Under a unanimous decision, the Energy Regulatory Entity has decided to revoke CEZ’s licence in Albania, arguing that the company has failed to make compulsory electricity imports, reduce grid losses and make investments. Sahit Dollapi, the former director of the state run distribution operator OSSH until the Czechs took over in 2009, has been appointed as a temporary State Administrator
By Ervin Lisaku
TIRANA, Jan. 21 – In an expected move following the aggravation of the electricity situation, and six months ahead of the general elections, Albania’s energy watchdog, ERE, has revoked the licence of CEZ Shperndarje, the Albanian subsidiary of Czech Republic based giant CEZ Group which in 2009 acquired the majority stake of the country’s power distribution operator, returning the company under temporary state administration. 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 and OST, and stop collective power cuts.
CEZ Shperndarje possessed a long-term distribution licence due to expire in 2038 and a retail public supplier licence which the company had applied to extend because of expiring on January 25, 2013.
ERE’s Board also appointed Sahit Dollapi, the director of the Tirana Water Supply and Sewerage company and former director of the state run distribution operator OSSH until the Czechs took over in 2009 as the temporary State Administrator of the company until issues with CEZ are settled and the licence is awarded to another operator.
Speaking to ERE introducing himself as one of the five candidate administrators, Sahit Dollapi pledged to cut power to customers who don’t pay bills and reduce wages for the company’s administrators. “Power supply and relations with customers need to improve,” said Dollapi.
ERE’s head Sokol Ramadani said the company was being stripped of its licence because of not fulfilling contractual obligations, plunging the system into collapse and risking massive power cuts. He identified CEZ’s failure to cover its rising grid losses with imports as the key reason for the removal of the licence. Since September 2012, when CEZ declared its financial inability to carry out its compulsory power imports, state-run power corporation KESH was forced to carry out all imports, a situation which further deteriorated the utility’s finances and obliged government to award several loan guarantees to secure power supply.
ERE initiated procedures to revoke CEZ’s licence 60 days ago following escalating conflicts which peaked with the cut of power by CEZ to debtor water supply companies leaving almost half of the country without running water.
“CEZ Shperndarje is responsible for damage caused to ERE, the Albanian government and market operators. The Council of Minister is charged with immediately acting on the expropriation of CEZ Shperndarje’s assets at a fair compensation under procedures foreseen in the law on expropriations and temporary takeover of private property for public interest,” says ERE in its decisions.
The Albanian government says CEZ owes state-owned power corporation KESH and transmission operator OST around Euro 300 million in unpaid bills. CEZ also claims Euro 165 million euros from Albanian state institutions, of which euro 38 million by water supply companies.
Under the immediate changes also reflected in the National Registration Centre, Sahit Dollapi will be the new legal representative of CEZ Shperndarje but cannot transfer assets or material wealth of CEZ Shperndarje through sale, collateral, rent, exchange or other forms. “The temporary state administrator will be responsible for the operation and maintenance of the company’s equipment, assets and bank accounts. Under the temporary administration, all responsibilities and competences of the bodies of CEZ Shperndarje and its shareholders based on the licence obligations are suspended,” says ERE.
The withdrawal of CEZ’s licence is a failure in a strategic privatization made by the ruling Democratic Party in 2009 just before the general elections and could bring a bad signal to foreign investors about the climate of doing business in Albania. Senior government officials have also admitted the fact. “The departure of a big investor such as CEZ is not good news. It was an investor which could help us in electricity but they showed they did not meet criteria in performance and revenues. We cannot risk the Albanians’ interest for the sake of a reputable company,” said Finance Minster Ridvan Bode in a recent televised interview.
CEZ’s efforts to cut power to debtor customers faced massive protests in 2012, escalating in road blocking and even clashes with company employees after protestors, mainly in northern regions, claimed CEZ was making collective punishments.
In its detailed report of 110 pages over CEZ’s violations, ERE identifies that consumers’ complaints filed with the Entity over overbilling, and economic damage climbed to 1,720 in 2012 up from 350 in 2010 and 1,019 in 2011. ERE says that grid losses at the end of 2012 climbed to around 45 percent, higher than 32.7 percent at the end of 2008 when the distribution system was under state management. Under the regulatory agreement approved by ERE, grid losses should have dropped to 24 percent at the end of 2012. CEZ’s investments during the past two years also failed to meet set targets. CEZ invested around 2 billion lek (Euro 14 million) in 2011 and 934 million lek (Euro 6.5 million) in 2012 fulfilling only 39 percent and 14 percent of the annual targets respectively.
Prime Minister Sali Berisha had earlier assured the management of the distribution company by the state is no problem, because they have managed it better than CEZ.
Finance Minister Bode had earlier warned government was concerned because of CEZ’s performance negatively affecting public finances and the budget. Government awarded KESH 2 billion lek (Euro 14 million) from its contingency funds in early 2012 to make electricity imports, Euro 40 million few months later and is also negotiating with the World Bank over a new USD 100 million loan to cash-strapped power corporation to secure electricity imports.
The opposition Socialist Party has blamed both the government and the company for the collapse in Albania’s electricity system saying that it has turned into a new pyramid scheme which has accumulated USD 1.2 billion in debts.
Arbitration divorce closer
Reacting to ERE’s decision, Prague-based CEZ Group described the regulator’s steps in violation of the local legislation, warning that the corporation will lodge a formal protest against the decision. At the same time, ɅZ is going to take the first steps to initiate an international arbitration, said a spokesperson for the company.
Commenting on ERE’s decision to appoint an administrator assuming the rights and power of CEZ Shp쳮darje’s statutory bodies, CEZ Group said “the existing owner, the ɅZ Group, thus loses all shareholder rights and has therefore no chance how to defend against this de facto expropriation. ɅZ in principle opposes this conduct, with decisions on the company’s management and operations to be done solely by the regulating authority, and considers it incompatible with any European standards but also with any Albanian laws. Therefore, the company is going to take legal action immediately and notify the Albanian Government of its intention to initiate an international arbitration.”
CEZ blames the situation on tariff disputes with the Energy Regulatory Entity and fines imposed by local authorities.
CEZ AS (CEZ), the largest Czech energy producer, risks losing as much as 200 million euros ($266 million) in Albania after a regulator revoked its license. CEZ has invested 90 million to 100 million euros in repairs and expansion, Barbora Pulpanova, a spokeswoman for the Prague-based company told Bloomberg.
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 invested roughly 100 million euros in its Albanian unit, but due to ongoing regulatory and commercial hurdles the company posted a first-half 2012 loss of USD 119 billion.
Albania’s Energy Regulatory Entity (ERE) has ruled Czech-owned distribution operator CEZ Shperndarje, which is seriously considering addressing arbitration court over disputes with government, will have to compensate state-owned power corporation KESH over its failure to make compulsory electricity imports since September 2012. Since last summer, CEZ has failed to make compulsory imports to cover the high grid losses in the Albanian distribution system, currently at around 50 percent, nearly double compared to three and a half years ago when CEZ bought 76 percent of shares for Euro 102 million
Czech PM threatens
Albania’s EU bid
The Czech prime minister Tuesday said Albania’s decision to revoke the business license of CEZ AS casts a poor light on the country’s treatment of foreign investors and could dash its hopes of Czech support for an eventual bid to join the European Union, Dow Jones reports.
“The Czech Republic cannot ignore the [Albanian] approach to a Czech investor in the context of Albania’s aspirations to integrate [into the EU],” said Petr Necas.
“The Albanian authorities revocation of the license of CEZ, the largest Czech investor in the region, is a very negative signal,” Mr. Necas said.
The move, which strips CEZ of most of its rights as majority owner of Albania’s largest electricity distribution company, casts doubts on Albania’s supposed commitment to the rule of law and its hopes of one day joining the European Union, Mr. Necas added.
CEZ, 70% owned by the Czech state, took over the Albanian company in 2009, but has locked horns with the local regulator over a wide-range of issues such as differences on regulated power prices, CEZ’s policy of shutting off power for unpaid bills and widespread power theft.
CEZ announces sale, demands WB collateral
Last December, on the verge of having its Albania licence revoked, Prague-based CEZ Group announced that it was offering its Albanian subsidiary, CEZ Shperndarje, for sale because of rising losses and disputes with the country’s authorities only three and a half years after taking over the majority stake of the former state-owned electricity distribution operator OSSH. However, the Albanian government, which owns the minority 24 percent stake in the electricity distribution system, warned it would undertake legal steps to block the sale. Government claims that CEZ’s failure to fulfill its contract obligations over imports, investments and reducing grid losses has caused the state USD 1 billion in damage which will probably end up as a claim when the dispute is examined by an international arbitration court.
CEZ Shperndarje, a subsidiary of Czech-Republic based CEZ Group has been operating the Albanian distribution network since 2009 when it signed a contract with the Albanian government buying the former OSSH 76 percent majority stake for 102 million Euros.
CEZ says it has launched legal steps to activate a 60 million euro ($76.8 million) guarantee issued by the World Bank for its power-distribution operations in Albania. CEZ received its guarantee from the World Bank, already active, as an incentive to take over Albania’s OSSH power distributor in 2009.
Escalating conflict
The government-CEZ conflict reached its peak on November 16 after CEZ cut power to debtor water supply companies leaving half of Albania without water and sparking nationwide protests which lasted for only few hours after police intervened arresting several CEZ employees and forcefully reconnected power. Following the reconnection of power to water supply companies later on Friday, Nov. 16, ERE’s board of commissioners held an emergency meeting deciding to start procedures for the removal of CEZ’s licence. The decision had been postponed three times until then. ERE determined four conditions CEZ has to meet within 30 days or else it would have to leave Albania. The four conditions were related to the resumption of electricity imports to cover grid losses, the submission of the audited financial balance sheet for 2012, not making collective power cuts, and normalizing financial balance sheets
Prague-based CEZ Group had warned it would decide by the end of 2012 over the sale of its subsidiary in Albania, the CEZ Shperndarje distribution operator, following disputes with the Albanian government over tariffs, taxes and investments. Tomas Pleskac, CEZ board member and head of international business, said CEZ had indications of interest from potential buyers, including the Albanian government, venture capital funds and electricity traders.
“In Albania there are two main problems, the level of electricity theft from the network and lack of creditworthiness of customers,” said CEZ’s Tomas Pleskac, adding that Albanian authorities have been dragging their feet since CEZ took over the company in 2009 and preventing CEZ from generating a profit.
In 2012, Albania’s Energy Regulatory Entity (ERE) fined Czech-owned CEZ Shperndarje distribution operator 430 million lek (Euro 3 million) because of failing to cover grid losses with imports. CEZ had previously been fined Euro 30 million by the tax administration over VAT payments.
Power prices kept unchanged
Last December, Albania’s Energy Regulatory Entity (ERE) ruled power prices for the three market operators as well as household and business consumers will remain unchanged until June 2013 when Albania holds the new general elections. Earlier in July 2012, Albania’s Energy Regulatory Entity (ERE) lowered power prices for Czech-owned distribution operator CEZ Shperndarje by 23 percent after losing a legal battle with the company on the bad debt and continuous complaints about the unaffordable prices risking investments and CEZ’s presence in Albania. ERE decided to lower power prices state-run corporation KESH charges on CEZ to 2.2 lek kWh, down from 2.84 lek kWh in Jan. 2012 when CEZ suffered a 90 percent increase in tariffs. The decision came following a visit by Czech Prime Minister Petr Ne颳 to Tirana. ERE officials say they will continue applying the two-tier price level, under which Albanian households will pay 7.7 lek/kWh for a consumption of up to 300 kWh a month and 13.5 lek for each kWh they consume above the 300 kWh threshold (VAT excluded). Average tariffs for business consumers vary from 8.5 lek/ kWh to 10 lek kWh based on low or medium voltage power access. Meanwhile, state institutions pay 11.5 to 14 lek kWh.
Power prices during the past six years since the ruling Democratic Party came to power have increased by 63 percent climbing from an average of 5.71 kWh in 2005 to 9.53 lek kWh currently.
