TIRANA, Jan. 23 – As a five-year $150 million World Bank supported power recovery project nears completion by late 2019, the Washington-based lender has downgraded Albania’s overall implementation progress to moderately unsatisfactory from a previous satisfactory.
In an update on the project’s implementation, the World Bank says the state-run Albanian power sector is once again under financial stress following a prolonged drought paralyzing domestic electricity generation and failure to meet loss targets in the distribution grid.
The World Bank says the situation is also a result of a financially unviable public sector obligation upon power generator KESH to purchase electricity in case of unfavourable domestic hydro-situation such as the situation in the second half of 2017 when the country was forced to make costly electricity imports of about €200 million, a considerably part of which were also handled by state-run KESH and the central government to assist cash-strapped OSHEE distribution operator.
Electricity losses in the distribution grid have dropped to 28 percent, down from a record 45 percent in mid-2014 when the distribution operator was nationalized following a failed short-term privatization, but are far from the mid-2019 target of 14 percent, says the World Bank describing overall progress in the past three years as moderately satisfactory.
Power utility KESH also cleared arrears of about €120 million to private and concession hydropower plants and OSHEE distribution operator increased its cash collection rates to over 92 percent, from about 62 percent in 2014 just before a nationwide campaign to tackle accumulated unpaid bills and cut off illegal grid connections by making power thefts punishable by imprisonment was undertaken. The rather aggressive nationwide campaign lifted state-run electricity operators out of crisis as hundreds of millions of euros were collected in accumulated unpaid bills and used to pay off debts and invest in the dilapidated grid which still needs huge investment.
The World Bank says key project components such as grid loss reduction and the sector’s financial viability risk failing to be met by the end of June 2019, when the loan-supported project concludes.
“There is, therefore, a likelihood that unless there is a renewed effort to expedite the loss reduction program, a key project development objectives in loss reduction and financial viability would not be met by the scheduled closing date. This requires concerted actions by the government and implementing agencies to update the Financial Recovery plan and address implementation gaps, and the Bank will closely provide the necessary implementation supports,” says the World Bank.
The World Bank has currently disbursed only about $52 million from its original $150 million soft loan meant to support the country’s power sector reforms, in particular the reliability of the electricity supply and the sector’s financial viability.
The Washington-based lender expects the Albanian economy to slow down to 3.5 percent in 2018 and 2019 as major energy-related projects that have driven growth in the past few years complete and no new major projects appear to replace their contribution to FDI.
IMF, Energy Community concerned
The International Monetary Fund has also warned Albania needs to reinvigorate the implementation of the electricity sector reform and diversify domestic sources of electricity in order to reduce negative effects from adverse weather conditions such as the prolonged drought paralyzing the country’s wholly hydro-dependent domestic electricity generation in the second half of 2017.
“Continued drought conditions could affect electricity generation beyond 2017. Power shortages could damage growth. Expensive electricity imports could pose quasi-fiscal risks for the budget,” says the IMF.
“Reduction of distribution losses is lagging behind plan while further market liberalization and restructuring have been delayed,” says the IMF in its latest country report.
Albanian authorities say they are optimistic the Trans Adriatic Pipeline, set to bring Caspian gas to Europe through Albania by 2020 will help diversify Albania’s energy sources by activating a World Bank-funded thermal power plant on natural gas rather than costly diesel while a new major hydropower plant by Norway’s Statkraft will increase domestic electricity generation.
With about three quarters of domestic electricity produced by state-run KESH utility through its major three HPPs on the Drin cascade, private and concession HPPs are set to further increase their share as the major Devoll Hydropower project by Norway’s Statkraft completes by 2018.
Vienna-based Energy Community has also recently opened a dispute settlement procedures against Albania for failing to unbundle its state-run OSHEE distribution operator currently serving as both an electricity distributor and supplier, leading to the country not meeting its obligations under the Energy Community Treaty.
“Only when separated from other segments of the energy supply chain can distribution system operators act independently and consumers benefit from greater choice of electricity supply companies, which in turn offer improved services at a fair price,” says the Energy Community Secretariat, an international organization dealing with energy policy, which has also initiated procedures against Bosnia and Herzegovina and Ukraine.
Poorly diversified sector
Albania’s electricity situation slightly improved last December following heavy rainfall causing massive floods in some parts of the country, filling the empty reservoirs of the country big hydropower plants.
Albania’s domestic electricity generation is currently wholly hydro-dependent triggering the government to offer incentives for liquid gas-fired thermal power plants as the major Trans Adriatic Pipeline bringing Caspian gas nears completion in a bid to diversify the country’s domestic sources.
The government has also urged investors to consider untapped potentials in solar and wind energy following a boom in the construction of small and medium-sized hydropower plants built under concession contracts in the past decade, currently producing about a quarter of domestic electricity, but being at risk of adverse weather conditions such as last year’s prolonged drought, the worst Albania faced in decades.
Meanwhile, a dispute between Serbia and its former breakaway province Kosovo over a long-standing electricity transmission issue continues to hold back a newly built German-funded Albania-Kosovo interconnection line.
The deadlock, which Germany is trying to mediate, has also halted Albania-Kosovo plans to set up a joint energy market and a power exchange helping Kosovo’s lignite-fired power plants and Albania’s hydro-dependent electricity system exchange electricity during their peak production levels, reducing dependency on costly imports.
