Why power distributor CEZ and Albania are headed for divorce, and what it means for Albania.
When Czech energy giant CEZ arrived in Albania back in 2009 to take over the country’s power distribution by purchasing the state-owned monopoly, OSSH, it seemed to be a match made in heaven.
The sale promised millions for state coffers and massive improvements to Albania’s problematic power distribution network. CEZ would give 102 million euros for three quarters of OSSH and promised 400 million more in investments to the grid. Plus, Albania gained a major, credible foreign investor with billions of euros in capital. There was a strong political background to the marriage too: the Czech Republic held the rotating presidency of the European Union back then and Albania had just officially applied for membership.
Fast forward to 2012, and the match made in heaven has turned out to be a disaster – and the marriage is likely headed for divorce.
The Albanian state and CEZ Shperndarje, a subsidiary of Czech company, have been involved for months in a nasty spat over unpaid bills, debt, investment and management that have CEZ officials saying the company will likely soon leave the country and the key Albanian regulatory body starting procedures to yank the company’s distribution license.
But in addition to likely financial losses for both Albania and CEZ, the likely break up also tells a lot about the difficulties of doing business in Albania and the state of the country’s development.
Albania’s archaic approach to rule of law meets modern realities
Many of the problems Albania faces demand a cultural shift, notes the latest EU report on enlargement. The laws on the books might be up to par with EU standards, but their implementation often is not.
It’s one of the reasons that 2009 application for membership has gone nowhere in the past three years, and it is also behind the fact that many Albanians – families and institutions – believe it is perfectly fine not pay their electricity bills – either because they can’t afford to do so, or because they claim they are owed money themselves, Albanian analysts note.
CEZ says it has worked to improve collection with Albanian families, but the large concern remains unpaid bills by state-owned entities. It says state institutions owe the company 165 million euros, of which 38 million euros by water supply companies. In a final extreme attempt to collect, the company attempted to shut power to water pumps, which meant hundred of thousands of Albanians wouldn’t have water in their taps.
The government called the move “an unprecedented act which severely compromises citizens’ security, public security and the country’s national security” – and several CEZ employees landed in jail before a proper court order forced the company to back down.
But by the time the water pumps started working again, the writing was on the wall: CEZ and Albania were headed for divorce.
Albania’s Energy Regulatory Entity started official procedures to remove the operating license of CEZ Shperndarje, citing failure to import electricity for its grid losses, debts to state-owned power companies and lack of investments.
At the same time, CEZ says it will make the decision by the end of the year if it wants to stay at all in Albania. If the words of its CEO are any indication, the decision has already been made.
“I think the mostly likely solution will be the exit of CEZ from Albania,” Chief Executive Daniel Benes told Reuters.
A political hot potato
The CEZ situation is a hot potato for the government which entering and election year is unwilling to do anything that would upset potential voters. It is also in a money crunch, as government experts point out that state-owned companies are owed 14 billion leks by CEZ, a fraction of what state institutions owe the company.
The opposition Socialists blame the government, but have also been harsh with CEZ, which they accuse of mismanagement.
The electricity distribution system is in a state of collapse because of mismanagement and corruptible affairs, say the Socialists, describing the privatization of the former distribution operator OSSH and CEZ Shperndarje’s performance as a failure.
What’s next for CEZ in Albania
At a time when the Albanian government-CEZ divorce over the management of the country’s problematic power distribution network seems inevitable, both parties are preparing for a solution that would come from an international arbitration court. While CEZ has already hired U.K-based Schindlers law firm to negotiate its disputes, the Albanian government has also recently picked U.S. Patton Boggs.
CEZ has also announced it will claim its 60 million euro guarantee by the World Bank three and half years after taking over the majority stake in Albania’s distribution system.
Scenarios behind the cancellation of contract with CEZ Shperndarje include government taking over the distribution sector majority share, or the temporary takeover of the full shares and the contracting of another private company.
No matter what happens, economic experts note the CEZ departure will likely cost Albanian taxpayers money, and as the company leaves, the greater damage could be to Albania’s reputation in the eyes of other potential foreign investors.
