Electricity price hike to have economic impact, experts say

TIRANA, Dec. 15 – Albania’s business community says it is worried by the latest decision to increase electricity prices for both businesses and the population in general, but the newly-privatized Distribution System Operator says it will continue loosing money, and the increase should have been higher.
Albania’s Energy Regulatory Entity, ERE, ruled this week that the average growth of energy prices for family consumers will be 13 percent. Price increases are also set for several categories of businesses, which fully depend on using a high amount of electricity.
The Distribution System Operator, DSO, now privately owned by the Czech giant CEZ, had requested a price increase of 24 percent this year. It also said it had reached an agreement with the Albanian government to split necessary increases in energy prices in successive years.
The 13 percent increase goes into effect next month.
Konfindustria, an association of Albanian companies, said it is against the price hike because it will hurt the competiveness of Albanian manufacturers.
“The first consequence of a significant energy price increase will be the direct impact on reducing the competitiveness of Albanian products and services compared with regional countries and beyond,” Konfindustria General Manager Gjergj Buxhuku said on Albanian television.
Konfindustria said in a press release that the increase in price was unjustified because electricity prices are decreasing in international markets and domestic production had grown.
“The transition from public monopoly to private monopoly of the electricity distribution network after the privatization of DSO, must be coupled with increased regulatory role of institutions,” according to the press release. “That is the only way to completely prevent the harmful consequences that could be objectively derived from today’s monopoly on the supply of electricity to businesses, industries and Albanian citizens.”
But CEZ / DSO says that it is operating at a loss, even with the price increases, according to its chief executive, Hosef Hesjek.
He said nothing can stop rising prices because the Albanian government has a written commitment to DSO and energy prices for consumers are expected to continue to grow until 2014. “If we increase prices by 23 percent in 2010, we would still expect to have approximately 1.7 billion lek in losses and will need to take about 1.1 billion lek in other debts, to close loss of income,” Mr. Hesjek said.
The chairman of the Energy Regulatory Entity, Bujar Nepravishta, says the reasons behind the price hike are increased consumption, increased energy imports and high losses due the theft of electricity. According to Mr. Nepravishta, it is estimated that 33 percent of electricity is not paid for in Albania.
A large part of the energy pumped into the network is directly stolen, while another part, is billed but not paid. According to DSO, Albanians owe the company about 24 billion lek in unpaid bills. In such a situation DSO warns that it would launch a massive campaign to cut the supply for debtors, which include families, businesses and public institutions.
CEZ had originally said it wanted a total of 44.2 percent increase divided between 2010 and 2011.
The agreement between CEZ and the Albanian government when DSO was privatized, forecasted that during 2010, DSO would make 44.5 billion lek. But achieving that figure is impossible due to the high level of losses, so the private company wants to make up for it by increasing the price of energy 44 percent.
“In 2009-2010 we will have 9.1 billion lek lost through non payment. And the Regulatory Entity is obliged to implement this agreement with the government. I think that there is no reason why this agreement should not be implemented,” Mr. Hesjek said.
CEZ wrote in its request directed to ERE in September that, “We applied for an increase in energy prices to the extent of 44.2 percent, which would cover costs and we would have zero loss, but under current conditions, we ask that next year the price be increased by 23.1 percent and the difference of 21.1 percent increase could be done during 2011,” The latest decision will continue to preserve the structure of two tiers of energy prices. So for consumption up to 300 kilowatt per hour, the price will be from 7 to 7.7 lek while for higher levels of consumption, the price of 12 lek per kilowatt hour would be applied.
All parties involved agree with the logic that the price increase should be conditional with the minimization of losses in the network, as currently more than 33 percent of energy consumption is not paid. So paying consumers are forced to pay higher fees to compensate for those who don’t pay.
There are also other factors setting price of energy in the region, such as rainfall and the economic crisis. This year, due to the global economic crisis, the electricity prices have fallen nearly 50 percent compared with the end of 2007, This year has also seen abundant rainfall, providing optimal domestic production quotas. For the first time in five years, Albania has exported electricity to Kosovo and Greece and secured a supply of light 24 hours without interruption.
Experts say the price increase is more related to DSO’s privatization than the situation on the ground. Also, successive Albanian governments have balked at increasing the price near election times for fear of voter anger. They have subsidized the electricity supply until now, and they are trying to end the practices through the increases.