A. BACKGROUND

Following the signing of the Dayton-Paris Peace Agreements in late 1995, the first main activities in the energy sector consisted of repairing damaged facilities, rehabilitating equipment that had been inadequately maintained during the years of conflict, restoring production at hydropower and thermal power stations and in coal mines and a petroleum refinery, bringing district heating systems back into operation, regularizing consumer natural gas connections, many of which had been created during the years of conflict by dangerous home-made means, assuring continued supply of imported natural gas by reaching agreement on arrangements for payment of arrears and current bills, setting up new organizations for operating power, petroleum and natural gas systems that had been divided by Entity and ethnic lines, and re-establishing billing and collection systems.  The international community gave strong support to most of these activities by financing investments and providing technical assistance.
While there are still needs for rehabilitation, and for related investments to provide energy to returning refugees, the priorities have shifted in new directions, such as rationalizing energy prices, giving more attention to environmental goals, deciding how to restructure coal mining, taking part in the creation of regional energy markets, especially for electricity, reforming the power sector organization and regulatory framework in order to improve sector efficiency, comply with commitments under regional treaties, and, eventually, European Union guidelines and directives, reforming the gas sector organization and regulatory framework, deciding whether and how to extend the natural gas system, and deciding whether to construct new power stations.
A number of studies have been carried out on these subjects and others, achievements have been made such as the re-synchronization of the BiH power system as a single control area according to UCTE rules within a larger Balkan control block, and important reforms have been carried out in the power sector such as the establishment of regulatory agencies at the state level and in each Entity, and the passage of legislation to create a single national power transmission company and single independent system operator. However, some issues remain to be resolved.  

B. Objective

The overall objective of the technical assistance is to review and synthesize the previous energy studies, carry out new investigations, report all findings and make recommendations for reforming and strengthening the energy sector in order to assist Bosnia and Herzegovina (BiH) to establish a national energy strategy.
The report prepared by the Consultants is intended to form the basis for an energy strategy that would be formally adopted by BiH.  The strategy itself would set out a vision of the future energy sector in the country and contain the policies considered necessary to bring it about.  The strategy would aim at utilization of energy sources for achieving economic and social benefits in the most economically efficient manner and in an ecologically acceptable way.  A key goal would be to establish a system of energy management as close as feasible to those in the European Union (EU), in order to meet BiH’s commitments to the Energy Community of South East Europe (ECSEE), and with the ultimate aim of general and effective integration of Bosnia and Herzegovina into the European Union.
Specific goals of the Energy Sector Study’s recommendations and the follow-up energy strategy include:
Secure and reliable supply of all forms of energy demanded in BiH;
Assurance of access to energy to all consumers;
Acceptable quality of energy in accordance with applicable BiH and European standards;
Increased economic efficiency in order to reduce energy costs;
Energy prices which reflect the appropriately measured economic and financial costs;
Increased energy efficiency in all segments of the supply system, conversion, transport and utilization of energy;
Optimal utilization of local energy sources in the aim of achieving economic growth and social stability;
Integrated national markets for electricity, coal, natural gas, and petroleum products;
Taking full advantage of regional energy market and other regional arrangements in order to minimize costs for domestic consumers and benefit from energy export opportunities;
Energy management in an environmentally acceptable way;
Protection of  consumers’ interests;
Adequate assistance to economically and socially vulnerable consumers;
Energy sector reform to comply with ECSEE commitments and EU energy sector guidelines; and
A stable, transparent, transaction-cost minimizing and welcoming regulatory, legislative and institutional environment to encourage private investment in the energy sector.

The scope of services includes the following Modules:

1. Energy Reserves, Production, Consumption and Trade

Energy Reserves and Potentials

Collection of information available with the Elektroprivredas, other energy enterprises and the Governments in BiH on reserves of fossil fuels (coal, oil (if any) and natural gas (if any)); and potential production for renewable sources (hydro energy, solar energy, geothermal energy, wind energy, fuel wood, other biomass, waste energy and other renewable sources).

Historical Energy Balances

Preparation of historical energy balances for 1990, 1999, 2000, 2001, 2002, 2003 and 2004 covering production, imports and exports, processing, transport, losses in conversion, production, transport and distribution, and consumption by sector for coal, electricity, petroleum products, natural gas, district heating, and fuel wood if possible, in a common heat unit (e.g. tons oil equivalent) following International Energy Agency (IEA) definitions and format.
Comparison of relevant indicators (e.g. total energy consumption per capita, electricity consumption per capita, energy consumption per unit of GDP, growth rates of energy  and electricity demand) with the same indicators for neighboring countries and EU countries.

Projected Energy Balances

Preparation of projected energy balances for 2010, 2015 and 2020 based on the projections made in the individual energy chapters, but ensuring consistency between the projections for the individual forms of energy.  Three sets of projections shall be made for three scenarios: a base case scenario (most likely case); a scenario based on lower GDP growth; and a scenario having the same GDP growth assumption as the base case but differing from that case as a result of especially successful measures to improve energy efficiency, increase renewable energy production and minimize adverse environmental impacts.

2. Electricity Demand

On the basis of an acceptable method, prepare projections of electricity demand (for total energy in GWh and peak demand in MW) for the three scenarios described in Module 1 for each year from 2005 through 2020 as well as for the winter and summer seasons.  The projections should include consumption by end user group (at a minimum residential, other low voltage, medium voltage and high voltage, that is, consumers served directly from transmission); and losses in transmission and distribution, with the total being  demand for generation plus net imports (if any).  The projections should also be broken down by region within BiH, following the regional definitions used by the three Elektroprivredas.
The projections of peak demand and seasonal demand should be based on reviews of historical annual, seasonal and daily load duration curves.  The findings of these reviews will be useful for Module 12 on demand management and energy efficiency improvements.

3. Power Generation

Existing Plants 
Carry out detailed reviews of existing hydropower and thermal power plants to determine whether any of the plant units will soon reach the stage where continued operation would be uneconomic, investigate rehabilitation requirements for units that can be operated economically to meet future domestic consumption or compete in export markets and estimate investment needs.  These reviews should be coordinated with the environmental investigations of the same plants carried out for Module 13.  On the basis of these reviews, the Consultants shall forecast power generation from existing plants to 2020 for the three scenarios set out in Module 1.
Possible New Plants
Review the technically feasible options for future generating facilities to meet domestic peak and off-peak demands and/or compete in international markets.  Estimate the investment cost, fuel and other operating and maintenance costs, and the life cycle cost per kWh for each option and compare the life cycle cost with relevant prices at BiH’s borders in order to evaluate whether the plant can compete in export markets or with imported electricity.  The review of possible new coal power plants should be based on the economic cost of coal production (rather than the existing price if this is different from the economic cost) as determined in Module 8 on coal.  The review shall take account of the evaluation of least-cost generating options for the ECSEE region (see the list of documents at the end of this document).  On the basis of the review the Consultants shall forecast power generation from the new plants to 2020 for the three scenarios set out in Module 1.

4. Power Transmission and Dispatching. 

While many investments have been implemented in recent years to rehabilitate and strengthen the transmission system (see the Project Appraisal Document for the Third Electric Power Reconstruction Project in the list of documents below), further investments are still needed.  A transmission master plan shall be prepared which (i) sets out the investments needed to rehabilitate existing facilities; and (ii) sets out any additional investments needed to strengthen and or expand the existing system over the period 2005-2020.  The resulting transmission investment program should be consistent with the power generation investment program recommended in Module 3 and include any necessary transmission connections to new power plants.  For the recommended transmission program, the Consultants shall provide lists of components, equipment and materials along with their estimated costs.
A new SCADA system is being established, with financial support from EBRD.  The Consultants shall briefly review whether any additional investments are needed related to power dispatching.

5. Power Distribution

Based on information and rehabilitation plans provided by the Elektroprivredas, the Consultants shall carry out an assessment to determine, by order of priority in accordance with criteria to be proposed by the Consultants, further rehabilitation requirements and investments in new distribution capacity for the period 2005-2020.  Special attention shall be paid to meeting the needs of returning refugees.  The Consultants shall recommend a distribution investment program, with lists of components, equipment and materials along with their estimated costs.

6. Power Sector Restructuring and Regulatory Framework

The Consultants shall review the status of power sector reform in the light of the studies and legislation on which it is based (see the list of documents below) and make recommendations for further steps.  Special attention shall be given to meeting BiH’s commitments to ECSEE and to complying with EU guidelines.

7. Assistance to Socially Vulnerable Electricity Consumers

The Consultants shall review the report “Social Assessment of Electricity Consumers and Evaluation of Related Social Protection Programs,” by Ekonomski Institut AD, as well as any follow-up activities by the Federation and RS Governments, and make recommendations for further actions.  In doing so they shall give consideration to extending the social protection programs to other purchased energy as well as electricity.

8. Coal Mining

Two related coal sector restructuring studies were prepared for the Federation BiH coal mines and a strategy based on these studies has been prepared by the Federation BiH.  A corresponding study is being carried out for the RS coal mines.  The Consultants shall review the findings and recommendations of these studies and strategy, integrate them with the findings and recommendations made in the Energy Sector study for other sectors, and make any additional recommendations they may consider desirable.  Particular attention shall be paid to reviewing and updating estimates of the economic and financial costs of production and evaluating the competitiveness of the various coal mines.  The Consultants shall prepare new demand forecasts to 2020 coal for the three scenarios set out in Module 1 based mainly on the coal power plant generation forecasts given in Module 3, and set out investment requirements for the coal sector in each Entity as well as the costs of providing appropriate compensation to redundant coal workers.

9. District Heating

For each of the district heating systems in BiH, the Consultants shall evaluate the current state of the district heating facilities and equipment, assess the competitiveness of district heating with alternative sources of energy, investigate options for improving efficiency and changing fuels, and evaluate options for further rehabilitation/improvement and their costs.  The Consultants shall forecast supply and demand for district heating for the three scenarios set out in Module 1.  The Consultants shall also investigate the organizational and financial performance of the district heating companies, and the manner in which they are regulated, and make recommendations for improvement.

10. Natural Gas

The Consultants shall review the BiH Natural Gas Sector Restructuring Study (NERA, UK, 2000) and the BiH Natural Gas Sector Development Study (Ramboll, Denmark, 2001).  The first provides detailed recommendations for restructuring the natural gas sector in BiH and establishing a regulatory framework.  The proposed reform program is similar to that already well under way in the power sector and is guided by EU guidelines.  The Gas Sector Development Study proposes a detailed investment program for the gas sector.  The Consultants shall update the findings and recommendations of these two studies, giving particular attention to EU guidelines and BiH’s commitments to ECSEE, and integrate these with the findings and recommendations from the rest of the Energy Sector study.  They shall also examine the price structure, determine the extent to which the prices properly reflect economic and financial costs, make comparisons of domestic prices with those in neighboring countries and the EU, and put forward recommendations for improvements.  They shall prepare forecasts of natural gas demand to 2020 for the three scenarios presented in Module 1, and provide estimates of investment requirements for the natural gas sector.

11. Petroleum

The Consultants shall carry out a review of the petroleum sector, assessing the extent to which the supply system is succeeding in meeting demands throughout the country with products that meet acceptable quality standards, giving particular attention to EU product quality standards, determining whether prices properly reflect the true economic and financial costs, including taxes, comparing the prices with those in neighboring countries and the EU.  They shall also compare taxes on petroleum in BiH with those in the same countries, and, if considered desirable, put forward recommendations for improvement, including giving attention to ensuring uniformity of taxes throughout BiH and minimizing tax avoidance resulting from smuggling across national and Entity borders.  They shall prepare forecasts of demand to 2020 for the three scenarios present in Module 1.  They shall review the findings and recommendations of the Oil Import Study prepared by World Bank staff in 1999, focusing notably on whether the establishment of common carrier facilities for the import of petroleum products through Ploce, with rail transport to the major centers of the country, could substantially reduce the cost of supply, improve product quality and reduce tax avoidance.  They shall also assess the regulatory framework, under which companies in the sector would normally need to meet specified requirements concerning minimum capital, safety and environment, product quality and minimum petroleum stocks.  They shall make recommendations on whether BiH should establish an emergency petroleum reserve which would eventually comply with EU and IEA requirements.  They shall also evaluate investment requirements, and whether government investments would be needed.

12. Demand Management, Energy Conservation and Renewable Energy

Demand Management and Energy Conservation
The Consultants shall investigate options for demand management in the power and gas sectors, and energy conservation in all energy sectors and at all stages of the supply system, conversion, transport and utilization of energy.  Among the topics to be considered are peak shaving in electricity and gas, improved building insulation, the use of high-efficiency lighting, electricity and heating appliances, and process improvements in industries.  The Consultants shall focus primarily on measures which are economically efficient and would not require subsidy in order to be implemented.  The primary work on energy efficiency in energy supply, conversion and transport would normally be done by those responsible for the individual energy supply Modules, but the primary authors of the energy efficiency section should coordinate with them in these areas.  They shall make recommendations on actions to achieve energy savings.  They shall estimate the potential savings from  these actions for purposes of the three demand scenarios presented in Module 1.
Fuel Wood for Household Use
The Consultants shall collect data to determine the amount of fuel wood consumption, and trends since 1999, and make projections to 2020 for the three scenarios presented in Module 1.  They shall investigate the organization of supply.  Further, they shall evaluate whether widespread fuel wood collection is being carried out in an environmentally sound manner in such a way as to avoid harmful deforestation.
Other New and Renewable Energy
The Consultants shall investigate the potential for feasible production of solar energy, wind energy, geothermal energy, biomass (other than fuel wood) and other wastes.  If any of these energy forms is found likely to be feasible, they shall recommend measures to bring about its production.  They shall forecast the supply and demand for such forms of energy to 2020 for purposes of the third scenario presented in Module 1.  They shall also estimate investment requirements.
Household Space Heating, Water Heating and Cooking   
The Consultants shall prepare careful and comprehensive estimates of the financial costs of supply of electricity, natural gas (where it is available), district heating (where it is available), heating oil, LPG, kerosene (if it is widely used) and fuel wood for each of household space heating, water heating and cooking in order to determine the ranking of these forms of energy in terms of cost.  Consideration shall be given to creating separate estimates for the relatively warm and relatively cool regions of BiH.  These estimates will be useful for purposes of forecasting demand for each of these forms of energy in these uses, as well as for evaluating whether current price structures and existing taxes are causing undesirable biases towards some energy forms and away from others.

13. Environment

The Consultants shall investigate the environmental impacts of each form of energy covered in the study.  This investigation shall cover all significant forms of environmental impact, whether local or global.  It shall also take account of the projected growth in domestic supply of the various forms of energy.  The impacts shall be evaluated against the environmental standards adopted by BiH (including the commitments it has made under international treaties, protocols and conventions) and those in the EU, including for countries hoping to become members of the EU.  The Consultants shall present recommendations for environmental improvements and provide a comprehensive list of investments in pollution abatement measures.  For purposes of cost estimates for new power plants, rehabilitation of exiting plants, and rehabilitation or expansion of supply of all other forms of energy, the costs of pollution abatement relating to these forms of energy shall be included in the total supply costs.

14. Investment Plan and Financing Options

On the basis of the above investment studies, the Consultants shall prepare detailed investment plans for power, coal, district heating, natural gas, petroleum, new and renewable energy, and energy efficiency, including environment-related investments for each of these forms of energy and energy efficiency, giving separate local and foreign cost estimates for each project (or group of projects) and a disbursement schedule for each project.  The Consultants shall investigate options for financing both the local and foreign costs of the investments, including from net internal cash generation of the BiH energy supply companies, borrowings from the private sector in BiH and abroad, private equity investments, and assistance from international agencies.  They shall provide information on the cost and other terms of each form of prospective financing.  The Consultants shall link these parts of the Study directly to recommended projects.

The study shall be completed within 12 months of contract effectiveness.  The Consultants shall propose a detailed schedule covering completion of all modules within this overall time frame.

An Inception Report shall be submitted within 5 weeks of the commencement of the Study, and Interim and Final Reports shall be prepared for each Module.  The Inception Report shall provide in detail the approach and methodology to be adopted for each module, elaborating on the methodology and work plan given in the Consultant’s proposal. 
A Final Summary Report, with an executive summary, shall be prepared for the entire study.  The Final Summary Report shall include a brief description of each Module with relevant assumptions, findings and recommendations.  All of the recommendations shall be listed in a table or set of tables together with the responsible authority for implementing each recommendation and the dates for beginning and completion.  All investments recommended in the report shall also be listed in one or more tables, with the amounts proposed for financing clearly identified.
Consultants shall submit the necessary number of copies of draft reports and final reports for the three Elektroprivredas and all other institutions involved to be able to get at least one copy, for review, comments and approval before finalization [8 copies of inception, interim and draft final reports and 15 copies of final report].  All reports shall be in  English and local language.

The Consultants shall establish an office in Bosnia and Herzegovina for the duration of the study, and the study shall be carried out in this office.

The Consultants shall prepare proposals for participation of the public in energy decision-making, as well as education programs on energy sector issues.

H. Liaison with NGOs

The Consultants shall consult with relevant NGOs.

The Consultants shall cooperate fully with the EC-financed consultants working for MOFTER on energy strategy tasks.  The EC-financed consultants will prepare their own studies on some of the topics covered by the Energy Sector Study, assist in the review of the various reports of the Energy Sector Study during all stages of preparation, and assist MOFTER in the preparation of a draft Energy Strategy for BiH based on the Study’s findings and recommendations.  The two sets of consultants shall share all data and information in a transparent way in carrying out their respective tasks.

Electricity Policy Statement of the RS
Electricity Policy Statement of the FBiH
State Electricity Law
Electricity Law of the Federation
Electricity Law of RS
Law to Establish the Single Transmission Company
Law to Establish the Independent System Operator
SCADA Feasibility Study (financed by EBRD)
Project Appraisal Document on a Proposed Credit in the Amount of SDR 26.4 Million (US$ 35 Million Equivalent) to Bosnia and Herzegovina for the Third Electric Power Reconstruction Project, World Bank Report No 20167-BIH
Environmental Management Plans of EPBiH, EPHZHB and EPRS for the Third Electric Power Reconstruction Project (obtainable from World Bank Infoshop)
Final Report on Regional Balkans Infrastructure Study – Electricity (REBIS) and Generation Investment Study (GIS), 2005
Social Assessment of Electricity Consumers and Evaluation of Related Social Protection Programs (Ekonomski Institut AD, 2004)
FBiH Coal Sector Restructuring Report and the related report on assistance to redundant coal workers (financed by USTDA)
FBiH Coal Study
Natural Gas Sector Restructuring Study (NERA, UK, 2000)
Natural Gas Sector Development Study (Ramboll, 2001)
BiH Oil Import Review (World Bank, 1999)