Prague-based CEZ Group says it is willing to drop the international arbitration suit only if the two sides agree on fair compensation.
TIRANA, Oct. 21 – Fearing financial consequences from international arbitration, the new Albanian government is seeking an out-of-court solution with Prague-based CEZ Group whose CEZ Shperndarje Albania subsidiary had its licence revoked in early 2013 three and a half years after acquiring the Albanian power distribution system. Energy Minister Damian Gjiknuri says avoiding international arbitration procedures would help prevent a financial collapse in the Albanian energy system, already in a chain of huge debts.
Minister Gjiknuri says the settlement of dispute with the Czech energy giant which managed the Albanian distribution system for three and a half years in an arbitration court would have negative financial consequences for Albania and block investments in the distribution grid.
“There will be huge financial consequences. Unfortunately, the previous government did nothing on this issue in the past eight to nine months, no expropriation procedures were carried out and no negotiations were made to find a solution with the Czechs, deteriorating Albania’s position in this conflict. The settlement of the Arbitration dispute which can take years, prevents investments in the system and all these issues will be reflected on the electricity system and the financial crisis it faces,” said Gjiknuri.
The Energy Minister blames both the Czechs and previous Democratic Party-led government for the severe situation in the Albanian electricity system.
“The privatization of the distribution system was a failed privatization where no full guarantee was provided and no real term of contract implemented. The Albanian state did not fulfill its obligation to force this company carry out the schedule of investments it had committed to,” added Gjiknuri.
The evaluation of the situation the Czech company left the Albanian distribution system will be one of the most important steps in the negotiations with the Czechs.
A draft decision by the Energy Ministry requires the Albanian government to set up a joint working group to negotiate with the Czechs for a peaceful solution or prepare for Albania’s defence against the Czechs in international arbitration by collecting evidence on the violations of the Czechs in case out-of-court negotiations fail.
Distribution system under state administration
The state administration of the electricity distribution system during this year has brought positive results with bill collection rate and grid losses registering considerable improvement. The situation was also favoured by the good hydro situation, which is the only source of domestic hydropower generation. “These nine months of the company’s temporary administration also proved this would have been the most successful privatization if honesty, professionalism and dedication would have been the criteria of the former directors of this company,” said former CEZ state director Sahit Dollapi who resigned few days ago citing plans to nationalize the system by the new government.
Grid losses in Albania’s distribution system, which since January 2013 has been back under state administration after Prague-based CEZ Group had its Albania licence revoked, have registered a slight drop, but yet remain high at around 37 percent of electricity fed into the grid. The latest energy report published by the country’s state Institute of Statistics (INSTAT) shows grid losses in the first half of this year dropped by 4.6 percent to 37.2 percent compared to the same period in 2012 when CEZ Shperndarje distribution operator was under the Czechs’ administration.
CEZ open to negotiations
Prague-based power utility CEZ AS said it’s open to talks with Albania about possibly dropping an international arbitration suit it filed after the Albanian government revoked its license and seized its assets this year. CEZ is willing to consider avoiding arbitration if the two sides agree on fair compensation, spokeswoman Barbora Pulpanova told Bloomberg in an e-mailed message. The Prague-based company hasn’t received an official note from Albania’s government asking it to drop the suit, Pulpanova said.
Albanian authorities revoked CEZ’s license, seized its assets and forced the company out of the country in January, following almost a year of disputes over tariffs, taxes, and unpaid electricity bills from local utilities.
CEZ is seeking compensation for damage to its investment in power distributor CEZ Shperndarje, which it purchased in 2009 for 102 million euros ($139 million). It has invested 100 million euros in repairs and expansion and says the Albanian regulator ordered it to pay state-owned power producers higher tariffs without allowing the Czech utility to raise prices for customers, Bllomberg reports.
Arbitration dispute
Czech Republic-based CEZ Group, whose Albanian power supply subsidiary CEZ Shperndarje, was stripped of its licence last January, says it has officially initiated international arbitration procedures to claim compensation for the damage incurred in Albania. CEZ says it will claim Euro 200 million in international arbitration while the previous Albanian government claimed that CEZ’s failure to fulfill its contract obligations over imports, investments and reducing grid losses caused the state USD 1 billion in damage.
“The arbitration proceedings have been formally initiated by sending a ‘notice of arbitration.’ However, this does not prevent a
potential out-of-court settlement between the parties,” said CEZ last May. The CEZ Group entered the Albanian market in May 2009 by acquiring a 76 percent equity stake in the Albanian power distribution company for Euro 102 million. CEZ says the state administrator appointed by Albania’s energy regulator took control of the company acquiring all rights of the corporate statutory bodies, including all decision-making powers and responsibility for its operations.
CEZ Group, which is 70-percent state-owned, operates in around 10 countries, mainly in eastern and central Europe.
Under a unanimous decision taken on January 21, the Energy Regulatory Entity (ERE) Board of Commissioners decided to revoke CEZ’s licence in Albania, arguing that the company had failed to make compulsory electricity imports, reduce grid losses, make investments, provide all consumers with power meters, pay debts to state-owned operators KESH power corporation and OST transmission operator, and stop collective power cuts.
CEZ blames the situation in Albania on tariff disputes with the Energy Regulatory Entity and heavy fines imposed by local authorities
French law firm Derains & Gharavi will defend the interests of the Albanian government against the lawsuit filed by CEZ Group in the International Arbitration Tribunal. A government decision published on the Official Gazette on May 16 authorizes the Ministry of Economy and Energy to sign a contract, worth Euro 900,000, with this law firm to provide services to the Albanian side.
