SOL-168-14-000011_-_Energy_Investment_Activity.pdf

July 2, 2014

TO: Prospective Offerors

SUBJECT: Request for Proposal No.: SOL-168-14-000011

Energy Investment Activity

The United States Agency for International Development (USAID), through the Mission in Bosnia and

Herzegovina, intends to award a Cost-Plus-Fixed Fee Completion contract to implement the Energy

Investment Activity in Bosnia and Herzegovina. Please note this is a new procurement and not a follow-on to previous work.

Please note this solicitation is the re-issuance of previous solicitation (SOL-168-14-000005) for the activity of the same title. Offerors who previously submitted proposals and do not intend to make revisions are not required to resubmit their proposals. USAID will consider their original submission.

This solicitation is subject to amendment at any time. Any amendments to this solicitation will be issued and posted on the Federal Business Opportunities (FedBizOpps) website. In order to be informed of changes that may affect proposal preparations, Offerors are encouraged to check this website

(http://www.fedbizopps.gov ) periodically. It is the responsibility of the prospective Offerors of this solicitation to ensure the solicitation has been received from the internet in its entirety. USAID bears no responsibility for data errors resulting from transmission or conversion processes.

Offerors must carefully adhere to Section L – Instructions to Offerors and Section M – Evaluation Factors for Award. Section B through J of the solicitation will become the basis for the final contract, if any. Any blanks or “TBD” in Sections A-J will be completed by the Contracting Officer before award.

This RFP in no way obligates the United States Government to pay any cost incurred in preparing and submitting your proposal. In addition, the Government reserves the right to reject any and all offerors, if such action is considered in the best interest of the Government. Furthermore, the Government reserves the right to make an award with or without discussions.

http://www.fedbizopps.gov/

Request for Proposal No.: SOL-168-14-000011

Energy Investment Activity in Bosnia and Herzegovina

PART I—THE SCHEDULE

SECTION B—SUPPLIES OR SERVICES AND PRICES/COSTS

B.1 Purpose

B.2 Contract Type

B.3 Estimated Cost, Ceiling Price, Fixed Fee, and Obligated Amount

B.4 Price Schedule

B.5 Indirect Costs

B.6 Ceiling on Indirect Cost Rates

B.7 Cost Reimbursable

B.8 Payment of Fixed Fee - FAR § 52.216-8, “Fixed Fee,”

SECTION C—STATEMENT OF WORK

C.1 Executive Summary

C.2 Investment Potential and Problem Statement

C.3 Objectives and Illustrative Interventions

C.4 Relationship to the CDCS and applicable agency policies

C.5 USAID Achievements in the Energy Sector to date

C.6 Other Donors in the Energy Sector

C.7 Methodologies

C.8 Monitoring, Evaluation and Learning

C.9 Critical Assumptions and Risks

C.10 Cooperation with Other USAID and USG Initiatives

SECTION D—PACKAGING AND MARKING

D.1 MARKING

D.2 BRANDING STRATEGY

D.3 BRANDING AND MARKING POLICY

SECTION E—INSPECTION AND ACCEPTANCE

E.1 Notice Listing Contract Clauses Incorporated by Reference

E.2 Inspection and Acceptance

SECTION F—DELIVERIES OR PERFORMANCE

F.1 Notice Listing Contract Clauses Incorporated by Reference

F.2 Period of Performance

F.3 Place of Performance

F.4 Performance Standards

F.5 Key Personnel

F.6 Authorized Work Day/Week

F.7 Periodic Progress Reports

F.8 Reports

F.8.1 Reports Submission Schedule

F.8.2 Annual Work Plans

F.8.3 Monitoring and Evaluation (M&E) Plan

F.8.4 Quarterly Performance Reports

F.8.5 Quarterly Financial Report

F.8.6 Quarterly Accrual Report

F.8.7 Annual Summary Report

F.8.8 Demobilization Plan

F.8.9 Completion Report

F.8.10 Submission of Development Experience Documents

F.9 Evaluation

F.10 Audit

F.11 Deliverables

SECTION G—CONTRACT ADMINISTRATION DATA

G.1 Administrative Contracting Office

G.2 Contracting Officer’s Authority

G.3 Contracting Officer’s Representative

G.4 Technical Direction

G.5 Acceptance and Approval

G.6 Paying Office

G.7 Documentation of Payment

G.8 Invoicing Instructions

G.9 Accounting and Appropriation Data

SECTION H—SPECIAL CONTRACT REQUIREMENTS

H.1 Notice Listing Contract Clauses Incorporated by Reference

H.2 Language Requirements

H.3 Emergency Locator Information

H.4 Source and Nationality Requirements

H.5 Authorized Geographic Code

H.6 Worker’s Compensation Insurance (Defense Base Act)

H.7 Defense Base Act Insurance and Services

H.8 Medical Evacuation (MEDEVAC) Services

H.9 USAID Disability Policy—Acquisition (DEC 2004)

H.10 Reporting of Foreign Taxes (JUL 2007)

H.11 Personnel Compensation

H.12 Additional Requirements for Personnel Compensation

H.13 Salary Supplements for Host Government (HG) Employees

H.14 International Travel Approval and Notification Requirements

H.15 Leave and Holidays

H.16 Employment Costs of TCNs and CCNs

H.17 Nonexpendable Property Purchases

H.18 Information Technology Resources

H.19 Management of Information Technology Resources

H.20 Title to and Care of Property

H.21 Government Furnished Facilities or Property

H.22 Logistic Support

H.23 Contractor-Mission Relationships

H.24 Disclosure of Information

H.25 Organizational Conflicts of Interest

H.26 Organizational Conflicts of Interest Discovered After Award

H.27 Executive Order on Terrorism Financing

H.28 Foreign Government Delegations to International Conferences

H.29 Environmental Compliance

H.30 Standards of Conduct—Improper Business Practices

H.31 Consent to Subcontract

H.32 Nondiscrimination (JUNE 2012)

H.33 Prohibition on the Use of Federal Funds to Promote, Support, or Advocate the Legalizations or Practice of Prostitution – Tip Acquisition (May 2007)

PART II—CONTRACT CLAUSES

SECTION I—CONTRACT CLAUSES

I.1 Notice Listing Contract Clauses Incorporated by Reference

I.2 52.203-17 Contractor Employee Whistleblower Rights and Requirement to Inform

Employees of Whistleblower Rights (Apr 2014)

I.3 52.232-40 Providing Accelerated Payment to Small Business Subcontractors (Dec 2013)

I.4 52.252-2 CLAUSES INCORPORATED BY REFERENCE (FEB 1998)

PART III—LIST OF DOCUMENTS, EXHIBITS, AND OTHER ATTACHMENTS

SECTION J—LIST OF ATTACHMENTS

PART IV—REPRESENTATIONS AND INSTRUCTIONS

SECTION K—REPRESENTATIONS, CERTIFICATIONS, AND OTHER STATEMENTS OF

OFFERORS

K.1 Notice Listing Contract Clauses Incorporated by Reference

K.2 52.204-8 Annual Representations and Certifications (JAN 2014)

K.3 52.209-7 Information Regarding Responsibility Matters (JUL 2013)

SECTION L—INSTRUCTIONS, CONDITIONS, AND NOTICES TO OFFERORS

L.1 52.252-1 Solicitation Provisions Incorporated by Reference (FEB 1998)

L.2 Notice Listing Contract Clauses Incorporated by Reference

L.4 52.216-1 Type of Contract (APR 1984)

L.5 52.233-2 Service of Protest (SEP 2006)

L.6 Acquisition Schedule

L.7 General Instructions to Offerors

L.7.1 Electronic Submission Procedures for the Technical and Cost Proposals

L.7.2 Hard Copy and CD-ROM Submission Procedures for the Technical and Cost Proposals

L.8 Instructions for the Preparation of the Technical Proposal

L.8.1 Technical Approach

L.8.2 Draft Monitoring and Evaluation Plan

L.8.3 Management Approach

L.8.4 Key Personnel Qualifications and Experience

L.8.5 Past Performance

L.9 Instructions for the Preparation of the Cost Proposal

L.9.1 Part 1—Standard Form 33

L.9.2 Part 2—Proposed Costs/Price

L.9.3 Part 3—Representations, Certifications, and Other Statements of Offerors

L.9.4 Part 4—Policies and Procedures

L.9.5 Part 5—Evidence of Responsibility for prime and major subcontractor

L.9.6 Part 6—Letters of Commitment (Subcontractors)

L.9.7 Part 7—Information to Support Consent to Subcontractors

L.9.8 Part 8—Joint Venture

L.10 Instructions for the Preparation of the Branding Implementation Plan and the Marking Plan

SECTION M—EVALUATION FACTORS FOR AWARD

M.1 Award Without Discussions

M.2 Source Selection

M.3 Determination of Competitive Range

M.4 Technical Proposal Evaluation Factors

M.4.1 Technical Approach– 35 points

M.4.2 Draft Monitoring and Evaluation Plan – 15 points

M.4.3 Management Approach– 10 points

M.4.4 Key Personnel Qualifications and Experience – 30 points

M.4.5 Past Performance –- 10 points

M.5 Evaluation of Cost Proposals

Attachment J.1

Attachment J.2

Attachment J.3

Attachment J.4

Attachment J.5

Attachments J.6, J.7 and J.8 attached separately

PART I—THE SCHEDULE

SECTION B—SUPPLIES OR SERVICES AND PRICES/COSTS

B.1 Purpose

The Economic Development Office (EDO) in the United States Agency for International Development’s

(USAID) Mission in Bosnia and Herzegovina (BiH) requires technical services to implement the Energy

Investment Activity in BiH. The overall goal of the project is to enhance opportunities for generation investment in Bosnia and Herzegovina’s (BiH) energy sector. The objectives are to achieve better coordination, management, and transparency at all levels of BiH’s regulatory framework, a simplified energy investment environment, and targeted technical assistance to integrate BiH’s energy sector into regional and EU markets.

B.2 Contract Type

USAID will award a Cost-Plus-Fixed-Fee Completion Contract. For the consideration set forth in the contract, the contractor must provide the deliverables and results described in Section C and Section F (to be incorporated at contract award). The contractor must also comply with all other contract requirements.

B.3 Estimated Cost, Ceiling Price, Fixed Fee, and Obligated Amount

USAID estimates the following price range for this contract: $4,500,000-5,500,000.

(a) The estimated cost for the performance of the work required hereunder, exclusive of fixed fee, if any, is TBD. The fixed fee, if any, is TBD. The estimated cost plus fixed fee, if any, is TBD.

(b) Within the estimated cost plus fixed fee (if any) specified in paragraph (a) above, the amount currently obligated and available for reimbursement of allowable costs incurred by the Contractor (and payment of fee, if any) for performance hereunder is TBD. The Contractor shall not exceed the aforesaid obligated amount.

(c) Funds obligated hereunder are anticipated to be sufficient through TBD.

B.4 Price Schedule

Cost Category Amount

Labor TBD

Fringe Benefits TBD

Travel & Per Diem TBD

Allowances TBD

Subcontracts TBD

Equipment & Supplies TBD

Other Direct Costs TBD

Subtotal Direct Costs TBD

Labor Overhead TBD

G&A TBD

Fixed Fee TBD

Total Estimated Cost-Plus-Fixed-Fee TBD

(a) The inclusion of any costs in the above budget does not obviate the requirement for prior approval by the contracting officer of cost items designated as requiring prior approval by any of the terms and conditions of this contract, including the applicable cost principles (see FAR §

52.216-07, “Allowable Cost and Payment”); nor does it constitute a determination of allowability by the contracting officer of any item of cost, unless specifically stated elsewhere in this contract.

Also, these amounts may not be adjusted without a written modification signed by the contracting officer. The contractor will not bill any amounts against this contract in excess of the amounts specified for each line item.

(b) The contractor agrees to furnish data that the contracting officer may request on costs expended or accrued under this contract in support of the budget information provided herein.

B.5 Indirect Costs

For the Prime Contractor:

(a) Pending establishment of revised provisional or final indirect cost rates, USAID will reimburse allowable indirect costs on the basis of the following negotiated provisional or predetermined rates and the appropriate bases pursuant to the contractor’s current executed Negotiated Indirect

Cost Rate Agreement:

Description Rate Base Type Period

% 1/ 1/ 1/

1/Base of Application:

Type of Rate:

Period:

(b) The contractor will make no change in its established method of classifying or allocating indirect costs without the prior written approval of the contracting officer.

For Major Subcontractor(s)*:

(a) Pending establishment of revised provisional or final indirect cost rates, USAID will reimburse allowable indirect costs on the basis of the following negotiated provisional or predetermined rates and the appropriate bases pursuant to the contractor’s current executed Negotiated Indirect

Cost Rate Agreement:

% 1/ 1/ 1/

*“Major Subcontractors” are those subcontractors whose proposed cost exceeds 25% of the offeror’s total proposed cost.

B.6 Ceiling on Indirect Cost Rates

For the Prime Contractor:

(a) Reimbursement for indirect costs will be at the lower of the negotiated final (or predetermined) rates or the following ceiling rates:

Indirect Cost X % 1/ 1/ 1/

Indirect Cost Y % 2/ 2/ 2/

Indirect Cost Z % 3/ 3/ 3/

2/Base of Application:

3/Base of Application:

(b) The Government will not be obligated to pay any additional amount should the final indirect cost rates exceed the negotiated ceiling rates. If the final indirect cost rates are less than the negotiated ceiling rates, the negotiated rates will be reduced to conform to the lower rates.

(c) This understanding will not change any monetary ceiling, obligation, or specific cost allowance or disallowance. Any changes in classifying or allocating indirect costs require the prior written approval of the Contracting Officer.

For Major Subcontractor(s):

(a) Reimbursement for indirect costs will be at the lower of the negotiated final (or predetermined) rates or the following ceiling rates:

Indirect Cost X % 1/ 1/ 1/

Indirect Cost Y % 2/ 2/ 2/

Indirect Cost Z % 3/ 3/ 3/

2/Base of Application:

3/Base of Application:

(b) The Government will not be obligated to pay any additional amount should the final indirect cost rates exceed the negotiated ceiling rates. If the final indirect cost rates are less than the negotiated ceiling rates, the negotiated rates will be reduced to conform to the lower rates.

(b) This understanding will not change any monetary ceiling, obligation, or specific cost allowance or disallowance. Any changes in classifying or allocating indirect costs require the prior written approval of the Contracting Officer.

B.7 Cost Reimbursable

(a) The U.S. dollar costs allowable will be limited to reasonable, allocable, and necessary costs determined in accordance with FAR § 52.216-7, “Allowable Cost and Payment,” FAR § 52.216-

8, “Fixed Fee,” FAR § 52.232-20, “Limitation of Cost,” and FAR § 52-232-22, “Limitation of

Funds,” if applicable, and AIDAR 752.7003, “Documentation for Payment.”

B.8 Payment of Fixed Fee - FAR § 52.216-8, “Fixed Fee,”

The Government shall pay the same percentage of fixed fee billed in relation to the total fixed fee as the percentage of direct costs billed is to the total direct costs.

END OF SECTION B

SECTION C—STATEMENT OF WORK

C.1 Executive Summary

Engagement in BiH’s energy sector is a priority for US foreign development assistance given its economic significance and its key relevance for BiH’s European Union (EU) accession and European energy security. Energy sector reform is also paramount to strengthen transparency, reduce corruption, advance EU accession, and promote European energy security.

With BiH exports covering less than 50 percent of imports and a double-digit current account deficit

BiH is highly dependent on selected sectors that have shown the capability to generate exports; one of the most important export sectors is the energy sector. While BiH is currently exploiting its comparative advantage in the energy sector, at present it is merely scratching the surface. BiH’s electricity sector can be one of the country’s main growth engines.

Estimates are that BiH has the potential to at least double its current electricity production through both the development of its hydro-electrical potential, renewable energy and possibly through the construction of additional thermal power plants. The opening of the regional electricity market in South East Europe

(SEE) constitutes an opportunity for BiH to take advantage of its strong regional position in electricity generation. BiH exports are also important for regional and EU energy security.

Unfortunately, very little of BiH’s vast energy potential has been realized over the past years due to the unfriendly business/investment environment in the country. Without an investor-friendly legal framework, BiH will eventually cease electricity exports and become a net importer. A transparent and investor-friendly legal and regulatory environment will accelerate BiH’s economic development.

Electricity generation can be a very important driver of BiH’s economic development.

The development of transparent, consistent and comprehensive energy investment legislation will attract investors and ensure investment follow-through. To meet its future energy needs, maximize its export potential and make the sector attractive for private investors, BiH has to remove legislative obstacles, including shortening development timeframes, modifying conflicting regulations, and improving transparency of the investment process.

To address the above, USAID’s Economic Development Office (EDO) designed the Energy Investment

Activity.

The purpose of Energy Investment Activity is to increase investments in the energy sector in BiH and advance the BiH accession process related to energy requirements.

BiH Economic Trends, Report 2012.

Bosnia and Herzegovina Energy Snapshots

The total revenue generated from electricity exports: $ 142 million (KM 200 million).

There are four objectives with four results that support the Energy Investment Activity purpose, each detailed below:

Objective 1: Address impediments to investment in the energy sector in BiH.

Results for Objective 1: Value of new investments in the energy sector increased;

Objective 2: Address Retail Market Deficiencies in BiH, and contribute to single economic space in BiH

Result for Objective 2: Energy retail market in BiH is functional, where customers can choose their suppliers irregardless of their location.

Objective 3: Achieve energy savings in BiH, using regulatory incentives

Result for Objective 3: Energy saved as a result of EE incentives, demand measures and introduced improvements

Crosscutting- Objective 4: Advance EU accession requirements in the energy sector for BiH

Cross cutting result: Action Plan to implement the Third Liberalization Package (in relation to the above components) will be adopted.

Energy Investment Activity will have systemic impact on three key levels:

Investment impact: BiH needs new investments in the electricity sector in order to remain an electricity exporter. BiH’s electricity sector is one of the country’s main growth engines. The development of transparent, consistent and comprehensive energy investment legislation and regulations in BiH will help stimulate new electricity generation investment, mitigate corruption, and promote European energy security. This will include a particular focus on renewable energy sources, where BiH has a comparative advantage and can at least double its existing generation potential.

A single economic space: The establishment of a single functional electricity retail market, in which customers will be able to negotiate contracts with the most competitive supplier (regardless of their location), will contribute to a single economic space in BiH. In addition, this will also make the energy sector overall more attractive for investors, as customers will negotiate contracts on competitive terms rather than location. This will also contribute to a more favorable investment climate in BiH and increased energy investment.

EU accession: By implementing select recommendations from the Energy Community Treaty, BiH will make progress related to the EU accession requirements. The Energy Community

Treaty defines a broad set of requirements, and our assistance in this area will be focused only on select areas, consistent with USAID’s principle of focus and selectivity, and coordination with other donors (specifically our assistance will complement the EC assistance that will take the lead in this area). In addition, BiH will implement the EU Directive on reducing CO2 emissions, recommended by the Energy Community Treaty.

C.2 Investment Potential and Problem Statement

Analysis of BiH Electricity Exports Potential and Investments

BiH possesses significant potential for electric-power hydro and thermal generation. The country’s sources of power are generally balanced between thermal and hydro (the last five years' average is 60% and 40% respectively). BiH’s coal reserves amount to over 5 billion tons. The available hydro potential is estimated at approximately 7330.5 GWh with 1813 GWh from small hydro-power plants (HPP). Other estimated renewables reserves are solar with 70.5 GWh/year, wind 900-2000 MW, geothermal 90.2 MWt, and biomass estimated at 1 million m3/year.

In order to keep its leading position as an electricity exporter, BiH needs new investment in power plants.

The existing power plants must be replaced with new units or modernized, while existing capacity needs to be increased. The current installed capacity in the country’s power sector is estimated at 4,000 MW and offers great investment opportunities through maintenance, upgrades and modernization projects.

To address this issue, the two entities developed energy strategies in 2009 and 2011 that planned the building of a number of new power plants. At the time, local governments had embarked on ambitious new plans to modernize existing capacity and build substantial new capacity with the goal of BiH assuming a leading position for electricity generation in the region.

All three utilities, as well as some local and international investors, have announced plans for investment in 32 new power plants (thermal 2.830 MW, hydro 1716 MW and wind 610 MW) from 2006-2020. The investment programs included a number of development projects based on coal, hydro and renewable energy sources. There were seven projects that included coal-fired thermal power generation plants with a potential incremental capacity of 3,450 MW. These projects included both the rehabilitation and expansion of existing facilities and the construction of new coal mines and power generation plants.

According to the Sarajevo consulting company Energis, the theoretical potential of hydropower in Bosnia and Herzegovina was calculated at 8000 MW, the technical potential at 6800 MW and the economic potential at 5600 MW. With an installed capacity of 2056 MW (56% of the total installed capacity), hydropower is highly significant in Bosnia and Herzegovina, although its potential is far from being fully exploited. (To date, only 37% of hydro's economic potential has been exploited.)

The planned projects also included 15 new large and small hydropower projects and four rehabilitation and expansion projects. In addition, over 400 micro locations had been identified for the potential construction of mini hydro power plants. Also, ambitious plans for the rehabilitation of the transmission and distribution networks were announced, with an estimated investment value in the development and rehabilitation of the network reaching Euro 379 million by 2020.

Problem Statement

No new major investment has occurred because local primary and secondary legislation is complex and opaque, with overlapping jurisdictions between different government layers.

Despite opportunities, from 2006 to 2013 no new power plants have been built nor have any concrete plans for any new power plants been made. There are many different reasons for this, but one key issue is legislation and regulation related to the permitting and construction of generation plants. Although at the beginning of this period, there were several serious investors interested in building new power plants, all of them discontinued their plans and exited the country due to the legislative and regulatory obstacles they found. In addition, as a consequence of non-transparent and complex BiH procedures at all levels of government (municipal, cantonal, entity and state), two investors accused BiH of noncompliance with the contracts provisions and requested compensation of more than $142 million (KM 200 million).

Specifically, regarding new investments in the energy sector, the authorization procedures for new investments in power generation and rules for tendering in all three entities are only partially addressed in primary legislation and are not compliant with the EC Energy Directive 2003/54/EC. In the RS, the authorization for the construction of new generation capacities is provided by RERS. However, there are no provisions for tendering of new capacity in the RS Electricity Law. In the F BiH, the newly adopted F

BiH Law on Electricity (from 2013) improves treatment of new generation capacity authorization.

Still, the FBiH Government has yet to adopt the necessary regulation on this matter. There is still no single independent authority and the permits are issued by the Energy Ministry, in most cases subject to approval by the FBiH Government. Tendering for new capacity is treated in a similar manner. In the

Brcko District there are no rules in place for new generation capacity authorization.

Corruption is rife across all economic sectors, but particularly in the energy sector due to the high cost of energy infrastructure. The more opaque and unclear the legislation and regulation, the more opportunity there is for various interests to profit illicitly from investment in power plants. Potential investors enter and then leave BiH because of these opaque investment processes. Since local companies and banks do not have the funds to finance large investment projects, existing energy legislation and rules must be revised to make them transparent, nondiscriminatory and investor-friendly in order to attract investors from industrial countries with their respective funding options.

EU accession and Energy Community Treaty and BiH obligations

The Energy Community Treaty represents BiH's agreement related to the EU accession process. The reform and restructuring of the energy sector is one of 16 key areas under the SAA.

The most recent Energy Community Treaty Annual Report, determined that BiH made some progress in the power sector but further steps are needed to comply fully with certain obligations under the

Energy Treaty, including the Third Liberalization Package, which has yet to be fully undertaken and transposed.

If the energy reforms are not implemented and regulations remain non-compliant with EC directives, BiH faces a gloomy scenario. For example, if BiH fails to meet the Energy Community Treaty-mandated

January 2015 deadline for market opening, this will send negative signals to potential investors that BiH’s is not able to meet international standards of good governance. Further investments in the energy sector will not materialize. Investments in renewables will most likely cease or be severely reduced.

Consequently, BiH would drift further away from the EU 2020 goals, particularly in renewable energy sources.

Eventually, the BiH generation capacities would gradually diminish and, by 2020, BiH would lose its energy surplus and its status as a regional energy exporter. As a result, energy prices for the domestic population would most likely rise, causing additional social unrest.

Transparency International’s Analyses on Cooperation Between RS Government, RiTE Gacko and CEZ Group

They are CEZ Group and Holding Slovenske Elektrane (HSE). While CEZ initiated the process officially, HES announced intention to do it.

Annual Implementation Report, Energy Community Secretariat, September 1, 2013

C.3 Objectives and Illustrative Interventions

The purpose of Energy Investment Activity is to increase investments in energy sector in BiH and advance BiH accession process related to energy sector requirements.

There are four objectives that support this purpose, each detailed below:

Objective I Address impediments to increased investment in the energy sector

Objective II: Address Retail Market Deficiencies in BiH

Objective III: Achieve energy savings in BiH, using regulatory incentives

Objective IV/cross cutting: Advance EU accession requirements in the energy sector

To achieve Energy Investment Activity objectives, the Contractor will undertake the four objectives/components, as below:

Component 1: Address impediments to increased investment in the energy sector

The core focus of this component is to identify and address obstacles in legislation and regulation that impede investment in the energy sector, with the focus on investment in renewables-fueled power plants.

In order to create an investor-friendly environment for building new power plants, BiH should eliminate regulatory and administrative inefficiencies that deter transparent investments. The first step requires a comprehensive assessment of existing laws and regulations. Following this, TA will be provided to result in improved laws and regulations, streamlined permitting process for investors to build new generation facilities, and simplified guidelines for energy sector investors.

In addition, the elimination of regulatory and administrative inefficiencies will also open up potential linkages between renewable electricity generation and other economic sectors such as agriculture, wood processing, and livestock farming (where discharge from these industrial sectors has also renewable potential) .

The activities will include but not be limited to:

1. Assess state, entity, cantonal and municipality laws and regulations regarding investment procedures to determine, inefficiencies, overlaps and gaps. Following this comprehensive assessment, work closely with governments, local communities, NGOs, investors and regulatory commissions to draft revised laws and regulations; Streamline the permitting process for investors to build new generation facilities; Develop and assist the partners to implement simplified guidelines for energy sector investors;

2. Identify the linkages between electricity generation and waste products in agriculture, wood processing, livestock farming and recommend measures to stimulate investment in renewables power plants;

Overall Results for Component 1: Value of new investment in the energy sector increased;

Result 1.1.1: Energy sector regulations and administrative procedures for a transparent and investor-friendly energy sector environment, developed and submitted for adoption;

Result 1.1.2: Simplified guidelines for energy investors developed and implemented, Result 1.1.3: Increased investor and government knowledge and transparency related to procedures necessary to obtain approval to invest in new generation facilities

Result 1.2: Linkages between electricity generation and agriculture, wood processing and livestock farming and other relevant sectors developed to promote investment opportunities in new renewable power plants.

Component 2: Address Retail Market Deficiencies in BiH

At present, electricity customers in BiH pay different tariffs, depending on the distribution area in which they are located. The differences between tariff customer’s categories are quite large. This represents an economic loss.

For example, at present, a customer/investor from Western Herzegovina that is currently supplied by EP

HZHB cannot choose the EPRS as its supplier, even though this option would be better for the customer/investor. As a result, the customer connected to the 10 kV network supplied by EP HZHB pays more than KM 5 million more per year than they would have paid were if they supplied by

EPRS. If the retail market in BiH is fully functioning, the customers could choose to be supplied by

EPRS at a lower price, which would result in lower electricity costs for the customer/investor (For more details, please see attached table).

Earlier USAID technical assistance recommended rules, provisions and regulations that the three regulatory commissions in BiH should develop and implement in order to make the retail market functional. However, additional technical assistance is needed, along with USAID’s ongoing

Regulatory Partnership activity, to ensure that the retail market in BiH becomes fully functional. This component will work to ensure that sufficient retail market opening occurs, so all customers/investors will be able to negotiate contracts with the most competitive supplier, irregardless of their location.

There are a number of steps that still need to be taken by the regulatory commissions and market players in order to finalize retail market processes and create conditions for its establishment. Specifically, the

Distribution System Operator (DSO) is a crucial market facilitator in this area: its processes and roles have to be developed, assigned and made operational. In addition, the Balancing Market must be established so any independent supplier can enter the market. Also, the Balancing Market’s harmonization with regional rules and practices is important for BiH’s participation in the regional balancing market. Finally, integration of renewables into the electricity market is a key technical and economic issue that must be resolved through appropriate rules and guidelines.

1. Provide TA to establish DSOs as independent retail market facilitators; including their ability to develop metering and other data exchange procedures and standards;

2. Provide TA to develop balancing settlement methodology and procedures for internal and regional markets, as relevant;

3. Provide TA to develop rules on quality standards for market participants;

4. Identify obstacles and develop recommendations for integration of renewables in the electricity market.

Results -Component 2: Overall Result for Component 2- energy retail market in BiH is functional

(this will allow customers to select the most optimal supplier for provision of energy regardless of location).

Result 2.1: Distribution System Operator (DSO) as an independent market facilitator functional;

Result 2.2: Rules for a balancing settlement mechanism for the retail market developed and implemented, including regional market access;

Result 2.3: Rules on quality standards for DSOs and suppliers developed and adopted.

Result 2.4: Developed and adopted guidelines for integration of renewables into the electricity market.

Component 3: Achieve energy savings in BiH, using regulatory incentives

The EU Energy Community Treaty directive requires countries to set up an energy efficiency schemes.

These schemes require that all energy distributors and all retail energy sale companies achieve annual energy savings. The regulatory commissions need to develop rules, methodologies and measures to implement this directive by including energy efficiency goals in their decisions.

Specifically, the regulators should ensure that network tariffs and regulations provide incentives for operators to offer services to network users to implement energy efficiency improvement measures.

Through relevant regulatory incentives, the demand side for energy efficiency measures is fostered.

The importance of energy efficiency (EE) for BiH is described in the following document which bidders should review “The Regional Energy Security and Market Development - Strategic Planning Component

Investment Requirements and Benefits Arising from Energy Efficiency and Renewable Energy Policies in

Selected Energy Community Countries: BOSNIA AND HERZEGOVINA”.

This strategy outlines the advantages of implementing the scenario where both increased energy efficiency measures and renewable energy investments are implemented in BiH and which will result in increased electricity exports by 7.9%, increased use of domestic renewable energy sources, lower fuel costs, savings of EURO 2.3 billion, and reduction of CO2 by 4.89%.

Based on this strategy, the Energy Treaty recommendations and host country input, the contractor will develop a number of actions to introduce a demand-side EE incentive structure focused on all participants in the energy market in BiH.

Finally, in the EE area, the power utilities in BiH need to develop an action plan to fulfill their obligations regarding compliance with the EU Directives on Large Combustion Plants, which is a recommendation for EU member states.

The activities will include but not be limited to:

1. Identify specific actions for introduction of energy efficiency improvements in the network, including specific regulatory incentives,

2. Provide TA to host country partners to adopt a phased plan to reduce large combustion plant emissions, as recommended by the Energy Community Treaty and incorporated in EU Directives;

3. Provide TA to advance the regulators role in the energy efficiency obligation scheme(s).

Overall Result for Component 3: Energy saved as a result of EE incentives, demand measures and introduced improvements

Result 3.1: Energy Efficiency obligation schemes drafted and delivered to regulators, Distribution

System Operators (DSOs) and suppliers for adoption;

Result 3.2: Action plan to meet the obligations from the EU Directive on Large Combustion

Plants developed and adopted. Capacity of governments, regulatory commissions and power utilities developed to implement the Action Plan in compliance with the Directive on Large

Combustion Plants;

Result 3.3: Regulatory documents revised to prescribe regulators’ role in the energy efficiency obligation scheme; and the system developed for energy savings implemented by regulatory commissions.

Cross-cutting/Component 4-Advancing EU requirements

The Energy Community Treaty represents BiH's main agreement currently in force with EU acquis-requirements. The reform and restructuring of the energy sector is one of 16 key areas under the SAA.

The core focus of this cross-cutting component is to assist MOFTER and host country partners to transpose and implement Energy Community Treaty decisions related specifically to the above three components.

BiH is required to harmonize its laws and regulations with the EU’s Third Liberalization Package. Since the EU continuously monitors electricity market operations, participating countries in the Energy

Community Treaty need to undertake the necessary steps to improve their functional integration, including implementation of new directives and rules. The MOFTER will need advice and assistance to undertake actions to implement new EU Directives resulting from the Energy Community Treaty

Ministerial Council. The EU’s Third Liberalization Package is a broad set of requirements, and our assistance in this area (wherever possible) will be focused only on areas identified in the above three components. This is consistent with USAID’s principle of focus and selectivity, and coordination with other donors, specifically the EC, which will take the lead in providing assistance to BiH to implement the Third Liberalization Package.

1. Provide TA to MOFTER and host country partners to advance implementation of the Third

Liberalization Package in relations to all the above components

Cross cutting result: Action Plan to implement the Third Liberalization Package (in relation to above components) adopted.

All of the above activities are only illustrative, and the Contractor in its technical approach will clearly describe the proposed activities focused on all four components. In their technical approach, the bidders should provide sufficient detail on the design, plan and implementation of their recommended technical assistance directed at key stakeholders.

C.4 Relationship to the CDCS and applicable agency policies

U.S. Mission Strategic Plan: The 2012-2016 CDCS for the US Mission in BiH identified economic growth and the strengthening of economic aspects of governance relevant to the business environment and private sector development as key foreign policy priorities for the United States Government (USG) in the country. As stated in the USAID CDCS for BiH, BiH needs to improve competitiveness and productivity, attract investment and make economic policy reforms. Economic growth provides the material basis for progress in all other dimensions of development and long-term stability.

Linkages with the Results Framework: Development hypothesis: “An economy with competition and based on market forces will result in new and better enterprises and ideas that lead to more jobs and opportunities. Private sector-driven economic growth provides the only means for a country to generate public and private resources it needs to address development challenges on its own and emerge from dependence on foreign aid. Economic growth provides the material basis for progress in all other dimensions of development and long‐term stability.” The planned Activity falls under Development

Objective 2: Economic Growth/Economic Opportunity, as identified in the 2012-2016 USAID/BiH

Country Development Cooperation Strategy. The proposed Activity will be implemented under the

Project Appraisal Document (PAD) Improving Economic Governance (IEG) Program. The tasks that will be implemented under this Activity will directly support Intermediate Result (IR) 2.2

“Improved economic aspects of governance relevant to business activity,” with a focus on Sub IR

2.2.1 “Regulations and policies which foster a single economic space and private sector development and investment.” This IR was envisioned to improve business-relevant strategies and policies that will stimulate economic growth and attract investment. Regulatory and policy reform assistance proposed under this Activity will address harmonization of energy regulations and procedures in the energy arena across Entities and with the State according to the EC Energy Directives.

In line with the QDDR and USAID Forward: This Activity has a strong focus on innovation and science and new technologies. Moreover, it is important to note that this Activity supports QDDR and

USAID Forward, by enabling and building local sustainability, improved standards and a better investment and business climate, thereby directly contributing to the USAID Forward Agenda.

This Activity will also support the Presidential Global Climate Change (GCC) Initiative as envisioned in USAID’s Climate Change and Development Strategy 2012-2016 (CCDS). In addition, this Activity will be in line with USAID and State Department programming guidance for GCC/Clean energy funds.

Development Objective and Crosscutting Linkages: The proposed Activity, implemented under PAD

2.2, Improving Economic Governance (IEG) Program is designed to address critical needs identified in

BiH’s CDCS. The overarching objective of this economic development program will indirectly address a number of crosscutting initiatives: 1) inter-ethnic reconciliation by supporting state and entity-level economic institutions that promote a single economic space through regulatory and legislative harmonization; 2) improved business enabling environment; and 3) anti-corruption measures by simplifying procedures and regulations, and reducing opportunities for regulatory abuse that deter private sector development. The activity will also leverage USAID funded projects for strengthening BiH’s

Parliament(s), and the relevant departments from the US Embassy in Sarajevo (Economic and Political

Sections) to facilitate rapid and smooth adoption of the regulations and policies targeted by this project.

USAID/Bosnia and Herzegovina’s Country Development Cooperation Strategy for 2012-2016.

C.5 USAID Achievements in the Energy Sector to date

USAID Regulatory and Energy Assistance Project (REAP) $7.4 assistance from 2007 to 2013, and its activities built upon USAID progress in achieving the physical restoration of the system and the initiation of sector reforms necessary to meet the future needs of BiH economic and social development. REAP was originally envisioned to work in two main directions: 1) fully integrating the BiH energy sector into the regional and EU markets, and 2) implementing Action Plans resulting in the eventual privatization of the energy companies. The contract’s extension added a third component titled “Establishing a regulatory partnership in cooperation with the National Association of Regulatory Utility Commissioners

(NARUC),” but due to severe funding restrictions in 2011, this activity was cancelled to be reinstated by the USAID Mission Director outside of REAP in 2013.

As a result of USAID efforts, the BiH electricity system now consists of an independent transmission company (Transco), which operates and maintains the high-voltage transmission system throughout BiH.

Previously, this was the domain of three separate power systems in the country. USAID-led energy reforms efforts also helped create an Independent System Operator, which is responsible for operating the transmission system. Furthermore, independently functioning regulatory regimes are now established in

BiH. With USAID technical assistance, a new FBiH Law on Electricity was published in August

2013. The adoption of this Law represents the fruits of a two-year effort undertaken by the FBiH Ministry of Energy and USAID REAP, which developed the draft electricity law to include the provisions that reflect the EU Directives as required by the Energy Community Treaty. The Law also mandates the unbundling of the power utilities, development of an electricity policy and strategy, and strongly emphasizes the independence of the regulator.

Performance Evaluation of the Regulatory and Energy Assistance Project (REAP)

The main purpose of the REAP final performance evaluation, in June 2013, was to provide USAID/BiH with an objective analysis of USAID assistance to BiH’s energy sector under the REAP project. Key evaluation questions focused on whether the project contributed to the enhancement of practices and understanding in BiH’s energy sector, which was aimed at assisting relevant BiH institutions in meeting the provisions of the Energy Community Treaty. The Independent Evaluators Team found that REAP led to significant progress on BiH’s integration into the EU electricity market.

USAID/BiH Energy Efficiency (EE) Efforts

USAID/BiH has been involved in energy efficiency initiatives since 2010 through EDO’s Enterprise

Energy Efficiency (3E) Project, which worked to promote and expand the use of clean, safe and affordable EE technologies and methodologies in BiH, and to eliminate or reduce barriers of EE implementation. This project is scheduled to end in May 2014, with an estimated ceiling of $4.5 M.

USAID 3E has established exemplary mechanisms that serve as demonstration models and assist in reducing obstacles to introducing EE measures into the existing pool of residential and non-residential building units.

USAID has developed exceptional cooperation with UNDP, the EC and GIZ to strengthen cooperation in the field of energy efficiency in BiH. This has been achieved through the signing of the first MOU on EE with UNDP and GIZ in December 2010, and a signing of the second EE MOU in December 2012 adding the EU. The MOU has been a basis for harmonizing donor efforts to avoid overlap and enable all four donors to scale up their activities in energy efficiency beyond what they could accomplish alone. Because of the increased effort by USAID 3E in developing EE pilot projects, 17 pilot projects were developed instead of the 10 initially planned. The pilot projects occurred in different types of buildings where a reduction of energy consumption was verified, varying from 30% to 70%, depending on the measures implemented.

Current USAID Activities

USAID BiH Regulatory Partnership Program

USAID’s Regulatory Partnership Activity in BIH was designed as a vehicle for the exchange of experience and information between US and international regulatory bodies, with the goal of improving regulatory practices and fostering long-term sustainable relationships between regulatory entities. The

Ohio Public Services Commission (PUCO) serves as the lead commission in the partnership with BiH’s three regulatory commissions under the auspices of the National Association of Regulatory Utility

Commissioners’ (NARUC). This activity is scheduled to end in October 2015.

USAID/Residential Energy Efficiency for Low Income Households (REELIH)

Based on a cooperative agreement between USAID Washington and Habitat for Humanity International

(HFHI), which is the implementing entity of the REELIH project, the two parties agreed to provide joint funds for the implementation of the REELIH project in BiH. USAID’s REELIH project will last until

August 2015, with an estimated ceiling of $250,000. Through this project, USAID seeks to demonstrate a market solution for bringing residential energy efficiency to low income households in BiH.

USAID Washington support of a World Bank (WB) credit line for the BiH EE Project (BEEP)

USAID pledged $200,000 for technical assistance to support the preparation of detailed energy audits and technical designs, and the conducting of baseline measurements in 8 buildings in two sectors in both BiH entities: Education & Health. USAID will choose which buildings to support, potentially leveraging existing Mission energy efficiency activities. The WB’s $32 million Energy Efficiency in Public

Buildings Project is financed by the International Development Association (IDA) to begin in the second half of 2014.

C.6 Other Donors in the Energy Sector

In addition to USAID’s efforts in the energy sector, other donors recognized the importance of sound energy management for the country’s economic and political stability. During the planning and design phase of this project, which began during the summer of 2013, USAID/BiH’s EDO had many individual meetings with the international community, including the United Nations Development Programme

(UNDP), European Union (EU), World Bank (WB), and Deutsche Gesellschaft für Internationale

Zusammenarbeit (GIZ).

Energy Investment Activity’s design reflects extensive research and coordination with the donor community and major energy stakeholders in BiH. The international community’s key energy members have decided to divide up responsibilities in reforming this sector with a practical, thorough, and carefully designed approach. In this process, USAID/BiH focuses on targeted energy regulatory and policy areas that foster a single economic space in BiH, while promoting private sector development and investment.

World Bank (WB):

The Power Program, led by the World Bank included the support of other international financial institutions…