Task A : sector performance and structural sector reform - deliverable five : final report

REVISED FINAL REPORT November 2017 Task A: Sector performance and structural sector reform Deliverable 5: Final report Disclaimer and copyright note This document has been prepared only for the International © 2017 Bank of Reconstruction and Development ("IBRD") and solely PricewaterhouseCoopers for the purpose and on the terms agreed with the IBRD in our LLP agreement dated 21 March 2017 relating to Task A. All rights reserved. In this The scope of our work was limited to a review of documentary document, 'PwC' refers to the evidence made available to us. We have not independently UK member firm, and may verified any information given to us relating to the services. sometimes refer to the PwC network. Each member firm We accept no liability (including for negligence) to anyone else is a separate legal entity. in connection with this document. We have agreed with you that the report will be provided by you to GECOL for their consideration. We would ask that it not be provided to anyone else unless otherwise agreed in writing by us. This is a draft prepared for discussion purposes only and should not be relied upon; the contents may still be subject to Please see amendment or withdrawal and our final conclusions and www.pwc.com/structure for findings will be set out in our final deliverable planned for further details December 2017 Strategy& | PwC Prepared for The World Bank 1 The present document is the final report of the Task A: it includes the project review and the related recommendations Focus of the present report 1 2 Rapid assessment 3 4 5 Project Regulatory Restructuring of Project review and of the sector set-up reform key actors recommendation performance 1.1 2.1 Rapid sector 3.1 Gap analysis 4.1 5.1 Option study for Findings review and Data collection performance of the sector structure GECOL restructuring final report assessment vs. previous plan 1.2 3.2 4.2 Methodology, High-level Roadmap for team and approach options for sector Present report establishing of LEMRA validation reform 3.3 Sector restruc. (framework, actors and roadmap) 3.4 Electricity Act 6 Workshop & trainings 7 PMO (progress reporting) Source: Task A inception report Strategy& | PwC Prepared for The World Bank 2 Important notice: Task A addresses the Libyan institutions (differently than Task C which focuses solely on GECOL) Task A and C perimeters and timeframes Wave I Wave II Timeframe Past Short-term Medium / long-term 3 years 3+ years Today 2020/2021 Stakeholders Libyan institutions Legislation Task A perimeter Policy making Regulation Generation GECOL Transmission Task C perimeter Distribution & Supply See Task C deliverables for analysis of GECOL performance and action plan Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 3  Executive Summary Summary of key issues faced by the electricity sector Wave I: Fix the basics and prepare for restructuring Wave II: Restructure and prepare for ambition Options for Wave III (realize ambition) Appendix – Inputs for Electricity Act Strategy& | PwC Prepared for The World Bank 4 Task A rapid sector assessment has identified 6 key challenges on which the reform effort should be focused Libyan electricity sector root-causes The continuously evolving geo-political situation and the connected instability and uncertainty, has negatively Weak sector impacted the electricity sector (since 2012, Libya has been unable to release the necessary policy and governance regulation initiatives) Sector GECOL is still operating as monopolist, with no private participation (no IPPs) and no competition. This sector structure structure has inhibited the accountability of results, reducing incentives for performance improvements (monopoly) Increasing Partially linked to the two previous issues, FTE and salaries increases have negatively impacted GECOL P&L costs offsetting the fuel costs savings achieved (through the shift towards gas generation) Commercial The challenging socio-economic situation, the absence of a clear legal framework and the poor invoicing and losses and collection practices, has led to a dramatic rise in commercial losses and bad debt, severely impacting GECOL poor collection financial condition Government decisions to reduce tariff (residential clients) and the inability to adjust the tariff scheme against Unbalanced the rising costs have led GECOL to a structural inability to re-cover its system costs, leading to a burden on tariff Libyan state Geo-political instability, damages, lack of planning and inability to keep-up with the required sector investments Poor operating led to delayed projects and low installed capacity availability (linked to unit cannibalization, scarcity of fuel performance supply and lack of adequate O&M), with negative consequences on service quality Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 5  Task A: Deliverable III (b) – Electricity Act and sector restructuring report The reform was defined over a plan designed across different waves, based on different macro-objectives Libya restructuring roadmap “Future Focus of Task A Vision” Wave III Levels of evolution “Realize Wave II ambition”  Consider to evolve to more “Restructure and complex and competitive Wave I prepare for market models (wholesale “Fix the basics and ambition” market model)  Consider sector privatization prepare for vision, minimizing state restructuring”  Choose the desired end burden while optimizing state sector model and competitiveness  Establish (legally) the structure regulatory authority  Launch internal  Complete short-term communication and  Clarify sector governance performance improvement change initiatives  Strengthen sector legal actions framework  Complete GECOL org.  Achieve a fully functional,  Launch short-term restructuring transparent and performance improv. actions  Achieve full functional sustainable electricity  Start GECOL org. unbundling sector restructuring  Continue reviewing  Achieve accounting periodically tariff levels unbundling  Launch new tariff framework Min target duration  3 years 3 years 3 years (min) Time Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 6 I Fix the basics and prepare for restructuring Task A: Deliverable III (b) – Electricity Act and sector restructuring report Wave I will focus on resolving the six key issues identified through a number of objectives, measures and milestones Wave I measures and milestones Wave I objectives Wave I Electricity Sector Fix the basics and Measures Milestones Issues’ root causes prepare for restructuring • Establish policy mandate • Ministry in charge • Set regulatory agency Weak sector Clarify sector • Regulatory agency in operation • Clarify GECOL’s governance governance governance • Government decree1 • Strengthen sector legal • National Electricity Strategy framework • Core BUs separated • Corporate core general dept. Sector structure Establish performance • GECOL accounting unbundling (ICT, E&P, HR&O & AFC) (monopoly) accountability • GECOL reorganization established • Accounting unbundling regulation • Sep. annual accounts submitted • Ensure state financial support Restore acceptable • All generation, transmission, Poor operating • Improve investment plan. process service quality control, MV & distribution performance • Address operating perf. issues “Zero load shedding” • Explore import supply milestones completed • HR strategy in place • Optimize power mix • Critical resource map and • Improve efficiency Costs control manpower rebalancing plan Increasing costs • Address manpower issues & staff reskilling • Workforce planning in place • Compensation and benefits • Capabilities & skills map redesign • Reskilling plan Unbalanced tariff • Tariff covering part of P&L costs framework • Launch new tariff framework • Theft areas map Improve GECOL & • Metering roll-out • Higher theft sanctions sector financial • Address electricity theft • Customer database Commercial losses sustainability • Fight insolvency • SMS/e-mail billing in operation and poor collection • GECOL’s mobile app running 1) This first Government Decree could be replaced with an Electricity Act in case a window of opportunity opens for the submission of a the electricity law to the House of Representatives; Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 7 I Fix the basics and prepare for restructuring Task A: Deliverable III (b) – Electricity Act and sector restructuring report The sector will operate through 6 actors (same as today), with revised (and clearer) roles & responsibilities Wave I end-sector framework (2021) Renewables Key actors 1 Legislation Parliament Government 2 Prime Minister 1 Parliament Policy making MoE and RES1 Ministry of Ministry of Finance Planning 2 Government Policy 3 Regulatory 5 Regulatory making REAOL Agency 3 Agency support / agencies 4 GECOL Operation/ 6 REDEVCO REAoL 4 PPA 5 (RES) Generation SPV / IPPs Capacity REDEVCO 6 (RES) Transmission GECOL Distribution & Supply 1) Ministry of Electricity and Renewable Energy Sources Control / Oversee Source: Gopa intec and Suntrace Task D Roadmap for Renewable Energy Development, Strategy& analysis Strategy& | PwC Prepared for The World Bank 8 I Fix the basics and prepare for restructuring| Clarify sector governance Task A: Deliverable VI (b) – Detailed roadmap for establishing LEMRA report An Agency (built within the Government), will advise and support in several regulatory activities Regulatory Agency responsibilities (Wave 1) Regulatory Agency 2019 in operation Responsibilities Activities Regulations/Manuals Supply matters KPIs Manual & targets Draft the KPIs Manual and set short term (3 years) KPI targets Performance monitoring Provide incentives to encourage the utility to achieve targets Supervise system’s security and reliability and propose improv. measures Technical matters Develop unified regulatory accounting and reporting procedures Standards and rules Set minimum safety standards for O&M, construction and installation Safety standards Draft the Grid Code/Interconnecting Guidelines Grid Code Consumers issues Draft the Tariff Regulation Tariff Regulation Tariff State criteria for the preparation of tariff proposals by GECOL Sector development Advise the ministry on matters related to development and operation plans Accounting unbundling Development Draft accounting unbundling regulation regulation Sector structure Draft operating guidelines for separated annual accounts Analyze and review GECOL’s separated annual accounts Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 9 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” Task C: Deliverable IV (b) – Improving GECOL technical performance One of Wave I main objectives will be to restore GECOL technical performance and service quality … Detailed action plan provided in Generation performance improvement plan Task C final report A Generation Measures Milestones issues • Resolve backlog of overdue maintenance • 90% of suspended units back in service Overdue • Plan maintenance of running units • No new buildup of overdue maintenance 1 • • maintenance Retire old units List of units to be retirement approved • Ensure availability of 3rd party plants • 250 MW added to grid • Zero unavailable capacity due to fuel supply Inadequate fuel • Protect fuel supplies to P/S and address fuel • Supply Sarir P/S with gas 2 quality problems • Full implementation of fuel quality control supply procedures • Updated generation expansion plan • Complete under construction projects • RFP for first round of new generation projects • Update load forecast and generation expansion Delayed capacity issued 3 plan expansion projects • Obari completed (4x125 MW online) • Tender new generation capacity • Gulf completed (3x350 MW online) • Complete EDM system • Fully functioning EDM • Certification program for P/S O&M personnel in • Solve lack of O&M competences place 4 Skills shortage • Solve Generation BU understaffing • All P/S operation shifts adequately staffed with qualified personnel Source: Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 10 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” Task C: Deliverable IV (b) – Improving GECOL technical performance …targeting to resolve Libya load shedding problems (and thus its service quality issues) by 2019… Generation expansion plan (2017-2030) Best case scenario GW 20 21 ! Start 19 20 contracting +20% Positive reserve process of next margin1 if contracting generation of 17 of next generation ! P/S +67% of P/S starts by 15 Aggressive 14 2021 at the latest recovery of 13 unavailable 12 capacity3 Planned 10 9 Under construction & 7 contracted Recovered unavailability +64% 5 Phase outs4 5 Existing available Demand (A-Slow political stability)2 Demand 0 (B- Continuous political instability)2 2017 2018 2019 2020 2021 2022 2023 2026 2027 2030 1) Computed as (Available capacity-Peak demand)/Peak demand; 2) Peak demand at generation; 3) Assuming GECOL will be able to carry out each year 15 overhauls of units overdue from past years + all overhauls of newly due units. All overdue unit overhauls and major maintenance are supposed to be cleared by 2020; 4) Conventional steam turbines that approached their retirement age but have been overhauled are assumed to have an extended life up to 2030, gas turbines to 2025. Other units are retired at their planned decommissioning year; Sources: GECOL data collection ID4, Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 11 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” Task C: Deliverable IV (b) – Improving GECOL technical performance …although under a more pessimistic (realistic?) scenario, difficulties may remain an issue until at least until 2020 Generation expansion plan (2017-2030) Worst case scenario GW 20 More prudent recovery of unavailable -37% Negative reserve 15 capacity with respect to best case scenario, but margin1 12 12 Still aggressive with 11 11 -13% ! respect to GECOL hist. 10 performance 3 10 10 9 Under construction & 7 contracted3 7 Recovered unavailability3 +39% 5 Phase outs 5 Existing available Demand (A-Slow political stability)2 Demand 0 (B- Continuous political instability)2 2017 2018 2019 2020 2021 2022 2023 2026 2027 2030 1) Computed as (Available capacity-Peak demand)/Peak demand; 2) Peak demand at generation; 3) Assumes GECOL will be able to carry out each year 4 overhauls of units overdue from past years + all overhauls of newly due units Sources: GECOL data collection ID4, Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 12 I Fix the basics and prepare for restructuring| Costs control & staff reskilling Task C: Deliverable II (c) – Manpower / organizational rationalization review Wave I will also focus on ending GECOL’s manpower and costs growth, making of staff reskilling a priority… Manpower related resizing approaches Wave I Wave II Immediate actions Mid-term actions Immediate actions starting from 2018 focusing on Mid-term actions starting upon successful completion of reskilling as top priority immediate actions (i.e. indicatively from 2020 to be completed by 2025) Start immediately to reassign especially Re-Skilling Reallocate technicians to other departments like the generation department Offer buyout solutions for non core Incentivize Leverage current resources to fill unmet businesses like Health Service, Driver, Retrain Buyouts Translation etc needs in the generation department Institute a hiring freeze as more than Incentivize to Ask employees to take voluntary lay- Freeze hiring 12% are aged below 30 and more than leave offs 40% aged below 40 Prepare an early retirement package for Temporarily or permanently terminate Early employees aged over 60 (2% of total Dismiss employment for a group of employees Retirement FTEs) especially in D&S Train managers and staff professionals Start GECOL to be hired inside but also outside the Academy company 1) Process mapping and manpower rationalization report Source: Strategy& Analysis Strategy& | PwC Prepared for The World Bank 13 I Fix the basics and prepare for restructuring| Improve GECOL & sector financial sustainability Task A: Deliverable IV (a) – Options study for GECOL restructuring report …while restoring financial sustainability through the fight of commercial losses (preferred to tariff increases or FTE cuts) Comparison of scenarios achieving identical financial impact (2015) A 69% Limit Burden on the sector Back to commercial 2010 levels (Bn LD) loss 21% (% max rev.) -0.3 B 95 Increase average +161% tariff 36 (Dhs/kWh) Same individual 1.8 effect of each 1.5 C scenario 42,000 Re-size 31,000 -11,000 manpower (‘000 FTEs) 2015 2015 actual scenario A, B, C 2015 2015 actual scenario Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 14 I Fix the basics and prepare for restructuring| RES preparation and institution building Task D: Strategic plan for the development of renewable energies in Libya Wave I will also see the set up of the RES framework in Libya Deep dive in Measures and activities Task D Wave I 2018-2020 REDEVCO Pilot study and development Measures Project & site Construction set up Concept Feasibility qualification Financing and operation Duration 6 months 2 years 6 months Owner REAoL REDEVCO SPV/IPP Activities • REDEVCO set up • Concept • Engineering – Appointment of – Resource mapping and site shortlist and BoD and initial – Agreement with GECOL about sites and grid capacity procurement budget allocation – Outline business case – Design and – Recruitment procurement • Iterative feasibility study process – Development of and – Red flag and fatal flaw analysis of all relevant project details on strategic plan installation of high level (pre-feasibility) PV • RES permitting and – Techno-economic concept design and detailed site assessment components tender • Project/site qualification documentation • Construction – Geotechnical and topographic survey – Clarify permitting and – Environmental impact assessment (EIA) process and commercial – Permitting process, PPA & other contract negotiations documentation operation – Draft tender • Financing documentation – Equity auctioning process and selection of equity investors into SPVs – Negotiation of debt financing strategy REDEVCO PV pilot project study Wind pilot project study 3% RES Milestones operations start completion completion penetration Source: Gopa intec and Suntrace Task D Roadmap for Renewable Energy Development, Strategy& analysis Strategy& | PwC Prepared for The World Bank 15 II Restructure and prepare for ambition Task A: Deliverable III (b) – Electricity Act and sector restructuring report With Wave II, Libya will continue working on the issues identified and also introduce a number of structural changes Wave II measures and milestones II Electricity Sector Wave II objectives Wave Issues’ root causes Measures Milestones Weak sector Strengthen sector • Set up Regulatory Authority • LEMRA in operation governance governance • Expand sector legal framework • Electricity Act • Preparation for private sector Sector structure • IPP Commission in operation Increase competition in investment • Single buyer in operation (monopoly) generation • Establish single buyer • Licensing regime established • Licensing Achieve functional • GECOL reorganization • Independent managers appointed separation • Functional unbundling Poor operating performance • Continue improving operating • Complete all Gen., Trans., control, performance MV & distr. action plan milestones • Introduce demand-side • EMC in operation Upgrade service quality management programs • Building code published • Review customer grievance • EE household appliances code process • Energy Efficiency Act • Optimize power mix Continuous • Improve efficiency Unbalanced tariff improvement in cost • Non-core activities outsourced • Salaries and manpower control framework structure • Outsourcing implementation Commercial losses Achieve GECOL & • Periodic tariff review and roll-out and poor collection • Tariff covering part of P&L costs sector financial • Metering roll-out and cost of fuel subsidies sustainability • Theft addressing Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 16 II Restructure and prepare for ambition Task A: Deliverable III (b) – Electricity Act and sector restructuring report Libya will vote an electricity act (while in Wave I it target Gov’t decrees, because of its weak governance) Government decree and electricity acts sections Wave I Wave II Gov’t Topics Electricity Act Decree1 1 Objectives P P P P Policymaking 2 mandate 3 Regulatory Body P Sector 4 structure and competition P P 5 Tariff P 6 Penalties P P 7 Licensing framework P Formalization Included sections Revisions / integrations 1) Government Decree will substitute the release of the Electricity Act, since the sector structure, roles & responsibilities will not be changed Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 17 II Restructure and prepare for ambition Task A: Deliverable III (b) – Electricity Act and sector restructuring report In Wave II Libya will operate according to a more structured sector framework, including a Regulator and IPPs Wave II end sector framework (2024) Renewables Key actors 1 Legislation Parliament 1 Parliament Government 2 Prime 2 Government Minister Policy making Ministry of Ministry of IPPs MoE and RES2 3 Commission Finance Planning IPPs 3 Libyan Electricity Commission 4 Market Reg. 7 Policy making REAOL Authority (LEMRA) support / agencies 5 GECOL 4 Regulation LEMRA3 IPPs 8 6 (Non-RES) REDEVCO Operation 5 PPA1 / Demand mgmt. IPP 6 REAoL Generation 9 7 (RES) Capacity / availability Conventional IPPs IPP generation REDEVCO GECOL PPA1 / Demand mgmt. 8 Transmission (Single Buyer) (RES) Capacity / availability Control / Oversee IPPs Distribution Others 9 (RES) & Supply Task D SoW 1) Power Purchase Agreements are the off-take arrangements through which the IPP power exchange is regulated; 2) Ministry of Electricity and Renewable Energy Sources; 3) Further deep dive on the relationship between LEMRA and MoE and RES will be provided in LEMRA establishment detailed roadmap deliverable due by end of October Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 18 II Restructure and prepare for ambition | Strengthen sector governance Task A: Deliverable VI (b) – Detailed roadmap for establishing LEMRA report The electricity act will delegate many of the Government responsibilities to LEMRA (the new Regulatory Authority)... Actors redistribution of responsibilities — Wave II Wave II As-is After LEMRA establishment Actors Government GECOL Government Regulator GECOL Responsibilities Set performance standards R R Monitor performance R R Define sector vision R R Determine prices R R R Choose technologies R R Determine investments R R Establish sector rules R R Receive public input R R R R R Balance environmental and economic goals R R Determine sector structure R R P Receive consumer complaints R R R Issue licenses R R Source: Strategy& analysis Responsibilities transferred to other actor P Full responsibility PAdvisory function Strategy& | PwC Prepared for The World Bank 19 II Restructure and prepare for ambition | Achieve GECOL & sector financial sustainability Task A: Deliverable III (b) – Electricity Act and sector restructuring report …and Libya will achieve a more sustainable financial status, with full GECOL P&L costs coverage and lower fuel subsidies Projected avg. tariff (2015-2026) Potential change in government subsidies (2015 vs. 2026) Dhs/ KWh LD Bn ILLUSTRATIVE 70 5.0 Due to increased CAGR 66 fuel volumes 4.5 +6% 4.5 driven by electricity 60 consumption 4.0 +48% 50 3.5 3.1 3.0 40 36 2.5 30 2.0 20 1.5 1.0 0.9 10 0.5 -100% 0.0 0 0.0 2015 2026 2015 2026 Avg. tariff covering: GECOL 100% Government subsidies on GECOL P&L P&L costs 56% Government subsidies on fuel cost Cost of fuel subsidies 0% 20% Sources: GECOL data collection ID7, GECOL data collection ID20, Strategy& analysis Strategy& | PwC Prepared for The World Bank 20 II Restructure and prepare for ambition Task D: Strategic plan for the development of renewable energies in Libya Wave II will also see the launch of bigger scale RES projects through an auctioning framework RES roadmap: wave II measures and milestones Wave I Wave II Wave III 2021 2024 2027 RES preparation and Increased private RES framework institution building investment in RES consolidation Wave I objectives Wave II objectives Wave II Measures Milestones P RES capacity and Auction framework • Design auctioning rules • First auctioning rounds institution building design and process P • Roll-out large scale wind Start pilot RES Large scale projects and PV projects • Increased RES penetration implementation • Attract international penetration capital and knowledge Source: Gopa intec and Suntrace Task D Roadmap for Renewable Energy Development, Strategy& analysis Strategy& | PwC Prepared for The World Bank 21  Task A: Deliverable III (b) – Electricity Act and sector restructuring report Unbundling will only become an option at the end of Wave II, after the completion of GECOL functional unbundling GECOL unbundling path Starting point Wave I P Wave II P Ambition ! GECOL Fix the basics and Restructure and prepare Achieve unbundling prepare for restructuring for unbundling ambition or up-grade within a single-buyer Vertically Accounting Functional sector structure integrated utility unbundling unbundling • Allocate patrimonial • Separate core and economic activities into SBUs accounts directly and under the leadership Legal Generation indirectly linked to of autonomous unbundling & Transmission core value chain managers activities • Each SBU manager OR • Draft separate annual has autonomy over Continue with BS and IS accounts financial, human for core value chain resources and functional activities technical resources unbundling Distribution & Supply 3 years 3 years 3 years Jan-2018 Jan-2021 Jan-2024 Jan-2027 Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 22  Executive Summary Summary of key issues faced by the electricity sector Wave I: Fix the basics and prepare for restructuring Wave II: Restructure and prepare for ambition Options for Wave III (realize ambition) Appendix – Inputs for Electricity Act Strategy& | PwC Prepared for The World Bank 23  Task A: Deliverable II – Rapid Sector Assessment Task A: Deliverable III (a) – Sector reform options Task A started with a rapid sector assessment, which identified several (interrelated) issues affecting Libya today Libya electricity sector issues identified Complex geo- political and economic situation Weak sector 1 governance Low results accountability Sector structure 2 (monopoly) 3 Increasing costs 6 7 8 9 10 4 Commercial Low financial Heavy burden Low Poor operating Low service losses & poor sustainability on state investments performance quality collection Commercial If GECOL does not losses improve operating performance it can not improve service Poor quality and solve its collection financial issues Unbalanced 5 tariff Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 24  1 Weak sector governance Task A: Deliverable II – Rapid Sector Assessment Task A: Deliverable III (a) – Sector reform options Today, the energy sector lacks of a clear policy leadership and governance Libyan electricity sector structure Primary Energy Power Generation Conventional Transmission Distribution Supply Supply Renewables generation Institutional Government of National National Salvation Tobruk body/ sector Accord Government Government governance (GNA) Regulatory The electricity sector is No official regulatory authority is in place today influenced by three authority competing Governments Other sector support agencies REAoL Key electricity No RE operator company Oil & gas GECOL 9 companies involved in general contracting, consultancy, project management, EPC, Others1 Overhauls and servicing, O&M for utilities, IPP and power plants, general contracting 1) Ministry of planning approves capital projects budget and allocate the funds to GECOL through Ministry of Finance Source: GECOL, Strategy& analysis Strategy& | PwC Prepared for The World Bank 25  1 Weak sector governance Task A: Deliverable II – Rapid Sector Assessment Task A: Deliverable III (a) – Sector reform options The latest most important legislative and policy initiatives in the field of energy were last taken only in 2012 Evolution of Libya policy and regulation Decree 17 – Decree 76 – Decree 193 – Decree 82 – Decree 1 – GECOL established, Increase electric tariff Amendments of Policy regulating the Reduce the domestic under the supervision based on domestic GECOL articles of electricity services electricity use tariff of GPC of Electricity monthly consumption association 1984 1986 1996 1997 2004 2007 2012 Law 5 – Decree 426 – Decree 15 – Decree 33 – Decree 518 & 429 – Investment, GECOL Establishment Ministry of Electricity Ministry of Electricity Finance Policy & formed few JVs with Renewable Energy Organization structure Organization structure Admin, HR Policy international Agency of Libya and Department and Department companies (REAoL) mandates mandates Source: GECOL, Strategy& analysis Strategy& | PwC Prepared for The World Bank 26  2 Sector structure (monopoly) Task A: Deliverable III (a) – Sector reform options The electricity sector is structured as a vertically integrated monopoly, with no competition… Libyan positioning among electricity sector structures models Single Buyer Vertically Integrated Vertically Integrated Unbundled Wholesale Market Retail Competition Monopoly Single Buyer Single Buyer • National, state-owned • A central entity • The central purchasing • Generators can sell • Distribution and retail utility owns and purchases power from entity is partially (i.e. their power directly to activities are fully operates all assets generators and sells it conducts generation distributors, retailers or separated: retailers across the value chain to distribution and transmission) or large end user either have open access to • Does not allow companies and large completely unbundled through bilateral the transmission and direct/indirect end users contracts or through a distribution networks competition between • Allows for the entry of power pool and customers are able players independent generators to freely select between (IPPs) different retailers Vertically Integrated VIU Utility (VIU) G G IPPs EG G IPPs G G IPPs G G IPPs EG Generation Transmission /System Operator Transmission Transmission Transmission /Market Operator Transmission / /System Operator /System Operator /System Operator System Operation /Single Buyer /Single Buyer /Market Operator Distribution Distribution/Retail Distribution/Retail Distribution/Retail Distribution/Retail R R R Customers Customers Customers Customers Customers Sector structure models are presented to provide a baseline and do GECOL not imply any suggestion for GECOL going forward Note: Independent Power Producers (IPPs), Embedded Generator (EG); Source: Desk research, Cambridge Working paper on economics, Strategy& analysis Strategy& | PwC Prepared for The World Bank 27  2 Sector structure (monopoly) Task A: Deliverable III (a) – Sector reform options …while most MENA / neighboring countries are structured according to single buyer models Examples of international sector structures SELECTED EXAMPLES – NOT EXHAUSTEIVE Single Buyer Vertically Integrated Vertically Integrated Unbundled Wholesale Market Retail Competition Monopoly Single Buyer Single Buyer Indonesia Algeria India Iran USA Saudi Arabia Argentina Libya Morocco Kuwait Brazil European Union Jordan Qatar Chile Chad Tunisia Japan Egypt Ukraine Korea Russia Turkey Kazakhstan Iraq Lebanon MENA region / neighboring Benchmarking exercise was not used to draft the roadmap. countries sample The activities proposed in the roadmap directly respond to identified sector issues Note: It shall be clarified that the statement does not recommend a change in sector structure based on the high-level (non exhaustive) benchmark provided but only describe an objective situation which compares Libya with other neighboring and international countries. The analysis of the most suitable sector structure has been defined separately and is not the focus of the current page. In addition, it shall also be clarified that the high-level benchmarking presented does not intend to provide neither best practices nor cases of failure. Instead, it only intends to show examples of sector structures across countries for discussion purposes only, without taking into consideration the underlying rationale and sector characteristics of each country Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 28  3 Increasing costs Task A: Deliverable II– Rapid assessment of the sector performance Since 2010, GECOL’s number of employees and salaries have been constantly growing… # FTEs evolution (2010-15, ‘000) Average-salary evolution (2010-15, LD / FTE) Indexed vs. 2010 (100% = 2010 reference) 45 +4.0% 250% 41.7 40.1 +70% 214% 40 38.3 Average-salary 35.0 36.2 35 34.3 200% 30 150% 142% 25 20 Cumulated inflation1 100% (2010 reference) 15 10 50% 5 0 0% 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 1) IHS, inflation consumer prices Source: GECOL data collection ID13, GECOL data collection ID17, Strategy& analysis Strategy& | PwC Prepared for The World Bank 29  3 Increasing costs Task A: Deliverable II– Rapid assessment of the sector performance … affecting the company’s productivity and operating costs, offsetting the positive fuel cost savings achieved Productivity benchmark (2015) GECOL costs evolution (2010-15, Mn LD) GWh / FTE Although having a lower 18 17.2 +657 share of its total FTEs in Mn LD generation, GECOL has still 16 a worse productivity than 409 peer countries Salaries 14 1,065 11.7 108 12 Maintenance 81 10 9.5 115 8.21 Materials for O&M 5 8 -240 Mn LD 120 6 Various service 5.0 71 4 688 Fuel cost 449 2 Fuel transportation 23 0 to generation stations 6 Morocco Jordan Algeria Libya Egypt 356 2010 Other expenses Generation 254 2015 FTEs share 19% 20% 17% 10% 20% vs. total Note: includes Sonelgaz, ERC, CEGCO, SEPGCO, AES, QEPCO, ONEE-BE, Masen, and EEHC Generation Companies; 1) Updated with new data received Source: GECOL data collection ID17, GECOL data collection ID24, Corporate Annual Reports, Electricity Sector Regulatory Agencies Annual Reports, Strategy& analysis Strategy& | PwC Prepared for The World Bank 30  4 Commercial losses and poor collection Task A: Deliverable II– Rapid assessment of the sector performance The analysis of distribution and supply highlighted a dramatic increase in commercial losses and poor collection… Evolution of commercial losses Evolution of receivables TWh Bn LD 25 24.1 2.5 2.3 21.1 1.9 2.0 20 2.0 16.1 15 1.5 12.6 1.3 10 1.0 6.4 5 0.5 0 0.0 2010 2012 2013 2014 2015 2010 2012 2013 2014 2015 Source: GECOL data collection ID12, GECOL data collection ID37 Strategy& | PwC Prepared for The World Bank 31  5 Unbalanced tariff Task A: Deliverable II– Rapid assessment of the sector performance …worsened by a tariff framework which is structurally unable to recover costs Burden on the sector (Bn LD, 2015) 5.0 3.1 Subsidized tariff 1.9 scheme Tariffs not reflecting the D&A 10% economic cost of supply Other in 2015 12% OPEX 0.9 Fuel cost 23% 0.8 Salaries 55% 0.2 Total cost Fuel GECOL Unreflective Max. Commercial Revenues Non Actual subsidies P&L costs tariff theoretical loss invoiced2 collection collected revenues 1 revenues 1) Sum of (Tariff by customer class) x (Consumption by customer class); 2) Considers only revenues invoiced from sale of electric power Source: GECOL data collection ID2, GECOL data collection ID7, GECOL data collection ID13, GECOL data collection ID37, Strategy& analysis Strategy& | PwC Prepared for The World Bank 32  6 Low financial sustainability Task A: Deliverable II– Rapid assessment of the sector performance As consequence of the unbalanced tariff and commercial losses, GECOL has registered continuous losses … Evolution of GECOL P&L (subsidies included) (Bn LD) 3.0 Costs Government subsidies on GECOLP&L1 2.5 2.5 Revenues from market2 2.1 1.9 1.9 2.0 1.8 1.7 1.7 1.5 1.4 1.5 1.3 1.2 0.4 0.9 1.1 1.0 0.8 0.8 0.9 1.1 0.3 0.5 0.8 0.4 0.6 0.5 0.4 0.0 2010 2011 2012 2013 2014 2015 0.0 -0.2 -0.5 -0.4 -0.4 -0.6 -0.6 -1.0 Losses -1.2 -1.5 Profit -25% -81% -12% -26% -92% -46% margin (%) 1) Subsidies actually received in GECOL P&L; 2) GECOL’s total revenues in P&L including both revenues from sale of electricit y and revenues from other services (i.e. water, activation of check contracts, meter renting, other services and connections, etc.) Source: GECOL collection ID13, Strategy& analysis Strategy& | PwC Prepared for The World Bank 33  6 Low financial sustainability Task A: Deliverable II– Rapid assessment of the sector performance … with heavy impacts on the company (and thus the sector) long-term financial viability GECOL Total Assets GECOL Total Equity and Liabilities (Bn LD) (Bn LD) Delta (Bn LD) Delta (Bn LD) 2010-14 2010-14 Largely non- 7.5 7.5 7.4 performing? 7.5 7.5 7.4 Mainly 7.1 7.0 7.1 7.0 towards NOC? 19% 26% 26% 17% 27% 31% 23% +0.9 ! 24% 37% 6% 48% +2.3 ! 20% 7% 12% 18% 23% 24% 21% 7% +0.1 10% +0.3 76% 69% 61% 61% 59% 56% 52% 50% 48% -0.8 -2.3 42% ! 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 Receivables Trades payables Other current assets Other liabilities (exc. trade payables) Fixed assets Total Equity Source: GECOL collection ID13, Strategy& analysis Strategy& | PwC Prepared for The World Bank 34  7 Heavy burden on state All these issues represent a heavy burden for the Libyan State and created a very challenging financial situation … Evolution of financial burden on Libyan State (Bn LD, 2015) INDICATIVE Total burden on Libyan State 5.0 5.1 (Bn LD) Subsidies 4.2 on fuel1 2.9 3.1 (Bn LD) Burden due 1.2 to tariff 1.0 0.8 0.9 structural unbalance2 0.6 + 6.6 7.3 5.6 (Bn LD) 4.7 3.8 Burden of 1.1 0.9 0.9 comm. loss3 0.8 2010 2012 2013 2014 2015 0.6 and non- collection4 (Bn LD) Commercial losses Additional burden (due to non collection) 2010 2012 2013 2014 2015 Non collection Actual burden on state 1) Calculated as the difference between the international fuel cost subsidized at 15% (assumed in agreement with NOC as opportunity price for Libya) and the subsidized price paid by GECOL to NOC; 2) Difference between GECOL P&L costs and max theoretical revenues (i.e. sum of (Tariff by customer class) x (Consumption by customer class)); 3) Difference between Max theoretical revenues and P&L revenues (electric power only); 4) Difference between P&L revenues invoiced and actual Revenues collection Source: GECOL data collection ID2, GECOL data collection ID7, GECOL data collection ID13, GECOL data collection ID37, Strategy& analysis Strategy& | PwC Prepared for The World Bank 35  7 Heavy burden on state Task A: Deliverable II– Rapid assessment of the sector performance …with Government less and less able to support the sector’s OPEX and CAPEX requirements State subsidies support State CAPEX support To cover P&L costs > revenues To fund investments Mn LD Mn LD 2,500 10,000 2,000 8,000 1,500 6,000 N/A 1,000 4,000 500 2,000 10 0 0 -500 -282 -2,000 -1,193 -623 -527 -2,344 -2,344 -692 -1,000 -4,000 -1,500 -6,000 -5,372 -5,076 -1,456 2010 2012 2013 2014 2015 2016 2010 2012 2013 2014 2015 2016 Subsidy Budgeted Subsidies budgeted not received CAPEX Budgeted CAPEX budgeted not expensed Subsidy Received1 CAPEX Expensed2 Note: Subsidy budgeted / received end-up in a burden to Libyan state but do not always equal to the state burden previously reported due to difference in sources and calculation 1) Subsidy received in GECOL’s P&L to cover the unreflective tariff; 2) CAPEX in GECOL’s balance sheet Source: GECOL data collection ID12, GECOL data collection ID13, GECOL data collection ID20, Strategy& analysis Strategy& | PwC Prepared for The World Bank 36  8 Low investments Task A: Deliverable II– Rapid assessment of the sector performance The lack of funding (together with the country instability) led to delays in the planned projects execution Planned capacity expansions (nameplate) vs. realized GW, 2010-2016 Under construction Generation On-line MW1,2 Old plan and contracted type date 4 9 Sarir Gas 285 2011 P 3 Ubari 750 2012  Misurata I 250 2011 P Combined 5 77% Benghazi North II Cycle 250 2011 P Zwetina I 250 2013 P 3 Khaleej (or Gulf) Steam 1,400 2013 P 2 Tripoli West II 1,400 2014  Generation On-line Planned MW1,2 type date Under Planned Total Planned, Actually Misurata II Combined 750 2014  Construction Projects contracted realized Militah Cycle 1400 2015  2010-20164 & Contracted 2010-2016 2010-2016 and under construction Bumba Gulf - 1,500 2015  2010-2016 Tripoli East Steam 350 2018  1) Nameplate capacity breakdown by plant still to be provided (data to be confirmed) 2) Considering the entry into force at full capacity; 3) Plant extension has been fully commissioned but due to technical or operational problems some unit P Projects planned in 2010, fully finalized in 2016 Are either suspended, out of service or not operational; full operation is thus estimated in 2017 P Projects planned in 2010, partially finalized in 2016 4) Data inconsistency about nameplate capacity to be resolved (possibly includes also additional plants)  Projects planned in 2010, still not operative in 2016 Source: GECOL data collection ID1, GECOL presentation (2010), Strategy& analysis Strategy& | PwC Prepared for The World Bank 37  9 Poor operating performance Task C: Deliverable IV (b) – Improving GECOL technical performance Delayed investments combined with other issues led to a poor sector operating performance Poor operating performance issues Covered in more detail in next slides1 # # # # MV & Sector Generation Transmission Control Distribution Deficient asset Issue / Overdue Damaged substations Failure of installation and concern maintenance and overhead lines communication links maintenance identified practices Improve maintenance Inadequate fuel of overhead lines & supply S/S2 DC systems Transformers failures Operational Incorrect and unsafe and 30kV network deficiencies O&M practices earthing Delayed investment Delayed capacity Delayed substation Delayed control Delayed and replacement expansion projects rehab. programs projects investments projects Skills shortage Poor sector operating performance 1) For further detail, see “Task C – 4.2. Improving GECOL technical performance report; 2) Substations (S/S) Source: Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 38  9 Poor operating performance | Overdue maintenance Task C: Deliverable IV (b) – Improving GECOL technical performance In the past years, GECOL was unable to cope with its plants maintenance needs: in ’17, 34 units were pending overhaul… Generating units overhauls (2010-20171) 34 31 28 27 Number of units to be 19 overhauled 16 16 (Backlog + 11 Due in year “Due in year”) From previous year From 2+ years Backlog 20103 2011 2012 2013 2014 2015 2016 Nov. 2017 Units actually overhauled2 Avg. units 7 7 8 overhauled 6 5 6 2 3 5.5 Due in year 20103 2011 2012 2013 2014 2015 2016 2017 “Due in year” From previous year actually N/A 0% 14% 50% 38% 0% 0% 0% From 2+ years overhauled4 1) Generating units overhauls up to November 2017; 2) Overhauls are considered in the year of their completion; 3) No clear identification of backlog was available for 2010; 4) “Due in year” overhauled units divided by total overhauled units; Source: Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 39  9 Poor operating performance | Overdue maintenance Task C: Deliverable IV (b) – Improving GECOL technical performance …accounting for a total installed capacity with maintenance issues ranging between 5.2 GW and 6.7 GW Evolution of due for overhaul units nameplate capacity (GW, 2010-2017) Nameplate capacity of units requiring complex and less complex maintenance3 6.7 Detailed assessment of generating units capacity with complex and less complex 5.2 maintenance requirements in Generation capacity 4.2 review excel file2 3.9 43% 3.5 3.0 18% 26% 60% 16% 19% 2.0 1.9 62% 1.5 10% 59% 70% 23% 74% 5% 58% 38% 33% 23% 30% 16% Due in year 16% From previous year 20101 2011 2012 2013 2014 2015 2016 Nov. Dec. From 2+ years 2017 2017 Backlog 1) No clear identification of backlog was available for 2010; 2) Data provided in December 2017 by GECOL generation department task force created ad hoc for the capacity assessment of the generation fleet; 3) Less complex maintenance includes both overhauls and units that require replacement of parts but not a complete overhaul (replacement of pumps, bearings, etc.); Source: Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 40  9 Poor operating performance | Inadequate fuel supply Task C: Deliverable IV (b) – Improving GECOL technical performance In addition to the maintenance issue, GECOL’s P/S are adversely affected by fuel supply constraining factors Fuel supply constraining factors today Generating unit Fuel transportation / supply Ship unloading Pipeline Truck by land through sea Lack of Weather Logistics & Pressure conditions security Depending on fuel Smaller units are taken External factors such Impractical for large transportation offline to ensure as bad weather and plants requiring a sufficient pressure to unfavorable waterways constant stream of Fuel supply bigger units constrain cargos trucks constraining HFO Limited size of tank farms requires factors Limited storage constant stream of fuel and prevents Depending on the capacity from having a buffer to cover periods of type of fuel LFO shortages in supply Less important units switched to LFO so Gas Gas availability more sensitive units can operate on gas Going forward, NOC has estimated a decrease of local gas available for power generation after up-stream uses and non-thermoelectric demand further possibly affecting availability of gas units currently under construction Identified fuel supply issues Note: Improving GECOL technical performance report has identified in 600MW the available capacity directly connected to fuel supply constraining factors today Source: Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 41  9 Poor operating performance | Overdue maintenance & Inadequate fuel supply Task C: Deliverable IV (b) – Improving GECOL technical performance Combined overdue less complex maintenance and fuel constraints are the cause of 2.0GW unavailable power… Breakdown of GECOL unavailable capacity1 (GW, 2017) 10.8 10.2 0.5 1.1 8.7 1.2 7.4 2.0 0.1 GW 1.4 0.6 5.3 Libya GECOL Capacity Avg. Theoretical Unavailable Unavailable Max Unavailable Unavailable Available nameplate nameplate ready for unavailable max power power due to power for available power power due to power capacity capacity retirement3 power due from complex other/ power after requiring fuel supply 20171 20172 to ambient installed maintenance5 unknown less complex less constraints conditions4 capacity reasons maint. and complex fuel maint.5 1) Includes third party power stations: Sarir MMRA and Misurata Steel; 2) Includes GECOL main power stations and ready for retirement units; 3) Updated ready for retirement capacity agreed with GECOL in December 2017; 4) Unavailable power due to ambient conditions was assumed to be equal to be 0 for steam turbines and equal to nameplate times a derating factor of 12.5% for gas turbines; 5) Maintenance was classified as less complex maintenance if it can be solved within a short period of time (max 4 months; for example gas turbines whose maintenance is recurring every 3-4 months) while overhauls on steam units and all maintenance requiring more than 4 months was considered complex maintenance; Source: Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 42  9 Poor operating performance | Overdue maintenance Task C: Deliverable IV (b) – Improving GECOL technical performance …with a worse situation in the East (with 43% of nameplate capacity lost due to lack of less complex maintenance) Units requiring less complex maintenance3 (MW, 2017) % Nameplate lost due to lack of % Nameplate lost due to lack of WEST1 21% less complex maintenance EAST1 43% less complex maintenance 0 200 400 0 200 400 MW MW MisurataGT-31 MisurataGT-32 Benghazi North 2GT-31 MisurataST-1 ZawiaGT-11 SarirGT-1 ZawiaGT-12 ZawiaGT-13 ZawiaGT-14 SarirGT-3 ZawiaGT-15 Western MountainGT-12 Benghazi North 2ST-30 Western MountainGT-13 Western MountainGT-14 Benghazi North 1GT-14 Western MountainGT-16 Khoms 1GT-03 Khoms 1GT-04 Benghazi North 1GT-13 ZawiaST-10 ZawiaST-20 ZweitinaGT-11 Available power ZawiaST-30 Average unavailable Tripoli SouthGT-11 due to ambient conditions2 Tripoli SouthGT-12 KufraGT1 Unavailable power Tripoli SouthGT-13 requiring less complex maintenance3 Tripoli SouthGT-14 KufraGT2 Unavailable power Tripoli SouthGT-15 for other/unknown reasons 1) West includes Western, Southern, Tripoli and Central regions, while East includes Wahat, Benghazi and Eastern regions; 2) Unavailable power due to ambient conditions was assumed to be equal to be 0 for steam turbines and equal to nameplate times a derating factor of 12.5% for gas turbines; 3) Maintenance classified as less complex if it can be solved within a short period of time (max 4 months); Source: Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 43  9 Poor operating performance | Damaged transmission and overhead lines Task C: Deliverable IV (b) – Improving GECOL technical performance Damages to transmission substations and overhead lines led to a decrease in grid reliability Damaged substations and overhead lines # Transmission Damaged Substations Overhead lines substations and 13 overhead lines 400kV Total length of Total # substations 86 + 99 overhead lines 14,458 Improve maintenance 220kV (km) 2,290 of overhead lines & substations DC systems Out of service 6 6% Transformers failures and 30kV Needing network earthing replacement of 25 old switchgears Delayed substation With rehab. programs damaged / Damaged power 9 old Out of service transformers 819 components overhead lines (6%) (km) Not in service 23 Skills shortage earthing 15 (1%) resistors 49% 220 kV 400 kV Source: Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 44  9 Poor operating performance | Failure of communication links Task C: Deliverable IV (b) – Improving GECOL technical performance Issues with communication links increased the network operating control, also increasing operating risk Status of NCC/TRCC SCADA availability and quality of data 100% 76% Unavailable data # Control 36% Failure of communication links 7% 6% 27% Operational deficiencies 24% Delayed control projects Total OPGW Problems Telecom RTU/DCS1 Other reasons Availble necessary data equipment data problems • Problems with contacts, relays, Skills shortage • Defects in some Functioning transducers & part of the problems to the other data RTU/DCS Cut and broken terminal equipment sources Reasons for data • Problems with OPGW conductors to which the fiber • Problems with unavailability the interface and fiber optic cables are wiring/ bad protocols connected at each contacts • Incompatibility line end • RTU not yet in the equipment commissioned/ in service 1) Remote Terminal Units (RTU) / Digital Control Systems (DCS); Source: Awardbrand - Improving GECOL technical performance report, Strategy& analysis Strategy& | PwC Prepared for The World Bank 45 10 Low service quality Task A: Deliverable II– Rapid assessment of the sector performance Low capacity availability and growing demand has thus led to negative reserve margin and consequent load shedding S/D evolution1 Reserve 3% -10% -5% -8% -31% -11% -15% -25% margin2 GW GECOL ready 10.8 11 10.3 10.2 for retirement 9.7 10.0 units 10 Third party 8.8 8.8 8.9 plants 9 8 38% 42% 42% 51% 33% 36% 55% 7 43% 55% Available 6 capacity excluding ready for 5 retirement and 4 third party plants from nameplate 3 67% 64% 62% 58% 58% 57% 49% 2 45% 1 0 2010 2011 2012 2013 2014 2015 2016 2017 Demand (peak demand)3 Unvailable capacity Available capacity5 Nameplate capacity4 1) Tripoli West unit 1 and 3 are assumed to be retired respectively in 2013 and 2011, University small gas plant is assumed to be retired in 2016; 2) (Available capacity – Peak demand) / (Peak demand); 3) Demand at generation level. Demand for 2017 is forecasted demand under Scenario C-Slow political stability scenario-UPDATED ; 4) Nameplate capacity estimated considering unit rated nameplate capacity and year in which the unit came in service. Total nameplate capacity includes 3rd party plants and units that are considered ready for retirement in 2017; 5) Considers only time availability computed on generating unit hours of operations during the year; Source: GECOL data collection ID4, Awardbrand - Improving GECOL technical performance report (Data received from GECOL Generation department), Strategy& analysis Strategy& | PwC Prepared for The World Bank 46 In conclusion, among all inter-related issues, 6 root-causes on which the reform effort should be focused were identified Libyan electricity sector root-causes The continuously evolving geo-political situation and the connected instability and uncertainty, has negatively Weak sector impacted the electricity sector (since 2012, Libya has been unable to release the necessary policy and governance regulation initiatives) Sector GECOL is still operating as monopolist, with no private participation (no IPPs) and no competition. This sector structure structure has inhibited the accountability of results, reducing incentives for performance improvements (monopoly) Increasing Partially linked to the two previous issues, FTE and salaries increases have negatively impacted GECOL P&L costs offsetting the fuel costs savings achieved (through the shift towards gas generation) Commercial The challenging socio-economic situation, the absence of a clear legal framework and the poor invoicing and losses and collection practices, has led to a dramatic rise in commercial losses and bad debt, severely impacting GECOL poor collection financial condition Government decisions to reduce tariff (residential clients) and the inability to adjust the tariff scheme against Unbalanced the rising costs have led GECOL to a structural inability to re-cover its system costs, leading to a burden on tariff Libyan state Geo-political instability, damages, lack of planning and inability to keep-up with the required sector investments Poor operating led to delayed projects and low installed capacity availability (linked to unit cannibalization, scarcity of fuel performance supply and lack of adequate O&M), with negative consequences on service quality Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 47  Task A: Deliverable III (b) – Electricity Act and sector restructuring report The electricity sector reform has thus been designed across three waves based on different macro-objectives Libya restructuring roadmap “Future Vision” Wave III Levels of evolution “Realize Wave II ambition”  Consider to evolve to more “Restructure and complex and competitive Wave I prepare for market models (wholesale “Fix the basics and ambition” market model)  Consider sector privatization prepare for vision, minimizing state restructuring”  Choose the desired end burden while optimizing state sector model and competitiveness  Establish (legally) the structure regulatory authority  Launch internal  Complete short-term communication and  Clarify sector governance performance improvement change initiatives  Strengthen sector legal actions framework  Complete GECOL org.  Achieve a fully functional,  Launch short-term restructuring transparent and performance improv. actions  Achieve full functional sustainable electricity  Start GECOL org. unbundling sector restructuring  Continue reviewing  Achieve accounting periodically tariff levels unbundling  Launch new tariff framework Min target duration  3 years 3 years 3 years (min) Time Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 48 Each wave proposes a number of measures and milestones to address the root causes and attain specific objectives Approach for electricity sector reform roadmap Milestones represents the real objectives to be accomplished by each measure (i.e. until a milestone is not achieved, owners shall not move to the next measure) Wave Sector Wave issues’ Measures Milestones objectives root-causes Wave Activities 2018 2019 2020 Owner Establish The objective of the action plan is to a policy Draft Presidential decree/ Cabinet Measures Decision clarifying government body with Ministry in charge Parliament target roadmap for Libya for the next 3- mandate sector policy responsibilities 6 years (though aware of the fact that a continuous political instability situation Set Establish regulatory agency within the Regulatory Agency Ministry in will make the completion of such regulatory Government in operation charge roadmap challenging to achieve). agency Target deadlines set are thus to be Milestones considered as target Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 49  Task A: Deliverable III (b) – Electricity Act and sector restructuring report Wave I focuses on addressing Libya’s most pressing issues, while wave II focuses more on the sector restructuring Sector issues and restructuring roadmap waves’ objectives Electricity sector Wave I objectives Wave II objectives issues’ root causes Fix the basics and prepare for Restructure and prepare for restructuring ambition Strengthen sector governance Weak sector Clarify sector governance governance Increase competition in generation Sector structure Establish performance (monopoly) accountability Achieve functional separation Poor operating Restore acceptable service Upgrade service quality performance quality: “Zero load shedding” Continuous improvement in cost Increasing costs Costs control & staff reskilling structure Unbalanced tariff framework Improve GECOL & sector Achieve GECOL & sector financial sustainability financial sustainability (reduce subsidies on tariff and (balanced tariff and region avg. Commercial losses commercial losses) commercial losses) and poor collection Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 50  Executive Summary Summary of key issues faced by the electricity sector Wave I: Fix the basics and prepare for restructuring Wave II: Restructure and prepare for ambition Options for Wave III (realize ambition) Appendix – Inputs for Electricity Act Strategy& | PwC Prepared for The World Bank 51 I Fix the basics and prepare for restructuring Task A: Deliverable III (b) – Electricity Act and sector restructuring report Wave I focuses on five objectives through a number of measures and milestones… Wave I measures and milestones Wave I objectives Wave I Electricity Sector Fix the basics and Measures Milestones Issues’ root causes prepare for restructuring • Establish policy mandate • Ministry in charge • Set regulatory agency Weak sector Clarify sector • Regulatory agency in operation • Clarify GECOL’s governance governance governance • Government decree1 • Strengthen sector legal • National Electricity Strategy framework • Core BUs separated • Corporate core general dept. Sector structure Establish performance • GECOL accounting unbundling (ICT, E&P, HR&O & AFC) (monopoly) accountability • GECOL reorganization established • Accounting unbundling regulation • Sep. annual accounts submitted • Ensure state financial support Restore acceptable • All generation, transmission, Poor operating • Improve investment plan. process service quality control, MV & distribution performance • Address operating perf. issues “Zero load shedding” • Explore import supply milestones completed • HR strategy in place • Optimize power mix • Critical resource map and • Improve efficiency Costs control manpower rebalancing plan Increasing costs • Address manpower issues & staff reskilling • Workforce planning in place • Compensation and benefits • Capabilities & skills map redesign • Reskilling plan Unbalanced tariff • Tariff covering part of P&L costs framework • Launch new tariff framework • Theft areas map Improve GECOL & • Metering roll-out • Higher theft sanctions sector financial • Address electricity theft • Customer database Commercial losses sustainability • Fight insolvency • SMS/e-mail billing in operation and poor collection • GECOL’s mobile app running 1) This first Government Decree could be replaced with an Electricity Act in case a window of opportunity opens for the submission of a the electricity law to the House of Representatives; Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 52 I Fix the basics and prepare for restructuring Task D: Strategic plan for the development of renewable energies in Libya …and lays the foundations for the introduction of RES RES roadmap: wave I measures and milestones Wave I Wave II Wave III 2021 2024 2027 RES preparation and Increased private RES framework institution building investment in RES consolidation Electricity Sector Wave I objectives Wave I Issues’ root causes Measures Milestones • REDEVCO set up Weak sector RES capacity and • REDEVCO operations • RES permitting and governance institution building start documentation regime Poor operating • Wind pilot projects study performance completion Start pilot RES • Wind and PV pilot • PV pilot project study penetration projects Load shedding completion • 3% RES penetration Source: Gopa intec and Suntrace Task D Roadmap for Renewable Energy Development, Strategy& analysis Strategy& | PwC Prepared for The World Bank 53 I Fix the basics and prepare for restructuring| Clarify sector governance Task A: Deliverable III (b) – Electricity Act and sector restructuring report Libya shall first clarify its sector governance, setting-up well-defined institutions with policymaking responsibilities Measures and activities Measures Activities Year 2018 2019 2020 Owner Establish Draft Presidential decree/Cabinet Decision Parliament policy clarifying government body with sector policy responsibilities1 Ministry in mandate charge Set A Establish regulatory agency within the government2 Ministry in charge Regulatory Agency regulatory in operation agency B Regulatory agency in operation Regulatory Agency Focus in next slides Clarify Review composition of GECOL’s General Assembly Government GECOL’s governance Streamline and right-size BoD reallocating non-typical functions GECOL Begin reform discussion & draft the bill for the Government decree Ministry in charge Sign and endorse the Government decree3 Government Government decree Strengthen Draft the National Electricity Strategy Ministry in charge, sector legal Regulatory Authority, framework GECOL, NOC4 Sign and endorse the National Electricity Strategy Parliament National Electricity Strategy Milestone 1) MoE and Renewable Energy was established through Cabinet Decision (33) of 2012, but its mandate has not been renewed; 2) Beside its regulatory functions, this government agency will be in charge for leading the sector reform implementation; 3) This first Government Decree could be replaced with an Electricity Act in case a window of opportunity opens for the submission of a the electricity law to the House of Representatives; 4) Ministry in charge is the activity owner but the draft results from a comprehensive public consultation process with sector’s institutional stakeholders ( i.e. Regulatory Agency) and industry representatives (i.e. GECOL, NOC); Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 54 I Fix the basics and prepare for restructuring| Clarify sector governance Task A: Deliverable III (a) – Sector reform options Libya objective should be to identify a clear Minister in charge of electricity, as for example Tunisia Example of minister in charge of electricity SELECTED EXAMPLE Government of Tunisia Tunisia Ministry of Energy, Mines Department of Electricity, Gas and Energy Efficiency and Renewable Energies • Promote research and rational exploitation of Department of energy resources CSPIE Electricity, Gas and • Ensure the national energy security of supply Energy Efficiency High Commission for • Develop and implement policies and juridical texts Independent Power Production Coordination and regarding energy efficiency and energy transition • Suggest the implementation of through renewable Choose energy policies the benefits to be • Negotiate with companies and attribute research concessionaire granted to the concessionaire grants • Review the offers ANME • Define projects for the development of the energy • Submit its findings Agence Nationale sector to CSPIE for final pour la Maîtrise de • Oversee the rationalization and the exploitation of decision l’Energie energy sources Promote energy • Ensure the optimization and of the hydrocarbon CIPIE efficiency and Interdepartmental Commission the development production and optimize sector conditions of the Power Production of renewable energy sources Monitor Sector operators STEG (100% state-owned vertically integrated monopoly) IPPs IPPs Sources: Res4Med Country Profile, STEG website, Regional Center for Renewable Energy Efficiency Country Profile, ANME website, Strategy& analysis Strategy& | PwC Prepared for The World Bank 55 I Fix the basics and prepare for restructuring| Clarify sector governance Task A: Deliverable VI (b) – Detailed roadmap for establishing LEMRA report By end of 2018, the Government shall then set-up an Agency, which shall begin operations in Q1 2019 Regulatory agency setting roadmap A REGULATORY AGENCY SET UP Year 2018 2019 Activities Q1 Q2 Q3 Q4 Q1 Owner Appointment of BoD and initial budget allocation Appoint initial BoD members for a 4 years term Government Define and allocate the initial budget Government Recruitment of key personnel Select and appoint consultants/advisors to help in the process Government Select Chairman among BoD members1 Government Select and appoint departments heads BoD and Chairman (e.g. Executive Commissioners) Development and approval of Agency’s 4 years strategic goals Define key goals of the strategic goals/objectives Senior mgmt. team1 Vote and approve strategic goals/objectives BoD Recruitment of technical and support staff Develop basic recruitment criteria Senior mgmt. team & HR head Hire technical and support staff for each org. unit Senior mgmt. team & HR head BoD & chairman selected Full operating team in place and in operation Approved agency statute and [4]-years strategic plan 1) Executive Commissioners Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 56 I Fix the basics and prepare for restructuring| Clarify sector governance Task A: Deliverable VI (b) – Detailed roadmap for establishing LEMRA report For 4 years starting from 2019, the Agency will support the Government in drafting all the necessary rules & regulations Regulatory agency setting roadmap B REGULATORY AGENCY OPERATION Year 2018 2019 2020-2023 Activities Q4 Q1 Q2 Q3 Q4 … … Owner Training of technical and support staff Launch staff training programs1 Ex. Commissioners Support in the Government decree endorsement process Support Government in legal advisors selection process Senior mgmt. team Support Government in legal framework review Senior mgmt. team Support in the internal Government decree Agency (& advisors) endorsement discussions Draft regulations/manuals in line with the Agency’s responsibilities Support in the National Electricity Strategy definition Department in charge Accounting unbundling regulation Department in charge Draft Tariff regulation Department in charge Review KPIs manual & targets Department in charge Grid code Department in charge Other manuals & regulations2 Department in charge Safety standards Department in charge Government Accounting unbundling decree3 regulation published 1) As an example, during its first 3 years the Saudi Arabian Regulatory Authority (ECRA) began English and IT skills trainings for all staff resources;2) In line with the Agency 4- years strategic goals & objectives; 3) This first Government Decree could be replaced with an Electricity Act in case a window of opportunity opens for the submission of a the electricity law to the House of Representatives; Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 57 I Fix the basics and prepare for restructuring| Clarify sector governance Task A: Deliverable VI (b) – Detailed roadmap for establishing LEMRA report The Agency shall focus on drafting manuals/regulations for performance monitoring, tariff and account unbundling … Regulatory Agency responsibilities (Wave 1) Regulatory Agency 2019 in operation Responsibilities Activities Regulations/Manuals Supply matters KPIs Manual & targets Draft the KPIs Manual and set short term (3 years) KPI targets Performance monitoring Provide incentives to encourage the utility to achieve targets Supervise system’s security and reliability and propose improv. measures Technical matters Develop unified regulatory accounting and reporting procedures Standards and rules Set minimum safety standards for O&M, construction and installation Safety standards Draft the Grid Code/Interconnecting Guidelines Grid Code Consumers issues Draft the Tariff Regulation Tariff Regulation Tariff State criteria for the preparation of tariff proposals by GECOL Sector development Advise the ministry on matters related to development and operation plans Accounting unbundling Development Draft accounting unbundling regulation regulation Sector structure Draft operating guidelines for separated annual accounts Analyze and review GECOL’s separated annual accounts Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 58 I Fix the basics and prepare for restructuring| Clarify sector governance Task A: Deliverable VI (b) – Detailed roadmap for establishing LEMRA report … Advising the Government, who remains in charge of accomplishing all the key regulatory functions Actors redistribution of responsibilities (Wave I) Wave I As-is After Regulatory Agency set up Actors Regulatory Government GECOL Government GECOL Responsibilities Agency Set performance standards R R P Monitor performance R R P Define sector vision R R Determine prices R R R P Choose technologies R R Determine investments R R Establish sector rules R R P Receive public input R R R P R Balance environmental and economic goals R R Determine sector structure R R P Receive consumer complaints R P R P Full responsibility PAdvisory function Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 59 I Fix the basics and prepare for restructuring| Clarify sector governance Task A: Deliverable VI (b) – Detailed roadmap for establishing LEMRA report In line with its limited responsibilities, the Agency shall have a simple and centralized structure with only 3 departments Agency organizational structure Responsibilities Proposed organizational structure (Regulatory Agency – Wave I) Supply matters 1 Licenses Ministry in 2 Performance monitoring charge Government Technical 3 Standards and rules Internal issues audit Chairman 4 Rules enforcement 5 Information Consumers 6 Tariff issues Support Tariff Technical Sector 7 Consumer protection affairs development services head Commissioner Commissioner Commissioner 8 Disputes settlement 6 2 3 10 11 Financial Sector 9 Competition admin. & HR development 10 Development IT 11 Sector structure Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 60 I Fix the basics and prepare for restructuring| Establish performance accountability Task A: Deliverable III (b) – Electricity Act and sector restructuring report The Regulatory Agency will focus on supporting GECOL and the sector in pursuing its accounting unbundling… Measures and activities Measures Activities Year 2018 2019 2020 Owner Draft accounting unbundling regulation1 Regulatory Accounting unbundling Agency regulation published Set up a timing and procedures for separated annual account submission Regulatory Agency GECOL accounting Establish clear accounting system to allocate directly GECOL unbundling and indirectly related BS and IS accounts to value chain activities Draft separated annual accounts (IS and BS) for each BU GECOL Submit separated annual accounts (IS and BS) for each value chain activity GECOL to the regulatory agency Sep. annual accounts submitted Milestone 1) Includes instructions to draft separated annual accounts and rules for submission to the Regulatory Agency for review; Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 61 I Fix the basics and prepare for restructuring| Establish performance accountability Task A: Deliverable III (b) – Electricity Act and sector restructuring report …helping to establish an improved GECOL accountability at its operating (also achieved by GECOL first re-organization) Measures and activities Measures Activities Year 2018 2019 2020 Owner Separate Generation and Transmission into different BUs GECOL Core BUs Create new core ICT function (managed by CIO) reporting separated GECOL directly to MD Move IT away from network into ICT corporate core dept. with GECOL direct report to MD ICT corporate core established Move Communications unit under Transmission BU GECOL Group Generation, Transmission, Distribution GECOL projects in an integrated E&P function GECOL re- Move Projects Planning & Studies to E&P function GECOL organization Move Projects Accounting away from Contracts and Dev. GECOL Accounts within E&P function E&P corporate core established Move Tenders & Contracts from Contracts & Dev. to Procurement GECOL Create AFC function managed by CFO reporting to MD GECOL Move related units1 in the newly created AFC core function, GECOL led by a new CFO AFC corporate core established Consolidate in HR&O department (under MD) all the GECOL HR-related core functions leaving non-core HR activities HR&O corporate core within Support Services established Milestones 1) Units to be migrated to AFC are: Performance Monitoring general dept. (from BoD), core activities of Financial Affairs (e.g. Financial Planning and Ledger & Fin. reports) and L/C Financing and Customs Clearance from Contracts and Development accounts; Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 62 I Fix the basics and prepare for restructuring| Establish performance accountability Task A: Deliverable IV (a) – Options study for GECOL restructuring report Different organizational restructuring approaches and hypotheses were considered for GECOL… Reorganization options Option 1 Option 2 Radical Gradual Quick reorganization transition into a holding company Gradual reorganization evolution going hand in hand structure aimed at achieving legal unbundling directly with a stepped unbundling pathway (first accounting, from today’s situation followed by management unbundling and then legal) Wave I Wave II Ambition Fully Full legal Fully Accounting Functional Full legal Integrated unbundling Integrated unbundling unbundling unbundling Today Wave I Today M1 M2 M3 Projects within SBUs with SBUs and strong AFC, strengthened HR, ICT and AFC, ICT and E&P corporate HR corporate Holding As-is Holding structure As-is core functions core functions structure Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 63 I Fix the basics and prepare for restructuring| Establish performance accountability Task A: Deliverable IV (a) – Options study for GECOL restructuring report …and Wave 1 recommendation is to deploy a gradual approach to re-organize GECOL Options assessment Option 1 Option 2 Radical Gradual • Possibly ensures results accountability and improved • Enabled early-on SBUs accountability for results and PROS + operational efficiency • Rapid evolution away from monopoly towards more independent management • Parallel change of organizational structure, processes competitive sector structures and operating model • Challenging implementation both in terms of target CONS – structure and timing • Marked disruption risks for GECOL • Lengthier change process • Inflexible employee redeployment • Delayed benefits realized due to inefficiency of resulting • Delayed unbundled industry structure and risk of being RISKS operating companies “trapped” into intermediate steps without reaching the • Lost synergies and potential replication of activities final target among operating companies • Large consensus and leadership required EASE 0 • Extensive coordination effort needed among 4 • Persistent effort and commitment to ultimate organizational units target necessary • Required accounting and functional separation 1) Strategy for institutional development of GECOL report Source: Strategy& Analysis Strategy& | PwC Prepared for The World Bank 64 I Fix the basics and prepare for restructuring| Establish performance accountability Task C: Deliverable II (a) – Strategy for institutional development of GECOL GECOL reorganization shall focus on the establishment of performance accountability (separate BUs & CC functions) GECOL to be organization (2021) Board of Directors BoD Affairs Internal Control Media Managing Corporate Core Director ICT Center MD Office ERP Follow-up Technical Support Follow up Digital Inf. & Doc. ICT Networks Public Relations Infrastructure Experts and Telephones consultants office Legal Affairs Strategic PMO Performance Monitoring Planning Studies & dev. Distribution projects and Follow-up E&P Transmission projects Financial planning & Projects Accounting AFC Generation projects reporting1 Contracts & Dev, accounts Organization & Structuring Strategic Planning2 HR & O Dept. HR & Communication Business Distribution & Services Generation Transmission Support Units Supply Services Generation Transmission Distribution Procurement General Services Control MV Networks Reorganization Customer changes to be Accounting HR support Communications further deep-dived Service 1) Includes corporate core activities from Financial Affairs (i.e. General ledger and financial reports, Financial Planning and Fixed assets and insurance); 2) Strategic Planning unit from the Planning Studies & development division; Sources: GECOL (company organization chart 2015), Strategy& analysis Strategy& | PwC Prepared for The World Bank 65 I Fix the basics and prepare for restructuring| Establish performance accountability Re-organization shall be supported by a corporate-wide change management program… Change program phases 1 2 3 Define the change Drive the change Measure the change Leadership Education Strategy Alignment & Training Business Org & Talent Communications Alignment People Operating Culture Model Stakeholder Behavior Engagement Adoption Leading Lagging Focus in next slide Tailored program of interventions Clarity on what needs to change to Mechanisms to monitor progress ad drawing on formal and informal deliver the key business goals course correct as needed approaches Source: Strategy& Analysis Strategy& | PwC Prepared for The World Bank 66 I Fix the basics and prepare for restructuring| Establish performance accountability …which will drive the change (to be achieved through 6 main levers) Drive the change measures • Align leaders on future vision and Leadership Education convey the case for change • Design and deploy training related • Enable leaders to actively and Alignment & Training to acquiring new skills and capabilities, learning new processes, visibly support and role-model policies, systems, etc. change • Build awareness and • Leverage existing culture; adjust understanding of the case for Org & Talent job roles, career paths, and behavior change, what it means and what Communications expectations; and link to individual people need to do differently Alignment performance management • Communicate behaviors changes • Incentivize and reinforce desired and how they should be exhibited behaviours formally and informally • Engage and energize stakeholders directly and indirectly; top-down • Identify critical behaviours that and bottom-up, informally and Stakeholder Behavior must be exhibited to create new formally Engagement Adoption mind-sets and increase adoption • Leverage change agents, • Determine performance outcomes exemplars, trusted nodes and key impacted by the behavior changes influencers Source: Strategy& Analysis Strategy& | PwC Prepared for The World Bank 67 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” Task A: Deliverable III (b) – Electricity Act and sector restructuring report Government shall then support GECOL with the necessary funding, so that it can work at restoring its service quality Measures and activities Measures Activities Year 2018 2019 2020 Owner Ensure state Set extraordinary investment budget account1 Government financial support Improve a more efficient budget allocation process Gov’t / GECOL Review and strengthen GECOL investment planning process GECOL (e.g. Master Plan preparation process)3 Improve Establish a least cost planning methodology to identify the least GECOL investment cost mix of resources which would meet forecasted electricity planning demand ensuring a reliable service level (to be applied for process evaluation of investment across the whole value chain) Ensure cost-efficient implementation of planned investment GECOL A Complete all measures and activities proposed in the generation GECOL action plan All generation milestones completed Address Complete all measures and activities proposed in the transmission GECOL B operating action plan All transmission milestones completed performance Complete all measures and activities proposed in the control GECOL issues C action plan All control milestones completed D Complete all 4 measures and activities proposed in the MV & distribution GECOL action plan All MV & distribution milestones completed Focus in next slides Explore Explore possible imports from neighboring countries GECOL import Initiate/establish cooperation agreements Ministry supply with other countries for electrical interconnections5 in charge Milestone 1) To be completed as part of the Comprehensive business process reengineering study proposed in Task C final report action plan for the Processes area of analysis; 2) Government & GECOL shall also work on improving / clarifying the electricity budget allocation process going forward; 3) As part of the Comprehensive Business process reengineering suggested in Task C final report action plan; 4) Because of the similarities between the issues identified in MV and Distribution, a unified action plan was drawn 5) Activity to be initiated only if feasible possibility for imports from neighboring countries is found otherwise no action should follow; Source: Strategy& analysis Strategy& | PwC Prepared for The World Bank 68 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” Task A: Deliverable III (b) – Electricity Act and sector restructuring report In Wave I, the Government should also work on a more efficient investment budgets & planning with GECOL… Budget preparation and submission process Libyan National Budget chapters: I II III IV Admin. expenses2 Salaries and Development and other Subsidies4 wages1 projects3 current expenses Development budget Recurrent budget GECOL (new org. set-up) Actors directly dealing Government with the Government Managing Director Ministry of Ministry of Planning Finance AFC Submit budget Engineering & Projects In line with the revised process, requirements Government shall allow GECOL Submit budget requirements to have more say in: Opex budget • Deciding areas for allocation Capex budget Distribution & of capital expenditure Corporate Core Generation Transmission • Setting priorities for budget Supply GECOL leadership allocation Operating BUs 1) Includes social security; 2) Administrative expenses for government authorities and ministries; 3) e.g. new plants, housing projects; 4) Includes credits for public debt, food programs, oil&gas and electricity subsidies. For what concerns GECOL includes subsidies on fuel and GECOL’s losses on P&L Sources: Strategy& analysis Strategy& | PwC Prepared for The World Bank 69 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” Task C: Deliverable 2.2 – Process mapping report …resolving the existing CAPEX and OPEX budgeting issues identified through improved processes Deep dive in Task C-2.21 OPEX budgeting process CAPEX budgeting process ! Identified issues ! Identified issues Lack of prioritization among OPEX items No Control over Development Projects P Proposed TO-BE P Proposed TO-BE Missing targets & Budget from GECOL operational efficiency factors OPEX budget CAPEX budget Organizational process Limited power over process coordination setting priorities in the complexity budget allocation process Budget approval before receiving Government confirmation Difficulties in budget Challenging budget estimation due to long follow up due to lead time of separation in areas infrastructure projects No effective role of the budget committee in the process Process is not in line with Government Lengthy and manual budget preparation process timeline 1) Task C: Deliverable 2.2 - Process mapping report; Sources: Strategy& analysis Strategy& | PwC Prepared for The World Bank 70 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” Together with the CAPEX budgeting process, GECOL shall also improve its investment planning process… Investment planning process Process steps GECOL E&P department to establish policies for to be organizational structure Project selection capital investment planning (i.e. eligibility criteria setting criteria; prioritization criteria) Actors directly dealing with the Government for financing Managing E&P to provide BUs with schedules and Director Provision of requests forms, each requiring information for calendar, forms project ranking and instructions AFC Bus to assess progress of ongoing projects Project requests and prepare and submit projects proposals to preparation E&P dept. Engineering & Projects Provides Review projects E&P to review all BUs project proposals criteria for according to the predetermined criteria cost-efficient Submit requests projects project prioritization requests Prioritize projects E&P to prioritize projects through least cost Business units planning methodology requests Focus in next slide Draft the Master Plan from the projects final Distribution list arranged by priority order according to the Generation Transmission Draft Master Plan & Supply criteria used in the scoring process Sources: Strategy& analysis Strategy& | PwC Prepared for The World Bank 71 I Fix the basics and prepare for restructuring| Restore acceptable service quality/ “Zero load shedding” …Using a least cost planning methodology for project selection and implementation Least-cost planning methodology ILLUSTRATIVE Supply/demand balance Option selection GW Load 12 A Option forecast 10 study 8 ! Need for Negative investment 6 reserve B Option in new + 4 margin resources 2 Existing 0 resources C Option 2017 2018 2019 2020 Select option with lowest: