CEZ Group, which is 70 percent state-owned, says it has also officially informed the Albanian government over the arbitration on the ground of the non-protected investment in its CEZ Shperndarje subsidiary
TIRANA, Feb. 12 – 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 Group, which is 70 percent state-owned, says it has also officially informed the Albanian government over the arbitration on the ground of the non-protected investment in its CEZ Shperndarje subsidiary.
“The CEZ Group expects to receive compensation for the damage incurred as the company is entitled to the compensation according to international law. CEZ derives its entitlement to the compensation based on an agreement made between the Czech Republic and the Albanian Republic to support and mutually protect their investments, and also on the Energy Charter Treaty, which defines international cross-border cooperation in the energy sector, and which both countries have signed,” CEZ Group says in a statement.
CEZ did not say where the arbitration would take place, nor how much in damages it would seek, but has estimated it could record a 200-million-euro loss on its Albanian investment.
The CEZ Group entered the Albanian market in May 2009 by acquiring a 76 percent equity stake in the Albanian power distribution company while the remaining 24 percent stayed in the hands of the Albanian government. The value of the initial investment was Euro 102 million, which is about ten times less than other investors paid for acquiring a distribution company in Romania. The Albanian acquisition accounts only for 3.6 percent of CEZ’s foreign investments and for less than a percent (0.7 percent) of its total investments. CEZ Group owns significant energy assets in seven foreign countries, and in all of them except for Albania the investments generate or exceed the expected return, says CEZ.
CEZ blames the situation in Albania on tariff disputes with the Energy Regulatory Entity and fines imposed by local authorities. The Albanian tax authority’s order imposing a penalty of 4 billion lek (Euro 28 million) for outstanding taxes and penalties and another 430 million lek (Euro 3 million) for failing to meet the agreed electricity import levels has brought yet another turn in the matter, complains the Czech Republic Group.
On January 21, 2013, the Albanian regulator revoked the relevant license for CEZ Shperndarje and appointed an administrator who, under the regulator’s supervision, took over the company’s management, including all decision-making powers and responsibility for the company’s operations, thus assuming the rights and powers of the corporate statutory bodies.
The Albanian government has also announced its intention to address international arbitration court over the alleged damage the Czech operator has caused the Albanian state.
ERE officials say the Albanian government has hired France-based Gharavi law firm in its legal battle with the Czech company. “The Albanian government is preparing to take the case to arbitration. We are not waiting for CEZ to take us to arbitration and defend ourselves but we are suing it for the damage it has caused us. The Economy Ministry has contracted Gharavi, a renowned French firm in international arbitration,” Entela Shehaj, an ERE commissioner told reporters recently. 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.
In an expected move following the aggravation of the electricity situation, and six months ahead of the general elections, Albania’s energy watchdog, ERE, 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.
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.
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.
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.
Czech Republic Prime Minister Petr Ne颳 has recently warned 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.
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 received a 60 million euro ($76.8 million) guarantee from the World Bank, already active, as an incentive to take over Albania’s OSSH power distributor in 2009.
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.
CEZ: Protests in Bulgaria differ from Albania
CEZ AS, the largest Czech power producer, said recent Bulgarian protests against energy bills differ from the situation in Albania which revoked its license, daily Czech Hospodarske Noviny reported, citing Tomas Pleskac, the head of distribution.
Thousands of Bulgarians have been protesting against higher electricity bills in the Bulgaria where CEZ controls three power distribution companies, the newspaper said. The Albanian energy regulator revoked CEZ’s license last January following disputes over tariffs and taxes.
