Legal framework for Kosovo Serbs tailored to Pristina (part two): Energy

By Dragutin Nenezić

Another topic that recently caught the focus of Serbian politics in KiM relates to energy, which may rival the ASM in terms of the extent to which it is presented to the Serbian public without full insight into publicly available facts. As is the case with the ASM, in the legal analysis of this topic, it is best to start from the content of the obligations undertaken in Brussels, without going into their legal nature in any legal system. Also, the legal analysis will deal only with those issues that seem crucial for understanding it properly as opposed to the current media cacophony, since the topic of energy is one of the more complex ones when it comes to KiM, hence, a detailed analysis would require much more space.

1. Energy in the Brussels documents

Energy was the subject of two Brussels documents: the so-called Energy Arrangement of 2013 (hereinafter: the Arrangement) and the Conclusions of the EU facilitator on the implementation of the Energy Agreement from 2015 (hereinafter: the Conclusions). These documents aimed to regulate the dualism in the field of transmission, distribution, and supply of electricity, considering that at the time of signing, Belgrade and Pristina energy entities, operating in the territory of KiM, were doing so in two separate legal systems. To achieve this, with these documents, Belgrade and Pristina have accepted two key commitments:

• For the Pristina transmission system operator KOSTT to become the exclusive transmission system operator on the territory of KiM (item no. 2 of the Arrangement);
• For EPS to establish two subsidiaries in the Pristina system that will deal with power trade (items no. 3 of the Arrangement and 1-4 of the Conclusions) and distribution and supply (items no. 4 of the Arrangement and 5-15 of the Conclusions), which will be licensed by Pristina regulatory body (points 5, 9 and 10 of the Conclusions). The newly established distribution and supply services company – Elektrosever (item no. 8 of the Conclusions) would carry out billing and collection in four Serb-majority municipalities in northern Kosovo, where the employees of Belgrade’s JP Elektrokosmet would be incorporated, while the Valac substation would be connected to the transmission operator KOSTT, and its current operators would respect instructions from the Kosovo dispatch center (point no. 5 of the Conclusions).

If the obligations outlined in these documents had been fully implemented, Belgrade’s energy entities in the Serbian legal system would cease to operate in the territory of northern Kosovo – they would be incorporated into the Pristina legal system in the form of two newly established companies. As a result, only energy entities operating within the Pristina legal system would remain in the territory of Kosovo.

As it often happens, these obligations have not been implemented as planned – KOSTT has formally become the exclusive operator in KiM (especially given its entry into contractual relations with the European Network of Transmission System Operators – ENTSO-E, to which Belgrade agreed under the Brussels documents), but the company that would deal with power trade has not been established, nor has Elektrosever been licensed. The consequences of this situation are twofold:

• The Valac substation has become part of the Pristina transmission system, but it is still managed by JP Elektrokosmet;

• As Elektrosever has not yet been formed, there is no energy entity that could carry out electricity billing in northern Kosovo, therefore, the debt for the electricity consumed by the residents of northern Kosovo is covered by KOSTT itself – the last time by December 31, 2021.

It seems that the only rational solution to this situation, as per the Brussels documents, would be to complete the registration and licensing of new companies, and in that part, the representatives of Belgrade are right. However, there are other, less rational solutions.

What is common to all possible solutions, as is the case with the ASM, is that through Belgrade’s acceptance of the Brussels documents, they were barred within the framework of the legal and political system of Pristina. Unfortunately, the nature of that system is bad (for the Serbs in KiM), and it appears as such in numerous examples, of which only the three most impressive will be analyzed.

Thus, when it comes to licensing Elektrokosmet for distribution, it is rejected with the explanation that there cannot be two energy entities licensed for distribution on the territory of KiM, and KEDS, the Pristina distribution system operator that was sold to Turkish investors in 2012, already possesses such a license.

Therefore, either the Pristina legal framework must be changed (including the possible payment of compensation to investors) to enable the licensing of Elektrosever for distribution, or this obligation has been included in the Brussels documents without the intention of ever being implemented.

In terms of collection, the situation is even more complicated. To begin with, in October 2021, the Pristina Basic Court annulled the decision of the Pristina Energy Regulatory Office (ERO) from 2012, based on which electricity consumption in northern Kosovo was covered by consumers from all over KiM. Regarding that decision, in 2017, the Pristina ombudsman filed a lawsuit and requested an interim measure, and since then, the incurred debts have been covered by KOSTT.

The same judgment decreed that KEDS must compensate over €40 million in damages to consumers. A number of questions can be posed in regard to this. Serbs in northern Kosovo may wonder whether the €40 million may be forcibly collected from them, as well as whether this will be an introduction to debt collection for the period before 2012.

A lawyer or a political scientist can question the intentions of the Pristina negotiators in 2013 and 2015, given that the goal of the negotiations was to „expel“ the Serbian electric power industry from northern Kosovo (which was operating there at the time – and supplying electricity), while on the other hand, the Pristina authorities determined that, at the time, electricity was delivered to northern Kosovo by the Pristina electric power industry. The electrical engineer would just wave this away and reject the discussion about the fact that in the period between 2009 and 2020, electricity in northern Kosovo could have come from the south.

As if that is not enough, the opposition in Pristina brought the issue of taking over the debts by KOSTT in the period by November 6, 2021, before the Pristina Constitutional Court, which has not yet announced itself by the time this text was published. The future decision of the Constitutional Court in this case for Serbs in northern Kosovo may indeed be “November 6th”, given that it can be the basis for (forced) collection of delivered power in the period after 2017 (which is covered by the decision of the basic court), or after the „expulsion“ of the Serbian power industry from that area.

2. Energy Union of Tirana and Pristina

More broadly, the issue of energy cannot be analyzed without taking into account the regional context. Specifically, the rapprochement of Tirana and Pristina in the field of energy, which is taking the shape of an energy union. Once again, this is a complex process, therefore only its key elements will be highlighted here, given the limited space.

For starters, Tirana and Pristina were connected by a new, 400 kV transmission line, a project developed by the German development bank KfW with the support of the Energy Community since 2008, which was officially put into operation on Vidovdan in 2016. Under similar conditions, Albania built transmission lines to Montenegro and Macedonia, but this one still stands out for what happened after – Pristina’s entry into a joint control bloc with Albania within ENTSO-E in April 2020, which became operational at the end of 2020. Of course, that could not have happened if Belgrade had not agreed to support Pristina in this as outlined in points 2 of the Arrangement and 16 and 17 of the Conclusions.

The connection between Tirana and Pristina through a transmission line and them being part of a common control bloc was a precondition for completing the energy union, which is often referred to in professional circles as balanced in terms of energy sources, as well as in terms of base/peak load.

Namely, electricity in Albania is produced almost entirely in hydroelectric power plants, while the primary source of electricity in Pristina are coal-fired power plants. In Albania, during water shortages, there is also a shortage of energy produced (and vice versa), while Pristina’s production is constant. In that sense, the Energy Union is one of the ways to overcome an energy crisis like the one that occurred in Albania in October this year, because the deficits in Albania can be covered by Pristina’s production.

However, for such a union to function, stable energy sources must be provided by the Pristina side, given that the existing thermal power plants are in such poor condition that, a, thermal power plant „Kosovo A“ must be shut down, and „Kosovo B“ significantly revitalized. Pristina has been planning the construction of a new 500-megawatt coal-fired power plant called „New Kosovo“ (alb. Kosova e Re) since the early 2000s. It signed a contract worth over a billion dollars in 2017 with an American investor, who hired another American company as a contractor in a tender in 2018 (interestingly, one Chinese company applied for the tender, among others).

However, since the realization of this project was launched at a time when the global trend of decarbonization was already gaining momentum, international financial institutions denied funding, and the project was snuffed out in 2020 – with the termination of the contract and arbitration. If that had not happened, this project would certainly have faced the problem of water supply at some point, which leads us to the last key issue – Lake Gazivode.

3. The issue of Lake Gazivode

Of all the issues related to energy in KiM, this is perhaps the most common in the public, but at the same time the most misinterpreted one. The facts are quite simple, but for some reason, they are lost in a sea of misinformation and mystification, so it seems useful to list them briefly:

• The part of Lake Gazivode located in KiM is currently under a regime of legal dualism, as it is managed in parallel by two companies – one operating within the Serbian and the other within the Pristina legal system;

• As such, Lake Gazivode has not been the subject of Brussels negotiations until date, but it is mentioned in the Washington documents, which Belgrade and Pristina signed separately in 2020 at the initiative of the then US administration. However, these documents only provide that both sides will work with the US Department of Energy to develop a feasibility study on the division of the lake as a „reliable source of water and energy supply“ (point 7). The study was published in mid-2021 and it, among other things, proposes a model of joint management modeled on the Colombian River Treaty between Canada and the United States;

• Water from the lake is currently used, among other things, to supply existing thermal power plants for cooling purposes, etc. In the transaction documentation on the construction of a new thermal power plant (the said documentation is in the author’s possession), the risk of water supply to the thermal power plant is entirely on the side of Pristina, and the amount of water provided for its operation (6.5 m3/s) is far greater than the existing one (3.75 m3/s; the source is in the author’s possession). In that sense, the investor expected Pristina to perform a miracle and almost double the amount of water coming from the lake to the thermal power plant, and succeeded in turning such an expectation into a contractual obligation.

Currently, Washington documents are not being implemented, and it seems that the focus of negotiations is now in Brussels, where this issue is not yet open, i.e. there are no indications that the existing legal dualism will be resolved as was the case with the energy supply in northern Kosovo. As stated in the previous section, the project for the construction of a new thermal power plant failed, so the water from Gazivode continues to be used with unchanged intensity for cooling of the old thermal power plants, which continue to operate.

4. Conclusion

The topic of energy seems to provide many examples of the Pristina administration’s lack of aptitude (regardless of which party or leader it is led by) in all areas except the negotiations with Belgrade.

To begin with, how the current Pristina administration will try to resolve the energy supply situation in the coming months will speak volumes about its (ir)rationality, to the extent that its negotiating skills are reflected in the current result of Brussels energy documents.

Pristina gained „electricity independence“ with Belgrade’s consent, but did not „round it up“ by registering and licensing new companies because it itself is not allowing that. Rationally, Pristina does not need to „occupy“ the Valac substation, because it is already in its system – it would be enough for it to license Elektrokosmet (at least for electricity supply), and at the same time enable regular billing in northern Kosovo, through accounts (i.e. outside of courts and forced collection of millions).

Any other decision by Pristina will show that Pristina currently has irrational actors who either do not know or do not want to implement what was agreed upon, and Serbs (especially in northern Kosovo) will justifiably be able to ask themselves whether they want to be locked in a system managed by such actors.

Furthermore, the energy union with Albania was also formed with the (although indirect) consent of Belgrade, but it cannot function in the absence of new base load capacities in KiM. The situation there is quite unfortunate – after the collapse of the „New Kosovo“ project, it seems that the gas pipeline project, which could be used to supply a new gas power plant, and which was supposed to be financed by the USA, also failed. One consequence of this could be that Albania turns to itself, and builds a gas-fired power plant in Vlora, again with US support, as its own base load capacity, one that does not use coal.

Thus, Pristina would still rely on old thermal power plants, and with arbitration initiated by the investor of the would-be new thermal power plant. If that project had not failed, the question is how it would have come to life, given the unrealistically set parameters of water supply. In any case, it does not seem likely that in current conditions, in which almost no one wants to finance the construction of anything that uses coal, Pristina could get a new thermal power plant.

Finally, Gazivode continues to operate in a regime of legal dualism. The model of joint governance proposed by the US study was not accepted by either Belgrade or Pristina, which seems to be the correct move since it is based on a model incomparable on several grounds – here I single out the nature of US-Canadian relations, which last clashed in 1812, while Canada was still a British colony.

The big question remains why the authors of the study did not, for example, analyze the example of the agreement between Israel and the PLO (so-called Oslo 2), which provides for joint management of water resources between the two sides, which do not recognize each other’s statehood. It would probably be a good solution if Gazivode were to be introduced as a topic in Brussels.

If this situation is viewed from the perspective of Pristina’s results, they are primarily political – „electricity independence“ and the union with Albania. Energy results are negligible – Pristina does not charge for consumption in northern Kosovo and, in the long run, does not have a stable energy source. Economically speaking, it seems that Pristina is inclined to create debts with its own unrealistic or irrational policy, which in the end it may want to collect from Serbs in one way or another. In that sense, the legal framework becomes irrelevant, since Pristina itself applies it with extreme discretion and in a voluntaristic manner.

On the other hand, Belgrade, as is the case with the ASM, largely agreed to cede part of its energy system in KiM to Pristina, but stopped at transmission, distribution, and supply in northern Kosovo, leaving production (and related resources like Lake Gazivoda) outside the Brussels framework. If Belgrade is interested in protecting Serbs in KiM, the matter should be left at that, especially considering its current energy superiority. Some people believe that KiM can be successfully reintegrated through the economy, and that reintegration could start in the field of energy, only if Belgrade desires it.

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Legal framework for Kosovo Serbs tailored to Pristina