Category: Serbia

In June 2023, JPM Jankovic Popovic Mitic announced that it will operate under the JPM & Partners brand name going forward, a step in the firm’s journey towards a regional format.

According to JPM & Partners, the decision to rebrand the firm was an important strategic step: “We have chosen our moment for this change, summarizing so many years behind us and heading up to a new chapter with absolute dedication to our work and respecting the tradition that we have.”

The firm described the move as “an exciting transition” and the “first step into a new chapter in our firm’s journey towards a regional format as JPM & Partners, to expand the coverage under one brand while maintaining our core values.”

Zivkovic Samardzic has advised US venture capital fund TinySeed on its investment in video automation software developer Plainly. Radovanovic Stojanovic & Partners advised Plainly’s shareholders.

TinySeed specializes in the fields of financial services, software, and venture capital and runs a year-long remote accelerator program for early-stage software-as-a-service founders.

Plainly, based in Novi Sad, is a start-up developing video generation software that, according to Zivkovic Samardzic, “allows businesses to create automated video creation workflows and increase their marketing output, scale up personalized sales, or improve internal communications.” 

“Plainly was one of the 26 startups that were accepted to participate in the Fall 2022 Americas and EMEA accelerator programs designed to help founders with a revenue-generating SaaS optimize product-market fit and grow faster, organized by TinySeed, which allowed Plainly to receive the support, answers, and accountability needed to scale its business faster,” the same firm reported. 

The Zivkovic Samardzic team was led by Partner Igor Zivkovski and Associate Ana Grebo.

The Radovanovic Stojanovic & Partners team was led by Partner Sasa Stojanovic and Attorney at Law Djordje Vicic.

The Ministry of Mining and Energy of the Republic of Serbia published the public call for auctions for awarding of market premiums (in the form of CfD) for wind and solar projects earlier today (Wednesday, 14 June 2023).

As per an earlier announcement, the total quota for premiums amounts to 400MW for wind power plants and 50MW for solar power plants. The maximum price is set at 105 EUR/MWh for wind and 90 EUR/MWh for solar power plants. The fixed percentage for balancing that will be payable by the winning projects to EPS is set at 5.81% of the maximum price for wind and 2.65% for solar power plants. The bidders should also take into account the obligation to secure a deposit for land restoration following the end of the life cycle of the plant.

The auctions are organized digitally and conducted through the oieaukcije.mre.gov.rs website, where instructions and the public call for applying to auctions are also published. Applications are submitted through the above-stated website for a period of 60 days as of today, i.e. until 14 August 2023.

Good luck!

By Petar Mitrovic, Partner and Katarina Bosnjaković, Junior Associate, Karanovic & Partners

In the latest installment of our series on the risks presented by artificial intelligence (AI), we delve into the risk management framework released by the esteemed American National Institute of Standards and Technology (NIST).

Known as the Artificial Intelligence Risk Management Framework (AI RMF), this voluntary framework has been meticulously crafted by NIST in response to the growing adoption of AI. While AI holds immense potential to deliver significant societal benefits, it also generates various risks, including bias, discrimination, privacy breaches, and security vulnerabilities. The AI RMF aims to aid organizations in effectively managing these risks, ensuring the responsible and trustworthy use of AI. Its objective is to furnish organizations with a systematic approach to identifying, assessing, mitigating, and monitoring AI risks.

Officially unveiled in January 2023, the AI RMF is a living document, subject to updates as AI evolves and matures.

The development of the AI RMF has been influenced by a range of sources, notably the National Artificial Intelligence Initiative Act of 2020, which mandated NIST to devise a risk management framework for AI. It has also drawn inspiration from the work of other organizations such as the European Commission, which has formulated ethical guidelines for AI. Additionally, extensive consultation with stakeholders from industry, academia, and government has informed the framework’s formulation.

The AI RMF comprises four core functions:

Govern: Establishes the comprehensive AI risk management framework, outlining the roles and responsibilities of relevant stakeholders.

Map: Identifies and assesses the AI risks associated with an organization’s AI systems and processes.

Measure: Monitors the efficacy of the AI risk management framework and pinpoints areas that need improvement.

Manage: Implements and sustains the AI risk management framework.

Designed for organizations across industries and of all sizes, the AI RMF serves as a flexible tool that can be tailored to meet the specific needs of each entity. It empowers organizations to identify and assess the risks inherent in their AI systems and processes, implement controls to mitigate identified risks, monitor the effectiveness of these controls, and make informed decisions regarding the development and utilization of AI. Consequently, the AI RMF serves as an invaluable resource for organizations committed to deploying AI in a safe, responsible, and trustworthy manner.

Key benefits of adopting the AI RMF include:

• Enhanced decision-making: By adopting the AI RMF, organizations can make informed decisions regarding the development and utilization of AI, leveraging a systematic approach to risk identification and assessment.
• Improved performance: Organizations can optimize the performance of their AI systems through the implementation of the AI RMF.
• Heightened trust: Employing the AI RMF allows organizations to foster trust with their stakeholders, demonstrating their proactive efforts to mitigate AI-related risks.
• Augmented reliability: Compliance with the AI RMF increases confidence in the reliability and trustworthiness of an organization’s AI systems.
• Regulatory compliance: Adherence to the AI RMF guidelines supports organizations in meeting relevant legal and regulatory requirements.
• Reduced liability: Proactive AI risk management, as facilitated by the AI RMF, aids organizations in mitigating potential liabilities associated with AI usage.
• Risk mitigation: The AI RMF assists organizations in identifying and mitigating risks linked to AI systems.

However, it is crucial to acknowledge that the AI RMF faces certain challenges in its implementation. As a new framework, organizations encounter obstacles such as a lack of expertise, absence of universally accepted standards, and insufficient data. Many organizations do not possess the necessary expertise or resources to independently implement the AI RMF, and the absence of standardized guidelines for AI risk management hampers their ability to compare approaches effectively. Furthermore, the efficacy of the AI RMF depends on the availability of relevant data to identify and assess risks, which poses a significant hurdle for numerous organizations.

In conclusion, the AI RMF stands as a valuable tool for organizations striving to navigate the risks associated with AI. Nevertheless, it is crucial to recognize that the AI RMF cannot act alone; it constitutes only a portion of a comprehensive approach to AI risk management. To derive maximum benefits from the AI RMF, organizations must consider additional factors, such as the specific risks associated with their AI systems, the resources at their disposal, and the expectations of their stakeholders. By holistically addressing these considerations, organizations can forge an effective AI risk management program that enables them to harness the advantages of AI while mitigating potential risks.

By Luka Duric, Associate, Gecic Law

The year 2021 was the most successful ever for the Serbian startup ecosystem, with local startups attracting over €120 million in investments and the Serbian tech sector exceeding $1.7 billion in export revenue in 2021. The Government’s ‘’Strategy for the Startup Ecosystem Development of the Republic of Serbia for the period from 2021 to 2025’’ aims to accelerate the development of the startup ecosystem and encourage innovation even more. As one of the main instruments of doing so, RS has introduced good-old tax reliefs and incentives.

The Law on Corporate Income Tax (LCIT) and the Law on Personal Income Tax as starting points introduced several benefits for startups and investors. Both tax laws refer to the very definitions provided under the Innovation Law in terms of the meaning of a startup, spinoff, innovation activity, etc. Tax reliefs are associated with the investment of funds towards research and development (R&D) by startups, with the idea of commercial use of intellectual property rights (licensing of software, patents, trademarks, registered copyrights, and related IP rights), as well as with the employment of persons for the R&D jobs.

• IP Box – tax relief for licensing the IP rights registered with the IP Office

LCIT provides an incentive in the form of excluding 80% of qualified income from the tax base and thus reducing the overall monetary tax liability. Qualified income is the income that a person/entity realizes as a holder of the copyright or related rights (in terms of the Law on Copyright and Related Rights) based on the fee for the use of a deposited work of authorship or other related rights (patents, trademarks, other IP rights) registered with the Intellectual Property Office (IP Office). Qualified income is excluded by first reducing the income for tax-deductible expenses related to research and development (R&D) activities that resulted in the creation of that work of authorship or related IP right (qualified expenses).

– IP Box can be used only when acquiring income for the use of the registered copyright or related rights through licensing;
– If the holder of the copyright over the software (software is a work of authorship protected by copyright under the law) registered/deposited in the IP Office is licensing the software to others for consideration/fee in return, such holder can use the IP Box tax relief;
– If the holder is transferring/selling the registered IP rights, this tax relief cannot be used;
– A taxpayer is required to keep accurate records of all relevant income and expenses, and qualified income must be separately stated in the taxpayer’s tax balance sheet (this is often neglected by startups but can be of crucial importance for efficient tax planning).

The purpose of this tax relief is to incentivize the holders of registered IP rights not to sell the software (and other IP rights that are usually the essence of startup and innovation activities) but rather to enable other entities/persons to use the licensed IP rights and spread the innovation.

• R&D qualified expenditure

LCIT provides that expenses incurred directly for R&D by the taxpayer in the RS before entering commercial production or use can be recognized as an expenditure in the taxpayer’s tax balance, in a doubled amount. The meaning of expenses directly related to R&D, as well as the conditions and method of exercising rights are thoroughly regulated under the Ministry’s Rulebook. Research means an original and planned activity with the aim of acquiring new scientific or technical knowledge and understanding, and the development of the implementation of research results or the implementation of another scientific achievement or design with the aim of producing new or significantly improved materials, devices, products, processes, systems, or services all before entering commercial production or use.

– It cannot be used when furnishing services to affiliated companies/entities. Tax administration has already taken a stance that providing the services for the affiliated entity (who is deemed as innovative under the Innovation Law) is not presumed eligible for this tax relief having in mind that the investment in R&D needs to be authentic and original (meaning that the taxpayer needs to invest in its R&D related to the innovative product, process or service that it provides on the market);
– It cannot be used for promotional activities and marketing given the LCIT strictly provides its use prior to entering commercial production or use whereas the promotional and marketing activities are commercial by nature.

• Tax credit for investors in ‘’newly incorporated companies conducting innovative activities’’

LCIT provides that a taxpayer that cannot be considered a newly incorporated company that conducts innovative activities, and that invests in the capital of a newly incorporated company that conducts innovative activities, is granted the right to a tax credit in the amount of 30% of such investment.

LCIT defines a newly incorporated company that conducts innovative activities as any company whose incorporation has not been more than 3 (three) years old, which predominantly conducts innovative activities in the sense of the Innovation Law, i.e. undertakes activities for the creation of new products, technologies, processes, and services or significant changes to existing ones, per the market requirements, and which meets (cumulatively) several conditions provided in detail under the LCIT.

– The taxpayer (i.e., an investor) can use the tax credit in the first tax period following the expiration of 3 (three) years from the investment;
– The unused part of the tax credit can be transferred to the company’s income tax account for future accounting periods not longer than five (5) years;
– The maximum amount of the tax credit is RSD 100,000,000.00;
– Regardless of the number of investments on account of the company’s income tax in one tax year, is RSD 50,000,000.00;
– Both R&D-qualified expenditure and tax credit are usually intertwined when it comes to conditions and terms of exercising it.

 • Tax reliefs for acquiring the investment unit of the alternative investment fund

A taxpayer who purchases an investment unit of an alternative investment fund – AIF (which is an investment fund under the special law on AIF that collects funds from investors to invest per established investment policy for the benefit of those investors), is granted the right to a tax credit for the annual personal income tax of up to 50% of the investment made in the calendar year for which the annual personal income tax is determined. The right to a tax credit can be exercised only based on fully paid monetary contributions that acquire shares in an AIF while the tax credit cannot exceed 50% of the determined tax liability based on the annual personal income tax.

• Tax reliefs for a startup as an employer

Law on personal income tax provides that the employer – a legal entity (e.g. LLC), when, as part of its business activity on the territory of the Republic of Serbia, carries out R&D, is released from the obligation to pay 70% of the calculated and withheld tax for the salaries of employees (and 100% of the contribution for mandatory pension and disability insurance under the separate law ) who are directly engaged in R&D, but only in proportion to the time that such persons spend on R&D in comparison to full-time work.

A ‘qualified employee’ means a person directly engaged in R&D who works on the implementation of a project in such a way that he/she is directly involved in identifying and solving appropriate processes or technical problems or tasks related to a specific project.

– Research and development (R&D) have the same meaning as elaborated above under the section ‘R&D qualified expenditure’.
– tax relief can be used only by legal entities that conduct R&D on their behalf (their product, services, processes) and retain ownership of intangible assets that may arise therefrom;
– supervision of project implementation or support related to project implementation is not considered R&D activities;
– tax relief does not apply to R&D aimed at finding and developing oil, gas, or mineral resources in the extractive industry;
– an employer who uses any type of other tax reliefs for a specific person/employee (save for exemption under the provision of the law regulating contributions to mandatory social insurance and R&D qualified expenditure under the LCIT), based on the employment with that person does not have the right to obtain this tax exemption.

These tax reliefs introduced in Serbia are facilitating startup growth to enable achieving the goals set by the Government’s strategy for the startup ecosystem, but also to propel the Serbian economy, improve innovation and attract foreign and domestic investments in the ecosystem. When properly used by startups and affiliated taxpayers, these legal mechanisms and tax planning can make a difference right at the start when these business ventures are the most vulnerable financial-wise.

By Aleksandar Popovic, Partner, and Milos Maksimovic, Senior Associate,  JPM Jankovic Popovic Mitic

Former NKO Partners Senior Associate Branko Jankovic has been promoted to a Partner position with the firm. 

According to NKO, Jankovic regularly advises on “various Corporate, M&A, Pharma, and Commercial matters.” This year alone, he was part of the team that advised the Dr. Max Group on four pharmacy chain acquisitions in Serbia (as reported by CEE Legal Matters on March 28, 2023).  

Jankovic joined the NKO team in 2018 as an Associate after graduating from the University of Belgrade’s Faculty of Law. He was promoted to Senior Associate in 2021.

“We are extremely proud of Branko. He shows a maturity well beyond his years and we are happy to recognize his status as an invaluable asset amongst the Partners at NKO,” Founding Partner Djordje Nikolic commented.

CEELM: First, congratulations on winning the DOTY! Tell us a bit about the deal and your firm’s role in getting it across the finish line.

Ulcar: For the project financing of the Krivaca wind plant, our team was legal advisor to the borrower (Ivicom Energy) and sponsors – Alfi Green Energy Fund (Slovenia) and MK Group (Serbia). Our primary responsibility was to negotiate and settle all financing agreements, including the facility agreement, security documents, and a large volume of other finance-related paperwork. In addition, we coordinated the work of legal advisors to the borrower in other jurisdictions and provided support in relation to electricity off-take arrangements.

Dayes: Dentons advised Erste Bank (Vienna) as lead arranger for the finance, and a group of seven specialist bank lenders from Vienna, Belgrade, and Ljubljana. Most also took on additional roles, perhaps most importantly three banks supported the borrower’s payment obligations to the electricity off-taker Axpo, through a network of guarantees. 

A key feature is that this is Serbia’s first “merchant” transaction – the electricity price is that determined by whatever the electricity market is paying. The risk of falling prices is hedged with a financial derivative – Axpo tops up with additional payments if the market price of electricity falls below a certain benchmark. In this way, both sponsors and lenders can be sure of a minimum income level that will drive the financial model.

CEELM: What do you believe it was about your firm/team that won you the mandate?

Dayes: We know the Erste Bank renewable energy team from previous transactions, including three in Serbia. While this mandate was won through a competitive tender, Matjaz was also kind enough to recommend Dentons based on experiences working with our partners in CEE on other financing and M&A transactions. 

Ulcar: We benefit from a strong and lasting relationship with the management team of Alfi Renewables (the fund manager) over many years. We have worked with them in other roles in the past and have a proven track record of trusted advice and support in similar transactions in Central Europe.

CEELM: What do you believe were the main considerations for which the jurors picked this deal as the winner?

Dayes: I would say two things: first, the structure of the electricity off-take arrangements, which are brand new and pioneering but which potentially have wide application across Central Europe (and we have seen subsequent deals which are taking up the challenge). Second, the general complexity of the contractual framework – so many different interests needed to be reconciled, across a number of legal jurisdictions including Serbia, Slovenia, Cyprus, Germany, Switzerland, Bosnia, Austria, and beyond. A large group of people worked around the clock to achieve this, not just lawyers but specialists and advisors from many different disciplines.

Ulcar: This was Serbia’s first merchant project, the first to successfully secure financing without any form of state subsidy. Additionally, we ended up creating over forty finance documents (excluding the commercial project documents) involving multiple parties and multiple governing laws, which shows the complexity of the financing deal itself. The total amount financed, over EUR 150 million, is also significant for deals in this context.

CEELM: What were the most complex aspects of the deal from a legal perspective? And what were some of the biggest difficulties faced in the process?

Ulcar: The most challenging aspect was aligning all the timelines, especially due to the off-take arrangements. Project management needed to be flawless, a delicate operation where timing can be dependent on market forces. Additionally, the banks needed industry specialists to review and sign off on project timelines and underlying assumptions without any delay. Three-party and direct agreements involving suppliers and lenders, although standard practice, posed major challenges given the varying interests and different regions involved.

Dayes: New structures can be challenging, particularly when participators are faced with new documents that have no market precedent. But we benefited from some great thinking and expertise from sponsors and lenders – potentially thorny issues, particularly intricate inter-creditor arrangements and, Serbia’s foreign exchange regulations, were ultimately resolved comfortably for all. 

CEELM: In contrast, what, in your opinion, went particularly smoothly and what do you believe contributed to it?

Ulcar: Despite the complexity, the deal was negotiated in a reasonably short time, and we were able to get over the inevitable unexpected challenges. Our main task was to ensure that we could meet the deadlines, and this was done notwithstanding the strong commercial positions you would expect parties of this caliber to take. The volatility of market prices, beyond anyone’s control, needed careful monitoring but, nonetheless, the Dentons team was extremely accommodating and readily available to discuss and try to come to solutions acceptable to us.

Dayes: We are particularly grateful to Matjaz and the sponsors’ legal teams for their understanding of lenders’ concerns and typical market positions, and for their willingness to spend time with us identifying and settling potential fixes. Also, the project benefited greatly from their deft handling of negotiations with third-party project suppliers and counterparties – this is a key skill of sponsors’ counsel which (in my view at least) could and should be more widely recognized in CEE project finance. 

CEELM: In your view, what is the significance of this deal for the Serbian market and the wider CEE region?

Dayes: This transaction could be a good blueprint for bankable merchant renewables financings across the region (or anywhere!). We think that it distributes risk fairly and logically between sponsors, lenders, suppliers, and other stakeholders. Although there are some complex issues and documents for participators to get their arms around, I think it can – and hope it will – prove successful!

Ulcar: Fully agree with Simon. This transaction is a good example that it is possible to structure and develop a sizeable (more than 100-megawatt) renewables project without any kind of state subsidizing, and, to achieve the ambitious goal of green transition, we believe the blueprint will be used for other projects as well. 

This article was originally published in Issue 10.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here. 

CEELM: First, congratulations on winning the DOTY!

Semiz: Thank you! We’d like to thank the whole CEELM team and the jurors voting for it as well. 

CEELM: Tell us a bit about the deal and your firm’s role in getting it across the finish line. 

Semiz: As you know, the deal was a EUR 155 million construction financing package for the Krivaca wind farm project – a joint venture between the Serbian MK Group and the Slovenian Alfi funds. Zavisin Semiz & Partners was the Serbian law advisor to the lenders, working with Dentons Bucharest, which acted as global counsel.

As in most complex Serbian project financings, our key role as local counsel was to give very pragmatic guidance to both the lenders and global counsel on the often underregulated and sometimes confusing local matters, walking a fine line between crafting a rock-solid financing structure and overcomplicating the process.

CEELM: At what stage did you become involved and what do you believe it was about your firm/team that won you the mandate?

Semiz: We were involved in the project from the outset – we carried out due diligence, assisted with drafting and negotiating the facilities agreement, and drafted and negotiated the local security package. 

Erste Group Bank AG, which led the lenders’ club, knew us well from previous transactions and reached out to us to help them navigate this project. Our excellent relationship with Dentons did not hurt, either.

CEELM: What do you believe were the main considerations for which the jurors picked this deal as the winner?

Semiz: This deal qualified on both key metrics. In terms of size, at EUR 155 million, it was probably the largest project financing deal in Serbia in 2022. In terms of novelty, this was the first Serbian renewables project financed on the basis of a private off-take contract.

While I’m reluctant to use the term “ground-breaking” due to indiscriminate overuse, this deal appears to deserve that label – a true groundbreaker in terms of bankable structure. 

CEELM: What were the most complex aspects of the deal from a legal perspective? And what were some of the biggest difficulties faced in the process?

Stanisic: As with all complex cross-border lending, we needed to carefully structure several different types of facilities into a single facilities agreement, in line with the sometimes not-so-simple local FX rules. We are happy that our solutions passed the regulator’s review with flying colors.

When it comes to purely local (but by no means small!) challenges, we have been dealing extensively with establishing security over land rights for a large number of land plots owned mostly by third-party individuals. While that is not really cutting-edge legal work, the geographical spread, number of plots, and variety of titles presented a daunting logistical challenge, which ZSP and the borrower’s team handled with aplomb.

CEELM: In contrast, what, in your opinion, went particularly smoothly and what do you believe contributed to it?

Trivunovic: Many years of working on the largest Serbian financings gave us a set of tried-and-tested Serbian-law governed documents, fine-tuned to the latest local market standards – this helped us a lot in efficiently negotiating this often-overlooked but important part of the overall package.

The lenders’ in-house teams were efficient and picked up key points on the fly, thus greatly contributing to the speed and efficiency of negotiations.

And the borrower’s legal counsels (global and local) were also a pleasure to work with – super-efficient, helpful, and attuned to market standards.

CEELM: In your view, what is the significance of this deal for the Serbian market?

Semiz: Renewables investors were looking for evidence that private off-take arrangements are bankable in Serbia – and this deal provided it. One cannot overstate the significance of proof of bankability in this segment which relies heavily on leverage. As such, this transaction paves the way for a greener future by encouraging new fully private investments in the renewables sector.

CEELM: And do you believe we can expect other similar deals in the near future? Why/Why not?

Semiz: Renewables is a white-hot sector these days, so yes, we expect many more deals – and many more mandates for us in this space. 

This article was originally published in Issue 10.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here. 

Contributed by Jankovic Popovic Mitic

1. SUMMARY 

Being a member of the Energy Community (EC) and with the commitment to its path of Euro-pean Union (EU) membership, the Republic of Serbia is devoted to harmonizing its legislation with the acquis communautaire of both the EU and EC, including the green transition. The ma-jor step in this respect has been the adoption of a new Law on the Use of Renewable Energy Sources in 2021 (Official gazette of the RS” no. 40/2021,” Law on RES), as well as several bylaws (e.g., Regulation on Market Premium and Feed-in Tariff, Regulation on Model of Agreement on Market Premium in 2021/2022). Previously, the renewable energy sector was scarcely regulated with only a few paragraphs of the Energy Law (Official gazette of the RS” no. 145/2014, 95/2018 – other law and 40/2021) and bylaws. Further development of the leg-islation is planned through the amendments of the Law on RES, which has been drafted at the end of 2022 and which has been subject to the public consultation that ended on 09 February 2023. 

Before the adoption of the Law on RES, the major investments in the field of RES were made in wind power plants. The subject trend has been fostered by this law and extended to other types of RES power plants, such as solar power plants, biomass power plants, etc. Since the beginning of the application of the Law on RES, the transmission system operator faced a significant number of requests for connection to the grid for future RES power plants, precise-ly 14,000 megawatts hour power which greatly exceeds the current installed power of all power plants in the Republic of Serbia, being about 8000 megawatts hour. 

Historically, the domestic market was mainly supplied with electric energy from thermopower plants. According to the latest available data published by the Energy Agency of the Republic of Serbia (AERS) in 2021, all types of power plants produced 35,656 gigawatts hour. The share of thermopower plants wasapproximately 60%, the share of RES power plants was ap-proximately 36% (out of which approximately 90% is old hydropower plants constructed by Elektroprivreda Srbije and the rest from other RES power plants), the share of combined thermo-thermal was approximately 1.5% while other power plants produced approximately 2.5%

RES projects are of high importance for the Ministry of Mining and Energy, which provides support for such projects, as well as the support provided through the Renewable Energy Sources Serbia association, which gathers investors. Moreover, the use of energy from the RES is defined as a matter of the public interest of the Republic of Serbia. In the course of the Law on RES, the state bodies are preparing the INTEGRATED NATIONAL ENERGY AND CLIMATE PLAN prof the Republic of Serbia for the period from 2021 until 2030 with a vision up to 2050, to achieve the main goals of the RES. Based on the preliminary targets, 49.6% of the RES in total power production should be achieved by 2040. The list of investors is ex-panding, and it is gathering reputable international companies in the RES sector, as well as an increasing number of experienced local players. International financial institutions and local banks are continuously supporting the development of RES projects in the Republic of Serbia. In parallel with this, local municipalities are providing subsidies to prosumers for the installation of roof solar power plants.

2. OVERVIEW OF THE COUNTRY’S RENEWABLE ENERGY SECTOR 

2.1. Legal Framework

The Law on RES sets out the list of the power plants using RES as follows: hydro, biomass, biogas, wind, solar, geothermal, biodegradable waste, landfill gas power plants, as well as all other power plants using RES. Potential investors in any of the listed power plants may be entitled to the incentive’s measures. Please note that the power plants must be new or recon-structed to be eligible for incentives. Two types of monetary incentives are envisaged:

• Market premium, and
• Feed-in tariff.

Market Premium

Market premium represents the main incentive in the RES, by which the guaranteed supplier (Elektroprivreda Srbije – EPS) pays the market premium (determined in euro cents per kilo-watt hour) to the privileged producer in addition to the price for each sold kilowatt hour on the market.

An investor may be entitled to receive a market premium only after acquiring the status of a privileged producer. Such status is acquired through auctions. The Ministry of Mining and Energy (Ministry) organizes auctions, selects the best bids, and grants the status of a privi-leged producer. The auction is organized for a single type of RES power plant. To conduct the auction, the Government of the Republic of Serbia (Government), inter alia, must de-termine quotas for each RES power plant and the maximum amount of market premium that may be bided.  

Currently, only for the wind power plants quota is determined at 400 megawatts hour, and the maximum amount of market premium is set out at 5.56 eurocents/kilowatt hour. The quo-tas and the maximum amounts of market premium for other RES power plants are still not determined.

The auctions consist of two phases, the bidding phase, and the selection phase. In the bid-ding phase, all interested parties submit their bids with the amount of market premium which satisfies them. In the selection phase, the Ministry ranks bids by the criteria – from the low-est to the highest, comparing to the maximum amount of market premium, until the quota is met.

The obligation of the Government was to adopt a regulation on balancing responsibility within 6 months from the adoption of the Law on RES, which deadline expired in October 2021. So far, the Ministry has not organized auctions given that the said regulation is not adopted yet. According to the Ministry announcements, adoption of the regulation may be expected in the upcoming months, following the amendments of the Law on RES. When the Government adopts this regulation, all legal requirements will be met and there will be no further obstacles to organizing the first auction for wind power plants.

Participants whose bids are selected will acquire the status of temporary privileged producer and then they are entitled to execute an agreement on market premium with the guaranteed supplier. The content of the agreement is regulated and cannot be amended without the consent of the Ministry. 

Such status lasts two years, and within this period, a temporary privileged producer must draft an environmental impact assessment (if necessary, see Section 3.3.) and obtain a construction permit. Upon fulfilling these conditions, the validity period of a temporary privi-leged producer is extended for three more years, within which period the power plant must be constructed and the usage permit obtained. After that, the status of a privileged producer may be acquired.

The status of a temporary privileged producer may be extended for one year in two cases: (i) if the powerplant is fully constructed but a usage permit is not obtained and (ii) in case of force majeure. 

When the power plant becomes operational and the privileged producer commences selling electric energy on the market, the market premium is activated but it works in two directions, as follows: 

• If the selling price is lower than the allocated market premium, then the guaranteed sup-plier shall reimburse the difference to the privileged producer. In this manner is guaran-teed to the privileged producer that it will always collect the amount from its bid. 
• If the selling price is higher than the amount of the market premium, the privileged pro-ducer is obliged to pay a positive difference to the guaranteed supplier (the difference between the selling price and the allocated market premium on the auctions).

The privileged producer is entitled to the market premium for a period of 15 years, starting from the first payment.

Feed-In Tariff

Feed-in tariff represents incentives through guaranteed purchased price per sold kilowatt hour. This incentive may be acquired only for small projects (up to 500 kilowatts hour, or in the case of wind power plants up to 3 megawatts hour) and demonstrative projects.

The procedure of acquiring the status of a privileged producer and the incentive period for a feed-in tariff is the same as for the market premium.

Additional Incentives

Apart from the above monetary incentives, the following incentives are prescribed:

• transfer of balancing responsibility; and
• access to the grid.

In respect of balancing responsibility, the Law on RES prescribes the balancing responsible party shall be a guaranteed supplier. The transfer of balancing responsibility from the privi-leged producer to the guaranteed supplier shall be regulated by the execution of an agree-ment on the transfer of balancing responsibility. As already mentioned, balancing is still pending to be regulated and it’s the only obstacle to initiating the first auction.

Furthermore, the operator of the transmission/distribution system is obliged to, with priority, allow delivery of the electric energy from the RES in their system. This obligation applicator all producers of electric energy from RES, the ones with the monetary incentive system, as well as the ones without.  

Amendments of the Law on RES envisage that only electric energy from the power plants with installed power less than 400 kilowatts hour will have the right to deliver energy in the system with priority. This threshold will be decreased to 200 kilowatts hour starting from January 1, 2026.

Tariffs

The prices for access to the grid are regulated i.e., the Serbian regulator –  the Energy Agency of the Republic of Serbia (AERS) – renders methodologies based on which the transmission/distribution system operator adopts its prices for access to the transmis-sion/distribution system. Those prices are subject to the approval of AERS and are pub-lished on its website. Currently, the price for access to the transmission system is RSD 59.3603 per kilowatts hour and the price for transmitting the electric energy through the sys-tem is RSD 0.4742 (higher tariff) i.e., RSD 0.2371 (lower tariff) per kilowatt hour.

Prosumers

One of the novelties introduced by the Law on RES is the concept of the prosumer. Now, both households and companies may install on its objects solar power plants, connect them to the grid, and consume the electric energy from their production. In case of overproduc-tion, prosumers may deliver the surplus to the grid and take it back when needed. 

The households do not need any special requirements to obtain the status of the prosumer, just to install a solar power plant and submit a request to access the grid and execute an agreement with the grid operator. The companies, having in mind that their solar power plants are bigger, must go through a certain constructional procedure, but it is much simpli-fied than the construction of solar or other RES power plants for performing energy activity. For that reason, households and companies expressed a huge interest to become prosum-ers. According to the publicly available data, approximately 1,000 prosumers are registered so far in the register of prosumers.

Amendments of the Law on RES set out the limitation of 10 megawatts hour of installed pow-er for prosumers i.e., prosumers cannot construct solar power plants exceeding this threshold.

Trends in the RES field 

Currently, a major part of the electric energy produced from the RES is generated in the hy-dropower plants and then wind power plants. So far, solar power plants and other power plants using RES participate in a minor part in the aggregate production of electric energy from RES.

Hydropower plants

The major player in the electric energy market in the Republic of Serbia is EPS which has the following hydropower plants: i) Djerdap which has 28 hydro aggregates with a total pow-er of 1,605 megawatts hour and an annual average production of 7,180 gigawatts hour, ii) Drinsko-Limske hydropower plants consist of 9 power plants with a total power of 1,390 megawatts hour and with an annual average production of 3,320 gigawatts hour and iii) mini hydro power plants with a total power of 21 megawatts hour and with an annual average production of 35 gigawatts. 

In the following period, EPS is planning the construction of 2 hydropower plants i.e., the re-versible hydropower plants Bistrica and Djerdap 3, with the fact that Djerdap 3 will be a unique, hybrid power plant, which would include both solar and wind power plants.

Apart from the EPS, which is a 100% state-owned company, there were numerous investors in mini hydro power plants in the Republic of Serbia. However, due to the negative impact of mini hydro power plants on the environment and protests from the locals, the Law on RES prohibits the construction of mini hydropower plants in protected areas. Exceptionally, the Government may allow hydropower plant projects in a protected area, if they represent pro-jects of public interest.

Wind power plants

Currently, 9 wind power plants are operational with a total power of 533 megawatts hour, while the major ones are:

1. Cibuk 1 near Kovin with a total power of 158 megawatts hour, owned by Masdar;

2. Kovacica, near Kovacica with a total power of 104,5MW, owned by Enlight Renewa-ble Energy;

3. Kosava 1, near the City of Vrsac with a total power of 69 megawatts hour, owned by Fintel Energija;

4. Alibunar, near Alibunar with a total power of 42 megawatts hour, owned by Elicio.

The major ongoing wind power plants projects and plans are:

1. Fintel Energija plans to construct a wind power plant on the territory of the City of Su-botica with a total power of 599,2 megawatts hour, which will be the biggest wind power plant in the Republic of Serbia. Fintel Energija is also planning to construct To-rak, with a power of 120 megawatts hour, Kosava 2, with a power of 68,4 megawatts hour, Kula 2, 3, and 4 with a total power of 30 megawatts hour, Dunav 1 and 3 (20 megawatts hour) and Ram (10 megawatts hour). 

2. Naftna Industrija Srbije and MET Renewables are together constructing the wind power plant Plandiste with a total power of 102 megawatts hour;

3. Elektroprivreda Srbija is constructing its first wind power plant Kostolac with the pow-er of 66 megawatts hour;

4. IEL OIE Balkan Renewable Energy is constructing the wind power plant Basaid in the vicinity of the City of Kikinda with a total power of 85 megawatts hour;

5. MK Group and ALFI Green Energy Fund are constructing the wind power plant Kri-vaca, in the vicinity of Golubac, with a power of 105.6 megawatts hour.

Additionally, currently in the territory of the City of Pancevo, 8 more projects with a total in-stalled power of 1.345 megawatts hour, are in different stages of obtaining spatial plans for constructing wind power plants.

Solar power plants

Unlike hydro and wind sources, so far solar energy is not much exploited. Currently, solar power plants in the Republic of Serbia have a total power of approximately 11 megawatts hour. Major projects in this field are:

1. DeLaSol is constructing a solar power plant with a total power of 9.91 megawatts hour, that should be operational as of March 2023;

2. Elektroprivreda Srbije is constructing solar power plant Petka with total power of 9,95 megawatts hour and planning to construct Srednje kostolacko ostrvo with total power of 97,2 megawatts hour;

3. Holding Slovenske Elektrane is constructing a solar power plant in Prapretno with a total power of 16 megawatts hour;

4. CWP plans to construct a solar power plant on Pester in the vicinity of Sjenica with a total power of 50 megawatts hour;

5. CMC Europe intends to construct a solar power plant in the vicinity of the City of Sombor with a total power of 100 megawatts hour;

6. UGT Renewables intends to construct a solar power plant with a total power of 1 gi-gawatt.

2.2. Domestic Sales and Imports/Exports 

According to the Energy Balance of the Republic of Serbia for 2023, in the structure of the planned total domestic production of primary energy (both electric and thermal energy) for 2023, RES participate with 26%, while the estimated value for 2022 was 25%. In 2023, it is planned to increase the production of primary energy from wind, biogas, and hydro potential compared to 2022 by 7%. The planned import (with transit) of electric energy in 2023 is 23% less in comparison to estimated imports in 2022, while the planned export (with transit) of electric energy in 2023 is 39% more than of estimated exports in 2022. 

The increase in the production of energy from RES demands investment in the power grid. According to a recent press release from the Ministry, the Government plans to invest EUR 10 billion in the country’s power grid over the next twenty-five years to support the growing demand for new renewable energy capacities.

In the next period, the Republic of Serbia will adopt new the Integrated National Energy and Climate Plan of the Republic of Serbia for the period from 2021 until 2030 with a vision up to 2050, by which is expected to be presented new targets for RES i.e., the share of 40% in total energy production. 

EMS AD Belgrade (EMS), as the only transmission system operator in the Republic of Serbia, adopted the Transmission System Development Plan of the Republic of Serbia for the period from 2020 to 2029. Pursuant to this plan, the improvement of the transmission grid from 200 kilovolts to 400 kilovolts in Western and Central Serbia (known as a part of the Transbalkan Corridor), as well as interconnections with neighboring countries (Montenegro and Bosnia and Herzegovina), are a pillar of development in the next 20 years. Additionally, numerous devel-opments of local projects are envisaged.   

On the European level, the European Network of Transmission System Operators for Elec-tricity (ENTSO-e) currently prepares a Ten-Year Network Development Plan which envisag-es the construction of 5 interconnection projects in the Republic of Serbia: (i) Trans-Balkan Corridor, (ii) Interconnection line between Serbia and Croatia, (iii) Pannonian Corridor, (iv) North CSE Corridor, and (v) Central Balkan Corridor. 

2.3. Foreign Investment and Participation 

The Republic of Serbia does not impose restrictions on foreign companies in relation to acqui-sitions of interest in the Serbian energy sector.

Apart from the said, the Law on Investments of the Republic of Serbia (Official gazette of the RS” no. 89/2015 and 95/2018) lists benefits to foreign investors, such as the right to transfer profit, protection from expropriation, or similar acts, stability clause, national treatment, etc. However, the Decree on Determining the Criteria for Awarding Incentives to Attract Direct In-vestments (“Official Gazette of RS”, no. 1/2019) provides that incentive funds for foreign in-vestors cannot be allocated for the implementation of projects in the energy sector, to prevent double incentive system for a single sector.

For additional information please see Section 3.2.

2.4. Protection of Investment 

The most important treaties in the energy sector are:

• the Treaty establishing the Energy Community, which the Republic of Serbia be-come party to in 2006. Pursuant to this Treaty and decisions of the EC bodies, the Republic of Serbia has concrete obligations to improve energy efficiency and the environmental situation related to network energy and to develop RES. The Republic of Serbia has a duty to implement acquis communautaire and the principles and tar-gets in the RES fields adopted by the EC;
• the Stabilization and Association Agreement, entered into force on September 1, 2013, granting the Republic of Serbia the status of an associated country to the EU, by which agreement the Republic of Serbia, inter alia, undertook the obligation to be as much as possible harmonized with EU energy sector. In the end, the 2021 Re-public of Serbia has fulfilled initial requirements in the energy sector and therefore has opened an energy chapter in negotiation with the EU; 
• the Paris Climate Accord or The Paris Agreement is an international treaty on climate change adopted in 2015, which covers climate change mitiga-tion, adaptation, and finance. The Republic of Serbia is one of the 195 countries which signs this Agreement.
• The Sofia Declaration On The Green Agenda For The Western Balkans was adopt-ed on November 10, 2020, by the leaders of the Western Balkans, at the WB Sum-mit under the framework of the Berlin Process initiative. This Declaration follows the main principles and goals of the European Green Deal; and
• the Agreement on the Implementation of the Project “Promotion of RES and energy efficiency in Serbia”, executed between the Republic of Serbia and the German international coopera-tion agency GIZ – Deutsche Gesellschaft fuer Internationale Zusammenarbeit, on June 28, 2022, with the value of EUR 1.5 million.

Additionally, the Republic of Serbia executed numerous agreements on mutual incentives and investment protection, with over twenty such agreements with EU countries (inter alia United Kingdom, Germany, France, the Netherlands, etc.). The majority of the agreements are executed for a period of ten years with an automatic extension for the same period or an indefinite period.

3. DEVELOPMENT OF RENEWABLE ENERGY PROJECTS 

3.1. Granting of Grid Connection Rights 

Pursuant to the Energy Law, producers of electric energy from RES have the right to access the grid. To exercise this right, producers must initiate an administrative procedure with the transmission/distribution system operator, in line with the Regulation on Conditions for Deliv-ery and Supply of the Electric Energy (“Official Gazette of the RS” no. 63/2013 and 91/2018) and provisions of network code of the relevant system operator from which the producer is requesting connection to the grid. The connection request is submitted to the transmis-sion/distribution system operator only upon obtaining a construction permit for the RES power plant.

If all conditions from the Regulation on Conditions for Delivery and Supply of the Electric Energy and network code of the relevant system operator are met, a system operator shall is-sue approval with the validity period corresponding to the necessary time for the construction of a power plant. 

In addition to the connection to the grid, when the power plant is operational, it must have ac-cess to the grid. This means that the producer is obliged to submit a request for access to the system and upon approval execute an agreement on access to the system with the system operator to which the grid is connected. The connection to the grid means just a technical connection between two energy objects. Granting access to the grid means that a producer has capacity in the grid and may deliver electric energy.

The prices for access to the grid are regulated (see Section 2.1.).

In case the system operator rejects to give its approval for connection or access to the grid, the producer is entitled to file an appeal to the AERS.

3.2. Ownership by Foreign Companies 

Serbian laws do not envisage any obstacles for a foreign investor to incorporate a company in the Republic of Serbia and to conduct any energy activity, including the production of elec-tric energy. In this respect, no authorizations or special approvals are required. 

The same applies to buying shares in a company that is licensed for the production of electric energy. If the foreign investor wants to sell its shares in a domestic company performing en-ergy activity, it may do it freely. The only limitation is that foreign investors are not allowed to directly conduct energy activity, but through domestic companies, except for energy activity of wholesale supply of electric energy, which a foreign investor may perform.

Additionally, the Law on PPPs and Concessions, as well as Energy Law, provides the r pos-sibility for public-private partnership and concession projects in the energy sector, which en-compasses the construction of power plants and performing energy activity production of electric energy. Nevertheless, in practice, energy projects are not principally implemented through public-private partnerships and concessions. However, several communal PPP pro-jects included the production of energy from RES as an auxiliary activity to the main subject of the PPP.

3.3. Stages of the Development Process 

The process of developing RES power plant from the very beginning (preparatory actions for fulfilling all mandatory conditions for the construction of the power plant) up to obtaining a license for energy activity, commencing production of electric energy from RES, and acquiring the status of privileged power producer may be divided into several steps. 

Land 

The first step in the process is choosing a suitable location to build the RES power plant. One of the novelties in the Law on Spatial Planning and Construction in favor of potential investors is the possibility to construct RES power plants directly on agricultural land, without the need to change the purpose of the land from agricultural to constructional. Furthermore, no special approval to build the RES power plant on agricultural land is envisaged. Having in mind that in the Republic of Serbia, wind and solar power plants are mainly constructed in the agricultural parts of the country, such a possibility facilitates the first step in the process. However, the investor must obtain either ownership right over the land parcel/s or execute a lease agree-ment with the owner of the land parcel/s to be eligible to obtain further necessary permits.

Energy permit

Upon choosing the land for the power plant, and before obtaining the construction permit, an investor is obliged to obtain an energy permit for the future RES power plant. The Ministry is the competent state body authorized to issue energy permits upon the request of an investor. The energy permit is valid for three years and may be extended upon request of the holder but it is not transferrable. 

In case an investor intends to construct a power plant with installed power up to 1 megawatt hour, it is relieved from this obligation. The same applies if the power plant is built through a private-public partnership or a concession.

Participation in auctions for RES incentives

At this point and if the Ministry publishes auctions for the type of power plant that an investor intends to build, an investor through the domestic company – a future producer of electric en-ergy, may participate in the auction for market premium (or feed-in tariffs). To be qualified for the first phase in the auction, a company must obtain, besides an energy permit, location conditions, and confirmation from the transmission/distribution system operator that the RES power plant may be connected to the grid.

Additionally, a company is obliged to provide to the Ministry security for the seriousness of the bid in the form of either (i) a bank guarantee or (ii) a deposit. The amount of security is 30 EUR per requested kilowatts hour, regardless of the form. 

If a bid is accepted, a company may acquire the status of temporary privileged power pro-ducer (see Section 2.1.). Please note that this status may be acquired only if the power plant is not under construction.

Environmental Impact Assessment and Construction Permit

Pursuant to Serbian laws, for the construction of power plants with installed power equal to or exceeding 50 megawatts hour conducting the environmental impact assessment is mandato-ry. 

On the other hand, for the construction of power plants with installed power between 1 mega-watt hour and 50 megawatts hour (and for wind power plants between 10 megawatts hour and 50 megawatts hour), the competent state body shall decide on the need to conduct an environmental impact assessment upon request of an investor. If environmental impact as-sessment is not mandatory, the competent state body shall issue a confirmation in this re-spect.

When applying for a construction permit, it is necessary to submit to the competent state body an energy permit and environmental impact assessment (if those documents are man-datory to obtain).

Usage Permit and Energy License

Upon obtaining a construction permit for the RES power plant, the investor may initiate a pro-cedure before the transmission/distribution system operator to connect its power plant to the grid (see Section 3.1.).

A final step in the construction of the power plant is a usage permit. This permit is issued upon an investor’s request within the deadline of five working days. Pursuant to the Law on Spatial Planning and Construction, if the competent body fails to issue a usage permit (although all conditions from this law are met) within the prescribed deadline, an investor is authorized by the law to use a power plant.

Having in mind that the Energy Law considers the production of electric energy as an energy activity for which the energy license is needed, at this point, an investor is obliged to initiate a procedure for obtaining an energy license (see Section 4.3.).

When all the above steps are taken, an investor is authorized to commence energy activity of the production of electric energy. However, at this point, an investor, pursuant to the Law on RES improves its status from temporary privileged producer to privileged producer and is en-titled to receive a market premium (or feed-in tariffs) as an incentive.

3.4. Obligatory State/Public Participation 

Pursuant to Serbian laws, private investors may freely incorporate companies in the Republic of Serbia, and perform energy activities, without state participation in form of either ownership or management of the company.

However, all energy entities are obliged to comply with the law and are under the scope of competence of AERS. Specifically, producers of electric energy are obliged to submit to the AERS data relevant to the supervision of the electric energy market as well as to keep rec-ords on production data in the power plant for a period of five years and to deliver it to the AERS upon request.

3.5. Risks to be Considered

The major risk in the RES sector is two direction market premia, meaning that if a privileged producer sells electric energy above the price allocated to it on the auctions, the privileged producer will be obliged to pay the positive difference (difference between market price and allocated market premium on auctions) to the guaranteed supplier, and has no right to keep the extra profit (see Section 2.1.). 

Additionally, EPS, as the guaranteed supplier, for a long-time has had a problem with liquidity, as a result of, inter alia, low electric energy prices for guaranteed supply, resulting in delays in the payment for electric energy received from producers of the RES. From the perspective of current experience, the RES power plants, especially mini hydropower plants may incite the protest from locals at the construction sites. 

4. RENEWABLE ENERGY CONSTRUCTION AND PRODUCTION 

4.1. RTB Status 

Plan of Detailed Regulation

As explained in Section 3.3., the first step is choosing a location in which the future RES pow-er plant will be constructed. In this regard, it is necessary to obtain from the local municipality a regulation plan of the subject area to determine whether a chosen location is already deter-mined for the power plant. If not, which is usually the case, first a local authority must adopt a new plan of detailed regulation of the subject area to include the power plant.

Location Conditions and Water Conditions

The next step is obtaining confirmation from the transmission/distribution system operator on the technical possibility to connect the future power plant to the grid. Simultaneously, an in-vestor obtains location conditions, which encompasses all necessary data for drafting the technical documentation for a construction permit.

If the future power plant will have an impact on the waters, an investor must obtain water con-ditions that contain technical conditions for the construction of the power plant. In practice, for the RES power plants water conditions are relevant for the hydropower plants and other pow-er plants if the transmission line connecting the power plant and grid needs to be constructed over water.

Environmental Impact Assessment and Energy Permit

Please see Section 3.3.

Consent to the Technical Documentation

Upon drafting the technical documentation and project for the construction permit, which is based on the above documents, such a project needs to go through technical inspection. On-ly after a positive outcome of the inspection, an investor may apply for a construction permit. If water conditions are issued, an investor must also obtain water consent.

Construction Permit and Notice of Commencement of Works

For the construction permit please see Section 3.3. Additionally, to start performing construc-tion works, an investor is obliged to submit a notice of commencement of works to the com-petent state body. After this step, everything is set for placing the foundation stone of the fu-ture power plant.

4.2. Construction of Renewable Energy Projects 

Please see Sections 3.3. and 4.1.

4.3. Granting of Renewable Energy Production Licenses

Pursuant to the Energy Law, the production of electric energy is considered an energy activi-ty for which the energy license is needed. 

An energy license may be issued only to the domestic company (save for the license for the wholesale supply of electric energy which may be issued to the foreign entity). AERS is the competent body for the issuance of a license upon the request of the producer of electric en-ergy if all criteria from Energy Law and relevant bylaw are met by the applicant. The energy license for the production of electric energy is valid for 30 years and may be extended upon request of the energy entity.

An energy license is not needed for power plants with an installed power of less than 1 meg-awatt hour.

4.4. Renewable Energy Production by Foreign Investors 

Please see Section 3.2.

4.5. Operation and Maintenance of Renewable Energy Projects

It is worth noting that the producers of the electric energy from the RES are entitled to sell electric energy on the market without a license. However, only in the case of a supply of final consumers (natural and legal persons who buy electric energy for their consumption), the license for supply is mandatory. 

No other specific regulations on the operation and maintenance of renewable energy pro-jects are in force in the Republic of Serbia.

4.6. Decommissioning Process 

Pursuant to the Law on RES, the privileged producer of electric energy must dismantle and remove the power plant after its lifespan and conduct sanitation of the land where the power plant used to be. 

As a security that this obligation will be fulfilled, the privileged producers are obliged to deposit, on a monthly level, a certain amount in the special bank account of the Ministry. If a privileged producer fails to remove the power plant and conduct sanitation, the costs of those actions shall be covered by the deposited funds.

4.7. Risks to be Considered

Please see Section 3.5. 

5. BALANCING OF RENEWABLE ENERGY PROJECTS, STORAGE, SALES 

5.1. Balancing of Renewable Energy Projects 

According to the Law on RES, the guaranteed supplier is obliged to take the balance respon-sibility from the RES producers. 

This applies to the ones who are in the market premium system or are outside the incentive system, until the establishment of an organized liquid within-day electricity market. Also, the guaranteed supplier assumes the balance responsibility and bears the balancing costs for the RES producers who are in the system of feed-in tariffs, and until the expiration of the incentive period.

Proposed amendments of the Law on RES

The amendments of the Law on RES prescribe that the guaranteed supplier assumes balanc-ing responsibility for users of the market premium, but such users are obliged to pay to the guaranteed supplier (i) a certain percentage from the allocated market premium per each produced megawatt hour, and (ii) positive difference between sold and produced electric en-ergy, calculated based on the price on the day ahead market. 

The guaranteed supplier shall be still the balancing responsible party for the feed-in users, but now other RES producers are excluded i.e., they will be responsible for balancing instead of the guaranteed supplier.

5.2. Storage 

Electric energy storage is introduced in the energy system of the Republic of Serbia by the latest amendments to the Energy Law. For this energy activity energy license is not required.

Pursuant to the Energy Law, an energy entity performing the activity of electric energy stor-age may, inter alia, provide storage services to the others market participants and buy and sell electric energy.

Additionally, the Law on RES prescribes that the prosumer has the right to store electric en-ergy independently for their own needs. Although stipulated by the Law on RES, so far there are no such energy entities in the Republic of Serbia.

5.3. Sales 

Producers from RES may freely sell electric energy on the market and may execute bilateral power purchase agreements. Those agreements, apart from the general clauses from the Law on Torts and Contracts, must contain, inter alia, supply dynamics, method of calculation and terms of payment for the purchased electric energy, the method of informing the custom-er about changes in prices, and other conditions of electric energy supply, method of resolv-ing disputes. Market participants may use the models of power purchase agreements provid-ed that such agreements contain all specific mandatory clauses. For more information, please see Section 4.5.

6. ROOFTOP, OFFSHORE, FLOATING, AND AGRICULTURAL RENEWABLE EN-ERGY PROJECTS 

6.1. Offshore Wind and Floating Photovoltaic Projects  

There are no such projects, as the Republic of Serbia is a landlocked country. Having this in mind, our legislation does not recognize these types of projects, only onshore wind and solar projects.

6.2. Rooftop Photovoltaic Projects 

Solar energy projects are the project with the biggest increment in the last few months, espe-cially bearing in mind that Law on RES prescribes that the households and the industry are enabled to become prosumers. Households and industry are, thus, able to install solar power plants on their buildings and use the produced energy for their consumption, while storing the surplus or delivering it to the system, or leasing their rooftop capacities to the RES producers of electric energy. In particular, the investors have been expressing interest in leasing the rooftop of shopping malls to build solar power plants. 

6.3. Agrivoltaic Projects 

The concept of agrivoltaics, combining the agricultural use of land with the production of elec-tric energy by photovoltaics is starting to develop in the countries from the SEE region, with various projects at different stages of implementation. The Law on RES does not explicitly prescribe differences between the types of solar projects, so there are no special rules for agrovoltaic projects compared to solar projects.

7. TRADING OF GREEN CERTIFICATES/CERTIFICATES OF ORIGIN 

7.1. Certification  

According to the Law on RES, a producer of electric energy from the RES who is not in the monetary incentive system is entitled to certificates of origin.

The certificate of origin is issued by the EMS in the following manner – one certificate of origin for every megawatt hour of electric energy produced.

The certificate of origin shall be valid for one year from the last day of the period of production for which it is issued and shall cease to be valid after its utilization, withdrawal, or expiry of a period of one year.

When issued in other countries, the certificates of origin shall also be valid in the Republic of Serbia under the conditions of reciprocity in accordance with ratified international treaties.

The transmission system operator is obliged to keep a register of certificates of origin (and those issued abroad) in electronic form and publish data from the register on its website.

7.2. Trading 

Currently, the trading of certificates of origin is regulated with a bylaw adopted in 2017 based on the Energy Law and before the Law on RES and will be in force until new regulation is adopted. Pursuant to the applicable rules, the certificate of origin may be transferred only be-tween energy entities registered with the transmission system operator as well as between the registered domestic energy entity with the foreign energy entity registered in the relevant register.

Serbian Parliament is currently deciding on two laws of major importance for foreigners seeking job opportunities or establishing businesses in Serbia. The first proposal concerns the Law on Foreigners, and the second the amendments to the Law on Employment of Foreigners. These two legal acts form general criteria for entry, movement, stay, and return of foreigners, as well as the conditions and procedures for the employment of foreign citizens in the Republic of Serbia.

Adoption on Amendments to the Law on Employment of Foreigners is proposed in order to further simplify the procedure for the employment of foreigners. A unique single procedure is introduced for residence and work permits, which are both to be issued simultaneously, as a single permit. Provided that the amendments get approved by the Parlament, the work permit as we know it will no longer exist in the Serbian legal system. Moreover, with changes and additions to this law, certain provisions are being improved, like the ones regulating the referral of foreigners, i.e. the issuance of a single permit for referred persons and unique permits for movement within the company.

Who will be exempt from obtaining a single permit (work permit)?

This category includes, among others:

• foreigners who have been granted temporary residence on the basis of:
  • family reunification with a member of the Serbian citizen’s immediate family, i.e. a foreigner who has been granted permanent residence,
  • ownership of real estate,
  • humanitarian stay;foreigners who have been approved for permanent residence;
• foreigners who have been granted asylum or temporary protection, as well as the asylum seekers, in the period preceding six months upon submitting an application for asylum, if the decision on that application has not been made without their guilt;

There is no obligation of obtaining the single permit for the categories of foreigners staying in Serbia for a period of no more than 90 days in 180 days, on condition that they are owners, founders, representatives, or members of a legal entity that is registered in Serbia, if they are not employed in that legal entity, as well as foreigners looking for business connections and opportunities.

How will the applications be submitted?

The amendments introduce an entirely electronic procedure. The single permit application shall be submitted through a special Government portal. Temporary residence requests, however, can be filed in person as well as electronically.

A labor market test is initiated when a single permit application is submitted

Employers interested in hiring foreigners were obliged to initiate a labor market test before even considering this kind of endeavor. The purpose of the test is to establish whether there are any persons registered with the Serbiant Employment Agency compatible with the employers’ criteria free to work. With the proposed changes, the test shall not be an action separate from the procedure of obtaining the permit, but it will be initiated with the submission of the single permit application itself. The Serbian Employment Agency shall issue the results in term of four days after the application submission.

Are there any provisions regarding the contents of the employment contract?

Employers are obliged to submit the proposal of the employment contract with the application. The employment contract itself can be concluded for a definite or indefinite period of time, and in case of its termination, the foreigner is obliged to conclude a new contract within 30 days from the termination.

New terms – assessment and approval

The amendments introduce two terms with new meanings. The assessment is an evaluation of the fulfillment of the conditions for employment of a foreigner, special cases of employment of a foreigner, and self-employment of a foreigner, which is carried out by the Serbian Employment Agency.

Consent is a decision brought by the Serbian Employment Agency that enables a foreigner to change the basis of work, employer, or to be employed with two or more employers during the period of validity of the single permit.

Both decisions are brought in term of 10 days from the day the application was submitted. The evaluation is conducted on the basis of the single permit application, while consent is given on the basis of a separate request. The evaluation shall also be conducted as a part of the procedure for the issuance of Visa D (long-stay Visa). This means that those who got a negative result of the evaluation will not even be able to enter the country.

New conditions for movement within the company

International companies interested in moving their employees to daughter companies or branches in Serbia shall be met with additional conditions. The employees coming to Serbia from other countries must be employed in foreign companies for at least one year, the movement must be regulated via a special act brought by the foreign employer and there must be a guarantee that the foreign employer will return to their country. In addition, only an employee engaged in the position of manager or specialist can be assigned to work in Serbia, while a special exception applies to interns, who are also allowed to be assigned under certain conditions.

The validity periods of the permits have been extended

The single permit can be valid for a maximum of 3 years, which is a significant improvement compared to one year term prescribed by current legislation. A single permit is issued in the form of a card.

To conclude, even though the proposed amendments are yet to be approved by the Parliament, its adoption is expected to further facilitate and digitalise employment of foreigners which Serbian labor market badly needs at the moment.

By Marija Cvjeticanin, Partner, Cvjeticanin & Partners