USAID Energy Investment Activity Project (EIA) Recommendations for Gas Sector Reform in BiH

The current primary legislation is based on the Energy Community acquis, which includes the adoption of the EU's Third Energy Package. However, the existing legislation does not fully align with the EU's requirements, and significant gaps need to be addressed. The unbundling of gas operators is a critical aspect of the gas sector reform. The current structure of gas operators in Bosnia and Herzegovina is characterized by a lack of separation between transmission, distribution, and supply activities. This hinders the development of a competitive gas market. The recommended unbundling model for BH Gas involves the separation of transmission, distribution, and supply activities, with the transmission system operator responsible for the operation and management of the transmission network. Licensing is another essential area of reform. The current licensing framework is inadequate, and the lack of clear and transparent procedures for granting licenses hinders the development of a competitive gas market. The recommended licensing framework involves the establishment of a clear and transparent process for granting licenses, with the requirement for gas companies to meet specific criteria. Economic network regulation, or price control, is also a critical aspect of the gas sector reform. The current price control mechanism is based on a cost-plus approach, which does not provide sufficient incentives for gas companies to reduce costs and improve efficiency. The recommended price control mechanism involves the introduction of a revenue cap, which would allow gas companies to earn a reasonable return on investment while also providing incentives for cost reduction and efficiency improvement. Gas transportation network tariffs are another area of reform. The current tariff structure is based on a cost-plus approach, which does not provide sufficient incentives for gas companies to reduce costs and improve efficiency. The recommended tariff structure involves the introduction of a revenue cap, which would allow gas companies to earn a reasonable return on investment while also providing incentives for cost reduction and efficiency improvement. Gas retail markets are another area of reform. The current retail market is characterized by a lack of competition, with gas companies dominating the market. The recommended retail market framework involves the introduction of a competitive retail market, with the establishment of a clear and transparent process for granting licenses to new entrants. Capacity allocation is also an area of reform. The current capacity allocation mechanism is based on a first-come, first-served approach, which does not provide sufficient incentives for gas companies to reduce costs and improve efficiency. The recommended capacity allocation mechanism involves the introduction of a capacity allocation mechanism that takes into account the needs of different market participants. Gas system development is another area of reform. The current gas system development framework is based on a cost-plus approach, which does not provide sufficient incentives for gas companies to reduce costs and improve efficiency. The recommended gas system development framework involves the introduction of a revenue cap, which would allow gas companies to earn a reasonable return on investment while also providing incentives for cost reduction and efficiency improvement. In conclusion, the gas sector reform in Bosnia and Herzegovina requires significant changes to the current legislation, regulation, and arrangements. The recommended reforms involve the establishment of a competitive and efficient gas market, with the introduction of a revenue cap, clear and transparent licensing procedures, and a capacity allocation mechanism that takes into account the needs of different market participants.