Infrastructure Projects Facility
Technical Assistance Window (IPF TA)
Western Balkans
Feasibility Study and ESIA for Elbasan (AL) ‐ Bitola (MK)
400 kV Transmission Line
Final Workshop in Ohrid, 18 December 2012
#
1
This project is funded by the European Union

Tasks related to Financial / Economic Component
Deliverables produced under Finance / Economic Feasibility
Study Component
•
•
#
2
This project is funded by the European Union

Financial / Economic Assessment Report – Content:
The Report covers three elements related to the Financial and
Economic Analysis - important for the Transmission Projects’ implementation:
1. Assessment of Macro-economic Environment in Macedonia and
Albania
2. Review of the Financial Situation of MEPSO and OST
3. Project-specific Cost / Benefit NPV Analysis
The comprehensive Final Report (including the Model) is now available
This general outline for Financial / Economic assessment may be easily used in future by MEPSO and OST on any other projects pursued by the Companies.
#
3
This project is funded by the European Union

Conclusions from Assessment of Macedonian and
Albanian Economy:
The following main conclusions were arrived at after close examination of the broader Economic Environment:
1. Economic situation worsened in recent years substantially, mainly due to unfolding crises in Eurozone, especially in the major trading partners, such as Greece or Italy. It is also expected that in the short run the situation will not improve significantly.
2. There is a positive tariff setting regulatory framework supporting investment in this Project in both Countries;
3. The potential impact from the Project on Albania’s and Macedonia’s participation in regional electricity exchanges and benefits from it are expected to be very high.
#
4
This project is funded by the European Union

Conclusions from Assessment of MK/AL Economy:
#
5
This project is funded by the European Union

Conclusions from Assessment of MEPSO’s Finance:
The following Main Conclusions Were Arrived at after Close Examination of MEPSO’s Financial Standing:
1. 2011/2009 revenues of the Company increased by approximately 20%;
2. Profitability of the Company remains fairly stable, with net profit increasing by 26.8% in 2011, compared to 2010;
3. Company’s Balance Position increased by approximately 9.7% between 2010 and 2011;
4. Company’s Equity Base significantly improved with an increase of
28.7% during 2011, mainly due to increase in retained profits. This resulted in significant improvement of the Indebtedness Ratio;
5. Company has got a three-year tariff approved by ERC covering the period from 2012 through to 2015. Current tariff already encompasses some initial provisions for this 400 kV Elbasan-Bitola Interconnector Project;
6. Analysis of forecast obligations from repayment of Debt indicates
Company’s satisfactory ability to meet this obligation
#
6
This project is funded by the European Union

Conclusions from Assessment of OST’s Finance:
The following main conclusions were arrived at after closer examination of OST’s Financial Standing:
1. Compared to 2010, revenues of the Company have improved –
revenues enjoyed an increase of 10.8%. Also, the profitability of the
Company remained stable compared to 2010 figures and amounted to as high as 32.3%, which is high for infrastructure company;
2. Company’s equity base significantly improved with a new share issuance and asset revaluation during 2011;
3. Company has got a three-year tariff approved by ERE covering the
period of 2012 through to 2014 (based on initial value of assets) as well as completed asset revaluation exercise, resulting in an increased asset base, which should facilitate positive tariff amendments in future;
4. Problems with receivables from CEZ Shperndarje are a source of concern.
#
7
This project is funded by the European Union

F / E Assessment – Cost/Benefits Areas Looked at:
Financial Benefits to Operators Looked at: Economic Benefits to Economies
Looked at:
Reduced losses (benefit to Operator) Reduced Losses (to economy)
Reduced unsupplied Energy (to Operator)
Increased generation (=increase of transmission charges):
Unsupplied Energy (to economy)
Increased generation
Revenues from provision of balancing/ancillary services for neighbour:
Increased Capacity Margin (to economy) MW:
Increased transits (MWh):
•
Extra cost from the project – increased maintenance and insurance cost
•
Increased CO2 emissions from thermal power plants
#
8
This project is funded by the European Union

F / E Assessment – Other Assumptions:
1. Techno-economic:
Value of unsupplied electricity (=MEPSO’s tariff);
Value of unsupplied electricity (= OST’s tariff);
Average transit revenue:
Value of unsupplied electricity (to MKD Economy):
Value of unsupplied electricity (to ALB Economy):
Value of transmission losses (to MKD Economy):
Value of transmission losses (to ALB Economy):
Value of increased capacity (to Economy):
2. Financial:
4,73
4,71
Discount rate (MKD):
Discount rate (ALB):
0,05
959
EUR / MWh
Loan maturity:
Grace period:
1 280
70
Interest on loan:
60.49
1 000 000 EUR / MW
6.6%
9.4%
12 years
3 years
2,0%
•
Methodology for Project – Specific Assessment:
1) All these assumptions, together with physical values from the System Study
Report are included in the Financial / Economic Model.
2) The Financial / Economic Model calculates potential Costs and Benefits from the Project over a period of 35 years.
#
9
This project is funded by the European Union

Conclusions from Assessment of Project’s NPV - MKD:
No
1
2
3
4
5
7
Main Indicator
Required investment:
NPV (for Transmission Operator):
Simple Payback Period
Benefit cost ratio
IRR
Impact on national Economy
Macedonia
Variant One (single cicuit line)
€43.5 million
Variant Two (double circuit line)
€60.7 million
€6.3 million €1.8 million
15.3 years
2.0
12.5%
€37.9 million
17.5 years
1.7
7.5%
€37.8 million
Variant One (i.e. Single-Circuit 400 kV line proves to be the best Variant out of two available, e.g. due to that it:
•
Maximizes positive Cash Flows to both MEPSO, and to Macedonian
Economy;
•
Indicates a very high IRR – almost twice as high as the Discount
Rate of 6.6%, adopted for the Base Case Analysis;
•
Requires almost 50% less of investment and thus carries less risks associated with investment.
#
10
This project is funded by the European Union

Conclusions from Assessment of Project’s NPV - ALB:
No
1
2
3
4
5
7
Main Indicator
Required investment:
NPV (for transmission operator):
Simple Payback period
Benefit cost ratio
IRR
Impact on national economy
Variant 1A (single cicuit line) – w/o shunt reactor
€21.5 million
€2.7 million
10 years
2.8
13.9%
€43.9 million
Albania
Variant 1B (single cicuit line ) – with shunt reactor
€24.6 million
€1.7 million
11 years
2.6
11.8%
€42.9 million
Variant Two (double circuit line)
€35.9 million
-€2.0 million
14 years
2.0
7.6%
€39.4 million
•
Variant 1A (i.e. Single-Circuit 400kV line) proves to be the best Variant out of two available, e.g. due to:
•
It maximizes positive Cash Flows to both OST, and to Albanian Economy;
•
Indicates a very high IRR – almost 50% higher than the Discount Rate of 9.4%, adopted for Base Case Analysis;
•
Requires more than 50% lower investment and thus carries less risks associated with investment.
•
Variant 1B (i.e. Single-circuit line with a Shunt Reactor) is characterised by a lower NPV (1.7 million) and in general, somewhat less attractive, but still viable financial parameters. After the final System Study Analysis results, OST has re-iterated the need for a Shunt Reactor.
#
11
This project is funded by the European Union

Conclusions from Comprehensive Financial / Economic
Assessment:
The following Summary Conclusions were arrived:
All three elements of Financial / Economic Analysis indicate numerous clear and quantifiable benefits from Project’s implementation to both Operators and economies.
Financial standing of both Operators is sufficient for obtaining a loan.
Variant One, i.e. Single-Circuit 400 kV line from Elbasan to Bitola with construction of a new Substation in Ohrid, proves to be the best available option for the investment.
#
12
This project is funded by the European Union

Detailed Conclusions from Comprehensive Financial /
Economic Assessment:
The best Variant for implementing this Project is characterised by the following parameters
(estimates for a period 35 years, Discount Rate 6.6% p.a. – MMKD and 9.4% - ALB):
Macedonia Albania
Required Investment: €43.5 million €21.5 million
NPV (for MEPSO): +€6.3 million +€2.7 million
Simple Payback Period:
IRR:
15.3 years
12.5%
10 years
13.9%
Impact on Macedonian / Albanian Economy: +€37.9 million +€43.9 million
#
13
This project is funded by the European Union

Tasks related to Financial / Economic Component
Deliverables produced under Finance / Economic Feasibility Study
Component of the WB4bis-REG-ENE01 Project:
•
Economic Assessment
•
Financial and Economic Cost-Benefit Analysis
•
#
14
This project is funded by the European Union

Conclusions from Risk and Sensitivity Assessment
The results of the Analysis indicate that the risks to the
Project from the general economic and political situation in both Countries concerned and also the risks deriving from the financial situation of MEPSO are limited. In case of OST, there is some increased concern owed to situation with CEZ Shperndarje.
#
15
This project is funded by the European Union

Conclusions from Risk and Sensitivity Assessment
Discount rate sensitivity analysis
NPV - to OST
NPV - to MEPSO
10,000,000
5,000,000
0
20,000,000
15,000,000
10,000,000
5,000,000
0
-5,000,000
- 3% - 1% Base case
NPV - to OST
+1 +3 +5
- 3% - 1% Base case
+1
NPV - to MEPSO
+3
4,000,000
2,000,000
0
-2,000,000
- 1%
Interest rate sensitivity analysis
NPV - to OST NPV - to MEPSO
10,000,000
Base case
+1
NPV - to OST
+3 +4 +5
5,000,000
0
-5,000,000
- 1% Base case
+1 +3
NPV - to MEPSO
+4
+5
+5
#
16
This project is funded by the European Union

Conclusions from Risk and Sensitivity Assessment
1. Project shows very high sensitivity to changes in Discount Rate (DR).
The first +1% increase in initially assumed Discount Rates results in changes of the NPV valuation close to 30%. DR above 12.5% would mean a financially unviable project to at least one Operator.
2. High sensitivity to changes in the Interest Rate. A +/-1% change in the
Interest Rate from the Base Case of 2% results in approximately -/+27% change in the Project’s NPV. Nominal Interest Rate above approximately 5-6% would mean the Project getting into loss-
making territories.
3. Some increased sensitivity to changes in Investment Cost. A 10% increase in Investment Cost above the Base Case assumptions would translate into more than twice that figure worth of loss of the NPV.
Investment Cost increases above 35% from the Base Case scenario would mean the Project getting into a negative NPV value.
However, risks of these parameters adversely affecting the Project
are low, due to the rather conservative initial Project assumptions.
#
17
This project is funded by the European Union

#
18
Infrastructure Projects Facility
Technical Assistance Window (IPF TA)
Western Balkans
This project is funded by the European Union