Category: Kosovo

The latest legislative amendments on private international law and property ownership are promising for foreign investors, while Kosovo’s renewable energy investments are on the rise, according to Vokshi & Lata Senior Partner Adem Vokshi.

“Kosovo’s legislative landscape has been changing recently,” Vokshi begins. “In September, legislation related to private international law was introduced in Kosovo for the first time.” According to him, until now, “former Yugoslavian regulations were applied to this area, but the recent law incorporates EU principles and eases the process of accepting and executing foreign decisions.”

Vokshi believes that the new law will have a positive impact on businesses. “There are regulations defining competent courts in case of disputes and, if another country’s judicial body will be competent, such decisions will be enforceable in our country,” he notes. “This will have a great impact on businesses, especially foreign companies doing business with Kosovo.”

“Another great development in Kosovo is the recognition of the property rights of foreign citizens,” Vokshi adds. “Previously, foreign citizens had trouble owning land and business premises. The new law introduces the principle of reciprocity and, depending on the other country’s regulations, the citizens of those countries can now own and invest in real estate.”

Additionally, Vokshi highlights that a new commercial court started working and issuing decisions. “The first decision was published around September,” he says, adding that “there is still a lot of work to do but, hopefully, it will change how commercial disputes are decided and make the process faster.”

“In terms of other developments, it is interesting to see how politics influences doing business,” Vokshi adds. “The Russian invasion of Ukraine, similarly to many European countries, affected Kosovo’s energy market and client work in general,” he notes. “There are more new projects in renewable energy, including not only private investments but investments supported by the state. Soon we are expecting an auction for a 100-megawatt solar project.”

Overall, Vokshi says, because of the political situation between Kosovo and Serbia, there is a perception of fear to invest in Kosovo. “Looking at it from the ground, we have a different insight – despite the political situation, the market is not as fragile as presented by the media, and the political instability is not affecting citizens as much,” he notes. “They want progressive politics and western standards of living. Similarly, foreign investors are not and shouldn’t be afraid to invest in our jurisdictions.”

Arbitration is growing in popularity in Kosovo and notable legislative updates are now in place, including the one establishing the Commercial Court, according to Boga & Associates Partner Sokol Elmazaj.

“Going through the events this year, there have been some notable legislative changes,” Elmazaj begins.  “In June, a new Law on Protection of Competition was adopted ensuring approximation of the latest EU directives, and improving the clarity of the conditions triggering companies’ obligation to file for merger control clearance with Kosovo’s competition authority. There is new legislation adopted on the protection of trade secrets, patents, and industrial design.”

According to Elmazaj, there are some pending pieces of legislation as well. “We have an older initiative to adopt Kosovo’s Civil Code. While we do have a separate law on obligation relationships (i.e., torts and contracts), real rights and security interest, etc., we still don’t have a civil code. It has been pending in the parliament for a while now and we don’t expect any big changes soon,” he says. 

Still, Elmazaj notes that one of the most interesting fields in Kosovo is arbitration. “We’ve had the arbitration body in Kosovo for over ten years, but now there is an increased number of arbitration cases brought by local businesses,” he says. “It is a good development – we are finally seeing the fruits of a long marketing campaign made by the American Chamber of Commerce and funded by USAID in Kosovo, including training of judges and lawyers. Both the American CoC of Kosovo and the Kosovo CoC have done a good job of introducing arbitration as an alternative dispute resolution tool. As a result, companies have massively started including arbitration clauses in their contracts.” 

According to Elmazaj, earlier this year, the parliament passed a new law establishing the Commercial Court in Kosovo, “Hopefully, it can also help address disputes of a commercial nature promptly,” he says. “It’s still too early to reach conclusions, but we see that the cases are picking up.”

“We have some progress on wind farms,” he says, noting that “energy remains critical in Kosovo, as local energy generation is still suffering. The biggest generator is the state-owned Korporata Energjitike e Kosoves SH.A. There are few small private generators, and the rest of the energy is imported. The imports can fluctuate, as the generation facilities are old and hard to maintain. The government provided some subsidies last year and we hope it will happen this year as well.” According to him, one of the pressing issues looking for a political solution is the energy problem in the four northern communes of Kosovo. “This remains part of a broader issue to be resolved with Serbia. In these last weeks, we saw some developments and, hopefully, both parties will be able to find common grounds, calm the situation down, and work out solutions to make this region safer for businesses.”

“Unfortunately,” he adds, “we haven’t seen an increase in the FDIs in Kosovo. Foreign investors with big names, such as Zara in the fashion industry, decided to include Kosovo in their maps, but still, these are rare cases.” However, he points to “the good sign that the EBRD and IFC are financing projects in Kosovo, especially for small and medium-sized businesses. The trust of these organizations in our local economy is an important aspect here, proving that Kosovo is slowly moving forward.”

Kosovo’s legal order is based on the principle of separation of powers, whereby the judiciary is governed by the Kosovo Judicial Council. Kosovo’s legal system is based on the continental law tradition, whereby court decisions are generally not considered precedents, although lower courts tend to follow the opinions and rulings of higher courts.

Kosovo’s court system is comprised of the Basic Courts, the Courts of Appeal, and the Supreme Court. The function and systematization of the courts is regulated by Law No. 06/L-054 on Courts, enacted on December 18, 2018.

A Basic Court is comprised of five departments, namely: the Department for Commercial Matters, the Department for Administrative Issues, the Department for Serious Crimes, the General Department, and the Department for Minors.

The Commercial Department deals with cases concerning commercial disputes between domestic and foreign businesses. Moreover, it also deals with matters related to bankruptcy and liquidation of legal entities, disputes regarding the infringement of competition, intellectual property, and other matters provided by law.

The Administrative Department adjudicates administrative conflicts, the Serious Crimes Department treats cases related to various criminal offenses (such as aggravated murder, kidnapping, etc.), the General Department mainly deals with minor offenses and various civil cases in the first instance, which have not been specifically assigned to other departments. Minor offenses such as sanitary standards, as well as violations of traffic safety laws and public order rules also fall under the competence of the Basic Courts’ General Department.

The Courts of Appeal are second instance courts, which deal with complaints lodged against the decisions of the first instance courts. The Supreme Court consists of two departments, namely: a) The Appeals Panel of the Kosovo Property Agency and b) the Special Chamber of the Supreme Court.

Civil proceedings in Kosovo are governed by the Law on Contested Procedure, enacted on June 30, 2008. The litigation process begins with the filing of a statement of claim by the claimant. Prior to the commencement of the main hearing, the courts are required to hold a preparatory hearing, to be scheduled at the latest 30 days after the receipt of the statement of defense from the respondent.

Court expenses in Kosovo are rather low, which results in a very high number of litigation cases. However, the inefficiency of courts in the country appears to be very high. Specifically, the Strategy on the Rule of Law 2021-2026, published by the Kosovo Ministry of Justice, identifies four main problems in the functioning of the judiciary, namely: 1) delays in the judicial and prosecutorial system; 2) the need for increased professionalism and competency; 3) insufficient accountability; and 4) vulnerability to external stakeholders.

The length of proceedings remains one of the most critical and complex issues faced by the judiciary. It directly impacts the right to a trial within a reasonable time, as defined by the Constitution and the ECHR. In terms of the current backlog, civil and administrative cases are particularly problematic, with several factors believed to be the main cause. First, it is argued that there is an improper allocation of human resources in relation to the workload in the courts. Second, there seem to be some shortcomings in terms of internal procedures, which leads to the very common practice of cases being returned for retrial by the higher courts. Moreover, despite the existing legal framework for arbitration and mediation, parties are hesitant on submitting their disputes to any of such alternatives.   

Taking into consideration the current situation, the establishment of a Commercial Court is deemed an essential change toward increasing the efficiency of the judiciary. The constitution of this court, being the main request from businesses and foreign investors, is expected to unblock unresolved cases of this nature and eliminate the conflict of competencies over commercial and administrative disputes – since all administrative conflicts initiated by business organizations will fall under the jurisdiction of the Commercial Court – leaving all administrative disputes initiated by individuals under the jurisdiction of the department for Administrative Matters. Thus, through Law No. 08/L-015 on the Commercial Court, the court will have the necessary resources, specialized judges, and case management procedures, thus leading to a faster and more professional case resolution.

As the Basic Court of Pristina carries the main burden of cases in all spheres, the Commercial Court is intended to decrease the backlog of cases in this court, as well as use a different approach in its transparency policies and specialized training.

By Ahmet Hasolli, Managing Partner, and Vjollca Hiseni, Associate, Kalo & Associates

This Article was originally published in Issue 9.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Last year, more precisely in December, Kosovo endured a deepening crisis considered one of the worst in the last decade.

Multiple businesses and households struggled to keep their daily activities on course, since the Kosovo Energy Distribution System announced that it will introduce two-hour-long power cuts. However, in practice, these cuts lasted longer, sometimes for more than 14 hours straight in several neighborhoods.

It was also announced by the Kosovo Energy Corporation that, on December 14, the B2 unit of Kosovo B went out of operation. The power plant is responsible for producing half of the electricity consumed in the country annually. This situation sparked protest in the capital of the country, Prishtina, and several calls for the resignation of the Minister of Economy were made.

Background

Electricity generation in the country is entirely dependent on two aging lignite plants – Kosova A and Kosova B. Producing for more than 50 years, these two coal plants do not possess the capacity to adapt, support, or handle the demands of current developments in the country. In order to meet such demands, the Government of Kosovo is rehabilitating the Kosovo B power plant, which is more than 30 years old, to bring it in compliance with European Union Directives and to build a new, more efficient, lignite-fired power plant to replace the 45-year-old highly polluting Kosovo A power plant.

Kosovo has very large lignite resources, totaling 12.5 billion tons, which are claimed to be the second largest in Europe and the fifth largest in the world. Kosovo A and Kosovo B are supplied with lignite from the adjacent Sibovc Southwest and Sitnica mines. With lignite being the main source of producing energy, Kosovo has no oil or gas extraction and no gas import infrastructure, although it is interested in building a pipeline to connect to the Trans-Adriatic Pipeline.

Hence, Kosovo is highly dependent on coal for its energy demands – around 97%. The rest comes from wind farms and hydro-power plants. This has also allowed Kosovars to pay for much cheaper energy than almost all countries of the European Union and the Western Balkans.

Energy Sustainability in Kosovo

It is widely acknowledged that the energy crisis the country is facing now is due to the lack of a clear vision for the future of energy. The fact that Kosovo depends mostly on the import of energy makes it hard for the country to establish sustainability in this area.

In the long run, Kosovo has several targets. Among them, it had a renewable energy target of a 25% share in the final gross consumption of energy by 2020, according to the Energy Community Treaty. In 2017, it achieved a 22.9% share of renewable energy, putting it on track to meet its target. However, this was mostly achieved by the household use of wood biomass, not by investing in renewable energy.

Depending for a long time on the Kosova A and Kosova B, in 2005, the government proposed the construction of a new power plant – Kosova C – later referred to as Kosova e Re. In 2017, the government signed a EUR 1.3 billion contract with American company Contour Global for the construction of this power plant, which would be put into operation in 2023. However, in 2018, the World Bank decided to withhold its support for the project, as it was based on coal and, in March 2020, Contour Global withdrew from the project citing the political crisis in the country as a reason.

For the time being, two other major projects are announced in the energy sector – mainly in solar energy. The German ambassador announced that his country is expected to invest EUR 60 million in solar energy in Kosovo. Details of the investment were not yet provided. Further, during his stay in the US, Prime Minister Albin Kurti announced that the Millennium Challenge Corporation anticipates investing around USD 200 million in the energy sector in Kosovo.

Considering the slow steps with which investments are being carried out in the energy sector, it is unlikely that the energy infrastructure will be improved over the next couple of years. As a result, the government will need to develop alternative solutions, as another winter comes around, in order to avert a new crisis.

By Ahmet Hasolli, Managing Partner, and Vjollca Hiseni, Associate, Kalo & Associates

This Article was originally published in Issue 9.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The long-awaited Commercial Court finally being functional and the anticipated reforms on minimum wages and the verification and confiscation of unjustified assets are the key talking points in Kosovo, according to Deloitte Kosova Legal Manager Ardian Rexha.

“The major development in Kosovo is related to the establishment of a specialized Commercial Court,” Rexha begins. “The law came into force in February 2022 and, after a rather long process of nominating judges and adopting a relevant framework, we finally have a functional Commercial Court.” According to him, just recently – on August 1 – the court received its first submission. “This is great news for the private sector and will likely improve the investment climate, as its main purpose is to resolve complex commercial disputes, as well as administrative cases involving private players in a more efficient manner,” Rexha points out. “In the past, it took years to settle commercial disputes. We hope that the new court will be an essential step forward in changing that.”

However, Rexha says there is still a lot of work to be done, “since so far only seven judges have been appointed to the court’s chamber of first instance. That chamber, on the other hand, has already received close to 7,000 case referrals, meaning that each judge has to adjudicate almost 1,000 cases at the moment.” He says this has already created a backlog – judges have to make decisions within very tight timelines introduced by the law, especially with regard to interim injunctions. “Consequently, the Judicial Council has announced further openings for judges and support staff, to expedite the process,” he notes.

“Another important update is a draft law on minimum wages,” Rexha points out. “We expect that a new law introducing a non-taxable minimum wage of EUR 250 will be adopted soon by the Assembly, which will be a significant improvement compared to the previous amount,” he adds, noting that the proposal was followed by protests from war veterans, demanding for their benefits to be included in this update. “Around 100,000 employees are expected to benefit from the new minimum wage,” he points out.

“In Kosovo, there is also a draft law on the verification and confiscation of unjustified assets,” Rexha says, adding that the law will establish a new institution – a bureau to verify and request the confiscation of illegally obtained assets. “Corruption is an issue of serious concern, therefore, in general, the proposal has been welcomed by the public,” he says, “yet, despite its justified purpose, there are concerns about the law shifting the burden of proof to owners, its retroactive effect, the independence of the Bureau, as well as rule of law standards and respect for human rights.”

From the business perspective, Rexha highlights that micro-finance institutions’ transformation has been one of the main topics in the financial industry. “Deloitte and the International Finance Corporation are advising the government in drafting sound legislation to transform NGO micro-finance institutions into for-profit corporations,” he notes. “Additionally, the IT sector is doing well despite the global challenges – many companies from the EU and the US are opening branches in Kosovo and providing outsourcing services for other countries.” Still, Rexha says that, “similarly to many other countries, the high inflation rate and the emigration of highly-skilled professionals are big concerns for Kosovo, reaching unprecedented levels of late.”

Another milestone towards the approximation of the legislation with the EU Acquis has been completed by Kosovo. The new Law No. 08/L-056 “On the Protection of Competition”, entered into force on 22 June 2022. The Kosovan legislators in the drafting of the new law benefited from the technical assistance of EU funded project “EU support for the Kosovo Competition Authority and State Aid Commission.

The approval of this new piece of legislation aims among others to fulfill key commitments of Kosovo under three treaties ratified by Kosovo, such as (i) EU – Kosovo Stabilization and Association Agreement, the Energy Community Treaty (Athens Treaty), and Central and Eastern European Free Trade Agreement (CEFTA).  The Law on Protection of Competition has introduced significant changes that align Kosovan competition legislation with EU competition legislation and standards.

The new Law has territorial and extraterritorial effect regarding the prevention, restriction, and distortion of competition from enterprises within territory and outside territory of Kosovo, if their acts affect the Kosovo market.

Comparing to the repealed legislation, the provisions of the new Law improved definitions for concepts of prohibited agreements and exemptions from such agreements allowed by the Kosovan Competition Authority, group exemptions and agreements with minor importance (de minimis agreements). In this regard one of the novelties introduced are group exemptions agreements that will automatically benefit exemptions from prohibited agreements, in several industries, regardless whether the enterprises operate in horizonal or vertical level, such as: (i) research, development and specialization agreements; (ii) agreements for transfer of technology; (iii) agreements for the distribution and servicing of vehicles; (iv) insurance agreements; and (v) agreements between enterprises in the transport sector.

The Kosovo Competition Authority is obliged to adopt secondary legislation for determination of categories and detailed conditions of agreements that will benefit exemptions from prohibited agreements.

Another change related to the presumption of the dominant position in the market. The threshold of market share has been increased from 25%  to 40% of market share for individual enterprise, whereas the threshold of independent economic enterprises has been increased from 40% to 60% of joint market share.

The new Law introduced changes in the thresholds of turnover of undertakings that triggers requirement for obtaining clearance from the Kosovo Competition Authority. Clearance must be obtained when participants in the concentration have a total turnover of 20 million Euros in the international market and one concentration participant has a turnover of 1 million Euros in the domestic market. This new definitions ensures clarity for the market players compared to the previous law that lacked definition of the threshold of the participant in the local market and based the obligation for clearance on the international market turnover above 20 million Euros and just the presence in the Kosovan market, even if the presence was insignificant.

Further to this another important novelty is introduced with Article 18 of the new Law on Protection of Competition. The concertation will be considered as permitted in case the Authority based on the documents and data submitted by the applicant or on the knowledge it possesses, considers that the intended concentration does not lead to creation or strengthening to dominant position, or such authority has not issued the conclusions for initiation the procedure for assessment of the concentration within thirty (30) days after receiving the full application for permitting the concentration. Based on these criteria the participant may request the Authority to certify the concentration and the authority is obliged to reply within 7 days from the request.  This new mandatory terms shortens the procedure for obtaining the certification, compared to the repealed law that obliged the participants to wait for the decision of the Authority, even in cases when the assessment procedure was clearly not necessary.

Changes are effected also to the enforceability of the decisions of the Kosovo Competition Authorities and to right to raise civil claims.

According to the repealed legislation, the enforceability of decisions of Kosovo Competition Authorities has been subject of suspension until the court renders final decision, in case that legality of such decisions has been challenged before the court. This has now been changed, and the decisions of the Kosovan Competition Authority are enforceable regardless of if they are challenged before the court, unless the court suspends the enforceability of such decisions through interim reliefs. 

Lastly, the new Law on Protection of Competition provides expressly the entitlement for claiming civil damages by parties impacted by established infringements of the Law. The repealed legislation was silent in this regard.

The added clarity provided by the new Law will facilitate the participants in the transactions affecting the Kosovan market and the authority itself in the clearance procedures. The fast approval of the missing secondary legislation is another important step to be completed that will make an additional positive impact in the protection of the competition in the Kosovo market.

By Ardian Rexha, Legal Manager at Deloitte Kosova, and Vegim Kraja, Senior Legal Associate, Deloitte Legal

The recent legislative amendments regulating commercial courts, e-signatures, intellectual property, and oil products trading are the major updates in Kosovo, according to RPHS Law Managing Partner Kushtrim Palushi.

“One major change in Kosovo is related to the establishment of the Commercial Court,” Palushi begins. “It did not exist before. The new law entered into force in February 2022, so it is not yet fully operational. The law establishes a separate court that will deal with commercial disputes in a faster, more efficient manner.” According to him, the new court is aimed at ensuring the attractiveness of the business environment in Kosovo. “The legal and business community are looking forward to it, to see whether there will be a substantial change in the existing dispute resolution procedure,” he says. “In the past, the court proceedings frequently lasted for a couple of years, and clients had to wait until the disputed matter was resolved.” Palushi points out that the court has chosen its president and will soon be accepting cases, thus achieving full functionality.

“In addition, in Kosovo, we have new laws on e-signatures, which also entered into force in February 2022,” he says. “This new law enables individuals and the business sector to use e-signatures during transactions. It is not strictly a novelty, since previous legislation also allowed the use of e-signatures, but that regulation remained largely on paper and was not frequently used in practice.” Palushi points out that the new law will bring closer compliance with EU regulations. “To a large extent, we transposed the EU regulation in our national one,” he says. “There will be three types of e-signatures, some of them not requiring any certification, while others have more advanced requirements.”

Palushi also reports there has been a significant amendment to intellectual property-related legislation. “The new law will regulate intellectual property, patents, industrial design, trademarks, etc. We have yet to see how the new law will be translated into practice,” he cautions.

“Finally, a new law has been adopted in Kosovo on the trade of oil products, diesel, and petroleum,” Palushi points out. “Previously, the oil industry was operating based on a law that was drafted back in 2000. There had been no legal changes ever since,” he says. “The recent amendments have changed the preconditions for the trade of these products. There are promises that it will impact the industry and improve the overall control, quality, and consumer rights in relation to the petroleum industry,” Palushi concludes.

Recent legislative proposals aimed at combatting corruption and reforming the judicial system, including the establishment of a commercial court are the factors, that could lead to more favorable conditions for foreign investments in Kosovo, according to RZZ Law Partner Engjell Rexhepi.

“Since last year’s parliamentary elections, Kosovo has had a new parliamentary majority, that received more than 50% of the seats, enabling them to pass almost any law,” Rexhepi begins. “The ruling party has been in opposition for a long time, and since their election, they started implementing the initiatives they had proposed prior to the elections.”

One of the biggest challenges, according to Rexhepi, is combating corruption. “The government is now pushing forward a law on the confiscation of unjustifiable property. There are ongoing discussions about the establishment of a public office that will decide on such cases and enforce the confiscation.” Rexhepi adds that the new body will not be a part of the judicial system.

“Another potential reform is the establishment of an administrative inspection office, which would have the power to inspect public officials and bodies,” Rexhepi says. “However, this proposal has led to a controversy, as different public officials don’t share the same enthusiasm for its implementation.” According to him, those who oppose this reform, highlight the potential risks of the broad powers of the proposed administrative inspection office.

“We also have a proposal regarding judicial vetting,” Rexhepi continues. “This has not been warmly welcomed by the judicial system in Kosovo, as these initiatives are perceived as a governmental intrusion in the judicial independence, and therefore are deemed unconstitutional,” he points out.

“One other noteworthy development in Kosovo is the plan to establish of a commercial court, dealing exclusively with commercial matters,” he reports. “In the past few years, we have seen a backlog in commercial dispute litigation. Litigation on these issues frequently lasts at least two or three years, before a final court decision is issued. According to the proposal, the new court will be entirely specialized in commercial matters and will have around twenty judges allocated in two chambers.” The hope is that it will create more favorable conditions for foreign investments.

“If executed as they were promised,” Rexhepi concludes, “These reforms will definitely lead to less corruption and provide a very efficient business environment. We are hopeful, and we also have international support to be able to make Kosovo one of the best countries to invest and do business in.”

The recent peaceful transition of power following parliamentary and local elections in Kosovo demonstrated the country’s commitment to democratic values, according to Vokshi & Lata Law Firm Partner Urim Vokshi.

“In 2021, parliamentary and local elections were held in Kosovo,” Vokshi explains. “In both of these elections, the opposition parties enjoyed significant support, leading to a peaceful transition of power from one government to the other. From the perspective of democracy, these elections demonstrated a positive improvement in the country, especially compared to the other elections held in the region,” he says.

According to Vokshi, following the elections, many legislative updates are to be expected. “The new government is planning to implement various reforms,” he notes. “Among those, the most challenging one would be the vetting procedure applying to the justice system. However, at this point, despite the ongoing discussions on these laws, we still have to wait and see how will they be framed and modified into more specific proposals.”

In terms of other legislative changes, Vokshi highlights the initiative for the Law on the Commercial Court, where he has been part of the working group in Parliament. “The idea of having a Commercial Court is presented with the aim of reducing the timeframe for resolving and settling such cases in court,” he says, noting that “the Commercial Court would, ideally, have a major impact not only on local companies but, in particular, on foreign investors – as it will reduce the timeframe for resolving disputes and provide legal security for everyone.”

Vokshi says that, overall, in terms of the economy, while COVID-19 has affected many areas of business, it has also created opportunities for companies. “The export sector has been on the rise in Kosovo,” he explains. “Interestingly enough, many companies managed to benefit from the pandemic situation. Due to shortages in the supply chain in Europe from Asian and African countries, the companies in Kosovo were able to increase exports to their markets. As a result, for the German market alone, we witnessed a 39% increase in the export of goods. In addition, there is a rise in the number of exported goods to Asia and Africa,” he points out.

“Additionally, there are many prospective improvements to expect, as many foreign investors mainly operating in the US and Europe have decided to start their activities here to benefit from the low tax rates,” he says. “We see a rise in IT companies moving to Kosovo, due to the highly skilled workforce in the country. In addition, many BPO companies established in Kosovo provide services all over the world, including to Germany, France, the US, etc.,” Vokshi adds.

“Other sectors, such as tourism and energy are facing certain problems, similarly to the rest of the world,” Vokshi points out. “However, we also see foreign investors showing interest in the renewable energy sector, and we hope this trend will continue even after the crisis is over,” he concludes.

In 2016, Kosovo adopted Law No. 05/L-082 on Natural Gas (the Natural Gas Law). The purpose of the law was to lay down a legal basis for the establishment of a legal framework that will govern the transmission, distribution, supply, usage, and storage of natural gas. The Natural Gas Law is deemed to be aligned with EU law, including Directive No. 2009/73/EC on common rules of the internal European natural gas market and Regulation No. 715/2009/EC on conditions of access to natural gas transmission networks.

When the Natural Gas Law was adopted, the gas sector in Kosovo was not developed, including, but not limited to, the absence of any gas infrastructure. Subsequently, Kosovo’s Government adopted its Energy Strategy for 2017 – 2026, prioritizing the development of the natural gas sector, highlighted as Objective Number Four. In short, this objective stressed three main sub-objectives that the Government should follow: to establish a gas transport system operator and a gas distribution system operator, to prepare feasibility studies, and to construct adequate natural gas infrastructure.

All these sub-objectives require, among others, heavy public spending, as their attainment usually entails capital-intense projects. To that end, the Government embarked on a journey to seek financiers that will facilitate the implementation of Objective Four of the Energy Strategy.

Kosovo’s Government, like those of most other countries, primarily relies on two debt instruments to finance its investment projects: either domestic debt through the issuance of government securities, or external debt through loans from international financial institutions (IFIs).

For the gas sector it may be said that, to date, the Government followed the second path, seeking financing from IFIs. A EUR 1.5 million grant from the EBRD was approved under the Western Balkans Investment Framework (WBIF), a blending facility that allows the target countries to seek financing for their projects, usually ones eligible under the WBIF agenda, and which fosters closer integration with the European Union.

The approved project would allow Kosovo to draft a master plan examining the development of transmission and distribution system operators, along with other relevant implementation arrangement factors. In turn, the master plan will highlight and identify the key investment projects that are necessary for the overall development of the natural gas sector in Kosovo. Based on this master plan the Government is going to target investment projects that will advance the proper implementation and development of the natural gas sector.

The European Investment Bank, one of the IFIs financing a portion of the investment projects in Kosovo, has, however, recently announced that natural gas and other fossil fuel projects are no longer eligible under its lending policies. This decision was taken as a response to climate change and for alignment of its lending policies with the Paris Agreement.

The EIB’s move poses a threat to external financing for Kosovo’s undeveloped natural gas sector. Additionally, the EBRD also announced that it will fully align its operations with the Paris Agreement by the end of 2022. In a similar fashion, the World Bank announced its withdrawal from a fossil fuel project in Kosovo, namely financing a coal-fired thermal power plant, deciding the project was not in accordance with the recently adopted climate rules.

Financial uncertainties may jeopardize Kosovo’s objectives under the Energy Strategy, for the development of the natural gas sector. If other IFIs follow suit, Kosovo’s primary means for raising capital will remain private investors, through government securities. The amount of money that could be raised would, however, remain a different question.

Consequently, if Kosovo’s Government does not resolve the funding uncertainties identified above, the Natural Gas Law will be deemed to be inoperative and inapplicable, in absence of a natural gas sector in Kosovo.

The caveat here is that we do not suggest nor prefer any specific mechanism over others, between fossil fuel projects and energy renewables. This article merely seeks to address the difficulties Kosovo is experiencing in implementing its Energy Strategy, its natural gas objectives specifically, and the Natural Gas Law. If these are not addressed in short order, Kosovo will continue lagging behind in the natural gas sector.

By Fisnik Salihu, Partner, and Jehona Gjergji, Associate, RPHS Law

This Article was originally published in Issue 8.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.