REGULATORY FRAMEWORK AND MARKET OPENING Krenar Bujupi ERO Board Member 1 March 2016, Prishtina

KOSOVO ENERGY SECTOR Cogeneration 2

MULTI YEAR TARIFF TOTAL MAR OF THE SECTOR (€m) Allowed with Periodic Review Annual adjustment MAR before privatization of Distribution and Supply Proposed MAR for

TOTAL MAR OF THE SECTOR (€m) 4

AVERAGE PRICE FOR HOUSEHOLD CUSTOMERS FOR 2014 Turkey Slovakia Croatia 13.2 Hungary 9.5 Montenegro 8.8 Moldova 8.5 Macedonia 6.8 Albania 6.2 Serbia 5.4 Kosovo 5.2 Bosnia 6.5 €c/kWh 5

Turkey Slovakia Croatia Hungary 8.4 Montenegro 6.5 Moldova 7.9 Macedonia 10.8 Albania 8.1 Serbia 7.6 Kosovo 7.3 AVERAGE PRICE FOR NON-HOUSEHOLD CUSTOMERS FOR 2014 Bosnia 6.5 €c/kWh 6

CONSUMPTION, PRODUCTION AND LOAD SHEDDING (GWh) 7

IMPORT AND EXPORT 8

KEK GENERATION AND MINING INVESTMENTS *There are almost € 300 million CAPEX Allowed for KEK Generation and Mining 9

KOSTT INVESTMENTS *There are €137 million CAPEX allowed for KOSTT *The highest value of investment is realized in 2015 due to Interconnection Line with Albania 10

DSO/KEDS INVESTMENTS *There are more than €100 million CAPEX allowed for DSO 11

DISTRIBUTION LOSSES 12

KEK Mine Kosovo A Kosovo B TSO/MO DSO Supply KEK Mine Kosovo A Kosovo B TSO/MO DSO Supply KEK Mine Kosovo A Kosovo B TSO/MO DSO Supply KEK Mine Kosovo A Kosovo B TSO/MO DSO Supply KEK Mine Kosovo A Kosovo B TSO/MO DSO Supply pre-2005 Vertical integration 2005 TSO/MO unbundling 2013 DSO/PS unbundling 2014 DSO/PS unbundling Further unbundling Current strategy Increased capacity Decommission - align with NKPP Rehabilitation Legend State ownership Private ownership MARKET DEVELOPMENT

PP Kosovo B Transmission Distribution New Kosovo PP Renewable energy sources Decommissioning of PP Kosovo A THE FUTURE OF ENERGY SECTOR GENERATION Supply Supplier X Supplier C Supplier B Supplier A

SUMMARY AND FUTURE STEPS The multi-year tariff system improved the predictability of the energy sector regulatory framework which facilitated investment in the energy sector Additional investments have led to significant improvements in security of supply, reduction of losses, elimination of bottlenecks o Remove structural barriers to market opening ERO with the support of USAID through Repower project, is currently undertaking a Cost of Service Study which will identify the extent of cross-subsidization between customer categories; Cross-subsidies to be eliminated o Road-map for market opening to identify necessary steps currently being developed; o Market concentration and low number of suppliers is a challenge Regulation Market orientation and deregulation

Thank you! Energy Regulatory Office Rr. Dervish Rozhaja Nr. 12 Prishtinë, Kosovë (Tel) (38)