VZCZCXYZ0000
OO RUEHWEB

DE RUEHPS #0287/01 2011241
ZNR UUUUU ZZH
O 201241Z JUL 09
FM AMEMBASSY PRISTINA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9135
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUCNDT/USMISSION USUN NEW YORK PRIORITY 1693
RHMFISS/CDR USEUCOM VAIHINGEN GE PRIORITY
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK PRIORITY
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RHMFISS/CDR TF FALCON PRIORITY
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UNCLAS PRISTINA 000287 
 
SIPDIS 
 
DEPT FOR EUR, EUR/SCE, DRL, INL, AND S/WCI, NSC FOR 
HELGERSON, USUN FOR SGEE, USOSCE FOR AHYDE 
 
E.O. 12958: N/A 
TAGS: PREL ETRD ECON EAID EAIR ETTC PTER KTFN UNMIK
KV 
SUBJECT: KOSOVO: ENERGY SECTOR REFORM MOVES AHEAD (FINALLY) 
 
¶1. (SBU) SUMMARY:  After years of delay, the Government of 
Kosovo (GOK) has officially announced it will build a large 
lignite-fueled power plant -- the "New Kosovo Power Plant" 
(NKPP) -- to address the country's unmet and growing energy 
needs.  Prime Minister Hashim Thaci announced the 
government's decision at a July 15 press conference, after 
close consultation with key international donors.  In 
addition to building NKPP, the GOK also decided to offer the 
Kosovo B unit for privatization, to decommission the decrepit 
Kosovo A unit, and to accelerate privatization of the 
national electricity distribution system.  The USG, the 
European Commission (EC) and the World Bank have pledged 
their full support for the GOK's approach, and offered direct 
assistance to keep the process moving forward.  A donors' 
meeting on energy has been suggested for the fall to discuss 
additional financing needs for this reform of Kosovo's energy 
sector.  While many details still need to be fleshed out, the 
principal donors are now finally on the same page with regard 
to reform of the troubled energy sector -- good news for 
Kosovo as this reform is perhaps the most critical component 
of the country's economic future and well-being.   END 
SUMMARY. 
NKPP:  A Delayed Work, Now Back on Track 
¶2. (SBU) In cooperation with the World Bank, the Ministry of 
Energy and Mining solicited expressions of interest from 
private investors in 2006 for a new energy development 
project intended to address Kosovo's unmet and growing 
demands for power.  At the time, the project included 
construction of a new power plant (then titled "Kosovo C"), 
with an anticipated production capacity of 2100 megawatts, 
development of a coal mine to supply the new power plant, and 
refurbishment of certain production units of the existing 
Kosovo A plant.  The future of the second existing plant, 
Kosovo B, was not specifically addressed in the expression of 
interest documents, but was not excluded from consideration 
by interested parties.  The NKPP Project Steering Committee 
(PSC) then announced a short-list of four pre-qualified 
consortia from the expressions of interest received.  These 
consortia would have the opportunity to bid on the NKPP 
tender, once issued.  (Note: Three of the four consortia 
include American interests; the fourth pre-qualified bidder 
recently withdrew from the NKPP process. End Note.) 
¶3. (SBU) After the expression of interest period concluded in 
December 2006, the NKPP project suffered from delays and 
inaction due to preoccupation by the Kosovo government with 
the final status process and preparations for Kosovo-wide 
elections in November 2007. This was then compounded by the 
new government's desire in early 2008 to conduct a thorough 
review of the entire Kosovo C/NKPP process, and then by 
disagreement among key donors, principally the USG and World 
Bank, over the need to link closure or rehabilitation of the 
older units with NKPP so that Kosovo would be able to provide 
energy before the completion of the large, new 
lignite-burning plant. 
¶4. (SBU)  Re-energized by the urgings of key international 
donors for Kosovo to take a more pro-active approach on 
energy sector reform, the GOK sought guidance on how to move 
NKPP forward.  Keeping in mind Kosovo's need for a reliable 
source of power while NKPP is being built and Kosovo A and B 
being retired, the USG and the World Bank held bilateral 
discussions to develop a coordinated and integrated approach 
to support Kosovo's energy sector reform efforts, as well as 
to facilitate private sector investment in this area.  The 
results of this discussion were delivered to Prime Minister 
Thaci in a joint-letter on July 7.  The letter advised the 
GOK to move forward with NKPP, and finalize the Request for 
Proposals (RFP) for bidders without delay.  The World Bank, 
in turn, pledged to step up its support for the NKPP bidding 
process and to begin preparations to provide a partial risk 
guarantee for the project. 
¶5. (SBU) The letter also emphasized that upcoming PSC 
meetings should include discussions of how to link NKPP with 
the privatization of Kosovo B, as part of an integrated 
approach to secure a reliable and adequate supply of 
electricity for Kosovo while NKPP is being built.  The USG 
offered to finance a feasibility study and bidding documents 
for Kosovo B's privatization.  Along with the World Bank, the 
USG will also support a transaction advisor to guide the GOK 
through the process of offering Kosovo B to qualified private 
sector investors, including the prequalified NKPP bidders. 
Privatization of Kosovo B could also be supported by a World 
Bank partial risk guarantee, if requested by the GOK.  Kosovo 
A was recommended for closure as soon as possible due to 
serious environmental concerns related to the plant's 
continued operation.  The letter also urged appointment of a 
transaction advisor to move forward with the privatization of 
the Kosovo Electric Company's (KEK) distribution arm, to 
assure bidders that a creditworthy domestic buyer of power of 
will be available. 
PM Accepts Way Ahead, Gets PSC/Cabinet Agreement 
¶6. (SBU) CDA and World Bank Regional Representative Jane 
Armitage met with the Prime Minister on July 14 to discuss 
next steps.  Although he had several questions related to the 
financing of these projects, Thaci supported the approach 
outlined in the letter, and said he would immediately take 
action to secure approval from the PSC and his cabinet to 
proceed with NKPP.  The PM then held a press conference on 
July 15 to announce the government's decision; CDA, Armitage 
and representatives from the EC Liaison Office, IMF, and 
International Civilian Office stood by Thaci on the dais and 
gave remarks in a show of support during the conference.  The 
PM explained that in cooperation with international donors, 
the GOK developed a five-point strategy to allow Kosovo to 
export energy while still meeting Kosovo's growing domestic 
needs.  The steps include the construction of NKPP in two 
stages of 1000 megawatts each, along with a 40-year 
concession of the New Sibovc mine; pursuit of a 
public-private partnership for Kosovo B; the decommissioning 
of Kosovo A, with the support of the EC, by 2015; appointment 
of a transaction advisor for privatization of KEK 
distribution; and commitment to exploring renewable energy 
sources, in particular hydro power. 
Next Steps 
¶7. (SBU) The NKPP transaction advisor will next hold a series 
of consultations with PSC members and others to incorporate 
the guidance received from the GOK into a proposal for 
bidders.  A draft Request for Proposals (RFP) document is 
anticipated to be released to bidders by September 2009. 
USAID is working with the World Bank and the EC to develop a 
detailed working timeline on four of the five points outlined 
in the PM's joint-energy approach:  Kosovo A, Kosovo B, NKPP 
and KEK distribution.  The USG, the World Bank and the EC 
have also discussed holding a donor meeting on energy 
sometime in the fall to explore additional financing for the 
joint energy approach.  The World Bank and the USG will 
prepare a draft paper on energy sector reform, in 
consultation with the European Commission (EC) that will 
serve as the basis for this meeting. 
¶8. (SBU) COMMENT:  The GOK's decision to move full-speed 
ahead with the NKPP project is extremely welcome news. 
Kosovo's citizens experience daily blackouts, and an 
increasingly larger share of the government's budget is being 
consumed by subsidies to the existing power plants and to 
cover expensive energy imports.  Kosovo's future growth and 
development hinges on securing a reliable source of energy, 
and the GOK's decision to build NKPP is one step toward this 
goal.  USEP will continue to work closely with the GOK and 
our international partners to ensure that this project and 
overall energy sector reforms remain a priority. 
YAZDGERDI