Bosnia and Herzegovina (BiH) Regulatory and Energy Assistance Project (REAP) Draft Policy Paper

The project was implemented by Advanced Engineering Associates International, Inc. as USAID Contractor, with the goal of opening the market to all non-household customers by January 1, 2012, and to all customers by January 1, 2015. The Market Working Group, formed by the three BiH regulators and market participants, identified eight impediments to market opening, five of which require government policy action. These areas include unbundling, cost-based tariffs, deregulation of generation, vulnerable customer programs, and the amendment of the procurement law. The different BiH governments have different areas of focus, which are specifically addressed in Section V: Next Steps. The document is structured to address the following areas: introduction, market working group approach, impediments, and next steps. The introduction highlights the urgency of market opening, as the transitional period to market opening ends in 2012, and new investments are planned by both entities. Market opening means that end-use customers can choose their own suppliers of electricity to purchase energy, capacity, and other services at negotiated prices, while natural monopoly services are available to customers at fair, transparent, and nondiscriminatory prices. The Market Working Group took a bottom-up, practical approach to determine the status of market opening. The group gathered technical data from the EPs to determine their readiness to open the market, hosted small, interactive seminars to address the necessary technical and commercial requirements for customers to choose their suppliers, and held a joint seminar to present and discuss the top eight prioritized impediments and options to resolve them. The list of prioritized impediments and optional solutions provides a platform for decision-making and subsequent steps that need to be taken by market participants, including the governments. The eight impediments to the successful functioning and opening of the BiH electricity market are: metering/measurement, unbundling, cost-based tariffs, deregulation of generation, vulnerable customer programs, supplier of last resort/default supplier/customer switching, contracts and clarification of processes, and procurement law revisions. The Market Working Group and the members' regulators understand that the task of the group has been to gather data and analyze it, not to make policy. The document has been written with the intention of submitting it to the regulators' respective ministries, both to give the ministries information and to elicit further policy guidance, as deemed appropriate by the ministries and their governments. The Bosnia and Herzegovina electricity market is expected to be open to all non-household customers by January 1, 2012, and to all customers by January 1, 2015. The market opening deadline is fast approaching, and the work of the Market Working Group has taken on a sense of urgency. The group's findings and recommendations aim to facilitate the successful functioning of the BiH electricity market and ensure a smooth transition to a competitive market structure.