,350 561,950 346,950 55,8830 17.9.2019 580,750 585,700 580,050 354,750 55,8406 24.9.2019 632,850 617,050 605,500 392,950 55,6238 1.10.2019 605,350 596,350 584,150 376,750 55,9670 8.10.2019 587,450 571,900 558,750 383,200 56,3157 15.10.2019 577,600 579,350 560,700 391,700 55,9351 22.10.2019 558,000 577,450 560,750 382,500 55,6930 29.10.2019 571,250 585,700 568,450 384,850 55,1960 5.11.2019 583,700 576,900 557,450 388,100 55,3584 12.11.2019 599,000 580,150 564,450 391,450 55,3348 19.11.2019 586,600 574,150 564,600 387,450 55,8111 26.11.2019 593,300 563,650 554,850 383,500 55,5805 3.12.2019 589,150 570,550 559,050 384,900 55,8277 11.12.2019 566,600 567,800 557,650 405,750 55,6924 17.12.2019 571,400 574,650 564,150 422,050 55,4508 24.12.2019 586,250 594,700 585,450 453,900 55,2061 31.12.2019 596,100 600,700 590,550 465,400 55,4493

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800.000

700.000

600.000

500.000

400.000 ($/t)

300.000

200.000

100.000

0.000 28-05-19 28-06-19 28-07-19 28-08-19 28-09-19 28-10-19 28-11-19 28-12-19

Prem Unl 10ppm 10ppm ULSD Gasoil 0.1 % Fuel Oil 1.0 % MKD/USD (NBM)

Chart 5.11 Average Stock Exchange Prices of referential oil derivatives, and average currency rate of MKD / USA in the period from 27.5.2019 to 31.12.2019

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Table 5.4 Retail selling prices of oil derivatives in 2019

BMB BS-95 BMB BS-98 D-E V EL-1 M -1 HS Date (day / L) (day / L) (day / L) (day / L) (day / kg) 9.1.2019 58,50 60,50 55,00 43,50 25,949 22.1.2019 61,00 63,00 58,50 47,50 29,522 5.2.2019 62,00 63,50 60,00 48,50 31,121 19.2.2019 62,50 64,50 60,00 48,50 32,228 5.3.2019 64,50 66,50 61,00 49,50 32,847 19.3.2019 66,00 67,50 60,50 49,00 32,698 2.4.2019 68,50 70,50 61,00 49,50 33,375 16.4.2019 71,50 73,00 62,50 51,00 34,455 1.5.2019 72,00 74,00 63,50 52,00 34,377 28.5.2019 71,00 73,00 64,00 53,50 35,964 4.6.2019 69,50 72,00 62,50 52,00 35,118 11.6.2019 66,50 69,00 60,00 49,50 33,851 18.6.2019 67,00 69,00 60,00 49,50 33,003 25.6.2019 67,00 69,50 60,50 50,00 33,237 2.7.2019 68,50 70,50 61,50 51,00 34,849 9.7.2019 69,00 71,00 61,00 50,50 34,739 16.7.2019 70,50 72,50 62,00 51,50 36,081 23.7.2019 69,50 71,50 61,50 51,00 34,167 30.7.2019 69,50 71,50 61,50 51,50 34,181 6.8.2019 69,50 71,50 62,00 52,00 35,343 13.8.2019 66,50 68,50 60,00 50,00 32,361 20.8.2019 66,50 68,50 60,50 50,50 31,650 27.8.2019 66,50 68,50 61,00 51,00 32,574 3.9.2019 67,00 69,00 61,00 51,00 31,811 11.9.2019 66,50 69,00 61,50 51,50 31,147 17.9.2019 67,50 69,50 62,50 52,50 31,641 24.9.2019 69,50 72,00 64,00 53,50 34,034 1.10.2019 68,50 71,00 63,00 52,50 33,158 8.10.2019 68,00 70,00 62,00 51,50 33,779 15.10.2019 67,50 70,00 62,00 50,50 33,694 22.10.2019 66,50 68,50 62,00 50,50 32,954 29.10.2019 67,00 69,00 62,00 50,50 32,832 5.11.2019 67,50 70,00 61,50 50,00 33,134 12.11.2019 68,50 70,50 62,00 50,50 33,340 19.11.2019 68,00 70,00 62,00 51,00 33,344 26.11.2019 68,50 70,50 61,00 50,00 32,957 3.12.2019 68,50 70,50 61,50 50,50 33,186 11.12.2019 67,00 69,00 61,50 50,50 34,478 17.12.2019 67,00 69,00 61,50 50,50 35,407 24.12.2019 67,50 70,00 62,50 51,50 37,339 31.12.2019 68,50 70,50 63,00 52,00 38,243

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80.00

70.00

60.00 ) L /

mkd 50.00 (

40.00

30.00

20.00

----BMB BS-95 (mkd/lit) ----BMB BS-95 (mkd/lit) ----D-E V (mkd/lit)

----EL-1 (mkd/lit) ----М-1 NS (mkd/kg)

Chart 5.12 Movement of retail prices of oil derivatives in 2019

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100.00 17.89 28.54 40.58 3.33 80.00 48.80 47.79 12.63 60.00 10.48 9.51 9.22 78.78 40.00 58.84 48.94 41.69 42.99 20.00

0.00 BMB BS-95 BMB BS-98 D-E V EL-1 M -1 NS

% participation in the purchase price % participation in trade. margins and transport for traders % participation in state duties

Graph 5.13 Average percentage of shares of certain elements in the structure of retail selling prices of oil derivatives in the period from May 27th to December 31st 2019

80.00

70.00

60.00 1) - 50.00

40.00

30.00

20.00

(ден/лит; ден/кг за М за(ден/лит; ден/кг 10.00

0.00 BMB BS-95 BMB BS-98 D-E V EL-1 M -1 NS

Average amount of country tax duties Average amount of trade margins and transportation for traders Average amount of the purchase price

Chart 5.14 Average amount of certain elements in the structure of retail selling prices of oil derivatives in the period from May 27th to December 31st 2019

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MOVEMENT OF RETAIL SELLING PRICES ON OIL DERIVATIVES IN THE PERIOD FROM 2017 TO 2019

85.00

75.00

65.00 ) L / 55.00 MKD (

45.00

35.00

25.00

15.00

---Diesel (D-E V) ---Unleaded (BS-95) ---Heating oil (EL-1) ---Fuel oil (NS M-1)

- 134 -

MARKET

CONCENTRATION

ENERGY AND WATER SERVICES REGULATORY

COMMISSION OF- THE135 REPUBLIC - OF NORTH MACEDONIA

VI. MARKET CONCENTRATION

The Energy Regulatory Commission, for the first time within this Annual Report, shall publish the HHI (Herfindahl-Hirschman Index), the Market Concentration Assessment Indexes for electricity, natural gas, and oil derivatives markets in 2019. The HHI index is one of the key indicators in the assessment of market concentration and is one of the indicators recommended by the CEER2 for the assessment of the functionality of electricity and natural gas retail markets. The classification is developed in accordance with the Horizontal Merger Guidelines, published by the U.S Department of Justice and the Federal Trade Commission3. Overall share Number of of market market Activity HHI Classification participants participants with with a share a share over 5% over 5% Retail oil derivatives 1.559 Moderate concentration 6 75,84 sale Wholesale electricity Moderate to high 2.576 3 85,31 sale concentration Electricity sale to end 3.344 High concentration 4 88,79 users

Retail natural gas sale 4.759 High concentration 3 98,20

The presented data enclosed in the Table above, reveal that the lowest market concentration in 2019 is on the retail market of oil derivatives, whereas the HHI index is 1.559, there are six market participants with sale shares of over 5 % and their total sales share is 75,84%. On the electricity market, two segments have been analyzed, the electricity wholesale, and the electricity sale to end consumers. The electricity wholesale includes sales by electricity traders towards other traders, and this segment reveals moderate to high concentration, where the HHI index is 2.576, whereby three market participants are with the share of over 5 % in the overall sale. The electricity sale to end consumers include the overall sales of the regulated and liberalized segment of the retail market, as well as the electricity sale for covering grid losses of the TSO and DSOs. The mentioned segment indicates high concentration, and the HHI index is 3.344, while four participants are with the share of 5% in the overall sale of electricity. The highest market concentration is on the retail market of natural gas, with exemption of the trade activities by TE-TO AD Skopje.

2 2017 Handbook for National Energy Regulators How to assess retail market functioning 3 Horizontal Merger Guidelines - U.S. Department of Justice and the Federal Trade Commission - 136 -

WATER

SERVICES

ENERGY AND WATER SERVICES REGULATORY COMMISSION OF THE REPUBLIC OF NORTH MACEDONIA - 137 -

VII. WATER SERVICES

The Law on Setting Prices for Water Services (“Official Gazette of the Republic of Macedonia”, no. 7 / 16) regulates the adjustment of prices on water services, i.e., establishment of tariffs on water services in the supply of raw water designated for water supply to population, water supply, collection and discharge of urban wastewaters, and purification / treatment of wastewaters. In accordance with the Law on Water Service Regulation/Law on Setting Prices for Water Services, the procedure on establishing the water service tariffs is conducted by the Energy Regulatory Commission. The regulation of prices on water services aims to provide the overall price on water services for an average household to be available considering the overall income per household in the area of water service provision, to secure sustainable exploitation of the water service infrastructure reaching complete refund of expenses, to improve the quality of water service in providing permanent services in accordance with best available practices, to provide gradual, and eventually complete application of the principal the polluter pays , the principle on resources expenses according to the Law on Waters, and to reinforce water service efficiency by providing the best, according to quality water services, in a cost-effective manner. 7.1 WATER SERVICES GENERAL DATA The water is an essential natural source for human existence, required in each natural and industrial process. The Republic of North Macedonia is in disposition of satisfactory quantities of water sources, but unequally arrayed. There are 35 rivers, 53 natural and artificial lakes on the territory of the Republic of North Macedonia, and the territory is divided into eight water management areas.

In 2019, water services in the Republic of North Macedonia are provided by 77 Water Service providers, seven providing raw supply designated for water supply to population, 66

- 138 - water supply, i.e., supply of drinking water, 54 providing collection and discharge of urban wastewaters, and 15 providing purification / treatment of wastewaters. Along with the water service, a part of the public utility enterprises offers services on collection and disposal of waste, green markets services, parks and greenery services, cemeteries maintenance services, and other public services.

77 WATER SERVICE PROVIDERS

54 16 66 collection and 7 purification of discharge of Raw water supply water supply wastewaters wastewaters

7.2 SUPPLY WITH RAW WATER ENVISAGED FOR WATER SUPPLYI NG OF THE POPULATION

7.2.1 GENERAL DATA The water service of raw water supply envisaged for supply of water to population on the territory of the Republic of North Macedonia, is provided by the total of seven Water Supply Providers, covering partly or entirely the requirements for drinking water to municipalities, further listed: Kumanovo, Sveti Nikole, Probishtip, Veles, Strumica, Novo Selo, Vasilevo, Bosilovo, Bitola, Dolneni, Plasnica, Kichevo, Makedonski Brod, Prilep, Krusevo and Berovo.

7.2.2 RAW WATER SUPPLY TARIFFS The controlled period with established tariffs on water service supply of raw water designated to supply water to population in timeframe of three years, i.e., for the period of 2018-2020. The Table below displays tariffs on this type of water service applicable in 2018 and 2019:

Table 7.1 Tariffs on Raw Water Supply designated for water supply to population in 2018 and 2019

Numbe Water Service Provider – Raw Unit / 2019/201 Year 2018 Year 2019 r Water Supply measure 8 (%) 1 JPV Lisiche – Veles ден/m³ 3,80 3,82 0,53 2 LP Studenichica – Kichevo ден/m³ 1,30 1,37 5,38

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Numbe Water Service Provider – Raw Unit / 2019/201 Year 2018 Year 2019 r Water Supply measure 8 (%) 3 JP Strezevo – Bitola ден/m³ 4,78 4,77 -0,21 4 JPHS Zletovica – Probishtip ден/m³ 4,19 4,47 6,68 AD Vodostopanstvo – 5 ден/m³ 2,97 3,03 2,02 Podruznica Berovo AD Vodostopanstvo – 6 ден/m³ 3,55 3,60 1,41 Podruznica Strumichko Pole AD Vodostopanstvo – 7 ден/m³ 3,27 3,32 1,53 Podruznica Lipkovsko Pole The analysis reveals that in 2019, the tariff of JP Strezevo Bitola is reduced by 0,21 % in relation to 2018, but tariffs of other Water Service Providers in 2019 show increase in relation to 2018. The highest increase, by 6,68 % of the tariff, is by (JPHS) JP Zletovica Probishtip. The Chart below, reviews tariffs on raw water supply, designated to supply of water to population, in 2018 and 2019.

RAW WATER TARIFFS

6.00

5.00 3

4.00 ден/м

3.00

2.00

1.00

0.00 JPV LISICHE Veles JP STUDENTCHICA Kichevo JP STREZEVO BITOLA JPHS ZLETOVICA AD VODOSTOPANSTVO AD VODOSTOPANSTVO AD VODOSTOPANSTVO PROBISHTIP Podruznica Berovo Podruznica Strumichko Podruznica Kumanovsko - Pole Lipkovsko Pole Kumanovo

2018 2019

Chart 7.1 Tariffs on Raw Supply designated for water supply to population in 2018 and 2019 (in MKD / m3)

- 140 -

7.3 SUPPLY WITH DRINKING / POTABLE WATER OR WATER SUPPLYING

7.3.1 GENERAL DATA The water service supply with drinking / potable water, or water supply to areas with over 10.000 (equivalent) residents in the Republic of North Macedonia, is provided by 29 Water Service Providers, covering partly or entirely of drinking water requirements in the municipalities, further listed: Veles, Kavadarci, Negotino, Sveti Nikole, Berovo, Vinica, Kochani, Probishtip, Shtip, Debar, Struga, Kichevo, Ohrid, Bosilovo, Gevgelija, Strumica, Radovish, Bitola, Dolneni, Prilep, Resen, Brvenica, Vrapchishte, Gostivar, Zelino, Tetovo, Kumanovo, Skopje, and Ilinden. The water service supply with drinking water or water supply in areas with below 10.000 (equivalent) residents in the Republic of North Macedonia, is provided by 36 Water Service Providers, covering partly or entirely of the drinking water requirements in municipalities, such as: Demir Kapija, Gradsko, Chashka, Rosoman, Makedonska Kamenica, Delchevo, Cheshinovo, Obleshevo, Karbinci, Pehchevo, Zrnovci, Vevchani, Debrca, Makedonski Brod, Centar Zupa, Plasnica, Dojran, Novo Selo, Vasilevo, Bogdanci, Valandovo, Konche, Novaci, Krushevo, Demir Hisar, Mogila, Krivogashtani, Jegunovce, Tearce, Bogovinje, Mavrovo, Staro Nagorichane, Kriva Palanka, Kratovo, Rankovce, Gazi Baba, and Zelenikovo.

7.3.2 NON - REVENUE WATER IN 2019 The percentage of non – revenue water, even in 2019, remains one of the most significant issue for the Water Service Providers, and depending on the water service provider, it escalates between 13 % and 85 %. According to the late available data, the percentage of the non – revenue water in 2019, on national level in the Republic of North Macedonia, is 64,64%. Compared to the year before, quantities of water at the entrance of the water supply systems, show decrease by 9,74 %, but on the other hand, the percentage of invoiced water show growth from 32,45 % in 2018, to 35,36 % in 2019. The level of non - revenue water of Water Service Providers, for 2019 in relation to 2018, show reduction for approximately 3%, which indicates improvement in the status of the non – revenue water in the entire country. Tis improvement is due to the regulation of prices to the Water Service Providers by the application of provisions prescribed by the Methodology, foremost in the setting of realistic and achievable targets within the first regulated period by cross-reference of basic indicators for success. The Chart below is an overview of cross-reference level of invoiced water and level of non - revenue water in the period between 2018 and 2019.

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Overall of produced water in the system Overall of produced water in the system in 2018 in 2019 300.536.218 m³ 271.262.710 m³ 97,512,275 95,913,681

203,023,943 175,349,029 Invoiced water 32,45% Non-revenue water 67,55% Invoiced water Non-revenue water

Chart 7.2 Cross – reference of Invoiced and Non - revenue Water in 2018 and 2019

7.3.3 TARIFFS FOR DRINKING WATER SUPPLY OR WATER SUPPLY TO AREAS WITH OVER 10.000 (EQUIVALENT) RESIDENTS The regulated period with established tariffs on the water service referring to drinking water supply or water supply to Water Service Providers in areas with over 10.000 (equivalent) residents/citizens per equivalent, is in timeframe of three years, i.e., in the period from 2018 to 2019. The Energy Regulatory Commission establishes the range of water service tariff movements, while, upon proposition by the Water Service Providers, the final tariffs according to categories of users, are authorized by the Council of the Municipality of the area the water service is provided. In 2019, the Energy Regulatory Commission has adopted a Decision on establishing regulated tariff on the water service drinking water supply, or water supply in areas with over 10.000 (equivalent) residents for the JP Vodovod I Kanalizacija Skopje (PE Water Supply and Sewerage Skopje), and has established final tariffs according to categories of users, mandatory for application by the enterprise. The application of tariffs by Water Service Providers on the service for drinking water supply, or water supply to areas with over 10.000 (equivalent) residents, in 2019 are displayed in the Table below:

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Table 7.2 Tariffs on water supply to areas with over 10.000 (equivalent) residents, in 2018 and 2019 (in MKD / m3)

Water Service Provider – Households Other Users Num water supply to areas with ber over 10.000 (equivalent) 19/18 19/18 Year 2018 г Year 2019 Year 2018 Year 2019 residents (%) (%)

1 JKP Derven – Veles 31,62 31,62 0,00 63,05 63,05 0,00 2 JKP Komunalec – Kavadarci 16,50 16,50 0,00 28,00 28,00 0,00 3 JKP Komunalec – Negotino 20,50 21,27 3,76 38,00 39,34 3,53 4 JKP Komunalec – Sveti Nikole 32,33 32,33 0,00 46,00 46,00 0,00 5 JKP Usluga – Berovo 30,78 31,32 1,75 56,63 55,13 -2,65 6 JKP Solidarnost – Vinica 22,50 23,20 3,11 47,31 48,50 2,52 7 KJP Vodovod – Kochani 39,92 39,92 0,00 78,59 63,14 -19,66 8 JKP Nikola Karev – Probishtip 31,50 32,50 3,17 46,00 45,00 -2,17 9 JKP Isar – Shtip 33,73 31,96 -5,25 52,23 49,94 -4,38 10 JKP Standard – Debar 14,31 14,31 0,00 30,20 30,20 0,00 11 MJP Proakva – Struga 26,51 27,89 5,21 41,51 42,83 3,18 12 JKP Komunalec – Kichevo 24,00 24,00 0,00 36,00 36,00 0,00 13 MJ Proakva – Ohrid 25,17 26,50 5,28 36,08 35,24 -2,34 14 JPKD Ograzden – Bosilovo 19,30 19,30 0,00 0,00 0,00 0,00 15 JKPD Komunalec – Gevgelija 14,46 16,83 16,39 29,21 33,10 13,32 16 JKP Komunalec – Strumica 31,20 31,20 0,00 43,87 43,87 0,00 17 JKP Plavaja – Radovish 26,34 27,47 4,29 45,26 46,36 2,43 18 JP Vodovod – Bitola 27,00 28,15 4,26 47,80 48,60 1,67 19 JP Dolneni 25,00 25,00 0,00 40,00 40,00 0,00 JP Vodovod I kanalizacija - 20 26,22 26,70 1,83 46,90 45,65 -2,67 Prilep 21 JKP Proleter – Resen 27,48 24,52 -10,77 45,54 41,43 -9,03 22 OJP Vardar – Brvenica 16,70 16,70 0,00 29,82 30,53 2,38 23 JKP Vrapchishte 9,95 10,00 0,50 19,90 19,90 0,00 24 JKP Komunalec – Gostivar 18,00 18,00 0,00 49,00 49,00 0,00 25 JPKD Mirmbajtja – Zelino 12,37 13,00 5,09 33,33 33,33 0,00 26 JKP Tetovo 16,08 16,08 0,00 25,45 25,45 0,00 27 JP Vodovod – Kumanovo 34,32 35,47 3,35 41,24 41,73 1,19 JP Vodovod I kanalizacija – 28 18,00 18,00 0,00 30,25 30,25 0,00 Skopje 29 JKP Vodovod – Ilinden 24,14 25,12 4,06 48,00 48,00 0,00

The analyzes shows that in 2019, 14 out of 29 analyzed Water Service Providers have recorded increase of the tariff for households in relation to 2018, two providers with reduced tariffs, and 13 without any changes. In the category of other users, eight providers of the water service supply in 2019, compared to 2018, have recorded increase of the tariff, while 14 in this category of users, remain without any changes in the tariff.

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Largest decline by 10,77 % of tariff on water supply to households, is recorded by JKP Proleter Resen, while largest decline by 19,66 % of the tariff on water supply to other users, is recorded by JKP Vodovod – Kochani. Largest increase by 16,39 % of the tariff on water supply to households, is recorded by Komunalec – Gevgelija, while the tariff on water supply to other users, records increase by 19,66 %. The charts on the next pages shows the tariffs on water supply in areas with over 10.000 (equivalent) residents, for the years 2018 and 2019.

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LARGE JKP WATER SUPPLY TARIFFS Category of Households

29 JKP Vodovod Ilinden

28 JP Vodovod i kanalizacija Skopje

27 JP Vodovod Kumanovo

26 JKP Tetovo

25 JPKD Mirmbajtja ZELINO

24 JKP Komunalec Gostivar

23 JKP Vrapchishte

22 OJP Vardar Brvenica

21 JKP Proleter Resen

20 JP Vodovod i kanalizacija Prilep

19 JP Dolneni

18 JP Vodovod Bitola

17 JKP Plavaja Radovish

16 JKP Komunalec Strumica

15 JKPD Komunalec Gevgelija

14 JPKD Ograzden Bosilovo

13 MJP Proakva Ohrid

12 JKP Komunalec Kichevo

11 MJP Proakva Struga

10 JKP Standard Debar

9 JKP Isar Shtip

8 JKP Nikola Karev Probishtip

7 KJP Vodovod Kochani

6 JKP Solidarnost Vinica

5 JKP Usluga Berovo

4 JKP Komunalec Sveti Nikole

3 JKP Komunalec Negotino

2 JKP Komunalec Kavadarci

1 JKP Derven Veles

0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 45.00

2019 2018

Chart 7.3 Tariffs for water supply of the category of households, in areas with over 10.000 (equivalent) residents, in 2018 and 2019 (in MKD / m3)

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LARGE JKP WATER SUPPLY TARIFFS Category of Other

29 JKP Vodovod Ilinden

28 JP Vodovod i kanalizacija Skopje

27 JP Vodovod Kumanovo

26 JKP Tetovo

25 JPKD Mirmbajtja ZELINO

24 JKP Komunalec Gostivar

23 JKP Vrapciste

22 OJP Vardar Brvenica

21 JKP Proleter Resen

20 JP Vodovod i kanalizacija Prilep

19 JP Dolneni

18 JP Vodovod Bitola

17 JKP Plavaja Radovis

16 JKP Komunalec Strumica

15 JPKD Komunalec Gevgelija

14 JPKD Ograzden Bosilovo

13 MJP Proakva Ohrid

12 JKP Komunalec Kicevo

11 MJP Proakva Struga

10 JKP Standard Debar

9 JKP Isar Stip

8 JKP Nikola Karev Probistip

7 KJP Vodovod Kocani

6 JKP Solidarnost Vinica

5 JKP Usluga Berovo

4 JKP Komunalec Sveti Nikole

3 JKP Komunalec Negotino

2 JKP Komunalec Kavadarci

1 JKP Derven Veles

0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00

2019 2018

Chart 7.4 Tariffs for water supply of the category of other users, in areas with over 10.000 (equivalent) residents, in 2018 and 2019 (in MKD / m3)

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7.3.4 TARIFFS FOR DRINKING WATER SUPPLY OR WATER SUPPLY IN AREAS WITH LESS THAN 10.000 (EQUIVALENT) RESIDENTS The regulated period with established tariffs on the water service – drinking water supply or water supply for Water Service Providers in areas with less than 10.000 (equivalent) residents is in a timeframe of three years, i.e., in the period from 2019 to 2021. The Energy Regulatory Commission establishes the range escalation of tariffs on water services, whereas, upon a proposal by the Water Service Providers, the final tariffs according to categories of users, shall be approved by the Council of the respective municipality in the are the water service is provided. In 2019, the Energy Regulatory Decision on establishing regulated tariff on the water service drinking water supply in areas with less than 10.000 (equivalent) residents, referring to JP Komunalec Kriva Palanka and DKU Silkom Kratovo, under which has established the final tariffs according to category of users underlining mandatory application by these enterprises. The application of tariffs by the Water Service Providers on water service – drinking water supply or water supply in areas with less than 10.000 (equivalent) residents, for the years 2018 and 2019, are displayed in the Table below: Table 7.3 Tariffs for water supply in years 2018 and 2019, in areas with less than 10.000 (equivalent) residents per equivalent (in MKD / m3)

Households Other Users Num Water Service Provider in areas with ber less than 10.000 (equivalent) residents Year Year 19/18 Year Year 19/18 2018 2019 (%) 2018 2019 (%)

1 JKPD Boshava – Demir Kapija 17,00 18,00 5,88 34,00 35,00 2,94

2 JKP Klepa – Gradsko 21,00 24,00 14,29 39,00 32,55 -16,54

3 JKP Topolka – Chashka 28,00 28,00 0,00 30,00 30,00 0,00

4 JKPD Rosoman 16,83 17,00 1,01 30,00 30,00 0,00

5 JP Kamena Reka – Makedonska Kamenica 22,00 24,00 9,09 58,00 60,00 3,45

6 JPKD Bregalnica – Delchevo 26,00 28,98 11,46 46,87 51,07 8,96

7 JKP Obleshevo – Cheshinovo Obleshevo 20,00 20,00 0,00 20,00 20,00 0,00

8 JP Plachkovica – Karbinci 21,48 24,00 11,73 42,96 46,00 7,08

9 JKP Komunalec – Pehchevo 26,40 27,69 4,89 52,80 54,00 2,27

10 JKP Vodna Kula – Zrnovci 25,00 26,00 4,00 55,00 26,00 -52,73

11 JP Eremija – Vevchani 12,00 12,29 2,42 24,00 23,96 -0,17

12 JPKD Debrca 15,00 18,00 20,00 30,00 35,50 18,33

13 JP Vodovod I Kanalizacija – Makedonski Brod 29,00 20,36 -29,79 58,00 40,00 -31,03

14 JKP Kale – Centar Zupa 15,00 15,30 2,00 35,00 34,70 -0,86

15 JP komunalec – Plasnica 23,37 19,47 -16,69 46,73 36,00 -22,96

16 JPKD Komunalec Polin – Dojran 23,00 23,54 2,35 45,00 56,03 24,51

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Households Other Users Num Water Service Provider in areas with ber less than 10.000 (equivalent) residents Year Year 19/18 Year Year 19/18 2018 2019 (%) 2018 2019 (%)

17 JPKD Komuna – Novo Selo 20,00 25,00 25,00 40,00 50,00 25,00

18 JKP Turija – Vasilevo 30,00 32,63 8,77 45,00 45,00 0,00

19 JKP Komunalna Chistota – Bogdanci 21,75 23,80 9,43 30,00 35,00 16,67

20 JP Komunalen Servis – Valandovo 17,00 17,21 1,24 24,00 23,94 -0,25

21 JPKD Lakavica – Konche 18,00 19,67 9,28 32,00 37,09 15,91

22 JPKD Komunalna Higiena Novaci 24,50 24,25 -1,02 24,50 24,25 -1,02

23 JP Komuna – Krushevo 25,60 28,00 9,38 50,00 50,00 0,00

24 JKP Komunalec – Demir Hisar 21,37 23,00 7,63 46,77 47,00 0,49

25 JKP Pela Higiena – Mogila 24,25 24,41 0,66 45,00 45,00 0,00

26 JP Pelagonija – Krivogashtani 21,00 25,00 19,05 25,16 25,00 -0,64

27 DU Chistota – Jegunovce 18,00 17,50 -2,78 33,00 33,00 0,00

28 JP Higiena – Tearce 10,00 10,00 0,00 15,00 15,00 0,00

29 JKP Shari – Bogovinje 5,00 5,00 0,00 10,00 10,00 0,00

30 JPKD Mavrovo – Mavrovi Anovi 21,17 24,80 17,15 31,75 30,40 -4,25

31 JKP Kozjak – Staro Nagorichane 25,00 29,98 19,92 50,00 62,19 24,38

32 JP Komunalec – Kriva Palanka 24,00 23,50 -2,08 43,06 37,50 -12,91

33 DKU Silkom – Kratovo 20,00 14,28 -28,60 30,00 21,82 -27,27

34 JKP Chist Den – Rankovce 25,00 26,49 5,96 42,00 44,24 5,33

35 JKP Gazi Baba – 2007 13,72 15,25 11,15 17,14 19,50 13,77

36 JKP Zelenikovo 27,00 27,00 0,00 47,00 47,00 0,00

The above analyzes reviews that 25 out of 36 Water Service Providers, for the 2019 in relation to 2018, have had tariff increase in the category of households, six have recorded decline, and five remain without any changes. In the category of other users, 14 Water Service Providers of water supply compared to 2018 have recorded increase of the tariff in 2019, 12 have recorded decrease of the tariff, while 10 remain without any changes in the tariff for this category of users. Largest decrease by 29,79 % of tariff on water supply to households is by JP Vodovod i Kanalizacija in Makedonski Brod, while largest decrease by 52,73 % of the tariff on water supply to other users, is by JKP Vodna Kula – Zrnovci. Largest increase by 25 % of the tariff on water supply to households, is by the JKPD Komuna – Novo Selo, while the tariff on water supply to other users increases with a percentage value, accordingly.

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The charts below give an overview of tariffs on water supply for the years 2018 and 2019, in areas with less than 10.000 (equivalent) residents.

SMALL-SIZED JKP WATER SUPPLY TARIFFS Category of Households

36 JKP Zelenikovo

35 JKP Gazi Baba - 2007

34 JKP Chist Den Rankovce

33 DKU Silkom Kratovo

32 JP Komunalec Kriva Palanka

31 JKP Kozjak Staro Nagorichane

30 JPKD Mavrovo Mavrovi Anovi

29 JKP Shari Bogovinje

28 JP Higiena Tearce

27 DU Chistota Jegunovce

26 JP Pelagonija Krivogashtani

25 JKP Pela Higiena Mogila

24 JKP Komunalec Demir Hisar

23 JP Komuna Krushevo

22 JPKD Komunalna Higiena Novaci

21 JPKD Lakovica Konche

20 JP komunalen Servis Valandovo

19 JKP Komunalna Chistota Bogdanci

18 JKP Turija Vasilevo

17 JPKD Komuna Novo Selo

16 JPKD Komunalec Polin Dojran

15 JP Komunalec Plasnica

14 JKP Kale Centar Zupa

13 JP Vodovod I kanalizacija Makedonski Brod

12 JPKD Debrca

11 JP Eremija Vevchani

10 JKP Vodna Kula Zrnovci

9 JKP Komunalec Pehchevo

8 JP Plachkovica Korbinci

7 JKP Obleshevo Cheshinovo Obleshevo

6 JPKD Bregalnica Delchevo

5 JP Kamena Reka Makedonska Kamenica

4 JKPD Rosoman

3 JKP Topolka Chashka

2 JKP Klepa Gradsko

1 JPKD Boshava Demir Kapija 0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00

2019 2018

Chart 7.5 Tariffs for water supply of the category of households, in areas with less than 10.000 (equivalent) residents in years 2018 and 2019 (in MKD/ m3)

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SMALL-SIZED JKP WATER SUPPLY TARIFFS Category of Other Users

36 JKP Zelenikovo

35 JKP Gazi Baba - 2007

34 JKP Chist Den Rankovce

33 DKU Silkom Kratovo

32 JP Komunalec Kriva Palanka

31 JKP Kozjak Staro Nagorichane

30 JPKD Mavrovo Mavrovi Anovi

29 JKP Shari Bogovinje

28 JP Higiena Tearce

27 DU Chistota Jegunovce

26 JP Pelagonija Krivogashtani

25 JKP Pela Higiena Mogila

24 JKP Komunalec Demir Hisar

23 JP Komuna Krushevo

22 JPKD Komunalna Higiena Novaci

21 JPKD Lakovica Konche

20 JP komunalen Servis Valandovo

19 JKP Komunalna Chistota Bogdanci

18 JKP Turija Vasilevo

17 JPKD Komuna Novo Selo

16 JPKD Komunalec Polin Dojran

15 JP Komunalec Plasnica

14 JKP Kale Centar Zupa

13 JP Vodovod I kanalizacija Makedonski Brod

12 JPKD Debrca

11 JP Eremija Vevchani

10 JKP Vodna Kula Zrnovci

9 JKP Komunalec Pehchevo

8 JP Plachkovica Korbinci

7 JKP Obleshevo Cheshinovo Obleshevo

6 JPKD Bregalnica Delchevo

5 JP Kamena Reka Makedonska Kamenica

4 JKPD Rosoman

3 JKP Topolka Chashka

2 JKP Klepa Gradsko

1 JPKD Boshava Demir Kapija

0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00

2019 2018

Chart 7.6 Tariffs for water supply of the category of other users, in areas with less than 10.000 (equivalent) residents, in 2018 and 2019 (in MKD / m3)

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7.4 COLLECTION AND DISCHARGE (DISPOSAL) OF URBAN WASTEWATERS

7.4.1 GENERAL DATA The water service Collection and Discharge (Disposal) of Urban Wastewaters, on the territory of the Republic of North Macedonia, in areas with over 10.000 (equivalent) residents, are provided by 27 Water Service Providers, covering partly or entirely the requirements of the further listed municipalities: Veles, Kavadarci, Negotino, Sveti Nikole, Berovo, Vinica, Kochani, Probishtip, Shtip, Debar, Struga, Kichevo, Ohrid, Gevgelija, Strumica, Radovish, Bitola, Prilep, Resen, Brvenica, Vrapchishte, Gostivar, Zelino, Tetovo, Kumanovo, Skopje, and Ilinden. The water service Collection and Discharge (Disposal) of Urban Wastewaters, on the territory of the Republic of North Macedonia, in areas with less than 10.000 (equivalent) residents, are provided by 26 Water Service Providers, covering partly or entirely the requirements of the further listed municipalities: Demir Kapija, Gradsko, Chashka, Rosoman, Makedonska Kamenica, Delchevo, Cheshinovo Obleshevo, Karbinci, Pehchevo, Zrnovsci, Vevchani, Debrca, Makedonski Brod, Dojran, Novo Selo, Vasilevo, Bogdanci, Valandovo, Konche, Krushevo, Demir Hisar, Mogila, Krivogashtani, Kriva Palanka, Rankovce, and Zelenikovo.

7.4.2 TARIFFS FOR COLLECTION AND DISCHARGE (DISPOSAL) OF URBAN WASTEWATERS IN AREAS WITH OVER 10.000 (EQUIVALENT) RESIDENTS The regulated period with established tariffs on water service Collection and Discharge (Disposal) of Urban Wastewaters, for the water Service Providers, in areas with over 10.000 (equivalent) residents, is in the timeframe of three years, i.e., in the period from 2018 to 2020. The Energy Regulatory Commission establishes the range escalation of tariffs on water services, while upon a proposal by the Water Service Providers, the final tariffs according to category of users, shall be approved by the Council of the respective Municipality in the area the water service is provided. The application of tariffs by the Water Service Providers for Collection and Discharge (Disposal) of Urban Wastewaters in areas with over 10.000 (equivalent) residents, for the years 2018 and 2019 are displayed in the Table below: Table 7.4 Tariffs for Collection and Discharge (Disposal) of Urban Wastewaters in areas with over 10.000 (equivalent) residents in 2018 and 2019 (in MKD / m3)

Water Service Provider on Collection Households Other Users and Discharge (Disposal) of Urban Number Wastewaters in areas with over 10.000 Year Year 19/18 Year Year 19/18 (equivalent) residents 2018 2019 (%) 2018 2019 (%)

1 JKP Derven – Veles 5,01 5,01 0,00 7,66 7,66 0,00 2 JKP Komunalec – Kavadarci 3,50 3,50 0,00 6,50 6,50 0,00 3 JKP komunalec – Negotino 6,50 8,00 23,08 10,50 12,00 14,29

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Water Service Provider on Collection Households Other Users and Discharge (Disposal) of Urban Number Wastewaters in areas with over 10.000 Year Year 19/18 Year Year 19/18 (equivalent) residents 2018 2019 (%) 2018 2019 (%)

4 JKP Komunalec – Sveti Nikole 5,00 5,00 0,00 8,00 8,00 0,00 - 5 JKP Usluga – Berovo 6,42 6,77 5,45 11,56 10,11 12,54 6 JKP Solidarnost – Vinica 6,26 6,33 1,12 6,26 6,33 1,12 - 7 KJP Vodovod – Kochani 14,57 11,27 -22,65 22,59 17,15 24,08 8 JKP Nikola Karev – Probishtip 4,10 4,10 0,00 4,10 4,10 0,00 9 JKP Isar – Shtip 12,00 12,00 0,00 23,00 23,00 0,00 10 JKP Standard – Debar 2,52 2,52 0,00 5,33 5,33 0,00 11 MJP Proakva – Struga 9,73 10,56 8,53 18,26 25,10 37,46 12 JKP Komunalec – Kichevo 6,00 6,00 0,00 7,00 7,00 0,00 13 JP Niskogradba – Ohrid 8,21 9,05 10,23 14,21 15,66 10,20 14 JKPD Komunalec – Gevgelija 3,16 3,67 16,14 6,43 7,26 12,91 15 JKP Komunalec – Strumica 9,00 9,00 0,00 13,00 13,00 0,00 16 JKP Plavaja – Radovish 5,26 5,93 12,74 9,46 10,08 6,55 17 JKP Niskogradba – Bitola 11,89 12,50 5,13 17,24 17,88 3,71 18 JP Vodovod I kanalizacija – Prilep 5,28 5,28 0,00 5,28 5,28 0,00 19 JKP Proleter – Rsen 4,90 4,62 -5,71 6,54 6,25 -4,43 20 OJP Vardar – Brvenica 3,60 3,71 3,06 3,60 3,71 3,06 21 JKP Vrapchishte 10,62 10,62 0,00 10,62 10,62 0,00 22 JKP Komunalec – Gostivar 10,80 10,80 0,00 19,60 19,60 0,00 23 JPKD Mirmbajtja – Zelino 8,21 8,21 0,00 13,50 13,50 0,00 24 JKP Tetoo 3,00 3,00 0,00 6,38 6,38 0,00 25 JP Vodovod – Kumanovo 4,33 4,54 4,85 5,63 5,74 1,95 26 JP Vodovod I kanalizacija – Skopje 10,60 10,60 0,00 16,30 16,30 0,00 27 JKP Vodovod – Ilinden 7,86 9,70 23,41 16,08 19,32 20,15

The analyzes reveals that 11 out of 27 Water Service Providers on Collection and Discharge (Disposal) of Urban Wastewaters, compared to 2018, in 2019 have recorded increase of the tariff for the category of households, two have recorded a decrease, while 14 have recorded no change in the tariff for the category of households. Regarding the category of other users, 10 Water Service Providers on Collection and Discharge (Disposal) of Urban Wastewaters, compared to 2018, have recorded increase of the tariff for 2019, three notes decrease of the tariff, while 14 have recorded no changes in the tariff for this category of users. Largest decrease is by the JKP Vodovod – Kochani in the category of households by 22,65 % on the tariff of Collection and Discharge (Disposal) of Urban Wastewaters, and a decrease by 24,08 % in the category of other users. Largest increase is by the JKP Vodovod – Ilinden in the category of households by 23,41 % on the tariff of Collection and Discharge (Disposal) of Urban Wastewaters and increase by MJP Proakva Struga with 37,46 % in the category of other users.

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The charts below review tariffs on Collection and Discharge (Disposal) of Urban Wastewaters in areas with over 10.000 (equivalent) residents, in 2018 and 2019.

LARGE JKP COLLECTION AND DISCHARGE (DISPOSAL) TARIFFS Category of Households

27 JKP Vodovod Ilinden

26 JP Vodovod I kanalizacija Skopje

25 JP Vodovod Kumanovo

24 JKP tetovo

23 JPKD Mirmbajtja ZELINO

22 JKP Komunalec Gostivar

21 JKP Vrapchishte

20 OJP Vardar Brvenica

19 JKP Proleter Resen

18 JP Vodovod I kanalizacija Prilep

17 JKP Niskogradba Bitola

16 JKP Plavaja Radovish

15 JKP Komunalec Strumica

14 JKPD Komunalec Gevgelija

13 JP Niskogradba Ohrid

12 JKP Komunalec Kichevo

11 MJP Proakva Struga

10 JKP Standard Debar

9 JKP Isar Shtip

8 JKP Nikola Karev Probishtip

7 KJP Vodovod Kochani

6 JKP Solidarnost Vinica

5 JKP Usluga Berovo

4 JKP Komunalec Sveti Nikole

3 JKP Komunalec Negotino

2 JKP Komunalec Kavadarci

1 JKP Derven Veles

0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 ден/м³

2019 2018

Chart 7.7 Tariffs for Collection and Discharge (Disposal) of Urban Wastewaters for the category of households, in areas with over 10.000 (equivalent) residents, in 2018 and 2019 (in MKD / m3)

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LARGE JKP COLLECTION AND DISCHARGE (DISPOSAL) TARIFFS Category of Other Users

27 JKP Vodovod Ilinden

26 JP Vodovod I kanalizacija Skopje

25 JP Vodovod Kumanovo

24 JKP tetovo

23 JPKD Mirmbajtja ZELINO

22 JKP Komunalec Gostivar

21 JKP Vrapchishte

20 OJP Vardar Brvenica

19 JKP Proleter Resen

18 JP Vodovod I kanalizacija Prilep

17 JKP Niskogradba Bitola

16 JKP Plavaja Radovish

15 JKP Komunalec Strumica

14 JKPD Komunalec Gevgelija

13 JP Niskogradba Ohrid

12 JKP Komunalec Kichevo

11 MJP Proakva Struga

10 JKP Standard Debar

9 JKP Isar Shtip

8 JKP Nikola Karev Probishtip

7 KJP Vodovod Kochani

6 JKP Solidarnost Vinica

5 JKP Usluga Berovo

4 JKP Komunalec Sveti Nikole

3 JKP Komunalec Negotino

2 JKP Komunalec Kavadarci

1 JKP Derven Veles

0.00 5.00 10.00 15.00 20.00 25.00 30.00 ден/м³

2019 2018

Chart 7.8 Tariffs for Collection and Discharge (Disposal) of Urban Wastewaters for the category of other users, in areas with over 10.000 (equivalent) residents, in 2018 and 2019 (in MKD / m3)

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7.4.3 TARIFFS FOR COLLECTION AND DISCHARGE (DISPOSAL) OF URBAN WASTEWATERS IN AREAS WITH LESS THAN 10.000 (EQUIVALENT) RESIDENTS The regulated period with established tariffs on water service Collection and Discharge (Disposal) of Urban Wastewaters, for the water Service Providers, in areas with less than 10.000 (equivalent) residents, is in the timeframe of three years, i.e., in the period from 2018 to 2020. The Energy Regulatory Commission establishes the range escalation of tariffs on water services, while upon a proposal by the Water Service Providers, the final tariffs according to category of users, shall be approved by the Council of the respective Municipality in the area where the water service is provided. The application of tariffs by the Water Service Providers for Collection and Discharge (Disposal) of Urban Wastewaters in areas with less than 10.000 (equivalent) residents, for the years 2018 and 2019 are displayed in the Table below: Table 7.5 Tariffs on Collection and Discharge (Disposal) of Urban Wastewaters, in areas with less than 10.000 (equivalent) residents, in 2018 and 2019 (in MKD / m3) Water Service Provider on Collection and Discharge Households Other Users Num (Disposal) of Urban ber Wastewaters in areas with 19/18 19/18 Year 2018 Year 2019 Year 2018 Year 2019 less than 10.000 (equivalent) (%) (%) residents JPKD Boshava – Demir 1 6,00 6,68 11,33 12,00 13,00 8,33 Kapija 2 JKP Klepa – Gradsko 3,00 4,00 33,33 6,00 4,00 -33,33

3 JKP Topolka – Chashka 3,50 3,50 0,00 3,50 3,50 0,00

4 JKPD Rosoman 4,00 5,06 26,50 8,00 9,86 23,25 JP Kamena Reka – 5 5,00 7,00 40,00 10,00 11,00 10,00 Makedonska Kamenica JPKD Bregalnica – 6 8,00 10,28 28,50 15,06 18,89 25,43 Delchevo JKP Obleshevo – 7 10,00 10,00 0,00 10,00 10,00 0,00 Cheshino Obleshevo 8 JP Plachkovica – Karbinci 5,00 6,00 20,00 5,00 6,00 20,00 JKP Komunalec – 9 7,92 9,61 21,34 15,84 18,74 18,31 Pehchevo 10 JKP Vodna Kula – Zrnovci 6,00 6,00 0,00 15,00 6,00 -60,00

11 JP Eremija – Vevchani 6,00 6,16 2,67 12,00 12,01 0,08

12 JPKD Debrca 4,50 3,27 -27,33 9,00 5,00 -44,44 JP Vodovod I kanalizacija 136,5 13 6,34 9,06 42,90 6,34 15,00 – Makedonski Brod 9 JPKD Komunalec Polin – 14 7,09 12,54 76,87 17,64 24,45 38,61 Dojran

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Water Service Provider on Collection and Discharge Households Other Users Num (Disposal) of Urban ber Wastewaters in areas with 19/18 19/18 Year 2018 Year 2019 Year 2018 Year 2019 less than 10.000 (equivalent) (%) (%) residents JPKD Komuna – Novo 15 5,00 6,25 25,00 10,00 12,5 25,00 Selo 16 JKP Turija – Vasilevo 7,48 5,61 -25,00 5,71 10,62 85,99 JKP Komunalna Chistota 17 4,00 5,00 25,00 8,00 10,00 25,00 – Bogdanci JP Komunalen Servis – 18 3,00 3,04 1,33 5,00 4,97 -0,60 Valandovo 19 JPKD Lakavica – Konche 5,52 4,43 -19,75 5,52 4,43 -19,75

20 JP Komuna – Krushevo 3,80 3,80 0,00 8,00 8,00 0,00 JKP Komunalec – Demir 21 6,00 6,00 0,00 10,00 10,00 0,00 Hisar JKP Pela Higiena – 22 12,13 12,23 0,82 22,50 22,50 0,00 Mogila JP Pelagonija – 23 13,00 9,00 -30,77 13,00 9,00 -30,77 Krivogashtani JP Komunalec – Kriva 24 3,00 3,61 20,33 3,00 3,61 20,33 Palanka JKP Chist Den – 25 5,00 5,00 0,00 7,00 6,65 -5,00 Rankovce 26 JKP Zelenikovo 5,00 5,00 0,00 11,00 11,00 0,00 The above analyzes reveals that 15 out of 26 Water Service Providers on Collection and Discharge (Disposal) of Urban Wastewaters, compared to 2018, in 2019 have recorded increase of the tariff for the category of households, four have a decrease recorded, while seven have recorded no change in the tariff for the category of households. Regarding the category of other users, 13 Water Service Providers on Collection and Discharge (Disposal) of Urban Wastewaters, compared to 2018, have recorded increase of the tariff for 2019, seven have decreased the tariff, while six have recorded no changes in the tariff for this category of users. Largest decrease is by JP Pelagonija - Krivogashtani in the category of households by 30,77 % on the tariff of Collection and Discharge (Disposal) of Urban Wastewaters, and largest decrease by 60 % of JKP Vodna Kula - Zrnovci in the category of other users. Largest increase is by JPKD Komunalec Polin – Dojran, with 76,87 % on the tariff of Collection and Discharge (Disposal) of Urban Wastewaters in the category of households, and increase by JP Vodovod I kanalizacija – Makedonski Brod with 136,59 % in the category of other users. The charts below review tariffs on Collection and Discharge (Disposal) of Urban Wastewaters in areas with less than 10.000 (equivalent) residents, in 2018 and 2019.

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SMALL-SIZED JKP COLLECTION AND DISCHARGE (DISPOSAL) TARIFFS Category of Households

26 JKP Zelenikovo

25 JKP Chist Den Rankovce

24 JP Komunalec Kriva Palanka

23 JP pelagonija Krivigashtani

22 JKP Pela Higiena Mogila

21 JKP Komunalec Demir Hisar

20 JP Komuna Krushevo

19 JPKD Lakavica Konche

18 JP Komunalen Servis Valandovo

17 JKP Komunalna Chistota Bogdanci

16 JKP Turija Vasilevo

15 JPKD Komuna Novo Selo

14 JPKD Komunalec Polin Dojran

13 JP Vodovod I kanalizacija Makedonski Brod

12 JPKD Debrca

11 JP Eremija Vevchani

10 JKP Vodna Kula Zrnovci

9 JKP Komunalec Pehchevo

8 JP Plachkovica Karbinci

7 JKP Obleshevo Cheshinovo Obleshevo

6 JPKD Bregalnica Delchevo

5 JP Kamena Reka Makedonska Kamenica

4 JKPD Rosoman

3 JKP Topolka Chashka

2 JKP Klepa Gradsko

1 JPKD Boshovo Demir Kapija

0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 ден./м³

2019 2018

Chart 7.9 Tariffs for Collection and Discharge (Disposal) of Urban Wastewaters for the category of households, in areas with less than 10.000 (equivalent) residents, in 2018 and 2019 (in MKD / m3)

- 157 -

SMALL-SIZED JKP COLLECTION AND DISCHARGE (DISPOSAL) TARIFFS Category of Other Users

26 JKP Zelenikovo

25 JKP Chist Den Rankovce

24 JP Komunalec Kriva Palanka

23 JP pelagonija Krivigashtani

22 JKP Pela Higiena Mogila

21 JKP Komunalec Demir Hisar

20 JP Komuna Krushevo

19 JPKD Lakavica Konche

18 JP Komunalen Servis Valandovo

17 JKP Komunalna Chistota Bogdanci

16 JKP Turija Vasilevo

15 JPKD Komuna Novo Selo

14 JPKD Komunalec Polin Dojran

13 JP Vodovod I kanalizacija Makedonski Brod

12 JPKD Debrca

11 JP Eremija Vevchani

10 JKP Vodna Kula Zrnovci

9 JKP Komunalec Pehchevo

8 JP Plachkovica Karbinci

7 JKP Obleshevo Cheshinovo Obleshevo

6 JPKD Bregalnica Delchevo

5 JP Kamena Reka Makedonska Kamenica

4 JKPD Rosoman

3 JKP Topolka Chashka

2 JKP Klepa Gradsko

1 JPKD Boshovo Demir Kapija

0.00 5.00 10.00 15.00 20.00 25.00 30.00

2019 2018

Chart 7.10 Tariffs for Collection and Discharge (Disposal) of Urban Wastewaters for the category of other users in areas with less than 10.000 (equivalent) residents, in 2018 and 2019 (in MKD / m3)

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7.5 WASTEWATERS PURIFICATION (WASTEWATER TREATMENT)

7.5.1 GENERAL DATA The water service of Wastewaters Purification (Wastewater Treatment) on the territory of the Republic of North Macedonia, in areas with over 10.000 (equivalent) residents, is provided by 12 Water Service Providers, covering partly or entirely requirements of the further listed municipalities: Berovo, Kochani, Struga, Kichevo, Gevgelija, Strumica, Radovish, Prilep, Bitola, resen, Kumanovo, Skopje, and Ilinden. The water service of Wastewaters Purification (Wastewater Treatment) on the territory of the Republic of North Macedonia, in areas with less than 10.000 (equivalent) residents, is provided by three Water Service Providers, covering partly or entirely requirements of the further listed municipalities: Makedonski Brod, Dojran, and Krivogashtani.

7.5.2 TARIFFS FOR WASTEWATERS PURIFICATION (WASTEWATER TREATMENT) IN AREAS WITH OVER 10.000 (EQUIVALENT) RESIDENTS The regulated period with established tariffs for water service Wastewaters Purification (Wastewater Treatment) for the Water Service Providers in areas with over 10.000 (equivalent) residents, is in the timeframe of three years, i.e., in the period from 2018 to 2020. The Energy Regulatory Commission establishes the range escalation of tariffs for water services, while upon a proposal by the Water Service Providers, the final tariffs according to category of users, shall be approved by the Council of the respective Municipality in the area where the water service is provided. The application of tariffs by the Water Service Providers for Wastewaters Purification (Wastewater Treatment) in areas with over 10.000 (equivalent) residents, for the years 2018 and 2019, are displayed in the Table below: Table 7.6 Tariffs for Wastewaters Purification (Wastewater Treatment) in areas with over 10.000 (equivalent) residents, in 2018 and 2019 (in MKD / m3)

Households Other Users Water Service Provider of Wastewaters Number Purification (Wastewater Treatment) in areas with over 10.000 (equivalent) residents Year Year 19/18 Year Year 19/18 2018 2019 (%) 2018 2019 (%)

1 JKP Usluga – Berovo 12,62 11,50 -8,87 12,62 11,50 -8,87 2 KJP Vodovod – Kochani 0,00 12,75 - 0,00 12,75 - 3 MJP Proakva – Struga 16,54 16,64 0,60 26,52 26,68 0,60 4 JKP Komunalec – Kichevo 10,00 10,00 0,00 13,00 13,00 0,00 5 JKPD Komunalec – Gevgelija 12,83 10,44 -18,63 19,34 20,70 7,03 6 JKP Komunalec – Strumica 15,71 15,20 -3,25 15,71 15,20 -3,25 7 JKP Plavaja – Radovish 12,55 12,61 0,48 18,78 18,66 -0,64

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8 JKP Niskogradba – Bitola 6,41 6,59 2,81 9,30 9,39 0,97 9 JKP Proleter – Resen 11,23 11,60 3,29 15,84 15,89 0,32 10 JP Vodovod – Kumanovo 8,82 8,97 1,70 8,82 8,97 1,70 11 JP Vodovod i kanalizacija – Skopje 0,85 0,85 0,78 0,85 0,85 0,78 12 JKP Vodovod - Ilinden 6,79 7,38 8,69 13,89 14,69 5,76 13 JKP Vodovod i kanalizacija - Prilep 0,00 17,35 - 0,00 17,35 - The above analysis reveals that seven out of 12 Water Service Providers on Wastewaters Purification (Wastewater Treatment), compared to 2018, in 2019 have recorded increase of the tariff for the category of households, three have recorded a decrease, while one has recorded no change in the tariff for the category of households. Regarding the category of other users, seven Water Service Providers on Wastewaters Purification (Wastewater Treatment), compared to 2018, have recorded increase of the tariff for 2019, three have decreased the tariff, while one has recorded no changes in the tariff for this category of users. The tariff for Wastewaters Purification (Wastewater Treatment), for the first time in 2019 is applied by KJP Vodovod Kochani and by JKP Vodovod i kanalizacija Prilep. Largest decrease is by JKPD Komunalec - Gevgelija in the category of households, by 18,63 % on the tariff for Wastewaters Purification (Wastewater Treatment), and a largest decrease by 8,87 % of the tariff by JKPUsluga - Berovo in the category of other users. Largest increase by 8,69 % on the tariff for Wastewaters Purification (Wastewater Treatment) in the category of households is by JKP Vodovod - Ilinden, while the largest increase by 7,03% for the category of other users in the area the service is provided by JKPD Komunalec – Gevgelija. The charts below review tariffs for Wastewaters Purification (Wastewater Treatment) in areas with over 10.000 (equivalent) residents, in 2018 and 2019.

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LARGE JKP WASTEWATERS PURIFICATION (Wastewater Treatment) TARIFFS Category of Households

13 JP Vodovod i Kan. Prilep

12 JKP Vodovod Ilinden

11 JP Vodovod i Kan.Skopje

10 JP Vodovod Kumanovo

9 8 JKP Proleter Resen

8 JKP Niskogradba Bitola

7 JKP Plavaja Radovis

6 JKP Komunalec Strumica

5 JKPD Komunalec Gevgelija

4 JKP Komunalec Kicevo

3 MJP Proaqua Struga

2 KJP Vodovod Kocani

1 JKP Usluga Berovo

0.00 5.00 10.00 15.00 20.00 2019 2018

Chart 7.11 Tariffs for Wastewaters Purification (Wastewater Treatment) in the Category of Households in areas with over 10.000 (equivalent) residents, in 2018 and 2019 (in MKD / m3)

LARGE JKP WASTEWATERS PURIFICATION (Wastewater Treatment) TARIFFS Category of Other Users

13 JKP Vodovod i Kanalizaicija Prilep

12 JKP Vodovod Ilinden

11 JP Vodovod i kanalizacija Skopje

10 JP Vodovod Kumanovo

9 JKP Proleter Resen

8 JKP Niskogradba Bitola

7 JKP Plavaja Radovis

6 5 JKP Komunalec Strumica

5 4 JKPD Komunalec Gevgelija

4 JKP Komunalec Kicevo

3 MJP Proaqua Struga

2 KJP Vodovod Kocani

1 JKP Usluga Berovo

0.00 5.00 10.00 15.00 20.00 25.00 30.00

2019 2018

Chart 7.12 Tariffs for Wastewaters Purification (Wastewater Treatment) in the Category of Other Users, in areas with over 10.000 (equivalent) residents, in 2018 and 2019 (in MKD / m3)

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7.5.3 TARIFFS FOR WASTEWATERS PURIFICATION (WASTEWATER TREATMENT) IN AREAS WITH LESS THAN 10.000 (EQUIVALENT) RESIDENTS The regulated period with established tariffs for water service Wastewaters Purification (Wastewater Treatment) for the water Service Providers in areas with less than 10.000 (equivalent) residents, is in the timeframe of three years, i.e., in the period from 2019 to 2021. The Energy Regulatory Commission establishes the range escalation of tariffs for water services, while upon a proposal by the Water Service Providers, the final tariffs according to category of users, shall be approved by the Council of the respective Municipality in the area where the water service is provided. The application of tariffs by the Water Service Providers for Wastewaters Purification (Wastewater Treatment) in areas with less than 10.000 (equivalent) residents, for the years 2018 and 2019, are displayed in the Table below: Table 7.7 Tariffs for Wastewaters Purification (Wastewater Treatment) in areas with less than 10.000 (equivalent) residents, in 2019 (in MKD / m3) Water Service Provider of Purification of Wastewaters (Wastewater Treatment) in Year 2019 Number areas with less than 10.000 (equivalent) residents Households Other Users JP Vodovod I kanalizacija – Makedonski 1 7,06 15,00 Brod 2 JPKD Komunalec Polin - Dojran 4,45 4,45

3 JP Pelagonija – Krivigashtani 8,00 8,00

The Chart on the next page shows a review of tariffs on Wastewaters Purification (Wastewater Treatment) in areas with less than 10.000 (equivalent) residents for 2019.

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WASTEWATERS PURIFICATION (Wastewater Treatment) TARIFFS for year 2019

16.00

14.00

12.00 ³ m

/ 10.00

mkd 8.00

6.00

4.00

2.00

0.00 JP Vodovod i Kanalizacija JPKD Komunalec Polin Dojran JP Pelagonija Krivogastani Makedonski brod 1 2 3

households others

Chart 7.13 Tariffs for Purification of Wastewaters (Wastewater Treatment) in areas with less than 10.000 (equivalent) residents, in 2019 (in MKD / m3)

- 163 -

LEGAL AFFAIRS

ENERGY AND WATER SERVICES REGULATORY COMMISSION OF THE REPUBLIC OF NORTH MACEDONIA - 164 -

VIII. LEGAL AFFAIRS

The Energy Regulatory Commission operates competences in accordance with provisions stipulated by the Law on Energy* and the Law on Setting Prices for Water Services. In addition to the aforementioned laws, the Energy Regulatory Commission, as a sole, non-profitable regulatory body, in the procedures on protection of the rights of consumers, as well as in the procedures on establishing prices and tariffs for regulated energy activities, methodologies, tariff systems, certification, rules on energy sources market regulation, rules on complaints and dispute resolution, approval of acts adopted by energy activities performers and by the water service providers, providing access to information, accountability and transparency in operation, also applies the provisions of the Law on Administrative Procedure, the Law on Consumers Protection, the Law on Whistleblowers Protection, the Law of Free Access to Information of Public Interest, as well as all other positive regulations of the Republic of North Macedonia in regard to the work of state authorities. During 2019, the Energy Regulatory Commission has adopted or authorized 28 legal acts, five as general acts, 16 acts in the field of electricity, three in the field of natural gas, three in the field of district heating, and one Rulebook in the field of oil derivatives. In 2019, the Energy Regulatory Commission has issued 54 licenses for energy activities performance, 50 referring to energy activity performance in the field of electricity, two in the field of natural gas, and two in the field of oil derivatives. During 2019, in the overall of 194 procedures on dispute decision making / dispute resolution before the Energy Regulatory Commission, all in the field of electricity, 80 were adopted, 92 were rejected, dismissed or suspended, and 22 disputes are in procedure for 2020. In 2019, in the overall of 21 Requests on Free Access to Information of Public Interest submitted to the Energy Regulatory Commission, all of the requests were responded to, whereas, 18 were responded to during 2019, and three were in procedure in 2020.

8.1 LEGAL ACTS The Energy Regulatory Commission during 2019 has continued with the development of bylaws acts arising from the Law on Energy*, in accordance with established deadlines, under technical assistance by the USAID and the Energy Community Secretariat. During 2019, the Energy Regulatory Commission has adopted five general acts in regard to the operation of the Energy Regulatory Commission, five acts in the field of electricity, three in the field of natural gas, three in the field of district heating, and one Rulebook in the field of oil derivatives. Also, in 2019 the Energy Regulatory Commission has authorized ten acts developed by the electricity transmission and distribution operators.

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Oil and oil District Heating derivatives General acts 3 1 5

Natural gas 3

Electricity - authorised Electricity - adopted 10 6

Chart 8.1 Review of legal acts adopted or approved by the Energy Regulatory Commission in 2019

8.1.1 GENERAL ACTS During 2019, the Energy Regulatory Commission has adopted the acts listed below: 1. Rulebook on Licenses, March 1st, 2019 -” Official Gazette of the Republic of North Macedonia”, no. 51 / 19, 54 / 19 and 214 / 19; 2. Decision on Amendments to the Statute of the Energy Regulatory Commission, March 5th, 2019 – authorized with the Decision by the Assembly of the Republic of North Macedonia (“Official Gazette of the Republic of North Macedonia”, no. 64 / 19), March 27th, 2019; 3. Rulebook on the Manner and Procedure for Monitoring the Functioning of the Energy Markets, July 4th, 2019 -” Official Gazette of the Republic of North Macedonia”, no. 138 / 19; 4. Rulebook on Internal Organization of the Energy Regulatory Commission, November 11th, 2019 - authorized by the Ministry of Information Society and Administration, December 23rd, 2019, and 5. Rulebook on Systematization of Jobs of the Energy Regulatory Commission, November 11th, 2019 – authorized by the Ministry of Information Society and Administration, December 23rd, 2019. The Rulebook on licenses shall regulate the terms, manner and procedure on issuance, change, extension, transfer, suspension, revoke and termination of validity of licenses for energy activities performance, temporary licenses, probationary licenses, and decisions on entering the Register of Electricity and Natural Gas Foreign Traders and Suppliers, deadlines

- 166 - on undertaking certain activities in respective procedure, documentation enclosed in the procedure, the timeframe, content of licenses and forms, applied for each procedure individually. The mentioned Rulebook served in upgrading the actual system on license issuance, on the following: − Prescribing simplified procedures on issuing licenses for energy activities performance; − Reducing timeframe of procedures; − Precising required documentation needful to be enclosed with the procedures on each energy activity individually; − Further precising of the procedures on issuance of temporary and probationary licenses, and − Simplifying participation by electricity and natural gas traders and suppliers from other countries on the markets in the Republic of North Macedonia with the application of the reciprocity principle through registration with the Energy Regulatory Commission, without license acquisition. The Decision on changes and amendments to the Statute of the Energy Regulatory Commission, enables the listed below: − Compliance with the Law on Energy* referring to the title of the commission by adding “Water Services”, and expanded competencies deriving from the Third Energy Package of the European Union, and the Treaty establishing the Energy Community; − Compliance with the Law on Setting Prices for Water Services; − Compliance with the amendments XXXIII, XXXIV, XXXV and XXXVI of the Constitution of the Republic of North Macedonia, and the Constitutional Law on implementation of the amendments from XXXIII to XXXVI of the Constitution of the Republic of North Macedonia, and − Compliance with the Law on Languages. The Rulebook on the Manner and Procedure for Monitoring the Functioning of the Energy Markets prescribes the manner and procedure on monitoring the functionality of the Energy Markets by oversight / monitoring of activities of the Transmission and Distribution System Operators interacting with the functionality of the Energy Markets in the Republic of North Macedonia, and activities of all other holders of licenses participating in the markets. The Rulebook on Internal Organization of the Energy Regulatory Commission regulates the type and number of organizational units, and of the job posts external to the organizational units, the scope of work, as well as the manner and types of management. The Rulebook on Systematization of Jobs in the Energy Regulatory Commission regulates the order of working positions, the required criteria on operation and tasks of certain working positions, job description, arrayed according to organizational units.

8.1.2 ACTS IN THE FIELD OF ELECTRICITY The Energy Regulatory Commission, during 2019, has adopted the acts in the field of electricity, listed below:

- 167 -

1. Rulebook on Terms and Conditions for Granting Status of Closed System of Electricity Distribution, April 2nd, 2019 - “Official Gazette of the Republic of North Macedonia”, no. 84 / 19; 2. Rulebook on Manner and Criteria for Establishing Regulated Maximum Revenue and Regulated Average Tariffs for Electricity Transmission, Organization and Management of the Electricity Market and Electricity Distribution, May 10th, 2019 - “Official Gazette of the Republic of North Macedonia”, no. 95 / 19 and 103 / 19; 3. Electricity Distribution Tariff System for Consumers Connected to the Electricity Distribution System of the Elektrodistribucija DOOEL Skopje, May 10th, 2019 – “Official Gazette of the Republic of North Macedonia”, no. 95 / 19; 4. Electricity Transmission Tariff System, and Electricity Market, May 10th, 2019 - “Official Gazette of the Republic of North Macedonia”, no. 95 / 19; 5. Rulebook on Preferential Producers Using Preferential Tariff, June 6th, 2019 – “Official Gazette of the Republic of North Macedonia”, no. 116 / 19, and 6. Rulebook on Changes and Amendments to the Rules on Electricity Supply, July 4th, 2019 – “Official Gazette of the Republic of North Macedonia”, no. 138 / 19. The Rulebook on the Manner and Criteria on Establishing Regulated Maximum Revenue, and Regulated Average Tariffs on Electricity Transmission, the Organization and Management of the Electricity Market, and Electricity Distribution regulates the manner and criteria on formation, approval and control of tariffs to achieve regulated maximum revenue required for energy activities performance in Electricity Transmission, organization and management of the Electricity Market and Electricity Distribution. The regulation of tariffs, in accordance with the manner and procedure regulated by this Rulebook, aim to ensure balance of interest between the energy activity performers and the consumers by creating stable and foreseeable operation conditions of the regulated enterprises in performing regulated activities, protection of consumers and users of the system against any mistreatment by the dominant position on the market. The Electricity Distribution Tariff System for Consumers Connected to the Electricity Distribution System of the Electrodistribucija DOOEL Skopje regulates the manner and criteria on formation and approval of tariffs for the calculation of elements for electricity distribution under which the Electricity Distribution System Operator shall invoice the usage fees for the Electricity Distribution System to: consumers of electricity including the producers of electricity for their own needs, the consumers – producers, and suppliers or traders with electricity under concluded contract with the Electricity Distribution System Operator which are authorized to collect fees for using the Electricity Distribution System and the Electricity Transmission System. The Electricity Transmission Tariff System and Electricity Market regulates the calculation / accounting of elements and the bases on formation of tariffs on the calculation / accounting of elements for the use of Electricity Transmission System and the Electricity Market, and regulate the manner and conditions for establishing and approving the tariffs for the calculation / accounting of elements for the use of the electricity transmission system and the electricity market, according to which the electricity transmission system operator and the electricity market operator invoice the fees for the use of the electricity transmission system or for using the electricity market of its customers.

- 168 -

The Rulebook on preferential producers using preferential tariffs, regulates the listed below: − The manner and procedure on adopting: decision for acquisition of a temporary status of a preferential producer, the decision for acquisition of preferential producer status and the decision on the use of preferential tariff (Feed-in Tariff); − The deadline on operation commencement of the Power Plant; − The form and content of the decision for acquisition of a temporary status of a preferential producer, the decision for acquisition of preferential producer status, and the decision on the use of preferential tariff (Feed-in Tariff); − The form, content and manner on maintenance of the Register of Preferential Producers using preferential tariff (Feed-in Tariff). The Rules on Changes and Amendments to the Rules on Electricity Supply, defines the bases on creating a web-based platform for cross-reference of prices, enabling consumers to perform self-cross-reference on available offers by Electricity Retail Market Suppliers, i.e., to receive clear, comprehensive and updated information for electricity pricing, the timeframe of contract validity / expiration, the invoicing, as well as other services in relation to electricity supply. During 2019, the Energy Regulatory Commission had authorized acts in the field of electricity, listed below: 1. Balancing Rules of the Electricity Transmission System (Power System), June 28th, 2019 - “Official Gazette of the Republic of North Macedonia”, no. 179 / 19; 2. Grid Code for Electricity Distribution of Elektrodistribucija DOOEL Skopje, approved on August 30th, 2019 - “Official Gazette of the Republic of North Macedonia”, no. 191 / 19; 3. Framework Agreement on Day-Ahead Purchase of Electricity Required by Households and Small-Sized Consumers Which are Supplied by the Universal Supplier on the Day-Ahead Organized Market, and Individual Agreement for Day- Ahead Electricity Purchase of the EVN HOME DOO Skopje, both approved on October 10th, 2019; 4. Price List on Services by the Elektrodistribucija DOOEL Skopje, authorized on October 24th, 2019; 5. Rules for Allocation of Cross-Border Transmission Capacities, approved on October 31st, 2019 -” Official Gazette of the Republic of North Macedonia”, no. 228 / 19; 6. Rules for Allocation of Cross-Border Transmission Capacities on the Republic of North Macedonia – Republic of Bulgaria Border, for 2020, approved on November 5th, 2019; 7. Rules for Allocation of Cross-Border Transmission Capacities on the Republic of North Macedonia – Republic of Serbia Border, for 2020, approved on November 5th, 2019; 8. Rules on the Form, Content and Dynamics of Data Submission and Publication, approved on November 12th, 2019; 9. Rules on Electricity Purchase to Cover Losses by the Electricity Distribution Network (Grid) of AD ESM Skopje, approved on November 18th, 2019, and

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10. Rules on Electricity Purchase to Cover Losses by the Electricity Transmission Network (Grid), approved on November 18th, 2019. The Balancing Rules of the Electricity Transmission System (Power System), for the first time introduces transparent and market-oriented principle on purchasing system services by the Electricity Transmission System Operator, as well introduction of the Methodology on transparent and non-discriminatory manner for establishing price on balancing deviations of nominated and realized quantities by the participants on the Electricity Market. Additionally, regulation of financial alignments with service balance providers with the balance responsible parties, the rights and obligations of both, the service balance providers and the balance responsible parties, as well as other provisions stipulated in compliance with the Law. The Grid Code / Rules for Electricity Distribution, regulate the criteria and manner on use and access to the distribution system by third party, the manner on connection to the distribution grid by consumers and producers of electricity, the technical and technology terms and operational standards, the Methodology on determination of fees for connections to the distribution grid, the quality of the electricity and the quality of services provided to users by the Electricity Distribution System Operator. Additionally, these rules ease the access of consumers to connect to the Electricity Distribution System and have reduced the price per connection.

8.1.3 ACTS IN THE FIELD OF NATURAL GAS During 2019, the Energy Regulatory Commission has adopted acts in the field of natural gas, listed below: 1. Rules on Natural Gas Supply, March 1st, 2019 – ”Official Gazette of the Republic of North Macedonia”, no. 51 / 19; 2. Rulebook on Terms and Conditions for Granting Status of Closed System of Natural Gas Distribution, April 22nd, 2019 -” Official Gazette of the Republic of North Macedonia”, no. 84 / 19, and 3. Rules on Natural Gas Market, June 18th, 2019 - “Official Gazette of the Republic of North Macedonia”, no. 126 / 19. The Rules on Natural Gas Supply regulate general terms and manner on natural gas supply, as well as: the mutual rights, the rights and obligations of natural gas suppliers and the natural gas supplier of last resort, the natural gas consumers, the Natural Gas Transmission System Operator, the Natural Gas Distribution System Operators, and the Natural Gas Distribution Closed System Operators. The Rules on Natural Gas Market, regulate: − The manner on registration and identification of participants on the market; − The elements of the contract for participation in the market; − The organization and functioning of the Natural Gas Market of Bilateral Agreements; − The conditions to be fulfilled by the participants on the market; − The rights and obligations of the participants on the market;

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− The establishment, organization and control of trading with natural gas and assistance services, including the cross-border trading, all in accordance with the liabilities within the membership of International Organizations; − The procedure and manner on collection and delivery of data to the Energy Regulatory Commission in regard to status and occurrences on the Natural Gas Market, and − Other issues related to organization and functionality of the market.

8.1.4 ACTS IN THE FIELD OF DISTRICT HEATING In 2019, the Energy Regulatory Commission has adopted acts in the field of district heating, listed below: 1. Rules on District Heating Supply, March 28th, 2019 -”Official Gazette of the Republic of North Macedonia”, no. 65 / 19 and 162 / 19; 2. The Tariff System for District Heating Sale, March 28th, 2019 -”Official Gazette of the Republic of North Macedonia”, no. 65 / 19 and 219 / 19, and 3. Rulebook on District Heating Price Regulation and System Services, May 31st, 2019 - ” Official Gazette of the Republic of North Macedonia”, no. 116 / 19. The Rulebook on District Heating Supply regulates general terms and manner on district heating supply, the mutual rights, obligations and liabilities of the District Heating Supplier, the consumers of district heating and the District Heating Distribution System Operator. The Tariff System for District Heating Sale establishes the manner on formation of tariffs on regulatory services determined in accordance with the Rulebook on District Heating Price Regulation and System Services, but in particular, regulates the listed below: − The criteria on determination of categories of consumers; − The calculation of elements on establishing the fee on district heating among the performer of energy activity for regulated production, the performer of the energy activity for district heating distribution, and the performer of energy activity for district heating supply; − The calculation of elements on establishing the fee on district heating and engaged heating capacity between the performer of energy activity for district heating supply and the consumers of district heating; − The bases and manner on formation of tariff positions and their application in the calculation of elements, and − The array of fee on the metering point.

The Rulebook on District Heating Price Regulation and System Services regulates the manner, procedure and methodology on determination of fee on system services and system stock, the regulated price on produced district heating , the manner on determination of price the District Heating Distribution System Operator purchase district heating produced by producer of district heating , the manner on calculation of pondering price on district heating , as well as determination of regulated price on district heating supply activity.

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8.1.5 ACTS IN THE FIELD OF OIL DERIVATIVES During 2019, the Energy Regulatory Commission, in the field of oil derivatives, has adopted the listed below: 1. Rulebook for Establishing the Highest Retail Price on Certain Oil Derivatives and Transportation Fuels, May 23rd, 2019 -”Official Gazette of the Republic of North Macedonia”, no. 103 / 19 and 212 / 19. The Rulebook regulates the manner on calculation, publishing and application of highest retail prices on certain oil derivatives and transportation fuels on the Crude Oil, Oil Derivatives and Transportation Fuels Market in the Republic of North Macedonia. The highest retail prices on certain oil derivatives and transportation fuels calculated in accordance with this Rulebook are designated for application by wholesale and retail traders with oil derivatives and transportation fuels. The highest retail prices calculated according to this Rulebook apply to oil derivatives and transportation fuels, listed below: − Engine Gasoline – Euro super BS – 95, EN 228; − Engine Gasoline – Euro super BS – 98, EN 228; − Diesel fuel – Euro diesel BS (D-E V), EN 590; − Incineration oil / heating oil – extra light 1 (EL-1), MKS.B.H ili X 2.430, and − Mazut M (fuel oil) – 1, MKS.B.H ili X 2.430. The highest retail prices formation is applicable for seven days estimation period, i.e., for the period from the first day, following the day of previous estimation, to the day of new estimation. The Energy Regulatory Commission shall calculate the highest retail prices each Monday. In case Monday shall fall to be a holiday, the calculation shall be performed the day after. The day of application of the new highest retail prices shall be on Tuesday at 00:01 h, except in case Monday shall fall to be a state holiday (Bank Holiday), the day of application shall be at 00:01 h, the day after. On October 10th, 2019, the changes to the Rulebook for Establishing the Highest Retail Price on Certain Oil Derivatives and Transportation Fuels resulted with compliance of wholesale traders’ expenses on processed oil products import, i.e., reduction on transportation expenses to the warehouse / storage in the Republic of North Macedonia. The changes to the Rulebook, also resulted with revision, i.e., reduction of highest compensation on warehouse/storage operation expenses and the trading margin. Additionally, the changes influenced respective revision, i.e., increase of density on certain oil derivatives based on data provided by monitoring the status and market functionality, as well as the predictions for the next six-months period, thus respecting limit values of quality oil derivatives and transportation fuels characteristics, defined with the MKS EN standards.

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8.2 LICENSES

Natural gas: 33

District Heating: 7

Electricity: 297 Oil and oil derivatives: 37

Chart 8.2 Active Licenses according to fields, December 31st, 2019

In accordance with the Law on Energy* and the Rulebook on licenses, the Energy Regulatory Commission performs the issuance, change, extension, transfer, suspension, revocation or validity expiration of licenses for energy activity performance, temporary and trial licenses, as well as decisions for registration in the Registry on Foreign Traders and Suppliers of Electricity and Natural Gas.

8.2.1 LICENSES IN THE FIELD OF ELECTRICITY During 2019, the Energy Regulatory Commission has adopted: − 1 Decision on Issuance of Licenses for Organization and Management of the Electricity Market; − 9 Decisions on Issuance of Licenses for Electricity Trade; − 1 Decision on Extension of License for Electricity Trade; − 6 Decisions on Issuance of License for Electricity Supply; − 34 Decisions on Issuance of License for Electricity Production; − 22 Decisions on Temporary License for Electricity Production; − 10 Decisions on Issuance of Trial License for Electricity Production − 2 Decisions on Validity Extension of License for Trial Electricity Production; − 4 Decisions on Changing Licenses in the Field of Electricity, and − 11 Decisions on Validity Expiration of Licenses in the Field of Electricity. In the period from 2004 to December 31st, 2019, the Energy Regulatory Commission has issued a total of 402 Licenses in the field of electricity, whereby, 297 are active by the end of 2019. Table 8.1 Active Licenses in the field of electricity, according to activities, on December 31st, 2019

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Energy Activity Number of Active Licenses

Electricity Transmission 1 Organization and management of the Electricity Market 1 Electricity Distribution 2 Electricity Production 207 Electricity Supply 30 Electricity trade 56 Total 297

8.2.2 LICENSES IN THE FIELD OF NATURAL GAS In 2019, the Energy Regulatory Commission, has adopted: − 1 Decision on Issuance of License for Natural Gas Trade;, − 1 Decision on Extension of License for Natural Gas Trade; − 1 Decision on Suspension of License for Natural Gas Trade, and − 1 Decision on Issuance of License for Natural Gas Supply. In the period from 2004 to December 31st, 2019, the Energy Regulatory Commission has issued a total of 42 Licenses in the field of natural gas, whereby 33 are active by the end of 2019. Table 8.2 Active licenses in the field of natural gas, according to activities, on December 31st, 2019

Energy Activity Number of Active Licenses

Natural Gas Transmission 1 Management of the Natural Gas Transmission System 1 Organization and Management of the Natural Gas Market / Natural Gas Distribution 3 Natural Gas Supply 9 Natural Gas Supply to Final Resources 4 Natural Gas Trade 15 Total 33

8.2.3 LICENSES IN THE FIELD OF DISTRICT HEATING During 2019, there was no adoption of new decisions on licenses in the field of district heating. In the period from 2004 to December 31st, 2019, the Energy Regulatory Commission

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has issued a total of 17 Licenses in the field of district heating, whereby 7 are active by the end of 2019. Table 8.3 Active Licenses in the field of district heating , according to activities, on December 31st, 2019

Energy Activity Number of Active Licenses

District heating Distribution 2 District heating Supply 2 District heating Production 1 District heating Regulated Production 2 Total 7 In October 2019, the District Energy Systems AD Skopje, an association established by the City of Skopje, has submitted a Request for a License for Energy Activity Performance of District heating Distribution. The procedure in 2020, is still ongoing.

8.2.4 LICENSES IN THE FIELD OF OIL DERIVATIVES During 2019, the Energy Regulatory Commission has adopted the listed below: − 2 Decisions on Issuance of License for Wholesale Trade with Crude Oil, Oil Derivatives, Biofuel and Transportation Fuels; − 1 Decision on Extension of License for Wholesale Trade with Crude Oil, Oil Derivatives, Biofuel and Transportation Fuels, and − 6 Decisions on Change of License for Wholesale Trade with Crude Oil, Oil Derivatives, Biofuel and Transportation Fuels. In the period from 2004 to December 31st, 2019, the Energy Regulatory Commission has issued a total of 60 Licenses in the field of crude oil and oil derivatives, whereby 37 are active by the end of 2019. Table 8.4 Active licenses in the field of oil derivatives, according to activities, on December 31st, 2019 Number of Active Energy Activity Licenses

Crude Oil Processing and Oil Derivatives Production 1 Production of Fuels with Mixture Oil Derivatives and Biofuels Designated for 2 Transportation Crude Oil Transportation via oil pipeline / Oil Derivatives Transportation through Oil Product Lines 1 Wholesale Trade of Crude Oil, Oil Derivatives, Biofuels and Transportation Fuels 33 Total 37

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8.3 PROTECTION OF CONSUMERS Within the scope of work and implementation of competencies, the Energy Regulatory Commission a special accent places on the protection of the rights of consumers by monitoring status and electricity market functionality, and oversight of mistreatment by dominant position on the energy markets, aiming to provide benefits to consumers based on efficiency and competitive functionality of energy markets. The implementation of all activities on protection of the rights of consumers are based on the principles of transparency, non-discrimination and objectivity. The undertaken measures on implementation of the protection of rights of consumers are respectfully elaborated within the Rules on supply of certain types of energy, whereby, closer regulation is applied to issues on treatment of vulnerable categories of consumers, as well as the obligations on information dissemination of all aspects referring to the service and quality service sustainability provided by energy activities performers. In cases of breaching the rights of consumers, within the Rulebook for Complaint and Dispute Resolution, mechanisms are included to assist consumers in procedure initiation on protection of their rights, which in first instance is before the bodies of the respective energy activity performer, followed by second instance decision by the Commission, established by the Energy Regulatory Commission, in case the consumer and the energy activity performer shall fail to reach compliance in the first instance procedure. In addition to the prior stipulated instruments and mechanisms, consumers protecting their rights, can initiate procedures established by the Law on Handling Complaints and Proposals, the Law on Free Access to Information of Public Interest, and the Law on Whistleblowers Protection. Namely, provisions stipulated by the cited laws, the quality and volume of protection of the right, are obligations expanded under the Energy Regulatory Commission in regard to accountability through providing access to all information available by the Energy Regulatory Commission in relation with admission of reports based on suspicion or knowledge of effectuated, or effectuation in process or is probably with intention to be effectuated a criminal deed or misdemeanor, or any other illegal or prohibited procedure affecting the public interest.

8.3.1 COMPLAINTS TO DISTRICT HEATING SUPPLIERS Based on data and information received from the District Heating Suppliers, the below attached Table 8.6 reveals complaints submitted to District Heating Suppliers, according to type of groups of consumers (households, education and other consumers), and according to the nature of complaints, including the data on the number of complaints, authorized and rejected, as well as the average response timeframe according to number of working days. The nature of complaints submitted to District Heating Suppliers are displayed in Table 8.5. Table 8.5 Types of complaints in the field of district heating

Type of Complaint Description A Facilities connectivity (delays, obstacles, other) B Consumers connectivity (delays, obstacles, other) C Metering (metering devices readings, functionality of metering devices, other)

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Type of Complaint Description

D Continuant supply / permanent flow Undelivered Invoice, amount of invoice, manner on calculation, amount of debt, E calculation of interest, appeals, consumer switch, payment switch, installment payment, negotiations, double payments of bills, etc. Measure off square meters, installed / engaged capacity, status check connected / disconnected, water discharge, diagram change of level of metering place, measure F off outbuildings / attachments, manner on calculation and array of energy per metering place, connection and disconnection requests, etc. G Quality of Heating Service (lower temperature than prescribed to consumer, etc.) H Other

Table 8.6 Complaints submitted to District heating Suppliers, in 2019

Group of Consumers Complaints A B C D E F G H Total

Households Received 65 8 5 1 1.168 1.519 32 38 2.836

Other Consumers Received 3 0 1 1 876 90 4 140 1.115

Households Authorized 14 6 1 1 657 1.141 22 35 1.877

Other Consumers Authorized 2 0 1 0 541 50 0 77 671

Households Rejected 0 0 0 0 0 0 0 0 0

Other Consumers Rejected 0 0 0 0 0 0 0 0 0 Response Households Timeframe 90 62 25 5 180 154 16 64 75 (working days) Response Other Consumers Timeframe 37 0 15 5 180 117 16 91 58 (working days) Data enclosed in the tables, amongst other, clearly reveal that in 2019, a total of 2.836 complaints have been submitted by households, and by other consumers a total of 1.115 complaints, while the group of education consumers have no complaints submission. Most of submitted complaints refer to measuring of square meters, installed / engaged capacity, status check connected / disconnected, water discharge, change of diagram on metering place level, measuring off outbuildings / attachments, manner and calculation on array of energy per metering place, connection and disconnection requests, as well as undelivered invoice, amount of invoice, manner on calculation, amount of debt, interest calculation, appeals, consumer switch, replace of payment, installment payment, negotiations, and double payment of bills. 8.3.2 COMPLAINTS TO ELECTRICITY SUPPLIERS Based on data and information received by the supplier of tariff consumers, i.e., by the Universal Electricity Supplier, according to the foreseeable seven types of complaints per seven groups of consumers (consumers – 35 kV, consumers – 10 (20) kV, other consumers I level, other consumers II level, public lighting, households 1T and 2T), during 2019, only the

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group of households consumers has submitted complaints referring to complaints type A only, i.e., issues related to contracts and sale (non-loyal commercial terms / switch to commercial terms, lack of information, confirmation of contract, right to contract withdrawal, payments, inconvenient contractual terms, minimum timeframe on reaching agreement, etc. Table 8.7 Number of complaints submitted to supplier of tariff consumers, i.e., the Universal Electricity Supplier, during 2019 Issues related to Group of Consumers Complaints contracts and sale Received 31.133 Authorized 26.101 Households 2T Rejected 5.230 Response Timeframe 31 (working days) Table 8.8 displays the volume of communication by consumers with the supplier of tariff consumers, i.e., with the Universal Electricity Supplier during 2019. Table 8.8 Communication between consumers and the supplier of tariff consumers, i.e., the Universal Electricity supplier in 2019 Visits to Group of Phone Written Supplier E-mail Users Total Consumers Calls Requests Center Large 0 0 0 0 0 Consumers Small-sized 0 0 0 0 0 EVN Makedonija AD Consumers Skopje Households 298.225 32.254 141.578 0 472.057 Total 298.225 32.254 141.578 0 472.057 Large 0 0 0 0 0 Consumers Small-sized 0 0 0 0 0 EVN HOME DOO Consumers Skopje Households 168.051 15.309 82.122 0 265.482 Total 168.051 15.309 82.122 0 265.482

Written Requests; Visits to Users Center; 0; 223,700; 0.0% 30.3%

E-mail; Phone Calls; 47,563; 466,276; 6.4% 63.2% Chart 8.3 Structure of communication channels between consumers and the supplier of tariff consumers, i.e., the Universal Electricity Supplier during 2019 - 178 -

The Chart attached above indicates that the dominant way of communication by consumers with the regulated electricity supplier is over phone (63,2%), followed by direct visits to users’ center (30,3%), and communication via e-mail (6,4%).

8.3.3 CONNECTION TO AND DISCONNECTION FROM THE ELECTRICITY DISTRIBUTION SYSTEM The tables and charts below disclose data received by the Electricity Distribution System Operator, Elektrodistribucija, on activities related to connection and disconnection of consumers and producers in the Electricity Distribution System during 2019. Table 8.9 Activities by Elektrodistribucija related to requests of consumers for connection to the Electricity Distribution System in 2019 Consumers Activity Total 35 kV 10 kV 0.4 kV Households Other Requests for connection 11.944 0 0 11.944 0 0 Approved requests 9.656 0 0 9.656 0 0 Realized connections 7.571 0 0 7.571 7.571 0 Average timeframe (days) 53,0 0,0 0,0 53,0 53,0 0,0

Table 8.10 Activities by the Electricity Distribution System Operator referring to connection of producers in 2019 Activity Producers Total 35 kV 10 kV 0.4 kV Requests for connection 181 0 19 162 Approved requests 139 0 10 129 Realized connections 12 0 2 10 Average Timeframe (days) 204,8 0,0 591,0 127,6

Table 8.11 Review of disconnected consumers per metering places in ratio with average number of connections in the period from 2017 to 2019 2017 2018 2019

Disconnected – unpaid bills 77.908 73.721 76.317 Average number of connections 733.486 732.232 793.169

Share of disconnected consumers 10,62% 10,07% 9,62% The data disclosed in Table 8.12 indicates the existence of gradual trend of reduction in the share of disconnected consumers due to unpaid bills, according to metering places, in relation to average number of connections in the period from 2017 to 2019.

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8.3.4 DISPUTES AND COMPLAINTS Dispute resolution procedures are conducted in accordance with the Rulebook on the manner, conditions and procedure for dispute resolution and the amount of justified compensation for costs incurred in the procedure. This Rulebook does not refer to disputes for which the exclusive jurisdiction of a court or other body is prescribed by law. The dispute resolution procedure is conducted by the Dispute Resolution Commission within the Energy Regulatory Commission. During 2019, an overall of 194 dispute resolution procedures were initiated before the Energy Regulatory Commission, whereby, 12 were initiated by legal entities, and 184 initiated by natural persons. Dispute Resolution Commission within the Energy Regulatory Commission has held 22 sessions. All dispute procedures were in the field of electricity. Table 8.12 Cross-reference of initiated dispute resolution procedures in 2017, 2018 and 2019 2019/2017 2019/2018 2017 2018 2019 % % Electricity 161 212 194 20,5% -8,49%

District heating - - - - -

Natural Gas - - - - -

Oil and Oil Derivatives - - - - -

Total 161 212 194 20,5% -8,49%

The above-attached table indicates that in 2019, the number of initiated dispute resolution procedures is by 8,49 % decreased in relation to 2018, while compared to 2017, the number shows increase by 20,5 %. Table 8.13 Adopted decisions in relation to initiated dispute resolution procedures in 2019 Adopted On hold Rejected Dismissed Ongoing in 2019

80 20 67 5 22

Table 8.14 Cross-reference of adopted decisions in relation to initiated dispute resolution procedures in 2017, 2018, and 2019 2017 2018 2019 Adopted 78 89 80 On hold 11 16 20 Rejected 27 40 67 Dismissed 5 1 5 Ongoing procedure in upcoming year 40 66 22 Total 161 212 194

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8.3.5 APPLICATIONS (COMPLAINTS) During 2019, in accordance with the Law on Handling Complaints and Proposals, 70 applications (complaints) by legal entities and natural persons were submitted (lodged) to the Energy Regulatory Commission, all addressing issues in the field of electricity. Table 8.15 Submitted (lodged) applications (petitions) to the Energy Regulatory Commission on issues in the field of electricity in 2019

Electricity Legal Entities Natural Persons Total Submitted 17 53 70 Proceeded 17 53 70 Forwarded to jurisdiction 0 0 0 Table 8.16 Cross-reference of submitted (lodged) applications (complaints) in 2017, 2018 and 2019 2019 / 2019 / 2017 2017 2018 2019 2018 (%) (%) Electricity 54 47 70 29,63 48,94 District heating 7 2 - - - Natural Gas - - - - - Oil and Oil Derivatives 3 - - - - Total 64 49 70 9,37 42,86

8.3.6 CONSUMER’S REMINDER In the course of protection of consumers of electricity, prior to concluding the contract for electricity supply, the Rules on Electricity Supply foresee for each supplier to provide the consumer with a copy of the consumer’s reminder in timely manner, with content of practical information for the rights of consumers presented in a clear and unambiguous manner, without causing confusion, and without misleading the consumer in the decision to conclude or terminate or extend the existing contract for electricity supply. The form and content of the consumer’s reminder is authorized by the Energy Regulatory Commission. During 2019, on prior compliance, the Energy Regulatory Commission has adopted 9 decisions on approval of the form and content of the consumer’s reminder submitted by electricity suppliers, including the consumer’s reminder of the Universal Electricity Supplier and Supplier of Last Resort. The Consumer’s Reminder was approved to the listed below electricity suppliers: - ENERDZI DELIVERY SOLUSNS EDS DOOEL Skopje, approved on August 13th, 2019; - EVN HOME DOO Skopje, authorized on August 13th, 2019; - EVN Makedonija Elektrosnabduvanje DOOEL Skopje, approved on August 21st, 2019; - MIST ENERDZI DOOEL Skopje, approved on August 27th, 2019;

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- SOLARPRO HOLDING AS Sofia, approved on October 4th, 2019; - ENERDZI AKTIVE DOOEL Skopje, approved on November 6th, 2019; - UPOVER DOO Skopje, approved on November 11th, 2019; - ELEM TREJD DOOEL Skopje, approved on November 11th, 2019, and - ELNOR DOOEL Skopje, approved on 21st November, 2019. The Rules on Electricity Supply, also foresee that the Energy Regulatory Commission approves the general conditions on contracts for electricity supply to be concluded with the Universal Electricity Supplier and the Supplier of Last Resort. On August 21st, 2019, on prior compliance, The Energy Regulatory Commission has adopted the decision on approval of the general conditions.

8.4 COURT PROCEDURES

8.4.1 ADMINISTRATIVE DISPUTES Appeals on initiating Administrative Dispute before the Administration Court submitted prior to 2019, against Decisions by the Energy Regulatory Commission, resulted with 131 ongoing Administrative Disputes in 2019. Therefore, in 2019, three were adopted, 53 were dismissed or rejected as groundless, and 75 Administrative Disputes are ongoing in 2020. During 2019, 13 Administrative Disputes were initiated against Decisions adopted by the Energy Regulatory Commission, whereby, in 2019 five were dismissed or rejected as groundless, and the remaining eight procedures are ongoing in 2020.

Table 8.17 Review of Administrative Disputes initiated against decisions adopted by the Energy Regulatory Commission, prior and in 2019 Ongoing procedure in Initiated Resolved in 2019 Initiated 2020 prior to in 2019 Prior to Prior to 2019 in 2019 in 2019 2019 2019 Administrative 56 5 75 8 131 13 Disputes Total 61 Total 83

8.4.2 OTHER COURT PROCEDURES In April 2019, the Energy Regulatory Commission initiated 13 procedures upon a proposal for adopting a decision allowing enforcement on the basis of a credible document. For 11 of these proposals, the procedures ended in 2019 with the issuance of a decision by the competent notaries for a permit for execution on the basis of a reliable document, after which seven of the claims were collected amicably, and for four requests for execution were submitted to competent enforcement agents. Two proposals were objected to, and disputes

- 182 - were brought before the competent basic courts. The court proceedings on these disputes ended in 2019. In 2019, the Energy Regulatory Commission has not submitted a request on initiation of misdemeanor procedure. Ongoing is a misdemeanor procedure on only one request from the overall of requests on initiation of misdemeanor procedure submitted in the past years. In April 2018, against the Energy Regulatory Commission two procedures in the field of labor disputes were initiated by members to the Energy Regulatory Commission due to premature expiration of membership mandate. The procedure on one of these decisions was completed in 2019 in favor to the Energy Regulatory Commission, and the second dispute is still ongoing.

8.5 INFORMATION OF PUBLIC INTEREST The legislation of the Republic of North Macedonia introduces a special Law on Free Access to Information of Public Interest4, regulating the conditions, manner and procedure on achieving the right to access to information of public interest available by the Energy Regulatory Commission, amongst other subjects stipulated by the cited law. Pursuant to Article 3, line 2 of the cited law, an information of public interest is any information created or available by the holder of the information, in accordance with its competencies. In the course of implementing the obligations deriving from the cited law, the Energy Regulatory Commission has appointed officials from the personnel of the professional offices in the Energy Regulatory Commission to moderate/ negotiate information created or available to the Energy Regulatory Commission. Review of undertaken activities is listed below: − In 2019, an overall of 21 requests for free access to information of public interest were received, whereby 3 (three) were received in the late days of 2019, and are proceeded in 2020; − The Energy Regulatory Commission, in 2019 has provided responses to 19 requests for free access to information of public interest, one received in late days of 2018 and is proceeded in 2019; − In 2019, the Energy Regulatory Commission has not dismissed any of the requests for free access to information of public interest; − The Energy Regulatory Commission has not provided a response to only one request for free access to information of public interest from 2019. The grounds on not completed response is the need for the Commission to receive opinions and directions by authorities in the country on lawful procedure, simultaneously under investigation process; − Against the first instance decisions made by the Energy Regulatory Commission, four appeals were launched to the Agency for Protection of the Right to Free Access to Public Information, due to non-responding upon requests; − The Agency for Protection of the Right to Free Access to Public Information has enacted 4 (four) decisions on adopting the appeals. In meantime, three of the

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appeals were withdrawn, and the Energy Regulatory Commission proceeded upon one of the decisions, and has delivered the response to the requester; − The Energy Regulatory Commission has altered one first instance decision proceeded by the Agency for Protection of the Right to Free Access to Public Information; − The Energy Regulatory Commission has not dismissed or rejected any appeals by the Agency for Protection of the Right to Free Access to Public Information.

8.6 IMPLEMENTATION OF THE LAW ON WISTLEBLOWERS PROTECTION

Pursuant to the provisions of the Law on Whistleblowers5, the Energy Regulatory Commission has appointed one official from the personnel of the professional offices to conduct the procedure on submitted report by a whistleblower under protected internal reporting, or upon protected external reporting. Reports relate to suspicion or acknowledgment of committed, is committed or is probable to commit a criminal act, an illegal or any prohibited act which shall harm or endanger public interest. In 2019, no internal, or external reporting on illegal or prohibited acts is submitted to the Energy Regulatory Commission.

5 ” Official Gazette of the Republic of Macedonia”, no. 196 / 15 - 184 -

INTERNATIONAL

ACTIVITIES

ENERGY AND WATER SERVICES REGULATORY - 185 - COMMISSION OF THE REPUBLIC OF NORTH MACEDONIA IX. INTERNATIONAL ACTIVITIES

The Energy Regulatory Commission endured one exceptionally significant and successful year on international level. In 2019, along with the active participation in the existing international associations with the operational bodies in the field of energy and water services, as well as the participation in several successful international projects with specific and recognizable outcomes, the Energy Regulatory Commission has hosted two international events in close collaboration with ERRA and NARUC, held in Skopje. A significant international event was the working visit to Paris, whereas, on invitation by the President of the Energy Regulatory Commission of the Republic of France - Commission de régulation de l'énergie (CRE), the Delegation of the Energy Regulatory Commission, exchanged information and experiences regarding the functioning of the wholesale and retail electricity and natural gas markets, the challenges that electricity systems in South East Europe are facing, as well as anticipation of further cooperation on topics and areas in the domain of energy markets regulation. What needs to be emphasized is the recognition by the Energy Community Secretariat, second year in the row in its annual implementation reports, of the Energy Regulatory Commission as a leader of reforms in the energy sector within the Energy Community. This recognition is a result on implementation of the robust reform agenda during 2018 and 2019 by the Energy Regulatory Commission. Based on the mentioned, and as part of the undertaken obligations under the Berlin process in 2015, for the countries of Western Balkan on July 30th, 2019, the Energy Regulatory Commission has submitted an application to the Agency for Cooperation of Energy Regulators - ACER, for participation in working groups of the ACER, thus in the Monitoring, Integrity and Transparency Working Group, the Electricity Working Group, and the Natural Gas Working Group. The application was reviewed by the Energy Community Secretariat, and on January 28th, 2020, the Secretariat has submitted to ACER a positive assessment on the application, followed by analysis in relation to compliance of law and bylaw regulation with the European Union Legislation referring to the internal market of electricity and natural gas, the independence and operations by the Energy Regulatory Commission, etc. The afore mentioned has created conditions for the Energy Regulatory Commission to be awarded with the status of observer at ACER, enabling participation and experience exchange within working bodies of this association with energy regulatory members from the European Union country members. As a crown of successes on international level in 2019, was the election of the President of the Energy Regulatory Commission, Mr. Marko Bislimoski for a President of the Energy Community Regulatory Board, with a mandate of two years. This success has closed the circle of prosperous 2019 on international level with one more confirmation and acknowledgement to the leadership capacity and role of the Energy Regulatory Commission in the implementation of reforms in the energy sector within the region of the Energy Community countries.

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9.1 ENERGY COMMUNITY REGULATORY BOARD (ECRB) The Energy Community is founded based on the Treaty for Establishing Energy Community, signed on October 25th, 2005 by the European Commission and South East Europe Countries (Albania, Bulgaria, Bosnia and Hercegovina, Romania, Serbia, Croatia, Montenegro, Kosovo and North Macedonia). The signing of the Treaty for Establishing Energy Community was ratified by the signatory countries, and has entered into force on July 1st, 2006, declaring the establishment of the Energy Community. As by the end of December 31st, 2019, members of the Energy Community are: − Nine signatory countries, as contracting parties (Albania, Bosnia and Hercegovina, Gorgia, Kosovo, North Macedonia, Moldova, Serbia, Ukraine and Montenegro); − The member countries of the European Union, as participants, and − Three countries as observers (Armenia, Norway and Turkey). The functional effectuation of the Energy Community is within the institutions, listed below: − The Ministerial Council; − The Permanent High-Level Group; − The Energy Community Regulatory Board; − Electricity, Natural Gas, Oil and Social Issues Forums, and − The Energy Community Secretariat. The Energy Community Regulatory Board - ECRB is a coordinative institution of national regulators to the Energy Community for development of harmonized regulatory rules composed by representatives of signatory countries regulatory bodies, as contracting parties. The Energy Regulatory Commission as a full member, significantly contributes to the organization and to the manner on functioning of the regional and European market of

The President of the Energy Regulatory Commission, on the regular meeting held in December, 2019 in Athens, the Republic of Greece, Mr. Marko Bislimoski was unanimously elected as President of the Energy Community Regulatory Board, with a mandate of two years. The election of this especially significant function, is a recognition to the leadership role of the Energy Regulatory Commission in the reforms of the energy sector within the Energy Community. electricity and natural gas by undertaking active participation in the operations of the ЕCRB and the ЕCRB Electricity Working Groups (ECRB EWG), Natural Gas (ECRB GWG), Consumers and Retail Markets (ECRB CRM WG), and in the newly established Working Group for implementation of the Regulation Energy Markets Integrity and Transparency (ECRB REMIT WG). During 2019, the ECRB has held three meetings and eleven meeting by the Work Groups of the ECRB. Representatives from the Energy Regulatory Commission took part in the three meetings held by the ECRB, in nine meetings of the Work Groups of ECRB, as well as in

- 187 - the meetings held by the Forums for Electricity, Natural Gas and the European Energy Law, organized by the Energy Community Secretariat. In addition, during 2019, representatives from the Energy Regulatory Commission took part in numerous events, meetings and trainings organized by the Energy Community, amongst many, was the training on Coordinated Calculation of Capacities, the meeting for Grid Rules and Guidelines for the electricity market within the Energy Community, two workshops organized by the ACER and ECRB for the Regulation (EU) 2015/1222 on allocation of capacities and congestion management, the meeting of the Western Balkan Countries (WB6) on the implementation of regional markets day-ahead and of balance energy, the meeting on the topic “Disputes Resolution”, the two events in the field of cyber – security, the meeting held by the joint team of ECRB and CEER on development of the new Report on Quality of Supply, participation in the second three lateral meeting of the CEER, ECRB and MEDREG related to the field of protection of customers and retail markets, the joint Workshop by ENTSO-E and the Energy Community on grid connection rules, as well as attendance in the final event within the project “Regional Interconnectivity of Energy Market in the West Balkan”.

During 2019, the Electricity Working Group (ECRB EWG) has performed activities on topics and issues listed below: − Introducing regulatory measures to support early implementation of interconnection of day-ahead markets; − Introducing regulatory measures to support early implementation of coordinated calculation of capacities; − Activities in appointing operators of organized electricity markets, and nominating electricity operators; − Harmonization and implementation of the Regulation 543 / 2013 on transparency of electricity data; − Analysis on compensation for electricity transmission paid by producers of electricity; − Implementation of grid rules on connections of consumers and producers to the grids, and connections of direct current systems; − Status and Daily Electricity Market Development − Development of the wholesale electricity market within the contracting parties of the Energy Community and monitoring according to the ACER indicators, − Implementation of Electricity Regional Daily Market, and interconnection of the Western Balkan Countries, and − Implementation of the Cross-border Balancing among the West Balkan Countries.

In 2019, the Natural Gas Working Group (ECRB GWG) has performed activities on topics listed below: − Natural Gas Wholesale Market Monitoring; − Transparency of Natural Gas Markets and by the Natural Gas Transmission and Distribution Operators; − Implementation of procedures on congestion, and − Coordination of the transmission system with the distribution system

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Participation on the 13 Gas Forum on main topics listed below: − Natural Gas Markets Development within the Contracting Parties of the Energy Community; − The new role of the natural gas in the transition to decarbonization economy; − The level of implementation of the Network Rules on natural gas within the member countries to the Energy Community; − Results and goals in the unbundling of the Natural Gas Distribution Systems; − Procedures on allocation of capacities for the Turk Stream (gas pipeline) in Bulgaria; − Principles on allocation of capacity for the Turk Stream (gas pipeline) in Serbia, in accordance with the Opinion from the Energy Community; − Amendments to the Natural Gas Directive; − Coordination of TSO with DSO in the liberalization of the Natural Gas Market; − Natural Gas Exchange in Poland and Turkey, and − Security of natural gas supply within the Energy Community, establishment of new Regulation, Cyber-security in the Natural Gas Sector.

During 2019, the Consumers and Retail Markets Working Group (ECRB CRM WG) has performed activities on key topics listed below: − Development of the Report on Monitoring Electricity and Natural Gas Retail Markets within the Energy Community for 2018; − Providing data required for the development of the Report on Electricity and Natural Gas Quality of Supply, prepared by the joint working group of representatives from the CEER and the ECRB, − Providing data on the regulatory frame research for consumers – producers, and development of a Report on law and bylaw regulation referring to consumers – producers within the Contracting Parties of the Energy Community; − Providing information for the development of a Report by the CEER on electricity and natural gas losses, and − Joint Workshop of the ECRB-CEER-MEDREG on active participation by consumers on the Electricity and Natural Gas Retail Markets.

In May 2019, the newly established Working Group for implementation of the Regulation Energy Markets Integrity and Transparency (ECRB REMIT WG), within the Energy Community, has commenced its operation, and the key topics and activities are listed below: − Preparation of Procedural Act pursuant to Article 16 of the REMIT on coordination of cross-border investigations, preparation of forms for reporting cases of cross- border investigations, notification of speculative transactions, publishing internal information, and delayed publishing; − Preparation of a Form on establishing Register of Market Participants, as well as establishing of ECRB Code for Market Participants; − Development of a Programme on National Regulatory Body Capacity Building aiming to provide knowledge in diverse practical aspects on the implementation of the REMIT in the European Union, the collaboration with the ACER, as well as the preparation and publication of reports. The person in charge for this activity is

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the representative from the Energy Regulatory Commission of the ECRB REMIT WG. − Activities in close reference to Cyber-security, especially in the part of introducing mechanisms of protection for safe storage and data exchange, in accordance with the instructions by the ACER. In 2019, the Energy Regulatory Commission has provided a significant contribution with notes over the reviewed documents on the meetings of the Ministerial Council and the Permanent High-Level Group of the Energy Community, including participation by representatives from the Ministry of Economy of the Republic of North Macedonia.

9.2 COUNCIL OF THE EUROPEAN ENERGY REGULATORS (CEER) The Energy Regulatory Commission participates as an Observer in the work of the Council of European Energy Regulators (CEER) with Headquarters in Brussels, Belgium. The Council of European Energy Regulators with Headquarters in Brussels, Belgium, is established in 2000 as an Association for European Independent Energy Regulators Cooperation. There are 39 Regulatory Bodies taking part in the CEER, whereby, 30 share status as members (Austria, Belgium, Bulgaria, Croatia, Cyprus, CESKA, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Island, Ireland, Italy, Latvia, Lithuania, Luxemburg, Malta, Holland, Norway, Poland, Portugal, Romania, Slovenia, Slovakia, Spain, Sweden, and the Great Britain), while 9 (nine) countries (Albania, Bosnia and Hercegovina, Gorgia, Kosovo, Moldova, Montenegro, North Macedonia, Serbia, and Switzerland) share the status of an Observer. The Council of the European Regulators is constituted by a General Assembly, Board of Directors, six main working groups and other theme sub-groups. Taking participation in this Association, the Energy Regulatory Commission achieves significant experience in the practical implementation of the Third Energy Package Legislation on Energy Internal Market, and challenges to be met by the member states of the European Union in the creation of a single, competitive, efficient and sustainable internal energy market of the European Union, also addressing the new packages of the European legislation. During 2019, the Energy Regulatory Commission have provided contribution to the preparation of the Report by the CEER on the implementation of the REMIT on national level, as well as the participation of representative from the Commission in the joint team of the ECRB and the CEER in the development of the new Report on Electricity and Natural Gas Quality of Supply.

9.3 ENERGY REGULATORS REGIONAL ASSOCIATION (ERRA) The Energy Regulators Regional Association – ERRA is a Professional Association of Regulatory Bodies, with the aim to improve cooperation, experience exchange and strengthen capacities of regulatory bodies. Since 2004, the Energy Regulatory Commission is a full member of the Association.

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In 2019, the Energy Regulatory Commission hosted the General Assembly on the meeting of the Committee of Presidents, and the meetings of the Committee of Licenses and Competition, including the Committee of Tariffs and Pricing, all held in April 2019, in the City of Skopje.

Along with the participation in the General Assembly and in the meeting of the Committee of Presidents, during the previous year, representatives from the Energy Regulatory Commission, have also undertaken active participation in the working bodies, events and training organized by the ERRA:

− The Committee of Licenses and Competition. Attending two meetings with discussions on topics listed below: o Design and implementation of schemes to support and promote renewable energy sources; o Presentation of the ERRA Report on Monitoring Energy Retail Markets; o Best practices of regulatory bodies in communication and access to the public; o Unbundling of the Distribution System Operator: status, models applied and lessons learned; o Presentation of the project “3Smart Project”: Integrated System on Energy Management of buildings, energy grids and main (major) city infrastructures in the Danube Region; o Information for undertaken activities on compliance of procedures on electricity and natural gas licenses within the Energy Community; o Implementation of Grid Rules of the European Union, and Analysis on required compliance with Grid Rules of countries that are not members of the European Union; o Photovoltaic Plants on Roofs: diversity of business-models, experiences and best practices, and o Green Certificate Market, as a model for support to electricity production from renewable energy sources.

− The Committee of Tariffs and Pricing. Attendance on two meetings with discussion and experience exchange on topics listed below: o The entry-exit tariff models for natural gas;

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o Introduction of smart metering devices, and their influence on the electricity price; o Effects by the termination of cross-subsidies: a review on access to non-tariff support; o Summary of key aspects in the field of tariffs / prices of natural gas and electricity in Peru; o Study on regulatory approaches in the determination of tariffs on distribution and transmission: Analysis on methodology approaches and key components of revenues in the countries of the ЕRRA, o The Entry-Exit tariff models for natural gas with focus on new connections to the transmission systems, and the principles on tariffs calculation, and o The role of the Regulation in the development of individual small-sized electricity grids. − Joint meeting of the Committee of Licenses and Competition and the Committee of Tariffs and Prices. The two actual committees of the ERRA, in 2019 has held a mutual meeting with discussion on topics listed below: o New Market Model of the European Union, and o Design and implementation of models to support renewable energy sources.

− Working Group of Consumers and Retail Markets. Attendance on two meetings with key topics on discussion: o Surveys on research of opinion by consumers of provided services by the energy companies; o Key findings in the Report of Capacity Assessment and Market Monitoring Procedures of regulatory bodies within the Energy Community; o Price comparison tools; o Joint market of natural gas in the Baltic and in the Finland; o Supplier of Last Resort (SoLR) – the case of Romania; o Preliminary findings in the Report on functionality of Electricity Retail Markets in 2018, developed by the representative from the Energy Regulatory Commission, as a member of this working group; o Competences to the regulatory body referring the contracts for supply between consumers with the right of free selection of supply on the market and the suppliers; o Activities undertaken in cases of errors in readings (metering), or technical troubles with meters; o data hubs, online contracts, and supplier switching; o procedures on compensation to consumers in cases of poor quality of supply, and o proposal for restructuring of the operational bodies of ERRA.

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− 18. Annual Conference of ERRA on Investments and Regulation, with key topics listed below: o Presentation of the Baltic – Nordic Electricity and Natural Gas Market: new sources of energy (Energy Transition), o Challenges in the Regulation of Energy Citizens Communities o The role of Regulatory Bodies in “Electro-Mobility”, and o “Cyber Security” to the critical infrastructure of the digital energy sector. − Meeting of the Liaison Officers; − Training on Elementary Regulation of Water Service Enterprises; − Workshop of Establishing Tariffs on Natural Gas Transmission; − Workshop on Energy Auctions from Renewable Sources; − Summer School: Introduction to Energy Regulation, and − Participation by one representative from the Energy Regulatory Commission as a Moderator in the training on “Basics of electricity systems for non-engineers”.

9.4 EUROPEAN WATER REGULATORS (WAREG) In 2019, the Energy Regulatory Commission, as full member has participated in the work of the European Water Regulators – WAREG, with headquarters in Milan, Italy. The European Regulators Association has commenced its activities in April 2014. Following meetings and coordination sessions among Regulatory Bodies initiators for the creation of this platform, in December 2017, WAREG was registered as an Association of the European Water Regulators and was granted capacity of a legal subject with headquarters in Milan, Italy. The Association with the Mission on cooperation of water regulatory bodies in Europe aims towards harmonization of differences in the National Framework on regulation and identification of requirements for mutual efforts in the resolution of common challenges, as well as the establishment of stable base in the regulation of water services in Europe. The Association of the European Water Regulators with the regulatory and observer member bodies, require realization of the targets listed below: − Exchange of mutual practices, information, joint analyses, and cross-reference of actual models for determination performances of Water Service Enterprises; − Organization of specialized training, technical assistance, and experience exchange; − Promotion of best practices, and stable regulation of the water sector on European level, and − Promotion of activities on cooperation with analysis on service sustainability, opportunities for respective infrastructure investments, standards on the service quality, and protection of consumers. During 2019, the Energy Regulatory Commission, as full member took part in four events organized by the Association of the European Water Regulators, listed below:

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− 17. The General Assembly – Dublin, Ireland; − 18. The General Assembly – Vilnius, Lithuania; − 19. The General Assembly – Budapest, Hungary, and − 20. The General Assembly – Rome, Italy. In addition, the Energy Regulatory Commission took part in the first European Forum on Water Services Regulation, held in December 2019, in Rome, Italy. The working meetings within the Forum enabled estimation of the high-priority topics and issues in regard to the Water Sector, Water Services and Wastewaters in Europe and the world, such as: Water Management, Water Service Efficiency, Water Regulation in regard to innovations and sustainability of the environment and social access to tariffs. The Forum was attended by key stakeholders of the European Water Sector: The Regulators, European Institutions, International Organizations, Academics, the Industry, the Financial Institutions, Associations of Consumers, etc. In addition, participants have provided specific instructions to the Regulative to contribute in the improved Water Framework of the European Union. Also, as part of the event was the presentation and experience exchange of best practices on national and regional level.

9.5 EUROPEAN INTEGRATION The Energy Regulatory Commission significantly contributes in the fulfilment of undertaken obligations by the Republic of North Macedonia within the accession process with the European Union. A Representative from the Energy Regulatory Commission has participated in the EU Screening on Chapter 15 – Energy, and Chapter 21 – Trans European Grids – Energy Grids, held in March 2019, in Brussels, Belgium. In addition, the Energy Regulatory Commission has participated with an expose and a significant contribution on the 15th meeting of the Sub-Committee of Transport, Environment, Energy and Regional Development, held on March 12th, 2019 in Skopje. Pursuant to the Decision on Working Groups Establishment for the development of the National Program for adoption of the EU legislation, and the preparation of the negotiating positions for the negotiations for membership to the European Union (NPAA), the Energy Regulatory Commission shall take participation in the Working Group for Chapter 3.15 Energy and is preparing the part 3.15.2 of the Chapter referring to the field of Internal Energy Market. Within the work scope of the Work Group, regular meetings are held with the Secretariat for European Affairs and the Ministry of Economy, anticipating adoption of bylaws required in the field of energy markets, and updating of undertaken obligations on integration with the European Union. The Energy Regulatory Commission has developed quarterly and mid-term reports on undertaken activities to the Internal Energy Market, and within the renewable energy sources, and submitting the reports to the Secretariat of European Affairs required for regular reporting to the European Commission, as well as for the requirements of the Report on 2019 Progress of the Country Membership in the European Union.

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9.6 BALKAN ADVISORY FORUM (BAF) The Energy Regulatory Commission jointly with the Regulatory Bodies from Greece, (RAE), Bulgaria (EWRC), Serbia (AERS) and Montenegro (REGAGEN), in September 2018, in Thessaloniki, the Republic of Greece, have signed the Agreement for Establishing Permanent Balkan Advisory Forum of the Regulatory Bodies of the Balkan Countries (BAF).

The goal of Balkan Advisory Forum (BAF) establishment is to provide closer cooperation, experience and knowledge exchange, and perspective on building mutual opinions and positions of all members in regard to diverse regulatory issues in the domain of electricity, natural gas and water services. During 2019, two working meetings were held in Sandanski, the Republic of Bulgaria, and in Thessaloniki, the Republic of Greece, where key points of discussion were the first reports developed within this association, addressing possibilities on establishing a Natural Gas Regional Market, as well as establishing a Regional Group for Monitoring of Electricity Wholesale Markets. At the end of September, in Plovdiv, the Republic of Bulgaria, the Balkan Advisory Forum (BAF) Annual Meeting was held, where from the Bulgarian Regulator, the Presidency was handed over to the Greece Regulator for a period of one year, and following the expiration, the role of a President of the Balkan Advisory Forum (BAF) shall be by the Energy Regulatory Commission. Additionally, adopted on the meeting in Plovdiv was the Decision on New Members Enroll, including the ERE from Albania, and the three Regulatory Bodies from Bosnia and Hercegovina.

9.7 IMPLEMENTATION OF PROJECTS AND PARTICIPATION IN OTHER EVENTS During 2019, the Energy Regulatory Commission has successfully finalized the joint project with NARUC (National Association of Regulatory Utility Commissions) of the USA, which has enabled establishment and promotion of the first functional price comparison tool within the Energy Community (Switch.mk), designed for Electricity Retail Market Consumers in the Republic of North Macedonia. The activity was supported by the USAID in regard to the development of the tool, as well as in providing technical assistance for drafting

- 195 - amendments of the Electricity Supply Rules for regulation of rights and obligations of the suppliers in the exploitation of this web-platform. Following the invitation by the President of the Energy Regulatory Commission of the Republic of France - Commission de régulation de l'énergie (CRE), Mr. Jean-François Carenco,

Delegation to the Energy Regulatory Commission, in June 2019, attended a business meeting of the CRE in Paris. The visit was used for experiences exchange referring to functioning of the Electricity and Natural Gas Retail and Wholesale Markets, the challenges of the Electricity Systems in the South East Europe compared to countries of the European Union, as well as comprehension of potential topics and areas for further cooperation in the domain of Energy Markets Regulation. The collaboration with the NARUC during 2019, has successfully continued its course within the project on Energy Systems Cyber-security, whereas, representatives from the Energy Regulatory Commission took part in the Second Workshop of the project, held in Warsaw, Poland. The follow up with the technical assistance by the NARUC, development was enabled to the first Strategy of Cyber-security in the Electricity Sector, with anticipation of its adoption during 2020. At the end of October 2019, the Energy Regulatory Commission hosted the Third Workshop on Cyber-security within the same project, held in Skopje and participated by representatives from Regulatory Bodies of South East Europe and the Region of the Black Sea. In 2019, along participation in events organized by the ECRB, CEER, ERRA, WAREG and BAF, representatives from the Energy Regulatory Commission took part in meetings, conferences and events, listed below: − In July, 2019, the Energy Regulatory Commission has signed the Application of the Know-How Exchange Programme (KEP) “CEI – Central European Initiative Support for Strengthening Energy Regulatory Authorities in the Western Balkan” and took part in the Closing Conference of the Project KEP (Know How Exchange

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Programme), the “Central European Initiative Support for Strengthening Energy Regulatory Authorities in the Western Balkan“, held in Rome, Italy. − The participation in workshops within the Integration of Electricity Market Initiative in South East Europe (EMI, organized by the NARUC – USAID, with participation of representatives from the Electricity Transmission System Operators, the Electricity Market Operators, the Regulatory Bodies of the Western Balkan Countries (WB6) and the neighboring countries of the South East Europe (SEE). The aim of the initiative was the estimation of possible benefits and the impact of the integration and competition among electricity markets in the West Balkan (WB6), and the neighboring countries of the South East Europe (SEE) through development of 9 (nine) diverse scripts and application of the Antares model; − The International conference 2019 on Sustainable and Clean Heating and Cooling Energy Supply, organized by the Energy Association of Slovenia, held in Portoroz, Slovenia. Key topics covered by this conference referred to issues of cogenerate production of heating anergy and electricity, renewable energy sources from waste, energy accumulation, directions of development of remote heating and cooling, natural gas supply to reduce harmful emissions, and accelerated exploitation of waste district heating in the Central Europe; − The Workshop on “Regulation and Integration of Renewable Energy Sources”, organized by the Florence School of Regulation, held in Florence, Italy; − Counselling MAKO CIGRE 2019, held in Ohrid; − The Workshop within the project Europe Natural Gas Partnership – Euroasia, organized by the NARUC, held in Budapest, Hungary; − 4 The Regional Conference “Modernization of Water Services in the Bosnia and Hercegovina”, held in Sarajevo, the Bosnia and Hercegovina; − The Workshop on “Water Sector of the Water Regulatory Body of Albania”, held in Tirana, Albania; − The International Conference “Environment Management, Planning and Economy, and the SECOTOX Conference”, held in Mikonos, Greece; − The Regional Conference of South East Europe – Water Losses in the System 2019, held in Bucharest, Romania; − The Summit on Waters Budapest 2019, held in Budapest, Hungary, and − 7 The Balkan Joint Conference “Water for All”, held in Prishtina, Kosovo.

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FINANCIAL

OPERATIONS

(ACTIVITIES)

ENERGY AND WATER SERVICES REGULATORY COMMISSION OF THE REPUBLIC OF NORTH MACEDONIA - 198 -

X. FINANCIAL OPERATIO NS (ACTIVITIES)

Pursuant to Article 35, paragraph 1, of the Law on Energy*, the Energy Regulatory Commission shall finance its operations by self-financed sources, provided by: − Collection of fees on issuing Licenses for Energy Activity Performance, i.e., entry in the Register of Foreign Traders and Suppliers of Electricity and Natural Gas granted to perform activity in the Republic of North Macedonia. − Fees from the procedure for establishing tariffs on Water Services, i.e., regulatory tariff on Water Services, and − Collection of annual fees on holders of Licenses for Energy Activity Performance acquired with the collection of the fees on licenses’ issuance, as well as with the collection of the fees acquired with the annual revenue by the Water Service Providers through water service provision, and fees acquired with the procedure on establishing water service tariffs, i.e., regulatory tariff on water service. The fees is 0,0468 % of the overall annual revenue acquired by holders of Licenses for Energy Activity Performance, and of the annual revenue by the Water Service Providers under the water service provision, and in accordance with the Decision number 08-89/1, adopted on January 8th, 2019 by the Assembly of the Republic of Macedonia. 10.1 FINANCIAL RESULTS FROM THE ENERGY REGULATORY COMMISSION OPERATIONS (ACTIVITIES) The Energy Regulatory Commission maintains the accounting records in accordance with the Law on Accounting for Non-Profit Organizations, the Rulebook on Accounting Plans of the Non-Profit Organizations, the Rulebook on Non-profitable Organizations Accounting Plan and Balance Sheet (Financial Balance Sheet / Statement), and the Rulebook on Non- profitable Organizations Individual Accounts of the Accounting Plan. The development of Financial Reports, and the recognition of the revenues and expenditures is applied in accordance with the principle of modified incurred business changes, i.e., revenues and expenditures are recognized for the calculation period they occur even in deadline of 30 days following the expiration of the accounting period, all aiming to accurate, authentic, stable, comprehensive, updated, and individual presentation of balance positions, status of assets, liabilities, sources of assets, revenues, expenditures, and operational outcome.

10.1.1 REVENUES The overall collected revenues of the Energy Regulatory Commission for the period of 1. 1 – 31. 12. 2019, are in the amount of 77,995,439 MKD, whereas: ▪ 72.699.092 MKD, or 93,21% of the overall revenue are acquired by the legally collected fee by the holders of licenses for energy activities performance; ▪ 2.939.217 MKD, or 3,77% of the overall revenue are acquired by the legally collected fee by the water Service Providers; ▪ 2.122.052 MKD, or 2,72% are collected revenue of issued licenses; ▪ 210.000 MKD, or 0,27% are collected revenue under the procedure on establishing tariffs on water services, and

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▪ 25.068 MKD, or 0,03% are collected revenue under other bases (interest on regular operation, court decisions, currency exchange difference, and etc.) Table 10.1 Review of achieved revenue of operation by the Energy Regulatory Commission for 2019 Year 2019

Numb Percentage of REVENUE er Collected shares in the (MKD) overall revenue (%) I. Operation Overall Revenue (I.1. + I.2.) 77.995.439 100,00 Revenue of collected fees for holders of licenses for energy activities performance, fees I.1. paid by Water Service Providers, fees for the 77.970.371 99,97 procedure on water tariff establishment ( I.1.1 + I.1.2 + I.1.3 + I.1.4 ) Fees for the overall revenue by holders of I.1.1 licenses for energy activities performance 72.699.092 93,21

I.1.2 Fees for licenses issuance 2.122.052 2,72

I.1.3 Fees for Water Service Providers 2.939.217 3,77

Fees for the procedure on Water Service I.1.4 210.000 0,27 Tariffs Establishment Other Revenues (interest on regular operation, I.2 25.068 0,03 court decisions, currency differences, etc.) In accordance with the Accounting records of Non-profitable Organizations, the surplus of monetary assets realized in the previous years, are transferable for the upcoming year, and is presented as revenue of previous years. Therefore, the Energy Regulatory Commission has positioned the surplus from the previous years in the balance position as a Revenue, nonetheless, the incurred monetary assets are not a result of revenue of operations in the 2019, but are accumulated assets designated for the Energy Regulatory Commission business premises procurement. During 2019, the surplus of revenue is 14.157.689 MKD, accumulated with the surplus of revenue from previous years. In the Balance Statement the realized revenues in 2019, and the transferable assets of the surplus of revenues from previous years are displayed according to the forms on non- profit organizations, and are in the amount of 150.372.227,00 MKD. The realized revenues for 2019, are in the amount of 77.995.439 MKD, and the accumulated monetary assets from the previous years in the amount of 72.376.788 MKD are designated to resolution of the lack of business premises, i.e., for business premises procurement.

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10.1.2 EXPENDITURES The financial assets expenditures in 2019 for the operation of the Energy Regulatory Commission, in accordance with the competences deriving from the Law on Energy* and the Law on Setting Prices of Water Services, are in the amount of 63.837.750 MKD, and indicate decrease by 23,13 % in relation to the planned financial assets for 2019. The decrease is due to non-realization of part of the planned activities for 2019, as a result of objective reasons. In 2019 the planned employment fail realization. Due to compliance of the acts of the Energy Regulatory Commission with the provisions of the Law on Energy* (the Statute, the Rules on Procedures, the Act on Internal Organization and Systematization of Jobs), the procedure on employment of planned employment with provided financial assets in accordance with the Plan, has commenced its realization by the end of 2019, and persons employed according to the conducted procedure on employment by the Administration Agency, have commenced work at the beginning of 2020. The planned expenses on operation in accordance with the requirements for the newly employed persons and increased activities, fail complete realization.

Table 10.2 Review of planned and achieved expenditures by the Energy Regulatory Commission Operation for 2019 Year 2019

Authorized by Number EXPENDITURES Realized Achieved / the Plan (MKD) Planned (%) (MKD) TANGIBLE EXPENDITURES, I.1 14.227.200 12,316,209 86,56 SERVICES AND AMORTIZATION 1. Tangibles 514.500 280.328 54,48 2. Electricity costs 1.758.800 1.129.982 64,24 3. Other services 4.322.900 2.846.758 65,85 Transportation - communication 4. 4.528.000 4.758.066 105,08 services 5. Complementary costs 1,000,000 1.355.273 135,52 6. Lease 748.000 848.840 113,48 7. Other tangible expenditures 1.355.000 1.096.962 80,95 I.2 OTHER EXPENDITURES 11.349.500 8.463.973 74,57 8. Transaction provisions 100.000 97.346 97,34 9. Insurance expenses 290.000 227.475 78,44 Business trips per diem in the 10. 3.780.000 4.480.912 118,54 country and abroad Expenses on contributions 11. 1.320.000 613.838 46,50 incurred by workers and citizens 12. Membership fees 1.329.500 510.359 38,38 13. Intellectual and other services 4.330.000 2.400.688 55,44

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Year 2019

Authorized by Number EXPENDITURES Realized Achieved / the Plan (MKD) Planned (%) (MKD) 14. Other unforeseen expenditures 200.000 122.116 66,67 I.3 CAPITAL AND OTHER ASSETS 7.400,000 5.761.127 74,04 15 Construction materials assets 282.174 128,21 Assets for Accounting equipment, 16. 2.420.000 2.315.883 95,69 software and software licenses 17. Vehicles procurement 2.500.000 2.478.760 99,15 18. Furniture procurement 2.000.000 559.249 27,96 19. Other equipment procurement 480.000 125.061 26,05 I.4 SALARIES AND CONTRIBUTIONS 50.064.370 37.296.441 74,49 TOTAL OPERATIONAL EXPENSES II. 83.041.070 63.837.750 76,53 (I.1+ I.2+ I.3+ I.4)

Pursuant to the Law on Energy, the Energy Regulatory Commission, the surplus of achieved assets at the end of the current year is transferable to assets for the upcoming year and shall be designated for business premises procurement. The purpose of exploitation of assets following respective expenditures categories is listed below: − The category of tangibles refers to office consumables, cleaning and maintenance consumables, other tangibles and assets on consumables and auto-tires procurement; − The category of energy expenses refers to electricity and fuel costs; − The category of other services refers to expenses on investment maintenance of main and transportation assets, announcements, copy services, printing services, communal hygiene services, software archive and accounting service costs, etc.; − The category transportation – communication services refer to expenses on telephone services, post-mailing services, internet and subscription to Platts, which has increased by 5 % due to increased subscription to Platts; − The category complementary expenses indicate growth due to increased volume of activities in 2019, whereby in accordance with the principles on transparency and accountability, the Energy Regulatory Commission has held numerous working meetings and public debates attended by large number of representatives from interested parties / stakeholders. In addition, significant influence of the mentioned increase is caused following the recommendation by the Government of the Republic of North Macedonia for abandoning the use of plastic equipment, and the use of glass equipment, instead, thus higher price on glass equipment; − The category of expenses on leases refer to incurred costs on rent of apartment for a member to the Energy Regulatory Commission, costs for rent of equipment. The increase of expenses within this category is due to increased volume of work in disputes resolution of disconnected users of district heating, i.e., coping services;

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− The category of expenses on amortization for non-profit organizations fail to be rated as expenditures, and fails to impose any influence in the balance of expenditures, but influences to reduction of the value of assets and sources of assets; − The category of expenses of other tangibles expenditures refer to court fees, professional literature costs, seminars, registration of vehicles, cooperation with regional bodies, etc.; − The category of expenses on insurance refers to costs on insurance of administration building, elementary and transportation costs, and travel insurance of employees; − The category of per diem expenses refer to per diem costs for business trips in the country and abroad, transportation costs, accommodation, parking and toll fees, visa costs, etc. there is increase within this category due to increased volume of activities in the field of water service regulation. Namely, during the year there were controls jointly performed with inspection supervision over Water Service Providers referring to application of authorized prices; − The category of expenses on employment refer to costs incurred on repayment of regress on employment, mandatory health check, jubilee award and other compensation in accordance with the Collective Employment Agreement of the energy Regulatory Commission; − The category of expenses on membership fees refer to costs on membership to ERRA, CEER and MAKO CIGRE, − The category of expenses on intellectual and other services incurred by costs on lawyer and notary services, contract fees, expertise, adaptive maintenance of the web-page, and other intellectual services; − The category of other expenses refers to costs based on currency differences, tax on other expenditures, etc.; к − The category of capital and other assets refers to costs on procurement of equipment for automatic processing of data, office furniture, licenses and other equipment required for operation of the Energy Regulatory Commission, and − The category of expenses on salaries and salaries contributions referring to costs incurred for salaries and contributions for 30 employees in the Energy Regulatory Commission. Appendix 12.7 and Appendix 12.8 review the Balance Statement of Revenues and Expenditures for the period from 01.01-31.12.2019, and the Balance Sheet Statement of 31.12.2019.

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ACTIVITIES IN

2020

ENERGY AND WATER SERVICES REGULATORY COMMISSION OF THE REPUBLIC OF NORTH MACEDONIA - 204 -

XI. ACTIVITIES I N 2020

In 2020, the Energy Regulatory Commission continues operations in full capacity by the use of the new IT – tools in executing its legal competencies, with a special attention to successful bridging of challenges caused by the COVID-19, which has affected operations of the energy companies, and to provide protection of consumers in times of exceptional circumstances. The Energy Regulatory Commission, in the part related to the electricity, shall continue to monitor the liberalization of the Electricity Market in the Republic of North Macedonia, foremost in the protection of consumers in accomplishing their rights to electricity supply, and the right to quality and permanent delivery of electricity through the Electricity Transmission and Electricity Distribution Network (Grid). The Energy Regulatory Commission shall monitor the application of the Balancing Rules on the Electricity System, and the provision of systematic services and electricity for balancing. The mentioned, shall enable analysis on the opportunities and benefits to AD MEPSO Skopje by the participation on the Regional Balancing Market. In 2020, operations on new Grid Rules on Electricity Transmission shall be intensified, considering that the same shall enable transposition of the Grid Rules on connection (Network Codes), which are presented as Regulations of the European Union. The Energy Regulatory Commission in 2020, shall operate on establishing the Electricity Organized Market, starting with its inclusion in the procedure on the nomination of the Electricity Market Operator and by including the appointed Electricity Market Operator within, and by approving the Rules on Operation of the Electricity Organized Market. In the field of the natural gas, during 2020, the Energy Regulatory Commission shall continue activities in the preparation on introducing capacities designed for natural gas transmission, and by introducing the “Entry-Exit” Concept; and, in case of convenient conditions, also the Certification of the Natural Gas Transmission Operator shall be developed. In addition, as an ongoing operation shall be the procedure on approval of the bylaw Regulation by the Natural Gas Distributers. In the field of the District heating, the Grid / Network Rules on District heating Distribution shall be approved to the Distribucija na toplina BE DOOEL, as well as compliance with the Rules on District heating in accordance with the new Law on Energy Efficiency. In 2020, the Energy Regulatory Commission shall continue with the realization of activities on establishing prices for the Water Services, in accordance with the provisions of the Law on Setting Prices for Water Services. The key activities in 2020 shall be directed to monitoring of the prices application in the Water Services, and the compliance of the tariff application in the Water Services by implementing business-plans developed by the Water Service Providers, adopted for the first regulated period, as well as establishing tariffs on the Water Services for the second regulated period 2021 – 2023, designed for the Water Service Providers on territories with over 10.000 (equivalent) residents. Additionally, the Energy Regulatory Commission shall continue activities on other foreseen bylaw acts to be adopted, or approved, in deadlines prescribed by the Law on Energy*, as well as to implement all legal competencies, related to:

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- Providing competitive, stable and sustainable Energy Markets in the Republic of North Macedonia, their inclusion into Regional and International Energy Markets in cooperation with institutions from the Energy Community, and especially with the Energy Community Regulatory Board, and Regulatory Bodies of other contracting parties and participants in the Energy Community; - Effective opening of markets to all consumers and suppliers in the Energy Community; - Elimination of limits in the electricity and natural gas trade, including respective cross-border transmission capacities to cover demands, and facilitating the flow of electricity and natural gas within the Energy Community; - Development of safe, reliable and competitive energy systems oriented towards consumers, based on cost-effective principle; - Optimizing the use of electricity and natural gas of companies for electricity, natural gas and district heating in the course of improving the energy efficiency through providing energy management services, introduction of state-of-art metering systems, as well as smart grids; - Alleviation of access to new participants in the Energy Markets, and to energy produced from renewable energy sources; - Respective short-term and long-term alleviation to operators and users of systems for transmission and distribution in the course of increasing the efficiency of systems, and accelerating the market integration; - Protection of consumers, and reinforce of effective competition enabling benefits to consumers by efficient and competitive functioning of the Energy Markets in the country, and - Reaching high standards in accomplishing the obligation deriving from the public and / or Universal Service in the supply of electricity, natural gas and district heating, and contributing to the protection of vulnerable category of consumers.

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Еnergy cannot be created or destroyed, it can only be changed from one form to another… Albert Einstein

ENERGY AND WATER SERVICES REGULATORY COMMISSION OF- THE207 REPUBLIC - OF NORTH MACEDONIA

XII. APPENDIXES

Appendix 12.1 Electricity Production by Domestic Producers from 2010 to 2019

Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

GWh 6.744,2 6.287,9 5.806,6 5.676,4 4.982,3 5.271,5 5.302,7 5.229,0 5.287,5 5.655,5 AD ESM (former AD 6.476,5 6.050,2 5.370,1 5.113,0 4.535,0 4.741,8 4.299,9 4.080,1 4.114,3 4.283,7 ELEM) TEC Production 4.277,4 4.775,7 4.475,7 3.742,6 3.506,4 3.092,7 2.699,1 3.145,1 2.613,0 3.293,8 TE Bitola 3.699,9 4.188,9 3.971,0 3.572,6 3.316,8 2.986,2 2.672,3 3.076,1 2.545,3 3.200,9 TE Oslomej 577,5 586,8 504,7 170,0 189,6 106,5 26,8 69,0 67,7 92,9 HEC Production 2.184,8 1.267,9 887,5 1.362,5 958,2 1.528,3 1.490,1 816,1 1.391,1 879,5 HEC Mavrovo 800,0 560,1 263,2 287,0 398,0 438,9 553,2 393,3 433,5 418,0 HEC Shpilje 516,7 257,4 239,7 393,3 190,3 303,7 353,2 157,5 366,7 172,6 HEC Tikvesh 326,3 145,5 104,8 211,0 116,1 312,8 145,2 63,1 138,1 67,5 HEC Globochica 291,0 167,6 169,8 247,6 136,2 225,5 232,6 96,9 229,3 112,7 HEC Kozjjak 250,9 137,4 97,8 184,0 80,4 171,6 142,8 71,0 156,7 73,1 HEC Sveta Petka 12,2 39,6 37,2 75,8 63,1 34,3 66,8 35,5 VEC Bogdanci 0,0 0,0 70,4 120,8 109,5 110,5 97,3 101,8 TE-TO Podruznica 14,2 6,7 6,8 7,9 0,0 0,0 1,2 8,4 12,9 8,6 Energetika TE-TO AD 0,0 74,4 280,1 340,8 189,8 177,8 550,1 794,7 716,6 987,0

KOGEL Sever (North) 0,0 2,9 2,2 4,3 1,2 0,7 3,7 7,0 0,0 0,0

MHE 241,6 159,2 151,2 209,6 241,9 308,4 389,3 271,8 379,2 304,0

FEC 26,2 1,1 3,1 8,7 14,3 22,6 23,7 23,9 23,3 25,6

Biogas TE 0,0 0,0 0,0 20,2 36,0 51,6 54,1 55,1

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Appendix 12.2 Acts in the Field of Renewable Sources of Energy

Body of act Number of Act adoption Official Gazette “Official Gazette of Regulation on Measures to Support Electricity Production the RM” no. 29 / from Renewable Energy Sources Government of the Republic of North 19 Regulation on changes and amendments to the Regulation on Macedonia “Official Gazette of Measures to Support Electricity Production from Renewable the RM” no. 278 / Energy Sources 19 “Official Gazette of Decision on Overall Installed Capacity of Preferential Government of the the RM” no. 29 / Electricity Producers Republic of North 19 Macedonia “Official Gazette of Decision on amendments to the Decision on Overall Installed the RNM” no. 194 Capacity of Preferential Electricity Producers / 19 Government of the “Official Gazette of Programme on Financial Assistance to Electricity Production Republic of North the RM” no. 29 / by Preferential Producers using Premium, for 2019 Macedonia 19

Decision on National Mandatory Goals for Shares on Energy Government of the Produced from Renewable Energy Sources in the Gross-final “Official Gazette of Republic of North consumption of Energy, and for Shares of Energy Produced the RM” no. 29 / Macedonia from Renewable Energy Sources in the Final Transportation 19

Consumption of Energy “Official Gazette of Rulebook on Renewable Sources of Energy Ministry of Economy the RNM” no. 112 / 19 “Official Gazette of Energy Regulatory Rulebook on Preferential Producers using preferential tariff the RNM” no. 116 Commission / 19

Appendix 12.3 Preferential tariffs established by the Regulation on Measures to Support Electricity production from Renewable Energy Sources

The highest limit of Timeframe of Type of Power Plant installed capacity of Amount of preferential tariff preferential tariff the Power Plant use Monthly quantities of delivered electricity per blocks:

I block: 12,00 €¢/kWh (≤ 85.000 kWh) II block: 8,00 €¢/kWh Hydro Power Plant 10 MW (> 85.000 и ≤ 170.000 kWh) 20 years III block: 6,00 €¢/kWh (> 170.000 и ≤ 350.000 kWh) IV block: 5,00 €¢/kWh (> 350.000 и ≤ 700.000 kWh) V block: 4,50 €¢/kWh (> 700.000 kWh) Wind Power Plant 50 MW 8,9 €¢ / kWh 20 years Biomass Thermal Power ≤ 3 MW 18 €¢ / kWh 15 years Plant (to June 30, 2021)

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≤ 1 MW (from July 1, 2021 ) ≤ 3 MW Biogas Thermal Power (to June 30, 2021) 18 €¢ / kWh 15 years Plant ≤ 1 MW (from July 1, 2021)

Appendix 12.4 Height of the amount of tariffs for calculation / accounting of elements for electricity distribution of the Elektrodistribucija

RE-active Category of Capacity Active Electricity Year Electricity connection (MKD / kW) (MKD / kWh) (MKD / kVAr) MV1 95,5 0,2687 0,009 MV2 128,28 0,3205 0,0297 2015 LV1.2 184,38 0,3741 0,0512 LV1.1 0,9445 * LV2 2,2608 * MV1 95,5 0,2518 0,0081 MV2 128,28 0,2988 0,0269 2016 LV1.2 184,38 0,3474 0,0464 LV1.1 0,9288 LV2 2,055 MV1 76,48 0,2362 0,0077 MV2 146,83 0,2807 0,0255 2017 LV1.2 220,58 0,3269 0,044 LV1.1 0,9848 * LV2 1,8913 * MV1 74,86 0,2298 0,0098 MV2 151,8 0,2865 0,0325 2018 LV1.2 217,98 0,3452 0,0559 LV1.1 1,1162 * LV2 1,8864 * MV1 82,32 0,2199 0,0177 MV2 155,41 0,3045 0,0515 2019 LV1.2 246,19 0,3811 0,0821 LV1.1 1,2137 * LV2 1,9808 *

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Appendix 12.5 Height of the amount of tariffs for calculation / accounting of elements for electricity distribution of the AD ESM Skopje

Re-active Category of Capacity Active Electricity Year Electricity connection (MKD / kW) (MKD / kWh) (MKD / кWh) High voltage 36,5073 0,2409 0,0964 2015 Middle voltage 129,8198 0,2905 0,1162 Low voltage * 1,6222 0,6489 High voltage 32,7677 0,2353 0,0941 2016 Middle voltage 128,3011 0,2854 0,1142 Low voltage * 1,6312 0,6525 High voltage 36,3695 0,2417 0,0967 2017 Middle voltage 126,9484 0,2904 0,1162 Low voltage * 1,552 0,6208 High voltage 19,0951 0,2115 0,0846 2018 Middle voltage 88,746 0,2468 0,0987 Low voltage * 1,2918 0,5167 High voltage 16,0202 0,1798 0,0719 2019 Middle voltage 79,5747 0,2029 0,0812 Low voltage * 1,1385 0,4554

Appendix 12.6 Height of the amount of tariffs for calculation / accounting of elements for electricity transmission

Tariffs on calculation of 2015 2016 2017 2018 2019 elements

Peak Active Capacity 11,65 7,51 13,25 3,1964 2,794 Active Electricity 0,2233 0,2174 0,1915 0,1994 0,1704 Re-active Electricity 0,0893 0,087 0,0766 0,0798 0,0682

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Appendix 12.7 Financial Statement of 2019

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Appendix 12.8 Balance Sheet / Statement of 2019

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