REVISED FINAL REPORT November 2017 Task A: Sector performance and structural sector reform Deliverable 5: Final report Disclaimer and copyright note This document has been prepared only for the International © 2017 Bank of Reconstruction and Development ("IBRD") and solely PricewaterhouseCoopers for the purpose and on the terms agreed with the IBRD in our LLP agreement dated 21 March 2017 relating to Task A. All rights reserved. In this The scope of our work was limited to a review of documentary document, 'PwC' refers to the evidence made available to us. We have not independently UK member firm, and may verified any information given to us relating to the services. sometimes refer to the PwC network. Each member firm We accept no liability (including for negligence) to anyone else is a separate legal entity. in connection with this document. We have agreed with you that the report will be provided by you to GECOL for their consideration. We would ask that it not be provided to anyone else unless otherwise agreed in writing by us. This is a draft prepared for discussion purposes only and should not be relied upon; the contents may still be subject to Please see amendment or withdrawal and our final conclusions and www.pwc.com/structure for findings will be set out in our final deliverable planned for further details December 2017 Strategy& | PwC Prepared for The World Bank 1 The present document is the final report of the Task A: it includes the project review and the related recommendations Focus of the present report 1 2 Rapid assessment 3 4 5 Project Regulatory Restructuring of Project review and of the sector set-up reform key actors recommendation performance 1.1 2.1 Rapid sector 3.1 Gap analysis 4.1 5.1 Option study for Findings review and Data collection performance of the sector structure GECOL restructuring final report assessment vs. previous plan 1.2 3.2 4.2 Methodology, High-level Roadmap for team and approach options for sector Present report establishing of LEMRA validation reform 3.3 Sector restruc. (framework, actors and roadmap) 3.4 Electricity Act 6 Workshop & trainings 7 PMO (progress reporting) Source: Task A inception report Strategy& | PwC Prepared for The World Bank 2 Important notice: Task A addresses the Libyan institutions (differently than Task C which focuses solely on GECOL) Task A and C perimeters and timeframes Wave I Wave II Timeframe Past Short-term Medium / long-term 3 years 3+ years Today 2020/2021 Stakeholders Libyan institutions Legislation Task A perimeter Policy making Regulation Generation GECOL Transmission Task C perimeter Distribution & Supply See Task C deliverables for analysis of GECOL performance and action plan Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 3 Executive Summary Summary of key issues faced by the electricity sector Wave I: Fix the basics and prepare for restructuring Wave II: Restructure and prepare for ambition Options for Wave III (realize ambition) Appendix – Inputs for Electricity Act Strategy& | PwC Prepared for The World Bank 4 Task A rapid sector assessment has identified 6 key challenges on which the reform effort should be focused Libyan electricity sector root-causes The continuously evolving geo-political situation and the connected instability and uncertainty, has negatively Weak sector impacted the electricity sector (since 2012, Libya has been unable to release the necessary policy and governance regulation initiatives) Sector GECOL is still operating as monopolist, with no private participation (no IPPs) and no competition. This sector structure structure has inhibited the accountability of results, reducing incentives for performance improvements (monopoly) Increasing Partially linked to the two previous issues, FTE and salaries increases have negatively impacted GECOL P&L costs offsetting the fuel costs savings achieved (through the shift towards gas generation) Commercial The challenging socio-economic situation, the absence of a clear legal framework and the poor invoicing and losses and collection practices, has led to a dramatic rise in commercial losses and bad debt, severely impacting GECOL poor collection financial condition Government decisions to reduce tariff (residential clients) and the inability to adjust the tariff scheme against Unbalanced the rising costs have led GECOL to a structural inability to re-cover its system costs, leading to a burden on tariff Libyan state Geo-political instability, damages, lack of planning and inability to keep-up with the required sector investments Poor operating led to delayed projects and low installed capacity availability (linked to unit cannibalization, scarcity of fuel performance supply and lack of adequate O&M), with negative consequences on service quality Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 5 Task A: Deliverable III (b) – Electricity Act and sector restructuring report The reform was defined over a plan designed across different waves, based on different macro-objectives Libya restructuring roadmap “Future Focus of Task A Vision” Wave III Levels of evolution “Realize Wave II ambition”  Consider to evolve to more “Restructure and complex and competitive Wave I prepare for market models (wholesale “Fix the basics and ambition” market model)  Consider sector privatization prepare for vision, minimizing state restructuring”  Choose the desired end burden while optimizing state sector model and competitiveness  Establish (legally) the structure regulatory authority  Launch internal  Complete short-term communication and  Clarify sector governance performance improvement change initiatives  Strengthen sector legal actions framework  Complete GECOL org.  Achieve a fully functional,  Launch short-term restructuring transparent and performance improv. actions  Achieve full functional sustainable electricity  Start GECOL org. unbundling sector restructuring  Continue reviewing  Achieve accounting periodically tariff levels unbundling  Launch new tariff framework Min target duration  3 years 3 years 3 years (min) Time Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 6 I Fix the basics and prepare for restructuring Task A: Deliverable III (b) – Electricity Act and sector restructuring report Wave I will focus on resolving the six key issues identified through a number of objectives, measures and milestones Wave I measures and milestones Wave I objectives Wave I Electricity Sector Fix the basics and Measures Milestones Issues’ root causes prepare for restructuring • Establish policy mandate • Ministry in charge • Set regulatory agency Weak sector Clarify sector • Regulatory agency in operation • Clarify GECOL’s governance governance governance • Government decree1 • Strengthen sector legal • National Electricity Strategy framework • Core BUs separated • Corporate core general dept. Sector structure Establish performance • GECOL accounting unbundling (ICT, E&P, HR&O & AFC) (monopoly) accountability • GECOL reorganization established • Accounting unbundling regulation • Sep. annual accounts submitted • Ensure state financial support Restore acceptable • All generation, transmission, Poor operating • Improve investment plan. process service quality control, MV & distribution performance • Address operating perf. issues “Zero load shedding” • Explore import supply milestones completed • HR strategy in place • Optimize power mix • Critical resource map and • Improve efficiency Costs control manpower rebalancing plan Increasing costs • Address manpower issues & staff reskilling • Workforce planning in place • Compensation and benefits • Capabilities & skills map redesign • Reskilling plan Unbalanced tariff • Tariff covering part of P&L costs framework • Launch new tariff framework • Theft areas map Improve GECOL & • Metering roll-out • Higher theft sanctions sector financial • Address electricity theft • Customer database Commercial losses sustainability • Fight insolvency • SMS/e-mail billing in operation and poor collection • GECOL’s mobile app running 1) This first Government Decree could be replaced with an Electricity Act in case a window of opportunity opens for the submission of a the electricity law to the House of Representatives; Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 7 I Fix the basics and prepare for restructuring Task A: Deliverable III (b) – Electricity Act and sector restructuring report The sector will operate through 6 actors (same as today), with revised (and clearer) roles & responsibilities Wave I end-sector framework (2021) Renewables Key actors 1 Legislation Parliament Government 2 Prime Minister 1 Parliament Policy making MoE and RES1 Ministry of Ministry of Finance Planning 2 Government Policy 3 Regulatory 5 Regulatory making REAOL Agency 3 Agency support / agencies 4 GECOL Operation/ 6 REDEVCO REAoL 4 PPA 5 (RES) Generation SPV / IPPs Capacity REDEVCO 6 (RES) Transmission GECOL Distribution & Supply 1) Ministry of Electricity and Renewable Energy Sources Control / Oversee Source: Gopa intec and Suntrace Task D Roadmap for Renewable Energy Development, Strategy& analysis Strategy& | PwC Prepared for The World Bank 8 I Fix the basics and prepare for restructuring| Clarify sector governance Task A: Deliverable VI (b) – Detailed roadmap for establishing LEMRA report An Agency (built within the Government), will advise and support in several regulatory activities Regulatory Agency responsibilities (Wave 1) Regulatory Agency 2019 in operation Responsibilities Activities Regulations/Manuals Supply matters KPIs Manual & targets Draft the KPIs Manual and set short term (3 years) KPI targets Performance monitoring Provide incentives to encourage the utility to achieve targets Supervise system’s security and reliability and propose improv. measures Technical matters Develop unified regulatory accounting and reporting procedures Standards and rules Set minimum safety standards for O&M, construction and installation Safety standards Draft the Grid Code/Interconnecting Guidelines Grid Code Consumers issues Draft the Tariff Regulation Tariff Regulation Tariff State criteria for the preparation of tariff proposals by GECOL Sector development Advise the ministry on matters related to development and operation plans Accounting unbundling Development Draft accounting unbundling regulation regulation Sector structure Draft operating guidelines for separated annual accounts Analyze and review GECOL’s separated annual accounts Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 9 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” Task C: Deliverable IV (b) – Improving GECOL technical performance One of Wave I main objectives will be to restore GECOL technical performance and service quality … Detailed action plan provided in Generation performance improvement plan Task C final report A Generation Measures Milestones issues • Resolve backlog of overdue maintenance • 90% of suspended units back in service Overdue • Plan maintenance of running units • No new buildup of overdue maintenance 1 • • maintenance Retire old units List of units to be retirement approved • Ensure availability of 3rd party plants • 250 MW added to grid • Zero unavailable capacity due to fuel supply Inadequate fuel • Protect fuel supplies to P/S and address fuel • Supply Sarir P/S with gas 2 quality problems • Full implementation of fuel quality control supply procedures • Updated generation expansion plan • Complete under construction projects • RFP for first round of new generation projects • Update load forecast and generation expansion Delayed capacity issued 3 plan expansion projects • Obari completed (4x125 MW online) • Tender new generation capacity • Gulf completed (3x350 MW online) • Complete EDM system • Fully functioning EDM • Certification program for P/S O&M personnel in • Solve lack of O&M competences place 4 Skills shortage • Solve Generation BU understaffing • All P/S operation shifts adequately staffed with qualified personnel Source: Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 10 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” Task C: Deliverable IV (b) – Improving GECOL technical performance …targeting to resolve Libya load shedding problems (and thus its service quality issues) by 2019… Generation expansion plan (2017-2030) Best case scenario GW 20 21 ! Start 19 20 contracting +20% Positive reserve process of next margin1 if contracting generation of 17 of next generation ! P/S +67% of P/S starts by 15 Aggressive 14 2021 at the latest recovery of 13 unavailable 12 capacity3 Planned 10 9 Under construction & 7 contracted Recovered unavailability +64% 5 Phase outs4 5 Existing available Demand (A-Slow political stability)2 Demand 0 (B- Continuous political instability)2 2017 2018 2019 2020 2021 2022 2023 2026 2027 2030 1) Computed as (Available capacity-Peak demand)/Peak demand; 2) Peak demand at generation; 3) Assuming GECOL will be able to carry out each year 15 overhauls of units overdue from past years + all overhauls of newly due units. All overdue unit overhauls and major maintenance are supposed to be cleared by 2020; 4) Conventional steam turbines that approached their retirement age but have been overhauled are assumed to have an extended life up to 2030, gas turbines to 2025. Other units are retired at their planned decommissioning year; Sources: GECOL data collection ID4, Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 11 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” Task C: Deliverable IV (b) – Improving GECOL technical performance …although under a more pessimistic (realistic?) scenario, difficulties may remain an issue until at least until 2020 Generation expansion plan (2017-2030) Worst case scenario GW 20 More prudent recovery of unavailable -37% Negative reserve 15 capacity with respect to best case scenario, but margin1 12 12 Still aggressive with 11 11 -13% ! respect to GECOL hist. 10 performance 3 10 10 9 Under construction & 7 contracted3 7 Recovered unavailability3 +39% 5 Phase outs 5 Existing available Demand (A-Slow political stability)2 Demand 0 (B- Continuous political instability)2 2017 2018 2019 2020 2021 2022 2023 2026 2027 2030 1) Computed as (Available capacity-Peak demand)/Peak demand; 2) Peak demand at generation; 3) Assumes GECOL will be able to carry out each year 4 overhauls of units overdue from past years + all overhauls of newly due units Sources: GECOL data collection ID4, Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 12 I Fix the basics and prepare for restructuring| Costs control & staff reskilling Task C: Deliverable II (c) – Manpower / organizational rationalization review Wave I will also focus on ending GECOL’s manpower and costs growth, making of staff reskilling a priority… Manpower related resizing approaches Wave I Wave II Immediate actions Mid-term actions Immediate actions starting from 2018 focusing on Mid-term actions starting upon successful completion of reskilling as top priority immediate actions (i.e. indicatively from 2020 to be completed by 2025) Start immediately to reassign especially Re-Skilling Reallocate technicians to other departments like the generation department Offer buyout solutions for non core Incentivize Leverage current resources to fill unmet businesses like Health Service, Driver, Retrain Buyouts Translation etc needs in the generation department Institute a hiring freeze as more than Incentivize to Ask employees to take voluntary lay- Freeze hiring 12% are aged below 30 and more than leave offs 40% aged below 40 Prepare an early retirement package for Temporarily or permanently terminate Early employees aged over 60 (2% of total Dismiss employment for a group of employees Retirement FTEs) especially in D&S Train managers and staff professionals Start GECOL to be hired inside but also outside the Academy company 1) Process mapping and manpower rationalization report Source: Strategy& Analysis Strategy& | PwC Prepared for The World Bank 13 I Fix the basics and prepare for restructuring| Improve GECOL & sector financial sustainability Task A: Deliverable IV (a) – Options study for GECOL restructuring report …while restoring financial sustainability through the fight of commercial losses (preferred to tariff increases or FTE cuts) Comparison of scenarios achieving identical financial impact (2015) A 69% Limit Burden on the sector Back to commercial 2010 levels (Bn LD) loss 21% (% max rev.) -0.3 B 95 Increase average +161% tariff 36 (Dhs/kWh) Same individual 1.8 effect of each 1.5 C scenario 42,000 Re-size 31,000 -11,000 manpower (‘000 FTEs) 2015 2015 actual scenario A, B, C 2015 2015 actual scenario Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 14 I Fix the basics and prepare for restructuring| RES preparation and institution building Task D: Strategic plan for the development of renewable energies in Libya Wave I will also see the set up of the RES framework in Libya Deep dive in Measures and activities Task D Wave I 2018-2020 REDEVCO Pilot study and development Measures Project & site Construction set up Concept Feasibility qualification Financing and operation Duration 6 months 2 years 6 months Owner REAoL REDEVCO SPV/IPP Activities • REDEVCO set up • Concept • Engineering – Appointment of – Resource mapping and site shortlist and BoD and initial – Agreement with GECOL about sites and grid capacity procurement budget allocation – Outline business case – Design and – Recruitment procurement • Iterative feasibility study process – Development of and – Red flag and fatal flaw analysis of all relevant project details on strategic plan installation of high level (pre-feasibility) PV • RES permitting and – Techno-economic concept design and detailed site assessment components tender • Project/site qualification documentation • Construction – Geotechnical and topographic survey – Clarify permitting and – Environmental impact assessment (EIA) process and commercial – Permitting process, PPA & other contract negotiations documentation operation – Draft tender • Financing documentation – Equity auctioning process and selection of equity investors into SPVs – Negotiation of debt financing strategy REDEVCO PV pilot project study Wind pilot project study 3% RES Milestones operations start completion completion penetration Source: Gopa intec and Suntrace Task D Roadmap for Renewable Energy Development, Strategy& analysis Strategy& | PwC Prepared for The World Bank 15 II Restructure and prepare for ambition Task A: Deliverable III (b) – Electricity Act and sector restructuring report With Wave II, Libya will continue working on the issues identified and also introduce a number of structural changes Wave II measures and milestones II Electricity Sector Wave II objectives Wave Issues’ root causes Measures Milestones Weak sector Strengthen sector • Set up Regulatory Authority • LEMRA in operation governance governance • Expand sector legal framework • Electricity Act • Preparation for private sector Sector structure • IPP Commission in operation Increase competition in investment • Single buyer in operation (monopoly) generation • Establish single buyer • Licensing regime established • Licensing Achieve functional • GECOL reorganization • Independent managers appointed separation • Functional unbundling Poor operating performance • Continue improving operating • Complete all Gen., Trans., control, performance MV & distr. action plan milestones • Introduce demand-side • EMC in operation Upgrade service quality management programs • Building code published • Review customer grievance • EE household appliances code process • Energy Efficiency Act • Optimize power mix Continuous • Improve efficiency Unbalanced tariff improvement in cost • Non-core activities outsourced • Salaries and manpower control framework structure • Outsourcing implementation Commercial losses Achieve GECOL & • Periodic tariff review and roll-out and poor collection • Tariff covering part of P&L costs sector financial • Metering roll-out and cost of fuel subsidies sustainability • Theft addressing Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 16 II Restructure and prepare for ambition Task A: Deliverable III (b) – Electricity Act and sector restructuring report Libya will vote an electricity act (while in Wave I it target Gov’t decrees, because of its weak governance) Government decree and electricity acts sections Wave I Wave II Gov’t Topics Electricity Act Decree1 1 Objectives P P P P Policymaking 2 mandate 3 Regulatory Body P Sector 4 structure and competition P P 5 Tariff P 6 Penalties P P 7 Licensing framework P Formalization Included sections Revisions / integrations 1) Government Decree will substitute the release of the Electricity Act, since the sector structure, roles & responsibilities will not be changed Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 17 II Restructure and prepare for ambition Task A: Deliverable III (b) – Electricity Act and sector restructuring report In Wave II Libya will operate according to a more structured sector framework, including a Regulator and IPPs Wave II end sector framework (2024) Renewables Key actors 1 Legislation Parliament 1 Parliament Government 2 Prime 2 Government Minister Policy making Ministry of Ministry of IPPs MoE and RES2 3 Commission Finance Planning IPPs 3 Libyan Electricity Commission 4 Market Reg. 7 Policy making REAOL Authority (LEMRA) support / agencies 5 GECOL 4 Regulation LEMRA3 IPPs 8 6 (Non-RES) REDEVCO Operation 5 PPA1 / Demand mgmt. IPP 6 REAoL Generation 9 7 (RES) Capacity / availability Conventional IPPs IPP generation REDEVCO GECOL PPA1 / Demand mgmt. 8 Transmission (Single Buyer) (RES) Capacity / availability Control / Oversee IPPs Distribution Others 9 (RES) & Supply Task D SoW 1) Power Purchase Agreements are the off-take arrangements through which the IPP power exchange is regulated; 2) Ministry of Electricity and Renewable Energy Sources; 3) Further deep dive on the relationship between LEMRA and MoE and RES will be provided in LEMRA establishment detailed roadmap deliverable due by end of October Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 18 II Restructure and prepare for ambition | Strengthen sector governance Task A: Deliverable VI (b) – Detailed roadmap for establishing LEMRA report The electricity act will delegate many of the Government responsibilities to LEMRA (the new Regulatory Authority)... Actors redistribution of responsibilities — Wave II Wave II As-is After LEMRA establishment Actors Government GECOL Government Regulator GECOL Responsibilities Set performance standards R R Monitor performance R R Define sector vision R R Determine prices R R R Choose technologies R R Determine investments R R Establish sector rules R R Receive public input R R R R R Balance environmental and economic goals R R Determine sector structure R R P Receive consumer complaints R R R Issue licenses R R Source: Strategy& analysis Responsibilities transferred to other actor P Full responsibility PAdvisory function Strategy& | PwC Prepared for The World Bank 19 II Restructure and prepare for ambition | Achieve GECOL & sector financial sustainability Task A: Deliverable III (b) – Electricity Act and sector restructuring report …and Libya will achieve a more sustainable financial status, with full GECOL P&L costs coverage and lower fuel subsidies Projected avg. tariff (2015-2026) Potential change in government subsidies (2015 vs. 2026) Dhs/ KWh LD Bn ILLUSTRATIVE 70 5.0 Due to increased CAGR 66 fuel volumes 4.5 +6% 4.5 driven by electricity 60 consumption 4.0 +48% 50 3.5 3.1 3.0 40 36 2.5 30 2.0 20 1.5 1.0 0.9 10 0.5 -100% 0.0 0 0.0 2015 2026 2015 2026 Avg. tariff covering: GECOL 100% Government subsidies on GECOL P&L P&L costs 56% Government subsidies on fuel cost Cost of fuel subsidies 0% 20% Sources: GECOL data collection ID7, GECOL data collection ID20, Strategy& analysis Strategy& | PwC Prepared for The World Bank 20 II Restructure and prepare for ambition Task D: Strategic plan for the development of renewable energies in Libya Wave II will also see the launch of bigger scale RES projects through an auctioning framework RES roadmap: wave II measures and milestones Wave I Wave II Wave III 2021 2024 2027 RES preparation and Increased private RES framework institution building investment in RES consolidation Wave I objectives Wave II objectives Wave II Measures Milestones P RES capacity and Auction framework • Design auctioning rules • First auctioning rounds institution building design and process P • Roll-out large scale wind Start pilot RES Large scale projects and PV projects • Increased RES penetration implementation • Attract international penetration capital and knowledge Source: Gopa intec and Suntrace Task D Roadmap for Renewable Energy Development, Strategy& analysis Strategy& | PwC Prepared for The World Bank 21 Task A: Deliverable III (b) – Electricity Act and sector restructuring report Unbundling will only become an option at the end of Wave II, after the completion of GECOL functional unbundling GECOL unbundling path Starting point Wave I P Wave II P Ambition ! GECOL Fix the basics and Restructure and prepare Achieve unbundling prepare for restructuring for unbundling ambition or up-grade within a single-buyer Vertically Accounting Functional sector structure integrated utility unbundling unbundling • Allocate patrimonial • Separate core and economic activities into SBUs accounts directly and under the leadership Legal Generation indirectly linked to of autonomous unbundling & Transmission core value chain managers activities • Each SBU manager OR • Draft separate annual has autonomy over Continue with BS and IS accounts financial, human for core value chain resources and functional activities technical resources unbundling Distribution & Supply 3 years 3 years 3 years Jan-2018 Jan-2021 Jan-2024 Jan-2027 Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 22 Executive Summary Summary of key issues faced by the electricity sector Wave I: Fix the basics and prepare for restructuring Wave II: Restructure and prepare for ambition Options for Wave III (realize ambition) Appendix – Inputs for Electricity Act Strategy& | PwC Prepared for The World Bank 23 Task A: Deliverable II – Rapid Sector Assessment Task A: Deliverable III (a) – Sector reform options Task A started with a rapid sector assessment, which identified several (interrelated) issues affecting Libya today Libya electricity sector issues identified Complex geo- political and economic situation Weak sector 1 governance Low results accountability Sector structure 2 (monopoly) 3 Increasing costs 6 7 8 9 10 4 Commercial Low financial Heavy burden Low Poor operating Low service losses & poor sustainability on state investments performance quality collection Commercial If GECOL does not losses improve operating performance it can not improve service Poor quality and solve its collection financial issues Unbalanced 5 tariff Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 24 1 Weak sector governance Task A: Deliverable II – Rapid Sector Assessment Task A: Deliverable III (a) – Sector reform options Today, the energy sector lacks of a clear policy leadership and governance Libyan electricity sector structure Primary Energy Power Generation Conventional Transmission Distribution Supply Supply Renewables generation Institutional Government of National National Salvation Tobruk body/ sector Accord Government Government governance (GNA) Regulatory The electricity sector is No official regulatory authority is in place today influenced by three authority competing Governments Other sector support agencies REAoL Key electricity No RE operator company Oil & gas GECOL 9 companies involved in general contracting, consultancy, project management, EPC, Others1 Overhauls and servicing, O&M for utilities, IPP and power plants, general contracting 1) Ministry of planning approves capital projects budget and allocate the funds to GECOL through Ministry of Finance Source: GECOL, Strategy& analysis Strategy& | PwC Prepared for The World Bank 25 1 Weak sector governance Task A: Deliverable II – Rapid Sector Assessment Task A: Deliverable III (a) – Sector reform options The latest most important legislative and policy initiatives in the field of energy were last taken only in 2012 Evolution of Libya policy and regulation Decree 17 – Decree 76 – Decree 193 – Decree 82 – Decree 1 – GECOL established, Increase electric tariff Amendments of Policy regulating the Reduce the domestic under the supervision based on domestic GECOL articles of electricity services electricity use tariff of GPC of Electricity monthly consumption association 1984 1986 1996 1997 2004 2007 2012 Law 5 – Decree 426 – Decree 15 – Decree 33 – Decree 518 & 429 – Investment, GECOL Establishment Ministry of Electricity Ministry of Electricity Finance Policy & formed few JVs with Renewable Energy Organization structure Organization structure Admin, HR Policy international Agency of Libya and Department and Department companies (REAoL) mandates mandates Source: GECOL, Strategy& analysis Strategy& | PwC Prepared for The World Bank 26 2 Sector structure (monopoly) Task A: Deliverable III (a) – Sector reform options The electricity sector is structured as a vertically integrated monopoly, with no competition… Libyan positioning among electricity sector structures models Single Buyer Vertically Integrated Vertically Integrated Unbundled Wholesale Market Retail Competition Monopoly Single Buyer Single Buyer • National, state-owned • A central entity • The central purchasing • Generators can sell • Distribution and retail utility owns and purchases power from entity is partially (i.e. their power directly to activities are fully operates all assets generators and sells it conducts generation distributors, retailers or separated: retailers across the value chain to distribution and transmission) or large end user either have open access to • Does not allow companies and large completely unbundled through bilateral the transmission and direct/indirect end users contracts or through a distribution networks competition between • Allows for the entry of power pool and customers are able players independent generators to freely select between (IPPs) different retailers Vertically Integrated VIU Utility (VIU) G G IPPs EG G IPPs G G IPPs G G IPPs EG Generation Transmission /System Operator Transmission Transmission Transmission /Market Operator Transmission / /System Operator /System Operator /System Operator System Operation /Single Buyer /Single Buyer /Market Operator Distribution Distribution/Retail Distribution/Retail Distribution/Retail Distribution/Retail R R R Customers Customers Customers Customers Customers Sector structure models are presented to provide a baseline and do GECOL not imply any suggestion for GECOL going forward Note: Independent Power Producers (IPPs), Embedded Generator (EG); Source: Desk research, Cambridge Working paper on economics, Strategy& analysis Strategy& | PwC Prepared for The World Bank 27 2 Sector structure (monopoly) Task A: Deliverable III (a) – Sector reform options …while most MENA / neighboring countries are structured according to single buyer models Examples of international sector structures SELECTED EXAMPLES – NOT EXHAUSTEIVE Single Buyer Vertically Integrated Vertically Integrated Unbundled Wholesale Market Retail Competition Monopoly Single Buyer Single Buyer Indonesia Algeria India Iran USA Saudi Arabia Argentina Libya Morocco Kuwait Brazil European Union Jordan Qatar Chile Chad Tunisia Japan Egypt Ukraine Korea Russia Turkey Kazakhstan Iraq Lebanon MENA region / neighboring Benchmarking exercise was not used to draft the roadmap. countries sample The activities proposed in the roadmap directly respond to identified sector issues Note: It shall be clarified that the statement does not recommend a change in sector structure based on the high-level (non exhaustive) benchmark provided but only describe an objective situation which compares Libya with other neighboring and international countries. The analysis of the most suitable sector structure has been defined separately and is not the focus of the current page. In addition, it shall also be clarified that the high-level benchmarking presented does not intend to provide neither best practices nor cases of failure. Instead, it only intends to show examples of sector structures across countries for discussion purposes only, without taking into consideration the underlying rationale and sector characteristics of each country Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 28 3 Increasing costs Task A: Deliverable II– Rapid assessment of the sector performance Since 2010, GECOL’s number of employees and salaries have been constantly growing… # FTEs evolution (2010-15, ‘000) Average-salary evolution (2010-15, LD / FTE) Indexed vs. 2010 (100% = 2010 reference) 45 +4.0% 250% 41.7 40.1 +70% 214% 40 38.3 Average-salary 35.0 36.2 35 34.3 200% 30 150% 142% 25 20 Cumulated inflation1 100% (2010 reference) 15 10 50% 5 0 0% 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 1) IHS, inflation consumer prices Source: GECOL data collection ID13, GECOL data collection ID17, Strategy& analysis Strategy& | PwC Prepared for The World Bank 29 3 Increasing costs Task A: Deliverable II– Rapid assessment of the sector performance … affecting the company’s productivity and operating costs, offsetting the positive fuel cost savings achieved Productivity benchmark (2015) GECOL costs evolution (2010-15, Mn LD) GWh / FTE Although having a lower 18 17.2 +657 share of its total FTEs in Mn LD generation, GECOL has still 16 a worse productivity than 409 peer countries Salaries 14 1,065 11.7 108 12 Maintenance 81 10 9.5 115 8.21 Materials for O&M 5 8 -240 Mn LD 120 6 Various service 5.0 71 4 688 Fuel cost 449 2 Fuel transportation 23 0 to generation stations 6 Morocco Jordan Algeria Libya Egypt 356 2010 Other expenses Generation 254 2015 FTEs share 19% 20% 17% 10% 20% vs. total Note: includes Sonelgaz, ERC, CEGCO, SEPGCO, AES, QEPCO, ONEE-BE, Masen, and EEHC Generation Companies; 1) Updated with new data received Source: GECOL data collection ID17, GECOL data collection ID24, Corporate Annual Reports, Electricity Sector Regulatory Agencies Annual Reports, Strategy& analysis Strategy& | PwC Prepared for The World Bank 30 4 Commercial losses and poor collection Task A: Deliverable II– Rapid assessment of the sector performance The analysis of distribution and supply highlighted a dramatic increase in commercial losses and poor collection… Evolution of commercial losses Evolution of receivables TWh Bn LD 25 24.1 2.5 2.3 21.1 1.9 2.0 20 2.0 16.1 15 1.5 12.6 1.3 10 1.0 6.4 5 0.5 0 0.0 2010 2012 2013 2014 2015 2010 2012 2013 2014 2015 Source: GECOL data collection ID12, GECOL data collection ID37 Strategy& | PwC Prepared for The World Bank 31 5 Unbalanced tariff Task A: Deliverable II– Rapid assessment of the sector performance …worsened by a tariff framework which is structurally unable to recover costs Burden on the sector (Bn LD, 2015) 5.0 3.1 Subsidized tariff 1.9 scheme Tariffs not reflecting the D&A 10% economic cost of supply Other in 2015 12% OPEX 0.9 Fuel cost 23% 0.8 Salaries 55% 0.2 Total cost Fuel GECOL Unreflective Max. Commercial Revenues Non Actual subsidies P&L costs tariff theoretical loss invoiced2 collection collected revenues 1 revenues 1) Sum of (Tariff by customer class) x (Consumption by customer class); 2) Considers only revenues invoiced from sale of electric power Source: GECOL data collection ID2, GECOL data collection ID7, GECOL data collection ID13, GECOL data collection ID37, Strategy& analysis Strategy& | PwC Prepared for The World Bank 32 6 Low financial sustainability Task A: Deliverable II– Rapid assessment of the sector performance As consequence of the unbalanced tariff and commercial losses, GECOL has registered continuous losses … Evolution of GECOL P&L (subsidies included) (Bn LD) 3.0 Costs Government subsidies on GECOLP&L1 2.5 2.5 Revenues from market2 2.1 1.9 1.9 2.0 1.8 1.7 1.7 1.5 1.4 1.5 1.3 1.2 0.4 0.9 1.1 1.0 0.8 0.8 0.9 1.1 0.3 0.5 0.8 0.4 0.6 0.5 0.4 0.0 2010 2011 2012 2013 2014 2015 0.0 -0.2 -0.5 -0.4 -0.4 -0.6 -0.6 -1.0 Losses -1.2 -1.5 Profit -25% -81% -12% -26% -92% -46% margin (%) 1) Subsidies actually received in GECOL P&L; 2) GECOL’s total revenues in P&L including both revenues from sale of electricit y and revenues from other services (i.e. water, activation of check contracts, meter renting, other services and connections, etc.) Source: GECOL collection ID13, Strategy& analysis Strategy& | PwC Prepared for The World Bank 33 6 Low financial sustainability Task A: Deliverable II– Rapid assessment of the sector performance … with heavy impacts on the company (and thus the sector) long-term financial viability GECOL Total Assets GECOL Total Equity and Liabilities (Bn LD) (Bn LD) Delta (Bn LD) Delta (Bn LD) 2010-14 2010-14 Largely non- 7.5 7.5 7.4 performing? 7.5 7.5 7.4 Mainly 7.1 7.0 7.1 7.0 towards NOC? 19% 26% 26% 17% 27% 31% 23% +0.9 ! 24% 37% 6% 48% +2.3 ! 20% 7% 12% 18% 23% 24% 21% 7% +0.1 10% +0.3 76% 69% 61% 61% 59% 56% 52% 50% 48% -0.8 -2.3 42% ! 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 Receivables Trades payables Other current assets Other liabilities (exc. trade payables) Fixed assets Total Equity Source: GECOL collection ID13, Strategy& analysis Strategy& | PwC Prepared for The World Bank 34 7 Heavy burden on state All these issues represent a heavy burden for the Libyan State and created a very challenging financial situation … Evolution of financial burden on Libyan State (Bn LD, 2015) INDICATIVE Total burden on Libyan State 5.0 5.1 (Bn LD) Subsidies 4.2 on fuel1 2.9 3.1 (Bn LD) Burden due 1.2 to tariff 1.0 0.8 0.9 structural unbalance2 0.6 + 6.6 7.3 5.6 (Bn LD) 4.7 3.8 Burden of 1.1 0.9 0.9 comm. loss3 0.8 2010 2012 2013 2014 2015 0.6 and non- collection4 (Bn LD) Commercial losses Additional burden (due to non collection) 2010 2012 2013 2014 2015 Non collection Actual burden on state 1) Calculated as the difference between the international fuel cost subsidized at 15% (assumed in agreement with NOC as opportunity price for Libya) and the subsidized price paid by GECOL to NOC; 2) Difference between GECOL P&L costs and max theoretical revenues (i.e. sum of (Tariff by customer class) x (Consumption by customer class)); 3) Difference between Max theoretical revenues and P&L revenues (electric power only); 4) Difference between P&L revenues invoiced and actual Revenues collection Source: GECOL data collection ID2, GECOL data collection ID7, GECOL data collection ID13, GECOL data collection ID37, Strategy& analysis Strategy& | PwC Prepared for The World Bank 35 7 Heavy burden on state Task A: Deliverable II– Rapid assessment of the sector performance …with Government less and less able to support the sector’s OPEX and CAPEX requirements State subsidies support State CAPEX support To cover P&L costs > revenues To fund investments Mn LD Mn LD 2,500 10,000 2,000 8,000 1,500 6,000 N/A 1,000 4,000 500 2,000 10 0 0 -500 -282 -2,000 -1,193 -623 -527 -2,344 -2,344 -692 -1,000 -4,000 -1,500 -6,000 -5,372 -5,076 -1,456 2010 2012 2013 2014 2015 2016 2010 2012 2013 2014 2015 2016 Subsidy Budgeted Subsidies budgeted not received CAPEX Budgeted CAPEX budgeted not expensed Subsidy Received1 CAPEX Expensed2 Note: Subsidy budgeted / received end-up in a burden to Libyan state but do not always equal to the state burden previously reported due to difference in sources and calculation 1) Subsidy received in GECOL’s P&L to cover the unreflective tariff; 2) CAPEX in GECOL’s balance sheet Source: GECOL data collection ID12, GECOL data collection ID13, GECOL data collection ID20, Strategy& analysis Strategy& | PwC Prepared for The World Bank 36 8 Low investments Task A: Deliverable II– Rapid assessment of the sector performance The lack of funding (together with the country instability) led to delays in the planned projects execution Planned capacity expansions (nameplate) vs. realized GW, 2010-2016 Under construction Generation On-line MW1,2 Old plan and contracted type date 4 9 Sarir Gas 285 2011 P 3 Ubari 750 2012  Misurata I 250 2011 P Combined 5 77% Benghazi North II Cycle 250 2011 P Zwetina I 250 2013 P 3 Khaleej (or Gulf) Steam 1,400 2013 P 2 Tripoli West II 1,400 2014  Generation On-line Planned MW1,2 type date Under Planned Total Planned, Actually Misurata II Combined 750 2014  Construction Projects contracted realized Militah Cycle 1400 2015  2010-20164 & Contracted 2010-2016 2010-2016 and under construction Bumba Gulf - 1,500 2015  2010-2016 Tripoli East Steam 350 2018  1) Nameplate capacity breakdown by plant still to be provided (data to be confirmed) 2) Considering the entry into force at full capacity; 3) Plant extension has been fully commissioned but due to technical or operational problems some unit P Projects planned in 2010, fully finalized in 2016 Are either suspended, out of service or not operational; full operation is thus estimated in 2017 P Projects planned in 2010, partially finalized in 2016 4) Data inconsistency about nameplate capacity to be resolved (possibly includes also additional plants)  Projects planned in 2010, still not operative in 2016 Source: GECOL data collection ID1, GECOL presentation (2010), Strategy& analysis Strategy& | PwC Prepared for The World Bank 37 9 Poor operating performance Task C: Deliverable IV (b) – Improving GECOL technical performance Delayed investments combined with other issues led to a poor sector operating performance Poor operating performance issues Covered in more detail in next slides1 # # # # MV & Sector Generation Transmission Control Distribution Deficient asset Issue / Overdue Damaged substations Failure of installation and concern maintenance and overhead lines communication links maintenance identified practices Improve maintenance Inadequate fuel of overhead lines & supply S/S2 DC systems Transformers failures Operational Incorrect and unsafe and 30kV network deficiencies O&M practices earthing Delayed investment Delayed capacity Delayed substation Delayed control Delayed and replacement expansion projects rehab. programs projects investments projects Skills shortage Poor sector operating performance 1) For further detail, see “Task C – 4.2. Improving GECOL technical performance report; 2) Substations (S/S) Source: Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 38 9 Poor operating performance | Overdue maintenance Task C: Deliverable IV (b) – Improving GECOL technical performance In the past years, GECOL was unable to cope with its plants maintenance needs: in ’17, 34 units were pending overhaul… Generating units overhauls (2010-20171) 34 31 28 27 Number of units to be 19 overhauled 16 16 (Backlog + 11 Due in year “Due in year”) From previous year From 2+ years Backlog 20103 2011 2012 2013 2014 2015 2016 Nov. 2017 Units actually overhauled2 Avg. units 7 7 8 overhauled 6 5 6 2 3 5.5 Due in year 20103 2011 2012 2013 2014 2015 2016 2017 “Due in year” From previous year actually N/A 0% 14% 50% 38% 0% 0% 0% From 2+ years overhauled4 1) Generating units overhauls up to November 2017; 2) Overhauls are considered in the year of their completion; 3) No clear identification of backlog was available for 2010; 4) “Due in year” overhauled units divided by total overhauled units; Source: Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 39 9 Poor operating performance | Overdue maintenance Task C: Deliverable IV (b) – Improving GECOL technical performance …accounting for a total installed capacity with maintenance issues ranging between 5.2 GW and 6.7 GW Evolution of due for overhaul units nameplate capacity (GW, 2010-2017) Nameplate capacity of units requiring complex and less complex maintenance3 6.7 Detailed assessment of generating units capacity with complex and less complex 5.2 maintenance requirements in Generation capacity 4.2 review excel file2 3.9 43% 3.5 3.0 18% 26% 60% 16% 19% 2.0 1.9 62% 1.5 10% 59% 70% 23% 74% 5% 58% 38% 33% 23% 30% 16% Due in year 16% From previous year 20101 2011 2012 2013 2014 2015 2016 Nov. Dec. From 2+ years 2017 2017 Backlog 1) No clear identification of backlog was available for 2010; 2) Data provided in December 2017 by GECOL generation department task force created ad hoc for the capacity assessment of the generation fleet; 3) Less complex maintenance includes both overhauls and units that require replacement of parts but not a complete overhaul (replacement of pumps, bearings, etc.); Source: Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 40 9 Poor operating performance | Inadequate fuel supply Task C: Deliverable IV (b) – Improving GECOL technical performance In addition to the maintenance issue, GECOL’s P/S are adversely affected by fuel supply constraining factors Fuel supply constraining factors today Generating unit Fuel transportation / supply Ship unloading Pipeline Truck by land through sea Lack of Weather Logistics & Pressure conditions security Depending on fuel Smaller units are taken External factors such Impractical for large transportation offline to ensure as bad weather and plants requiring a sufficient pressure to unfavorable waterways constant stream of Fuel supply bigger units constrain cargos trucks constraining HFO Limited size of tank farms requires factors Limited storage constant stream of fuel and prevents Depending on the capacity from having a buffer to cover periods of type of fuel LFO shortages in supply Less important units switched to LFO so Gas Gas availability more sensitive units can operate on gas Going forward, NOC has estimated a decrease of local gas available for power generation after up-stream uses and non-thermoelectric demand further possibly affecting availability of gas units currently under construction Identified fuel supply issues Note: Improving GECOL technical performance report has identified in 600MW the available capacity directly connected to fuel supply constraining factors today Source: Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 41 9 Poor operating performance | Overdue maintenance & Inadequate fuel supply Task C: Deliverable IV (b) – Improving GECOL technical performance Combined overdue less complex maintenance and fuel constraints are the cause of 2.0GW unavailable power… Breakdown of GECOL unavailable capacity1 (GW, 2017) 10.8 10.2 0.5 1.1 8.7 1.2 7.4 2.0 0.1 GW 1.4 0.6 5.3 Libya GECOL Capacity Avg. Theoretical Unavailable Unavailable Max Unavailable Unavailable Available nameplate nameplate ready for unavailable max power power due to power for available power power due to power capacity capacity retirement3 power due from complex other/ power after requiring fuel supply 20171 20172 to ambient installed maintenance5 unknown less complex less constraints conditions4 capacity reasons maint. and complex fuel maint.5 1) Includes third party power stations: Sarir MMRA and Misurata Steel; 2) Includes GECOL main power stations and ready for retirement units; 3) Updated ready for retirement capacity agreed with GECOL in December 2017; 4) Unavailable power due to ambient conditions was assumed to be equal to be 0 for steam turbines and equal to nameplate times a derating factor of 12.5% for gas turbines; 5) Maintenance was classified as less complex maintenance if it can be solved within a short period of time (max 4 months; for example gas turbines whose maintenance is recurring every 3-4 months) while overhauls on steam units and all maintenance requiring more than 4 months was considered complex maintenance; Source: Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 42 9 Poor operating performance | Overdue maintenance Task C: Deliverable IV (b) – Improving GECOL technical performance …with a worse situation in the East (with 43% of nameplate capacity lost due to lack of less complex maintenance) Units requiring less complex maintenance3 (MW, 2017) % Nameplate lost due to lack of % Nameplate lost due to lack of WEST1 21% less complex maintenance EAST1 43% less complex maintenance 0 200 400 0 200 400 MW MW MisurataGT-31 MisurataGT-32 Benghazi North 2GT-31 MisurataST-1 ZawiaGT-11 SarirGT-1 ZawiaGT-12 ZawiaGT-13 ZawiaGT-14 SarirGT-3 ZawiaGT-15 Western MountainGT-12 Benghazi North 2ST-30 Western MountainGT-13 Western MountainGT-14 Benghazi North 1GT-14 Western MountainGT-16 Khoms 1GT-03 Khoms 1GT-04 Benghazi North 1GT-13 ZawiaST-10 ZawiaST-20 ZweitinaGT-11 Available power ZawiaST-30 Average unavailable Tripoli SouthGT-11 due to ambient conditions2 Tripoli SouthGT-12 KufraGT1 Unavailable power Tripoli SouthGT-13 requiring less complex maintenance3 Tripoli SouthGT-14 KufraGT2 Unavailable power Tripoli SouthGT-15 for other/unknown reasons 1) West includes Western, Southern, Tripoli and Central regions, while East includes Wahat, Benghazi and Eastern regions; 2) Unavailable power due to ambient conditions was assumed to be equal to be 0 for steam turbines and equal to nameplate times a derating factor of 12.5% for gas turbines; 3) Maintenance classified as less complex if it can be solved within a short period of time (max 4 months); Source: Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 43 9 Poor operating performance | Damaged transmission and overhead lines Task C: Deliverable IV (b) – Improving GECOL technical performance Damages to transmission substations and overhead lines led to a decrease in grid reliability Damaged substations and overhead lines # Transmission Damaged Substations Overhead lines substations and 13 overhead lines 400kV Total length of Total # substations 86 + 99 overhead lines 14,458 Improve maintenance 220kV (km) 2,290 of overhead lines & substations DC systems Out of service 6 6% Transformers failures and 30kV Needing network earthing replacement of 25 old switchgears Delayed substation With rehab. programs damaged / Damaged power 9 old Out of service transformers 819 components overhead lines (6%) (km) Not in service 23 Skills shortage earthing 15 (1%) resistors 49% 220 kV 400 kV Source: Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 44 9 Poor operating performance | Failure of communication links Task C: Deliverable IV (b) – Improving GECOL technical performance Issues with communication links increased the network operating control, also increasing operating risk Status of NCC/TRCC SCADA availability and quality of data 100% 76% Unavailable data # Control 36% Failure of communication links 7% 6% 27% Operational deficiencies 24% Delayed control projects Total OPGW Problems Telecom RTU/DCS1 Other reasons Availble necessary data equipment data problems • Problems with contacts, relays, Skills shortage • Defects in some Functioning transducers & part of the problems to the other data RTU/DCS Cut and broken terminal equipment sources Reasons for data • Problems with OPGW conductors to which the fiber • Problems with unavailability the interface and fiber optic cables are wiring/ bad protocols connected at each contacts • Incompatibility line end • RTU not yet in the equipment commissioned/ in service 1) Remote Terminal Units (RTU) / Digital Control Systems (DCS); Source: Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 45 10 Low service quality Task A: Deliverable II– Rapid assessment of the sector performance Low capacity availability and growing demand has thus led to negative reserve margin and consequent load shedding S/D evolution1 Reserve 3% -10% -5% -8% -31% -11% -15% -25% margin2 GW GECOL ready 10.8 11 10.3 10.2 for retirement 9.7 10.0 units 10 Third party 8.8 8.8 8.9 plants 9 8 38% 42% 42% 51% 33% 36% 55% 7 43% 55% Available 6 capacity excluding ready for 5 retirement and 4 third party plants from nameplate 3 67% 64% 62% 58% 58% 57% 49% 2 45% 1 0 2010 2011 2012 2013 2014 2015 2016 2017 Demand (peak demand)3 Unvailable capacity Available capacity5 Nameplate capacity4 1) Tripoli West unit 1 and 3 are assumed to be retired respectively in 2013 and 2011, University small gas plant is assumed to be retired in 2016; 2) (Available capacity – Peak demand) / (Peak demand); 3) Demand at generation level. Demand for 2017 is forecasted demand under Scenario C-Slow political stability scenario-UPDATED ; 4) Nameplate capacity estimated considering unit rated nameplate capacity and year in which the unit came in service. Total nameplate capacity includes 3rd party plants and units that are considered ready for retirement in 2017; 5) Considers only time availability computed on generating unit hours of operations during the year; Source: GECOL data collection ID4, Awardbrand - Improving GECOL technical performance report (Data received from GECOL Generation department), Strategy& analysis Strategy& | PwC Prepared for The World Bank 46 In conclusion, among all inter-related issues, 6 root-causes on which the reform effort should be focused were identified Libyan electricity sector root-causes The continuously evolving geo-political situation and the connected instability and uncertainty, has negatively Weak sector impacted the electricity sector (since 2012, Libya has been unable to release the necessary policy and governance regulation initiatives) Sector GECOL is still operating as monopolist, with no private participation (no IPPs) and no competition. This sector structure structure has inhibited the accountability of results, reducing incentives for performance improvements (monopoly) Increasing Partially linked to the two previous issues, FTE and salaries increases have negatively impacted GECOL P&L costs offsetting the fuel costs savings achieved (through the shift towards gas generation) Commercial The challenging socio-economic situation, the absence of a clear legal framework and the poor invoicing and losses and collection practices, has led to a dramatic rise in commercial losses and bad debt, severely impacting GECOL poor collection financial condition Government decisions to reduce tariff (residential clients) and the inability to adjust the tariff scheme against Unbalanced the rising costs have led GECOL to a structural inability to re-cover its system costs, leading to a burden on tariff Libyan state Geo-political instability, damages, lack of planning and inability to keep-up with the required sector investments Poor operating led to delayed projects and low installed capacity availability (linked to unit cannibalization, scarcity of fuel performance supply and lack of adequate O&M), with negative consequences on service quality Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 47 Task A: Deliverable III (b) – Electricity Act and sector restructuring report The electricity sector reform has thus been designed across three waves based on different macro-objectives Libya restructuring roadmap “Future Vision” Wave III Levels of evolution “Realize Wave II ambition”  Consider to evolve to more “Restructure and complex and competitive Wave I prepare for market models (wholesale “Fix the basics and ambition” market model)  Consider sector privatization prepare for vision, minimizing state restructuring”  Choose the desired end burden while optimizing state sector model and competitiveness  Establish (legally) the structure regulatory authority  Launch internal  Complete short-term communication and  Clarify sector governance performance improvement change initiatives  Strengthen sector legal actions framework  Complete GECOL org.  Achieve a fully functional,  Launch short-term restructuring transparent and performance improv. actions  Achieve full functional sustainable electricity  Start GECOL org. unbundling sector restructuring  Continue reviewing  Achieve accounting periodically tariff levels unbundling  Launch new tariff framework Min target duration  3 years 3 years 3 years (min) Time Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 48 Each wave proposes a number of measures and milestones to address the root causes and attain specific objectives Approach for electricity sector reform roadmap Milestones represents the real objectives to be accomplished by each measure (i.e. until a milestone is not achieved, owners shall not move to the next measure) Wave Sector Wave issues’ Measures Milestones objectives root-causes Wave Activities 2018 2019 2020 Owner Establish The objective of the action plan is to a policy Draft Presidential decree/ Cabinet Measures Decision clarifying government body with Ministry in charge Parliament target roadmap for Libya for the next 3- mandate sector policy responsibilities 6 years (though aware of the fact that a continuous political instability situation Set Establish regulatory agency within the Regulatory Agency Ministry in will make the completion of such regulatory Government in operation charge roadmap challenging to achieve). agency Target deadlines set are thus to be Milestones considered as target Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 49 Task A: Deliverable III (b) – Electricity Act and sector restructuring report Wave I focuses on addressing Libya’s most pressing issues, while wave II focuses more on the sector restructuring Sector issues and restructuring roadmap waves’ objectives Electricity sector Wave I objectives Wave II objectives issues’ root causes Fix the basics and prepare for Restructure and prepare for restructuring ambition Strengthen sector governance Weak sector Clarify sector governance governance Increase competition in generation Sector structure Establish performance (monopoly) accountability Achieve functional separation Poor operating Restore acceptable service Upgrade service quality performance quality: “Zero load shedding” Continuous improvement in cost Increasing costs Costs control & staff reskilling structure Unbalanced tariff framework Improve GECOL & sector Achieve GECOL & sector financial sustainability financial sustainability (reduce subsidies on tariff and (balanced tariff and region avg. Commercial losses commercial losses) commercial losses) and poor collection Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 50 Executive Summary Summary of key issues faced by the electricity sector Wave I: Fix the basics and prepare for restructuring Wave II: Restructure and prepare for ambition Options for Wave III (realize ambition) Appendix – Inputs for Electricity Act Strategy& | PwC Prepared for The World Bank 51 I Fix the basics and prepare for restructuring Task A: Deliverable III (b) – Electricity Act and sector restructuring report Wave I focuses on five objectives through a number of measures and milestones… Wave I measures and milestones Wave I objectives Wave I Electricity Sector Fix the basics and Measures Milestones Issues’ root causes prepare for restructuring • Establish policy mandate • Ministry in charge • Set regulatory agency Weak sector Clarify sector • Regulatory agency in operation • Clarify GECOL’s governance governance governance • Government decree1 • Strengthen sector legal • National Electricity Strategy framework • Core BUs separated • Corporate core general dept. Sector structure Establish performance • GECOL accounting unbundling (ICT, E&P, HR&O & AFC) (monopoly) accountability • GECOL reorganization established • Accounting unbundling regulation • Sep. annual accounts submitted • Ensure state financial support Restore acceptable • All generation, transmission, Poor operating • Improve investment plan. process service quality control, MV & distribution performance • Address operating perf. issues “Zero load shedding” • Explore import supply milestones completed • HR strategy in place • Optimize power mix • Critical resource map and • Improve efficiency Costs control manpower rebalancing plan Increasing costs • Address manpower issues & staff reskilling • Workforce planning in place • Compensation and benefits • Capabilities & skills map redesign • Reskilling plan Unbalanced tariff • Tariff covering part of P&L costs framework • Launch new tariff framework • Theft areas map Improve GECOL & • Metering roll-out • Higher theft sanctions sector financial • Address electricity theft • Customer database Commercial losses sustainability • Fight insolvency • SMS/e-mail billing in operation and poor collection • GECOL’s mobile app running 1) This first Government Decree could be replaced with an Electricity Act in case a window of opportunity opens for the submission of a the electricity law to the House of Representatives; Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 52 I Fix the basics and prepare for restructuring Task D: Strategic plan for the development of renewable energies in Libya …and lays the foundations for the introduction of RES RES roadmap: wave I measures and milestones Wave I Wave II Wave III 2021 2024 2027 RES preparation and Increased private RES framework institution building investment in RES consolidation Electricity Sector Wave I objectives Wave I Issues’ root causes Measures Milestones • REDEVCO set up Weak sector RES capacity and • REDEVCO operations • RES permitting and governance institution building start documentation regime Poor operating • Wind pilot projects study performance completion Start pilot RES • Wind and PV pilot • PV pilot project study penetration projects Load shedding completion • 3% RES penetration Source: Gopa intec and Suntrace Task D Roadmap for Renewable Energy Development, Strategy& analysis Strategy& | PwC Prepared for The World Bank 53 I Fix the basics and prepare for restructuring| Clarify sector governance Task A: Deliverable III (b) – Electricity Act and sector restructuring report Libya shall first clarify its sector governance, setting-up well-defined institutions with policymaking responsibilities Measures and activities Measures Activities Year 2018 2019 2020 Owner Establish Draft Presidential decree/Cabinet Decision Parliament policy clarifying government body with sector policy responsibilities1 Ministry in mandate charge Set A Establish regulatory agency within the government2 Ministry in charge Regulatory Agency regulatory in operation agency B Regulatory agency in operation Regulatory Agency Focus in next slides Clarify Review composition of GECOL’s General Assembly Government GECOL’s governance Streamline and right-size BoD reallocating non-typical functions GECOL Begin reform discussion & draft the bill for the Government decree Ministry in charge Sign and endorse the Government decree3 Government Government decree Strengthen Draft the National Electricity Strategy Ministry in charge, sector legal Regulatory Authority, framework GECOL, NOC4 Sign and endorse the National Electricity Strategy Parliament National Electricity Strategy Milestone 1) MoE and Renewable Energy was established through Cabinet Decision (33) of 2012, but its mandate has not been renewed; 2) Beside its regulatory functions, this government agency will be in charge for leading the sector reform implementation; 3) This first Government Decree could be replaced with an Electricity Act in case a window of opportunity opens for the submission of a the electricity law to the House of Representatives; 4) Ministry in charge is the activity owner but the draft results from a comprehensive public consultation process with sector’s institutional stakeholders ( i.e. Regulatory Agency) and industry representatives (i.e. GECOL, NOC); Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 54 I Fix the basics and prepare for restructuring| Clarify sector governance Task A: Deliverable III (a) – Sector reform options Libya objective should be to identify a clear Minister in charge of electricity, as for example Tunisia Example of minister in charge of electricity SELECTED EXAMPLE Government of Tunisia Tunisia Ministry of Energy, Mines Department of Electricity, Gas and Energy Efficiency and Renewable Energies • Promote research and rational exploitation of Department of energy resources CSPIE Electricity, Gas and • Ensure the national energy security of supply Energy Efficiency High Commission for • Develop and implement policies and juridical texts Independent Power Production Coordination and regarding energy efficiency and energy transition • Suggest the implementation of through renewable Choose energy policies the benefits to be • Negotiate with companies and attribute research concessionaire granted to the concessionaire grants • Review the offers ANME • Define projects for the development of the energy • Submit its findings Agence Nationale sector to CSPIE for final pour la Maîtrise de • Oversee the rationalization and the exploitation of decision l’Energie energy sources Promote energy • Ensure the optimization and of the hydrocarbon CIPIE efficiency and Interdepartmental Commission the development production and optimize sector conditions of the Power Production of renewable energy sources Monitor Sector operators STEG (100% state-owned vertically integrated monopoly) IPPs IPPs Sources: Res4Med Country Profile, STEG website, Regional Center for Renewable Energy Efficiency Country Profile, ANME website, Strategy& analysis Strategy& | PwC Prepared for The World Bank 55 I Fix the basics and prepare for restructuring| Clarify sector governance Task A: Deliverable VI (b) – Detailed roadmap for establishing LEMRA report By end of 2018, the Government shall then set-up an Agency, which shall begin operations in Q1 2019 Regulatory agency setting roadmap A REGULATORY AGENCY SET UP Year 2018 2019 Activities Q1 Q2 Q3 Q4 Q1 Owner Appointment of BoD and initial budget allocation Appoint initial BoD members for a 4 years term Government Define and allocate the initial budget Government Recruitment of key personnel Select and appoint consultants/advisors to help in the process Government Select Chairman among BoD members1 Government Select and appoint departments heads BoD and Chairman (e.g. Executive Commissioners) Development and approval of Agency’s 4 years strategic goals Define key goals of the strategic goals/objectives Senior mgmt. team1 Vote and approve strategic goals/objectives BoD Recruitment of technical and support staff Develop basic recruitment criteria Senior mgmt. team & HR head Hire technical and support staff for each org. unit Senior mgmt. team & HR head BoD & chairman selected Full operating team in place and in operation Approved agency statute and [4]-years strategic plan 1) Executive Commissioners Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 56 I Fix the basics and prepare for restructuring| Clarify sector governance Task A: Deliverable VI (b) – Detailed roadmap for establishing LEMRA report For 4 years starting from 2019, the Agency will support the Government in drafting all the necessary rules & regulations Regulatory agency setting roadmap B REGULATORY AGENCY OPERATION Year 2018 2019 2020-2023 Activities Q4 Q1 Q2 Q3 Q4 … … Owner Training of technical and support staff Launch staff training programs1 Ex. Commissioners Support in the Government decree endorsement process Support Government in legal advisors selection process Senior mgmt. team Support Government in legal framework review Senior mgmt. team Support in the internal Government decree Agency (& advisors) endorsement discussions Draft regulations/manuals in line with the Agency’s responsibilities Support in the National Electricity Strategy definition Department in charge Accounting unbundling regulation Department in charge Draft Tariff regulation Department in charge Review KPIs manual & targets Department in charge Grid code Department in charge Other manuals & regulations2 Department in charge Safety standards Department in charge Government Accounting unbundling decree3 regulation published 1) As an example, during its first 3 years the Saudi Arabian Regulatory Authority (ECRA) began English and IT skills trainings for all staff resources;2) In line with the Agency 4- years strategic goals & objectives; 3) This first Government Decree could be replaced with an Electricity Act in case a window of opportunity opens for the submission of a the electricity law to the House of Representatives; Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 57 I Fix the basics and prepare for restructuring| Clarify sector governance Task A: Deliverable VI (b) – Detailed roadmap for establishing LEMRA report The Agency shall focus on drafting manuals/regulations for performance monitoring, tariff and account unbundling … Regulatory Agency responsibilities (Wave 1) Regulatory Agency 2019 in operation Responsibilities Activities Regulations/Manuals Supply matters KPIs Manual & targets Draft the KPIs Manual and set short term (3 years) KPI targets Performance monitoring Provide incentives to encourage the utility to achieve targets Supervise system’s security and reliability and propose improv. measures Technical matters Develop unified regulatory accounting and reporting procedures Standards and rules Set minimum safety standards for O&M, construction and installation Safety standards Draft the Grid Code/Interconnecting Guidelines Grid Code Consumers issues Draft the Tariff Regulation Tariff Regulation Tariff State criteria for the preparation of tariff proposals by GECOL Sector development Advise the ministry on matters related to development and operation plans Accounting unbundling Development Draft accounting unbundling regulation regulation Sector structure Draft operating guidelines for separated annual accounts Analyze and review GECOL’s separated annual accounts Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 58 I Fix the basics and prepare for restructuring| Clarify sector governance Task A: Deliverable VI (b) – Detailed roadmap for establishing LEMRA report … Advising the Government, who remains in charge of accomplishing all the key regulatory functions Actors redistribution of responsibilities (Wave I) Wave I As-is After Regulatory Agency set up Actors Regulatory Government GECOL Government GECOL Responsibilities Agency Set performance standards R R P Monitor performance R R P Define sector vision R R Determine prices R R R P Choose technologies R R Determine investments R R Establish sector rules R R P Receive public input R R R P R Balance environmental and economic goals R R Determine sector structure R R P Receive consumer complaints R P R P Full responsibility PAdvisory function Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 59 I Fix the basics and prepare for restructuring| Clarify sector governance Task A: Deliverable VI (b) – Detailed roadmap for establishing LEMRA report In line with its limited responsibilities, the Agency shall have a simple and centralized structure with only 3 departments Agency organizational structure Responsibilities Proposed organizational structure (Regulatory Agency – Wave I) Supply matters 1 Licenses Ministry in 2 Performance monitoring charge Government Technical 3 Standards and rules Internal issues audit Chairman 4 Rules enforcement 5 Information Consumers 6 Tariff issues Support Tariff Technical Sector 7 Consumer protection affairs development services head Commissioner Commissioner Commissioner 8 Disputes settlement 6 2 3 10 11 Financial Sector 9 Competition admin. & HR development 10 Development IT 11 Sector structure Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 60 I Fix the basics and prepare for restructuring| Establish performance accountability Task A: Deliverable III (b) – Electricity Act and sector restructuring report The Regulatory Agency will focus on supporting GECOL and the sector in pursuing its accounting unbundling… Measures and activities Measures Activities Year 2018 2019 2020 Owner Draft accounting unbundling regulation1 Regulatory Accounting unbundling Agency regulation published Set up a timing and procedures for separated annual account submission Regulatory Agency GECOL accounting Establish clear accounting system to allocate directly GECOL unbundling and indirectly related BS and IS accounts to value chain activities Draft separated annual accounts (IS and BS) for each BU GECOL Submit separated annual accounts (IS and BS) for each value chain activity GECOL to the regulatory agency Sep. annual accounts submitted Milestone 1) Includes instructions to draft separated annual accounts and rules for submission to the Regulatory Agency for review; Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 61 I Fix the basics and prepare for restructuring| Establish performance accountability Task A: Deliverable III (b) – Electricity Act and sector restructuring report …helping to establish an improved GECOL accountability at its operating (also achieved by GECOL first re-organization) Measures and activities Measures Activities Year 2018 2019 2020 Owner Separate Generation and Transmission into different BUs GECOL Core BUs Create new core ICT function (managed by CIO) reporting separated GECOL directly to MD Move IT away from network into ICT corporate core dept. with GECOL direct report to MD ICT corporate core established Move Communications unit under Transmission BU GECOL Group Generation, Transmission, Distribution GECOL projects in an integrated E&P function GECOL re- Move Projects Planning & Studies to E&P function GECOL organization Move Projects Accounting away from Contracts and Dev. GECOL Accounts within E&P function E&P corporate core established Move Tenders & Contracts from Contracts & Dev. to Procurement GECOL Create AFC function managed by CFO reporting to MD GECOL Move related units1 in the newly created AFC core function, GECOL led by a new CFO AFC corporate core established Consolidate in HR&O department (under MD) all the GECOL HR-related core functions leaving non-core HR activities HR&O corporate core within Support Services established Milestones 1) Units to be migrated to AFC are: Performance Monitoring general dept. (from BoD), core activities of Financial Affairs (e.g. Financial Planning and Ledger & Fin. reports) and L/C Financing and Customs Clearance from Contracts and Development accounts; Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 62 I Fix the basics and prepare for restructuring| Establish performance accountability Task A: Deliverable IV (a) – Options study for GECOL restructuring report Different organizational restructuring approaches and hypotheses were considered for GECOL… Reorganization options Option 1 Option 2 Radical Gradual Quick reorganization transition into a holding company Gradual reorganization evolution going hand in hand structure aimed at achieving legal unbundling directly with a stepped unbundling pathway (first accounting, from today’s situation followed by management unbundling and then legal) Wave I Wave II Ambition Fully Full legal Fully Accounting Functional Full legal Integrated unbundling Integrated unbundling unbundling unbundling Today Wave I Today M1 M2 M3 Projects within SBUs with SBUs and strong AFC, strengthened HR, ICT and AFC, ICT and E&P corporate HR corporate Holding As-is Holding structure As-is core functions core functions structure Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 63 I Fix the basics and prepare for restructuring| Establish performance accountability Task A: Deliverable IV (a) – Options study for GECOL restructuring report …and Wave 1 recommendation is to deploy a gradual approach to re-organize GECOL Options assessment Option 1 Option 2 Radical Gradual • Possibly ensures results accountability and improved • Enabled early-on SBUs accountability for results and PROS + operational efficiency • Rapid evolution away from monopoly towards more independent management • Parallel change of organizational structure, processes competitive sector structures and operating model • Challenging implementation both in terms of target CONS – structure and timing • Marked disruption risks for GECOL • Lengthier change process • Inflexible employee redeployment • Delayed benefits realized due to inefficiency of resulting • Delayed unbundled industry structure and risk of being RISKS operating companies “trapped” into intermediate steps without reaching the • Lost synergies and potential replication of activities final target among operating companies • Large consensus and leadership required EASE 0 • Extensive coordination effort needed among 4 • Persistent effort and commitment to ultimate organizational units target necessary • Required accounting and functional separation 1) Strategy for institutional development of GECOL report Source: Strategy& Analysis Strategy& | PwC Prepared for The World Bank 64 I Fix the basics and prepare for restructuring| Establish performance accountability Task C: Deliverable II (a) – Strategy for institutional development of GECOL GECOL reorganization shall focus on the establishment of performance accountability (separate BUs & CC functions) GECOL to be organization (2021) Board of Directors BoD Affairs Internal Control Media Managing Corporate Core Director ICT Center MD Office ERP Follow-up Technical Support Follow up Digital Inf. & Doc. ICT Networks Public Relations Infrastructure Experts and Telephones consultants office Legal Affairs Strategic PMO Performance Monitoring Planning Studies & dev. Distribution projects and Follow-up E&P Transmission projects Financial planning & Projects Accounting AFC Generation projects reporting1 Contracts & Dev, accounts Organization & Structuring Strategic Planning2 HR & O Dept. HR & Communication Business Distribution & Services Generation Transmission Support Units Supply Services Generation Transmission Distribution Procurement General Services Control MV Networks Reorganization Customer changes to be Accounting HR support Communications further deep-dived Service 1) Includes corporate core activities from Financial Affairs (i.e. General ledger and financial reports, Financial Planning and Fixed assets and insurance); 2) Strategic Planning unit from the Planning Studies & development division; Sources: GECOL (company organization chart 2015), Strategy& analysis Strategy& | PwC Prepared for The World Bank 65 I Fix the basics and prepare for restructuring| Establish performance accountability Re-organization shall be supported by a corporate-wide change management program… Change program phases 1 2 3 Define the change Drive the change Measure the change Leadership Education Strategy Alignment & Training Business Org & Talent Communications Alignment People Operating Culture Model Stakeholder Behavior Engagement Adoption Leading Lagging Focus in next slide Tailored program of interventions Clarity on what needs to change to Mechanisms to monitor progress ad drawing on formal and informal deliver the key business goals course correct as needed approaches Source: Strategy& Analysis Strategy& | PwC Prepared for The World Bank 66 I Fix the basics and prepare for restructuring| Establish performance accountability …which will drive the change (to be achieved through 6 main levers) Drive the change measures • Align leaders on future vision and Leadership Education convey the case for change • Design and deploy training related • Enable leaders to actively and Alignment & Training to acquiring new skills and capabilities, learning new processes, visibly support and role-model policies, systems, etc. change • Build awareness and • Leverage existing culture; adjust understanding of the case for Org & Talent job roles, career paths, and behavior change, what it means and what Communications expectations; and link to individual people need to do differently Alignment performance management • Communicate behaviors changes • Incentivize and reinforce desired and how they should be exhibited behaviours formally and informally • Engage and energize stakeholders directly and indirectly; top-down • Identify critical behaviours that and bottom-up, informally and Stakeholder Behavior must be exhibited to create new formally Engagement Adoption mind-sets and increase adoption • Leverage change agents, • Determine performance outcomes exemplars, trusted nodes and key impacted by the behavior changes influencers Source: Strategy& Analysis Strategy& | PwC Prepared for The World Bank 67 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” Task A: Deliverable III (b) – Electricity Act and sector restructuring report Government shall then support GECOL with the necessary funding, so that it can work at restoring its service quality Measures and activities Measures Activities Year 2018 2019 2020 Owner Ensure state Set extraordinary investment budget account1 Government financial support Improve a more efficient budget allocation process Gov’t / GECOL Review and strengthen GECOL investment planning process GECOL (e.g. Master Plan preparation process)3 Improve Establish a least cost planning methodology to identify the least GECOL investment cost mix of resources which would meet forecasted electricity planning demand ensuring a reliable service level (to be applied for process evaluation of investment across the whole value chain) Ensure cost-efficient implementation of planned investment GECOL A Complete all measures and activities proposed in the generation GECOL action plan All generation milestones completed Address Complete all measures and activities proposed in the transmission GECOL B operating action plan All transmission milestones completed performance Complete all measures and activities proposed in the control GECOL issues C action plan All control milestones completed D Complete all 4 measures and activities proposed in the MV & distribution GECOL action plan All MV & distribution milestones completed Focus in next slides Explore Explore possible imports from neighboring countries GECOL import Initiate/establish cooperation agreements Ministry supply with other countries for electrical interconnections5 in charge Milestone 1) To be completed as part of the Comprehensive business process reengineering study proposed in Task C final report action plan for the Processes area of analysis; 2) Government & GECOL shall also work on improving / clarifying the electricity budget allocation process going forward; 3) As part of the Comprehensive Business process reengineering suggested in Task C final report action plan; 4) Because of the similarities between the issues identified in MV and Distribution, a unified action plan was drawn 5) Activity to be initiated only if feasible possibility for imports from neighboring countries is found otherwise no action should follow; Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 68 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” Task A: Deliverable III (b) – Electricity Act and sector restructuring report In Wave I, the Government should also work on a more efficient investment budgets & planning with GECOL… Budget preparation and submission process Libyan National Budget chapters: I II III IV Admin. expenses2 Salaries and Development and other Subsidies4 wages1 projects3 current expenses Development budget Recurrent budget GECOL (new org. set-up) Actors directly dealing Government with the Government Managing Director Ministry of Ministry of Planning Finance AFC Submit budget Engineering & Projects In line with the revised process, requirements Government shall allow GECOL Submit budget requirements to have more say in: Opex budget • Deciding areas for allocation Capex budget Distribution & of capital expenditure Corporate Core Generation Transmission • Setting priorities for budget Supply GECOL leadership allocation Operating BUs 1) Includes social security; 2) Administrative expenses for government authorities and ministries; 3) e.g. new plants, housing projects; 4) Includes credits for public debt, food programs, oil&gas and electricity subsidies. For what concerns GECOL includes subsidies on fuel and GECOL’s losses on P&L Sources: Strategy& analysis Strategy& | PwC Prepared for The World Bank 69 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” Task C: Deliverable 2.2 – Process mapping report …resolving the existing CAPEX and OPEX budgeting issues identified through improved processes Deep dive in Task C-2.21 OPEX budgeting process CAPEX budgeting process ! Identified issues ! Identified issues Lack of prioritization among OPEX items No Control over Development Projects P Proposed TO-BE P Proposed TO-BE Missing targets & Budget from GECOL operational efficiency factors OPEX budget CAPEX budget Organizational process Limited power over process coordination setting priorities in the complexity budget allocation process Budget approval before receiving Government confirmation Difficulties in budget Challenging budget estimation due to long follow up due to lead time of separation in areas infrastructure projects No effective role of the budget committee in the process Process is not in line with Government Lengthy and manual budget preparation process timeline 1) Task C: Deliverable 2.2 - Process mapping report; Sources: Strategy& analysis Strategy& | PwC Prepared for The World Bank 70 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” Together with the CAPEX budgeting process, GECOL shall also improve its investment planning process… Investment planning process Process steps GECOL E&P department to establish policies for to be organizational structure Project selection capital investment planning (i.e. eligibility criteria setting criteria; prioritization criteria) Actors directly dealing with the Government for financing Managing E&P to provide BUs with schedules and Director Provision of requests forms, each requiring information for calendar, forms project ranking and instructions AFC Bus to assess progress of ongoing projects Project requests and prepare and submit projects proposals to preparation E&P dept. Engineering & Projects Provides Review projects E&P to review all BUs project proposals criteria for according to the predetermined criteria cost-efficient Submit requests projects project prioritization requests Prioritize projects E&P to prioritize projects through least cost Business units planning methodology requests Focus in next slide Draft the Master Plan from the projects final Distribution list arranged by priority order according to the Generation Transmission Draft Master Plan & Supply criteria used in the scoring process Sources: Strategy& analysis Strategy& | PwC Prepared for The World Bank 71 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” …Using a least cost planning methodology for project selection and implementation Least-cost planning methodology ILLUSTRATIVE Supply/demand balance Option selection GW Load 12 A Option forecast 10 study 8 ! Need for Negative investment 6 reserve B Option in new + 4 margin resources 2 Existing 0 resources C Option 2017 2018 2019 2020 Select option with lowest: Forecasted demand (peak demand) ℎ Forecasted unvailable capacity 1 = Forecasted available capacity ℎ Through least cost planning methodology GECOL shall identify the least cost mix of resources that would deliver sufficient power to meet projected increases in demand for electricity without unplanned terminations (i.e. ensuring a reliable service) 1) Long-run marginal cost including additional investment cost, O&M costs and fuel costs; Sources: Strategy& analysis Strategy& | PwC Prepared for The World Bank 72 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” Task C: Deliverable IV (b) – Improving GECOL technical performance Thanks to the renewed Government support, GECOL will accomplish its technical improvement in generation Detailed action plan provided in Generation performance improvement plan Task C final report A Generation Measures Milestones issues • Resolve backlog of overdue maintenance • 90% of suspended units back in service Overdue • Plan maintenance of running units • No new buildup of overdue maintenance 1 • • maintenance Retire old units List of units to be retirement approved • Ensure availability of 3rd party plants • 250 MW added to grid • Zero unavailable capacity due to fuel supply Inadequate fuel • Protect fuel supplies to P/S and address fuel • Supply Sarir P/S with gas 2 quality problems • Full implementation of fuel quality control supply procedures • Updated generation expansion plan • Complete under construction projects • RFP for first round of new generation projects • Update load forecast and generation expansion Delayed capacity issued 3 plan expansion projects • Obari completed (4x125 MW online) • Tender new generation capacity • Gulf completed (3x350 MW online) • Complete EDM system • Fully functioning EDM • Certification program for P/S O&M personnel in • Solve lack of O&M competences place 4 Skills shortage • Solve Generation BU understaffing • All P/S operation shifts adequately staffed with qualified personnel Source: Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 73 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” Task A: Deliverable III (b) – Electricity Act and sector restructuring report To estimate GECOL’s future generating performance improvement, we developed two extreme scenarios Simplified scenarios assumptions Scenario name Under construction and Variable Existing plants Planned plants (2017- contracted plants 2030) • Each year: 4 units overdue from 1 past years + all overhauls of newly Worst due units Overhauls/ • Cleared by 2024 major • Each year: 15 units overdue from Not applicable Not applicable maintenance past years + all overhauls of newly Best due units • Cleared by 2020 2 • Resolved by 2024 Worst • None considered after Not included Fuel No constraints on fuel supply constraints considered • Resolved by 2020 No constraints on fuel supply Best • None considered after considered 3 Worst • 0% for steam turbines Not included • 0% for steam turbines • 12% to 20% for single cycle and Derating • 12% to 20% for single cycle and combined cycle gas turbines factor combined cycle gas turbines depending on historical derating and • 0% for steam turbines depending on geographical location Best location • 12% to 20% for gas turbines depending on geographic location Source: Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 74 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” Task C: Deliverable IV (b) – Improving GECOL technical performance Under highly aggressive assumptions, GECOL shall be able to restore its service quality by 2019… Generation expansion plan (2017-2030) Best case scenario GW 20 21 ! Start 19 20 contracting +20% Positive reserve process of next margin1 if contracting generation of 17 of next generation ! P/S +67% of P/S starts by 15 Aggressive 14 2021 at the latest recovery of 13 unavailable 12 capacity3 Planned 10 9 Under construction & 7 contracted Recovered unavailability +64% 5 Phase outs4 5 Existing available Demand (A-Slow political stability)2 Demand 0 (B- Continuous political instability)2 2017 2018 2019 2020 2021 2022 2023 2026 2027 2030 1) Computed as (Available capacity-Peak demand)/Peak demand; 2) Peak demand at generation; 3) Assuming GECOL will be able to carry out each year 15 overhauls of units overdue from past years + all overhauls of newly due units. All overdue unit overhauls and major maintenance are supposed to be cleared by 2020; 4) Conventional steam turbines that approached their retirement age but have been overhauled are assumed to have an extended life up to 2030, gas turbines to 2025. Other units are retired at their planned decommissioning year; Sources: GECOL data collection ID4, Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 75 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” Task C: Deliverable IV (b) – Improving GECOL technical performance …but under more pessimistic (realistic?) scenario, load shedding may still remain an issue until 2020 Generation expansion plan (2017-2030) Worst case scenario GW 20 More prudent recovery of unavailable -37% Negative reserve 15 capacity with respect to best case scenario, but margin1 12 12 Still aggressive with 11 11 -13% ! respect to GECOL hist. 10 performance 3 10 10 9 Under construction & 7 contracted3 7 Recovered unavailability3 +39% 5 Phase outs 5 Existing available Demand (A-Slow political stability)2 Demand 0 (B- Continuous political instability)2 2017 2018 2019 2020 2021 2022 2023 2026 2027 2030 1) Computed as (Available capacity-Peak demand)/Peak demand; 2) Peak demand at generation; 3) Assumes GECOL will be able to carry out each year 4 overhauls of units overdue from past years + all overhauls of newly due units Sources: GECOL data collection ID4, Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 76 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” Task C: Deliverable IV (b) – Improving GECOL technical performance Within Wave 1, GECOL will also address its key transmission system issues Detailed action plan provided in Transmission performance improvement plan Task C final report B Transmission Measures Milestones issues Damaged • Repair out of service substations • All substations back in service 1 substations and • Repair damaged overhead lines • All transmission lines in service overhead lines Delayed • Commission all stations 2 substations rehab. • Rehabilitate / replace old assets • Overhaul all 220kV substations programs • All resistors connected Transformers • Reconnect 30kV earthing resistors • Systematic analysis of all future failures of grid 3 failures and 30kV • Investigate transformers failures components instituted network earthing • Improve transformers preventive maintenance • Oil analysis laboratories fully operational Improve • All 220 & 400KV lines regularly inspected and maintenance of • Improve lines maintenance 4 • Improve substation DC1 system maintenance maintained overhead lines & • All DC systems inspected and maintained S/S2 DC systems • Improve O&M staff knowledge and competences 5 Skills shortage • Train new generation of overhead linesmen • Certified new linesmen • Develop capabilities for live line maintenance 1) Direct Current (DC); 2) Substations (S/S) Source: Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 77 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” Task C: Deliverable IV (b) – Improving GECOL technical performance In parallel, GECOL will also need to resolve the four key issues with its control department Detailed action plan provided in Control performance improvement plan Task C final report C Control Measures Milestones issues Failure of 1 communication • Repair damaged OPGW links • Restored damaged OPGW links • Solve bad data quality • 98% of bad data sources solved links • NCC upgrade and back up completed Delayed control • TRCC maintained and upgraded 2 • Complete control center projects • BRCC commissioned and operational projects • TDCC, ZDCC, and BDCC commissioned and operational • Utilize SCADA control functionalities • 80% / 90% of SCADA system control • Provide spinning reserve functionalities in use Operational 3 • Form permanent event analysis team(s) • Adequate spinning reserve is maintained deficiencies • Reinstate AGC1 functionality • All AGC are operating • Modernize procedures and codes • Control codes and procedures are implemented 4 Skills shortage • Pursue staff development and training • All control staff are trained and certified 1) Automatic Generation Control (AGC) Source: Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 78 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” Task C: Deliverable IV (b) – Improving GECOL technical performance GECOL will the need to set and launch a series of milestones and measures to address its MV & Distribution issues … Detailed action plan provided in MV & distribution performance improvement plan Task C final report D MV & Measures Milestones Distribution issues • Improve cable handling and laying practices • Correct errors in cable jointing and termination works • All storekeepers trained and certified • Put AVRs1 of transformers with OLTCs2 in service • All project supervisors and network contractors • Correct bad practices in installation and O&M of trained and certified transformers • All cable jointists trained and certified • Use only treated oils in transformers • All AVRs of Transformers with OLTC in service • Establish workshops to repair damaged • All regions equipped with oil treatment machines transformers Deficient asset • Transformer repair facilities established • Correct errors in erection of wood pole overhead installation and • Preventive maintenance system is fully 1 lines maintenance implemented • Improve protection against ingress of dust and practices • All old minimum oil circuit breakers replaced pollution into substations • All LV switchboards repaired and maintained • Introduce a comprehensive preventive • All RMUs’ E/F alarm facilities in service maintenance program • Distribution standards updated and staff is • Replace old equipment (old switchgear) conversant to compliance • Restore LV switchboards to correct working • Comprehensive incident data and action plan condition developed to manage and reduce outages • Install earth fault alarm and indications on existing and future RMUs3 • Incident data collection and management 1) Automatic Voltage Regulators (AVRs) ; 2) On load tap changers (OLTCs); 3) Ring Main Units (RMUs) Source: Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 79 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” Task C: Deliverable IV (b) – Improving GECOL technical performance ..tackling the delayed investments problems, and acting on the dangerous operating conditions and the skills shortages Detailed action plan provided in MV & distribution performance improvement plan Task C final report D MV & Measures Milestones Distribution issues Delayed • Restart halted projects • Use available project equipment over the coming 2 investment and • Change to Aluminum Bundled Cables (ABC) in years 2 both LV and HV rural distribution • 80% of halted projects completed replacement projects • Safety management systems successfully Incorrect and • Enforce GECOL technical and other standards implemented 3 unsafe O&M • Strengthen safety standards enforcement • Rate of serious and fatal accidents reduced by practices 90% 4 Skills shortage • Develop a career training development plan • Career development system implemented Source: Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 80 I Fix the basics and prepare for restructuring| Costs control & staff reskilling Task C: Deliverable II (c) – Manpower / organizational rationalization review Libyan institutions will then need to support GECOL in the improvement of its financial position and re-skilling priority Manpower-related resizing approaches Wave I Wave II Immediate actions Mid-term actions Immediate actions starting from 2018 focusing on Mid-term actions starting upon successful completion of reskilling as top priority immediate actions (i.e. indicatively from 2020 to be completed by 2025) Start immediately to reassign especially Re-Skilling Reallocate technicians to other departments like the generation department Offer buyout solutions for non core Incentivize Leverage current resources to fill unmet businesses like Health Service, Driver, Retrain Buyouts Translation etc needs in the generation department Institute a hiring freeze as more than Incentivize to Ask employees to take voluntary lay- Freeze hiring 12% are aged below 30 and more than leave offs 40% aged below 40 Prepare an early retirement package for Temporarily or permanently terminate Early employees aged over 60 (2% of total Dismiss employment for a group of employees Retirement FTEs) especially in D&S Train managers and staff professionals Start GECOL to be hired inside but also outside the Academy company 1) Process mapping and manpower rationalization report Source: Strategy& Analysis Strategy& | PwC Prepared for The World Bank 81 I Fix the basics and prepare for restructuring| Costs control & staff reskilling Task A: Deliverable III (b) – Electricity Act and sector restructuring report GECOL shall focus on addressing its manpower issues to improve its financial situation through an ad-hoc plan… Measures and activities Measures Activities Year 2018 2019 2020 Owner Optimize Optimize generation mix, assessing gas vs. other fuel feasibility GECOL power mix Improve Assess thermal efficiency improvement options GECOL efficiency Deploy new maintenance strategy / program GECOL Centralize HR activities GECOL HR strategy development GECOL HR strategy in place Manpower rebalancing & workforce planning GECOL Address Critical resource map and Workforce planning manpower manpower rebalancing plan in place issues1 Corporate reskilling GECOL Capabilities & skills map Reskilling plan Performance management GECOL Succession planning GECOL Detailed manpower action plan provided in Task C final report Baseline current compensation and benefits GECOL Benchmark local compensation and benefits practices for GECOL Compensa- comparable companies tion and benefits Develop compensation and benefits revision plan GECOL redesign Integrate redesigned compensation and benefits within ERP system GECOL Implement revised compensation and benefits plan GECOL Salaries & benefits revised Milestone Note: Costs control & staff re-skilling measures implementation is to be facilitated through a revision of the KPI system 1) To be further completed with manpower sizing measures from Task C part 2.3, the final comprehensive roadmap will be provided by October 2017); Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 82 I Fix the basics and prepare for restructuring| Costs control & staff reskilling Task C: Deliverable II (c) – Manpower / organizational rationalization review …and in parallel also launch a corporate-wide reskilling plan Proposed reskilling initiatives High priority Centralization of HR Development of Inclusion of activities within a Approval of general medium and long term training in performance corporate core HR training policy training strategy management department Set up E-training Secure central Establishment of Establishment platforms funding for GECOL Academy for all of structured succession (digitalization in learning all trainings employees planning solutions) Ad-hoc Apprentice training / Introduction of Introduction of management contracts for dual vocational training training incentive schemes Executive development specific / new plants for (electrical engineering and (e.g. trainee programs, including BoD training training purposes metalworking technician) talent schemes) Launch of Focus on Launch of mentoring programs Establishment of technical and safety target internal (e.g. pairing between international exchange qualifications and IT hiring procedure experienced employees and training programs training more junior ones) Low priority Source: Task C – Step 4.1 pre-view Strategy& | PwC Prepared for The World Bank 83 I Fix the basics and prepare for restructuring| Improve GECOL & sector financial sustainability Task A: Deliverable III (b) – Electricity Act and sector restructuring report The Government and the regulatory agency will support GECOL in addressing its financial sustainability problems Detailed GECOL financial improvement Measures and activities action plan provided in Task C final report Measures Activities Year 2018 2019 2020 Owner Plan the tariff change communication program GECOL Implement the tariff change communication campaign GECOL Data collection related to year n-1 GECOL Launch new Data projections for year n+1 GECOL Tariff Preliminary rate design for year n+1 GECOL framework Preliminary tariff submission to Regulatory Agency GECOL Review of projections and proposed rate Regulator Launch new tariff framework GECOL Establish court jurisdiction over customer disputes and theft Tariff covering Ministry part of P&L costs1 in charge Metering Identify strategy for metering strengthening GECOL roll-out Metering substitution/installation strategy roll-out GECOL Perform monthly metering reads GECOL Clarify electricity police position as GECOL’s employees GECOL Address Increase sanctions for electricity theft Higher theft sanctions Ministry in charge electricity Draw a detailed map of potential theft areas Theft areas map GECOL theft Perform recurrent inspection of potential theft areas GECOL Eliminate the “no cut-off” policy Government Establish court jurisdiction over customer insolvency claims Ministry in charge Upgrade invoicing and overdue notifications process GECOL from manual to electronic (i.e. e-mail) Fight Build a database with customers’ information GECOL insolvency (e.g. e-mail addresses, phone numbers) Customers database Set up SMS and e-mail overdue notification systems2 GECOL SMS/e-mail billing in operation Develop program to launch GECOL’s mobile payment app GECOL GECOL’s mobile app running Note: Reduce subsidies on tariff & commercial losses measures implementation is to be facilitated through a revision of the KPI system Milestone 1) e.g. 90% of P&L costs benefiting from subsidies fuel pricing combined with a lifeline tariff to protect the most vulnerable customer classes One shot (i.e. gradually phase out energy price subsidies through well targeted SSN) ; 2) Pilot program already launched from GECOL; Source: Strategy& analysis activity Strategy& | PwC Prepared for The World Bank 84 I Fix the basics and prepare for restructuring| Improve GECOL & sector financial sustainability Task A: Deliverable III (b) – Electricity Act and sector restructuring report In coordination, the new Government Agency and GECOL will begin a periodic (and structured) tariff review process Tariff review and negotiation process (2018-2021) Year Year n-1 Year n n+1 Q4 Q1, Q2 Q3, Q4 Q1 Process start Collect data for year n-1 Design Make preliminary Using GECOL projections for rate excel tool year n+1 proposal developed Define rate Submit to Take part Implement design Gov’t to negotiations new Tariff parameters body Process Actors End Sector Review / stakeholders1 negotiate Government body in charge Analyse Submit to Finalize ultimate (e.g. Reg. preliminary stakeholders designed rate Agency) proposal for negotiation Launch National new tariff Electricity Strategy Parliament 1) Stakeholders might include representatives from GECOL, Government, consumers and other organizations involved in the electricity sector operations (e.g. NOC) Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 85 I Fix the basics and prepare for restructuring| Improve GECOL & sector financial sustainability Task A: Deliverable IV (a) – Options study for GECOL restructuring report As a lever to achieve better financial sustainability, GECOL may target to modify its tariff either sharply or prudently Tariff framework improvement options Option 1 Option 2 Sharp Prudent Achieve a fully cost reflective tariff with a sharp increase Gradually increase tariff achieving a partial coverage of in rates by 2021 P&L costs and cost of fuel subsidies by 2024, protecting the most vulnerable through SSN Average Average tariff ILLUSTRATIVE tariff ILLUSTRATIVE Dhs/KWh 200 Dhs/KWh 200 180 174 180 Included lifeline 160 +30% 160 tariff for households with monthly 140 140 consumption below 120 120 a certain threshold 100 100 80 80 +6% 63 60 60 41 36 36 40 40 20 20 0 0 2015 2021 2024 2015 2021 2024 GECOL 100% 100% GECOL 100% Avg. tariff Avg. tariff 90% covering: covering: P&L costs 56% P&L costs 56% Cost of fuel 100% 100% Cost of fuel subsidies 0% subsidies 0% 0% 20% Source: Strategy& Analysis Strategy& | PwC Prepared for The World Bank 86 I Fix the basics and prepare for restructuring| Improve GECOL & sector financial sustainability Task A: Deliverable IV (a) – Options study for GECOL restructuring report A more prudent approach to tariff increase was instead recommended … Options assessment Option 1 Option 2 Sharp Prudent • Softer impact on customers resulting in enhanced public • Short term improvement on government budget due to acceptance PROS potentially reduced subsidies (if successful) + • Quick enhancement of GECOL’s financial situation (if • Smooth implementation of required technology without heavy investments needed successful) • Gradual price increases might be paralleled by service • Customers strongly incentivized to reduce demand level improvements • Inconsistent with current macroeconomic situation and CONS • Delayed benefits on GECOL’s financial situation – customers purchasing power • Key role of progressive service level improvements in • Large investment in advanced metering technology to guaranteeing public acceptance of increased rates ensure billing and collection required • Peaking electricity theft and skyrocketing bad debt due • Delayed GECOL’s financial sustainability which might RISKS to customers inability to pay bills inhibit further sector development (unbundling path) • High pricing not comparable with service level provided • Late adjustment of demand to new rates which might to customers worsen reserve margin • Overall strong economic situation improvement • Strong communication campaign needed to EASE 1 needed 4 convey reasons for tariff increase to customers • Required revolutionary change in customers • Strong government support needed throughout approach towards electricity subsidization the process 1) Financial performance assessment and financial models report (tariff framework review, tariff structure set-up and reform pathway and excel tools) Source: Strategy& Analysis Strategy& | PwC Prepared for The World Bank 87 I Fix the basics and prepare for restructuring| Improve GECOL & sector financial sustainability Task A: Deliverable III (b) – Electricity Act and sector restructuring report …because, although a tariff increase may allow GECOL to reduce the State burden and improve sustainability… Tariff evolution considerations (Bn LD) 2010 2015 Hypothetical 2015 (Scenario) scenario with tariff set to 1.8 1.9 cover 90% 1.9 of GECOL 0.2 2015 P&L 0.6 costs 0.9 1.8 1.2 1.1 GECOL Subsidy on Max theoretical GECOL Subsidy on Max theoretical GECOL Subsidy on Max theoretical P&L costs GECOL P&L revenues1 P&L costs GECOL P&L revenues1 P&L costs GECOL P&L revenues1 (unreflective (unreflective (unreflective tariff) tariff) tariff) Avg. tariff Avg. tariff 36 58 Dhs/kWh Dhs/kWh 1) Sum of (Tariff by customer class) x (Consumption by customer class) Source: GECOL data collection ID2, GECOL data collection ID7, GECOL data collection ID13, GECOL data collection ID37, Strategy& analysis Strategy& | PwC Prepared for The World Bank 88 I Fix the basics and prepare for restructuring| Improve GECOL & sector financial sustainability Task A: Deliverable III (b) – Electricity Act and sector restructuring report … the same positive impact could be achieved through the reduction in commercial losses (to 2010 levels?) Commercial losses / cash collection considerations (Bn LD) Improvement measures within Task C – Step. 4.1 2010 2015 Hypothetical 2015 (Scenario) scenario with commercial 1.2 1.1 1.0 losses re- 1.1 0.6 Bn LD established Bn LD 0.3 at 0.2 0.9 2010 levels 0.9 0.8 0.4 0.5 (52%) (48%) 0.3 0.2 0.5 0.4 (48%) (48%) (52%) 0.2 (52%) Max theoretical Commercial Invoiced Max theoretical Commercial Invoiced Max theoretical Commercial Invoiced revenues1 loss revenues revenues1 loss revenues revenues1 loss revenues 21% 69% 21% Non paid invoices 1) Sum of (Tariff by customer class) x (Consumption by customer class) Collected revenues Source: GECOL data collection ID7, GECOL data collection ID20, Strategy& analysis Strategy& | PwC Prepared for The World Bank 89 I Fix the basics and prepare for restructuring| Improve GECOL & sector financial sustainability Task A: Deliverable IV (a) – Options study for GECOL restructuring report A reduction in commercial losses would have the same impact of +160% tariff increase or 11,000 FTE lay-offs … Comparison of scenarios achieving identical financial impact (2015) A 69% Limit Burden on the sector Back to commercial 2010 levels (Bn LD) loss 21% (% max rev.) -0.3 B 95 Increase average +161% tariff 36 (Dhs/kWh) Same individual 1.8 effect of each 1.5 C scenario 42,000 Re-size 31,000 -11,000 manpower (‘000 FTEs) 2015 2015 actual scenario A, B, C 2015 2015 actual scenario Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 90 I Fix the basics and prepare for restructuring| Improve GECOL & sector financial sustainability Task A: Deliverable II– Rapid assessment of the sector performance …and it should be the key priority for Libya, as also proven by the comparison with its regional peers Commercial losses benchmarking1 Receivables on total sales benchmarking Commercial Losses (%) Electricity Commercial A/R (%sales) Receivables Generated Losses y-o-y change (TWh) (TWh) N/A %, 2014-15 Jordan2 8.6% 18.0 1.54 Jordan2 26.4 15% Libya 59.6% 36.2 21.1 Libya2 449.1 8% Morocco 4.2% 29.9 1.24 Morocco N/A N/A Egypt 3.4% 175 5.98 Algeria 52.4 15% Algeria 0.2% 64.7 0.15 Egypt 79.2 27% Tunisia2 0.1% 17.7 0.01 Tunisia2 25.4 -17% 0% 20% 40% 60% 0% 200% 400% 600% 1) Commercial losses are estimated as Gross Generation + Imports - Technical Losses - Billed electricity. Data referring to these items are retrieved from last available annual report for the following companies: JEPCO, IDECO, EDCO, GECOL, ONEE-BE, EEHC Distribution Companies, Sonelgaz and STEG distribution companies 2) Refers to 2014 y/e, last historical data available with y-o-y change 2013-14; 3) Sales exclude government subsidies Source: GECOL data collection ID12, GECOL data collection ID13, GECOL data collection ID24, GECOL data collection ID37, Corporate Annual Reports, Strategy& analysis Strategy& | PwC Prepared for The World Bank 91 I Fix the basics and prepare for restructuring| RES preparation and institution building Task D: Strategic plan for the development of renewable energies in Libya In wave I, REAoL will play a major role in setting the institutional basis for the development of RES Deep dive in Measures and activities Task D Wave I 2018-2020 REDEVCO Pilot study and development Measures Project & site Construction set up Concept Feasibility qualification Financing and operation Duration 6 months 2 years 6 months Owner REAoL REDEVCO SPV/IPP Activities • REDEVCO set up • Concept • Engineering – Appointment of – Resource mapping and site shortlist and BoD and initial – Agreement with GECOL about sites and grid capacity procurement budget allocation – Outline business case – Design and – Recruitment procurement • Iterative feasibility study process – Development of and – Red flag and fatal flaw analysis of all relevant project details on strategic plan installation of high level (pre-feasibility) PV • RES permitting and – Techno-economic concept design and detailed site assessment components tender • Project/site qualification documentation • Construction – Geotechnical and topographic survey – Clarify permitting and – Environmental impact assessment (EIA) process and commercial – Permitting process, PPA & other contract negotiations documentation operation – Draft tender • Financing documentation – Equity auctioning process and selection of equity investors into SPVs – Negotiation of debt financing strategy REDEVCO PV pilot project study Wind pilot project study 3% RES Milestones operations start completion completion penetration Source: Gopa intec and Suntrace Task D Roadmap for Renewable Energy Development, Strategy& analysis Strategy& | PwC Prepared for The World Bank 92 I Fix the basics and prepare for restructuring| RE preparation and institution building Task D: Strategic plan for the development of renewable energies in Libya Until the Electricity Law will overrule GECOL’s monopoly over generation, 2 options shall be explored for RES pilots Renewables development options TO BE FURTHER DUE-DILIGENCED Leasing Asset sale REDEVCO will retain assets ownership and will lease REDEVCO will transfer both asset ownership and assets operations to GECOL for a determined period of operations to GECOL in exchange for a contracted sale time at a contracted rental price price REDEVCO REDEVCO Rental Sale price price Assets lease GECOL GECOL Tariff Electricity Tariff Electricity Consumers Consumers Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 93 I Fix the basics and prepare for restructuring Task A: Deliverable III (b) – Electricity Act and sector restructuring report In summary, with Wave I, the Libyan electricity sector will operate through 6 actors with revised roles & responsibilities Wave I end-sector framework (2021) Renewables Key actors 1 Legislation Parliament Government 2 Prime Minister 1 Parliament Policy making MoE and RES1 Ministry of Ministry of Finance Planning 2 Government Policy 3 Regulatory 5 Regulatory making REAOL Agency 3 Agency support / agencies 4 GECOL Operation/ 6 REDEVCO REAoL 4 PPA 5 (RES) Generation SPV / IPPs Capacity REDEVCO 6 (RES) Transmission GECOL Distribution & Supply 1) Ministry of Electricity and Renewable Energy Sources Control / Oversee Source: Gopa intec and Suntrace Task D Roadmap for Renewable Energy Development, Strategy& analysis Strategy& | PwC Prepared for The World Bank 94 I Fix the basics and prepare for restructuring Task A: Deliverable III (b) – Electricity Act and sector restructuring report The Parliament will need to approve the national electricity strategy, the budget and (possibly) a first electricity act Primary responsibilities / tasks Key actors Area Primary responsibilities / tasks 1 Parliament • Approve the National Electricity Strategy drafted by the MoE and RES Government through comprehensive consultation process with sector institutional 2.1 (e.g. Ministries of National Finance & Planning) stakeholders (i.e. Regulatory Agency) and industry representatives (i.e. Electricity GECOL and NOC) Government Strategy 2.2 (e.g. Ministry of • Grant the mandate to Government to implement the National Electricity Electricity & RES) Strategy Regulatory 3 Agency • Approve national budget presented by the government, which will 4 GECOL Budget include GECOL’s opex and capex budget (included in chapters 3 and 4 of national budget) REAoL 5 (RES) REDEVCO 6 (RES) Legal • Sign into law (enact) the Electricity Act1 from the bill drafted by the Framework MoE and RES Note: see electricity act content in the appendix to the document 1) If no window of opportunity opens for the endorsement of a first Electricity Act, the Government shall initially proceed with a Decree Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 95 I Fix the basics and prepare for restructuring Task A: Deliverable III (b) – Electricity Act and sector restructuring report The Government will play a major role in GECOL’s budgeting process… Primary responsibilities / tasks Key actors Area Primary responsibilities / tasks 1 Parliament Government 2.1 (e.g. Ministries of Finance & Planning) Government • Examine, negotiate and approve GECOL’s budget proposals 2.2 (e.g. Ministry of Electricity & RES) • Prepare the national budget to be presented for approval to the Regulatory Budget Parliament 3 Agency • Monitor national spending during the year against budgeted expenditure and report to the Parliament 4 GECOL REAoL 5 (RES) REDEVCO 6 (RES) Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 96 I Fix the basics and prepare for restructuring Task A: Deliverable III (b) – Electricity Act and sector restructuring report …helping to draw policies and identify the sector’s strategic objectives (while overseeing GECOL’s operations) Primary responsibilities / tasks Key actors Area Primary responsibilities / tasks 1 Parliament • Formulate and develop appropriate power policies for the control, regulation Policy and legal and utilization of power resources Government framework • Contribute to establish the legal framework for the sector drawing the proposal 2.1 (e.g. Ministries of for the bill that the Parliament will consider for the Electricity Act Finance & Planning) Government • Draft and implement the National Electricity Strategy resulting from a 2.2 (e.g. Ministry of Strategic comprehensive public consultation process with sector’s institutional Electricity & RES) objectives stakeholders ( i.e. Regulatory Agency, REAoL, Ministry of Oil & Gas) and Regulatory industry representatives (i.e. GECOL, NOC) 3 Agency • Supervise institutions listed in under the Ministry of Electricity and Renewable Energy 4 Sector structure GECOL • Oversee Regulatory Agency operations and actors • Monitor the organization and functioning of the electricity sector REAoL • Promote accounting unbundling of GECOL 5 (RES) • Endorse GECOL’s budget • Negotiate with the Ministries of Finance and Planning for the approval of REDEVCO GECOL GECOL’s budget 6 (RES) • Propose GECOL’s Board of Directors members to be appointed by the General Assembly • Promote the Libyan interests with other countries and regional and International international organizations on issues relating to electric power cooperation • Initiate/establish cooperation agreements with other countries for the purpose agreement of the electrical interconnection and trade of electric power Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 97 I Fix the basics and prepare for restructuring Task A: Deliverable III (b) – Electricity Act and sector restructuring report The “regulatory agency”, built in the Government, will help in the tariff review and sector supervision Primary responsibilities / tasks Key actors Area Primary responsibilities / tasks 1 Parliament • Draft the Tariff Regulation setting the principles governing the examination, Government Tariff modification and approval of the regulated tariffs 2.1 (e.g. Ministries of • States criteria for the preparation of tariff proposals by GECOL Finance & Planning) Government • Set technical quality principles and other standard measures to monitor 2.2 (e.g. Ministry of GECOL’s perf. Electricity & RES) • Set minimum safety standards for O&M, construction and installation of power Efficiency and systems Regulatory security of 3 • Supervise security and reliability of the power system and propose improv. Agency supply Measures • Draft the Grid Code/Interconnecting Guidelines (establishes technical 4 GECOL guidelines for connection of generating plants to the local G&T system) • Provide information and act as advisor to the ministry on matters related to Innovation and REAoL development installation and operation plans 5 sector (RES) • Help the Ministry in charge in writing the draft of the government decree development preceding the electricity act REDEVCO 6 (RES) • Draft accounting unbundling regulation • Draft detailed manual with operating guidelines to draft separated annual Accounting accounts unbundling • Set up timing and procedures for annual accounts submission (e.g. 90 days after auditors approval of consolidated financial statements) • Analyze and review GECOL’s separated annual accounts Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 98 I Fix the basics and prepare for restructuring Task A: Deliverable III (b) – Electricity Act and sector restructuring report GECOL will remain a vertically integrated player with monopoly over generation, transmission and distribution Primary responsibilities / tasks Key actors Area Primary responsibilities / tasks 1 Parliament • Own, control and operate the generating units connected to the T&D Government network 2.1 (e.g. Ministries of • Plan the development of generation capacity to efficiently meet expected Finance & Planning) Generation demand Government • Make decisions on size, type, technology and location of the required 2.2 (e.g. Ministry of capacity made to ensure that future demand is met at the least cost Electricity & RES) • Generate electricity to meet demand 3 Regulatory • Own, control and operate the transmission network Agency • Engage in real time scheduling and control of the grid system Transmission • Dispatch generation in compliance with the guidelines set in the Grid 4 GECOL Code/Interconnection Code by Regulatory Agency • Ensure energy demand and supply balance REAoL • Own, control and operate the distribution network 5 (RES) • Invoice customers and address commercial losses through the electricity Distribution & police REDEVCO Supply • Address customers complaints 6 (RES) • Install, maintain, substitute and operate metering technology across all customer segments • Submit proposals for tariff change to Regulatory Agency demonstrating that Tariff existing tariff does not allow a reasonable opportunity to recover the cost to serve Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 99 I Fix the basics and prepare for restructuring Task D: Strategic plan for the development of renewable energies in Libya REAoL will play a catalytic role in the supervision and kick start of RE development in Libya… Primary responsibilities / tasks Key actors Area Primary responsibilities / tasks 1 Parliament Government • Provide input for the improvement of renewables regulatory and legal 2.1 (e.g. Ministries of framework including the development of quick and efficient permitting Finance & Planning) processes Government • Lobby for the implementation of policies to increase penetration of 2.2 (e.g. Ministry of RES regulatory renewables in Libyan power mix Electricity & RES) and legal • Develop the Renewable Energy Development Plan Regulatory (i.e. political • Advise the Ministry in charge of the sector with respect to the role of 3 Agency agent) renewables in the drafting of the National Electricity Strategy • Encourage support of related industries in the implementation of renewable projects 4 GECOL • Design, support, monitor REDEVCO in the development of the first RES projects in the country REAoL 5 (RES) Capacity • Supervise project implementation and coordinate capacity building in the REDEVCO building renewables arena of institutions, local industry and developers 6 (RES) (i.e. knowledge • Coordinate research activities, technical specifications, education and carrier) planning for the integration of renewables into the Libyan electricity sector • Function as a provider of debt financing to renewables SPV/IPPs controlled Financing by REDEVCO either directly or indirectly through the control of the renewables (i.e. lender) fund Source: Gopa intec and Suntrace Task D Roadmap for Renewable Energy Development, Strategy& analysis Strategy& | PwC Prepared for The World Bank 100 I Fix the basics and prepare for restructuring Task D: Strategic plan for the development of renewable energies in Libya …through the set-up of REDEVCO (and possibly also an investment vehicle for the RE pilots) Primary responsibilities / tasks Key actors Area Primary responsibilities / tasks 1 Parliament • Act as an investment vehicle for early stage renewable energy project RES development in Libya Government development 2.1 (e.g. Ministries of • Build capacity and knowledge in the renewables sector Finance & Planning) • Identify most promising investment opportunities with a viable business case Government • Preliminary concept design: installed capacity estimation, and preliminary 2.2 (e.g. Ministry of Project Concept cost-benefit analysis Electricity & RES) • Carry on initial discussions with key parties and stakeholders and principal Regulatory understanding/agreements with key parties 3 Agency • Pursue first project assessment of: project site, conceptual design (i.e. Project technology, capacity, etc.), estimated energy yield and revenues, budget 4 GECOL feasibility estimation for development, construction and operation, grid connection, possible fatal flaws REAoL • Secure solar resource assessment 5 (RES) • Start contract negotiations (i.e. PPA) • Launch scouting of sponsor/main equity investor Project & site REDEVCO • Achieve permits for construction and operation (i.e. land permits, 6 (RES) qualification environmental permits, generation licenses, etc.) • Prepare project financial structure (i.e. debt-equity financing, concessional finance, etc.) Equity • Provide equity financing in either project development phase or construction financing1 phase 1) TBD depending on ongoing discussion regarding the alignment of possible funding mechanisms Source: Gopa intec and Suntrace Task D Roadmap for Renewable Energy Development, Strategy& analysis Strategy& | PwC Prepared for The World Bank 101 Executive Summary Summary of key issues faced by the electricity sector Wave I: Fix the basics and prepare for restructuring Wave II: Restructure and prepare for ambition Options for Wave III (realize ambition) Appendix – Inputs for Electricity Act Strategy& | PwC Prepared for The World Bank 102 II Restructure and prepare for ambition Task A: Deliverable III (b) – Electricity Act and sector restructuring report With Wave II, Libya will focus on more advanced structural changes… Wave II measures and milestones II Wave I objectives Wave II objectives Wave Measures Milestones P Strengthen sector • Set up Regulatory Authority • LEMRA in operation governance • Expand sector legal framework • Electricity Act Clarify sector governance • Preparation for private sector • IPP Commission in operation Increase competition in investment • Single buyer in operation generation • Establish single buyer • Licensing regime established • Licensing P Establish performance Achieve functional • GECOL reorganization • Independent managers appointed accountability separation • Functional unbundling • Continue improving operating • Complete all Gen., Trans., control, Restore acceptable P performance MV & distr. action plan milestones • Introduce demand-side • EMC in operation service quality / “Zero Upgrade service quality management programs • Building code published load shedding” • Review customer grievance • EE household appliances code process • Energy Efficiency Act P Continuous • Optimize power mix • Improve efficiency Rationalize costs improvement in cost • Non-core activities outsourced • Salaries and manpower control structure • Outsourcing implementation P Improve GECOL & Achieve GECOL & • Periodic tariff review and roll-out • Tariff covering part of P&L costs sector financial sector financial • Metering roll-out and cost of fuel subsidies sustainability sustainability • Theft addressing Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 103 II Restructure and prepare for ambition Task D: Strategic plan for the development of renewable energies in Libya …introducing in the RES arena an auction framework for the launch of bigger scale projects RES roadmap: wave II measures and milestones Wave I Wave II Wave III 2021 2024 2027 RES preparation and Increased private RES framework institution building investment in RES consolidation Wave I objectives Wave II objectives Wave II Measures Milestones P RES capacity and Auction framework • Design auctioning rules • First auctioning rounds institution building design and process P • Roll-out large scale wind Start pilot RES Large scale projects and PV projects • Increased RES penetration implementation • Attract international penetration capital and knowledge Source: Gopa intec and Suntrace Task D Roadmap for Renewable Energy Development, Strategy& analysis Strategy& | PwC Prepared for The World Bank 104 II Restructure and prepare for ambition | Strengthen sector governance Task A: Deliverable III (b) – Electricity Act and sector restructuring report Libya will establish an independent Regulatory Authority (LEMRA), strengthening the sector governance Measures and activities Measures Activities Year 2021 2022 2023 Owner Spin-off regulatory authority from Government Ministry in charge Renewal/termination of key personnel office LEMRA BoD Drafting and approval of LEMRA’s Charter Senior mgmt. team1 A & BoD Set up Regulatory Review and approval proposed organizational structure Senior mgmt. team Authority & BoD Recruitment to achieve target org. structure Senior mgmt. team & HR head B Regulatory authority in operation: LEMRA drafting of Electricity Law implementing regulation Focus in next slide Expand Draft the bill for the Electricity Act Ministry in charge sector legal framework Sign and endorse the legislative act Parliament Electricity Act Milestone 1) CEO and head of HR; 2) Libyan Electricity Market Regulatory Authority 2) Pending discussion with RES legal framework / IPPs Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 105 II Restructure and prepare for ambition | Strengthen sector governance Task A: Deliverable VI (b) – Detailed roadmap for establishing LEMRA report Activities to spin off the Agency and establish the Regulatory Authority charter and organization will start in 2021… LEMRA establishment detailed roadmap A REGULATORY AUTHORITY SET UP Year 2021 2022 2023 Activities Q4 Q1 Q2 Q3 Q4 Q1 Owner Spin-off regulatory agency from Government Renew BoD members terms of office or appoint new members Ministry in charge Review allocated budget Ministry in charge Renewal/termination of key personnel office BoD Renew office/discharge Chairman BoD Renew office/discharge Executive Commissioners BoD & Chairman Drafting and approval of LEMRA’s Charter and strategic plan Clarify duties/functions/powers of the Authority Senior mgmt. team Approve LEMRA’s Charter BoD Develop LEMRA strategic plan BoD & Chairman Review and approval proposed organizational structure Review consultants proposal for new organizational structure Senior mgmt. team Approve new organizational structure BoD Recruitment to achieve target org. structure Select and appoint new departments heads BoD & HR head (e.g. Executive Commissioner of Regulatory Affairs) Select and appoint heads of departments’ sub-units Senior mgmt. team (e.g. Tariff sub-dpt. head) & HR head Hire technical and support staff for newly created units Senior mgmt. team (e.g. Service provider, Consumer protection) & HR head Continue staff training programs HR head Release of Electricity Act LEMRA Milestone in operation Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 106 II Restructure and prepare for ambition | Strengthen sector governance Task A: Deliverable VI (b) – Detailed roadmap for establishing LEMRA report …and starting from 2023, LEMRA will draft regulations, standards and rules like in other countries (i.e. KSA) Regulatory authority operations example B REGULATORY AUTHORITY OPERATION Selected example ECRA’s area of operation & outputs produced Saudi Arabia Electricity Law Implementing Provides greater detail on the duties, functions and obligations of the Authority and industry participants outlined in the Electricity Act (e.g. tariff setting and review procedure, process of Regulations licensing process and criteria, disputes mediation procedure, etc.) Regula- Constitution of the Authority outlining its objectives, responsibilities, leadership composition, ECRA Charter organizational structure and operating model tions ECRA Charter Implementing Provides greater detail on the duties, functions and obligations of the Authority outlined in the Regulations Charter Levels of regulation Details formulas and methodologies for the computation of KPIs in order to provide a KPI Manual base for consistency among licensees’ KPIs reporting procedure Codes & Targets & Incentives Outlines targets for KPIs related to generation, transmission, distribution and customer Report service determined through international comparisons Standards Describes the audit methodology performed by the Regulator on an annual basis on Audit Manual the underlying processes and data applied by the utility to compute submitted KPI values Defines obligations, responsibilities, minimum technical requirements Saudi Arabian of all parties towards ensuring open, transparent, non-discriminatory Grid Code and economic access and use of the grid while maintaining its safe, reliable and efficient operation Rules and Manuals Indicates procedures for both planning and operational purposes Saudi Arabian covering both normal and exceptional circumstances for various Distribution Code participants access and use of the distribution system Source: ECRA website, Strategy& analysis Strategy& | PwC Prepared for The World Bank 107 II Restructure and prepare for ambition | Strengthen sector governance Task A: Deliverable VI (b) – Detailed roadmap for establishing LEMRA report LEMRA will have the responsibility of licensing new sector operators / actors and enforce the sector rules… Primary responsibilities / tasks (Wave II) Regulatory Authority 2023 in operation Responsibilities Activities Regulations/Manuals Supply matters Set the Electricity Sector License Regulation License regulation Grant (and cancel) licenses and collect license fees Licenses Review short term (3 years) KPI targets Performance monitoring Review incentives to encourage the utility to achieve targets Supervise system’s security and reliability and propose improv. measures Establish quality of service standards Service provision manual Technical issues Impose penalties/sanctions for non compliance with rules Standards and rules Information submission Rules enforcement Rules for submission of information to the Authority and availability rules Information Rules for availability of the Authority’s information to the public Start drafting the National Electricity Registry containing full text of National Electricity licenses decisions, codes/standards approved by the BoD, etc. Registry Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 108 II Restructure and prepare for ambition | Strengthen sector governance Task A: Deliverable VI (b) – Detailed roadmap for establishing LEMRA report …as well as enacting regulations to foster the electricity industry restructuring Primary responsibilities / tasks (Wave II) Regulatory Authority 2023 in operation Responsibilities Activities Regulations/Manuals Consumers issues Review the Tariff Regulation Tariff regulation Tariff Review criteria for the preparation of tariff proposals by GECOL Consumer protection Examine consumer’s complaints, acting as consumer advocate in public proceedings Disputes settlement Arbitrate and adjudicate disputes between licensees and consumers and Disputes resolution rules among licensees through out-of-court settlements Approve/reject/amend regulations for IPP procurement submitted by the Sector development Commission Approve/reject proposals for IPPs submitted by the IPP Commission after Competition close scrutiny during the tendering process Grant concession to the approved winner of the tendering process Development Advise the Ministry Sector structure Helps the Ministry in drafting the National Electricity Strategy Promote the development of renewable energy Electricity industry Draft the Electricity industry restructuring plan restructuring plan Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 109 II Restructure and prepare for ambition | Strengthen sector governance Task A: Deliverable VI (b) – Detailed roadmap for establishing LEMRA report Hence, in wave II the Government will delegate many of its current responsibilities to LEMRA Actors redistribution of responsibilities — Wave II Wave II As-is After LEMRA establishment Actors Government GECOL Government Regulator GECOL Responsibilities Set performance standards R R Monitor performance R R Define sector vision R R Determine prices R R R Choose technologies R R Determine investments R R Establish sector rules R R Receive public input R R R R R Balance environmental and economic goals R R Determine sector structure R R P Receive consumer complaints R R R Issue licenses R R Source: Strategy& analysis Responsibilities transferred to other actor P Full responsibility PAdvisory function Strategy& | PwC Prepared for The World Bank 110 II Restructure and prepare for ambition | Strengthen sector governance Task A: Deliverable VI (b) – Detailed roadmap for establishing LEMRA report With increasing responsibilities, the Regulator will assume a more decentralized structure LEMRA Organizational structure Responsibilities Proposed organizational structure (Regulatory Authority – Wave II) Supply matters 1 Licenses Board of Directors Internal audit Chairman 2 Performance monitoring 5 Public relations Technical 3 Standards and rules issues 4 Rules enforcement Regulatory affairs Stakeholders affairs Support services head Executive Executive 5 Information Commissioner Commissioner Administration Service Consumers 6 Tariff Tariff 6 8 & HR providers issues 7 Consumer protection IT Technical 2 3 4 Customer 7 8 affairs protection 8 Disputes settlement Finance and Development 10 11 9 budget studies 9 Competition Legal & Sector 1 licensing development 10 Development 11 Sector structure Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 111 II Restructure and prepare for ambition | Strengthen sector governance Task A: Deliverable VI (b) – Detailed roadmap for establishing LEMRA report LEMRA BoD, in charge of 4-years, may be set-up with 5 members, of which 2 will be non-executive representatives LEMRA Organizational structure — Board of Directors BoD Composition Number of members 5 Prime Minister Decree upon proposal by the Chairman Appointment Ministry in charge of the electricity sector Terms of Duration 4-years office Renewal 1 term of equal duration At least 4 times a year and upon demand from Meetings Executive Executive Commissioners Commissioner Commissioner • Monitoring of LEMRA management • Ratification of the Authority’s work plan and its operational plans within the framework of the government overall plan • Approval of the Authority’s proposed budget, its closing accounts and annual report prior to their submittal to higher authorities • Approval of received grants, donations • Approval of the Agency’s organizational Commissioner Commissioner Responsibilities structure and of the financial, technical, (GECOL (Consumers administrative and employment regulations representative) Representative) that organize the Agency’s activities • Approval of the regulations/rules/codes/manuals implementing the Electricity Law in matters BoD Chairman & CEO concerning LEMRA’s responsibilities Stakeholder representative Members • Approval of rules for licenses, authorizations Executive Board Members and other services offered by the Authority and determination of the related fees Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 112 II Restructure and prepare for ambition | Increase competition in generation Task A: Deliverable III (b) – Electricity Act and sector restructuring report Libya will also prepare for private participation … Measures and activities Measures Activities Year 2021 2022 2023 Owner Explore the possibility for management contracts/lease/concessions Ministry in charge/ GECOL Define clear jurisdiction for commercial disputes Ministry in charge Clarify IPP Commission role and responsibilities Ministry in charge Preparation for private Define IPP Commission composition Ministry in sector IPP Commission in operation charge investment Set competitive capacity allocation procedures IPP Commission Draft technical and financial requirements for tendering IPPs IPP Commission Establish credit support arrangements for PPAs Government (i.e. letters of credits, rolling guarantees from CBL1) Open tendering process for new IPPs IPP Commission/ LEMRA Establish Eliminate GECOL’s monopoly over power generation Opened generation Parliament single buyer Establish GECOL’s mandate as bulk purchaser Single Buyer in operation Parliament Establish clear licensing regime for power generation LEMRA Licensing Licensing Regime established Establish conditions and process for IPPs licensing LEMRA Milestone 1)Central Bank of Libya Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 113 II Restructure and prepare for ambition | Increase competition in generation Task A: Deliverable IV (a) – Options study for GECOL restructuring report …provided that the pre-requisites for private participation are met Private participation features Management Asset New assets Lease Concession contract divestiture (i.e. IPPs) O&M Private Private Private Private Private Commercial risk Public Private Private Private Public & private Allocation of Capital investment Public Public & private Private Private Private responsibilities Asset ownership Public Public Public Private Private Duration 3-5 years 8-15 years 25-30 years Indefinite 25-30 years Operations improvement P P P P P Assets O&M P P P P P Knowledge transfer P  P  P Access to state of the Benefits art technology     P EPC     P New finance for investment    P P Vehicle for liberalization    P P Mostly not satisfied within the current Libyan context Cost-covering tariff, no Preferable Necessary Necessary Necessary Necessary commercial loss Good system Sufficient to set Necessary Necessary Necessary Necessary Pre-requisites information incentives for successful Good country risk Not necessary Good High High High implementation rating Political support Low to moderate Moderate High High High Monitoring and Moderate Good Good Strong Strong regulatory capacity Source: WBG, Strategy& analysis Strategy& | PwC Prepared for The World Bank 114 II Restructure and prepare for ambition | Increase competition in generation Task A: Deliverable IV (a) – Options study for GECOL restructuring report Indeed, a number of country-level factors are required to effectively attract private investment… IPPs success factors Success factor Success factor’s components Details Stable political/macro- e.g. low inflation, sound taxation policies, access to FX, economic environment fiscal prudence Stable e.g. possibility to enforce contracts, uphold laws, country Developed legal infrastructure arbitration, legal protection of property rights of investors, freedom to import goods, fuel, and services context e.g. good repayment record and investment-grade rating, Good country rating and previous experience with private investment Country e.g. cost-covering tariffs, transparent and predictable level Advanced reform stage licensing and tariff framework, access to the transmission network on transparent and equitable terms Developed e.g. planning linked to timely initiation of competitive electricity Competitive bidding practices tenders/auctions; resourced, fair, and transparent competitive procurement sector e.g. clear allocation of planning roles and functions; Project Coherent sector planning skilled, resourced, and empowered planning function level e.g. framework enshrined in legislation, and clearly specifying sector structure, roles, and terms for private Clear policy framework and public sector investment, legislated rights to entry Advanced and exit from the power sector by private suppliers regulatory e.g. competitive procurement of new generation capacity framework Transparent, consistent and required by regulator; fair allocation of new build fair regulation opportunities between utility and IPPs; prevention of anti- competitive practices by dominant power suppliers Source: WBG, Strategy& analysis Strategy& | PwC Prepared for The World Bank 115 II Restructure and prepare for ambition | Increase competition in generation Task A: Deliverable IV (a) – Options study for GECOL restructuring report …accompanied by a further set of project-level factors essentially contributing to IPPs investment success IPPs success factors Success factor Success factor’s components Details e.g. local capital/partner contribution (if possible); fair / reasonable ROE; experience with developing country Favorable equity partners project risk; development-minded firm with risk appetite Favorable for project; involvement of a DFI partner / government financing e.g. competitive financing, local capital/markets that mitigate FX risk; risk premium demand by financiers (or Favorable debt arrangements capped by off-taker) matching country/project risk; flexibility in terms and conditions (possible refinancing) Country level Solid commercial performance e.g. commercially sound metering, billing, collection Creditworthy off-taker e.g. efficient operational practices, low technical losses, Adequate managerial capacity sound customer service Project level e.g. stipulating capacity and payment, dispatch, fuel metering, interconnection, insurance, force majeure, Secure / Robust PPA transfer, termination, change-of-law provisions, adequate refinancing arrangements, dispute resolution revenue e.g. escrow accounts, letters of credit, standby debt Security arrangements facilities, hedging/derivative instruments, committed stream public budget or taxes/levies, targeted subsidies and (where necessary) output-based aid, hard currency contracts, indexation Source: WBG, Strategy& analysis Strategy& | PwC Prepared for The World Bank 116 II Restructure and prepare for ambition | Achieve functional separation Task A: Deliverable III (b) – Electricity Act and sector restructuring report After the first reorganization, GECOL will then decide between embedded or shared support services Wave II reorganization options Organizational structure 2021 OR Option 1 Option 2 Embedded support services Enterprise shared services Move shared services units below business units to Clustered shared services separated from corporate empower BU managers and prepare for an holding core and BUs in order to outsource non value added structure activities in the near future Business Units Distribution & MD Generation Transmission Supply Embedded support services Corporate Core Generation Transmission Distribution & Supply HR & Procurement Procurement Procurement AFC ICT Organization Generation HR Transmission HR Distribution & Supply Services Services HR Services Business Units Enterprise shared services Generation Transmission Distribution & Supply Generation Transmission Accounting Accounting Accounting General Procurement Services Generation General Transmission Distribution & Supply Distribution & Services General Services General Services Supply HR Services Accounting Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 117 II Restructure and prepare for ambition | Achieve functional separation Task A: Deliverable III (b) – Electricity Act and sector restructuring report Regardless of the chosen option, GECOL will separate the E&P division within SBUs and pursue functional unbundling Measures and activities Measures Activities Year 2021 2022 2023 Owner Separate the Engineering and Projects division by GECOL Dividing projects within each operational SBU1 Assign Projects Accounting unit to SBUs GECOL GECOL re- organization Create a new regulatory and institutional relations unit in BoD GECOL Create dedicated support services units for each BU GECOL Activity to be pursued only if option 1 is selected Select and appoint independent managers for each SBU GECOL Independent Functional Managers appointed unbundling Provide SBUs managers with full authority over financial resources GECOL personnel Milestone 1) Strategic Business Unit Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 118 II Restructure and prepare for ambition | Achieve functional separation Task C: Deliverable II (a) – Strategy for institutional development of GECOL BoD shall acquire a leaner and more effective structure, and be equipped with a Regulatory & Institutional relations unit To be direct reports to BoD Example of typical activities BoD Audit • Conduct active auditing on BU (financial, technical, administrative, etc.) (& compliance) • Define policies and procedures NEW Regulatory & Inst. Internal Media BoD Office Audit relations • Review and approve corporate governance mission and structure Assistant Adm. Affairs & Financial • Conduct and approve the assessment Manager Office Services Inspection Corporate of MD performance Governance Publishing Archives Investigation & • Review, validate and monitor level 1 Complaints appointment, compensation and Awareness and Technical development Meeting Affairs Rat. Inspection Follow-up & Administrative Documentation Strategic • Formulate strategic objectives Comp. Records Inspection Leadership • Review and approve corporate strategy Secretarial Internal Auditing and values, and ensure alignment Media Office CS Inspection • Develop corporate image that fits with Advertising Identity the company’s values and communicate Projects identity to the public and employees inspection • Agree on / set capital spending criteria Capital and parameters • Approve capital and operating plan and major investments and divestitures Sources: GECOL (company organization chart 2015), Strategy& analysis Strategy& | PwC Prepared for The World Bank 119 II Restructure and prepare for ambition | Upgrade service quality Task A: Deliverable III (b) – Electricity Act and sector restructuring report DSM measures deployed by the Government will contribute to reduce demand and achieve higher service quality Detailed action plan provided in Measures and activities Task C final report Measures Activities Year 2021 2022 2023 Owner Continue with Wave II measures and activities of the Generation action GECOL plan All generation milestones completed Continue Continue with Wave II measures and activities of the Transmission action GECOL improving plan All transmission milestones completed operating performan- Continue with Wave II measures and activities of the Control action GECOL ce plan All control milestones completed Continue with Wave II measures and activities of the MV & distribution action GECOL plan All MV&distribution milestones completed Set up an Energy Management Centre with the aim of developing Ministry awareness programs and implementation of energy saving measures EMC in operation in charge Draft energy audits2 regulation LEMRA Introduce Draft building codes for new buildings LEMRA demand-side Building code published management Draft labelling and EE1 standards requirements for domestic appliances LEMRA (DSM) EE household appliances code programs Introduce fiscal incentives and subsidy schemes for EE projects Government Draft bill outlawing air conditioners, incandescent lights Ministry in and appliances non compliant with EE standards charge Sign and endorse the Energy Efficiency Act Parliament Energy Baseline the existing complaint management process GECOL Review Efficiency customer Conduct gap analysis against best practices to identify issues Act Label grievance Modify the existing process to bring it in line with best practices Label process Institute appropriate KPIs to track service level performance GECOL Milestone 1) Energy Efficiency; 2) Refers to the process of inspection and analysis of energy flows of facilities to reduce the amount of energy consumption Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 120 II Restructure and prepare for ambition | Upgrade service quality Task A: Deliverable III (b) – Electricity Act and sector restructuring report In terms of energy efficiency and DSM, Libya may look at some of the regional best practices Tunisian Energy Efficiency and DSM elements Tunisia Policies and Designated regulations 1 2 agency 3 Financial incentives 1 2 3 • Energy efficiency law • Energy audits regulation: establishes • The National Agency for Energy • The National Fund for Energy Savings mandatory periodical energy audits for Conservation (ANME) is the designated (FNME) subsidizes investments in EE large energy consuming facilities agency for formulating, promoting, and projects. Sources for financing include revenues from taxes on first registration • Buildings code: outlines minimum EE implementing energy efficiency measures and policies of cars, imports or manufacturing of air specifications for administrative and conditioners, financial savings as a result residential buildings • The agency in charged with: of EE activities and private donations • EE household appliances code: – Energy audit management • VAT exemptions: specifies minimum energy performance – Utilization of energy efficient standards with mandatory labeling – for all domestically produced EE equipment and technologies equipment schemes for air conditioners, promotion refrigerators and freezers – for imported EE equipment that – National information and do not have a locally • Lighting regulation: bans the sale of education programs incandescent light bulbs with power manufactured equivalent superior or equal to 100 Watt and voltage – Scientific research contribution • Subsidy scheme for EE projects superior to 100 Volt Sources: Regional Center for Renewable Energy and Energy Efficiency, Strategy& analysis Strategy& | PwC Prepared for The World Bank 121 II Restructure and prepare for ambition | Upgrade service quality To upgrade its service quality GECOL shall establish a clear complaint valuation, resolution and monitoring process… Complaint valuation, resolution and monitoring framework Receiving and Recording Resolving Closing • Prioritize calls received from Respond • Identify quickly customer type Ensure customers based on value of invoiced • Inform customers of ticket Automated based on responses • Monitor automatically the energy for the previous period closure using their channel of prioritization status of pending tickets and value of • Offer priority treatment to sent to choice (phone, email, SMS) sort based on priority customer privileged customers customer Timely Focus in next slide • Collect customer feedback • Classify problems and Obtain • Set KPIs for the resolutions of and re-open tickets if the Simple automate tickets forwarding to resolution complaints customer customer is not satisfied with classification the right experts/dept. and • Escalate issues automatically feedback on result and routing • Establish clear and timely automated if they are not resolved on time • Escalate customer satisfaction routing procedures closure escalation as needed Inform • Re-open ticket when the • Send information about customer is unsatisfied customer tickets created to customers Ensure • Keep customers regularly Re-open • Link previous ticket history about • Inform customers about the updates with updated on the status of their tickets as target resolution times for their with re-opened tickets and activities and customer open and/or delayed tickets needed complaints increase the priority of SLAs reopened tickets Monitoring & Preventing • Strengthen governance structure by empowering quality assurance team and increase accountability for ticket Monitoring and resolution quality assurance • Ensure appropriate follow up with customers on closed tickets and provide authority to revisit closed tickets if needed • Produce adequate reports to measure performance • Perform root cause analysis of complaints received Preventing • Develop and incorporate tools to identify problems prior to receiving actual complaints and proactively reach out to customers to inform them Sources: Strategy& analysis Strategy& | PwC Prepared for The World Bank 122 II Restructure and prepare for ambition | Upgrade service quality …tracking its service quality performance and progresses with a series of ad-hoc KPIs Complaints resolutions KPIs KPIs Description By customer By complaint First time resolution rate Proportion of calls that are resolved in the first instance To be computed as an average Average customer satisfaction Proportion of customers that have satisfactory had their complaint resolved P P Call handling quality Quality of conversations between agent and customer P Service level Percentage of calls answered on the targeted time P Average speed of answer Time taken by agent to answer an upcoming call from the customer P Call abandonment rate Proportion of total calls that are abandoned by the customer before the agent reply P Call duration Average length of calls between agent and customer P Financial complaint resolution time Proportion of financial customers complaints that are resolved in the stated time P Technical complaint resolution time Proportion of financial customer complaints that are resolved in the stated time P Reopened tickets rate Proportion of tickets that have previously been closed but now reopened due to non-resolution of complaint P Repeated calls rate Total number of calls received from the same customer during a predetermined time period P Operational KPIs Customer KPIs Sources: Strategy& analysis Strategy& | PwC Prepared for The World Bank 123 II Restructure and prepare for ambition | Continuous improvement in cost structure Task A: Deliverable III (b) – Electricity Act and sector restructuring report To further reduce burden on state, GECOL shall focus on cost control measures and outsourcing of non-core activities Measures and activities Measures Activities Year 2021 2022 2023 Owner Optimize Optimize generation mix, assessing gas vs. other fuel feasibility GECOL power mix Improve Ensure on schedule maintenance to rise plant thermal efficiency GECOL efficiency Keep compensation and benefits under control GECOL Salaries and manpower control Keep hiring under control GECOL Identify activities to be outsourced GECOL Outsourcing Redeploy or right-size manpower performing GECOL implementati outsourced activities on Implement outsourcing plan GECOL Non-core activities outsourced Milestone Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 124 II Restructure and prepare for ambition | Achieve GECOL & sector financial sustainability Task A: Deliverable III (b) – Electricity Act and sector restructuring report Periodic tariff reviews and meters substitution will help to reach a balanced tariff and to reduce commercial losses Measures and activities Measures Activities Year 2021 2022 2023 Owner Data collection related to year n-1 GECOL Data projections for year n+1 GECOL Review of projections LEMRA Periodic tariff review Preliminary rate design for year n+1 LEMRA Preliminary tariff submission to stakeholders for negotiations LEMRA Review and finalize ultimate designed rate LEMRA Tariff roll-out Launch new tariff framework across all customer classes LEMRA Tariff covering part of P&L costs1 and cost of fuel subsidies Metering roll- Metering substitution/installation strategy roll-out GECOL out Theft Monitor theft areas GECOL addressing Milestone One shot 1) e.g. 100% of P&L costs include subsidized fuel pricing charge on GECOL+ 20% of cost of fuel subsidies+ Lifeline tariff activity Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 125 II Restructure and prepare for ambition | Achieve GECOL & sector financial sustainability Task A: Deliverable III (b) – Electricity Act and sector restructuring report The tariff review process will become a standard practice with LEMRA playing a larger role in the process… Tariff review and negotiation process (2021 onwards) Year Year n-1 Year n n+1 Q4 Q1, Q2 Q3, Q4 Q1 Collect data for year n-1 Make GECOL projections for year n+1 Submit to Take part Regulatory to Authority negotiations Actors Sector Review and stakeholders1 negotiate Process Analyse start received Finalize Submit to Send data data ultimate stakeholders request designed rate Regulatory Design for negotiation Define rate Authority preliminary design rate parameters Using Launch proposal excel tool new Tariff developed Process End 1) Stakeholders might include representatives from GECOL, Government, consumers and other organizations involved in the electricity sector operations (e.g. NOC) Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 126 II Restructure and prepare for ambition | Achieve GECOL & sector financial sustainability Task A: Deliverable III (b) – Electricity Act and sector restructuring report …with the tariff possibly leading towards full P&L costs coverage and a partial reduction in fuel subsidies Projected avg. tariff (2015-2026) Potential change in government subsidies (2015 vs. 2026) Dhs/ KWh LD Bn ILLUSTRATIVE 70 5.0 Due to increased CAGR 66 fuel volumes 4.5 +6% 4.5 driven by electricity 60 consumption 4.0 +48% 50 3.5 3.1 3.0 40 36 2.5 30 2.0 20 1.5 1.0 0.9 10 0.5 -100% 0.0 0 0.0 2015 2026 2015 2026 Avg. tariff covering: GECOL 100% Government subsidies on GECOL P&L P&L costs 56% Government subsidies on fuel cost Cost of fuel subsidies 0% 20% Sources: GECOL data collection ID7, GECOL data collection ID20, Strategy& analysis Strategy& | PwC Prepared for The World Bank 127 II Restructure and prepare for ambition | Increased private investment in RES Task D: Strategic plan for the development of renewable energies in Libya In the RES arena, several actors will play specific roles in the development of large scale RES projects… NON EXHAUSTIVE RES project development steps, actors and activities Steps Actors Ministry in IPP REAoL REDEVCO GECOL SVP/IPP charge Commission 1 Objective Discuss and negotiate objective for RES penetration and specify in the National Energy strategy the definition agreed target level to be achieved 2 Develop project concept, pre- feasibility and Project study feasibility studies Agree on project selection according to master plan 3 Oversees contracting Prepares/negotiat Grants permits process including es and signs all Permitting and and licenses negotiation (i.e. PPA contracts & contracting negotiation) agreements Negotiate/sign PPA 4 Sets the auction design Competitive Administer auction auction process 5 Construction Buy electricity • Construction from the SPV/IPP of the project and electricity at the PPA • Sell electricity sale conditions to GECOL Note: Refer to Task D Roadmap for Renewable Energy Development for more detail on RES project development; Source: Gopa intec and Suntrace Task D Roadmap for Renewable Energy Development; Strategy& analysis Strategy& | PwC Prepared for The World Bank 128 II Restructure and prepare for ambition | Increased private investment in RES Task D: Strategic plan for the development of renewable energies in Libya …with the IPP Commission choosing among several options (along 4 dimensions) to set a competitive auction processes RES auctions design choices 1 2 Design dimensions 3 4 QUALIFICATION WINNER SELECTION SELLERS’ RIGHTS AND AUCTION DEMAND REQUIREMENTS PROCESS LIABILITIES Choice of auctioned volume, Determination of eligibility Definition of supply curve Clarification of responsibilities the way it is shared between requirements for auction information collection and obligations to be stipulated different technologies and the participation, including procedure and winner in the auction documents project size compliance conditions and selection criteria requisite documentation to be Auctioned volume provided prior to bidding phase Bidding procedure: Settlement rules and • Fixed volume method • Sealed bid process underperformance penalties • Price-sensitive demand curve • Iterative process • Multi-criteria volume setting • Hybrid process Delay and underbuilding Reputation Technology penalties (e.g. legal, proof (e.g. equipment Liabilities for transmission Technology Winner selection criteria of financial specifications, delays • Technology neutral • Min price auctions health) size constraints) • Technology specific • Adjusted min price auctions • Multi criteria auctions Quality liabilities Site selection Grid access Project size (e.g. location Payment to the winner (e.g. access Contract schedule • Standalone (i.e. quantity constraints, • Pay as bid pricing permit required concentrated into one auction) specific site doc. • Marginal pricing schemes before auction) Remuneration profile and • Systematic (i.e. quantity split in requirements) (bidders receive the price set by several auctions) highest accepted bid) financial risks Source: International Renewables Energy Agency, Gopa intec and Suntrace Task D Roadmap for Renewable Energy Development, Strategy& analysis Strategy& | PwC Prepared for The World Bank 129 II Restructure and prepare for ambition Task A: Deliverable III (b) – Electricity Act and sector restructuring report By 2024, the Libyan electricity sector will be upgraded to a more structured framework, possibly including also IPPs Wave II end sector framework (2024) Renewables Key actors 1 Legislation Parliament 1 Parliament Government 2 Prime 2 Government Minister Policy making Ministry of Ministry of IPPs MoE and RES2 3 Commission Finance Planning IPPs 3 Libyan Electricity Commission 4 Market Reg. 7 Policy making REAOL Authority (LEMRA) support / agencies 5 GECOL 4 Regulation LEMRA3 IPPs 8 6 (Non-RES) REDEVCO Operation 5 PPA1 / Demand mgmt. IPP 6 REAoL Generation 9 7 (RES) Capacity / availability Conventional IPPs IPP generation REDEVCO GECOL PPA1 / Demand mgmt. 8 Transmission (Single Buyer) (RES) Capacity / availability Control / Oversee IPPs Distribution Others 9 (RES) & Supply Task D SoW 1) Power Purchase Agreements are the off-take arrangements through which the IPP power exchange is regulated; 2) Ministry of Electricity and Renewable Energy Sources; 3) Further deep dive on the relationship between LEMRA and MoE and RES will be provided in LEMRA establishment detailed roadmap deliverable due by end of October Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 130 II Restructure and prepare for ambition Task A: Deliverable III (b) – Electricity Act and sector restructuring report The Parliament will have as additional responsibilities, granting the legal mandate to the regulatory authority Primary responsibilities / tasks Key actors 1 Parliament Area Primary responsibilities / tasks Government 2.1 (e.g. Ministries of • Approve the National Electricity Strategy drafted by the MoE and RES through Finance & Planning) National Electricity comprehensive consultation process with sector institutional stakeholders (i.e. Government Strategy Regulatory Agency) and industry representatives (i.e. GECOL, NOC, REAoL) 2.2 (e.g. Ministry of Electricity & RES) • Grant the mandate to Government to implement the National Electricity Strategy 3 IPPs Commission Libyan Electricity 4 Market Reg. Authority (LEMRA) • Approve national budget presented by the government, which will include GECOL’s Budget opex and capex budget 5 GECOL IPPs 6 (Non-RES) REAoL 7 (RES) • Sign into law (enact) the Electricity Act from the bill drafted by the MoE and RES Legal Framework REDEVCO • Grant mandate to LEMRA through the approval of the Electricity Act 8 (RES) IPPs 9 (RES) New responsibility Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 131 II Restructure and prepare for ambition Task A: Deliverable III (b) – Electricity Act and sector restructuring report Once opened generation to IPPs, the Government will take part in the PPA negotiation process… Primary responsibilities / tasks Key actors 1 Parliament Area Primary responsibilities / tasks Government 2.1 (e.g. Ministries of Finance & Planning) Government • Examine, negotiate and approve GECOL’s budget proposals 2.2 (e.g. Ministry of Electricity & RES) • Prepare the national budget to be presented for approval to the Parliament Budget • Monitor national spending during the year against budgeted expenditure and report to 3 IPPs Commission the Parliament Libyan Electricity 4 Market Reg. Authority (LEMRA) 5 GECOL IPPs 6 (Non-RES) • Issue best practice guidelines in relation to financial guarantees related to public REAoL private partnership projects 7 PPA (RES) • Provide / negotiate guarantees for all financial obligations related to PPAs entered into by Government, GECOL and potential IPPs REDEVCO 8 (RES) IPPs 9 (RES) New responsibilities Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 132 II Restructure and prepare for ambition Task A: Deliverable III (b) – Electricity Act and sector restructuring report Government will also draw the sector’s objectives & policies and will oversee GECOL and the IPP process Primary responsibilities / tasks Key actors 1 Parliament Area Primary responsibilities / tasks • Formulate and develop appropriate power policies for the control, regulation and Government Policy and legal utilization of power resources 2.1 (e.g. Ministries of framework • Contribute to establish the legal framework for the sector drawing the proposal for the Finance & Planning) bill that the Parliament will consider for the Electricity Act Government 2.2 (e.g. Ministry of • Draft and implement the National Electricity Strategy resulting from a comprehensive Electricity & RES) Strategic objectives public consultation process with sector’s institutional stakeholders ( i.e. LEMRA, REAoL, Ministry of Oil & Gas) and industry representatives (i.e. GECOL, NOC) 3 IPPs Commission • Supervise institutions listed in under the Ministry of Electricity and Renewable Energy Libyan Electricity Sector structure • Oversee LEMRA operations 4 Market Reg. and actors • Monitor the organization and functioning of the electricity market Authority (LEMRA) • Promote accounting and legal unbundling of GECOL • Endorse GECOL’s budget 5 GECOL • Negotiate with the Ministries of Finance and Planning for the approval of GECOL’s GECOL budget 6 IPPs • Propose GECOL’s Board of Directors members to be appointed by the General (Non-RES) Assembly • Approve the concessionaire selected by the IPP commission at the conclusion of the REAoL 7 tendering process (RES) IPP • Take part to negotiations for the PPA between GECOL and the selected REDEVCO concessionaire clarifying conditions related to government financial guarantees 8 (RES) • Promote the Libyan interests with other countries and regional and international International co- organizations on issues relating to electric power IPPs operation/agreement • Initiate/establish cooperation agreements with other countries for the purpose of the 9 (RES) electrical interconnection and trade of electric power Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 133 II Restructure and prepare for ambition Task A: Deliverable III (b) – Electricity Act and sector restructuring report Within the Government (or as a supporting agency), an IPP Commission will design and implement the IPP process Primary responsibilities / tasks Key actors 1 Parliament Area Primary responsibilities / tasks Government • Draft regulations for independent power procurement to be submitted for approval to Rules and 2.1 (e.g. Ministries of LEMRA conditions for IPPs Finance & Planning) • Set procedure and conditions for selection of IPPs Government 2.2 (e.g. Ministry of Electricity & RES) • Analyze, research and identify the need for power, the potential sources and the Identification budget for the entry of an independent power producer 3 IPPs Commission • Solicit bids through a competitive procurement process Libyan Electricity • Draft technical and financial requirements to analyze tendering producers’ 4 Market Reg. qualification (e.g. type of power generation, related generation standards, required Authority (LEMRA) amount of power supply and minimum financial requirements) • Set deadlines and the manner in which potential candidates must respond Auctioning process 5 GECOL • Oversee the competitive bidding process, monitor compliance with rules and regulation • Monitor negotiations with the selected independent producer to achieve the final IPPs 6 (Non-RES) signing of the PPA • Maintain, promote and document integrity throughout the whole selection process REAoL 7 (RES) • Monitor and report compliance with rules and regulation REDEVCO IPPs monitoring • Assess performance of independent power producer against PPA conditions 8 (RES) • Take timely corrective action if necessary IPPs 9 (RES) Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 134 II Restructure and prepare for ambition Task A: Deliverable III (b) – Electricity Act and sector restructuring report A regulatory authority (LEMRA) will overtake the role of tariff set-up and sector functioning supervision Primary responsibilities / tasks Key actors 1 Parliament Area Primary responsibilities / tasks • Set the Electricity Market License Regulation1 Government • Grant (and cancel) licenses to generation IPPs and collect license fees Private investment 2.1 (e.g. Ministries of • Approve/reject/amend regulations for IPP procurement submitted by the commission and competition Finance & Planning) • Impose penalties/sanctions for non compliance with rules of competition, Government transparency of information and equal opportunity principles 2.2 (e.g. Ministry of • Draft the Tariff Regulation setting the principles governing the examination, Electricity & RES) Tariff modification and approval of the regulated tariffs • States criteria for the preparation of tariff proposals by GECOL 3 IPPs Commission • Establish service quality standards related to: - terms and conditions of contracts (i.e. response time to calls or complaints) Libyan Electricity - technical aspects of the service (i.e. service continuity and safety) 4 Market Reg. Service quality • Examine consumer’s complaints, acting as consumer advocate in public proceedings Authority (LEMRA) • Arbitrate and adjudicate any dispute that may arise between GECOL and consumers through out-of-court settlements 5 GECOL • Set technical quality principles and other standard measures to monitor GECOL’s perf. Efficiency and • Set minimum safety standards for O&M, construction and installation of power systems IPPs security of supply 6 • Supervise security and reliability of the power system and propose improv. measures (Non-RES) • Approve/reject proposals for IPPs submitted by the IPP Commission after close REAoL IPP scrutiny during the tendering process 7 (RES) • Grant concession to the approved winner of the tendering process • Provide information and act as advisor to the MoE and RES on matters related to REDEVCO development installation and operation plans 8 Innovation and (RES) • Helps the Ministry of Electricity and RES in drafting the National Electricity Strategy sector development • Support the development of the industry through guidelines and information sharing IPPs • Promote the development of renewable energy 9 (RES) 1) Sets the principles and procedures, applicable to grant, modify, renew, terminate and cancel licenses to legal entities and the rights and obligations of such licenses Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 135 II Restructure and prepare for ambition Task A: Deliverable III (b) – Electricity Act and sector restructuring report GECOL will remain a vertically integrated player, holding T&D monopoly and acting as single buyer for the IPP(s) Primary responsibilities / tasks Key actors 1 Parliament Area Primary responsibilities / tasks • Own, control and operate the generating units connected to the T&D network Government • Plan the development of generation capacity to efficiently meet expected demand 2.1 (e.g. Ministries of Generation • Make decisions on size, type, technology and location of the required capacity made Finance & Planning) to ensure that future demand is met at the least cost Government • Generate electricity to meet demand 2.2 (e.g. Ministry of Electricity & RES) • Own, control and operate the transmission network • Engage in real time scheduling and control of the grid system 3 IPPs Commission Transmission • Dispatch generation in compliance with the guidelines set in the Grid Code/Interconnection Code by LEMRA Libyan Electricity • Ensure energy demand and supply balance 4 Market Reg. Authority (LEMRA) • Own, control and operate the distribution network Distribution & • Invoice customers and address commercial losses through the electricity police 5 GECOL Supply • Address customers complaints • Install, maintain and operate metering technology across all customer segments IPPs • Buy electricity from IPPs as contracted through the PPA 6 (Non-RES) • Purchase electricity from generators on a least cost basis in accordance with the Single buyer terms and conditions of the generators contracts 7 REAoL • Ensure that service quality level standards are respected (RES) • Submit proposals for tariff change to LEMRA demonstrating that existing tariff does Tariff REDEVCO not allow a reasonable opportunity to recover the cost to serve 8 (RES) • Negotiate conditions of PPA with the concessionaire specifying the obligations IPPs relating to the purchase of available capacity and electrical output and the required 9 PPA (RES) O&M specifications • Sign the PPA and abide to its conditions Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 136 II Restructure and prepare for ambition Task A: Deliverable III (b) – Electricity Act and sector restructuring report The IPP(s), will complement the Libyan power generation sector, increasing competition and efficiency Primary responsibilities / tasks Key actors 1 Parliament Area Primary responsibilities / tasks Government 2.1 (e.g. Ministries of Finance & Planning) Government PPA • Negotiate the PPA with key Libyan stakeholders 2.2 (e.g. Ministry of Electricity & RES) 3 IPPs Commission Libyan Electricity 4 Market Reg. Authority (LEMRA) Build power • Develop, build and commission the power generation asset in accordance with the IPP generation asset specifications and tender released by the Libyan Government / Commission 5 GECOL IPPs 6 (Non-RES) REAoL 7 (RES) • Operate the generating asset under the PPA framework Power generation • Deliver to GECOL the energy contracted in accordance with the PPA (GECOL acting REDEVCO as single buyer for the electricity) and charge GECOL for the capacity made available 8 (RES) IPPs 9 (RES) Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 137 II Restructure and prepare for ambition Task D: Strategic plan for the development of renewable energies in Libya REAoL will continue to foster the development of renewables and to closely monitor REDEVCO’s (and other IPPs) Primary responsibilities / tasks Key actors 1 Parliament Area Primary responsibilities / tasks Government 2.1 (e.g. Ministries of • Provide input for the improvement of renewables regulatory and legal Finance & Planning) framework including the development of quick and efficient permitting Government processes 2.2 (e.g. Ministry of • Lobby for the implementation of policies to increase penetration of Electricity & RES) RES regulatory renewables in Libyan power mix 3 IPPs Commission and legal • Advise the Ministry in charge of the sector with respect to the role of (i.e. political renewables in the drafting of the National Electricity Strategy Libyan Electricity agent) • Encourage support of related industries in the implementation of renewable 4 Market Reg. projects Authority (LEMRA) • Together with REDEVCO, support the IPP Commission in the design and 5 GECOL implementation of the first competitive bidding process for the development of large scale RES projects New responsibility IPPs 6 (Non-RES) Capacity • Supervise project implementation and coordinate capacity building in the 7 REAoL building renewables arena of institutions, local industry and developers (RES) • Coordinate research activities, technical specifications, education and (i.e. knowledge carrier) planning for the integration of renewables into the Libyan electricity sector REDEVCO 8 (RES) • Function as a provider of debt financing to renewables SPV/IPPs controlled Financing IPPs by REDEVCO either directly or indirectly through the control of the renewables 9 (RES) (i.e. lender) fund Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 138 II Restructure and prepare for ambition Task D: Strategic plan for the development of renewable energies in Libya REDEVCO will play a key role in signing all contracts which will be the basis of the auction for new RES projects Primary responsibilities / tasks Key actors 1 Parliament Area Primary responsibilities / tasks • Act as an investment vehicle for early stage renewable energy project development Government RES in Libya 2.1 (e.g. Ministries of development • Build capacity and knowledge in the renewables sector Finance & Planning) Government • Identify most promising investment opportunities with a viable business case 2.2 (e.g. Ministry of • Preliminary concept design: installed capacity estimation, and preliminary cost- Electricity & RES) Project Concept benefit analysis • Carry on initial discussions with key parties and stakeholders and principal 3 IPPs Commission understanding/agreements with key parties • Pursue first project assessment of: project site, conceptual design (i.e. technology, Libyan Electricity Project 4 Market Reg. capacity, etc.), estimated energy yield and revenues, budget estimation for feasibility development, construction and operation, grid connection, possible fatal flaws Authority (LEMRA) • Secure solar resource assessment 5 GECOL • Start contract negotiations (i.e. PPA) on behalf of SPVs • Launch scouting of sponsor/main equity investor Project & site IPPs • Achieve permits for construction and operation (i.e. land permits, environmental 6 (Non-RES) qualification permits, generation licenses, etc.) • Prepare project financial structure (i.e. debt-equity financing, concessional finance, REAoL etc.) 7 (RES) Equity • Provide equity financing in either project development phase or construction phase 8 REDEVCO financing1 (RES) Auctioning • Help REAoL and IPP Commission in the design the competitive bidding process for the IPPs 9 (RES) process procurement of capacity or generation of electricity from renewable energy New responsibilities 1) TBD depending on ongoing discussion regarding the alignment of possible funding mechanisms; Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 139 II Restructure and prepare for ambition Task D: Strategic plan for the development of renewable energies in Libya … thanks to which new RES IPPs will enter the Libyan electricity sector Primary responsibilities / tasks Key actors 1 Parliament Area Primary responsibilities / tasks Government 2.1 (e.g. Ministries of Finance & Planning) Government PPA • Negotiate the PPA with key Libyan stakeholders 2.2 (e.g. Ministry of Electricity & RES) 3 IPPs Commission Libyan Electricity 4 Market Reg. Authority (LEMRA) 5 GECOL Build RES • Develop, build and commission the power generation asset in accordance with the IPP generation facilities specifications and tender released by REDEVCO IPPs 6 (Non-RES) REAoL 7 (RES) REDEVCO 8 (RES) • Operate the generating asset under the PPA framework Power generation • Deliver to GECOL the energy contracted in accordance with the PPA (GECOL acting IPPs as single buyer for the electricity) and charge GECOL for the capacity made available 9 (RES) Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 140 Executive Summary Summary of key issues faced by the electricity sector Wave I: Fix the basics and prepare for restructuring Wave II: Restructure and prepare for ambition Options for Wave III (realize ambition) Appendix – Inputs for Electricity Act Strategy& | PwC Prepared for The World Bank 141 Task A: Deliverable III (b) – Electricity Act and sector restructuring report Once the functional unbundling of GECOL is achieved, Libya will need to choose what end-state ambition to pursue GECOL unbundling path Starting point Wave I P Wave II P Ambition ! GECOL Fix the basics and Restructure and prepare Achieve unbundling prepare for restructuring for unbundling ambition or up-grade within a single-buyer Vertically Accounting Functional sector structure integrated utility unbundling unbundling • Allocate patrimonial • Separate core and economic activities into SBUs accounts directly and under the leadership Legal Generation indirectly linked to of autonomous unbundling & Transmission core value chain managers activities • Each SBU manager OR • Draft separate annual has autonomy over Continue with BS and IS accounts financial, human for core value chain resources and functional activities technical resources unbundling Distribution & Supply 3 years 3 years 3 years Jan-2018 Jan-2021 Jan-2024 Jan-2027 Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 142 In an increasing demand environment, Libya may decide to remain as single buyer, increasing its IPP participation … Projected electricity demand & consumption Libya operations structure by end of Wave II (TWh, GW) B. Slow political stability C. Slow political stability-UPDATED A. Continuous political instability Operations Renewables Consumption TWh 90 80 B IPP PPA / Conventional IPPs IPP 70 C Demand mgmt. generation 60 A Generation Capacity / 50 availability 40 PPA / Demand mgmt. 0 Capacity / availability GECOL 2016 2018 2020 2022 2024 2026 2028 2030 (Single Demand (Peak load) Buyer) Transmission GW 20 B 15 C , A 10 Distribution & Supply 0 2016 2018 2020 2022 2024 2026 2028 2030 Source: GECOL data collection ID2; Strategy& analysis Strategy& | PwC Prepared for The World Bank 143 Task A: Deliverable III (b) – Electricity Act and sector restructuring report …or pursue an unbundling ambition, deciding on its vertical set-up first and then choosing for the horizontal structure Vertical and horizontal unbundling options Functional unbundling Legal unbundling ambition 1 Vertical unbundling 2 Horizontal unbundling Many legal G T D&S One legal entity entities 1.1 Unbundled distribution GECOL Holding 2.1 Multiple generation GECOL Holding G T D&S GG T D&S GECOL 1.2 Unbundled generation GECOL Holding G 2.2 Multiple distribution SBU G T D&S GECOL Holding Different Different T options options SBU 1.3 Unbundled transmission G T D D&S GECOL Holding D&S SBU 2.3 Full horizontal unbundling G D&S T GECOL Holding 1.4 Full legal unbundling GECOL Holding GG T D D&S G T D&S Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 144 Vertical unbundling 1 G T D&S Task A: Deliverable III (b) – Electricity Act and sector restructuring report If unbundling will be the ambition, Libya could target a full legal unbundling in terms of vertical… Vertical unbundling options pros and cons Transparency Competition Autonomy + PROS - CONS Accountability Flexibility for over private sector Decision making performance investment independence 1.1 Unbundled distribution • Increased motivation for • Potential conflict of interest vis-à- distribution service providers to vis IPPs due to G&T integration GECOL Holding perform • Limited private sector investment • Potential for improved service potential in generation assets 1 2 1 quality and reduced costs in • Lack of transparency due to the G T D&S distribution integration of G&T 1.2 • Potential sale of under- • Limited potential improvements in Unbundled generation development plants to private terms of service quality and cost GECOL Holding investors reduction in distribution • Level playing field is established • Limited private sector participation 1 2 1 between GENCO and IPPs in distribution G T D&S • Increased transparency in • No operational benefits from 1.3 Unbundled transmission transmission combining G&D, two different GECOL Holding businesses with limited economies 2 3 1 of scope • Unconventional combination of G D&S T assets unlikely to attract private investors 1.4 Full legal unbundling • Potential for lower costs and • Loss of synergies (economies of greater efficiency through scale and scope) GECOL Holding competition in G&D • Reduced risk of corruption 4 4 4 • Highest flexibility for private sector G T D&S investment Recommended option Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 145 Horizontal unbundling 2 One legal Many legal entities entities Task A: Deliverable III (b) – Electricity Act and sector restructuring report … while for horizontal it may not be efficient to create multiple G&D entities … Horizontal unbundling options’ rationale One Many Rationale Suitability to Country’s system must be large enough 4 0 to accommodate all unbundled small systems companies Simplicity 4 1 Horizontal unbundling involves high complexity and transaction costs Integration entails economies of scale Economies of 4 0 form operating a unified workforce with scale and scope standardized processes and shared systems Separation provides additional incentives Accountability 1 4 to improve performance and to provide and transparency higher service quality to customers Unbundling introduces competition among Competition 1 4 players increasing drive to reduce costs and losses and improve collection and service Allows to opportunistically sell plants to Carve-out 0 4 new IPPs (brownfield projects1) or local opportunities distribution companies to private investors 1) Under brownfield projects private players invest in existing assets which are combined with an expansion or upgrade opportunity High Low Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 146 Horizontal unbundling 2 One legal Many legal entities entities Task A: Deliverable III (b) – Electricity Act and sector restructuring report … especially because the size of the Libyan sector does not suggest the need for multiple companies Generation4 (2015) Distribution network length (2015) TWh ‘000 km 300 275 600 537 250 445 450 200 175 303 283 150 300 100 161 65 150 36 85 50 30 15 0 0 Saudi Egypt Algeria Libya Morocco Tunisia Saudi Egypt Algeria Morocco Tunisia1 Libya3 Arabia1 Arabia1 Number of Customers 8,1 31,4 8,6 5,3 3,6 1,2 (Mn) Horizontally unbundled2 Horizontally unbundled2 Recommended option: No horizontal unbundling Horizontal unbundling GECOL Holding Many legal One legal entity entities G T D&S Note: includes Sonelgaz, STEG, ONEE-BE, SEC and EEHC Distribution Companies 1) Data refers to 2014 y/e, last historical data available; 2) Horizontal and vertical legally unbundled country examples; 3) Includes GECOL 66kV and 30kV lines (25453km) and low voltage 11kV and O.4kV lines (~60000km); 4) Considers all national energy generated (Libyan generation includes energy generated by Misurata Steel and Sarir MMRA plants) Sources: GECOL data collection ID1, GECOL data collection ID24, GECOL data collection ID37, Corporate Annual Reports, BMI Research Database, Strategy& analysis Strategy& | PwC Prepared for The World Bank 147 Task A: Deliverable III (b) – Electricity Act and sector restructuring report Legal unbundling could be pursued with different levels of independence from the holding company Legal unbundling options review Independence from Holding Co. LEGAL UNBUNDLING G,T, D legal entities have the power to: Lean Fat Fat plus Draft separated annual accounts R R R Legal unbundling R R R Appoint independent prerequisites management Retain asset economic ownership V Assets are owned and R R financed by Holding Co. Execute strategic functions1 V R R Hold financial independence V V Cash flows handled centrally R at Holding Co. level 1) Strategic functions include investment decisions regarding extensions and maintenance, contracting for outsourced activities/services Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 148 Task A: Deliverable III (b) – Electricity Act and sector restructuring report If legal unbundling is to be pursued, GECOL will embark in a process taking at least 3 years with a series of activities … Measures and activities Measures Activities Year 2024 2025 2026 Owner Draft detailed roadmap of activities and accountabilities GECOL Preparation Onboard accounting, legal & strategy advisors GECOL Set up PMO team leading and monitoring the process GECOL Perform legal due diligence Legal advisors Corporatize Define corporate bylaws and legal status of both Legal advisors the new holding and subsidiaries (e.g. LLC or corporation) companies Appoint CEO and BoD for both holding and subsidiaries GECOL Identify and valuate GECOL’s assets & liabilities Accounting advisors Transfer Establish starting capital and opening equity balances Accounting advisors assets & Transfer assets and liabilities from GECOL to newly Accounting advisors liabilities incorporated legal entities Draft and enforce external agreements GECOL Pricing and Develop and enforce transfer pricing schemes and SLAs Accounting advisors SLAs /GECOL Detail and rollout the new organization structure Strategy advisors Organization /GECOL structure & Design a compensation and benefits structure GECOL governance Redeploy employees within newly created subsidiaries GECOL Define IT strategy and key enablers GECOL IT strategy Implement new systems and required infrastructure and platform GECOL Develop a change management approach Strategy advisors Communicati Manage internal change GECOL on and Implement culture change initiatives GECOL change Develop and execute external communication and branding initiatives GECOL Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 149 Task A: Deliverable III (b) – Electricity Act and sector restructuring report …and may end-up in GECOL being structured as a holding with 3 separate operating entities GECOL organization after legal unbundling GECOL Holding Company (GHC) GHC BoD Internal BoD Office Control GHC MD MD Office Media and Legal Affairs public relations Central corporate HR & AFC ICT core departments Organization Operating companies Distribution & TSO & GENCO Supply Single buyer Company Corporate Corporate Corporate core depts. core depts. core depts. Support Support Support Services Services Services Regional Operating Regional operating BUs BUs operating BUs Other sector DISCOs IPPs players SALES COs Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 150 Executive Summary Summary of key issues faced by the electricity sector Wave I: Fix the basics and prepare for restructuring Wave II: Restructure and prepare for ambition Options for Wave III (realize ambition) Appendix – Inputs for Electricity Act Strategy& | PwC Prepared for The World Bank 151 Electricity Acts typically have some common content Typical sections and content of electricity acts Sections Content description 1 Objectives • Glossary and general interpretation of the terms used within the electricity act • High-level description of the objectives and focus of the act (e.g. strategic priorities) 2 Policymaking • Mandate and powers for sector’s policymaking responsibilities to ministry or government body mandate • Regulation mandate to regulatory body specifying its objectives and activities 3 Regulatory • Composition and powers of the board of directors of the regulatory body Body • Financing matters • Overview of the electricity actors and functions divided between generation, transmission and distribution & Sector structure supply 4 and competition • Institutional governance of state owned entities • Development structure of the market towards stepwise liberalization and competition • Provision of tariff setting and review responsibility to the regulatory authority 5 Tariff • Principles for tariff setting methodology • License obligation for any entities building, operating or managing facilities for generation, transmission, Licensing 6 distribution and supply of electricity and criteria for exemption framework • Application procedure and period of validity • Sanctions for exercise of activities without holding a license 7 Penalties • Fees for illegal connections and theft • Sanctions for sabotaging electrical installations and meters Sources: A.R.E Presidential Decree Law of 2015 Promulgating the Egyptian Electricity Act, Jordan General Electricity Law No. 64 of 2003, Saudi Arabia Electricity Law No. M/56 of 2005, Strategy& analysis Strategy& | PwC Prepared for The World Bank 152 The suggested sector reform foresees the introduction of a first Government decree followed by an Electricity Act Government decree and electricity act sections Wave I Wave II Gov’t Decree1 Electricity Act 1 Objectives P P P P Policymaking 2 mandate 3 Regulatory Body P Sector 4 structure and competition P P 5 Tariff P 6 Penalties P P 7 Licensing framework P Formalization Included sections Revisions / integrations 1) Government Decree will substitute the release of the Electricity Act, since the sector structure, roles & responsibilities will not be changed; Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 153 Gov’t Decree Electricity Act The objectives of the first reform wave shall be translated directly into the Government decree objectives Government decree objectives Libya illustrative Wave I objectives Electricity Act objectives 1 Objectives 2 Policymaking Clarify sector Provide a clear, stable and non discriminatory policy and mandate governance regulatory framework for the electricity sector 3 Regulatory Body Establish performance Foster the systematic development and restructuring of accountability the electricity undertakings Sector Restore acceptable 4 structure and Ensure the provision of safe, secure, reliable and efficient service quality competition “Zero load shedding” electricity supply Costs control Promote financial sustainability of companies operating in 5 Tariff & staff reskilling the sector • Enable electricity undertakings to realize a fair Improve GECOL & economic return taking into account the costs of 6 Penalties sector financial service through a fair and clear electricity tariff sustainability structure Licensing • Discourage theft of electricity and fight insolvency 7 framework Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 154 Gov’t Decree Electricity Act The Decree will need to clarify the sector policymaking mandate to the Government Main topics and inputs by section Topics Inputs 1 Objectives States the objectives/mandate of the Ministry or Government body in charge: • Sector strategic planning and development objectives Policymaker goals • Security of supply objectives (e.g. availability of acceptable generation 2 Policymaking reserve margin, adequate transmission and distribution capacities) mandate States the responsibilities/powers of the Ministry or Government body in charge: • Sector policymaking responsibilities 3 Regulatory • Sector strategic planning functions (e.g. integrated resource planning, Body Policymaker collection of data from the electricity participants, consultation with market Responsibilities participants and forecasts to draft the National Electricity Plan) Sector • International cooperation and import supply securement responsibilities 4 structure and • Promotion of sector related country interests at the international level competition 5 Tariff 6 Penalties Licensing 7 framework Sources: A.R.E Presidential Decree Law of 2015 Promulgating the Egyptian Electricity Act, Jordan General Electricity Law No. 64 of 2003, Saudi Arabia Electricity Law No. M/56 of 2005, Strategy& analysis Strategy& | PwC Prepared for The World Bank 155 Gov’t Decree Electricity Act Jordan Jordan Electricity Law clarifies the mandate and powers of the Ministry of Energy and Mineral Resources for example Electricity act extract EXAMPLE NOT EXHAUSTIVE 1 Objectives GENERAL ELECTRICITY LAW No. 64 of 2003 Art. 4: The Ministry shall assume the following mandate and powers: 2 Policymaking • To set and prepare the general policies of the sector and submit mandate them to the Council of Ministers for approval in accordance with the needs of economic and social development in the Kingdom […] 3 Regulatory • To cooperate with other countries for the purpose of the electrical Body interconnection and trade of electric power, as well as to conclude the agreements necessary to that effect with the consent of the Council of Sector Ministers, and to follow up performance of the contractual obligations 4 structure and with those countries competition • To promote the interests of the Kingdom with other countries and regional and international organizations on issues relating to electric 5 Tariff power and to represent the Kingdom before such organizations • To adopt the necessary measures for the provision of supplemental sources of generation of electric power in case of prolonged 6 Penalties shortfalls in electric power, if no alternative means are available • To promote the use of renewable energy for generation • To recommend to the Council of Ministers to switch to a competitive Licensing electricity market […] 7 framework Sources: Jordan General Electricity Law No. 64 of 2003, Strategy& analysis Strategy& | PwC Prepared for The World Bank 156 Gov’t Decree Electricity Act The decree shall than formalize the sector activities and reinforce the institutional guidelines for state owned entities Main topics and inputs by section Topics Inputs 1 Objectives Specifies sector’s activities in terms of: • Company in charge • Ownership structure and legal status (e.g. joint stock company fully owned by the state) 2 Policymaking • Licensed activities, e.g. mandate Sector – Generation: build, manage and operate electricity production plants Activities – Transmission: manage, maintain and operate the transmission system, power balancing functions – Distribution: establish and implement electricity distribution projects on medium 3 Regulatory and low voltage, manage operate and maintain the distribution networks Body – System operator: merit order dispatch Specifies institutional leadership structure for state owned entities in terms of: Sector structure • Members of the General Assembly (e.g. Ministry of Electricity, Ministry of 4 Finance, etc.) and competition State owned • Chairman of the General Assembly (e.g. Ministry of Electricity or Prime minister) entities • Members of the Board of Directors • BoD terms of office (e.g. 3 years) 5 Tariff • BoD activities (e.g. approval rights on Authority plan, organization, budget) 6 Penalties Licensing 7 framework Sources: A.R.E Presidential Decree Law of 2015 Promulgating the Egyptian Electricity Act, Jordan General Electricity Law No. 64 of 2003, Saudi Arabia Electricity Law No. M/56 of 2005, Strategy& analysis Strategy& | PwC Prepared for The World Bank 157 Gov’t Decree Electricity Act Egypt Egypt state owned transmission company institutional structure for example is detailed in the Electricity Act Electricity act extract EXAMPLE NOT EXHAUSTIVE 1 Objectives ELECTRICITY ACT 2015 Chapter 3: Electricity Activities 2 Policymaking Art. 24: Electricity Utility is a public utility operating within the framework of the duly mandate approved electric power strategies and policies. […] Section 2: Electricity Transmission and Network Operations 3 Regulatory Body Art. 26: The Egyptian Electricity Transmission Company is a joint stock company, fully owned by the State. […] The Company shall solely be assigned to Sector structure transmit electricity and operate electricity networks. 4 Art. 27: The General Assembly of the Egyptian Electricity Transmission Company and competition shall be chaired by the Competent Minister and shall have a number of members of not less than seven and no more than fourteen. The members 5 Tariff shall be appointed for a three-year term by the Premier’s Decree to be issued on the recommendation of the Competent Minister. The general assembly members shall include a representative of the Ministry of 6 Penalties Finance and another representative of the Company’s employees to be nominated by the General Federation of Laborers Unions. […] Art. 28: The Egyptian Electricity Transmission Company shall be managed by a Licensing board of directors to be formed by a resolution of the General Assembly. 7 […] framework Sources: A.R.E Presidential Decree Law of 2015 Promulgating the Electricity Act, Strategy& analysis Strategy& | PwC Prepared for The World Bank 158 Gov’t Decree Electricity Act The final section of the decree will then specify penalties for theft, sabotage, harm to employees and insolvency Main topics and inputs by section Topics Inputs 1 Objectives States penalties for carrying out activities without a license (e.g. imprisonment for a Illegal term of one to three years, payment of fines, or both) activities 2 Policymaking mandate States penalties for: • Illegal connections (e.g. imprisonment for a period from 6 months to 2 years, payment of a fine, or both) 3 Regulatory Theft • Breaking the seals of al electrical meter for the purpose of stealing Body electrical power or assisting a person in committing such activities (e.g. Imprisonment for a period of one moth to one year, payment of a fine, or Sector both) 4 structure and States penalties for: competition Sabotage • Intentional sabotage and damages to electrical installations • Unintended damage to electrical installation due to negligence or mistake States applicable code in case of crimes committed against the employees of 5 Tariff Harm against generation, transmission, distribution and supply license holders or system operators utility employees during the performance of their duties (e.g. Penal Code penalties) Customer States penalties for non payment of electricity (e.g. discontinuation of the supply of 6 Penalties insolvency power) Licensing 7 framework Sources: A.R.E Presidential Decree Law of 2015 Promulgating the Egyptian Electricity Act, Jordan General Electricity Law No. 64 of 2003, Saudi Arabia Electricity Law No. M/56 of 2005, Strategy& analysis Strategy& | PwC Prepared for The World Bank 159 Gov’t Decree Electricity Act Jordan Imprisonment or fee sanctions (or both) are the most common measures established in Jordan to address theft Electricity act extract EXAMPLE NOT EXHAUSTIVE 1 Objectives GENERAL ELECTRICITY LAW No. 64 of 2003 Art. 49: […] Whoever carries out the activity of generation, transmission, distribution, supply or system operation without obtaining a license 2 Policymaking […], shall be liable to be sentenced to imprisonment for a term of 1 to mandate 3 years, or be liable to pay to a fine of not less than 50.000 Dinars but not exceeding 100.000 Dinars, or both. 3 Regulatory Art. 50: Whoever illegally uses the electric system or unlawfully connects to it Body or steals electric power, or assists a person in such activities, shall be Sector liable to an imprisonment for a period from 6 months to 2 years, or a 4 structure and fine that shall not be less than 2.000 Dinars, but no more than 10.000 competition Dinars, or both imprisonment and a fine. Art. 51: Whoever deliberately tampers with or otherwise breaks the seals of an 5 Tariff electric meter […], for the purpose of stealing electric power, or assists a person in committing such activities, shall be liable to imprisonment for a period of 1 month to 1 year or a fine that shall not be less than 6 Penalties 500 Dinars but not more than 2.000 Dinars or both […]. Art. 54: The penalties prescribed by the Penal Code in force for crimes against civil servants shall apply to crimes committed against the employees Licensing of electricity companies during the performance of their duties. […] 7 framework Sources: Jordan General Electricity Law No. 64 of 2003, Strategy& analysis Strategy& | PwC Prepared for The World Bank 160 Gov’t Decree Electricity Act The 2023 the Electricity Act will then include further elements within the Libyan electricity framework Electricity Act objectives Wave II Electricity Act New objectives 1 Objectives P Upgrade the electricity regulatory framework to insulate it from political influence P Policymaking 2 mandate P Regulatory NEW 3 Body Encourage private sector to invest and participate in Sector the expansion and development of the electricity 4 structure and competition P industry NEW 5 Tariff P Create a suitable environment to encourage and support legitimate competition in the electricity 6 Penalties P industry P Licensing NEW 7 framework Included sections Revisions / integrations Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 161 Gov’t Decree Electricity Act To insulate the electricity sector from political influence the Act will provide legal mandate to the Regulatory Authority Main topics and inputs by section Topics Inputs 1 Objectives States the legal mandate of the Regulatory Authority in terms of: • Name Regulator legal • Institutional/juridical nature (e.g. government agency) mandate • Financial and administrative status 2 Policymaking • Head office location and ownership of immovable properties mandate States the Regulatory Authority’s main objectives in terms of: Regulator • Sector financial sustainability (e.g. tariff, competition) 3 Regulatory objectives • Operational efficiency and security of supply • Competition and attraction of private investment Body Regulator States the main responsibilities of the regulatory authority (e.g. tariff setting, licensing, etc.) Sector responsibilities1 4 structure and • Clarifies Board of Directors: competition – Members (e.g. CEO, members representing consumers, representatives of the state utility, persons with technical, financial and legal expertise) – Appointment terms (e.g. nationality, education, financial interests in utilities) 5 Tariff – Terms of office, renewal and termination of office before end-of-term (e.g. 4 yrs.) Institutional – Activities (e.g. approval rights on Authority plan, organization, activities and arrangement budget) • Clarifies Chief Executive Officer: – Appointment (e.g. by the Prime Minister’s decree) 6 Penalties – Terms of office, renewal and termination of office before end-of-term (e.g. 3 yrs.) – Tasks (e.g. Manage the Authority, raise issues to BoD, implement BoD resolutions) Licensing States Regulatory Authority financial status specifying: 7 Financial • Nature of funds (e.g. funds allocated from the state budget, proceeds from fees, framework resources licenses and sanctions, considerations for work, services rendered, donations) 1) For a more detailed list of responsibilities/tasks of the Regulatory Authority see sector restructuring roadmap-wave 2 section Sources: A.R.E Presidential Decree Law of 2015, Jordan General Electricity Law No. 64 of 2003, Saudi Arabia Electricity Law No. M/56 of 2005, Strategy& analysis Strategy& | PwC Prepared for The World Bank 162 Gov’t Decree Electricity Act Egypt Egypt Electricity Act for example, sets the Authority’s legal status, objectives, composition and financing structure Electricity act extract EXAMPLE NOT EXHAUSTIVE 1 Objectives ELECTRICITY ACT 2015 Chapter 2: Regulation of Electricity Utility Section 1: The Electricity Utility and Consumer Protection Regulatory Agency 2 Policymaking Art. 2: The Electricity Utility and Consumer Protection Regulatory Agency is a public mandate authority acting independently from the Electricity Utility Stakeholders. Art. 3: The agency aims to organize, follow up, monitor and develop all the electricity 3 Regulatory activities. This is to ensure availability, efficiency and quality of electricity and the Body electricity needs in the various uses thereof are all met at suitable prices. […] Sector Art. 5: The Agency shall be managed by a board of directors to be formed under the 4 structure and chairmanship of the Competent Minister. The Board members shall be: the CEO, 4 competition members representing the consumers, 3 representatives from the Electricity Utility, 4 persons of expertise in the technical, financial and legal arenas. […] 5 Tariff Art. 8: The Agency shall have a CEO whose appointment shall take effect by a Premier’s Decree to be issued after the matter is raised by the Competent Minister. […] Art. 10: The financial resources of the Agency shall be comprised of: 6 Penalties • The funds allocated to the Agency in the public budget of State • The proceeds of the fees paid for the permissions and licenses issued • The considerations for works and services rendered Licensing • The donations, contributions and grants that are accepted by the Agency 7 BoD and do not contradict with its objectives […] framework Sources: A.R.E Presidential Decree Law of 2015 Promulgating the Electricity Act, Strategy& analysis Strategy& | PwC Prepared for The World Bank 163 Gov’t Decree Electricity Act As Wave II foresees the opening of generation to IPPs, a revision of the formalized sector structure will be needed Main topics and inputs by section Topics Inputs 1 Objectives Sector Eliminates GECOL monopoly over generation Activities 2 Policymaking mandate State owned No change 3 Regulatory entities Body 4 Sector structure Specifies terms of competition and market opening: + and competition • Generation opened to IPPs under proper licensing terms Competition • IPPs entitlement to sell electricity to the Single Buyer under conditions specified in Power Purchase Agreements 5 Tariff Specifies Single Buyer: + • Role and objectives (e.g. provide adequate, safe and efficient service) Single buyer • Impartiality obligations (e.g. Single buyer shall not show any undue preference or 6 Penalties discriminate against any entity with respect to purchase and sale of electricity) Licensing 7 framework + Added topics/inputs Revisions / integrations Sources: Supplement to the Sierra Leone Gazette Vol. CXLIII, No. 6 dated 9th February 2012, A.R.E Presidential Decree Law of 2015 Promulgating the Egyptian Electricity Act, Jordan General Electricity Law No. 64 of 2003, Saudi Arabia Electricity Law No. M/56 of 2005, Strategy& analysis Strategy& | PwC Prepared for The World Bank 164 Gov’t Decree Electricity Act Other African country For example, the role of IPPs and the activities they are allowed to pursue should be clearly specified Electricity act extract EXAMPLE NOT EXHAUSTIVE 1 Objectives NATIONAL ELECTRICITY ACT, 2011 Part VIII: Independent Power Producers 2 Policymaking Art. 52: An independent power producer: mandate a) Shall sell electricity to the Authority (i.e. Single Buyer) subject to a power purchase agreement approved by the Commission 3 Regulatory (Regulatory Authority); Body b) Shall construct generating stations, including hydro-electric schemes; Sector structure c) Shall keep itself informed of the development relating to the 4 generation of electricity from natural resources available within the and competition State, with particular reference to the implications for the State of such developments […] 5 Tariff 6 Penalties Licensing 7 framework Sources: Supplement to the Sierra Leone Gazette Vol. CXLIII, No. 6 dated 9th February 2012, Strategy& analysis Strategy& | PwC Prepared for The World Bank 165 Gov’t Decree Electricity Act The Electricity Act will give tariff setting and revision mandate to the Regulatory Authority Main topics and inputs by section Topics Inputs 1 Objectives • Provides Tariff setting responsibility to the Regulatory Authority Tariff • Establishes principles to be considered when selecting the tariff setting and approval determination methodology (e.g. cost-reflective, economical signal to consumers, avoid discrimination) 2 Policymaking mandate Tariff • Provides Tariff review responsibility of the Regulatory Authority review • States timing of review (e.g. every five years or less if required by the sector Ministry) 3 Regulatory Body Sector 4 structure and competition 5 Tariff 6 Penalties Licensing 7 framework Sources: A.R.E Presidential Decree Law of 2015 Promulgating the Egyptian Electricity Act, Jordan General Electricity Law No. 64 of 2003, Saudi Arabia Electricity Law No. M/56 of 2005, Strategy& analysis Strategy& | PwC Prepared for The World Bank 166 Gov’t Decree Electricity Act Saudi Arabia Saudi Arabian Act gives tariff review powers to the regulator and outlines principles to be considered when setting tariffs Electricity act extract EXAMPLE NOT EXHAUSTIVE 1 Objectives ELECTRICITY LAW Art. 9: 1. The (Regulatory) Authority shall periodically review the Tariff structure 2 Policymaking and submit recommendations to the Council of Ministers. To this end, mandate the Authority may seek expert advice and require operating companies to provide such information as it considers necessary for 3 Regulatory such review Body 2. In determining the Tariff and its structures, the Authority shall Sector consider: 4 structure and a. Enabling companies to operate efficiently to fully recover their competition expenses […] b. Providing the incentives for the continuous improvement of technical efficiency and quality of services […] 5 Tariff c. Avoiding discrimination between consumers of the same category and between consumers categories 6 Penalties Licensing 7 framework Sources: Saudi Arabia Electricity Law No. M/56 of 2005, Strategy& analysis Strategy& | PwC Prepared for The World Bank 167 Gov’t Decree Electricity Act The opening of generation to IPPs will require the introduction of a clear licensing framework Main topics and inputs by section Topics Inputs 1 Objectives States: • Activities subject to licensing obligations (e.g. construction, ownership and management of undertakings for the generation, transmission, 2 Policymaking distribution and supply of electricity) mandate • Exceptions (e.g. undertakings for generation not exceeding 1MW in Licensed aggregate at the same site, distribution undertakings not exceeding 100 activities KWh in aggregate at the same site, auto-generation) 3 Regulatory • Activities allowed under licenses for: Body • Generation • Transmission Sector • Distribution and supply 4 structure and Clarifies: competition • Submission to office/commission for approval (e.g. Regulatory Authority licenses department) Application & • Documentation and information prescribed by the Regulatory Authority 5 Tariff approval for reviewing the application • Approval upon satisfaction of terms required by the Regulatory Authority and payment of prescribed fees 6 Penalties Specifies: Transfer and • Prohibition to transfer licenses and/or assets revocation • Circumstances for revocation and suspension (e.g. breach of terms or conditions, bankruptcy) Licensing 7 framework Sources: A.R.E Presidential Decree Law of 2015 Promulgating the Egyptian Electricity Act, Jordan General Electricity Law No. 64 of 2003, Saudi Arabia Electricity Law No. M/56 of 2005, Strategy& analysis Strategy& | PwC Prepared for The World Bank 168 Gov’t Decree Electricity Act Egypt The licensing section would specify terms, types of services, fees, geographic span and licensees’ service level obligations Electricity act extract EXAMPLE NOT EXHAUSTIVE 1 Objectives ELECTRICITY ACT 2015 Chapter 2: Permissions and Licenses for Electricity Activities 2 Policymaking Art. 13: No electricity production, distribution, or sale activities shall be exercised mandate unless and until the related licenses are obtained from the (Regulatory) Agency in accordance with the provisions of the law. […] 3 Regulatory Art. 14: The applications to obtain the permissions and licenses, […] shall be Body submitted in the forms prepared by the (Regulatory) Agency. Applications shall include the data and be accompanied by the documents required for Sector adjudication, as set forth in the Executive Regulations. Applications for 4 structure and permissions or licenses shall be adjudicated thereupon within a maximum competition period of sixty days starting form the date of completion by the permission or license applicant of all the data and documents required under the 5 Tariff established rules. […] Art. 17: Licenses include the following: 1. The term of the license 6 Penalties 2. The type of service (production, distribution, sale) 3. The license fee 4. The geographic limits of the licensee’s activities Licensing 5. The licensee obligation to abide by quality standards […] 7 framework Sources: Egypt Electricity Act of 2015, Strategy& analysis Strategy& | PwC Prepared for The World Bank 169