REVISED FINAL REPORT October 2017 Task A: Sector performance and structural sector reform Deliverable 3.2: Electricity Act and Sector Restructuring 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. 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Strategy& | PwC 1 The present report focuses on the sector restructuring roadmap and the related inputs for the Electricity Act Focus of this 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 of the 4.1 5.1 Option study for Findings review and Data collection performance sector structure vs. GECOL restructuring final report assessment previous plan 1.2 3.2 4.2 Methodology, High-level options for Roadmap for team and approach sector reform establishing of LEMRA validation 3.3 Sector restructuring (framework, actors and roadmap) Focus of 3.4 this report Electricity Act 6 Workshop & trainings 7 PMO (progress reporting) Source: Task A inception report Strategy& | PwC 2 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 3 The rapid sector assessment has identified a number of interrelated key issues affecting the Libyan electricity sector Libya electricity sector issues 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 4 The present document will focus mostly on the first 2 waves, providing the inputs for the necessary Electricity Act(s) Next sections approach & focus Wave III Wave II “Realize Wave I “Restructure ambition” “Fix the basics and prepare for and prepare for ambition” restructuring” • Options for end state sector model and structure • Detailed roadmap measures • Sector functioning (roles & • Detailed roadmap measures responsibilities by actor) • Sector functioning (roles & responsibilities by actor) Covered only partially Electricity Act inputs • Inputs for the draft of the future Electricity act Strategy& | PwC 5 This document describes the sector reform plan for Libya, focusing mostly on the Institutions-led activities Considerations on current report A more detailed Document objectives restructuring roadmap focused on GECOL is • Describe the Wave 1 objectives, measures and activities to be found in Task C • Describe the Wave 2 objectives, measure and activities • Highlight (at a high-level) the options for the Wave 3 preparation • Discus the inputs for the electricity act preparation Document intends to: Important note • Describe the target re-organization & structure of the Libyan electricity sector • The document is preliminary – final sector roadmap is to be found in the Task A final • Identify the roles & responsibilities of each report (since Task A final report will also include electricity sector actor the final findings of Task D and the other • Provide a challenging horizon and action plan analyses under preparation during the for the reform implementation preparation of the current version of the report) • Describe the inputs needed for the • The current reform is built to resolve the issues preparation of the necessary for the identified with the rapid sector assessment. The preparation of the electricity act previous deliverable (3.1. sector reform options) only serves to provide inputs for the target sector • Allow team members and stakeholders to structure and framework to be achieved by Libya initiate discussions on the future sector reform Strategy& | PwC 6 Wave I: Fix the basics and prepare for restructuring Wave II: Restructure and prepare for ambition Options for Wave III Appendix – Inputs for Electricity Act Strategy& | PwC 7 I Fix the basics and prepare for restructuring 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 8 I Fix the basics and prepare for restructuring …and lays the foundation for the introduction of renewables in the Libyan power fleet to address supply shortage 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 9 I Fix the basics and prepare for restructuring| Clarify sector governance 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 Establish regulatory agency within the government2 Ministry in charge Regulatory Agency regulatory in operation agency Regulatory agency in operation Regulatory Agency 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 10 I Fix the basics and prepare for restructuring| Establish performance accountability 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 11 I Fix the basics and prepare for restructuring| Establish performance accountability …helping to establish improved accountability and operating model (also achieved through reorganization) 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 12 I Fix the basics and prepare for restructuring| Establish performance accountability 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 13 I Fix the basics and prepare for restructuring| Establish performance accountability To achieve accounting unbundling, best practices suggest to separate the company’s accounts through 5 subsequent steps Accounts allocation steps from AEEGSI regulation EXAMPLE General ledger accounts Accounts allocation steps Economic accounts to be Non • 1 Identify core value chain activities 3 indirectly attributed to attributable activities accounts • 2 Attribute to each core value chain activity the directly linked economic Patrimonial and economic 2 accounts directly Cost centers and patrimonial accounts attributable to activities • 3 Attribute economic accounts1 which are not directly linked to core value chain activities to shared services through cost centers 1 Core value chain activities Internal 4 Shared Services Transactions 4 • Identify internal transactions, both Generation among shared service functions and Internal among core value chain activities 4 Transactions • 5 Allocate, through cost drivers, the Transmission Drivers 5 economic accounts attributed in 4 Internal phase 3 to shared services Transactions Distribution/Supply 1) Patrimonial accounts can not be indirectly allocated to activities through cost drivers, hence the annual separated BS should present only directly attributable BS accounts to core value chain activities Sources: AEEGSI Accounting unbundling regulation (TIUC-Testo integrato unbundling contabile), Strategy& analysis Strategy& | PwC 14 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” 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 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 operating action plan All transmission milestones completed performance Complete all measures and activities proposed in the control GECOL issues action plan All control milestones completed Complete all measures and activities proposed in the MV & distribution GECOL action plan4 All MV & distribution milestones completed Detailed initiatives & roadmap provided within Task C- Improving GECOL technical performance 4.2 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 15 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” 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 16 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” Together with the CAPEX budgeting process GECOL shall review and strengthen the 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 17 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 18 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” 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 19 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” Under highly aggressive assumptions GECOL should be able to re-establish an acceptable 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 20 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” …however under more pessimistic (realistic?) assumptions, load shedding will continue to be an issue 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 21 I Fix the basics and prepare for restructuring| Costs control & staff reskilling 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 22 I Fix the basics and prepare for restructuring| Costs control & staff reskilling A further increase in gas usage (if subsidies are maintained) may bring substantial cost benefits … Impact of gas fuel mix on GECOL cost of generation SCENARIO 1: additional gas supplied at constant SCENARIO 2: Additional gas supplied at (fully-subsidized) fuel price international market price LD/MWh LD/MWh +418% +663% 25 25 22.8 20 20 15.5 15 15 10 10 -40% -74% 5 3.0 5 3.0 1.8 0.8 0 0 Today 90% gas 100% gas Today 90% gas 100% gas Note: Analysis considers the expected electricity consumption at generation level in Libya in 2021 (50.4TWh, +44% from 2016 volumes). Consumption at gen. level is calculated upstream in the T&D network, incl. technical losses estimated as the avg. 2013-2015 over non-coincident peak. Thermal efficiency is assumed as avg. 2010-2016 hist. th. efficiency by plant for existing plants and avg. 2010-2016 hist. th. efficiency by plant technology for under construction. Prices subsidized paid are assumed at 2016 constant levels Sources: GECOL data collection ID2, GECOL data collection ID8, GECOL data collection ID20, GECOL data collection ID27, GECOL data collection ID33, Strategy& analysis Strategy& | PwC 23 I Fix the basics and prepare for restructuring| Costs control & staff reskilling … however its practical viability shall be confirmed by ad- hoc technical studies (Task B) Estimated impacts on fuel supply need and gas capacity Feasibility to be confirmed within Task B Fuel supply | Gas volumes (bcm)1 Gas plants | Available capacity (GW) bcm Required increase GW Required increase1 2016 supplied volumes 2016 gas-plant capacity2 25.0 20.0 20.0 15.0 15.0 12.3 10.0 7.5 10.0 5.6 2.3 5.0 5.0 7.3 5.5 0.0 0.0 2016 2021 2026 2016 2021 2026 Share of gas within the total 80% 90% 100% generation actual actual 1) Analysis considers the estimated demand increase 2) Gas plants include all Steam, Gas, and CC plants that can be fueled with gas (all 2016 plants, except for Derna and Tobruk); Source: Strategy& analysis Strategy& | PwC 24 I Fix the basics and prepare for restructuring| Costs control & staff reskilling 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 25 I Fix the basics and prepare for restructuring| Costs control & staff reskilling …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 26 I Fix the basics and prepare for restructuring| Improve GECOL & sector financial sustainability A more cost reflective tariff and an improvement in commercial losses & collection are also a key priority 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 27 I Fix the basics and prepare for restructuring| Improve GECOL & sector financial sustainability Already in Wave I, GECOL shall begin a tariff review process, in coordination with the new Regulatory Agency 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 28 I Fix the basics and prepare for restructuring| Improve GECOL & sector financial sustainability A tariff increase would allow GECOL to reduce the State burden … 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 29 I Fix the basics and prepare for restructuring| Improve GECOL & sector financial sustainability … But the same improvement could be achieved with 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 30 I Fix the basics and prepare for restructuring| Improve GECOL & sector financial sustainability A reduction in commercial losses would have the same impact of 1.6x 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 Source: Strategy& analysis actual scenario Strategy& | PwC 31 I Fix the basics and prepare for restructuring| Improve GECOL & sector financial sustainability … And it should be the key priority for Libya, as demonstrated 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 32 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 RE activities 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 33 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 two options shall be explored for RE projects 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 34 I Fix the basics and prepare for restructuring 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 35 I Fix the basics and prepare for restructuring The Parliament will need to approve the national electricity strategy, the budget and the new 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 Act from the bill drafted by the MoE Framework and RES Source: Strategy& analysis Strategy& | PwC 36 I Fix the basics and prepare for restructuring 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 37 I Fix the basics and prepare for restructuring …And will also draw policies, identify the sector’s strategic objectives and oversee 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 38 I Fix the basics and prepare for restructuring A “regulatory agency”, within the Government, will overtake the role of tariff review and sector functioning 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) Innovation and REAoL • Provide information and act as advisor to the ministry on matters related to 5 sector (RES) development installation and operation plans development 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 39 I Fix the basics and prepare for restructuring 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 40 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 41 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 42 Wave I: Fix the basics and prepare for restructuring Wave II: Restructure and prepare for ambition Options for Wave III Appendix – Inputs for Electricity Act Strategy& | PwC 43 II Restructure and prepare for ambition With Wave II, Libya will focus on more advanced structural changes both in conventional generation… Wave II measures and milestones II Wave I objectives Wave II objectives Wave Measures Milestones  Strengthen sector • Set up Regulatory Authority • LEMRA in operation governance • Expand sector legal framework • Electricity Act 2023 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  Establish performance Achieve functional • GECOL reorganization • Independent managers appointed accountability separation • Functional unbundling • Continue improving operating • Complete all Gen., Trans., control, Restore acceptable  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  Continuous • Optimize power mix • Improve efficiency Rationalize costs improvement in cost • Non-core activities outsourced • Salaries and manpower control structure • Outsourcing implementation  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 44 II Restructure and prepare for ambition … and in the RES arena, with the introduction of 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  RES capacity and Auction framework • Design auctioning rules • First auctioning rounds institution building design and process  • 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 45 II Restructure and prepare for ambition | Strengthen sector governance 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 & 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 Regulatory authority in operation: LEMRA drafting of Electricity Law implementing regulation 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 46 II Restructure and prepare for ambition | Increase competition in generation 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 47 II Restructure and prepare for ambition | Increase competition in generation … 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      Assets O&M      Knowledge transfer  O  O  Access to state of the Benefits art technology O O O O  EPC O O O O  New finance for investment O O O   Vehicle for liberalization O O O   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 48 II Restructure and prepare for ambition | Achieve functional separation 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 49 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 50 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 51 II Restructure and prepare for ambition | Upgrade service quality 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 52 II Restructure and prepare for ambition | Upgrade service quality Tunisia In terms of energy efficiency and DSM, Libya may look at some of the regional best practices Tunisian Energy Efficiency and DSM elements 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 53 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 54 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   Call handling quality Quality of conversations between agent and customer  Service level Percentage of calls answered on the targeted time  Average speed of answer Time taken by agent to answer an upcoming call from the customer  Call abandonment rate Proportion of total calls that are abandoned by the customer before the agent reply  Call duration Average length of calls between agent and customer  Financial complaint resolution time Proportion of financial customers complaints that are resolved in the stated time  Technical complaint resolution time Proportion of financial customer complaints that are resolved in the stated time  Reopened tickets rate Proportion of tickets that have previously been closed but now reopened due to non-resolution of complaint  Repeated calls rate Total number of calls received from the same customer during a predetermined time period  Operational KPIs Customer KPIs Sources: Strategy& analysis Strategy& | PwC 55 II Restructure and prepare for ambition | Continuous improvement in cost structure 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 56 II Restructure and prepare for ambition | Achieve GECOL & sector financial sustainability 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 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 57 II Restructure and prepare for ambition | Achieve GECOL & sector financial sustainability With the establishment of an independent regulator, the tariff review process will become a standard practice 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 58 II Restructure and prepare for ambition | Achieve GECOL & sector financial sustainability The regulator may then assess the full P&L costs coverage and the 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 50 +53% 3.5 3.01 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% 1) Based on 15% discount on international prices Sources: GECOL data collection ID7, GECOL data collection ID20, Strategy& analysis Strategy& | PwC 59 II Restructure and prepare for ambition | Increased private investment in RES 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 60 II Restructure and prepare for ambition | Increased private investment in RES To set a competitive auction process REDEVCO will choose among available options (along 4 dimensions) 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, Strategy& analysis Strategy& | PwC 61 II Restructure and prepare for ambition 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 62 II Restructure and prepare for ambition 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 and NOC) 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 63 II Restructure and prepare for ambition 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 64 II Restructure and prepare for ambition 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 sector 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 65 II Restructure and prepare for ambition 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 66 II Restructure and prepare for ambition 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 67 II Restructure and prepare for ambition 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 68 II Restructure and prepare for ambition 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 69 II Restructure and prepare for ambition 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 70 II Restructure and prepare for ambition 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 71 II Restructure and prepare for ambition … 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 72 Wave I: Fix the basics and prepare for restructuring Wave II: Restructure and prepare for ambition Options for Wave III Appendix – Inputs for Electricity Act Strategy& | PwC 73 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  Wave II  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 74 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 75 …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 76 Vertical unbundling 1 G T D&S 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 77 Horizontal unbundling 2 One legal Many legal entities entities … 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 78 Horizontal unbundling 2 One legal Many legal entities entities … 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 79 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 80 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 81 …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 82 Wave I: Fix the basics and prepare for restructuring Wave II: Restructure and prepare for ambition Options for Wave III Appendix – Inputs for Electricity Act Strategy& | PwC 83 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 84 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     Policymaking 2 mandate 3 Regulatory Body  Sector 4 structure and competition   5 Tariff  6 Penalties   7 Licensing framework  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 85 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 86 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 87 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 88 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 89 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 90 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 91 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 92 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  Upgrade the electricity regulatory framework to insulate it from political influence  Policymaking 2 mandate  Regulatory NEW 3 Body Encourage private sector to invest and participate in Sector the expansion and development of the electricity 4 structure and competition  industry NEW 5 Tariff  Create a suitable environment to encourage and support legitimate competition in the electricity 6 Penalties  industry  Licensing NEW 7 framework Included sections Revisions / integrations Source: Strategy& analysis Strategy& | PwC 93 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 94 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 95 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 96 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 97 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 98 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 99 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 100 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 101