Kosovo electricity distribution company (KEDS)

privatizationFinancing For Development

Unlocking Investment OpportunitiesCourse

Student: Slobodan BrkicSpring 2017

Project contents and key steps

Phase 1 – Feasibility for PSP Initial market sounding

IFC PPP Advisory Key Issues Report outlining possible issues affecting psp:

• Financial and Economic Balance of the electricity systems

• Mitigating the Regulatory Risk

• Distribution Losses and Revenue issues

• Public Supply Obligations

• Legislative Issues Call for Expression of Interest

Approval of new laws on Energy, Electricity and Energy Regulator outlining:

• Clear ownership principles for all energy sector assets;

• Promoting full cost recovery tariffs, and assisting in the design of a new tariff methodology

Phase 2 – Implementation Due Diligence:

• Technical, legal, environmental, PR, financial analysis;• Results and strategic options presented to Client Ministry and Project Implementation Unit in December 2010.

Call for pre-qualification launched: Coordination with the USAID, WB, EC, on energy sector reform and further legislative changes Energy Regulatory Office begins to transpose the newly approved laws into secondary legislation IFC advises on changes in tariff methodology with recommendations on multi-year period of tariff reviews, revenues, asset

values, WACC, efficiency gains on operating expenses, loss allowance, bad debt allowance, allowed retail and margin costs, etc.

The GoK announces call for bids

Risk mitigation scheme

KEDS – Electricity Distribution Company

From subsidized loss to sustainable service

Key issues to be addressed (1): Government objectives in

privatization

Key issues to be addressed (2): Investor objectives in

privatization

Key issues to be addressed (3): Consumer objectives in

privatization

Turnaround of KEDS meets the key objectives

of all stakeholder involved

Philosophy of turnaround• No free ride: Investor needs to work hard to make a return through

reduction of losses and improvement of overall performance, especially during first years.

• Share the pie: Results achieved by private investor benefit ALL customers and stakeholders in Kosovo via lower GHG emissions, reduced losses and (cross-)subsidies.

• Retain control: Public sector remains in control over investor performance, fulfillment of public service obligations and returns via tariff methodology.

KEDS: Why “privatization”?

• To reduce GHG emissions induced by technical losses• To reduce energy procurements costs passed through to consumers • To gradually eliminate government subsidies, financing the above

losses• To increase service quality to customers• To create a sustainable, financially viable company able to serve the

public

Situation prior privatization• Distribution and Supply is a loss making business• Collection losses are at 9 percent • Distribution losses are at 37 percent• Average investment (2010-2012) is EUR 12.1 mil• High costs of import around 77 EURO per MWh

Expected situation post privatization

• Collection losses to tariff are reduced to 5 percent • Real collection losses around 1 percent (estimate for the model)• Distribution losses are reduced to tariff by 9 percent within first 3

years• Average investment within the first two years is around EUR 17 mil• Costs of imports down to 53 EURO per MWh (reduction by more

than 30%)