REPORT ON DESIGN OF WOODY BIOMASS SUPPLY CHAIN CLUSTER FOR DISTRICT HEATING PLANTS IN MUNICIPALITIES OF PRIJEPOLJE, PRIBOJ AND NOVA VAROŠ

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1 REPORT ON DESIGN OF WOODY BIOMASS SUPPLY CHAIN CLUSTER FOR DISTRICT HEATING PLANTS IN MUNICIPALITIES OF PRIJEPOLJE, PRIBOJ AND NOVA VAROŠ Prepared for: Photos by Foragrobio cc doo 2015 GIZ DKTI Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH DKTI- Development of a Sustainable Bioenergy Market in Serbia Bože Jankovića Beograd Prepared by: Vojislav Milijić, Foragrobio cc doo Sumska 9-III/1, Subotica September, 2015

2 Table of Contents List of tables List of figures List of charts List of abbreviations Table of Contents 1. Executive summary Definition of tasks Methodology Status Quo Analysis Background Municipalities Prijepolje, Priboj and Nova Varoš Fuel switch in district heating systems of Prijepolje, Priboj and Nova Varoš Technical Aspects Biomass availability Legal aspects Financial Aspects Political Aspects Review of defined individual supply chain modules Prijepolje Priboj Nova Varoš Cluster supply business model Model Concept Cluster Supply Models Company Establishment and Management Structure Biomass Supply and Wood Chips Delivery Contracting Woody Biomass Central Storage Location Storing, Processing and Logistics of Woody Biomass and Wood Chips Staff Financial analysis Investment Operational costs Incomes Economic indicators: irr, NPV, BCR, sensitivity analysis Cluster supply vs. individual supply - Comparison Economic indicators Biomass supply and delivery Stakeholder analysis Propensity of municipalities to establish cluster supply model Propensity for biomass supply Envisaged impediments Conclusions Definition of adequate ownership, management and operation structure Impediments removal Sources Annexes Annex I: List of interviewed persons Annex II: Interview questionnaire Annex III: Checklist for central biomass storage location assessment List of Tables T-1: Basic information about Prijepolje, Priboj and Nova Varoš T-2: DH systems of Prijepolje, Priboj and Nova Varoš T-3: Technical aspects of fuel switch and biomass supply in DH systems of PP, PB and NV T-4: Road network of Prijepolje, Priboj and Nova Varoš - GFMP Page 2 of 71

3 T-5: Available quantities of woody biomass in PP, PB and NV T-6: Legal framework for organization of woody biomass collection, processing, supply and incineration T-7: Budgets of municipalities Prijepolje, Priboj and Nova Varoš in T-8: Review of BSS with alternative equipment included for individual supply model in PP T-9: Review of BSS with alternative equipment included for individual supply model in PB T-10: Review of BSS with alternative equipment included for individual supply models in NV T-11: Participants in woody biomass supply chain cluster T-12: Swot analysis of CS1 and CS T-13: Woody biomass units, conversion factors and prices T-14: Wood chips units, conversion factors and prices T-15: Optimal and analysed location for central biomass storage for individual or cluster supply T-16: Required space for fresh woody biomass and wood chips storage, machinery and equipment T-17: Examples of adequate wood chippers T-18: Examples of adequate telescopic handlers T-19: Transport dynamics and number of trucks T-20: Investment costs T-21: Unit costs T-22: Operational costs T-23: Operational costs T-24: Incomes T-25: Economic indicators: NPV, IRR, return of investment and BCR T-26: Sensitivity analysis T-27: Comparison of economic indicators of cluster and individual supply T-28: Comparison of cluster and individual supply List of Figures F-1: Position of Prijepolje, Priboj and Nova Varoš F-2: Position, accessibility and storage potentials of PP DH system future biomass boiler stations F-3: Position, accessibility and storage potentials of PB DH system future biomass boiler stations F-4: Position, accessibility and storage potentials of NV DH system future biomass boiler stations F-5: Wood chips cluster supply model concept F-6: Position of analyzed locations F-7: Koran doo storage google maps F-8: Location 1: Koran doo, Priboj F-9: Location 2: Omo Prom doo, Bistrica, Nova Varoš Google Maps F-10: Location 2 - Omo Prom doo, Bistrica, Nova Varoš F-11: Location 3: Branosevac, Nova Varoš Google Maps F-12: Location 3: Branosevac, Municipality of Nova Varoš F-13: Location 4: Zlatar Sped doo, Kokin Brod, Nova Varoš, Google Maps F-14: Location 4: Zlatar Sped doo, Kokin Brod, Nova Varoš F-15: Location 5: JKP Lim, Prijepolje, Google Maps F-16: Location 5: JKP Lim, Prijepolje F-17: Example of wood chips shed F-18: Organizational structure List of Charts C-1: Share of the market secured by each partner share in DH plants wood chips demand C-2: Woody biomass supply and wood chips delivery dynamics C-3: Costs, incomes, balance Page 3 of 71

4 List of abbreviations BMZ German Federal Ministry for Economic Cooperation and Development CHP Combined Heat and Power BSS Biomass supply studies COC Chain of Custody DH District Heating DIN Deutsches Institut für Normung DKTI Deutsche Klima Technologie Initiative EN European Norms EU European Union EUR, Euro EXW Ex-Works FSC Forest Stewardship Council GFMP General Forest Management Plan GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH) GIZ-DKTI Program for the Development of a sustainable Bioenergy Market in Serbia ha hectare KfW German Development Bank kg kilogram mm millimetre m³ cubic meter m 2 square meter MW Megawatt NV Nova Varoš PB Priboj PP Prijepolje PE Public Enterprise PPP Public-private partnership srm ster meter Ton, t metric ton UNDP United Nations Development Program UNDPS UNDP Study VAT Value Added Tax WB Western Balkans Page 4 of 71

5 1. Executive summary Two basic options of woody biomass supply chain cluster model for district heating plants in municipalities of Prijepolje, Priboj and Nova Varoš have been developed and presented in this report. First perceives the establishment of joint company owned by the municipalities in question, while second option perceives the establishment of public and private partnership between municipalities in question and private partner. Both options perceive similar solutions in terms of woody biomass procurement and processing and wood chips storing and delivery. Both options require same organizational structure. The basic differences are in ownership shares, investment levels and management structure. After determining cluster model operations including recommendations on determination of ownership shares and management structure, along with presenting options for wood contracting, woody biomass supply, wood processing and wood chips delivery contracting and performance, detailed recommendations for central biomass storage locations and procurement of optimal machinery and equipment have been provided. After visiting and analyzing several potential locations for central biomass storage we can recommend areas of Bistrica Village as optimal for locating such storage. However, other potential locations such as Nova Varoš, Kokin Brod or even Prijepolje can be defined as suitable. Priboj is the only location that we can recommend to be avoided for central biomass storage. Capacities of wood chipper, trucks, telescopic handlers and trailers have been determined based on wood chips demand and demand dynamics from Prijepolje, Priboj and Nova Varoš district heating systems, presented in previous studies on logistic concepts for municipalities in question. Optimal wood chipping capacity determined is 10 tons per hour, while it is necessary to procure at least two trucks, equipped with one walking floor and one wood trailer including hydraulic crane. Telescopic handler application for manipulation on storage is recommended. Financial analysis of developed cluster supply model have shown positive economic indicators, including IRR of %, BCR of 1.12 and that investment can be returned in fifth year from operation start. Sensitivity analysis is also positive. However, such economic indicators can be achieved if at least 70 % of wood chipper capacity is utilized, meaning that 61 % of total wood chips production should be delivered to DH plants which fulfils their demand and 39 % should be delivered to other buyers. Upon detailed revision of presented individual systems of supply and amendments on proposed equipment solutions, detailed financial analysis was performed. It can be concluded that individual supply for Nova Varoš and Prijepolje can only by profitable as part of larger wood chips production and sale operation and if most of produced wood chips is not delivered to their DH plants but to other buyers. For Priboj individual supply can be profitable if dominant part of the production is delivered to its DH plant, but economic indicators are much lower than in case of cluster supply and sensitivity analysis appeared negative. On the other hand in order to achieve profitable individual supply of all three municipalities in question, much more wood biomass is needed then for achieving profitable cluster supply. Also, combined investment costs for individual supply of all three municipalities are significantly higher than in case of cluster supply. Same conclusion can be drawn for operational costs while cluster supply profitability is much higher than profitability of individual supply. Stakeholders analysis have shown that major impediments for development of cluster supply is in propensity of municipal representatives to cooperate. If this impediment can be prevailed and clear commitment for cluster supply is shown, all other impediments related to mutual cooperation including different level of development in fuel switch, slow administrative procedures, complicated decision making process, reduction of number of employees in municipalities, procurement of finances for investment and operations and even possible disputes in ownership shares determination, can be removed. Other impediments such as those related to public-private partnership implementation are identified but not regarded as crucial. Impediments related to forest management practice and increased demand for woody biomass can only limit availability of woody biomass or lead to price escalation which will reflect on the end price of wood chips. Page 5 of 71

6 2. Definition of tasks Report on Design of Woody Biomass Supply Chain Cluster for District Heating Plants in Municipalities of Prijepolje, Priboj and Nova Varoš is developed as activity of the project: Development of Sustainable Bioenergy Market in Serbia implemented jointly by KfW and GIZ and funded by German Federal Ministry for Economic Cooperation and Development (BMZ). Objective of Consultants assignments in completion of the Report consisted of: - Creation of the model for common - clustered supply chain for all three municipalities, with central storage and biomass processing, based on the defined requirements of woody biomass (given in developed supply chain models) for municipalities of Prijepolje, Priboj and Nova Varoš; - Review of individual supply chain models defined in corresponding supply studies; - Comparison of the results for the optimal clustered supply chain model with the individual solutions; - Provision of the offer for most efficient solutions; - Elaboration of readiness of mentioned three municipalities to participate in the cluster; - Elaboration of possible legal, financial, political and technical impediments to creation of the cluster; - Elaboration of brief business model for the cluster (upfront investment, operating costs, required prices for the delivery of wood chips and so on). Consultant s tasks consisted of: - Task 1: Survey in the municipalities of Prijepolje, Priboj and Nova Varoš including: o personal visit to 3 municipalities in order to survey their willingness to cooperate in establishing clustered woody biomass supply chain, to collect and harmonize their inputs and suggestions; o personal visit and analysis of possible locations for joint cluster supply storage proposed by representatives of municipalities in question; o interviewing with most important potential wood biomass suppliers (forest managers, forest owners and wood processors) in order to obtain market information, logistic challenges and to assess their propensity for supply; o investigation of the possibility to jointly invest in and use infrastructure in order to reduce investment costs and lower the costs for operation and compare it to individual solutions on municipal level; o provision of an overview of all to be removed legal obstacles, detected during the survey, in order to establish optimal clustered biomass supply chain (public procurement, national legislation, PPP, ); o provision of an overview of the needed investment volume for the required equipment; o Design of the formula for the participation of each municipality in the common enterprise and how their respective shares should be distributed. - Task 2: Design and verification of clustered logistic models of biomass supply chains for district heating plants in the municipalities of Prijepolje, Priboj and Nova Varoš including: o analysis and design of possible models of clustered biomass supply chain and verify an optimal model of biomass supply chain cluster in order to find, collect, chip, dry, store and deliver wood biomass to district heating plants in the most economically efficient way; o provision of all costs of clustered biomass supply chain (raw materials, collecting, storage, transport, drying, chipping...); o comparison of individual supply chains with the clustered chain; o provision of conclusions regarding optimal model of clustered biomass supply chain as well as recommendations and instructions how to achieve better, cheaper and more reliable logistic concepts; Page 6 of 71

7 o provision of recommendations and instructions regarding models of contract between the cluster and each municipality; o provision of overview of all to be removed legal obstacles in order to establish optimal logistic models of clustered biomass supply chain; - Task 3: Results of the assessment including: o summary of findings in an English language written report as well as to provide electronic version of the Study (WORD, PDF); o provision of a PPT-presentation; o Preparation and provision of all others requested outputs. Report was prepared by Foragrobio CC doo 1 and submitted in September Survey preparation started in July 2015, while the Survey was conducted in August Page 7 of 71

8 3. Methodology Methodology implemented in the preparation of the report consisted of following steps: - Analysis of related literature, regulations and other sources related to wood biomass, equipment, logistics and municipalities in question; - Review of biomass supply studies (BSS) on logistic concepts for biomass supply for district heating systems of Prijepolje, Priboj and Nova Varoš 2 ; - Development of semi-structured interview questionnaire; - Identification of relevant stakeholders representatives to be interviewed and scheduling interviews; - Meeting and/or face to face interviews with relevant stakeholders; - On site analysis of potential locations for biomass storages. - Design of cluster supply concept including investment and operational costs assessment; - Financial analysis including economic indicators; - Comparative analysis of reviewed individual and cluster supply; - Stakeholders attitudes analysis; - Reporting. Literature and sources review was focused on obtaining information about municipalities of Prijepolje, Priboj and Nova Varoš, their activities in the process of biomass based district heating system implementation. In addition Serbian regulation related to forestry, wood industry, environment, transportation, construction and local administration was also analyzed for definitions of potential impediments in clustered storage and supply of wood biomass. Studies on logistic concepts for individual supply of municipalities in question have been elaborated in details and reviewed. In addition, logistic concept studies and other relevant studies on wood biomass availability were analyzed as well. Open semi structured interview questionnaire was developed for stakeholders attitudes analysis and provision of relevant information and additional data. Potential stakeholders were identified as representatives of the following groups: - local administration (municipal authorities) decision makers; - district heating companies consumers of biomass; - public enterprise managing state owned forests (central and regional level) supply and contracting wood biomass and information about forest production in state and private forests, forest infrastructure and other potential suppliers; - existing wood and biomass processors and suppliers supply and contracting and market information. Meetings and face to face interviews were carried out in the period of 14 th to 20 th of August 2015, along with onsite analysis of possible biomass storages locations. Cluster supply concept was designed based on the literature review, local condition, stakeholders inputs, logistic studies and available best practice examples. Investment and operational costs assessment was also based on review of relevant sources and information provided by interviewed stakeholders, construction standards and equipment distributers. Financial analysis, based on defined investment and operational costs, included application of methods for calculation of net present value, internal rate of return, benefit-cost ratio, period for return of investments and sensitivity 2 Djakovic, D., Gvozdenac Urosevic, B., Urosevic, D Design of logistic concepts for wood biomass supply chains for district heating plants in municipalities of Priboj, Novi Pazar, Bajina Bašta and Nova Varoš. GIZ DKTI; Djakovic, D., Gvozdenac Urosevic, B., Urosevic, D Logistics concept of district heating supply with woody biomass (wood chips) in the municipalities of Prijepolje and Mali Zvornik. GIZ DKTI. Page 8 of 71

9 analysis showing basic economic indicators development in case of input increase and in case of output decrease. Finally, comparative analysis of reviewed individual and cluster supply was performed according to inputs from previous logistic studies, which were reviewed and amended based on investment and operational cost assessments performed for cluster supply in order to achieve comparability. Finally stakeholders attitudes analysis was performed based on interview results in order to assess potential wood biomass supplier propensity for cooperation and propensity of municipalities to establish cluster supply model. Additional meetings and analysis of municipal authorities view on proposed solution was carried out on 1 st of September. Report was prepared and submitted to GIZ DKTI comments on 4 th of September. Page 9 of 71

10 4. Status Quo Analysis Background Chapter bellow provides basic background information about municipalities of Prijepolje, Priboj and Nova Varoš, their fuel switch activities in district heating systems, technical aspects, biomass availability and legal, financial and political aspects related to biomass supply Municipalities Prijepolje, Priboj and Nova Varoš Map of Prijepolje, Priboj and Nova Varoš, presenting its position in Serbia, along with municipal boarders and major roads is presented in a figure bellow. Map data 2015 Google F-1: Position of Prijepolje, Priboj and Nova Varoš Municipalities of Prijepolje, Priboj and Nova Varoš are situated in South-Western Serbia, bordering Bosnia and Herzegovina to the north and Montenegro to the West and South. Administratively, all three municipalities are a part of Zlatiborski County. Basic information on Prijepolje, Priboj and Nova Varoš municipalities are presented in table below. Info/Municipality Prijepolje Priboj Nova Varoš Area km No of settlements 1 urban+79 rural 1 urban+32 rural 1 urban+32 rural Urban population 13,330 14,920 8,861 Rural population 23,729 12,213 7,777 Total population 3 37,059 27,133 16,638 T-1: Basic information about Prijepolje, Priboj and Nova Varoš Around 80,000 inhabitants live in municipalities of Prijepolje, Priboj and Nova Varoš, from which around 37,000 lives in urban settlements. 3 According to 2011 Census - Page 10 of 71

11 4.2. Fuel switch in district heating systems of Prijepolje, Priboj and Nova Varoš District heating systems of Prijepolje, Priboj and Nova Varoš are operated by district heating companies established by local administrations. Basic information on district heating systems of municipalities in question are presented in a table below. Info/Municipality Prijepolje Priboj Nova Varoš DH operator Public Communal Company Lim Public Company Toplana Priboj Boiler stations/fuel /capacity(mw)/operational status Total area supplied by DH system (m²) Apoteka/coal/1x0.5MW/op Brijeg/HFO/2x1.86MW/op Valter/HFO/4x1.86MW/op Pijaca/coal/1x0.69MW/op Gimnazija/HFO/1x3.5MW/op 1x26MW/HFO/op 1x29MW/HFO/no Energija Zlatar doo Zebrinovac/HFO/2x1.8MW/o p Trikotaza/HFO/2x1.8MW/op Trikotaza/HFO/2x1.8MW/no Posta/HFO/1x2.9MW/op Posta/HFO/2x1.8MW/op Branesevac/HFO/2x0.8MW/ op 46, ,000 53,000 HFO consumption (t/a) 700 1, Coal consumption (t/a) 400 / / T-2: DH systems of Prijepolje, Priboj and Nova Varoš Local authorities of Prijepolje, Priboj and Nova Varoš, have clearly expressed their interests and committed themselves in development of biomass based district heating systems. Due to abundance of their forest resources, along with the fact that Municipalities of Prijepolje, Priboj and Nova Varoš use heavy oil or coal in their district heating systems, idea for the fuel switch from fossils to biomass in those municipalities have been present for several years. First studies about potentials of wood biomass utilization for energy production in district heating systems in municipalities in questions were completed by the Faculty of Forestry, Belgrade University supported by UNDP back in 2009 (UNDPS) 4. In addition, fuel switch potentials for municipalities of Nova Varoš and Priboj have been elaborated in Pre-Feasibility Studies on 15 Biomass CHP-plants for District Heating Companies in Serbia 5 supported by KfW 6 in Based on result of those studies, along with the issues in supply with heavy oil, authorities of municipalities in question started cooperation with GIZ DKTI and in 2015 Studies of logistic concepts of district heating supply with wood biomass have been prepared (BSS) 78. Other studies focusing on woody biomass utilization in district heating systems covering all Glavonjic, B., Petrovic, S., Savic, R., Radovic, S., Jovic, D., Sretenovic, P., Pajovic, Lj. Potentials for Commercial Utilization of Woody Biomass for Energy Production and Economical Development of Municipalities: Nova Varos, Priboj and Prijepolje. Project: Stimulating Renowable Energy Sources on Local Level. Ministry of Forestry, Agriculture and Water Management; UNDP Belgrade Office; Local administration of Nova Varos, Priboj and Prijepolje; Faculty of Forestry, Belgrade University; PE Srbijasume, FE Prijepolje R. Bahnmüller, B. Brändle, F. Eckert, V. Milijic, D. Orlic, M. Ortner, P.Vasiljevic, M. Watzal. Pre- Feasibility Studies on 15 Biomass CHP-plants for District Heating Companies in Serbia. ic consulenten Ziviltechniker GesmbH, Wienna for KfW Djakovic, D., Gvozdenac-Urosevic, B., Urosevic, D. Design of logistic concepts for wood biomass supply chains for district heating plants in municipalities of Priboj, Novi Pazar, Bajina Bašta and Nova Varoš. GIZ DKTI Djakovic, D., Gvozdenac Urosevic, B., Urosevic, D Logistics concept of district heating supply with woody biomass (wood chips) in the municipalities of Prijepolje and Mali Zvornik. GIZ DKTI USAID. Prefeasibility Assessment of Biomass District Heating Applications in Serbia, which covered Nova Varos and Priboj among other 8 municipalities in Serbia; NALED. Action Plan for Biomass Cogeneration Plant Construction in Nova Varos; Tri E burro. Expertise for Enhancement and Modernization of Existing District Heating Systems in Nova Varos; Biomasa Grupa doo. Feasibility Study for District Heating System for Public and Residential Objects in Nova Varos; etc. Page 11 of 71

12 or some of municipalities in question have also been conducted 9. At this moment all three municipalities in question closely cooperate with GIZ DKTI and KfW in procurement of financing for the biomass based district heating projects Technical Aspects Technical aspects of fuel switch in district heating systems of Prijepolje, Priboj and Nova Varoš which will be used for analysis of clustered supply chain, are presented in table below. Info/Municipality Prijepolje Priboj Nova Varoš Boiler stations considered for fuel switch Current HFO/coal boilers to be replaced with biomass based boilers HFO/coal consumption (t/a) HFO boiler/biomass boiler efficiency (%) HFO or coal/woody biomass heat value (kj/kg) Total Biomass demand in case of fuel switch at M=30% (t/a) Biomass demand in case of fuel switch at M=30% by boiler stations (t/a) Biomass storage capacities on sites Time for operation of DH on one storage load Gimnazija, Pijaca, Brijeg, shut down of Valter, HFO/2x1.86MW/op coal/1x0.69mw/op HFO/1x3.5MW/op Shut down of HFO/4x1.86MW/op Toplana Priboj, Radnicka Street bb 1x26MW op/1x29mw out of order Posta and Branesevac 1x2.9MW op/2x1.8mw op/2x0.8mw op 700/ /85 85/85 85/85 40,715/12,250 19,400/12,250 40,715/12,250 40,715/12,250 2,458 4,040 1,026 Gimnazija/Valter = Pijaca/Apoteka = 410 Brijeg = 627 Gimnazija/open storage/2.000 m 2 /450 t Pijaca/container/60 m 3 /16,5 t Brijeg/storage building/250 m 2 /90 t Gimnazija/30days Pijaca/5days Brijeg/15days Accessibility Gimnazija/ tow truck with trailer (90 m 3 /24 t) Pijaca/small truck with trailer (40 m 3 /11 t) Brijeg/ tow truck with trailer (90 m 3 /24 t) 4,040 Posta = 796 Branesevac = 230 Biomass plant at new location Not resolved Not resolved Potentially accessible by tow truck with trailer (90 m 3 /24 t) Not resolved in case of existing stations In case of greenfield investment in new boiler station possible close to location Branesevac/storage building/370 m 2 /300 t Up to 30 days Potentially accessible by tow truck with trailer (90 m 3 /24 t) T-3: Technical aspects of fuel switch and biomass supply in DH systems of PP, PB and NV 10 Total woody biomass demand for Prijepolje DH system is 2,458 tons per year, which will be required in three separate boiler stations, namely: 1,421 tons per year in Gimnazija/Valter, 410 tons per year in Pijaca/Apoteka and 627 tons per year in Brijeg. Municipality considers to shut down boiler stations Djakovic, D., Gvozdenac-Urosevic, B., Urosevic, D. Design of logistic concepts for wood biomass supply chains for district heating plants in municipalities of Priboj, Novi Pazar, Bajina Bašta and Nova Varoš. GIZ DKTI Djakovic, D., Gvozdenac Urosevic, B., Urosevic, D Logistics concept of district heating supply with woody biomass (wood chips) in the municipalities of Prijepolje and Mali Zvornik. GIZ DKTI Page 12 of 71

13 of Valter and Apoteka and to equip power stations of Gimnazija, Pijaca and Brijeg with adequate biomass boilers. In addition former DH network connected to Valter should be switched to Gimnazija, while network of Apoteka should be switched to Pijaca. While Gimnazija and Brijeg are accessible by tow truck & semi-trailer, capacity of 24 t/90 m 3, Pijaca can only be accessed by small truck and trailer capacity of 10 t/40 m 3. Storage capacities in mentioned locations range from container in Pijaca up to 60 m 3, through storage building in Brijeg with up to 250 m 2 of space, to open storage possible for Gimnazija of 2,000 m 2. Map bellow presents spatial distribution, storage potential and accessibility for supply of future biomass based boiler stations in Prijepolje. Map data 2015 Google Map data 2015 Google F-2: Position, accessibility and storage potentials of PP DH system future biomass boiler stations Total woody biomass demand for Priboj is 4,040 tons per year which will be required in one boiler station. Location is accessible by truck & semi-trailer with capacity of 24 t/90 m 3. Since Toplana Priboj is located in the complex of former FAP factory there still some unresolved property rights issues between Priboj Municipality and former FAP factory, thus storage capacity cannot be defined. Map bellow presents spatial distribution, storage potential and accessibility for supply of future biomass based boiler stations in Priboj. Page 13 of 71

14 Map data 2015 Google Map data 2015 Google F-3: Position, accessibility and storage potentials of PB DH system future biomass boiler stations Total woody biomass demand for Nova Varoš DH system is 1,026 tons per year, which will be required. Municipality plans to construct a new DH plant and connect it to parts of DH systems now connected to Posta and Branosevac locations. New biomass DH plant is considered to be placed close to Branosevac boiler station. This new location is accessible by tucks & semi-trailers with capacity of 24 t/90 m 3 and one of the considered solutions for the storage is 370 m 2 closed storage, with capacity of 300 tons of wood chips. Page 14 of 71

15 Map data 2015 Google Map data 2015 Google F-4: Position, accessibility and storage potentials of NV DH system future biomass boiler stations Very important technical aspect for biomass supply is road network. Table below shows basic road network features important for biomass supply. Info/Municipality Prijepolje Priboj Nova Varoš Total Public roads paved (km) Public roads unpaved (km) Forest roads hard (km) Forest roads soft (km) Total roads (km) , Total area (ha) 27, , , , Density of roads (m/ha) T-4: Road network of Prijepolje, Priboj and Nova Varoš - GFMP 11 Most important road in the region is E763, part of the European route connecting Belgrade with Bjelo Polje. E763 passes through Nova Varoš and Prijepolje, further to the border with Montenegro. Other paved roads connected to E763 are: - Nova Varos Sjenica; - Bistrica - Priboj - Visegrad (Bosnia and Herzegovina); - Prijepolje - Pljevlja (Montenego); PE Srbijasume, Forest Management Planning burro. General Forest Management Plan for Limsko forest area ( ), adopted by the Ministry of Forestry, Agriculture and Water Management. Page 15 of 71

16 - Prijepolje Sjenica. Network of roads is further expanded with paved or unpaved roads connecting villages. In addition, there is a developed network of forest roads. Until 2019, Public Enterprise Srbijašume, plans to build additional km of hard and km of soft forest roads. This will increase road density in Limsko forest area covering Prijepolje, Priboj and Nova Varoš from m/ha to m/ha Biomass availability Total demand for woody biomass heat plants of Prijepolje, Priboj and Nova Varoš determined in BSS is 7,524 tons of wood chips per year at water content M = 30 %. If reserve of 20 % is included, total demand of wood chips of all three district heating systems can be rounded to 9,000 tons of wood chips per year. Biomass availability in Prijepolje, Priboj and Nova Varoš have already been analyzed in several previous studies. Taking into account that 9,000 tons of wood chips is required, possibility to procure such amount of woody biomass, according to biomass availability presented in mentioned studies, should not be questionable. Table below presents calculated biomass availability according to BSS 12 and UNDPS 13 and basic forestry data according to GFMP 14. Info/Municipality Prijepolje Priboj Nova Varoš Total Forest area total GFMP (ha) 40,711 36,058 21,062 97,831 State forest area GFMP (ha) 22,268 20,204 11,938 54,411 Private forest area GFMP (ha) 18,443 15,854 9,124 43,420 Annual planned production total GFMP (m³) 53,149 53,685 32, ,436 Annual planned production state forests GFMP (m³) 34,692 36,052 26,432 97,176 Annual planned production private forests GFMP (m³) 18,457 17,633 6,170 42,260 Planned production 2015 total BSS (m³) 46,254 35,539 24, ,195 Planned production 2015 state forests BSS (m³) 30,256 19,734 17,982 67,972 Planned production 2015 private forests BSS (m³) 15,998 15,805 6,420 38,223 Difference GFMP-BSS2015 total (m³) 6,895 18,146 8,200 33,241 Difference GFMP BSS2015 state (m³) 4,436 16,318 8,450 29,204 Difference GFMP-BSS2015 private (m³) 2,459 1, ,037 Firewood and celluloses wood 2015 BSS (m³) 21,951 14,815 2,034 38,800 Forest residues 2015 BSS (m³) 6,738 4,274 3,059 14,071 Sawmill residues 2015 BSS (m³) 16,369 4,627 14,135 35,131 Total woody biomass BSS (m³/a) 45,058 23,716 19,228 88,002 Available woody biomass BSS (m³/a) 19,738 6,764 15,664 42,166 Available woody biomass BSS (t/a) 11,718 3,956 8,985 24,659 Produced woody biomass UNDPS (m³/a) 56,100 Woody chips requirements (t/a) 3,000 4,800 1,200 9,000 T-5: Available quantities of woody biomass in PP, PB and NV According to BSS total available woody biomass in three municipalities in question is around 42,000 m³ or 25,000 tons per year. UNDPS six years ago came to similar conclusion, since according to this Djakovic, D., Gvozdenac-Urosevic, B., Urosevic, D. Design of logistic concepts for wood biomass supply chains for district heating plants in municipalities of Priboj, Novi Pazar, Bajina Bašta and Nova Varoš. GIZ DKTI Djakovic, D., Gvozdenac Urosevic, B., Urosevic, D Logistics concept of district heating supply with woody biomass (wood chips) in the municipalities of Prijepolje and Mali Zvornik. GIZ DKTI Glavonjic, B., Petrovic, S., Savic, R., Radovic, S., Jovic, D., Sretenovic, P., Pajovic, Lj. Potentials for Commercial Utilization of Woody Biomass for Energy Production and Economical Development of Municipalities: Nova Varos, Priboj and Prijepolje. Project: Stimulating Renowable Energy Sources on Local Level. Ministry of Forestry, Agriculture and Water Management; UNDP Belgrade Office; Local administration of Nova Varos, Priboj and Prijepolje; Faculty of Forestry, Belgrade University; PE Srbijasume, FE Prijepolje; PE Srbijasume, Forest Management Planning burro. General Forest Management Plan for Limsko forest area ( ), adopted by the Ministry of Forestry, Agriculture and Water Management. Page 16 of 71

17 Study around 56,100 m³ per year of forest and sawmill residues are produced annually in three municipalities in question. Moreover, when data from BSS based on Forest Estate Prijepolje, PE Srbijašume harvesting plan for 2015 are compared with data from GFMP it is clear that planned harvesting in both state and private forests in 2015 is by 33,000 m³ lower than annual planned average. Such difference is more visible in State owned forests since little bellow 30,000 m³ less than annual average is planned for harvesting in Difference in privately owned forests is lower, however recording of harvesting in private forests is not so precise, due to existence of unregistered harvested wood by individual small scale private forest owners in rural areas. On the other hand, plans for private forests in Limsko forest area are still not based on forest inventory but an estimation of forest engineers from private forest service within PE Srbijašume. Reasons for harvesting lower than planned by GFMP can be in either in lack of demand in the market or inadequate forest infrastructure. In addition both BSS and UNDPS have not taken into consideration forest resources outside of Limsko forest area and three municipalities in question. There are abundant forest resources outside Limsko forest area, at distances of km to DH systems of Prijepolje, Priboj and Nova Varoš. Distances of 50 or even 100 km are considered as financially viable for woody biomass transport, although examples of wood chips transport to even higher distances is recorded. There are very high wood biomass production potentials in neighboring municipalities of Čajetina in Tarsko-Zlatiborsko forest area or Ivanjica and Sjenica at Golijsko forest area. On the other hand, it is important to stress that there are companies with very developed capacities for both wood chips (Jela Star, Prijepolje) and wood pellet production (Jela Star, Prijepolje and Nanix Wood, Nova Varoš) with already developed system of supply for firewood, forest and sawmill residues from not only Limsko forest area, but other areas as well or even neighboring countries such as Montenegro or Bosnia and Herzegovina. There are over 150 sawmills in Limsko forest area utilizing over 200,000 m³ of logs every year. Those sawmills are supplying only 50 % of their logs requirements from limsko forest area and other part is supplied from neighboring forest areas, Montenegro and Bosnia and Herzegovina. Also there is a company developing Combined Heat and Power Plant (CHP) in Priboj (Promoter BBM, Belgrade). Such companies can be regarded as potential competitors for woody biomass supply or partners in woody biomass supply or heat delivery. Nevertheless, availability of wood biomass is higher than according to BSS or in any case several times higher than required 9.000tons per year needed for fuel switch in Prijepolje, Priboj and Nova Varoš DH systems. When competition exist, competitiveness in biomass collection, processing and supply along with propensity of forest owners and forest managers, and sawmill operators to supply with biomass is more important than availability calculations Legal aspects Overview of legal framework which can be related to organization of biomass utilization, including, collection, storage, logistics, supply and incineration of woody biomass in DH systems in municipalities of Prijepolje, Priboj and Nova Varoš is presented in table below. Presented legal framework also includes regulations related to local administration and establishment of future legal bodies performing woody biomass collection, processing and supply. Topic Regulation Issued by OGRS No 15 Relevance to the task Property rights, State organization and local Constitution of the Republic Law on Public Property Law on Restitution and Compensation 98/06 Property rights and territorial organization of the Republic 72/ /2013 Public property definition and management 105/ / / /2014 General Restitution new private land and forest owners 15 No of Official Gazette of Republic regulation is published in. Page 17 of 71

18 Energy, environment, forestry and waste Planning and Construction Law on Restitution of Property to Churches and Religious Communities Law on Local Administration Law on Confirmation of European Charter on Local Administration Law on Financing of Local Administration Statute of Municipality of Prijepolje Statute of Municipality of Priboj Statute of Municipality of Nova Varoš Law on Energy Law on Energy Efficiency Law on Forests Law on Confirmation of Protocol of Protection and Utilization of Biological and Spatial Diversity Law on Environment Protection Law on Integrated Control of Environment Pollution Law on Air Protection Law on Waste Management Law on Protection Against Noise in Environment Law on Environmental Impact Assessment Law on Strategic Assessment of Environmental Impact Regulation on Activities which affect Environment Regulation on Determination of Types of Project for which it is Obligatory to Perform Environmental Impact Assessment and Types of Project for which Environmental Impact Assessment can be Required Regulation on Determination of Heat Energy Price Rule Book on Forest Order Rule Book on Categorization, Testing and Classification of Waste Law on Planning and Construction Assembly of Municipality of Prijepolje Assembly of Municipality of Priboj Assembly of Municipality of Nova Varoš Government of the Republic 46/2006 Restitution to Churches and Religious Communities new private land and forest owners 129/2007 Local Administration basic regulations 83/ /2007 Local Administration 62/ / / / / / / / / / /2004; 36/2009; 72/2009 Local Administration regulating how municipalities are financed Local Administration basic act of Municipality of Prijepolje Local Administration basic act of Municipality of Priboj Local Administration basic act of Municipality of Nova Varoš Energy basic regulations Implementation of Energy Efficiency Basic regulation on forest management and forestry organization Regulation on preservation of bio and spatial diversity affecting forest utilization Basic act regulating prevention, control, reduction and rehabilitation of environment pollution 135/2004 Regulation on pollution can affect biomass processing 36/ / /2009; 88/ / / / / / / /2009 8/2010 Government of the Republic 114/2008 Government of the Republic Ministry of Agriculture, Forestry and Water Management Ministry of Environmental Protection and Spatial Planning Regulation on pollution can affect biomass processing in terms of dust Regulating waste management can affect utilization of wood residues Regulation on pollution - can affect biomass processing in terms of noise Regulating procedures for environmental impact assessment can be required for DH plant, storage site and activities in biomass processing Regulating procedures for impact assessment on environment of plans and programs Regulating for what activities local administration can charge fees for environmental protection and improvement Regulating what types of projects are subjected to environmental impact assessment 125/2014 Regulating range and calculation of heating prices 38/2011 Regulating activities in forestry and after forest harvesting define how and when to organize harvesting and how to manipulate with wood products and residues 56/ / / / / / / / / / /2014 Regulating types of waste wood waste is defied Regulating construction of objects needed for biomass storage processing and also DH plant Page 18 of 71

19 Law on Spatial Plan of The Republic of Serbia form Regulation on Conditions and Procedures for Local Administration to Sell or Lease Construction Land at Lower Price or Without Compensation Rule Book on Technical Requirements for Projecting, Construction and Control of Equipment under Pressure Rule Book on Inspection of Equipment under Pressure Government of the Republic Ministry for Infrastructure and Energy Ministry for Infrastructure and Energy 88/ / / / /2012 Regulating Spatial Plan Regulating Local Administration Sale or Lease of Construction Land applicable in definition of biomass storage and DH plant location Regulating construction and control of 87/2011 equipment for steam or hot water production applicable for DH plant construction 87/2011 Regulating construction and control of equipment for hot water and steam production applicable for DH plant construction Companies, public-private partnerships, etc. Rule Book of Technical and other Requirements for Boiler Facilities Rule Book on Information about Location and Content of Location Permit Rule Book on Content and Procedure for Construction Permit Rule Book on Conducting Unified Procedure Law on Agency of Commercial Registries Law on Procedures for Registration at Agency of Commercial Registries Law on Companies Low on Business Classification Law on Public Companies Law on Public Procurements Law on Competition Protection Law on Public-Private Partnership and Concessions Law on Communal Business Law on Accounting and Auditing Law on Audit Law on Tax Procedures and Administration Ministry of Energy and Mining 50/2009 Ministry of Environment and Spatial Planning 3/2010 Ministry of Environment and Spatial Planning Ministry of Construction, Traffic and Infrastructure 93/ /2013 Regulating construction and control of boilers and boiler houses Regulating procedure for location permit procurement Regulating procedure for construction permit procurement 22/2015 Regulating procedures for all permits required for construction 55/ / / / / / / /2014 5/2015 Biomass supply company registration Biomass supply company registration Biomass supply company registration 104/2009 Biomass supply company registration 119/ / / / / / / / /07 65/08 16/11 68/12 72/12 88/ /06 111/09 99/ / / / / / / / / / / / / / / / /2011 2/ / /2013 Public companies regulations Public procurement regulations Competition protection Public-Private partnership and concessions regulation applicable in case of PPP Communal business regulation Regulation companies accounting and auditing procedures Regulating auditing procedures Regulating companies taxes and procedures Page 19 of 71

20 Traffic and Transp Law on Value Added Tax Law on Company Profit Tax Law on Property Tax Law on Tax for Utilization of Goods Law on Obligations Law on Bankruptcy Law on Trade Law on Payments of Legal Bodies, Entrepreneurs and Private Persons Rule Book on Content of the Commercial Registries and Documentation Required for Registration Rule Book on Procedures and Content of Registry of Public Contracts Regulation on Supervision of Realization of Public Private Partnership Contracts Law on Public Roads Ministry of Economy Ministry of Economy Government of The Republic 108/ / / / / / / / /2013 6/ / /2014 5/ / / / / / / / / / / / / / /2007 5/ / / / / / / / / / / / / / / / / / / / / / / /1999 1/ / / / / / /2013 VAT regulation Regulation on companies profit tax Regulation on companies property tax Regulating taxes for utilization of goods such as vehicles Regulating contractual relations between legal bodies Regulating companies bankruptcy procedures Regulating trade 68/2015 Regulation on bank accounts and conducting financial transactions 6/2012 Company registration 57/2013 Public contracts registration applicable in case of PPP 47/2013 Public contracts supervision applicable in case of PPP 101/ / / /2013 Public roads regulations - important for biomass transport Page 20 of 71

21 Labor and Safety Law on Safety in Traffic Rule Book of Inspection of Vehicles Rule Book on Registration of Vehicles and Trailers Rule Book on Conditions for Utilization of Forest Roads Law on Labor Law on Employment and Insurance Against Unemployment Law on Strike Law on Contributions for Social Insurance Law on Arbitration in Work Disputes Law on Protection of Whistleblowers Law on Protection Against Mobbing Law on Work Safety Law on Protection Against Fire Law on Procedure for Determination of Maximal Number of Employees in Public Sector Law on Registry of Employed, Appointed and Hired Personnel at Public Fund Users Rule Book on Special Protection Measures for Work in Forestry Rule Book on Special Protection Measures for Work in Mechanical Processing of Wood or Similar Materials Ministry of Traffic Ministry of Traffic Ministry of Agriculture Ministry of Agriculture Ministry of Agriculture 41/ / / / /2014 8/ / / / / / / / / / / / /2014 Traffic and transport regulation important for biomass transport Control of vehicles important for biomass transport Registration and classification of vehicles important for biomass transport 22/1998 Forest roads regulations important for wood and woody biomass transport 24/ / / / / / / /96 101/ / / / /2006 5/ / /2011 7/2012 8/ / /2013 6/ / /2014 5/ /04 104/09 36/2010 Labor regulations regulating employment and work in biomass supply operations Regulation on employment Regulation on strike Regulation on social insurance Regulation on peaceful settlement in working disputes Regulation on protection of whistleblowers 128/2014 Regulation on protection against maltreatment of workers 101/2005 Work safety regulations regulating safety in work in biomass processing and supply operations 111/2009 Anti-fire protection in biomass processing 20/ /2015 Limiting maximal number of employees in public sector including municipalities 68/2015 Registering employed and hired at public fund users including municipalities 33/1988 Safe work in forest operations harvesting and transport of wood 51/2008 Safe work in wood processing Ministry of Economy and 13/2010 Rule Book on Machine Safety Machine safety Regional Development Rule Book on Preventive Measures for 21/2009 Ministry of Labor Work safety Safe Work Rule Book on Records in Work Safety Ministry of Labor 62/2007 Work safety Rule Book on Preventive Measures when Protective Equipment is Used Ministry of Labor 92/2008 Work safety Page 21 of 71

22 Rule Book on Inspecting Working Equipment and Working Environment Rule Book on Safe Work in Manual Transport of Load List n Standards for Personal Protection Equipment Rule Book on Risk Assessment in Working Place and Working Environment 94/2006 Ministry of Labor 108/ /2014 Ministry of Labor 106/2009 Ministry of Labor 59/2014 Ministry of Labor 72/ / /2010 Work safety Work safety Work safety Work safety T-6: Legal framework for organization of woody biomass collection, processing, supply and incineration Municipalities are legal bodies which can operate independently in frame of their jurisdiction defined by the Constitution and the Law. One of the basic duties of the municipalities is to provide communal activities in which heat supply is accounted. Municipalities can establish companies and other organizations aimed in fulfilment of local population needs. Municipalities can also contract other companies or persons to provide goods, works and services according to the Law and in transparent manner. Moreover, according to the Law on local administration municipalities can cooperate and associate between each other in order to fulfil their common goals, plans, development programs and other activities of mutual interests. In implementation of these activities municipalities can associate their finances and establish joint companies and other organizations. Considering legal provisions there are no impediments for municipalities to organize joint or cluster supply of woody biomass for their individual district heating systems. Restitution process in Serbia started in 2006 with restitution to churches and religious communities. In continued in 2009 with general restitution. Until now over 650 ha of state owned forests have been returned to previous private owners, while around 1,000 ha are still pending for restitution to Mileseva Parrish n Orthodox Church. Result of restitution is diversification in supply potentials for woody biomass, moreover new large scale private owners such as parishes n Orthodox Church can organize forestry and biomass collection operations more efficiently and on larger scale than unorganized individual forest owners. Set of presented energy and environment regulations provide frame for energy production and supply along with provisions of frame for environment protection. Forest Law and related acts provide frame for forestry organization and utilization, which include wood harvesting and collection of woody biomass as well. In terms of environment regulations, they define frame for pollution which can occur in biomass processing in terms of noise and dust, and others impacts on the environment, which assessment may be required for biomass processing. Other important topic presented within environmental regulation is waste. While wood biomass from forests is not considered as waste, wood biomass from wood industry, especially in terms of recycled wood is subjected to regulations related to waste. Set of regulations related to construction and planning is crucial for construction needed for biomass storage and processing, while set of regulations related to traffic provides necessary frame for transport in terms of conditions, vehicles and weight limitations. Set of regulations related to companies registration, public companies, public-private partnership (PPP) and procurement provides frame for biomass supply and processing business and operations administrations. Finally, presented set of legislation provides frame for labor, work safety and mitigation of risks for safe work, which are all crucial since biomass processing involves manual and machine work, while activities in wood harvesting, wood transport and wood processing are considered as risky operations. In addition there two laws adopted recently related to limitation of employment in public sector. Page 22 of 71

23 4.6. Financial Aspects Local administration can procure finances for their activities, according to the Law on financing local administration. Local administration can collect property related taxes, communal administrative and other taxes, while there are additional means of finances including budget transfers and other incomes. All incomes of local administration, except incomes with pre-defined purpose, are part of local administration budget which can be used for the purposes defined by the Law and defined by the decision of local administration budget. Budget income and expenditures of municipalities Prijepolje, Priboj and Nova Varoš for 2013 are presented in table below. Info/Municipality Prijepolje Priboj Nova Varoš Total budget income (EUR) 7,170,075 6,530,988 6,048,889 Total investments (EUR) 699, ,318 1,628,277 New capacities (EUR) 389,644 24, ,371 Reconstruction, modernization and enlargement (EUR) 256, , ,914 Maintenance (EUR) 53,574 18, ,992 Works in civil industry (EUR) 452, ,645 1,056,759 Domestic equipment and mounting (EUR) 195, , ,657 Imported equipment and mounting (EUR) 37,230 17, ,718 Other (EUR) 14,453 1,861 5,143 T-7: Budgets of municipalities Prijepolje, Priboj and Nova Varoš in Most of the investment costs in Nova Varoš and Prijepolje were related to new investments, while in Priboj most of investment costs were related to reconstruction and modernization. In terms of technical structure most of the investment costs are related to works in civil industry, followed by procurement of domestic and imported equipment. As mentioned, municipalities in question are focused in fuel switch and are also negotiating for loans from KfW for implementation of fuel switch. It is important to stress that according to their budgets, municipalities can have capacities for development of woody biomass storage and development of operations in biomass processing and supply. Nevertheless there are other alternatives including public private partnership in biomass supply or procurement of woody biomass from existing suppliers. Financial viability of the investment options by municipalities in question for woody biomass supply will be elaborated in further chapters of this Study Political Aspects In Serbia, strategic and regulatory framework and support mechanisms aimed in increased usage of biomass and other renewable energy sources have been developed and are developing further. Political will to support the process is also being repeatedly expressed by the Government representatives. In addition, private investors and local administrations interested for biomass utilization in district heating systems are also active. Moreover there are several projects implemented by organizations such as GIZ DKTI, UNDP, and others, financed by various international donors aimed in development of bioenergy market and biomass utilization. However, despite all the potentials and advantages of biomass utilization and potential investors existence, there is not a single operational woody biomass based district heating plant in Serbia. Municipalities Djakovic, D., Gvozdenac-Urosevic, B., Urosevic, D. Design of logistic concepts for wood biomass supply chains for district heating plants in municipalities of Priboj, Novi Pazar, Bajina Bašta and Nova Varoš. GIZ DKTI Djakovic, D., Gvozdenac Urosevic, B., Urosevic, D Logistics concept of district heating supply with woody biomass (wood chips) in the municipalities of Prijepolje and Mali Zvornik. GIZ DKTI Page 23 of 71

24 of Prijepolje, Priboj and Nova Varoš among few others can be regarded as pioneers in introducing woody biomass in their district heating systems. But it also necessary to stress that first ideas of municipalities in question to make a fuel switch in their district heating systems appeared back in 2009, or 6 years ago. Major economic goals n Government politics is to reduce fiscal deficit and budget costs in general. Municipalities in question need to follow this approach. Major political question related to biomass utilization in local district heating systems in Serbia is not related to benefits in CO2 emission reduction, nor directly related to increase of energy independency. Major political concern is in cost reduction for fuel supply and heat provision for end consumers - citizens. And when biomass as fuel is compared to heavy oil, which is dominant in municipalities in question district heating systems, savings are substantial. Woody biomass is harvested and collected in local forest resources or is supplied by local wood processing industry. Therefore other politically important fact is that costs paid for woody biomass procurement will stay in local economies a contrary to costs paid for import of heavy oil. Investments in utilization of woody biomass will make certain number of direct employments in construction, maintenance and operations. Also indirect employments will be created in woody biomass collection, transport, processing and supply. Apart from cost reduction, other economic aspects of woody biomass utilization would be more beneficial for local economies of municipalities in question then utilization of heavy oil, which does not require additional employments for supply. It is important to stress that municipalities in question are not developed municipalities. Nova Varoš and Priboj are classified in category IV, with development below 60 % n average, while Prijepolje is categorized as a devastated municipality with development level below 50 % n average 17. Their potential joint activities in woody biomass supply, can increase the level of their mutual cooperation and set up the cooperation model for other municipalities as well. Therefore implementation of joint activities in undeveloped region of several municipalities, which can reduce the costs of provision of communal services to citizens (heating), based on utilization of existing natural resources (woody biomass), plus directly (construction, maintenance, operations) and indirectly (biomass collecting, transport and supply) increase the employment, can be expected to be politically supported Page 24 of 71

25 5. Review of defined individual supply chain modules In order to compare individual supply chain solutions presented in BSS with cluster supply model, individual supply chain modules for Prijepolje, Priboj and Nova Varoš have been reviewed in details Prijepolje BSS introduced 4 different models for biomass supply to Prijepolje DH system and they are presented in a table below. Info/Model PP-1 PP-2 PP-3 PP-4 Biomass production/co llection State forests (PE Srbijašume, FE Prijepolje), Private forest owners, Sawmills State forests (PE Srbijašume, FE Prijepolje), Private forest owners Sawmills State forests (PE Srbijašume, FE Prijepolje), Private forest owners Sawmills State forests (PE Srbijašume, FE Prijepolje) Biomass processing and supply Biomass storage and firing Needed Investment Equipment planned by BSS Alternatives suggested by the Consultant Needed investment BSS (EUR) Needed investment (EUR) in alternatives Positives BSS Negatives BSS Private company delivering wood chips to DH based on annual contract DH company - PCE Lim 1. No investments in production and collection 2. No investments in biomass processing and supply 3. Investment in procurement of the equipment for manipulation on wood chips storage Tractor with wood chips bucket Telescopic handler New company established by local administration of PCE Lim DH company - PCE Lim 1. No investments in production and collection 2. Procurement of woody biomass manipulation and transport equipment, wood chippers, wood chips transport equipment 3. Procurement of equipment for woody biomass manipulation on wood chips storage Wood chipper 2-3 t/h Truck and semi-trailer (20-22t) 2 x tractor with wood chips bucket Wood chipper up to 10t-h Truck Walking floor trailer Wood trailer with hydraulic crane PPP established by local administration and private partner PPP established by local administration and private partner 1. No investments in production and collection 2. Procurement of woody biomass manipulation and transport equipment, wood chippers, wood chips transport equipment 3. Procurement of equipment for woody biomass manipulation on wood chips storage Wood chipper 2-3t/h Truck and semi-trailer (20-22t) 2 x tractor with wood chips bucket Telescopic handler 60, , , ,000 60, ,000 60, ,000 Small investments; Fast for implementation. Possibility of wood chips price escalation due to lack of competition Independent supply; Reduced risk of wood chips price escalation High investment costs; Complications in development of operations structure Independent supply; Reduced risk of wood chips price escalation; Cooperation with a private partner who will invest in the equipment and organize the operations PPP procedures slow and no positive examples so far T-8: Review of BSS with alternative equipment included for individual supply model in PP PE Srbijašume, FE Prijepolje DH company - PCE Lim 1. No investments in production and collection 2. Procurement of woody biomass manipulation and transport equipment, wood chippers, wood chips transport equipment 3. Procurement of equipment for woody biomass manipulation on wood chips storage 2 x wood chipper 2-3t/h Semi-trailer (20-22t) Covered storage 250 m³ Tractor 2 x wood chips bucket Wood chipper up to 10t-h Truck Walking floor trailer Wood trailer with hydraulic crane Possibility for procurement of long term supply; Possibility to adapt harvesting system to maximize biomass utilization High investment costs for both partners BSS suggests model PP-1 as optimal due to the small amount of needed investment and a possibility to implement it fast, moreover all relations between participants in woody biomass supply chain according to PP-1 already exist and the model is very similar to the model of supply which currently exist with heavy oil. According to this model wood chips will be supplied by wood chips producers based on the public call according to legal provisions related to public procurements. BSS does not present expected prices for wood chips procurement, but suggests that wood chips price escalation Page 25 of 71

26 can occur and leaves an option for local administration to establish new organization for biomass supply in the future as it is not realistic at the moment Priboj BSS introduced 4 different models for biomass supply to Prijepolje DH system and they are presented in a table below. Info/Model PB-1 PB-2 PB-3 PB-4 Biomass production/co llection State forests (PE Srbijašume, FE Prijepolje), Private forest owners, Sawmills State forests (PE Srbijašume, FE Prijepolje), Private forest owners Sawmills State forests (PE Srbijašume, FE Prijepolje), Private forest owners Sawmills State forests (PE Srbijašume, FE Prijepolje) Biomass processing and supply Biomass storage and firing Needed Investment Equipment planned by BSS Alternatives suggested by the Consultant Needed investment BSS (EUR) Needed investment (EUR) in alternatives Positives BSS Negatives BSS Private company delivering wood chips to DH based on annual contract New company established by local administration or PCE Toplana Priboj PPP established by local administration and private partner PE Srbijašume, FE Prijepolje DH company - PCE Toplana Priboj DH company - PCE Toplana Priboj PPP established by local administration and private partner DH company - PCE Toplana Priboj 1. No investments in 1. No investments in 1. No investments in 1. No investments in production and collection production and collection production and collection production and collection 2. No investments in 2. Procurement of woody 2. Procurement of woody 2. Procurement of woody biomass processing and biomass manipulation and biomass manipulation and biomass manipulation and supply transport equipment, wood transport equipment, wood transport equipment, 3. Investment in chippers, wood chips transport chippers, wood chips transport wood chippers, wood procurement of the equipment equipment chips transport equipment equipment for 3. Procurement of equipment 3. Procurement of equipment 3. Procurement of manipulation on wood for woody biomass for woody biomass equipment for woody chips storage manipulation on wood chips manipulation on wood chips biomass manipulation on storage storage wood chips storage Tractor with wood chips Wood chipper 4-7t/h Wood chipper 4-7t/h 2 x wood chipper 4-7 t/h bucket Truck and semi-trailer (20-22t) Truck and semi-trailer (20-22t) Semi-trailer (20-22 t) 2 x tractor with wood chips 2 x tractor with wood chips Covered storage 250 m³ bucket bucket Tractor 2 x wood chips bucket Telescopic handler Wood chipper up to 10 t/h Telescopic handler Wood chipper up to 10t/h Truck Truck Walking floor trailer Walking floor trailer Wood trailer with hydraulic Wood trailer with hydraulic crane crane 60, , , ,000 60, ,000 60, ,000 Small investments; Fast for implementation. Possibility of wood chips price escalation due to lack of competition Independent supply; Reduced risk of wood chips price escalation High investment costs; Complications in development of operations structure Independent supply; Reduced risk of wood chips price escalation; Cooperation with a private partner who will invest in the equipment and organize the operations PPP procedures slow and no positive examples so far T-9: Review of BSS with alternative equipment included for individual supply model in PB Possibility for procurement of long term supply; Possibility to adapt harvesting system to maximize biomass utilization High investment costs for both partners As in case of Prijepolje, BSS suggests model PB-1 as optimal due to the small amount of needed investment and a possibility to implement it fast, moreover all relations between participants in woody biomass supply chain according to PP-1 already exist and the model is very similar to the model of supply which currently exist with heavy oil. According to this model wood chips will be supplied by wood chips producers based on the public call according to legal provisions related to public procurements. BSS does not present expected prices for wood chips procurement, but suggests that wood chips price escalation can occur and leaves an option for local administration to establish new organization for biomass supply in the future as it is not realistic at the moment. Page 26 of 71

27 5.3. Nova Varoš BSS introduced 4 different models for biomass supply to Prijepolje DH system and they are presented in a table below. Info/Model NV-1 NV -2 NV -3 NV -4 Biomass production/co llection State forests (PE Srbijašume, FE Prijepolje), Private forest owners, Sawmills State forests (PE Srbijašume, FE Prijepolje), Private forest owners Sawmills State forests (PE Srbijašume, FE Prijepolje), Private forest owners Sawmills State forests (PE Srbijašume, FE Prijepolje) Biomass processing and supply Biomass storage and firing Needed Investment Equipment planned by BSS Alternatives suggested by the Consultant Needed investment BSS (EUR) Needed investment (EUR) in alternatives Positives BSS Negatives BSS Private company delivering wood chips to DH based on annual contract DH company - Energija Zlatar 1. No investments in production and collection 2. No investments in biomass processing and supply 3. Investment in procurement of the equipment for manipulation on wood chips storage Tractor with wood chips bucket Telescopic handler New company established by local administration of Energija Zlatar DH company - Energija Zlatar 1. No investments in production and collection 2. Procurement of woody biomass manipulation and transport equipment, wood chippers, wood chips transport equipment 3. Procurement of equipment for woody biomass manipulation on wood chips storage Wood chipper 2-3 t/h Truck and semi-trailer (20-22t) tractor with wood chips bucket Wood chipper up to 10t/h Truck Walking floor trailer Wood trailer with hydraulic crane PPP established by local administration and private partner PPP established by local administration and private partner 1. No investments in production and collection 2. Procurement of woody biomass manipulation and transport equipment, wood chippers, wood chips transport equipment 3. Procurement of equipment for woody biomass manipulation on wood chips storage Wood chipper 2-3 t/h Truck and semi-trailer (20-22t) tractor with wood chips bucket Telescopic handler 60, , , ,000 60, ,000 60, ,000 Small investments; Fast for implementation. Possibility of wood chips price escalation due to lack of competition Independent supply; Reduced risk of wood chips price escalation High investment costs; Complications in development of operations structure Independent supply; Reduced risk of wood chips price escalation; Cooperation with a private partner who will invest in the equipment and organize the operations PPP procedures slow and no positive examples so far T-10: Review of BSS with alternative equipment included for individual supply models in NV PE Srbijašume, FE Prijepolje DH company - Energija Zlatar 1. No investments in production and collection 2. Procurement of woody biomass manipulation and transport equipment, wood chippers, wood chips transport equipment 3. Procurement of equipment for woody biomass manipulation on wood chips storage 2 x wood chipper 2-3 t/h Semi-trailer (20-22t) Covered storage 250 m³ Tractor 2 x wood chips bucket Wood chipper up to 10t/h Truck Walking floor trailer Wood trailer with hydraulic crane Possibility for procurement of long term supply; Possibility to adapt harvesting system to maximize biomass utilization High investment costs for both partners As in case of Prijepolje and Priboj, for Nova Varoš as well, BSS suggests model NV-1 as optimal due to the small amount of needed investment and a possibility to implement it fast, moreover all relations between participants in woody biomass supply chain according to PP-1 already exist and the model is very similar to the model of supply which currently exist with heavy oil. According to this model wood chips will be supplied by wood chips producers based on the public call according to legal provisions related to public procurements. BSS does not present expected prices for wood chips procurement, but suggests that wood chips price escalation can occur and leaves an option for local administration to establish new organization for biomass supply in the future as it is not realistic at the moment. Page 27 of 71

28 6. Cluster supply business model Cluster supply is envisaged as a cooperation model of municipalities of Prijepolje, Priboj and Nova Varoš in organization of woody biomass supply to DH systems in all three municipalities. Considering that all three municipalities in question will supply from same resource base, using same technology for wood chips production and logistic capacities for wood chips delivery, basic assumption is that cluster supply can reduce investment costs, facilitate biomass contracting and increase efficiency. Basic point for supply is readiness of municipalities in question to commit themselves to cooperate in implementation of cluster supply models. BSS have analyzed in brief two cluster models for municipalities of Prijepolje and Nova Varoš and Nova Varoš and Priboj, while cluster supply of all three municipalities in question is not considered. BSS concluded that for cluster supply implementation have to wait for improvement of legal procedures, even though we haven t perceived major legal impediments in implementation of cluster supply model. Apart from assumed investment value, BSS have not presented further comparisons between cluster supply models and individual supply models. In this chapter woody biomass cluster supply model for Prijepolje, Priboj and Nova Varoš will be elaborated in details Model Concept Woody biomass supply chain cluster model is resented in the figure below: F-5: Wood chips cluster supply model concept Following operations are present in cluster supply model concept: 1. Woody biomass production and collection, encompassing: a. Wood and biomass harvesting in case of utilizing woody biomass from the forests; b. Wood and biomass extraction to the forest road, or central log storage in case of utilizing wood biomass from the forests; Page 28 of 71

29 c. Wood processing with woody biomass produced as residues in primary production in case of utilizing solid sawmill residues as woody biomass; d. Woody biomass transport to the central biomass storage; 2. Operations in woody biomass central storage, including: a. Storing of woody biomass; b. wood chipping c. storing of wood chips; d. woody biomass and wood chips manipulation; 3. Wood chips transport; 4. Wood chips consumption in DH plants including: a. Wood chips storing in DH storage; b. Wood chips manipulation; c. Wood chips consumption. Wood and woody biomass production and collection is organized by forest owners and managers. In mountain areas such as South-Western Serbia, harvesting is performed with chainsaws, while wood extraction is performed by skidders or agricultural tractors adapted for skidding operations. This is the practice in both state and private forests and the most significant differences between operations in state and private forests is in density of forest roads and skid line network; and scale of harvesting operations. Individual private forest owners perform harvesting operations in smaller areas, usually at one or several forest owners plots, while state forest managers organize operations in one or several sections in forest management units. There are two types of harvests: regenerative and selective harvests. Regenerative harvests can only be performed in the period of dormant vegetation, while selective harvest can be performed throughout the whole year, except in first two months when vegetation starts. In plantations, harvest can be performed throughout the whole year. There are two models of harvesting in general practice, one is wood product method, where wood products are tailored and manufactured at harvesting site and then extracted to the forest roads or delivered to the central storages. When this method is applied, woody biomass needs to be collected at harvesting site and then transported to the processing point, thus costs of woody biomass collection and extraction are higher. However in conifer forests, gathering and pilling of forest residues is obligatory as a preventive measures from bark-beetles, tree diseases and forest fires. This method is in most cases required to be applied in state forests and this is the only allowed method according to the Rule book on forest order. Second method is a part tree or part trunk method, where longer pieces of wood with or without branches are being harvested and transported to wood storage and then wood products are being tailored and produced. In this case woody biomass is delivered with other wood products to the processing point, thus costs of its extraction are significantly reduced. Due to the possibility of damaging other trees and soil, application of this method have been suspended in Serbia. However, in practice, modifications of this method are applied in private forests and in case of buying wood on stump. Moreover, for state forest managers application of this method is also interesting especially in harvesting and manipulation of wood for chipboard and wood pellet factories. General application of this method will have positive effect on competitiveness of forest residues for wood chips production. In state owned forests, forest managers in most cases hire harvesting companies as contractors to perform harvesting and extraction of wood to the forest roads or central wood storages. On next phase buyers of logs, firewood or other wood products take over and transport the wood from temporary storages at forest roads or central wood storages. Other option which exist in state forests is selling the wood on stump and in that case wood buyers organize harvesting, extraction and further transport of wood products. In private forests, forest owners themselves organize harvesting, extraction and the transport of wood to their homes, villages or public roads in case of wood sale. It is also very usual that private forest owners sell wood on stump, or the whole forests to entrepreneurs trading with wood, who perform all harvesting, extractions and transport operations. With development of chipboard and pellet factories a practice of delivering wood by entrepreneurs to the factories became developed as well. Page 29 of 71

30 Woody biomass from sawmill residues is being produced during the processing of logs in wood processing factories. In wood processing share of residues are around 50%. Sawmill residues include sawdust, bark, shavings, slabs and other solid sawmill residues. Everything except sawdust is usable for wood chips production. Sawmill residues are usually being stored for selling or further processing at sawmill sites. Before development of chipboard and wood pellet factories sawmill residues where utilized to certain extent for briquette production. Nowadays sawmill residues are being sold to chipboard factories, pellet factories and specialized wood chips producers. Apart from buyers taking over sawmill residues at sawmill site, there is a practice of sawmill operators transporting sawmill residues to chipboard and pellet producers. Woody biomass transport to the central biomass storage encompass loading unprocessed woody biomass to a transport vehicle at forest or sawmill storage and its transport to biomass central storage. Biomass central storage is a storage facility with enough space to store unprocessed woody biomass and wood chips and provide space for manipulation with engaged machinery. At central storage woody biomass is processed by wood chippers into wood chips. Wood chips can be stored at central storage, preferably in sheds, in order to provide drying and protection from further decay. Manipulation and loading of wood biomass is usually performed by telescoping handler or front loaders. However, application of tractors with front loader can also be possible. In case of vicinity of woody biomass to DH plants, an option of moving wood chipper to processing site and direct delivery to DH plants can also be applied. For flexibility it is necessary to include mobile wood chippers in the operations. Transport of wood chips from central storage to DH plants should be performed with vehicles which can be automatically unloaded. Such vehicles needs to be in line with traffic regulations, especially if DH plant is located in the city where truck transport is not allowed. For longer transport distances in location accessible by large vehicles, tow trucks and walking floor trailers with capacity of m³ are usually utilized, however in smaller distances kipper trucks or trucks with unloadable container can also be utilized. Tractors with unloadable trailers can also be used for wood chips delivery at smaller distances. In case of existence of the central storage for wood chips, wood chips storage in DH plant, requires space for few days or one week of operation, with perceived reserves in winter time to cover inaccessibility of transport vehicles, due to the unperceived events such as winter storms causing road blockade. However, DH plants in municipalities in questions are located in town where roads are regularly maintained during the winter time. Storage can be, but does not necessarily need to be covered, since delivered wood chips will be already dried and consumed in the short period of time. In case of existence of the shed or unused object under the roof at DH site, this can be utilized as wood chips storage as well. Wood chips manipulation on DH storage and delivery of wood chips to the boiler can be operated with telescopic handlers, frontal loaders or tractors with wood chips buckets. Another possibility is to build a short term wood chips storage from which wood chips will be automatically fed into the biomass boiler Cluster Supply Models BSS presented four different models for individual supply of wood chips to DH plants 18 and suggested model one annual contracting of wood chips supply based on the public procurement procedures as most adequate. We have not included this model as cluster supply model, since it is obviously that potential supplier from whom would be required to provide wood chips at competitive price will need to organize its operations at most efficient way. BSS also presented a model in which state forest managers (PE Srbijašume, FE Prijepolje) produce wood chips and deliver it to DH plant. Considering the fact that core business of PE Srbijašume is forest management and that they have 18 Please see Chapter 4. Page 30 of 71

31 already outsourced all harvesting, wood extraction and wood transport operations, we believe that this option is not realistic. Application of this option would require significant investments of PE Srbijašume not only in wood chipping capacities, but in harvesting and transport operations as well. Therefore this option can only be possible in case of significant changes in the organization of state owned forest company, which are not perceived by company management so far. Models for cluster supply, we suggest are presented in table below. Model CS1 perceives establishment of the joint company owned by Prijepolje, Priboj and Nova Varoš municipalities or their DH companies, while model CS2 perceives public-private partnership between municipalities in question and the private partner. Roles of supply chain participants in both models are very similar, while the major difference is in investments procurement and allocation of obligations between partners. Woody biomass production and collection Info/Model roles Woody biomass production and collection Wood and biomass harvesting Wood and biomass extraction Collection of sawmill residues Woody biomass transport to the central biomass storage Operations in woody biomass central storage Storing of woody biomass Wood chipping Storing of wood chips Wood chips transport to DH plants Wood chips consumption in DH plants including Wood chips storing in DH storage Wood chips manipulation Wood chips consumption CS1 Company owned by PP, PB and NV for wood chips supply State forests wood and biomass on the road or central storage, harvesting site, wood on stump - contractors for PE Srbijašume, FE Prijepolje for wood harvesting and extraction; private companies buying wood on stump or collecting woody biomass or PP, PB, NV joint company, contractors for harvesting and extraction; Private forests private forests owners, contractors or wood on stump buyers State forests wood and biomass on the road or central storage, harvesting site, wood on stump - contractors for PE Srbijašume, FE Prijepolje for wood harvesting and extraction; private companies buying wood on stump or collecting woody biomass or contractors of PP,PB,NV joint company contractors for harvesting and extraction; Private forests private forests owners, contractors or wood on stump buyers Sawmills Joint company PP, PB, NV Contractors of Joint company Private forest owners or wood on stump buyers or woody biomass collectors Joint company PP, PB, NV Joint company PP, PB, NV Contracting wood chipping services if needed occasionally Joint company PP, PB, NV Joint company PP, PB, NV Contractors for transport if needed occasionally DH plant PP DH plant PB DH plant NV DH plant PP DH plant PB DH plant NV DH plant PP DH plant PB DH plant NV T-11: Participants in woody biomass supply chain cluster CS2 PPP of three municipalities and the private partner in wood chips supply State forests wood and biomass on the road or central storage, harvesting site, wood on stump - contractors for PE Srbijašume, FE Prijepolje for wood harvesting and extraction; private companies buying wood on stump or collecting woody biomass or PP, PB, NV PPP, contractors for harvesting and extraction; Private forests private forests owners, contractors or wood on stump buyers State forests wood and biomass on the road or central storage, harvesting site, wood on stump - contractors for PE Srbijašume, FE Prijepolje for wood harvesting and extraction; private companies buying wood on stump or collecting woody biomass or contractors of PP,PB,NV PPP joint company contractors for harvesting and extraction; Private forests private forests owners, contractors or wood on stump buyers Sawmills PP, PB, NV PPP Private forest owners or wood on stump buyers or woody biomass collectors PP, PB, NV PPP PP, PB, NV PPP PP, PB, NV PPP PP, PB, NV PPP DH plant PP DH plant PB DH plant NV DH plant PP DH plant PB DH plant NV DH plant PP DH plant PB DH plant NV Woody biomass production and collection should remain to be organized by state forest managers and private forest owners. In State forests, harvesting, wood extraction and the transport to the central log storage if exist should be organized by their contractors private harvesting companies. Page 31 of 71

32 Implementation of part of the trunk method of harvesting and delivering wood products to a central storage for further processing to logs, firewood and other projects is a preferable solution, which can reduce costs of woody biomass collection. In case of wood on stump sale by state forest managers, Joint Company of PP, PB and NV or PPP can buy the wood on stump and subcontract private companies for harvesting, extraction and possible delivery to the central biomass storage. In private forests, private forest owners, their harvesting contractors or wood on stump buyers will perform harvesting, extraction and possible delivery of woody biomass to a central biomass storage. In similar way, sawmill operators can also deliver sawmill residues to central biomass storage or sell residues ex works to a Joint Company of PP, PB, NV or PPP. Due to the usual practice of state forest managers, woody biomass transport from state forest managers forest road or central storage to woody biomass central storage can be organized by Joint Company of PP, PB, NV or PPP. From private forests transport can be organized in a same manner or woody biomass from private forests can be delivered to the central biomass storage by the seller (private forest owner, harvesting company or wood trader). Both ways of transporting operations to central biomass storage can be arranged with sawmill operators as well. All operations on woody biomass central storage including storing unprocessed biomass, chipping, storing wood chips and manipulation with woody biomass and wood chips need to be organized by Joint Company of PP, PB and NV or PPP. If needed in extreme cases, due to equipment brakedowns wood chipping on the central biomass storage can be outsourced for a short period of time until equipment is returned into operations. Wood chips transport to DH plants needs to be organized by Joint Company of PP, PB and NV or PPP. If needed in extreme cases, part of the wood chips transport to DH plants can be outsourced for a short period of time. Finally, wood chips storing at DH plants, further manipulation and consumption should be organized by DH plants. To summarize, roles and responsibilities of potential Joint Company of PP, PB and NV or PPP start with planning of biomass delivery to DH plants and contracting and buying unprocessed woody biomass quantities. Responsibilities continue with takeover (including quantity and quality control) of woody biomass at forest road or central log storage or central biomass storage and transport of unprocessed woody biomass to a central biomass storage depending on procurement agreement with forest owners, managers and sawmill operators. Major responsibility of joint company lies in management and all operations (storing, chipping, manipulation) on central biomass storage and delivery of wood chips to DH plants. Responsibilities of Joint Company PP, PB and NV or PPP cease when wood chips is delivered and accepted by DH plants Prijepolje, Priboj and Nova Varoš. DH plants of three municipalities in question independently perform further wood chips storing, manipulation and consumption. As mentioned, difference between CS1 and CS2 model lies in delegation of roles between partners, reflecting in procurement of finances for investing, basic goals and management. Joint Company PP, PB and NV presented in CS1 is a company founded and owned by municipalities of Prijepolje, Priboj and Nova Varoš. Goal of this company is not to make profit, but to provide most efficient and financially viable solutions for wood chips supply to DH systems of respective municipalities, all resulting in reduction of heating costs for citizens. On the other hand all investments, biomass procurement, operational costs, know how, training and organizational efforts will be bared by municipalities in question, while they will establish control and independency of wood chips supply process. PPP Company presented in CS2 can be a special purpose company established by public and private partners, with major goal of public side similar to company presented in CS1. On the other hand, private partner will have a goal to create profit. Woody biomass procurement, investments, operational costs, know-how and organizational efforts can be bared by private partner, or depending on the arrangement, while the role of public partner is to create a stable market for Page 32 of 71

33 PPP products wood chips. Major positive and negative sides of both models are presented in SWOT analysis below. CS1 Company owned by PP, PB and NV for wood chips supply Strengths 1. Independent wood chips supply 2. Reduction of wood chips supply costs thus heating costs for the citizens 3. Secure market existence Opportunities 1. Direct and indirect employments 2. Developing efficient woody biomass contracting options 3. Set up a cooperation model and example T-12: Swot analysis of CS1 and CS2 Weaknesses 1. Municipalities will have to invest and organize the company 2. No experience in local administration 3. No good practice examples in Serbia Threats 1. Limited funds for investments 2. Inefficient management in state/municipally owned companies 3. Poor cooperation between shareholding municipalities CS2 PPP of PP, PB and NV and private partner for wood chips supply Strengths 1. Private partner will invest 2. Public partner will procure secure market 3. Public partner will provide community support and private partner will provide know how Opportunities 1.Employments and profit 2. Developing efficient woody biomass contracting options 3. Set up of cooperation model as example and enlarge the operations for other markets Weaknesses 1. No PPP good practice examples in Serbia 2. Slow PPP establishment procedures 3. Unclear framework for PPP development Threats 1. Different goals of public and private partner 2. Poor cooperation between municipalities 3.Poor cooperation between public and private partner Major strengths of CS1 model encompass secure market existence in future DH plants owned by municipalities and independent position of municipalities in organization of wood chips supply, resulting in reduction of wood chips supply costs, and eventually heating costs for the citizens. Opportunities which CS1 provides are direct and indirect employment, possibility to develop efficient woody biomass contracting options with state forest managers, private forest owners and sawmills. Eventually established model can be set as example for other municipalities in Serbia. On the other hand major weakness is that municipalities will have to invest and organize the company themselves, especially since there is no experience in local administrations in wood biomass processing and supply business and there are no good similar examples in Serbia. Threats for CS1 are in limited funds for investments, possible poor cooperation between shareholding municipalities and inefficient management which is common in state or municipally owned companies. Nevertheless, negative sides can be avoided with clear commitment of partners, expression of interests, adequate management structure and company organization. Major strengths of CS2 model are that private partner will invest and public partner will provide secure market, also public partner will provide community support while private partner will provide know how. Major opportunities CS2 model provides are employments and profit, while developing efficient woody biomass contracting options and setting up a cooperation model as an example. In case of success and demand increase, operations can be enlarged for other woody biomass products (firewood, pellet, etc ) and markets as well (other municipalities, citizens, export). Major weaknesses are related to PPP experience in Serbia. There are no similar or even good PPP examples in heat energy production or fuel supply in Serbia so far, moreover PPP establishment procedures are slow and still the framework for PPP establishment and development is not so clear. Major threats are in different goals of public and private partner, while private partner will pursuit profit, public partner will pursuit employment and efficient supply of wood chips to DH companies. Different goals can lead to problems in cooperation between private and public partners, and also cooperation issues can emerge between public partners municipalities in question. As in CS1 negative sides can be avoided with clear commitment, expression of interests, definition of specific goals, delegation of responsibilities, adequate management structure and company organization Company Establishment and Management Structure According to CS1, a joint company will be established by municipalities of Prijepolje, Priboj and Nova Varoš. Other similar possibility is that DH companies of Prijepolje, Priboj and Nova Varoš establish a new joint company for wood chips supply. Since DH companies are already owned and financed by municipalities in question and that local administrations has a mandate to make political Page 33 of 71

34 decisions and facilitate cooperation between each-others, we believe that it is much better if local administrations establish joint company. In such manner, additional procedures related to provision of the land, planning and construction, possible environmental impact assessment and other prerequisites can be fulfilled more efficiently. The established company would be small scale, and most common form for such company establishment is a limited liability company d.o.o, while other forms such as closed shareholding company can also be an option. However, due to the size of the future company (below 10 employees and turnover bellow 0,5M EUR) Limited Liability Company is a most practical and most efficient solution. For determination of partners shares we suggest formula bellow: PS (%) = MS (%) * 0,5 + IS (%) * 0,5 PS = share of one partner MS = market share secured by the partner IS = investment share procured by the partner, including provision of central biomass storage location and infrastructure As for the shares of Joint Company s founders in the Company three basic criteria can be objectively used for the formula: - Share of the market secured by the partner; - Share of the investment procured by the partner including provision of central biomass storage location and infrastructre. Share of the market secured by the partner is actually an each partners portion in wood chips demand, and it is presented in a chart below. 13% 33% 53% Prijepolje Priboj Nova Varos C-1: Share of the market secured by each partner share in DH plants wood chips demand Second criteria for partners share in the Company determination is an investment share including provision of the location and infrastructure for central biomass storage. We have analyzed several locations already used by municipal companies, or which also can be usable. However, in this stage for municipalities was too early is too define concrete locations which can be used for central biomass storage. Moreover, we have analyzed a set of locations of private sawmilling companies interested to participate in individual or cluster supply of DH plants in municipalities in question. Location can either be calculated as contribution to the investment (municipality in CS1 or private partner in CS2), therefore the value of the location and its infrastructure can be included in the investment shares. Also, location can be leased or sold by the municipality where is located to Joint Company. In case that suitable location is owned by private party it can also be leased or sold to Joint Company. Share of the investment procured by each partner can be the third criteria for determination of partners Page 34 of 71

35 share in the Joint Company based on partners ability to invest. However, investment share can be in direct correlation with local administration budget, which does not have direct correlation with the number of inhabitants and correlation with the heat demand and wood chips demand. Considering those facts in order to avoid possible partnership disputes, investment share can be decided after the partnership shares are initially determined according to previously defined criteria and then negotiated between partners. If CS2 model of PPP is applied, Law on public private partnership and concessions gives a possibility of contractual and institutional PPP. Contractual PPP is a form of the partnership where public partners make contracts with private partners with or without concession for realization of the project. Institutional PPP is a form of partnership in which public and private partner establish joint special purpose company which implements the projects and further activities. Ownership share in institutional PPP is determined by invested stakes or on the basis of acquiring shares in capitalization. Ownership shares and partners roles and responsibilities can be determined in negotiations between public and private partners based on the market provision and investment values, while basic formula for determination of shares between private partners can be defined based on formula presented in CS1: market provision and investment provision including central storage location and infrastructure provision. Establishment and management regulations for special purpose company are defined based on the Law on companies, and detailed procedure for PPP establishment is determined by the Law on PPP and concessions. In case of CS2 model implementation, both institutional PPP and contractual PPP can be applied. In case of contractual PPP public partner (DH companies of municipalities in question) will take over the obligation of buying wood biomass based on the long term contract with private partner, while private partner would provide location and infrastructure of the central biomass storage, investment in necessary construction, equipment and machinery and provide delivery of woody biomass according to the contract. In organizational terms, contractual PPP model does not differ significantly from annual biomass contracting based on the public call, however long term contract provides secure market for private partner on one hand and secure woody biomass delivery at constant and predictable price for DH companies. Future Joint Company PP, PB, NV or PPP should be organized in efficient and professional manner. Management board should be established with basic tasks of determining Companies goals, adopting the business plan and monitoring of Company performance and goal realization. Board should consists of all shareholders present: representatives of all three municipalities in question in case of Joint Company and all three municipalities plus private partner in case of PPP. In order to prevent disputes and to protect all shareholders interests all members of the board should have the same voting rights irrelevant of their share in the ownership. To summarize board in case of Joint Company PP, PB, NV should have 3 members, while the board in case of PPP should have 3 plus members appointed by private partner or partners depending on the mutual agreement. In both cases company should be managed by a professional manager and consider companies goals and activities, different models (Joint company or PPP) do not require different organizational structure of the company Biomass Supply and Wood Chips Delivery Contracting As presented in Table x, Joint Company PP, PB, NV or PPP should contract unprocessed woody biomass supply with state forest manager - PE Srbijašume, private forest owners and wood processors. Wood products that can be considered as unprocessed biomass are long firewood, cuttings and forest residues. Price of wood products in Serbia is usually expressed per volume unit cubic meter (m³) or steer meter (srm). However, woody and especially woody biomass can also be sold per weight unit (tons). By buying the wood per weight unit, important issue of bulk woody biomass low density compared to logs or firewood can be resolved. In addition, water content of fresh wood and woody biomass is constant %, while density of woody biomass bulk is not, therefore energy value of both woody biomass can be calculated circumstantially based on the weight. Page 35 of 71

36 Table below presents basic properties of woody biomass products, units in which they are usually sold along with conversion factors and prices. Products/Units m³ srm Tons Definition Firewood Long firewood Cuttings Forest residues A volume that is made by a solid cube of wood that is 1 meter on each side. Measure used by forest management companies Measure used by forest management companies Measure used by forest management companies Measure used by forest management companies A volume of space that is made by a cube of wood with space between wood pieces included that is 1 meter on each side. Measure used in private forest owners and usual trade Not used Measure used in private forest owners and usual trade Measure used in private forest owners and usual trade Sawmill residues Not used Measure used by sawmills and wood biomass processors Products/Properties Water content (%) Definition Share of water in total weight of humid wood Conifer Density (t/m³) Broadleaves Weight of 1m³ of wood Weight unit Measure used by energy wood buyers or wood pellet and chipboard factories Measure used by energy wood buyers or wood pellet and chipboard factories Measure used by energy wood buyers or wood pellet and chipboard factories Measure used by energy wood buyers or wood pellet and chipboard factories Measure used by energy wood buyers or wood pellet and chipboard factories Conversion factor srm to m³ How many m³ of wood are needed for stacking 1srm of wood products Heat value (kwh/kg) Heat value of 1kg of wood Firewood Long firewood / 3.00 Cuttings Forest residues Sawmill residues Products/Prices Definition Firewood Long firewood Cuttings Forest residues On stump Price of wood on stump in the forest before harvest buyer bares costs of harvest, wood extraction, loading and transport. In case of forest residues buyer bares the costs of extraction, loading and transport. Con: /m³ Broad: /m³ Con: /m³ Broad: /m³ Con: /m³ Broad: /m³ Con: /m³ Broad: /m³ State forests Private forests Sawmills On forest road/log storage Price of wood on forest road or log storage buyer bares costs of loading and transport Con: /m³ Broad: /m³ Con: /m³ Broad: /m³ Con:10.53 /m³ Broad: /m³ On stump Price of wood on stump in the forest before harvest buyer bares costs of harvest, wood extraction, loading and transport 8-12 /srm or /m³ 8-12 /srm or /m³ Sold as firewood / Occasionally 8-10 /ton On forest road/log storage Price of wood on forest road or log storage buyer bares costs of loading and transport Broad: /srm or /m³ At sawmill site Price of forest residues at sawmill site buyer bares costs of loading and transport Broad:27-28 /ton or 29 /m³ / Sold as firewood Sold as firewood Sawmill residues / / / / 5-7 /srm T-13: Woody biomass units, conversion factors and prices Page 36 of 71 / / /

37 With PE Srbijašume, contract for wood supply should be closed with Direction of PE Srbijašume in Belgrade, for all quantities excessing 50 m³. Usual practice of PE is to close annual contracts, where regular buyers have the advantage. PE Srbijašume is some occasions, such as the case of some chipboard and large wood pellet production, practice long term 10 year supply contracts, but after probation period of few years of annual contracts. Supply can be contracted with takeover on: - Stump; - Next to stump; - Forest road or central log storage. Sale of wood on stump is an option offered by PE Srbijašume, especially in case of low quality coppice forests for firewood production. Usual practice is that Forest Estates (such as FE Prijepolje) make a public call for wood on stump sale in certain sections of the forests within forest management units. FE Prijepolje sells around 7,000-9,000 m³ of wood on stump per year. Companies interested for wood on stump buying are bidding for the contract, therefore starting price depending on the demand can be increased up to 10 %. In case of wood on stump sale, contract is based on the planned quantities for harvest, however, final payment is made according to the measured quantities of extracted wood. There is a pricelist of PE Srbijašume for sale of wood on stump, where price depends on forest position and forest roads conditions with special categories of wood on stump from forest affected with fires or ice, snow and wind brakes. Prices of wood on stump in different categories of forests, vary significantly and most of the forests in FE Prijepolje are categorized from III-V category. In case of wood on stump sale, all harvesting and wood extraction operations are performed by the buyer, whereas the seller controls and monitors harvesting and extraction. Joint Company PP, PB, NV or PPP can make contract to buy wood on stump from PE Srbijašume and then subcontract logging companies for harvesting and extraction of wood and biomass. Logs and firewood can be sold to the local market, while woody biomass can be transported and processed at a central biomass storage. Sale of wood next to stump is a practice which is in most cases applied for smaller quantities of wood. In such manner forest residues are sold to local population. Forest residues are collected and extracted to the forest road and then measured by forest technicians. This is a retail of wood and small quantities are sold directly by Forest Units and Forest Estates. FE Prijepolje annually sells up to 1,000 m³ of forest residues to local population or biomass processors. Another possibility is to make annual or even long term contract for collection and extraction of forest residues. However, costs of woody biomass procurement in such manner can be substantial, especially in case of selective harvest, steep terrains and without optimal forest roads and skidding roads network. Such operations, also require significant work force, since collection of biomass needs to be manual in cases that harvesting sites are not easily accessible, on the other hand if residues are scattered, it is necessary to pile them manually in order to be collected mechanically. Nevertheless, this option should also be reflected, especially in case of regenerative harvests. Joint Company PP, PB, NV or PPP can make contact to buy forest residues at harvesting site and then subcontract companies or hire addition work force for collection and extraction of woody biomass. Sale of wood on the forest road or central log storage is a most usual practice of PE Srbijašume, especially for logs, long firewood or cut firewood. Sawmills, chipboard and pellet factories usually buy wood in such way. Forest residues, on the other hand are not extracted in case of wood product method application, which is dominant in PE Srbijašume system. Buying forest residues in central storage is a most cost effective option, nevertheless it can be applied in case of the re-introduction of whole tree or part tree method, where wood products are tailored and produced at the storage. If this occurs Joint Company PP, PB, NV or PPP can make contracts for buying forest residues at forest road or at the log storage. On the other hand, if there are extra quantities of long firewood which are not contracted with existing buyers or there is a possibility to increase wood production in FE Prijepolje, Joint Company PP, PB and NV can make buying contracts and organize delivery of that wood to central biomass storage for further processing. Page 37 of 71

38 With private forest owners, or harvesting companies trading with wood from private forests, Joint Company PP, PB, NV or PPP can make contracts for woody biomass delivery to the central storage or contracts for buying long firewood or woody biomass at forest or paved road. It is important to stress that contracting with individual private forest owners can be complicated since most of private forest owners are small scale with small quantities of wood for sale. Nevertheless significant quantities of wood can be procured if a possibility for small scale forest owners of woody biomass delivery and sale at the central biomass storage is opened. On the other hand, there are companies which trade with wood from private forests and annual supply contracts can be concluded with them as well for delivery of woody biomass to the central storage or takeover at forest road or sellers storage. With sawmills and other wood processors Joint Company PP, PB, NV or PPP can establish contracts for sawmill residues supply. It is important to notice that chipboard, pellet and wood chipping companies are already supplying with sawmill residues from the area, so strong competition do exist. Nevertheless, it is still possible to negotiate with sawmills and other wood processors about contracts for buying sawmill residues at sawmilling site, or buying sawmill residues delivered to the central biomass storage. Wood chips delivery from Joint Company PP, PB, NV or PPP to DH plants should be contracted based on long terms contract, with binding obligations in terms of quantities Joint Company should supply to DH plants. Contract should reflect the price, quality, quantity, delivery schedule and mutual responsibilities. Price of wood chips can be determined as an average price with inflation and factors deriving from possible escalation of wood prices, fuels prices and labor prices, or the price can be negotiated every year before delivery or heating season starts. We suggest following formula for price determination, which can be adjusted for every season, or more often in case of above 5 % changes of indexes in question: PVn = ((PVn-1 x In) + PVo ) I = IS x 25 % + IC x 25 % + IT x 25 % + IB x 25 % PVn = Price without VAT (RSD/ton) on the day of price change PVn-1 = Price without VAT (RSD/ton) on the day of previous price change PV0 = Initial price (RSD/ton) from the contract In = Index from previous price change I = Index IS = Index determination change of average salaries and social contributions IC = Index of fuel prices IT = Regional index of transportation costs IB = Index of wood prices (linked to changes of prices according to PE Srbijašume pricelist) Quality of wood chips should be determined based on Serbian wood chips standards 19 and requirements of firing technology used. Quantity should be determined by calculated and determined consumption, while delivery schedule should be determined according to heat production monthly demand and capacity of the storage in each of DH plants. Finally, all mutual responsibilities including payments, penalties, dispute settlements and possibility of contract termination, should be defined in negotiations between Joint PP, PB, NV or PPP and each of DH plants. Wood chips on Serbian and Western Balkan market is usually sold per weight unit or bulk volume unit. Transactions based on energy content are still not present. Table below presents wood chips, units, conversion factors and prices. For contracting between envisaged parties we can recommend sale based on volume unit with sample control including quality control, granulation control and water content control. 19 SRPS EN :2014 Page 38 of 71

39 Products/Units Bulk m³ tons Definition A volume of space that is made by a cube of bulk wood chips with space between wood chips pieces included that is 1 meter on each side. Weight unit Wood Chips Measure used by chipboard and pellet factories Measure used by pellet factories and wood chips traders Wood Chips Properties Definition Water content (%) Share of water in total weight of humid wood chips Conifer Density (t/bulk m³) Broadleaves Weight of 1 bulk m³ of wood chips Heat value (kwh/kg) Heat value of 1kg of wood chips Wood chips Wood Chips Prices Delivered to buyers site Definition Wood chips delivered and unloaded to sellers point Conifer /bulk m³ or /ton Broadleaves /bulk m³ or /ton T-14: Wood chips units, conversion factors and prices Since wood chips will be delivered to DH plants from central storage, where it will be additional dried, we can recommend 30 % water content as an average water content on which wood chips should be delivered to DH plant. Thus the price can be indicated in RSD per bulk m³ of wood chips with water content ranging from %, with penalties in terms of reduction of delivered quantities to be paid for, if water content of delivered wood chips exceeds 40 %.In this manner, detailed calculations by DH companies of delivered heat value of wood chips will be avoided, while supplier will be motivated to sell only dry wood chips, which is in DH companies best interests Woody Biomass Central Storage Location Location for central biomass storage needs to have an optimal position in terms of proximity to woody biomass resource base and wood chips delivery points DH plants. Location should be close to major roads, which are regularly maintained and cleaned during the winter period and accessible by trucks with maximal loading capacity (up to 40 tons gross weight). Location needs to be positioned at the open area in or out of the industrial zone, but away from residential areas in order to reduce pollution effects of noise and dust. Location needs to be dry, thus away from the rivers, and in preferably windy area to facilitate natural drying of woody biomass. Location needs to be equipped with necessary infrastructure including electricity, water supply and sewerage. Location needs telephone and internet connection as well. Location needs to be covered with materials such as gravel, stone or paved. Storage needs to have enough space to store unprocessed biomass in the open, preferably covered and produced wood chips in sheds. We have analyzed several potential locations owned by private sawmills interested for supplying DH companies with wood chips or municipally owned and suitable for the establishment of central biomass storage in case of individual supply. Due to their position some can also be regarded suitable for cluster supply as well. List of optimal central biomass storage properties and properties of analyzed locations are presented in the table below. Info Optimal Location 1 Location 2 Location 3 Location 4 Location 5 Position Along the main road Koran doo, Omoprom doo, Municipality of Nova Zlatar Sped doo, JKP Lim, Prijepolje between Nova Varoš, Priboj and Prijepolje Priboj Bistrica Varoš, Branosevac, Nova Varoš Kokin Brod Municipality Nova Varoš, Priboj or Priboj Nova Varoš Nova Varoš Nova Varoš Prijepolje Prijepolje Distance km 36 km 16 km 26 km 40 km 1 km from DH Prijepolje Distance from DH Priboj km 5 km 25 km 35 km 35 km 31 km Page 39 of 71

40 Distance from DH Nova Varoš Distance from the railway km 40 km 10 km 1 km 12 km 26 km 1-2 km 2 km 2 km 14 km 20 km 4 km Distance from major road Closest forest complex in Limsko forest area Distance from other forest areas Road conditions weight limitations/ other restrictions/ accessibility Distance from residential area Distance from industrial zone Possible issues with noise and dust pollutions Total area usable for biomass storage Existing objects and infrastructur es and connectivity Location properties Ownership of the location land and objects Legal disputes Possibility of lease or sale Envisaged impediment s for using location as a biomass central storage At the major road On the major road and border crossing to B&H km km in Serbia, 10 km in B&H No limitations No limitations, accessible On the major road between Nova Varoš, Priboj and Prijepolje On the main road to Prijepolje and Priboj On the crossroad of road to Nova Varoš and Prijepolje and road to Priboj 200 m 5 km 1 km 5 km 5 km 5 km km km km km No limitations, accessible No limitations, m of road to connect to main road are missing No limitations, accessible No limitations, accessible Over 1 km 1 km 3 km 200 m 500-1,000 m 200 m In industrial zone or outside industrial zone In industrial zone 4 km 500 m In industrial zone 4 km No No No Possible No Possible Open area of 4-6,000m 2 for woody biomass Sheds for machinery m 2 Sheds for wood chips 1,000-1,500 m 2 Object usable for sheds, road, water, sewage, electricity, etc Open, sunny, windy, no floods and underground waters 100% owned by partner in Joint Company or PPP In closed storages 1,500 m 2 in open storages 10,000 m 2 Objects, Road, water, sewage, electricity, phone Open, sunny, windy, near the river, no floods, underground waters 100% Koran doo 5-6,000 m 2, possible to build sheds for wood chips Objects, Road, Water, electricity, phone, own trafo station shared with Vihor doo, a sawmill next to Omoprom Open, sunny, windy, no floods and underground waters 20,000 m 2, possible to build sheds for wood chips Connectivity to existing infrastructure exist Open, sunny, windy, no floods and underground waters 100% Omoprom Municipality of Nova Varoš Total owned land where sawmill is located is 80,000 m 2 Objects, Road, water, sewage, electricity, phone Open, sunny, windy, no floods and underground waters 100% Zlatar Sped 2,000 m 2 in closed storages Additional 4,000 m 2 in open storage Objects, Road, water, sewage, electricity, phone Open, sunny, windy, no floods and underground waters In process of transfer to Municipality of Prijepolje, who plans to transfer it to JKP Lim None None None None envisaged None None so far If possible for lease or sell to Joint Company or partners in PPP Koran is using the location for logistic operations, interested to develop wood chips supply and to use the location as central storage Omoprom is using the location for sawmill operations, interested to develop wood chips supply and to use the location as central storage No plan for using the location, one idea was to build DH plant None None None None envisaged, additional investments needed for road construction and infrastructure connection Zlatar sped is using the location for sawmill operations, interested to develop wood chips supply and to use the location as central storage T-15: Optimal and analysed location for central biomass storage for individual or cluster supply None JKP Lim is using the location as a logistic point for their machinery. There have a lease contract, plan is to transfer the location to JKP LIM ownership If ownership transfer succeeds no impediments Page 40 of 71

41 Positions of analyzed locations are presented in figures bellow. F-6: Position of analyzed locations Map data 2015 Google First of analyzed location is storage of Koran doo, positioned near Priboj at border crossing with Bosnia and Herzegovina. Figure bellow presents satellite image of the location. Map data 2015 Google F-7: Koran doo storage google maps Page 41 of 71

42 Photo of the location is presented in figure bellow. F-8: Location 1: Koran doo, Priboj Photo by Foragrobio cc doo 2015 GIZ DKTI Koran doo have sawmill capacities in Serbia and Bosnia and Herzegovina, and is interested to participate in supply of DH companies with wood chips, especially DH Priboj. Location have necessary infrastructure space and objects usable for central biomass storage, however this location is not suitable for central biomass storage for supply of all three DH plants and it far from optimal, when its position is considered. Even though it is 40 km from the furthest DH plant in Nova Varoš, location is far from raw material base, except to forests near Priboj, compared to other locations. Location is close to raw material base in Bosnia and Herzegovina, however border crossing Uvac in Priboj, does not have phyto-sanitary inspection, so far, so import of woody biomass from Bosnia to this crossing is not possible. Therefore Koran doo does not provide advantages in terms of raw material supply in cluster supply model. Hypothetically most of the locations in Priboj would have similar features and limitations to be used as central biomass storage for closer supply. Second analyzed location is Omoprom in Bistrica, Nova Varoš. Omoprom is sawmill, processing around 40m³ of logs per day. This company sells its forest residues to wood pellet and chipboard factories, however it is interested to develop other ways for utilization of residues. One of the options they envisage is wood chips production and supply to DH plants in the area. Company is very interested for idea of cluster supply. Omoprom location have necessary infrastructure and space usable for central biomass storage. Position is optimal, since it is located in between Prijepolje, Priboj and Nova Varoš. Location is on the main road from Nova Varoš to Priboj and Prijepolje, and also far from residential area. Location is in the middle of limsko forest area and km away from other forest areas. Location is also close to Montenegro and Bosnia, from which sawmill already supply part of raw material. Omoprom can be recommended as a potential location for central biomass storage in case of cluster supply. Figures bellow present satellite image and photo of Omoprom location. Hypothetically, other possible locations in vicinity of Bistrica have optimal position in terms of raw material supply from limsko forest area and wood chips delivery to DH plants. Page 42 of 71

43 Map data 2015 Google F-9: Location 2: Omo Prom doo, Bistrica, Nova Varoš Google Maps F-10: Location 2 - Omo Prom doo, Bistrica, Nova Varoš Photo by Foragrobio cc doo 2015 GIZ DKTI Third location analyzed is Branosevac in Nova Varoš. This location is positioned in town of Nova Varoš close to main road to Priboj and Prijepolje. Page 43 of 71

44 Land is owned by municipality of Nova Varoš and there was an idea to use this land as a location for new DH plant in Nova Varoš. Location is not yet connected to the main road, and infrastructure. Location is also close to residential area leaving possibilities of noise and dust pollution. In terms of position for supply, furthers DH plant is Priboj at 35 km. In terms of raw material supply from limsko forest area location has good position, with furthers forests at 50 km. One of the advantage of the location is proximity of other forest areas such as Tarsko-Zlatiborsko (35 km) and Moravicko (50 km) so part of supply can also be organized from those forest areas as well. Advantage is also in proximity of large number of sawmills in Nova Varoš municipality. If infrastructure and road connection is resolved and If possible issues with noise and dust solutions are resolved by applying protective measures, although not optimal this location can be considered for cluster supply. Other question is the level of investment needed for road construction and infrastructure connections, which should be elaborated in details in case of municipal decision to use this location as a biomass storage. Figures bellow present satellite image and photos from the location. Hypothetically, other location in vicinity of Nova Varoš town, even though not optimal, do have good position for raw material supply and acceptable position for wood chips delivery to DH plants. Map data 2015 Google F-11: Location 3: Branosevac, Nova Varoš Google Maps Forth analyzed location if Zlatar Sped in Kokin Brod at the crossroads of main road to Nova Varoš, Prijepolje and Priboj and road to Priboj via Pribojska Banja. Zlatar sped has a sawmill processing over 80m³ of logs per day, supplying from Limsko forest area, Moravicko forest area, Tarsko- Zlatiborsko forest area and also Bosnia and Herzegovina and Montenegro. Zlatar sped is a largest sawmill in the area and one of the largest wood processors. Zlatar sped was also included in development of Nanix wood pellet factory in Nova Varoš, but sold their ownership part recently, although they continue to supply Nanix wood with sawdust and sawmill residues. Nevertheless, Zlatar sped is interesting to participate in wood chips supply to DH plants if this can be profitable. They also have wood chippers and location is fully equipped with all necessary infrastructure and possess more than enough space for storing woody biomass and wood chips. Page 44 of 71

45 The position of Zlatar Sped location in terms of delivery to DH plants is not optimal but acceptable with Prijepolje DH plants being furthest point of delivery at 40 km. On the other hand the position in terms of raw material supply is very good. Furthest forest complexes in limsko forest area are 50 km away from the location, however forests of other areas such as Tarsko-Zlatiborsko and Moravicko are km away. Another advantage of this location is proximity of other sawmills in Nova Varoš municipality. Location is also close to Montenegro and Bosnia, from which sawmill already supply part of raw material. Although not optimal for delivery Zlatar Sped can be regarded as a feasibly location for central biomass storage in case of cluster supply. Figures bellow present satellite image and photo of Zlatar Sped location. Hypothetically, other possible locations in vicinity of Kokin Broad can be regarded as feasible locations for central biomass storage. F-12: Location 3: Branosevac, Municipality of Nova Varoš Photo by Foragrobio cc doo 2015 GIZ DKTI Fifth analyzed location is JKP Lim in Prijepolje. This location is positioned in Prijepolje close to main road to Priboj and Nova Varoš. Land is owned by private owner, and object are leased by JKP Lim. However municipality of Prijepolje is in negotiations of buying the land and objects and plan is to transfer the ownership to JKP Lim. Location is connected to the main road and fully equipped with necessary infrastructure. Also there is enough space and objects which can be used for storing woody biomass and wood chips. Location is also close to several houses and one hotel which is currently out of operation, leaving possibilities of noise and dust pollution. In terms of position for supply, furthest DH plant is Priboj at 31 km. In terms of raw material supply from limsko forest area location has good position, with furthest forests at 50 km. Other forest areas such as Tarsko- Zlatiborsko, Moravicko and Gornje Ibarsko are km away. Advantage is also in proximity of large number of sawmills in Prijepolje municipality and Montenegro. One of the disadvantages is in competition in woody biomass supply with Jela Star doo, the largest woody biomass processor in the area. If ownership is resolved and If possible issues with noise and dust solutions are resolved by applying protective measures, although not optimal this location can be considered for cluster supply. Figures bellow present satellite image and photos from the location. Hypothetically, other location in vicinity of Prijepolje town, even though not optimal, do have good position for raw material supply and acceptable position for wood chips delivery to DH plants. Page 45 of 71

46 Map data 2015 Google F-13: Location 4: Zlatar Sped doo, Kokin Brod, Nova Varoš, Google Maps F-14: Location 4: Zlatar Sped doo, Kokin Brod, Nova Varoš Photo by Foragrobio cc doo 2015 GIZ DKTI Page 46 of 71

47 Map data 2015 Google F-15: Location 5: JKP Lim, Prijepolje, Google Maps F-16: Location 5: JKP Lim, Prijepolje Photos by Foragrobio cc doo 2015 GIZ DKTI Page 47 of 71

48 Jela Star doo, Prijepolje, which is also regarded as potential supplier in BSS, have already developed large woody biomass processing operation and storage capacities. Although company developed wood chips production and very strong position in woody biomass supply, most of wood chips they produced is transported to their own wood pellet factory in Prijepolje. Jela Star pellet factory recently increased their production capacities to 50,000 tons per year, creating annual wood chips demand of over 100,000 tons. Although they were previously interested for supply of wood chips to DH plants, it is very questionable if the company will now be interested for DH plants supply. Jela Star now have very large demand for wood chips in their own pellet factory and supplying their own pellet factory with wood chips is much more profitable due to the added value of wood chips created in wood pellet production. After the interview with Jela Star doo owner and director, we decided not to include Jela Star doo as a potential location of central biomass storage Storing, Processing and Logistics of Woody Biomass and Wood Chips Unprocessed biomass should be delivered to central biomass storage. As mentioned, Joint Company PP, PB, NV or PPP should be equipped with transport capacities to deliver unprocessed biomass, but also it is important to leave the option of unprocessed woody biomass takeover at central biomass storage. Considering annual demand of wood chips at DH plants of 9,000 tons per year at 30 % water content, around 10l,000tons per year of fresh woody biomass at water content 35-45% should be processed. Detailed schedule of unprocessed biomass delivery should be organized during or after contracting woody biomass supply. Table below presents envisaged dynamics of woody biomass supply and wood chips delivery considering wood chips demand. C-2: Woody biomass supply and wood chips delivery dynamics Considering presented delivery dynamics, central biomass storage should have enough open space to store up to 7,300 tons of fresh woody biomass to be delivered from May to September, where there is no delivery to DH plants. On the other hand most of forest and wood industry residues can be supplied in this period. Central biomass storage also needs enough closed space to store up to 1,500 tons of wood chips to be dried before delivery to DH plants. Info Tons Tons to srm or bulk m³ Height of pile (m) Needed area (m 2 ) Fresh Woody biomass 7, ,000 6,000 Wood Chips 1, ,000 1,500 Machinery and equipment T-16: Required space for fresh woody biomass and wood chips storage, machinery and equipment Page 48 of 71

49 Central biomass storage needs to have close access to major road, without weight restrictions. Storage should be equipped with necessary infrastructure including: electricity, water, and sewage and telephone connection. Storage surface should be paved or asphalted in order to prevent mixing gravel with woody biomass which can cause damages to wood chipping machines. Open part should be used for storing fresh woody biomass. Open part should have enough space for manipulation with trucks and other machines. Wood chips shed should also be built for storing wood chips. Sheds should have enough capacity to store 0.5 to 1 month of wood chips production. However, in case of providing location with existing objects, those can be adapted and used as wood chip sheds. Cost of wood chips shed construction can vary significantly depending on size, height, materials and design used, therefore the construction should be adapted to investment potential of the partners. Shed should be covered with roof and opened from the front and sides, to enable ventilation and natural drying of wood chips. Picture below present one example of the wood chips sheds. Central biomass storage also needs a machinery garage and an office container. F-17: Example of wood chips shed Photos by Foragrobio cc doo 2015 GIZ DKTI Processing of woody biomass should be performed by mobile wood chipper with production capacity of 1,500 to 2,000 tons per month, or enough to cover wood chips demand of DH plants in peak winter months. This capacity is tons per hour. Wood chipper can be PTO driven or selfpropelled and it can be equipped with optional electric engine. If possible, wood chipper with own diesel or electric engine can be recommended. Wood chipper also needs to be equipped with feeding crane for wood and to have infeed possibility for wood diameter of cm. Several examples of adequate wood chippers are presented in the table and pictures below. Info/Brand Heizohack Mus Max Eschlböck Jenz Model 8-400EM/E-500EM Wood terminator 7lZ Biber 7/Biber 7plus HEM 360 Power kw kw kw kw Hourly Capacity 60 bulk m³/h 60 bulk m³/h 60 bulk m³/h 60 bulk m³/h Maximal diameter 50 cm 50 cm 35 cm 36 cm T-17: Examples of adequate wood chippers Page 49 of 71

50 Manipulation with woody biomass and wood chips, including wood chips loading, should be operated with telescopic handler. Telescopic handler should be equipped with fork lifter and loading bucket. Telescopic handler should have elevation possibility for loading or stacking of 6-8 meters. Several examples of adequate telescopic handlers are presented in the table and pictures below. Info/Brand Claas Manitou JCB Caterpilar Model Scorpion MLTX PS Agri TH407C Power 115 kw 125 kw 75 kw 75 kw Maximal load 3-5 t 3.5t 3.1t 3.7 t Maximal lifting height 6,.-8.5 m 6.9m 7 m 7.3 m T-18: Examples of adequate telescopic handlers In accordance to woody biomass supply and wood chips delivery dynamics two trucks are needed for transport operations (table below). Month/info Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Fresh woody biomass supply (w=35-45%) ,000 1,500 1,500 1,500 1,800 1, Wood chips delivery (w=30%) 1,500 1,500 1, ,000 1,500 1,500 Truckloads woody biomass 20t Truckloads wood chips 20t Truckloads per day Number of trucks T-19: Transport dynamics and number of trucks Adequate trailers for transport of woody biomass and wood chips are also required. We can recommend procurement of two walking floor trailers with capacity of m³; two trailer with crane for wood and stacked sawmill residues transport. Adequate trucks and trailers are presented in picture below. Depending on DH wood chips storages accessibility we can recommend a kipper trailer or container trailer of m³ for wood chips delivery to locations with restricted accessibility for large trailers Staff Chart below presents the organization of future Cluster Supply Company. Page 50 of 71

51 F-18: Organizational structure Manager of the company should be appointed by the board. Manager should be a professional in the field of forestry, wood processing or other similar fields, with relevant experience (at least 5 years) in company management and business administration, organization of harvesting, biomass processing or sawmilling operations and wood products trade. Manager should have excellent knowledge of English, drivers license and computer skills. Manager should also have strong managerial, communication and interpersonal skills. Manager s tasks and duties should encompass: representation of the Company and communication with all other legal bodies; reporting to the board; coordination and planning of the activities; selection of employees and delegation of duties; provision of woody biomass supply and wood chips delivery contracts; increase of economic efficiency of the company and control of legality of company business procedures; organization of woody biomass delivery and organization of wood chips transport; woody biomass and wood chips quality control; and other duties in line with his core tasks. Two skilled and experience truck drivers with necessary licenses should be employed. Their main tasks are to drive trucks or other vehicles transporting woody biomass to the central biomass storage and wood chips transport to DH plants, along with basic control and maintenance of the trucks, trailers and other vehicles. Truck drivers should also be trained for operations with telescopic handler and wood chippers in case of need. One operator of wood chipper and telescopic handler (preferably with truck drivers licenses) should be employed. His main tasks will be operating with telescoping handler in woody biomass and wood chips manipulation, loading or unloading and operating wood chipper. Manager and all employees should be additionally trained for work in woody biomass processing, storing and logistics along with quality control. Also the Manager and all employees need to be trained in work safety with special attention to anti-fire measures, safety of machinery handling, safety in transport, and safety in wood processing. Page 51 of 71