VZCZCXRO6068
OO RUEHIK
DE RUEHPS #0522/01 3271502
ZNR UUUUU ZZH
O 231502Z NOV 09
FM AMEMBASSY PRISTINA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9504
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUCNDT/USMISSION USUN NEW YORK PRIORITY 1810
RHMFISS/CDR USEUCOM VAIHINGEN GE PRIORITY
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK PRIORITY
RHFMIUU/AFSOUTH NAPLES IT PRIORITY
RHMFISS/CDR TF FALCON PRIORITY
RHEFDIA/DIA WASHDC PRIORITY
RUEKJCS/SECDEF WASHINGTON DC PRIORITY
RUEPGEA/CDR650THMIGP SHAPE BE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEAWJA/DEPT OF JUSTICE WASHDC PRIORITY
RUZEJAA/USNIC PRISTINA SR PRIORITY

UNCLAS SECTION 01 OF 03 PRISTINA 000522 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EUR/SCE, EUR/PGI, INL, DRL, PRM, USAID 
 
E.O. 12958: N/A 
TAGS: ECON ENRG PGOV KV SR
SUBJECT:  KOSOVO:  NEW KOSOVO POWER PLANT REIGNITED 
 
REF:   PRISTINA 404 
 
PRISTINA 00000522  001.2 OF 003 
 
 
SENSITIVE BUT UNCLASSIFIED - PLEASE PROTECT ACCORDINGLY 
 
¶1. (SBU) SUMMARY:  After several months of delay and intensive 
background work in Washington, Brussels and Pristina, the 
long-overdue restructuring of Kosovo's energy sector appears to be 
reinvigorated thanks to two recent decisions.  On November 13, the 
Government of Kosovo (GOK) finalized a contract with the 
International Finance Corporation (IFC) to be the transaction 
advisor for the privatization of the Kosovo Energy Corporation's 
(KEK) distribution and supply network (DistCo).  On November 17, the 
New Kosovo Power Plant (NKPP) Project Steering Committee (PSC) 
agreed to endorse a smaller new generation project and established 
an aggressive timeline to release new tender documents for the 
project by mid-February 2010.  These are extremely welcome 
developments, as well as key steps toward realizing a project that 
will significantly improve Kosovo's economic growth and reduce the 
burden on the Kosovo Consolidate Budget (KCB) while at the same time 
improving Kosovo's carbon footprint.  END SUMMARY 
 
¶2. (SBU) As reported reftel, three years have passed since the start 
of the NKPP project, with the process almost coming to a halt this 
past summer.  After the GOK and key international stakeholders 
reached agreement on a transaction structure, two pre-qualified 
consortia publicly announced their withdrawal from the process and 
the viability of the project was questioned.  In the meantime, 
changing attitudes toward global climate change threatened to 
preclude international development bank financing for new coal 
projects, potentially jeopardizing Kosovo's ability to utilize its 
vast lignite resources to meet domestic needs.  However, after 
several months of intensive background work in Washington, Brussels 
and Pristina, two major breakthroughs within days of each other 
appear to have reinvigorated Kosovo's much-needed energy sector 
reform. 
 
DISTCO TRANSACTION ADVISOR ENGAGED 
---------------------------------- 
 
¶3. (SBU) On November 13, the GOK finalized an agreement with the IFC 
to become the transaction advisor for the privatization of KEK 
DistCo.  Since the GOK had failed to contract a transaction advisor 
for DistCo privatization twice already, this was an important step 
forward.  The success of NKPP is dependent upon the existence of a 
reliable network and supply distributor, a role the privatized 
DistCo is envisioned to fulfill.  IFC has already commenced work and 
has begun its analyses to develop and recommend a preferred 
structure for the DistCo transaction.  IFC plans to prepare these 
recommendations by mid-February and implement the transaction on an 
expedited schedule.  The goal is to make an award by Autumn 2010. 
The IFC will work closely with all donors and stakeholders involved 
in Kosovo's electricity sector, including USAID, the World Bank (WB) 
and the European Commission (EC). 
 
NKPP PROJECT TO START SMALL 
--------------------------- 
 
¶4. (SBU) The following week, a PSC meeting for the World Bank-funded 
NKPP was held on November 17.  The session was chaired by the 
Minister of Energy and Mines, and observers from the WB, EC and 
USAID were also in attendance.  Lead by new personnel from the NKPP 
transaction advisory company PricewaterhouseCoopers, the PSC took 
key decisions on the structure of the proposed transaction and 
identified an aggressive timeline for tendering the project.  Taking 
into account prevailing attitudes toward global climate change but 
also Kosovo's need for new generation to meet growing domestic 
demand, foster economic growth and reduce the strain on the KCB, the 
PSC endorsed a smaller new generation project of 500 MW.  This is a 
reduction from the 1000 MW of initial generation capacity announced 
in July 2009.  The PSC also reaffirmed their expectation that the 
new project will meet the highest international standards and reduce 
Kosovo's net carbon emissions. 
 
NKPP BIDDER POOL TO BE EXPANDED 
------------------------------- 
 
¶5. (SBU) The PSC also considered the option of re-opening the 
pre-qualification process to new interested bidders.  After the NKPP 
 
PRISTINA 00000522  002.2 OF 003 
 
 
transaction advisor (TA) presented the pros and cons, the PSC agreed 
with the TA's recommendation to re-open the process in order to 
expand the pool of eligible bidders.  This action will be taken in 
coordination with an extremely ambitious timetable to prepare the 
documents needed for the initial draft Request for Proposals (RFP), 
which will be used to solicit feedback on the NKPP transaction from 
the pre-qualified consortia.  In the current plan, the tender 
documents will be ready for release at the same time as the expanded 
pool of bidders is identified.  The completion of these two actions 
is anticipated by mid-February 2010. 
 
PSC BACKS "B-PLUS" OPTION FOR NEW GENERATION 
-------------------------------------------- 
 
¶6. (SBU) Moving on to the overall structure of the NKPP project, the 
TA presented an analysis of three potential tendering options that 
would meet Kosovo's key objectives for pursuing the project, as well 
as attract reputable investment.  All scenarios presumed a smaller, 
initial new generation requirement. 
 
-- Option one offered the northern half of the Sibovc mine 
concession and the building of new generation directly on the Kosovo 
A site.  This option was discussed on November 9 at an unofficial 
PSC attended only by GOK representatives. 
 
-- Option two involved the full concession of the Sibovc mine, with 
new generation to be built adjacent to Kosovo B.  New generation in 
this scenario would be smaller, and remain separate from the 
existing Kosovo B facility. 
 
-- Option three also recommended full concession of the Sibovc mine 
but with new generation being built adjacent to Kosovo B, and 
including "B" as an asset in the transaction.  This option has been 
labeled "B-Plus". 
 
After a short review of the benefits and challenges of each option, 
the PSC decided on B-Plus as the recommended way forward. 
 
FAST-TRACK TIMELINE OUTLINED 
---------------------------- 
 
¶7. (SBU) In order to execute these decisions as expeditiously as 
possible, the TA unveiled an accelerated timetable.  The next PSC 
meeting will be held December 5, where the TA will present 
additional analysis to support the B-Plus option, and proceed to 
organize the process for Kosovo's key counterparts to address the 
full range of issues as needed to ensure a draft RFP can be prepared 
by mid-February.  A draft of the pre-qualification document to 
expand the pool of interested bidders will be circulated before the 
next PSC meeting, with the goal of pre-qualifying additional 
investors by mid-February.  A second PSC meeting in mid-December 
will finalize the B-Plus transaction structure after receiving 
initial market feedback, approve the pre-qualification document for 
issuance, and provide an update on the progress of the draft RFP 
preparation. 
 
COMMENT 
------- 
 
¶8. (SBU) The recent decisions by the GOK to move forward with both 
DistCo privatization and NKPP project restructuring have been long 
awaited.  Discussions about the impact for Kosovo of a new global 
approach toward climate change and coal projects have been at the 
forefront of the GOK's mind.  We applaud the efforts of all 
stakeholders to move this process forward, with a special thanks to 
our colleagues in Washington who have worked to develop a strategy 
that will meet Kosovo's development needs and satisfy climate change 
concerns.  Although perhaps not foreseen as one of the outcomes of 
the environmental impact review, it had the useful corollary effect 
of moving the approaches of the U.S. and WB closer together around 
the new framework.  We urge all stakeholders to keep the dialogue on 
Kosovo's energy sector reform alive, and continue to push this 
process forward to an expedient conclusion. 
 
¶9. (SBU) COMMENT CONTINUED:  For the overall success of the 
multi-track energy sector reform process, we must ensure, as the GOK 
engages these two transactions over the coming months, that there is 
a political champion who is committed to take the tough decisions 
 
PRISTINA 00000522  003.2 OF 003 
 
 
necessary to drive this process forward.  The organization of 
periodic DVCs, linking the GoK, other Pristina-based actors, and 
Washington decision makers (including the Department, USAID, and the 
World Bank), could be one useful means to make certain that this 
policy process remains on track. 
 
DELL