Assessment on the granting rights in hydroelectric resources in the Western Balkans by Dr Lorenc Gordani, 4 July 2017
The discussion on the investment potential of Balkan hydropower cuts right to the heart of the debate not only about the future of the energy sector, but itself what will be the economic sustainable development of the region of WBs. This is a pivotal moment for entire region – encompassing the newest European Union (EU) member states and others in the EU-led Energy Community – strongly involved in pursuing the strategy (EU 2020 and 2030) for achieving a future with reduced carbon emissions and clean sustainable power sources as a drive to the economic growth.
The purpose to get an overview on the strategic development of hydropower sector makes inevitable the in-depth analyses on the legal framework. Looking by this prospective, Balkan countries part of EU, are fully involved in process called “Union of Energy” that go well above the creation of Internal Energy Market. The rest of the WB6 countries are signatories (2012) and already obliged to implement the entire EU legislative framework in their energy sector (2015).
Notwithstanding, this commitments, coordination and common approach does not exist at regional and WB6 level i.e. in the environmental obligations, water management, investment and royalties tariffs, small hydropower support schemes, etc., except to the ownership, organisation and operations of the natural monopoly such as the electrical transmission and distribution networks. For the rest all the Contracting Parties (CP) of the Energy Community (EnC) are free to pursue the model that suit better to their needs, in implementation the EU 3rd Energy Legislation Package and the reaching renewable target of EU 2020.
Then, for a better understanding it is fundamental the focusing on the framework in which based the granting rights regime of the hydropower investments resources, in the EU (included Balkan EU MS) and the Western Balkans. The most recent studies on hydropower regimes in EU reveals considerably discrepancies among MSs, due to the fact, that there is not a coherent European reference framework, as summed up in the here following 4 figures, concerning:
– Different competitive process to grant the rights to use hydropower;
– Different forms of rights to use hydropower (granted for different durations);
– Different role of local or regional authorities in the decision making process;
– Several, but not all, countries have been subject to infringement procedures.
These heterogeneous situations, among the EU hydropower regimes is reflected also in the institutional framework implied to the hydropower regimes in the WBs. The all, mainly to technical potential and economic differences, as well as the social and political development stage in which find the specific countries, that definitely makes the hydropower remains still of national in scope even WBs.
A heterogeneous framework that determine the type of rights for granting of HPPs among each countries. Almost in all Balkan countries member of EU this rights are granted through licences or permits procedure. Contrary in the WBs there is the using the authorisations and in the most important cases the concession in PPP. Different regime, that influence the applicable set of laws and regulations on hydropower usage! A choice, which have a strong economic impact through the legal procedures! In the same time, this institutional-organisational framework have shown all is complexity, even in different way from one country to another of WB6.
First, the legal framework, of all countries involved has gone through significantly changed during last decade, even it is still in on-going process. In many case there is formally a new framework putted in place, but there are numerous implementation gaps. The roles and responsibilities of the authorities are still not checked in practice. Especially, there are institutional – organisational – legal – regulatory (I.O.L.R.) framework gaps, due to the uncertainties and inconsistencies, more evident for large hydropower generation development (needed to treat with specific procedure!).
In more, there is often noticed an unclear strategic orientation and development planning. As well as, the lack of coordination among many multiple aspects and authorities. A specific, lack of capacity, verified in general, on local municipalities to facilitate development of projects. Most of the existing SHPP registers (cadastres) are out of date although there are ongoing developments on revision.
Then, to give a legal replay to all this (legitimate!) concerns, emphasise extremely related with the PPP, it is needed to consider the main terms of the agreements based in the regime of Public Private Partnership (PPP). The subjects and rights of PPP are clearly identified and the law contains provisions that reassure a fair and transparent procedure for seeking proposals. Legislation and regulations for concessions define the principles and procedures for the evaluation and granting of the concession (that makes them seems formally long!). Earlier, following unsolicited proposals of the private investors has to carry out a feasibility study in their project proposal in accordance with minimum requirements of the applicable laws (that rise the cost due to several evaluation needed!).
Then, there is a strong partnership relationship (PPP), that need to be read as a regime build to protect the investment and mitigate the impact of various variables occurring on time. A HPP may be subject to a number of technical, environmental, economic and political risks, particularly in developing countries and emerging markets. In this attempt, the harmonize with the EU Directive 2004/18/EC of the new law introduced the concept of partnership (PPP) to the extension of rights, responsibilities and risk allocation of each party during the concession period. Changes all reflected to the new legislation of the WBs countries!
- Provisions governing the contract of the project provide clear guidance on key issues that will be covered, and are quite flexible, allowing parties to freely negotiate its terms. The Ministry responsible for energy as contracting authority for the concession granted, secured proposes for the participation of private sector, by financial modelling with internal return rate (IRR) at 16-22%.
- Under the contract terms, the sale of power generated by the operator is guaranteed through the Power Purchase Agreements (PPA) for a period from 10-15 years, signed between the operator charged with the public service obligation with tariffs regulated by energy authority, using mostly the “feed in” model. In many case the return of investment it is not made by a fixed tariff but determine every year due to the fact that the production depends on hydrological situation (highly variable with huge different levels of rainfalls among the years) and authority has to be responsible as in a partnership!
III. The construction of hydropower plants is subject to 10 up to 20 permits and licenses from various regulatory bodies, including environmental permit, permits for construction (and preconstruction), permission to connect to the transmission, etc. But, in the situation of concessionary (to distinguish by non-concessionary regime), then based in a “hyperregulated” long-term partnership among the private and the public authorities, the facilitate and the assure of the issues of above documents stand as an co-responsibility among the private and public authorities (based at the principle of the share of responsibility to whom is close to risk or in better position to address it!).
As a professional, every day in the field of energy, of course we are conscious that there are concerns on non-transparent process (in both entities FBiH and RS), lengthy and burdensome administrative procedures for permitting, construction and licensing (Montenegro); uncertainty caused by legislative legal changes in the Former Yugoslav Republic of Macedonia – FYROM); complexity and confusing, due to the lack of experience of local authorities in RES specific procedures (Kosovo). However, strictly legal talking the concern are mostly “mythicized”: the PPP contract signed in bona fide is law among parties!
This strong statement, came according to the main concept of the PPP’s, based in cooperation for the issues of permits and licences, the share of risks in a long-term and the guaranties based in international standard of the investments (that offer access to several international arbitration court). As in any field, there may be the objective pro et cons considerations, but by our point of view, the negotiation and the signature of successful concessionary agreement (and related contracts and guaranties), accompanied with diligent management of project HPP, may avoid any issues to rise, independently by the changes that may occur over the times.
The all above of course is accompanied in the WBs with other essential aspect to which an investor has to base its decision to invest, such as the high technical and cost-competitive energy potential, favourable policy soft measure on RES promotion, continuo search to remove the barriers for an accelerated uptake of renewables, advance of the liberalisation and regional integration. Then, in conclusion, based to the experiences of whom have already “passed along the road”, the core does not stand to the further improvement of legislation, but in an ex-ante analytical assessment and the capacity to follow-up with a “wise” approach thought the administrative procedures.
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