Albania’s electricity distribution operator suffers drastic cut in profits

Tirana Times
By Tirana Times July 4, 2018 14:38

Albania’s electricity distribution operator suffers drastic cut in profits

Story Highlights

  • OSHEE and power utility KESH, both of which state-run, imported electricity worth about €200 million in the second half of 2017 when Albania faced one of the worst droughts in decades that paralyzed the country’s wholly hydro-dependent electricity sector

Related Articles

TIRANA, July 4 – The prolonged drought that Albania faced last year had a severe negative impact on the finances of the state-run OSHEE distribution operator in 2017, with costly imports forcing the country’s largest company to hardly make a profit and significantly reduce planned investment.

In its 2017 financial report, the OSHEE distribution operator says its net profit dropped by 10 times to a mere 1.8 billion lek (€14.5 mln) last year, down from a record high of 18.7 billion lek (€148 mln) in 2016 to register its worst financial result for the past three years.

The state-run company turned profitable in 2015 thanks to an aggressive nationwide campaign to curb electricity thefts and collect hundreds of millions of euros in accumulated unpaid bills and in 2016 emerged as the largest Albanian company in terms of turnover and profits to rank the 125th largest South East Europe company, leaving behind major private-run oil production and trading companies.

OSHEE and power utility KESH, both of which state-run, imported electricity worth about €200 million in the second half of 2017 when Albania faced one of the worst droughts in decades that paralyzed the country’s wholly hydro-dependent electricity sector.

The overwhelming majority of imports were handled by the OSHEE distribution operator which also needed support by the central government to handle costly electricity purchases.

The OSHEE says its ‘electricity and transmission’ spending rose by about 14 billion lek (€110 mln) in 2017, a 54 percent hike compared to 2016 when electricity imports were quite small due to plenty of rainfall.

Emergency electricity purchases also cut OSHEE’s planned investment in the distribution grid to about 7 billion lek (€56 mln), down 30 percent compared to the previous year.

Meanwhile, grid losses only fell by 1.6 percent to 26.4 percent in 2017, slowing down their downward trend after a record 45 percent in 2013 when the distribution operator was taken back under state management from a failed short spell privatization by Czech Republic’s CEZ.

OSHEE registered profits of about 14.9 billion lek (€117 mln) in 2015 following losses of 4.5 billion lek (€35 mln) in 2014 and a record high loss of 27 billion lek (€213 mln) in 2013 ahead of a late 2014 nationwide campaign to tackle accumulated unpaid debts and widespread electricity thefts.

More than 50,000 household and business consumers continue to pay their accumulated unpaid electricity bills over the 2007-2014 period in monthly instalments, says state-run OSHEE distribution operator.

The OSHEE distribution operator says about 346,000 debtor consumers paid off their debts at one time since December 2014, benefiting 70 to 80 percent discounts in their late payment penalties.

However, the company’s principal amount of bad debt for 2007 to 2014 bills is estimated to have dropped by only about 30 percent in the past three years and remains huge at about 47.8 billion lek (€371 million) and little likely to be recovered as many of the debtor businesses have gone bankrupt and a considerable number of debtor households are among those who left the country during the past four years of the asylum exodus when about 100,000 Albanians are estimated to have left the country.

Almost half of Albania’s population lives in energy poverty, recognized as spending more than 10 percent of household income on energy, according to a World Bank report.

The situation reflects the high prices charged on electricity to households in one of Europe’s poorest countries although the country meets the overwhelming majority of up to 80 percent of its needs through domestic hydro electricity generation depending on favourable weather conditions.

 

U-turn expected

Heavy rainfall since late 2017 have considerably improved the country’s hydro situation in the past few months and state-run operators are expected to considerable improve their finances, increase investment and reduce their accumulated debts this year.

The favourable hydro-situation has allowed state-run KESH power utility to meet the country’s electricity needs and export electricity worth about €60 million for the first half of this year.

KESH currently produces about two-thirds of domestic electricity from three hydropower plants on the northern Drin cascade and the rest is generated by more than a hundred smaller private and concession hydropower plants whose electricity is purchased at regulated prices by the OSHEE distribution operator.

Meanwhile, the OSHEE plans its investments in the dilapidated grid will increase to 8.75 billion lek (€69 million) for this year, according to an investment plan submitted with the country’s energy regulator.

Last April, the OSHEE operator concluded the unbundling of its operations by registering three separate subsidiaries, meeting a long-time requirement by Vienna-based Energy Community Secretariat.

The government has also announced plans to float OSHEE at the newly launched Albanian Securities Exchange, Albania’s sole private-run stock exchange in a bid to massively involve households as investors.

State-run OSHEE is the country’s largest employer with a staff of 6,300 employees.

Albania’s wholly hydro-dependent domestic electricity sector often places public finances at risk and uncertainty, especially in case of adverse weather conditions triggering costly imports such as last year.

In a bid to diversify the domestic electricity system, the government has offered tax incentives on solar and wind plants as well as natural gas fired plants at a time when the major Trans Adriatic Pipeline, a section of which also crosses through Albania, is scheduled to bring first Caspian gas to Europe by 2020.

Tirana Times
By Tirana Times July 4, 2018 14:38