USAID Energy Policy 2 Activity in BiH draft SOW.docx

Draft Statement of Work USAID Energy Policy 2 Activity in Bosnia-Herzegovina

1. Purpose The purpose of this Activity is to accelerate the sustainable development of the energy sector in Bosnia and Herzegovina (BiH). This will be achieved by enabling a smooth transition to clean energy and ensuring energy security for BiH. The technical assistance under this activity is required for the following principal reasons.

To enable a smooth transition to clean energy the Contractor will:

· Assist the BiH stakeholders in further defining the energy and climate policy to fulfill its international obligations.

BiH is at a crossroads where important decisions need to be made regarding its energy sector to comply with its EU accession process. The EU’s Carbon Border Adjustment (CBA) mechanism is scheduled to start in 2026, where a border tax with the EU on electricity and other carbon intensive products is expected to be instituted. Adequate energy and climate policies can help BiH turn the energy transition process into a development advantage.

· Create a favorable environment for electricity generation from renewable energy sources.

Investments into renewable energy need to be exponentially increased if BiH is to have sufficient generation of electricity to cover its needs in the mid to long run. Legislative changes and the proper regulation of the energy sector need to be in place to create the preconditions for a vibrant investment climate for renewable energy.

· Promote and implement energy efficiency programs Further efforts need to be made in promoting and implementing energy efficiency programs, e-mobility, and other clean energy solutions for a sustainable future. In addition, public understanding, and support for clean energy solutions through advocacy campaigns and community engagement need to be strengthened.

To maintain and improve the security of supply in the energy the Contractor will:

· Transpose the required EU energy directives and international best practices.

The collective energy security of the region relies on the integration of the energy markets with the regional and EU energy markets. To make this possible the transposition of EU energy directives and regulations is needed to make the individual markets compatible with the EU single market.

· Establish a functional natural gas market and diversifying natural gas supply from the current sole supplier – Russia.

Diversification of the natural gas sources is of crucial importance for BiH, this requires supporting the development of new infrastructure, supply options and/or market models to enable diversification of sources of supply.

· Maintain the robustness of BiH’s electricity sector and enable integration with EU markets.

Assisting the BiH stakeholders in developing an organized electricity market that can be coupled with regional and EU markets and supporting the system operation and system development in order to maintain the stability of the system and creating preconditions for energy infrastructure investments.

Theory of Change IF BiH reforms the energy sector to meet its international obligations and harmonizes it with EU directives and best practices, and IF the capacity of key energy sector stakeholders to implement energy sector reforms is strengthened, THEN BiH energy sector will yield a higher degree of energy security for the country and the region and continue the transition to clean energy sources. For this hypothesis to hold, the Mission will operate under the assumption that BiH authorities will remain committed to energy sector reforms and adopt the relevant legislative and regulatory changes.

Relevance to Country Development Cooperation Strategy and Other USAID Activities The proposed Activity will support the Mission’s efforts to achieve the 2020-2025 Country Development Cooperation Strategy (CDCS) Goal “BiH citizens hold their government accountable, participate in a robust legitimate economy, and value and promote an inclusive society.” Specifically, the Activity will contribute to both development objectives (DOs) outlined in USAID/BiH’s 2020-2025 CDCS:

2. Background

· General Background and Country Context BiH is a signatory to the Energy Community Treaty, which requires BiH to accept and adopt the relevant EU energy sector regulations. The EU, through the Energy Community Secretariat, regularly monitors and reports on the progress that BiH has achieved in liberalizing its energy sector.

Although the reform of BiH’s electricity sector has made progress so far, significant effort is still needed to complete the process. According to the latest, 2022 Energy Community Annual Implementation Report the status of reform in the electricity sector is at 61% and BiH has still not implemented some of the key requirements for market integration with the EU. In addition, since the publication of this report, the Energy Community has adopted a new package of legislation which represents the largest addition to the Energy Community’s acquis so far. The package contains new ambitious targets and mechanisms for achieving climate neutrality by 2050 and enabling full market integration with European and regional systems. However, it also represents the largest challenge so far for all contracting parties in terms of implementation.

Furthermore, the reform of the BiH natural gas sector and implementation of EU obligations is at a very low level. According to the 2022 Energy Community Implementation Report, BiH has implemented only 24% of its obligations. The absence of a proper legal framework in the BiH natural gas sector continues to hinder any reform and endangers the country’s security of supply. BiH has not adopted a State-level natural gas law, that would set the main framework for the functioning of the market and natural gas transport. On Entity level, the FBiH has not adopted a natural gas law, while the RS has adopted a law that disregards the competences of the State-level government. As a result, BiH has an underdeveloped natural gas market, characterized by lack of regulatory oversight, low level of transparency, no competition, vertical integration, and an unfavorable business environment.

In addition, natural gas pipelines in BiH do not meet the required energy security standards as there is not enough capacity to satisfy the total natural gas demand in the event of a disruption of the largest natural gas pipeline. BiH has no natural gas storage facilities and is dependent on only one transmission pipeline and only one source of supply, which brings Russian natural gas to the country.

· Development Challenge The legal and regulatory framework of BiH's energy sector is still not fully compliant with the EU acquis and best practices, whereby modest progress in the green transition, limited development and integration of the electricity and natural gas markets with the regional and EU markets, and poor energy security hinder the sustainable development of the sector and withhold country's economic growth.

The major challenge in this process is the complex BiH political environment that has played a major role in slowing down energy sector reform. Political challenges include the need to navigate the state-level and entity-level legal structures, as well as cantonal politics in FBiH. Various deadlocks that occur in the process slow down the pace of reform. The adoption of the State-level Electricity and Natural Gas Law has been held up, preventing full gas sector reform and further reforms in support of compliance and electricity market operation. A particular challenge is the RS undermining of State Level institutions and jurisdictions, and the numerous sanctioned individuals in key decision making positions. Various deadlocks that occur in the process slow down the pace of reform. The adoption of the State-level Electricity and Natural Gas Law has been held up, preventing full gas sector reform and further reforms in support of compliance and electricity market operation In addition, energy prices represent a politically sensitive issue, inviting the use of political power to influence independent regulatory bodies. Some progress has been made on key issues such as unbundling, however, several key reform steps such as the establishment of an organized wholesale electricity market and gas price transparency remain blocked. Hence, a host of policy interventions requiring specialized knowledge and technical assistance is needed to pull BiH nearer to its regional peers and bring its energy sector closer to the integrated European markets.

· Relationship to Other Activities Previous USAID programming in this area involved several technical assistance activities, the aim of which was to start the reform of the energy sector in accordance with the Energy Community Treaty Requirements. Technical assistance to the electricity sector has been provided for a few years and therefore the electricity sector has made some notable strides, such as establishment of regulatory commissions, opening of the electricity market and establishment of transparent market processes. In the natural gas sector, USAID has only begun providing targeted technical assistance with the latest (and still ongoing) Energy Policy Activity. Therefore, the reform of the natural gas sector is lagging. The new Activity would build upon the achievements and recommendations made by the previous TA activities. That way, the holistic approach and the continuity in the USAID technical assistance in the energy sector in BiH would be ensured.

The contractor must closely coordinate its activities with other USAID regional energy activities and USAID BIH activities, where applicable, such as USEA, Clean Energy Markets and Resource Adequacy, J-SET, NARUC-ESTEEM, CONNECT FOR GROWTH (C4G), IRI, NDI, Diaspora, Fiscal Activity and E-Governance.

New Energy Activity 2024 design reflects extensive research and coordination with the donor community and major energy counterparts 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 sustainable development of the energy sector in BiH by enabling a smooth transition to clean energy and ensuring energy security for BiH.

The contractor must closely coordinate its activities with other donors and international institutions, such as and the Energy Community Secretariat (ENC), and the United Nations Development Programme (UNDP), the European Union (EU), World Bank (WB), German Development Agency (Gesellschaft für Internationale Zusammenarbeit (GIZ), IFIs, European Bank of Reconstruction and Development (EBRD), the Office of the High Representative (OHR), the World Bank (WB), other Embassies, beside United States (US) that work in the energy sector, i.e. German, United Kingdom (UK), and others.

3. Scope The Activity will work to create a legal and regulatory framework in line with best practices and Euro-Atlantic integration requirements, focused on clean energy investments, improved energy sector governance and green jobs. This effort will empower citizens and the private sector to participate in a robust and legitimate economy.

In addition, due to the aggression of Russia in Europe, energy security is of crucial importance to BiH, its economy and the citizens. USAID technical assistance will support the BiH counterparts in creating the necessary preconditions for the regional and EU integration of the electricity and natural gas markets and improving resilience to cybersecurity threats. This will increase the security of supply for the energy consumers and create a transparent environment for the trade of these commodities. The Activity will also support the diversification of the natural gas supply from the current sole supplier Russia, by supporting natural gas pipeline development that brings natural gas from different sources, as well as Liquefied Natural Gas (LNG) and hydrogen technologies.

The technical assistance under this Activity will be focused on key energy sector stakeholders ranging from government entities, independent energy sector regulatory agencies, private sector, academia, non-governmental organization, and citizens.

4. Components The activity will have three components:

5. Planned activities:

Component 1: Clean Energy Bosnia and Herzegovina is at a crossroads regarding its energy transition. The country has developed its draft National Energy and Climate Plan (NECP) which is expected to be adopted by the envisioned start of the Activity. The NECP will set a plan in motion for the BiH energy transition, but for its implementation the BiH stakeholders need significant assistance both on the policy side for the implementation of the NECP programs and policies; and technical support for the business and private sector to seize the opportunities being created in the energy transition process. The focus of Component 1 will be to provide support for the BiH stakeholders in further defining the energy and climate policy to assist the country in reaching its international obligations and providing the BiH citizens and private sector with a sustainable future that is rooted in clean energy development. To succeed in this component, the Contractor must:

Exemplary Activities for Component 1: Clean Energy:

1.1. Energy and Climate Policy:

· Assist in implementation of the National Energy and Climate Plan (NECP),

· Assist in development and implementation of energy sector policy documents such as strategies, action plans and programs to ensure a just transition,

· Assist in fostering collaboration between government, industry, and environmental organizations to drive innovation and facilitate the adoption of renewable energy and energy-efficient solutions, and

· Assist in development of an Emissions Trading Scheme to mitigate the Carbon Border Adjustment (CBA) Mechanism or any other prescribed procedures for electricity producers as required by the EU rules.

1.2. Business and Private Sector Initiatives:

· Assist development of new models for active participation of citizens in the electricity market,

· Assist in establishing clear and supportive policy frameworks that encourage the development and adoption of renewable energy sources and energy efficiency measures,

· Support business and private sector initiatives to implement sustainable business models in clean energy and e-mobility,

· Assist business and private sector to attract investments and financial incentives for renewable energy projects and energy-efficient technologies,

· Assist the country in implementation of systemic mechanisms for implementing energy efficiency measures,

· Remove legal and regulatory barriers for investments in clean energy projects, and

· Expand the customized permitting guide for investors to include new features that make the investment process easier.

Key Partners:

· Ministry of Foreign Trade and Economic Relations (MOFTER); the Federation of BiH (FBIH) Ministry of Energy, Mining, and Industry; the Republika Srpska (RS) Ministry of Energy and Mining,

· Three regulatory commissions in BiH (State Electricity Regulatory Commission (SERC), Regulatory Commission for Energy in Federation of BiH (FERC), Regulatory Commission for Energy of Republika Srpska (RERS),

· Entity and cantonal ministries in charge of spatial planning and environment,

· BiH, RS and FBiH Parliament,

· RS, FBIH, BiH Concession Commissions,

· RS and FBiH Environment Funds,

· The Independent System Operator (ISO),

· Elektroprenos – Elektroprijenos BiH (TRANSCO),

· All power utilities and energy companies in BiH and Brcko District,

· Renewable Energy Sources power producers, power traders, and investors in the power generation of Bi, and

· NGOs, Chambers of commerce and employer organizations.

Expected Results:

Result 1: Increased use of renewable energy sources.

Result 2: Citizens and businesses empowered to actively participate in the electricity market and drive the energy transition.

Result 3: A framework for systematic implementation of energy efficiency measures created.

Component 2: Energy Security The focus of Component 2 will be to provide support for BiH stakeholders in ensuring their energy security by working on the regional and EU integration of both the electricity and natural gas markets. In the natural gas sector, the activity will support the diversification of the natural gas supply, from the current sole supplier Russia, by supporting natural gas pipeline development that brings natural gas from different sources. Apart from pipeline projects the Activity will also assess LNG supply possibilities and hydrogen technologies that can both provide diversification options. In the electricity sector, to fully utilize its potential, the Activity must focus on completing the missing steps in the sector reform and equip the BiH internal electricity market with all the necessary features to integrate with the neighboring countries and EU.

Exemplary Activities for Component 2: Energy Security:

2.1. Natural gas:

· Support diversification of natural gas supply from sources other than Russia,

· Provide assistance on establishing natural gas distribution companies along the route of the new transmission pipelines,

· Assist in unbundling of transmission and distribution system operators, and

· Provide assistance in setting up a regulatory framework for natural gas.

2.2. Electricity:

· Support the establishment of an organized electricity market (Power Exchange) and enable market coupling with neighboring countries and region,

· Assist in unbundling of transmission and distribution system operators,

· Assist in implementation of the prescribed market features in the electricity sector,

· Assist the integration of renewable energy projects into the electricity system and transmission and distribution networks, and

· Assist in analyzing system operation and system development to maintain the stability of the system and creating preconditions for energy infrastructure investments.

Key Partners:

· Ministry of Foreign Trade and Economic Relations (MOFTER); the Federation of BiH (FBIH) Ministry of Energy, Mining, and Industry; the Republika Srpska (RS) Ministry of Energy and Mining,

· Three regulatory commissions in BiH (State Electricity Regulatory Commission (SERC), Regulatory Commission for Energy in Federation of BiH (FERC), Regulatory Commission for Energy of Republika Srpska (RERS),

· BiH, RS and FBiH Parliament,

· RS and FBiH Environment Funds,

· The Independent System Operator (ISO),

· Elektroprenos – Elektroprijenos BiH (TRANSCO),

· All power utilities and energy companies in BiH and Brcko District,

· All gas utilities/companies in BiH,

· Regional power exchanges, and

· Renewable Energy Sources power producers, power traders, and investors in the power generation of BiH.

Expected Results:

Result 1: Functioning of the electricity market improved to enable its integration into European and regional markets, including establishment of a power exchange.

Result 2: Natural gas security of supply increased through diversification of sources and routes, thus decreasing Russian influence in the BiH natural gas sector.

Component 3: Cross-cutting Assistance Component 3 comprises three separate sub-components that are cross-cutting in their nature and will support the scope of the areas of work of components 1 and 2:

(a) Technical support to improve the legal and regulatory framework – All the reform steps and tasks need to be defined through primary and secondary legislation that is harmonized with the latest Energy Community requirements and adjusted for the BiH specific circumstances.

(b) Cybersecurity and digitalization in the energy sector – As the processes in the energy markets become more and more digitized, the issue of cybersecurity in the energy sector must be fully addressed to prevent cybersecurity incidents and jeopardize the system stability.

(c) Public outreach and capacity building – In order to obtain buy-in from both the decision-makers, the public and the media for the reform processes, all the interventions need to be properly communicated and, where applicable, followed by an additional public outreach efforts of educating both the decision makers and the general public.

Exemplary Activities for Component 3: Cross-cutting Assistance:

3.1. Legal and Regulatory Framework:

· Develop new/update existing primary legislation at State, Entity and Brcko District levels to transpose the latest Energy Community requirements,

· Develop new/update existing secondary legislation at all levels to ensure full implementation of Energy Community requirements and alignment with primary legislation,

· Training of energy sector stakeholders on the best international practices, and

· Hands-on work with the energy sector stakeholders in implementing legislation.

3.2. Cybersecurity and Digitalization:

· Develop new/update existing primary legislation at State, Entity and Brcko District levels to transpose the latest Energy Community requirements related to cybersecurity,

· Assist energy stakeholders to conduct risk assessments, develop risk mitigation strategies, and provide recommendations,

· Develop guidelines for collaboration and information sharing between energy sector companies,

· Assist in establishment of energy sector cybersecurity response teams,

· Provide training and raise awareness on the best international practice in cybersecurity and digital hygiene

· Support digitalization in the energy sector through development of tools, registers, and applications, respecting Principles for Digital Development and provide training for their use and upkeep, and

· Ensure beneficiaries have the knowledge and skills to use and maintain developed tools, registers, and applications.

3.3. Public Outreach and Capacity Building:

· Work on public outreach initiatives to raise awareness about the importance of sustainable energy, its benefits, and its impact on the environment and society,

· Work on effective public outreach strategies tailored for different target groups,

· Assist in providing clear and accessible information, organize training programs, and facilitate information-sharing platforms,

· Facilitate collaborations between the energy sector, decision makers, non-governmental organizations, academia, media, and general public,

· Develop educational materials,

· Educate and increase knowledge of main stakeholders in the electricity and natural gas sector on market processes, and

· Educate and increase knowledge of main stakeholders on digital literacy and digital hygiene.

Key Partners:

· Ministry of Foreign Trade and Economic Relations (MOFTER); the Federation of BiH (FBIH) Ministry of Energy, Mining, and Industry; the Republika Srpska (RS) Ministry of Energy and Mining,

· Three regulatory commissions in BiH (State Electricity Regulatory Commission (SERC), Regulatory Commission for Energy in Federation of BiH (FERC), and Regulatory Commission for Energy of Republika Srpska (RERS),

· The Independent System Operator (ISO),

· Elektroprenos – Elektroprijenos BiH (TRANSCO),

· Entity and cantonal ministries in charge of spatial planning and environment,

· State and entity ministries for transport and communications,

· BiH, RS and FBiH Parliament,

· RS, FBIH, BiH Concession Commissions,

· RS and FBiH Environment Funds,

· All power utilities and energy companies in BiH and Brcko District,

· All gas utilities/companies in BiH,

· Renewable Energy Sources power producers, power traders, and investors in the power generation of BiH, and

· Media, academia, NGOs, and the general public in BiH.

Expected Results:

Result 1: Alignment of the electricity and natural gas sectors with EU and Energy Community requirements and best practices advanced.

Result 2: Level of transparency in the BiH natural gas sector increased Result 3: Better customer rights and services enabled Result 4: Resilience of electricity and natural gas sector systems and infrastructure to cyber threats improved Result 4: Level of awareness and knowledge of the general public, media, and stakeholders on energy related topics increased.

6. Indicators The contractor must use the following indicators as key measure of the activity achievements:

· Number of EU Directives and EnC Treaty natural gas sector requirements with annual progress towards compliance achieved with USAID assistance

· Number of EU Directives and EnC Treaty electricity sector requirements with annual progress towards compliance achieved with USAID assistance

· Amount of electricity traded through market processes (in USD These three indicators are included in the logframe and are not illustrative. The contractor must develop a methodology for data collection and calculation for all three of them, as well as annual and life of the activity targets.

Below is a list of illustrative outcome indicators that the contractor is highly encouraged to use to measure progress towards achieving the high-level Activity results.

· EG.12-3 Number of laws, policies, regulations, or standards addressing clean energy formally proposed, adopted, or implemented as supported by USG assistance,

· EG.12-2 Number of institutions with improved capacity to address clean energy issues as supported by USG assistance,

· EG.12-5 Clean energy generation capacity supported by USG assistance that has achieved financial closure,

· EG.12-4 Amount of investment mobilized (in USD) for clean energy as supported by USG assistance,

· EG.12-6 Greenhouse gas (GHG) emissions, estimated in metric tons of CO2e, reduced, sequestered, or avoided through clean energy as supported by USG assistance, and

· EG.12-7 Projected greenhouse gas emissions reduced or avoided from adopted laws, policies, regulations, or technologies related to clean energy as supported by USG assistance.

· In addition, the contractor must include the following Standard Foreign Assistance Indicator: Percent of U.S. Government-assisted organizations with improved performance (also known as: CBLD-9). This indicator measures whether USG-funded capacity development efforts have led to improved organizational performance in organizations receiving organizational capacity development support. This indicator should only be used when an activity intentionally allocates resources (human, financial, and/or other) toward strengthening organizational capacity and undergoes a deliberate performance improvement process that is documented. Details and resources related to this global indicator can be found on this link https://www.usaid.gov/npi/capacitybuilding-indicator-resources.

OPERATIONAL REQUIREMENTS

DONOR COORDINATION

The contractor must cooperate and closely coordinate its activities with other USAID programs, all USAID regional activities (National Association of Regulatory Utility Commissioners (NARUC), USEA, Just and Secure Energy Transition (JSET), Connect for Growth (C4G), etc.), other donors in the energy sector, where feasible, the European Commission (EU), Energy Community Secretariat (EnC), German Development Agency (Gesellschaft für Internationale Zusammenarbeit (GIZ), the European Bank of Reconstruction and Development (EBRD), the Office of the High Representative (OHR), the World Bank (WB), other Embassies, beside United States (US) that work in the energy sector, i.e. German, United Kingdom (UK), and others.

GENDER

Bosnia and Herzegovina (BiH) grapples with a pronounced gender gap in its energy sector, impeding the effective implementation of gender-equitable and sustainable energy policies. Despite having a supportive legal and institutional framework for gender equality, as evidenced by the Law on Gender Equality (LoGE) and the corresponding Gender Action Plan (GAP), the execution of these measures has been inconsistent and incomplete. This disparity is particularly noticeable within the energy sector, where there has been a lack of focus on enforcement.

In BiH's energy sector, women are notably underrepresented, especially in decision-making roles. A mere six percent of management positions in the country's energy sector are held by women. Women in the sector often find themselves in administrative and non-technical roles, with technical positions predominantly filled by men. For women, it is a major challenge to take on leadership roles due to a lack of awareness and information about employment opportunities, prevailing social attitudes, and misconceptions about women's technical abilities in STEM (Science, Technology, Engineering and Mathematics) fields. Cultural norms and beliefs also play a significant role in undermining women's confidence and interest in pursuing interdisciplinary STEM subjects. As a result, successful women in the energy sector are still perceived as exceptions rather than the norm. For more details on gender issues in the BIH energy sector, please see the gender analysis done for the purpose of this activity (Attachment 7).

USAID policy requires that gender issues be addressed as appropriate in all USAID-funded activities. The Contractor must look for gender and social implications or opportunities in the Activity, seeking to address embedded gender and promote gender equity in activity implementation and internal management. Therefore, at a minimum, the Contractor must take the following steps:

IMPLEMENTATION

· Support attention to the inclusion of women in formal decision-making and take affirmative measures to ensure women take part in decision-making processes at all levels.

· Seek to include both men and women in all aspects of this Activity including participation and leadership in meetings, training, etc.

· Strive for at least 40/60% female/male or male/female participation in all activities (not less 40% and not more 60% of each sex).

· Support continuous professional development for women in energy.

· Create platforms where women in the energy sector can contribute their insights and experiences to policy debates.

· Feature and celebrate women's achievements in the energy sector.

· Include gender training modules in workshops.

· Collaborate and communicate with fellow donors in the sector to tackle gender-related issues.

INTERNAL MANAGEMENT

· Clearly indicate the areas or aspects in which gender is relevant and specifically show in the Annual Work Plan and MEL Plan how gender issues will be addressed, how results will be determined taking gender into account; and what resources will be provided to do this.

· Report on how gender issues were addressed and what was achieved in quarterly and annual reports.

· Develop gender-sensitive performance indicators and incorporate them in the MEL Plan.

· Disaggregate performance indicators data by sex as appropriate and feasible.

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