The Impact of TPP “Kosova E Re” in Electricity Tari S
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GAP INSTITUTE The Impact of TPP “Kosova e Re” in Electricity Taris Contents 4 Executive summary 5 A short history of the project 6 The main points of the contract for the construction of TPP “Kosova e Re” 6 Obligations in short-term 7 Impact on tariffs 8 Scenario I 8 Scenario II 10 The impact of electricity prices in household economies 11 The impact in businesses 14 Conclusion 15 Annex 15 Annex 1 17 Annex 2 Executive summary At the end of 2017, the Government of Kosovo signed a contract with the American company, Contour Global, for the construction of a new power plant with 500 MW gross electric output, for a cost of 1.3 billion euros. Even though the call for bids was opened in accordance with the Law on public procurement, which foresees a bidding process with a least two offers, the government did not cancel the process after getting only Contour Global’s offer. With the signing of the contract, the Government of Kosovo and Contour Global (GenCo) have agreed that the targeted price should be 80 Euro for MWh. The construction of the TPP “Kosova e Re” is a project with a comprehensive impact in the economy, state’s budget, health, environment, people displacement, and public debt among others. To illustrate the impact of this project in the price of electricity, GAP Institute has analyzed two scenarios. The first one suggests that the initiation of the TPP “Kosova e Re” in 2023 will increase the electricity tariffs by 44%. Whereas according to the second scenario, which includes the construction of the new power plant and other planned investments in the electricity market, the electricity tariffs’ increase will add up to 60.4%. Besides the two scenarios, this analysis contains a survey that GAP Institute conducted with 84 small and medium enterprises in the main sectors in Kosovo. With the increase of electricity tariffs for 60.4% in 2023, only 68% of the enterprises will remain in the category of monthly electricity expenses less than 4 thousand euros, from the current 80% with the current tariffs. According to the results of the survey, 31% of the enterprises consider that an increase in the prices of their products is inevitable, 21% will lay off employees, and around 8% will do both. Regarding households, the most endangered groups from the increase in the electricity tariffs are households under the poverty line. According to the 2015 report on consumption poverty in Kosovo, there are 76,000 households that live on less than 218 euros per month.1 From them, there are 50,000 households that do not receive any assistance from the government. Based on the data presented by the Energy Regulatory Office (ERO) about the household bills from the Kosovo Electricity Distribution and Supply Company (KEDS), the average current price of electricity and the number of active consumers, the monthly electricity bill of these citizens will be around 21% (45 euros) of the household monthly income, from the current 13% ( 28 euros). 1 Kosovo Agency of Statistics. Consumption Poverty in the Republic of Kosovo 2012-2015. April, 2017. Source: https://bit.ly/2uEHrGU. 4 In March of 2010, the four prequalified companies A short history of were announced: 1. Adani Power / PT Adani Global Consortium from the project India and Indonesia; The initial proposal to construct the “Kosova C” 2. AES Electric Ltd / Demir Export A.S. Consortium from power plant was done in 2005, when with the the USA and Turkey; Energy Strategy (2005-2015), the Government of Kosovo planned to construct a power plant with 3. Park Holding A.S. from Turkey; 2,100 MW capacity for a cost of 3.5 billion euros2. 4. PPC / Contour Global LLP Consortium from Greece This proposal came out after a World Bank report and United Kingdom/USA; published in August, 2001 titled Energy Sector Technical Assistance Project (ESTAP).3 From the prequalification phase of the four companies in 2006 until 2011, 10.5 million dollars In 2006, with the decision of the Special were spent from the World Bank for technical Representative of the Secretary-General, the Project assistance of the project, and 6.5 million euros were Steering Committee was established. That same spent from the Government of Kosovo6. On March, year, the first proposals were received and four large 2012, the Government of Kosovo sent the final call global consortiums were prequalified. With changes for bidding to the four prequalified companies. From in the government at the end of 2008, the project those four, in November, 23rd, 2015, the only bidder for the power plant changed its name to “Kosova e – Contour Global – was announced. Re” and the capacity. The initial proposal was for a 1,000 MW capacity, which later was changed to 600 Even though the call for bids was sent based on the MW. The Energy Strategy 2009-2018 foresaw that Law on public procurement, which foresees a bidding as part of the bidding package, together with the process as successful when it has at least two offers, construction of the new power plant would be the the government did not cancel the process despite “Kosova B” power plant and mining4. it getting only one offer. Initially, the government justified its decision by stating that the process was On December, 2009, the Government of Kosovo announced and managed based on the rules of the announced the Request for Expression of Interest World Bank; later, it changed the reasoning to stating for the Development of the Sibovc Lignite Field in that this is a public-private partnership project. After Kosovo and the new Power Generation Capacity, accepting the only offer, the project changed again which included: by decreasing the generating capacity from 600 MW 7 • The construction of the “Kosova e Re” power in 500 MW (or net 450 MW) plant (500MW + 500 MW) The contract between the Government of Kosovo • The immediate development of the lignite field and the Contour Global company was signed in in Sibovc December, 20th, 2017. It took 12 years from the first • The participation of the private sector in “Kosova announcement for the construction of the power B”5 plant until the signing of the contract. The entire process was characterized by blatant irregularities, frequent changes, lack of transparency and consultations with the public. In December, 2017, the Basic Court of Prishtina approved as founded a suit by GAP Institute against the Ministry of Economic Development submitted in 2013, for lack of transparency and access to the documents for the construction of the “Kosova e Re” power plant.8 2 KOSID. A SHORT history of a BIG failure of energy policies in Koso- vo, 2017. Source: https://bit.ly/2utl2gs 3 World Bank. Kosovo - Energy Sector Technical Assistance Project (ERL), 2001. Burimi: https://bit.ly/2KXS6qh 6 Ibid. 4 MED. Energy Strategy of the Republic of Kosovo 2009 - 2018. 7 Ministry of Economic Development. The government signs Agree- Source: https://bit.ly/2zEpz4R ments for “Kosova e Re” Power Plant. Source: https://bit.ly/2NjQN- 5 KOSID. A SHORT history of a BIG failure of energy policies in Koso- Qc vo, 2017. Source: https://bit.ly/2utl2gs 8 GAP Institute: https://bit.ly/2ndwMjL 5 The main points of the contract for Obligations in short-term the construction of TPP “Kosova e Re” With the signing of the agreement between the GAP Institute has analyzed the contract signed Government of Kosovo and Contour Global, in between the Government of Kosovo and Contour December, 2017, the timelines for completing three Global, whose main points are: activities have also started: • generating capacity – TPP “Kosova e Re” will con- • Completion of the financial agreement in 12 to tinuously have a gross generating capacity of 450 18 months by the government of Kosovo; MW+/-20MW. The gross generating capacity shall • Bidding for the selection of the constructor of not be lower than 430 MW or higher than 470 the power plant in six to eight months by Contour MW. However, the power plant must have the po- Global; tential to offer 102% of the maximum generating • Preparation of the Strategy for the Lignite Sup- capacity in up to three occasions during the year9; ply in three to six months by the government of • constructing period – In 2018, the procurement Kosovo. phase for the selection of the constructor of From the obligations listed above, which had to the power plant will begin; the financial aspect be completed throughout 2018 and 2019, the and the location transfer date will be finalized Strategy for Lignite Supply was supposed to have in 2019. In 2019, the construction of the power been completed last June. Until now, the Ministry of plant will also begin; the power plant becomes Economic Development has not announced whether operational in 202310; a working group has been created and has not • targeted price – The Government of Kosovo and presented any drafts of the Lignite Supply strategy. Contour Global (GenCo) have agreed that the tar- geted price will be 80 euro per MWh. It should be Meanwhile, the completion of the financial noted that the definition of this price in the com- agreement cannot be done without finalizing mercial contract, i.e. targeted price, due to the the conditions of financing through the loan that wording cannot be interpreted as price ceiling; Contour Global will obtain, among others. In case the deadline to complete these activities is not met, • technical criteria – “Kosova e Re” power plant will specifically, if the contract is terminated before have a net efficiency over 40% and will reduce the commencement of the construction of the significantly dust, SO2 and NOx emissions com- power plant, the government of Kosovo has to pay pared to the current emissions of “Kosova A” and a penalty fee of 19 million euros towards Contour “Kosova B” power plants.