Second Quarterly Progress Report: USAID Energy Investment Activity Project (EIA) in Bosnia and Herzegovina

In addition to its economic significance, the BiH energy sector has key relevance for the country's accession to the European Union (EU) and energy security in the Western Balkans. Estimates suggest that BiH has the potential to at least double its electricity production through the usage of its hydro-electrical potential, renewable energy, and possibly through the construction of additional thermal power plants. A number of obstacles, including political, bureaucratic, and the absence of a fully market-oriented environment, have driven away even the most determined investors. Potential for job creation and energy savings can be activated with the introduction of Energy Efficiency Obligation Schemes and regulatory incentives. The USAID project, Energy Investment Activity (EIA), works to remove the obstacles to investment in the energy sector, create a friendlier investment environment, and help advance the BiH accession process related to energy requirements. The EIA project has three main objectives: (1) develop transparent and investor-friendly energy infrastructure construction legislation and regulations, including recommendations of measures to stimulate investment in renewable power plants; (2) establish a functional electricity retail market, in which a customer will be able to negotiate contracts with the most competitive supplier, regardless of their location; and (3) achieve energy savings, using regulatory incentives and emission reduction through BiH compliance with the EU Directive on Large Combustion Plants. The project will identify and document obstacles to investment in the electricity sector, including the legal framework for permitting in the BiH regions with potential for generation. In partnership with local authorities, it will recommend legislative changes consistent with best international practice, which will help streamline the permitting process and make it investment-friendly and transparent. The project will also identify the links between electricity generation and waste products from agriculture, wood processing, and livestock farming, and recommend measures to stimulate investment in renewable power plants. Working with stakeholders, the project will define DSO processes to make them neutral retail market facilitators; assist regulators to fully develop a balancing settlement mechanism for the retail market; enhance quality of services standards; and identify obstacles and develop recommendations for the integration of renewables in the electricity market. Together with key stakeholders, the project will assist in drafting an Energy Efficiency Obligation Scheme suited to the circumstances in BiH, and assist partners to revise the necessary regulatory documents to make an energy efficiency obligation scheme operational. The EIA Project will implement all activities by applying a methodology that encompasses continued joint work through working groups and subgroups with all relevant local stakeholders. Additionally, implementation will include cooperation with other USAID programs and donor-funded projects. Where appropriate, the EIA Project will develop case studies in order to better identify the present situation in the sector; assist local authorities to improve the legislative and regulative environment; and assist prospective investors to prepare their projects for permitting procedures. During the reporting period, the EIA Project held numerous meetings with entity, state level, and local counterparts regarding future cooperation and received positive feedback from all. The Ministry for Economic Development and Regional Cooperation of Republika Srpska (RS) requested a letter containing the key information about the project and the Scope of Work was prepared and sent to submit to the RS Government for approval of cooperation between the project and the RS institutions. Although EIA has not received an approval from the RS Government to date, EIA has continued to cooperate with the RS Energy Regulator, Elektroprivreda RS, the RS Ministry for Energy, Mining and Industry, and members of the Large Combustion Plants working groups. Regarding the Impediments to Investment in the Energy Sector in BiH, the following main activities were executed: i) Working relationships with institutions playing key roles in the permitting process in BiH such as Regulators, EPs, and Ministries were established; ii) Basic types of permits and approvals in both BiH entities were identified; iii) Activities on the establishment of working groups to identify the legislative framework on permitting and to define the characteristics of the permitting regimes in BiH (qualitative analysis) were merged with activities related to technical assistance provided to the MOFTER Working Group for PECI and PCI projects under Component 4. In addition, two round tables were organized for livestock farmers and wood-processing companies in order to raise awareness of the existing feed-in-tariffs and production quotas, and to stimulate the interest of SMEs in investing in the biomass-based power plants. USAID EIA and the Milkos Company agreed to cooperate in the construction of biogas and solar plant project implementation and will sign a Memorandum of Understanding in the following quarter. Finally, the USAID EIA Project drafted and submitted a summary of key features, permits, and institutions involved in the permitting process in the RS to the owner of Arifagic Investments, a potential investor into biogas power plant near Prijedor. With regard to Addressing Retail Market Deficiencies in BiH, the Scope of Work for a Market Working Group (MWG) and Subgroups was sent to