The ERE decision favors state-owned power utility KESH, which this year has been in financial trouble because of prolonged drought and expensive energy imports
TIRANA, Dec. 20 – While household and business consumers will face no power price increases for the next three years, Czech Republic owned distribution operator, CEZ Shperndarje, has been the hardest hit from the latest decision by energy watchdog, ERE. Reacting to last week’s decision by Energy Regulatory Entity, CEZ Shperndarje, which will be obliged to buy electricity from state-owned power utility KESH for 2012-2014 at an additional 91 percent fee and transmit it at an extra 8.3 percent fee, says the ruling puts CEZ’s investment plans under serious risk.
“This decision is not in line with the pre-conditions set by the European Bank for Reconstruction and Development (EBRD) and the International Finance Corporation (IFC) for the disbursement of the Euro 65 million loan CEZ has taken to carry out its investment plan. In this context, this decision will have a major impact on the company’s financial situation and the amount of investments in the power distribution network in Albania,” said CEZ in a statement.
CEZ says it has cut the power price increases it will suffer for the next three years to an average of 19 percent only thanks to reduction in operational expenditure, including wage cuts.
Under the ERE decision dated Dec. 15 CEZ Shperndarje will buy electricity from KESH at 2.83 lek kWh starting from Jan. 1 2011, up from 1.48 lek kWh in 2010, making it 91 percent more expensive for CEZ. The ERE decision favors power utility KESH, which this year has been in financial trouble because of prolonged drought and expensive energy imports. KESH, which manages the country’s hydropower plants accounting for more than 95 percent of domestically produced electricity, and is responsible for power imports, suffered a 37 percent cut in power prices for 2011 under an ERE decision in Dec. 2010 when Albania’s hydro situation was at its best, with heavy rains causing destructive flooding in the northern Drin river cascade areas where the country’s major three HPPs are situated. In 2011 CEZ has been buying electricity from KESH at 1.48 lek kWh, down from 2.03 lek in 2010.
The latest ERE decision has also raised fees for state-owned transmission system operator, OST, by 0.5 lek to 0.65 lek, increasing CEZ’s costs by 8.3 percent.
The decision affects CEZ Shperndarje, which almost three years after taking over former state-owned OSSH has been unable to make significant cuts to huge energy losses and thefts despite ongoing investments in the country’s dilapidated power grid.
CEZ Shperndarje says investments in Albania’s distribution network in 2010 grew to 4.5 billion lek (USD 45 million), up from 3.9 billion lek in 2009. The 2011 investments are estimated at 4.9 billion lek. The Czech Republic-owned company says electricity losses in 2010 dropped to 30.4 percent, down from 33.92 percent in 2008 and 2009. Its bill collection rate also slightly improved to 78 percent compared to 76 percent in 2009.
CEZ Shperndarje has applied for a 4.5 percent increase in electricity prices for next year citing high inflation rates, increased price of imported electricity and rising power meter costs. CEZ Shp쳮darje, a subsidiary of ČEZ Group since 2009, owns and operates the entire 110kV distribution network in the country for a total length of 69,000 kilometers, serving around 1.1 million customers.
Back in 2009, CEZ had requested a 24 percent price increase in electricity for 2010 but the Energy Regulatory Entity approved only a 13 percent increase which entered into force on January, 1 2010.
Meanwhile, state-owned power corporation, KESH, had proposed raising electricity prices for CEZ Shperndarje distribution operator by 3.4 times compared to the current tariff.
CEZ took over former state-owned OSSH in March 2009, when it signed a contract with the Albanian government buying the majority 76 percent stake for 102 million Euros.
Lack of necessary rainfall to increase water levels in the country’s main hydropower plants, has forced government to approve an emergency loan for state-owned power utility, KESH, in order to avoid a possible energy crisis. The government decision approved under a normative act this week, authorizes KESH, the electricity producer and wholesale distributor, to take a 4.5 billion lek (around Euro 32 mln) to import electricity. The accumulated Euro 55 million debt private CEZ Shperndarje distribution operator owes to KESH for unpaid energy has further aggravated KESH’s finances which last year faced a cut in wholesale electricity prices to CEZ. The Czech company also claims more than 10 million Euros in unpaid electricity especially from state owned institutions, the majority of them being water supply companies. Despite sporadic rainfall during the past ten days 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, 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.
Govt, Konfindustria hail decision
The Labor and Social Affairs Ministry has also hailed ERE’s decision as a measure protecting people in need and guaranteeing facilitating conditions for businesses. According to the Ministry, the decision protects families receiving social assistance, people with disabilities, head-of-family pensioners, and household state-paid families with gross income of 35,000 lek a month.
Meanwhile, Albania’s business community represented by Konfindustria has called on CEZ Shperndarje to improve the power supply quality as soon as possible, worried over the considerable damage power cuts are causing to businesses. Gjergj Buxhuku, Konfindustria’s top administrator, says damage caused by poor power quality, including cuts and low voltage power caused businesses 23 million euros in losses during the first 10 months of this year, mainly in machinery brekdown but also in raw material manufacturing problems.
According to NoA news agency, power prices in Albania already stand at 15 percent above the average in the South East European countries.
Konfindustria had described possible new increases in power prices as unacceptable, warning that it would have severe consequences for the domestic industries and potential foreign investors.
2012-2014 power prices
The ERE decision to keep prices unchanged was an expected move as warned even by government officials and experts considering the significant increase energy prices have undergone during the past six years and global crisis effects appearing even in Albania with lower remittances, an increase in basic food products significantly lowering Albania’s purchasing power, which according to Eurostat, at 28 percent of the EU 27 is the lowest in Europe.
Citing consumer protection against monopolies, ERE says the decision to keep energy prices unchanged will allow state owned KESH, the newly built Vlora thermal power plant, OST and CEZ, to provide 24/7 power access, encourage further investments by these monopoly operators and discourage the use of electricity for heating and cooking, which can be also guaranteed by cheaper alternative sources such as liquid gas.
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.
Last week, Albania’s Energy Regulatory Entity (ERE) decided to keep electricity prices for the next three years unchanged, turning down requests for prices increases by the two state owned companies, power utility KESH, transmission operator OST, and private CEZ Shperndarje distribution operator.
ERE’s board of commissioners delayed the expected decision by one week, citing lack of information over investments plans by CEZ Shperndarje, and four small and medium-sized state-owned hydropower plants scheduled for privatization.
In December 2010, Albania’s Energy Regulatory Agency (ERE) decided to keep electricity prices for 2011 unchanged, turning down requests an average of 12 percent price increase.
The latest decision by ERE’s board of Commissioners 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).
While average tariffs for business consumers remain unchanged, the peak tariffs for these consumers have undergone a 15 percent rise for 2012-2014 period. “This is argued by the fact that under current conditions of the Albania’s electricity system, which is based on domestic hydro resources, import prices, which for 2011 have considerably increased, serve as references to calculate peak tariffs,” says ERE. The move has strongly been opposed by the Business Albania Association which described the rise as unacceptable at this time of crisis.
Under the new decision, 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.
The fixed tariffs even for a consumption of zero kWh a month is lek 200, while tariffs for electricity consumption in common premises such as staircase, water pumps, lifts is 8 lek/kwh, remaining unchanged to the 2010 decision.
Staring from Jan. 1, 2012 Albanian household and business power consumers will sign a new contract with CEZ Shperndarje.
The new contract, recently approved by the Energy Regulatory Entity (ERE), obliges CEZ to provide 24/7 power supply and compensate household or business consumers and respect power quality parameters which vary from +/-5% for Tirana, +5/-15% for other urban areas and +5/-20% for rural areas.
“The electricity supplier is responsible for the damage the customers may suffer because of voltage fluctuations,” says article 15.6 of the contract. If not settled by mutual consent, the damaged is determined by a court decision.
