Reserve budget funds enough for only 2 months of electricity imports, warns Finance Minister Ridvan Bode.
Apart from overoptimistic GDP growth and revenues targets, the energy crisis will most likely put the Albanian government in severe financial straits, risking scheduled investments and pension and wage increases
By Ervin Lisaku
TIRANA, Feb. 8 – Lack of sufficient rainfall and forced expensive electricity imports during the past few weeks have put the new overoptimistic 2012 budget at serious risk in its very initial stage. Finance Minister Ridvan Bode announced on Wednesday government will use its contingency fund, (initially scheduled to keep the budget deficit in check, increase wages and pensions and handle natural disasters), to continue supplying uninterrupted power during these cold days as the country’s northern and southeastern areas remain covered in snow, with snow depth in some remote communes above 1 metre.
Current domestic electricity production, dependant on water flows in the country’s top hydropower plants in the northern Drin cascade is at very low levels. The melting of snow, and new rainfall remains the only hope to save Albania from a likely electricity crisis as power prices in regional markets soar.
The worst news is that the total contingency fund in the 2012 budget, worth 4.66 billion lek (Euro 32.7 million) is sufficient for only two months of electricity imports.
“The contingency fund is enough for one to two months of electricity supply, under our current circumstances, when the hydro situation is insufficient. If this won’t be possible, there will be interventions to the state budget,” warned Finance Minister Bode.
In the 2012 budget government has foreseen a contingency fund of 4.66 billion lek, of which 2.66 billion lek to preserve the 3 percent targeted budget deficit and 2 billion lek as reserve funds for the Council of Ministers.
The aggravation of the electricity situation, which is not new to the Albanian government, as the country has been facing a drought period since the second half of 2011 forcing it to make consecutive monthly imports, was not taken into consideration in the 2012 budget. Apart from overoptimistic GDP growth and revenues targets, the energy crisis will most likely put the Albanian government in severe financial difficulty risking scheduled investments and pension and wage increases.
With its coffers empty, state-owned power utility KESH has been facing ongoing difficulty to make electricity imports to guarantee uninterrupted electricity supply, which private distribution operator CEZ Shperndarje has managed to achieve only in big cities.
Last December, government authorized KESH to borrow 4.5 billion lek (around Euro 32 mln) for electricity imports, but the corporation now says it needs another 11 billion lek ( Euro 77.3 million) to handle the crisis, and these funds can only come from the state budget.
“The [loan] guarantee was used for the bills we had to pay in November and December and now in January and February we are using bank overdrafts amounting to Euro150 million,” a source in KESH told Balkan Insight.
“Now the banks are not loaning us any more while the country’s consumption of electricity has risen,” the source added.
Albania’s main energy producer is facing difficulties in maintaining supplies owing to a combination of dry, cold weather and accumulated debts from the privatized electricity distributor, CEZ Shperndarje.
The accumulated Euro 55 million debt private CEZ Shperndarje distribution operator owes to KESH for unpaid energy has further aggravated the state corporation’s finances while electricity prices for the 2012-2014 period have been left unchanged.
Despite heavy rain and snow fall during the past few weeks slightly raising water levels in the Fierze, Koman and Vau i Dejes big hydropower plants (HPPs) in the Drin Cascade, water levels remain considerably below their optimal levels, preventing these HPPs to work in full capacity.
Struggling to import energy considering the similar situation in regional countries, KESH has also announced a tender to buy fuel for the newly built Vlora thermal power plant, whose cost is estimated higher than imported electricity if operated on diesel and not natural gas.
Under the new law made to the energy law, in force since Jan. 2012 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. 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.
Budget cut, no escape
Apart from forced electricity imports, which will be the first need to review the 2012 budget, the overoptimistic targets set in it seem a mission impossible to meet.
A mere 1.75 percent growth in government revenues, the lowest in the past 11 years and failure to meet revenues targets by 4 percent even after mid-year budget cuts in 2011 is the clearest sign government has drafted an overoptimistic budget for 2012 and will be forced to make sharp cuts during the year as global crisis impacts become tougher and the Eurozone is expected to face recession. A miracle would be needed to meet the 7.8 percent target government has set for the revenue growth at a time when international financial institutions expect a tougher year for Albania and the country’s top trade partners, Italy and Greece, are the hardest hit in the Eurozone. Failure to meet the overoptimistic revenue targets will also affect the GDP growth rate government has set for 2012, which at 4.3 percent is 2 to 8 times higher compared to what international financial institutions predict.
In July 2011, government decided to increase wages and pensions but cut spending by 18.3 billion lek (around USD 183 million, Euro 130 million) for the rest of the year despite being advised by the International Monetary Fund to freeze wages and pensions and increase taxes if it wants to lower the country’s high public debt, currently hovering at a critical 60 percent of the GDP. Back in mid-2010, government raised pensions by an average of 6 percent despite the difficult financial situation which forced it to make considerable budget cuts of around 39 billion lek (390 million dollars).
Albania’s only hope to keep the economy growing for 2012 are exports and possible successful privatization of few remaining important assets such as oil company Albpetrol, and Insig insurer, while expectations for growth driven by domestic consumption and investments remain grim as pessimism among both businesses and consumers is on the rise. Foreign direct investment, remittances and tourism revenues, as some of the key sources of economic growth, declined in 2011 and the same trend is also expected for 2012. In addition, bad loans have trebled to 18 percent during the past three years, reflecting consumer and business inability to pay off debts they took in better times.
