1. Power Sector and Fiscal Issues: The Case of Kosovo Hajdar Korbi Ministry of Economy and Finance Kosova

2. Outline Key issues Key issues Fiscal position/financial performance Fiscal position/financial performance Budgetary support in the past Budgetary support in the past Way out of the current situation/Future fiscal implications Way out of the current situation/Future fiscal implications Potential future risk for the budget Potential future risk for the budget

3. Energy sector and current issues Limited operational capacities Limited operational capacities  Technical problems  Old infrastructure  Limited Managerial capacities Theft and inadequate billing and collection Theft and inadequate billing and collection As a result, no sufficient and/or stable energy supply As a result, no sufficient and/or stable energy supply

4. Current/past financial performance Unable to finance its operational cost due to: Unable to finance its operational cost due to:  Poor billing and revenue collection performance  Thefts  Technical losses  Delayed and insufficient maintenance  Overstaffing/Underutilization of its current staff  Import prices higher than domestic tariffs

5. The need for budgetary support Subsidies in the form of Capital investments Subsidies in the form of Capital investments  Transmission, distribution and Power-plants Subsidies in the form of Current spending Subsidies in the form of Current spending  Import costs Subsidies to social cases Subsidies to social cases Government bank guarantee Government bank guarantee  Opening new Lignite mine Table 1. Past budget spending (subsidies) in energy sector Years200220032004200520062007 Subsidies as a share to total budget spending 11.5%12.5%8.1%8.5%5.4%6.4%

6. Prospects in Energy Sector (Way out of the current situation)  Improve billing and collection performance  Step-wise privatization  KEK restructuring  Vertical Disintegration (Power Generation, Transmission, and Distribution)  New entrants in the Power Generating Market  (Kosova C)  Potential supply of domestic and regional market  Export of Lignite coal

7. Future fiscal implications  Additional capital spending  Infrastructure improvements for new entry incentives  Phase out current subsidies  Due to expected improvement in billing an collection  In medium-to-long term  From a budget liability to a revenue source  Revenues from corporate profits  Royalties on extracted coal

8. Risks (including Contingent liabilities) for the budget remains  KEK financial performance  Rapid growth in energy demand-the need for higher imports  Inadequate and/or insufficient infrastructure improvement may deter potential new entrants  Coal supply and KEK generation capacity  Possible coal supply shortages  Fiscal risks associated with environmental issues  Government bank guarantees