Macedonia hopes 6th time lucky for energy tender

By bne IntelliNews February 1, 2011

Risto Karajkov in Skopje -

On January 28, the Macedonian government launched for the sixth time the tender for the construction of two major hydroelectric power plants, Cebren and Galishte. Relaxing some of the conditions is raising hopes that this time the tender will be successfully concluded.

Worth an estimated €540m (of which Cebren would cost €340, Galishte €200), the project is the single largest energy undertaking in the country and could easily exceed the combined value of Macedonia's two largest privatisations; the selling of 51% of the national telecommunications firm in 2001 for then 650m German marks to Magyar Telecom, and the 90% stake in the distribution arm of the power utility Elektrostopanstvo na Makedonija (ESM) for €225m to Austria's EVN in 2006.

The planned capacity of the two hydropower plants, 526 megawatts (MW), equals the country's total current hydropower potential and almost half of the total generation capacity of 1,302 MW. The winner of the tender will build the power plants on the Crna river, in the country's south, in public-private partnership with Elektrani na Makedonija (Elem) and will then operate the plants under a concession arrangement, the tender notice said. Companies have until mid-March to enter the pre-qualification round and the final winner should be known by July. Estimated time for completion of the project is around seven years.

Lowering the bar

The big difference to the previous tenders is the easing of some of the conditions, such as those concerning bidders' financial means. Unlike the previous call that required bidders to have €1bn of turnover in the past two years in order to qualify, this time the requirement has been reduced to €100m, opening the door for smaller players to bid. Bidders also need at least a €300m portfolio of energy projects, with at least one project worth over €100m.

The lowering of the bar reportedly came out of advice by the World Bank's International Financial Corporation (IFC). After already four unsuccessful tenders, two of which failed and two were delayed, in January 2010 the Macedonian government hired the IFC to help it carry out the tender. Despite this, last year's tender also failed after none of the three candidates which entered the pre-qualification round, Germany's RWE, Italia's Enel and Austria's Verbund, submitted a binding bid. These three companies have been the most persistent bidders since 2006 when the first tender was launched. The other nine in that first tender didn't return for the second tender called in December 2008. This time round, one of the reported candidates is the Chinese Development Bank.

Another apparent concession is the possibility for companies to split their bids and go only for the larger plant, Cebren. The media have surmised this from a change in the title of the new tender notice, which doesn't specifically refer to "Cebren and Galishte," but just the to "building of hydropower plants," and to related explanations from the Ministry of Economy.

In addition, the successful bidder would be given control over the existing 116-MW Tikves hydropower plant on the Crna river, which is now run by Elem. Tikves is the Macedonian government's stake in the total project, designed as a public-private partnership. The bidders for the hydropower project will compete over the percentage share they would offer to the government in the partnership, and the time-period they would ask for control over the plants in exchange for their construction. The maximum allowed under national legislation is 70 years. As part of the deal, the government will also put in the land, access roads and related infrastructure and, of course, the right of use to the water. Some of the previous tenders have apparently stumbled over the issue related to water use, ie. if and how it could also be used for irrigation or drinking.

The ironing out of these problems gives hope that the government will succeed with this latest tender. Some observers say the government was unlucky with the timing of the second tender, coming as it did as the global economic crisis was spreading into emerging Europe at the end of 2008; potential investors simply had other issues to deal with. Others aren't so kind, arguing that a succession of governments are simply too incompetent to handle a deal this big.

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