The failure of CEZ in Albania has shown it can be tough for a foreign company to do business in this country, but the reasons behind the failure are specific to this particular case, and other foreign companies should not be scared to invest in the future.
TIRANA, Feb. 1 – Albanian authorities and Prague-based CEZ Group have officially parted ways in what will likely be a lose-lose situation for both sides. Albania’s reputation as a place where privatizations and foreign investments bring returns has been challenged. Albania and CEZ now face a protracted arbitration fight over investments already made.
No matter the outcome of the international arbitration, the case of CEZ and the realities it faced in Albania will be subject of study for years to come both for foreign companies wanting to do business in Albania as well as for future privatizations and private Albanian joint ventures with large foreign investors.
CEZ will be an example of the fact that doing business in Albania is no picnic, and often things universally understood and accepted in a developed economy – legal enforcement on payment of bills and credit worthiness of customers – don’t function as well in this country as they do elsewhere.
But CEZ, which has been successful in doing in places like Romania and Bulgaria what it couldn’t do in Albania, is not entirely innocent in this affair. It failed to deliver on promised investments and proved unable to navigate Albania’s cultural issues any better than when the company was state owned. Complaints of unfair billing practices jumped and losses spiked after the private company took over, authorities note.
That is not to say the company is to blame that many Albanians still don’t see electricity as a good like anything else, which comes at a price that must be paid. Albanian authorities were also not as supportive as they should have been.
Both Albania and CEZ were also unlucky. Drought and the heavy reliance on hydro-electric power production negatively affected the entire chain in the power supply. State-owned power producer KESH nearly went bankrupt and the government had to bail it out. Privately-owned monopoly CEZ, sandwiched between KESH and consumers, understandably did not want to share any of the burden.
But perhaps the more worrying factor here is the political one. The Czech government, which owns CEZ Group and on which CEZ yields immense power, has warned the move by Albanian regulators would hurt Tirana’s chances of joining the European Union. (CEZ is so powerful in Prague, the Czechs sometimes jokingly call their country the CEZ Republic, according to The Economist.) Mending fences with Prague might be hard for Tirana, but the decision to boot CEZ out was clearly a calculated risk for the Albanian government. It simply couldn’t afford the losses the relationship with CEZ was leading to. The Albanian government says it aims to keep politics and the economy separate, but in this case they are not.
At the end of the day, it is the perception of Albania as an unstable and unpredictable place to invest that should worry Albanian officials more than anything. Losing a strategic privatization doesn’t look good for Albania.
However, CEZ was a unique case – a monopoly that was part of the life of every Albanian family and institution – and which faced a very specific set of circumstances in Albania’s complicated energy sector.
Other privatizations have gone far better. A huge example is Albtelecom, the once state-owned telephony monopoly privatized by a Turkish group. Unlike CEZ, Albtelecom has thrived in Albania, transforming Albania’s access to internet and landlines with far better services than when it was state-owned. This, despite facing high competition from smaller companies.
The failure of CEZ in Albania has shown it can be tough for foreign company to do business in this country, but the reasons behind the failure are specific to this particular case, and other foreign companies should not be scared to invest in the future.
