KOSOVO: KEK READY TO SUPPLY POWER TO NORTH, WAITING FOR

UNCLAS SECTION 01 OF 03 PRISTINA 000471 SENSITIVE SIPDIS DEPT FOR EUR/SCE, EUR/PGI, INL, DRL, PRM, USAID E.O. 12958: N/A TAGS: ECON ENRG PGOV KV SR SUBJECT: KOSOVO: KEK READY TO SUPPLY POWER TO NORTH, WAITING FOR SERBIAN COOPERATION REF: PRISTINA 465 PRISTINA 00000471 001.2 OF 003 SENSITIVE BUT UNCLASSIFIED - PLEASE PROTECT ACCORDINGLY ¶1. (SBU) SUMMARY: Following a nine-day outage due to weather and line maintenance (Reftel),the Kosovo Energy Corporation (KEK) is prepared to reestablish electrical power supply to northern Kosovo without insisting on collecting for energy use at this time. In an attempt to meet the power needs of Kosovo north of the Ibar during the disruption, the Serbian electric utility EPS has provided power from Novi Pazar, Serbia. However, the amount and quality of electricity transferred over the Novi Pazar line has fallen short of demand. Though KEK has notified the Serbian transmission utility EMS that it is ready to resume supplying power to the north, EMS and EPS have refused to allow KEK to do so. Since the outages began, Belgrade officials have publicly acknowledged that all customers receiving electricity must pay for the service, and have announced plans for EPS to register and meter customers in northern Kosovo by November 1. Representatives from the Serbian Ministry for Kosovo have indicated to us that registering and metering are steps toward an Energy Service Company (ESCO) Memorandum of Understanding (MOU) with KEK to allow an EPS subsidiary to provide services as a KEK sub-contractor north of the Ibar. That said, the slow pace of negotiations and lack of a positive response to KEK's request to reconnect could be an attempt to play for time, and a sign that hardliners who would like to use this episode to separate the northern part of Kosovo from the rest of Kosovo's energy network have the upper hand. If Belgrade remains intransigent, KEK will need to consider options for securing control of the Valac sub-station. END SUMMARY SERBIAN UTILITY SEEKS TO FILL POWER GAP IRRESPONSIBLY -------------- -------------- ¶2. (SBU) Rolling blackouts continued in northern Kosovo over the last week, as KEK worked to complete maintenance on two of three 110kV lines that normally carry power to the north. KEK cut power to northern Kosovo on October 19 after unseasonably cold weather caused a dangerous spike in demand beyond the capacity of the single functioning line and after employees at the Valac sub-station, also in northern Kosovo, refused to implement necessary safety precautions. Instead, Valac employees, who are also employed by the Serbian electric utility EPS, took unilateral steps to supply power to northern Kosovo through a 110kV line from Novi Pazar, Serbia. In order to allow power to enter Kosovo on this line, EPS employees manipulated the sub-station at Valac without consulting KEK. The line has supplied 25-30MW of power per day on average to the north, but it has not been enough to meet demand, and the quality has been poor (low voltage). KEK MAINTENANCE COMPLETE; READY TO RESTORE POWER -------------- --- ¶3. (SBU) As a goodwill gesture, KEK has supplied additional 30MW of power to the north during peak demand hours from the Ujmani hydropower station in the northern municipality of Zvecan. In the meantime, the weather has warmed (in fact, it is now unseasonably warm),and KEK has completed maintenance on the two 110kV lines that were down on October 17-18 when the demand for power in the north spiked. On the morning of October 26, two of the three 110kV lines running from the south to the Valac sub-station were available, but an unplanned outage due to a boiler leak in one of Kosovo A's generating units sidelined one of these lines. KEK expects to complete repair of the generating unit by October 29. However, actual restoration of power to the north will require active cooperation from EPS employees at the Valac sub-station, who must disconnect the Novi Pazar line, allowing electricity to flow from the south to Valac and the rest of northern Kosovo. VALAC'S SERBIAN EMPLOYEES REFUSE KEK'S OFFER -------------- ¶4. (SBU) On October 27, KEK notified EPS operators at Valac in writing that the company had completed maintenance and was ready to resume delivery of power north of the Ibar. A written response was requested in order to coordinate disconnection of the Novi Pazar line and reconnection of power from the south. EPS employees at PRISTINA 00000471 002.2 OF 003 Valac have not provided an official response, but they told Kosovo's distribution utility, KOSTT, by phone on October 27 that they could not take any action until they received instructions from "their superiors." The Managing Director of KOSTT told us on the same day that Serbia's transmission utility, EMS, informed him by phone that there was no objection to activating the available 110kV lines from the south, but that EMS did not intend to disconnect the Novi Pazar line. KEK officials explained to us that it is technically impossible to reconnect their 110kV lines to Valac, if Valac continues to draw power from the Novi Pazar line because the power from the different lines is not in phase, something our KEK contacts believe EMS officials fully understand. COMMON GROUND UNCOVERED -------------- ¶5. (SBU) KEK's October 20 power outage was not related to its plans to regularize non-paying electricity customers in the north. Nonetheless, KEK has continued discussions -- begun in May -- with officials from EPS, the Serbian Ministry of Energy, and the Serbian Ministry for Kosovo about creating a Kosovo-registered, but Serbian-operated, energy services company (ESCO) to provide metering, billing, collections and operational services north of the Ibar. Over the course of the last week, Serbian government officials have publicly announced that paying for electricity was not optional, and that steps would be taken to register and meter customers north of the Ibar who received power from the Novi Pazar line by November 1. In other words, Serbian pronouncements about paying for power have implicitly endorsed KEK's position that bill payment in the north is a commercial, not a political, issue. SOME SERBS URGE CONTINUED POWER CUT-OFF -------------- ¶6. (SBU) On October 25, KEK officials met with the Serbian Deputy Assistant Minister for Kosovo Dragan Petkovic to review its plans to reconnect power to the north. Petkovic shared what he said was Minster Bogdanovic's view that power not/not be reconnected from the south, unless or until the weather turned cold. According to Petkovic, any serious attempt at bill collection in the north could only be attempted after customers had seen that Serbia was unable to supply power north of the Ibar, as was demonstrated over the last week. The request not to reconnect the north was reiterated by Petkovic to KEK on October 27, who pointed out that it would be "...very risky to put the power back without an (ESCO) agreement being finalized." Petkovic claimed that he did not foresee any serious problem in Belgrade with moving forward with the ESCO agreement. Petkovic told us separately on October 26 that he and Minister Bogdanovic viewed customer registration and bill collection in the north by November 1 as a step toward an ESCO agreement with KEK. HARDLINE VISIONS OF ELECTRICAL INDEPENDENCE -------------- ¶7. (SBU) While Petkovic sees the unexpected KEK power cut-off as a serendipitous route to resolving the long-festering bill collection issue in the north, hardliners appear to have a different agenda. They have moved quickly to politicize the cut-off. Though it is well-known that the power cuts were the result of weather and technical problems, Oliver Ivanovic, State Secretary of Serbia's Ministry of Kosovo claimed on October 26 that the blackouts were politically motivated and should not have happened. Ivanovic also warned that conflict could erupt in northern Kosovo if the politicization of electricity continues. This followed statements of Radenko Nedeljkovic, chief of Serbia's parallel administration for the North Kosovo district, who stated that the Serbs in northern Kosovo would use any means to prevent KEK from assuming control of the Valac sub-station and were considering countermeasures for what he considered a disconnection of power for political reasons. These comments, and the refusal of EPS employees to allow KEK to reconnect power, have prompted speculation that hardliners see the power cuts as an opportunity to connect north solely to Serbia's electric grid, whatever its shortcomings. COMMENT -------------- PRISTINA 00000471 003.2 OF 003 ¶8. (SBU) While conducting scheduled maintenance, KEK has made every effort to supply northern Kosovo with power while protecting the integrity of the overall system. The confluence of unplanned events has allowed serious discussion with EPS and Serbian government officials about an ESCO MOU to resume, which is welcome. However, events have also highlighted that not all elements of the Serbian government desire a practical solution with KEK, as evidenced by comments of Serbian hardliners encouraging direct connection of Kosovo's three northern municipalities with the Serbian electrical grid. Now that the technical line faults have been repaired and official notification given to EPS and EMS that KEK is ready to provide power to northern Kosovo again, it is up to KEK's Serbian counterparts and Belgrade officials to reciprocate KEK's good faith efforts to restore the status quo. In the event that EMS and EPS refuse KEK's requests, KEK will have to consider appropriate action to secure control of the Valac sub-station, the common entry point to the north for both the Novi Pazar and the KEK lines, in order to restore and regularize service to customers in the north. DELL