Changes to energy law
The 7.8 percent increase in revenues taking into account a second budget cut scheduled for next December, will probably remain the Achille’s heel even for the 2012 budget
TIRANA, Nov. 27 – Last weekend, in a marathon session, Parliament approved amid debates the 2012 draft budget and some changes liberalizing the energy law. While the 2012 budget received only 74 votes of the ruling Democratic-Party-led coalition, Parliament did not provide details on the number of votes the energy draft law got. Earlier last week, Parliament postponed the vote of the energy law after four ruling coalition MPs were not present in the session.
2012 budget
The 7.8 percent increase in revenues taking into account a second budget cut scheduled for next December, will probably remain the Achilles Heel even for the 2012 budget. The government has been forced to make mid-year budget cuts for two consecutive years because of overoptimistic revenue projections. The situation appears more critical even this year when total government revenues during the first ten months of this year rose by only 1.4 percent to 267.6 billion lek year-on-year, remaining 3.6 percent less or 10 billion lek down compared to government projections.
Facing high public debt levels, poor performance in revenues and spillover impacts from the crises in neighboring Greece and Italy even after mid-year budget cuts, the government says it has adopted a more conservative budget for 2012 when the country celebrates its 100th anniversary of independence. Independent experts remain skeptical of the 4.3 percent GDP growth target which the government has set, which is two to three times higher compared to what international financial institutions such as the IMF, the World Bank and the EBRD forecast for Albania.
Defending the 2012 budget, Finance Minister Ridvan Bode said the Albanian economy remained dynamic and the macroeconomic outlook stable.
Opposition Socialist MPs have criticized the 2012 budget for high public debt levels, currently at 60 percent of the GDP, and not foreseeing enough funds to reduce poverty, unemployment reform the education and health sectors and carry out more public investments.
In its latest review of the 2012-2014 macroeconomic framework, the government expects the country’s GDP to grow by 3.9 percent in 2011 and 4.3 percent in 2012 compared to 5 percent and 5.1 percent respectively last July when the budget was cut by 5 percent.
Revenue expectations have also been lowered to around 330 billion lek compared to 344 billion lek under mid-year budget review. Meanwhile, expenditure has also been cut by 14.2 billion lek to 376.6 billion lek.
Public debt is expected to be at 59.3 percent of the GDP for 2011 and 59.4 percent in 2012. The government is expected to make the new changes under a normative act at the end of December, cutting another 14.2 billion lek after the budget was cut by 18.3 billion lek (USD 183 million, Euro 130 million) in an effort to keep rising public debt and budget deficit levels in check. This comes at a time when international financial institutions have cut their forecast for Albania’s GDP growth to 2 percent for this year and 1.5 percent for 2012.
IMF’s Gerwin Bell has described Albania’s newly drafted 2012 budget with revenues expected to grow by 8 percent, as remaining overoptimistic despite the government insisting on having drafted a more conservative and realistic budget for 2012.
With public debt at around 60 percent of the GDP, Albania remains the most vulnerable country among six EU- aspirant South East European countries, according to a new World Bank “South East Europe Regular Economic Report”.
What puts the Albanian public debt more at risk is that it accounts for more than double the annual revenues, while interest expenditure has risen to 3.4 percent of the GDP, compared to an average of 1.3 percent in the SEE 6, said the World Bank in a recent report on six SEE countries aspiring to join the EU.
The new 2012 budget foresees revenues at 355.7 billion lek, and expenditure at 396.9 billion lek with a deficit of 41.16 billion lek or 3 percent of the GDP. The 2012 projections are even lower compared to the initial 2011 projections when the government expected a budget of 409 billion lek.
The government expects the GDP per capita to grow to 3,092 Euros in 2012 up from 2,930 Euros in 2011. According to latest data by Eurostat, the statistical office of the European Union, Albania has suffered a drop in GDP per capita although being the only EU aspirant country to register positive growth rates in the crisis year of 2009. Albania’s GDP per capita dropped to 2,661 Euros in 2009, down from 2,784 in 2008, remaining better only compared to Kosovo which registered 1,790 Euros. Bosnia and Herzegovina, which is also benefiting from visa free travel in the Schengen area, had a GDP per capita of 3,192 Euros compared to the EU 27 average of 23,500 Euros, says Eurostat.
2012 investments
Albania will spend 69.7 billion lek or around 5 percent of the GDP in 2012 on investments in priority sectors such as infrastructure, education, health, defense and agriculture and rural development, according to the Finance Ministry.
The figure is almost the same as the 2011 budget which is scheduled to undergo another cut following underperformance in revenues even after mid-year budget cuts.
The reviewed 2011 budget projected 73.7 billion lek of investments.
Under the 2012 budget, some 27.3 billion lek of investments or 1.97 percent of the GDP will be carried out through domestic financing while the remaining 42.3 billion lek will be performed under external financing.
Education and infrastructure have the major share in spending with 3.2 percent and 3.05 percent of the GDP respectively. The health sector will receive 2.6 percent of GDP while agriculture only 0.5 percent of the GDP, despite employing the majority 44 percent of the population and producing 20 percent of the GDP.
The southern Albania axisנwith the Tirane-Elbasan and the Levan-Tepelene highways along with the Fier bypass and the Kardhiq-Delvine segmentנwill be the focus of infrastructure projects.
Energy law changes
Under the new law, electricity produced by the current state-owned hydropower plants, accounting for more than 90 percent of domestically produced electricity, will be used to supply only household consumers and small and medium-sized enterprises, excluding big consumers.
“This intervention will make possible the real opening and liberalization of the electricity market in Albania which currently is only formally liberalized and will give an end to monopolies created in the electricity market,” says the Economy Ministry.
The changes make it compulsory for big energy consumers to be supplied with electricity by qualified suppliers other than CEZ Shperndarje at prices not regulated by the energy watchdog ERE to minimize rising costs for state-owned power utility KESH.
“This intervention will make possible the real opening and liberalization of the electricity market in Albania which currently is only formally liberalized and will give an end to monopolies created in the electricity market,” says the Economy Ministry.
The Ministry says the situation with big electricity consumersנmainly of the mining and cement industryנrecently switching to tariff customers and getting electricity supply by state-owned KESH through private CEZ Shperndarje is leading to increased costs for state-owned power corporation which in drought periods will be forced to import electricity at considerably higher prices than the domestically produced energy from the hydropower plants.
