REPUBLIC OF MACEDONIA STATUS REPORT ON MEETING THE COMMITMENTS OF THE ATHENS MOU SEEERF IV PERMANENT HIGH LEVEL GROUP MEETING Athens, Greece September 9, 2003

Institutions for energy policy, regulation and system operation National Energy Authority  Operates as a department within the Ministry of Economy; Reforms:  State Energy Agency in course of establishment (January 2004) - responsible for professional technical support on data management, strategy analysis, policy and project assessment and implementation coordination  Formal determination of the State Energy Authority within the new Energy Law and Amendments on the Law on State Administration

Energy Regulatory Commission  Established in June 2003 (Energy Law)  5 Commissioners nominated by the Parliament Assembly in July 2003 Engagements:  Establishment of tariff systems and prices  Authorization procedures (licenses for generation, distribution, supply and eventually other services within the energy industry)  Development / verification of Grid Codes and Market Codes  Dispute settlement and customer protection Institutions for energy policy, regulation and system operation

Energy Regulatory Commission Developments:  Logistics consolidation and staffing;  An EAR technical support project is under way aimed for providing technology transfer, training and drafting of basic acts, rules and templates.  Independent financing (2004, 2005). Institutions for energy policy, regulation and system operation

TSO/MO/DSO  Initial market structure (model) foresees a separated (independent) state-owned Transmission Service Provider (TSO/MO).  Initially DSO stays (regulated) within an integrated distribution and supply function. Next step is separation of independent DSO(s). Terms:  The market infrastructure shall be extracted from the existing integrated utility (ESM) among the first step within the ongoing process of ESM transformation. TSO/MO should be operative in the first half of Institutions for energy policy, regulation and system operation

National & Regional market Unbundling of Account, Independent Audit and Corruption Abatement  Depending on the ESM Restructuring Model and implementation plan the appropriate financial unbundling should be implemented in the first half of  Audits reform to be introduced regarding International Accounting Standard methodology implementation – according to the Plan.  Independent Corruption Abatement Commission operates within the state administration. Additional measures and criteria will stem from the judicial system reforms.

National & Regional market Unbundled Transmission Tariffs  ESM accounting unbundling model (Generation, Distribution, Transmission). Transmission provider to be financed independently. Tariff Reform  Tariff methodology study is under way (until November 2003). The tariff model basically proposes a rate-of-return approach along with a long-term marginal cost revenue allocation. This should enable the Regulator to implement unbundled tariff system for each function.  Terms – planned for the first half of 2004.

National & Regional market Action plan  Task Force set up within Ministry of economy to develop an Action Plan for establishment of internal liberalized electricity market – benchmarking reports.  Main sources for terms and criteria: Athens MoU, EU Electricity Directive, current Studies on the internal market model, tariff methodology and affordability, and ESM restructuring  First priorities – Regulatory Commission, Independent TSO, Legislation and Regulations to be redefined or developed, Tariff System. Next/other steps to be analyzed and planned for one year periods.  First draft – implementation – main concerns and risks.

National & Regional market Thank you for your attention