1. 1 Energy Sector Development in Montenegro: reforms, goals and overall strategy Government of Montenegro Ministry of Economy 6 November 2009, Podgorica

2. 2 ENERGY SECTOR IN MONTENEGRO  Energy sector in Montenegro is composed of: Electric Power Company of Montenegro, Holding company - Nikšić (EPCG) Prenos, Holding company, Podgorica Coal Mine, Holding company - Pljevlja Brown Coal Mine, Holding company, “Ivangrad” - Berane “Jugopetrol”, Holding company - Kotor “Montenegro Bonus” - Cetinje  Energy sector recognized as significant driving force of national economy. national economy. Development of energy sector is defined by: Development of energy sector is defined by: Energy Policy of Montenegro and Energy Policy of Montenegro and Energy Development Strategy of Montenegro by 2025 Energy Development Strategy of Montenegro by 2025

3. 3 GOAL AND STRATEGIC COMMITTMENTS  GOAL: Ensure sustainable, secure and competitive energy supply by increasing energy efficiency and increasing the use of renewable sources  STRATEGIC COMMITTMENTS: - common market for electricity and natural gas - common market for electricity and natural gas - efficient energy consumption and generation - efficient energy consumption and generation - use of renewable energy sources - use of renewable energy sources  Montenegro, as ecological state and active participant in the EU integration process, supports the intention of the EU to achieve the objectives set in January 2007 by 2020 :  Reduce greenhouse gases emission by 20%  Increase energy efficiency and reduce energy consumption by 20%  Raise share of renewable energy sources to 20%  Raise share of biofuels to at least 10%

4. 4 MAJOR STRATEGIC COMMITMENTS Reasonable valorization of available potentials through the construction of new facilities and increase of energy efficiency, towards better supply security Reasonable valorization of available potentials through the construction of new facilities and increase of energy efficiency, towards better supply security Achieving a balance between energy development and environmental protection Achieving a balance between energy development and environmental protection Regulatory, legislative and operational integration in the process of approaching the EU in the fields of energy and environment, including integration in SEE and EU energy market Regulatory, legislative and operational integration in the process of approaching the EU in the fields of energy and environment, including integration in SEE and EU energy market Implementation of obligations under theTreaty establishing the Energy Community, as the first legally binding document of Montenegro towards the EU Implementation of obligations under theTreaty establishing the Energy Community, as the first legally binding document of Montenegro towards the EU Continuation of energy reform, while respecting sustainable development and market operation principles Continuation of energy reform, while respecting sustainable development and market operation principles Ensuring social protection in the process of reform changes in energy sector Ensuring social protection in the process of reform changes in energy sector  Support to investors for CDM mechanism projects

5. 5 REFORM OF THE ENERGY SECTOR Historic Record of Key Achievements: Energy Law (adopted in June 2003) Energy Law (adopted in June 2003) Energy Regulatory Agency (established in January 2004) Energy Regulatory Agency (established in January 2004) Energy Policy (adopted in February 2005) Energy Policy (adopted in February 2005) Energy Efficiency Strategy (adopted in October 2005) Energy Efficiency Strategy (adopted in October 2005) Strategy for Small Hydro Power Plants Development in Montenegro (adopted in April 2006) Strategy for Small Hydro Power Plants Development in Montenegro (adopted in April 2006) Energy Community Treaty (ratified in October 2006) Energy Community Treaty (ratified in October 2006) Kyoto Protocol (ratified in March 2007) Kyoto Protocol (ratified in March 2007) Assessment of Renewable Energy Resources (wind, solar, biomass) (adopted in April 2007) Assessment of Renewable Energy Resources (wind, solar, biomass) (adopted in April 2007)  National Energy Development Strategy until 2025 (adopted in December 2007) – KEY DOCUMENT, IDENTIFYING INVESTMENT OPPORTUNITIES IN THE ENERGY SECTOR OF MONTENEGRO Spatial Plan of Montenegro until 2020 Spatial Plan of Montenegro until 2020 (adopted by the Parliament of Montenegro in March 2008) Energy Development Strategy and Spatial Plan of Montenegro are harmonized. Energy Development Strategy and Spatial Plan of Montenegro are harmonized.  Action Plan (2008 – 2012) for implementation of Energy Development Strategy of Montenegro by 2025 (adopted in October 2008)  Development of electricity market (opening of electricity market - 1 January 2009)  Legal unbundling of Electric Power Company of Montenegro - Prenos was spinned off from the EPCG and established as a shareholding company in the end of March this year

6. 6 Investment-related Legislation  Investment-related laws in Montenegro are: Law on Waters (adopted in May 2007 - Official Gazette of the RoM 27/07)Law on Waters (adopted in May 2007 - Official Gazette of the RoM 27/07) Law on Environment (adopted in August 2008 - Official Gazette of Montenegro 48/08)Law on Environment (adopted in August 2008 - Official Gazette of Montenegro 48/08) Law on Physical Planning and Construction (adopted in August 2008 - Official Gazette of Montenegro 51/08)Law on Physical Planning and Construction (adopted in August 2008 - Official Gazette of Montenegro 51/08) Law on Concessions (adopted in January 2009, Official Gazette of Montenegro 08/09)Law on Concessions (adopted in January 2009, Official Gazette of Montenegro 08/09) Law on Exploration and Exploitation of Oil and Gas (Law Proposal was submited to the Government for consideration and adoption)Law on Exploration and Exploitation of Oil and Gas (Law Proposal was submited to the Government for consideration and adoption) Energy Law ( preparation is in the finalization phase; The Draft Energy Law has encompassed the provisions of the formerly prepared Draft Gas Law and Draft Renewable Energy Resources Law)Energy Law ( preparation is in the finalization phase; The Draft Energy Law has encompassed the provisions of the formerly prepared Draft Gas Law and Draft Renewable Energy Resources Law) Law on Energy Efficiency (preparation is in the finalization phase)Law on Energy Efficiency (preparation is in the finalization phase)   Next two laws are being applied from 1 st January 2008: Law on Strategic Environmental Impact Assessment (Official Gazette of the RoM 80/05)Law on Strategic Environmental Impact Assessment (Official Gazette of the RoM 80/05) Law on Environmental Impact Assessment (Official Gazette of the RoM 80/05)Law on Environmental Impact Assessment (Official Gazette of the RoM 80/05)

7. 7 Energy potentials in Montenegro Potential for energy savings (energy efficiency) Potential for energy savings (energy efficiency) Potential for energy savings is very high in Montenegro (20%-30%). Potential for energy savings is very high in Montenegro (20%-30%). Renewable energy potentials (hydro, wind, biomass, solid waste, solar potential) Renewable energy potentials (hydro, wind, biomass, solid waste, solar potential) Hydro potential is one of the most valuable natural resources of Montenegro. Hydro potential is one of the most valuable natural resources of Montenegro.  Coal resources (In addition to hydro potential, coal is the most important energy resource in Montenegro): Pljevlja area - total exploitation reserves amount 184.5 million tons Pljevlja area - total exploitation reserves amount 184.5 million tons Berane area - geological reserves amount around 158 million tons and total presumed exploitation reserves have been estimates at only approx 18.5 million tons. Berane area - geological reserves amount around 158 million tons and total presumed exploitation reserves have been estimates at only approx 18.5 million tons.  Oil and gas potential (submarine zones in Montenegro) Potential oil reserves amount approx 7 billion barrels, while potential natural gas reserves amount 425 billion m 3. Potential oil reserves amount approx 7 billion barrels, while potential natural gas reserves amount 425 billion m 3.

8. 8 Action Plan (2008 – 2012) : Action Plan Core Contents : CC 1: Increase energy efficiency and use of renewable energy sources in consumption consumption CC 2: Increase efficiency of the existing generation and transmission facilities CC 3: Design a plan to mitigate climate change effects CC 4: Creation of the institutional framework and the public involvement in the development of a competitive and market oriented energy sector development of a competitive and market oriented energy sector CC 5: Development and exploitation of renewable energy sources CC 6: Increase cleaner energy production from fossil fuels CC 7: Create the basis for long-term energy industry development in Montenegro CC 8: Creation of mechanism for effective monitoring and follow-up of the Action Plan implementation Plan implementation

9. 9 Programmes and Projects in Action Plan – (I) 1.CC: Increase energy efficiency and use of renewable energy sources in consumption in Montenegro energy sources in consumption in Montenegro 1.1 Energy Efficiency Programme 1.2 Project on energy management (Energy Management System) in the public sector the public sector 1.3 Project on energy saving in the public sector 1.4 Project on promoting and performing energy audits

10. 10 Programmes and Projects in Action Plan – (II) 2. CC: Increase efficiency of the existing generation and transmission facilities 2.1 Programme for developing electric power networks 2.2 Project for revitalisation of small HPPs 2.3 Project for revitalisation of HPP Piva 2.4 Project for revitalisation of HPP Perućica – phase II 2.5 Project for revitalisation of TPP Pljevlja 2.6 Project for recovery and expansion of electric power transmission network transmission network 2.7 Project for recovery and expansion of electric power distribution network distribution network

11. 11 Programmes and Projects in Action Plan – (III) 3. CC: Designing a plan to mitigate climate change effects 3.1 Project for energy inclusion in mitigation of climate change effects in Montenegro 4. CC: Creation of the institutional framework and the public involvement in the development of a competitive and market oriented energy sector 4.1 Programme for the energy sector restructuring - market opening and social policy 4.2 Programme for the energy sector public relations 4.3 Programme on education and training in energy and ecology 4.4 Project for EPCG JSC restructuring and capital increase

12. 12 Programmes and Projects in Action Plan – (IV) 5. CC: Development and exploitation of renewable energy sources 5.1 Programme for development of renewable energy sources (hydro potential excluded) (hydro potential excluded) 5.2 Programme of hydro potential use in Montenegro 5.3 Project of building small HPPs 5.4 Project of using wind energy for electricity generation 5.5 Project of using biomass for heat and electricity cogeneration 5.6 Project of using municipal waste for heat and electricity cogeneration 5.7 Project of building HPP Komarnica 5.8 Project of building HPP on the Morača river

13. 13 Programmes and Projects in Action Plan – (V) 6. CC: Increase cleaner energy production from fossil fuels 6.1 Project of TPP Pljevlja II with heating system for town of Pljevlja 6.2 Project of LNG terminal close to town of Bar 6.3 Project of gas system for town of Podgorica with the distribution gas network

14. 14 Programmes and Projects in Action Plan – (VI) 7. CC: Create the basis for long-term energy industry development in Montenegro 7.1 Programme of oil and gas exploration in Montenegro's mainland 7.2 Programme of international agreement on the use of hydro potential 7.3 Project of oil and gas exploration in Montenegro's seabed – block 1 i 2 7.4 Project of oil and gas exploration in Montenegro's seabed – block 3 7.5 Project of coal exploration in Pljevlja area 7.6 Project of coal exploration in Berane area 7.7 Project of the Ionic-Adriatic gas pipeline 8. CC: Creation of mechanisms for effective monitoring and follow- up of Action Plan implementation 8.1 Programme of Action Plan monitoring and follow-up

15. 15 ACTUAL PROJECTS IN MONTENEGRO (I)  Overall national project “Year of Energy Efficiency” (17 concrete programs)  Project of privatization and capital increase of EPCG (  Project of privatization and capital increase of EPCG (project is realized;Italian company A2A S.p.A owns 43,7073 % of EPCG)  Revitalisation of the existing generation facilities  Project for revitalisation of HPP Piva  Project for revitalisation of HPP Perućica – phase II  Project for revitalisation of TPP Pljevlja   Total generation will be increased by additional 400 GWh per year.  Development of electric power transmission network  Project of construction of 400 kV transmission power line Podgorica – Tirana  Project of undersea connection between the electric power systems of Italy and Montenegro (Cooperation EPCG –TERNA)   Projects for recovery and expansion of electric power distribution network

16. 16 ACTUAL PROJECTS IN MONTENEGRO (II)  Project of building HPP on the Morača river   Four hydro power plants: Andrijevo, Raslovići, Milunovići and Zlatica   Total installed capacity 238 MW and annual generation 693 GWh   Letters for expression of interest in the construction of HPPs on Moraca river have been submitted by some 20 prospective investors.   A prequalification tender is planned as a next stage of the bidding process by the end of this year.  Project of building HPP Komarnica   Installed capacity 168 MW and average annual generation 231,8 GWh  was prepared  Feasibility Study was prepared

17. 17 ACTUAL PROJECTS IN MONTENEGRO (III)  Project of building small HPPs  Public Invitation for Awarding Concession for Exploration of 43 (forty three) Water Streams and Construction of the Small Hydro Power Plants (published in November 2007)  HPPs  Government awarded concessions for 8 water flows for exploration and construction of small HPPs   Contracts were signed on September 26 th, 2008 New Public announcement for prequalification for awarding concessions for exploitation of 10 water flows for construction of small HPPs was published on September 15 th, 2009 Prequalification tender procedure is underway  Project of using wind energy for electricity generation  Detailed measurements on potential locations are  Detailed measurements on potential locations are underway   Preparation of legislation and tender documentation is underway   Invitation for Expressions of Interest to Investors for Construction of Wind Energy Power Plants was published on September 30 th, 2009  Project of using biomass for heat and electricity cogeneration   Feasibility studies for biomass exploitation in Berane and Nikšić were prepared

18. 18 ACTUAL PROJECTS IN MONTENEGRO (IV)  Project of coal exploration in Pljevlja area  Prequalification Maoče b were prepared  Prequalification documentation and Public announcement for prequalification for awarding concessions for exploitation of coal in the Maoče basin were prepared was Construction of a thermal power plant with installed capacity 500 MW was envisaged  Project of coal exploration in Berane area  underway  Geological exploration of reserves, review of available documentation, analyses are underway  Project of oil and gas exploration in Montenegro's seabed – Block 3  Tender for Block 3 is underway  Elaboration of Contract Model and Tender for Block 3 is underway  Project of the Ionic-Adriatic gas pipeline   Preliminary preparation of feasibility study and conceptual project and selection of potential routes are underway

19. 19 CORE NEXT STEPS IN MONTENEGRO Measure for increasing security of energy supply Measure for increasing security of energy supply Investment activities and realization of priority energy projects Investment activities and realization of priority energy projects  Continuation of the energy sector reform  Improvement of regional cooperation Integration in SEE and EU energy market Integration in SEE and EU energy market Generally, implementation of national Generally, implementation of national Energy Policy, Strategy and Action Plan Energy Policy, Strategy and Action Plan

20. 20 THANK YOU FOR YOUR ATTENTION!