The Secretariat of the Economic Cooperation Organization (ECO) with reference to Paragraph 10 of 'Sector C: Energy, Minerals and Environment of the Work Program 2017' of the 27'h Meeting of ECO Regional Planning Council(Tehran, 5-8 December 2016) and the feedbacks of the concerned authorities of Iran and  Turkey in line with Paragraph 16 of the Report of the 2nd Iran &Turkey Bilateral Meeting, on establishment of ECO Regional Electricity Market (Shiraz, 10-11 May 2016) enclose Terms of Reference (ToR) for hiring international and local consultants for preparation of a Feasibility Study on establishment of ECO Regional Electricity Market.

B. Objectives

  1. The objectives of this feasibility study are to:

  • study prerequisites and existing conditions in the ECO region for the establishment of ECO Regional Electricity Market through harmonizing and merging the electricity markets of Iran and Turkey with the possibility of further expansion to the other Member States, assessment of risks involved, consideration of legal arrangements and supportive documents;
  • advise the ECO Member States on the optimal approaches to increase electricity trading via forming relevant trading arrangements, possibilities for capacity building and enabling framework, institutional enhancements, improving policy and regulatory environment;
  • Determine of line routing, control scheme, project cost, implementation plan, functional specifications, operations and maintenance plan and associated risks.
  1. The information and recommendations of the feasibility study should be useful to the policymakers at the regional level as well as at the level of member states, both in pursuing region-wide initiatives and in negotiating specific trading and investment deals.

C. The Scope of Work

  1. The study will entail a descriptive part depicting the current state of affairs and a definitive roadmap on the establishment of ECO REM, to be prepared through the necessary technical and economic input data for achieving objectives described above in article B.
  2.  The Consultants will thoroughly explore/ weigh up the alternative ECO regional electricity markets and their attendant features (technical. commercial, organizational, institutional, regulatory. etc.). The study should contain in-depth Survey Of the possible evolution of the electricity markets from the simpler ones (bilateral cross-border trade between Iran and Turkey) toward integrated multi-country markets. Based On this Survey, the Consultants will suggest the most appropriate arrangements for the current energy trade picture of the ECO Region and its possible evolution.
  3. The economic component of the study will envisage the analysis of investments needed for implementation of the establishment of ECO-REM. The study will also identify the costs of reinforcements in the interconnection lines and internal systems in order to ensure reliable energy exchanges and transits in all involved power systems. The study will further estimate the feasibility of power exchanges and transits through the ECO Member States power systems.
  4. The study shall cover technical as well as economic evaluation of alternative electricity markets with different exchange capacities, voltage levels and Alternative Current/Direct Current (AC/DC). Alternatives shall be ranked on techno-economic merits.
  5. Risks and risk mitigation in the electricity market and investments. International electricity trading projects include a number of stakeholders like sellers and buyers, donors/investors, governments, national utility providers and regulators, power off-takers, lenders and insurers, construction contractors, non-governmental organizations, the general public, etc. Involvement of numerous stakeholders naturally implies high project risks such as (the list is illustrative rather than complete):
  • availability of electricity (supply risk);
  • availability of demand (demand/market risks);
  • price and payments;
  • exchange rate;
  • profit repatriation;
  • construction risks (costs overruns, completion schedule, technology risks);
  • uncertainties in environmental and social impact;
  • disruptions in financing;
  • fuel supply risks (or hydrology risk for hydropower plants);
  • access to the facilities (production, transmission, consumer);
  • Political or natural events (political disturbance, sabotage, terrorism, flood, earthquakes, other natural events, etc.);
  • developments which may affect the project (e.g., construction of an upstream hydropower plant in case of hydropower);
  • Other legal, regulatory, and policy risks (e.g. labor laws, electricity market structure and regulation, natural resource laws, commercial laws); etc.
  • Some of the risks are of the same or similar nature as for the projects limited to a single country; however,
  • International projects may introduce new risks or give a different dimension to the shared ones.
  1. The study will take into account the fact that risk mitigation arrangements depend on the legal, policy, regulatory, institutional, and commercial environment, and vice versa – the latter could be designed so as to facilitate risk mitigation.
  2. The study will describe how risks are managed -- identified, assessed, allocated, and mitigated -- in international electricity trade projects; how the associated contractual and institutional framework documents are designed as a function of the trading arrangements between and within the electricity markets; and how the projects are structured to mitigate the risks. The study will describe the main elements of project arrangements and associated contractual and framework documents. The study will address all important risks, with a particular focus on those specific to international electricity investment and trade projects, bilateral and multilateral. The study will recommend future options for structuring international electricity projects in the ECO region.
  3. The study will outline typical set of legal documents for an international investment project in the electricity sector, including their coverage (concession agreements between the government(s) and developer(s); transit agreement; shareholder agreements between the shareholders; power purchase agreements; operating agreements; guarantee agreements; construction contracts; etc. – this list is not exhaustive and depends on the overall framework for trade – bilateral or multilateral, or in a more integrated regional market, with or without an intergovernmental framework agreement).
  4. Role of the public and private sectors and options for financing/funding. The study will examine the role of the public and private sectors and options for public-private partnerships(PPPs) promoting regional electricity trade and investment, from creating an appropriate enabling environment to undertaking specific projects, and how PPPs could stimulate trade through sharing of benefits and risks.  Elements of such partnership could include intergovernmental framework agreements with appropriate institutional arrangements which would enable private sectors to finance investment projects and enter into commercial contracts. The governments could also play a significant role at the project level, especially in such aspects as mitigating the environmental and social impact, guaranteeing the performance of national utilities or national regulation, providing concession for the development of a resource, etc.
  5. Options for financing electricity market projects. The task of establishment of ECO REM is quite challenging and is not limited with only following policy recommendations and roadmaps. Financial support from international financial institutions is essential to undertake complex and ambitious multinational projects. The study will describe options for financing electricity market projects, in the context of risks mitigation strategies (including financial risk mitigation instruments), and the role of the private sector in this context. The study will focus on the options which could be of particular interest in the ECO Region context

F. Working arrangements

15. This is expected to be largely a desk study. The Consultants should coordinate closely and work with the ECO Secretariat and concerned ECO Member States, to the extent needed to ensure the study's relevance to the ECO Region.