TIRANA, May 14- In the first five months of the year, the Electricity Power Distribution Operator (OSHEE) had to develop several dozen procurement procedures to buy energy in the unregulated free market. Due to the unfavorable hydrological situation, the amount that has been purchased from this market has been high and in some cases at steep prices, putting the public distribution company in financial difficulties.
Official OSHEE data show that from January to May, 1.3 million MWh of energy were imported, with an average price of 73.47 euros, which makes total purchases in the unregulated market to meet consumption in the country to have caught a value of 96.8 million euros, excluding the Value Added Tax (VAT). OSHEE started 2019 with high costs on imports. Because of the minimal production of the Albanian Power Corporation (KESH), the largest amount of energy was provided in the unregulated market.
Specifically, in January, more than 338 thousand MWh of energy was purchased in this market at an average price of 89.86 euro/MWh, resulting in a bill of about 35 million euros without VAT. This is the month with the highest costs of OSHEE for energy purchased from the unregulated market. In February, the distribution company purchased 173 thousand MWh of energy at a price of 69.81 euros/MWh. This is also the smallest amount contracted by this market in these 5 months, with a bill of 12 million euros. The cheapest average price was in April sith 62.92 euros/MWh, which despite the considerable amount of over 236 thousand MWh of imports, the bill had a value of 14.8 million euros without VAT.
Difficulties from costs
OSHEE is not experiencing its best days, which looks like a recurrence of 2017 when the whole sector was struggling because of the high imports. At that time, to cover energy purchases a portion of the World Bank loan from the Recovery project was also used. The likelihood is that if the conditions do not change, the company will be in a similar situation. The amount of energy that OSHEE is buying today in the unregulated market is significantly higher than the average of the previous years, at least for May. This means that even the costs are significantly higher. “
“Usually, the month of May was covered by the Albanian Power Corporation, so there was a better hydro situation, which has helped us as well. This year, KESH is in a difficult hydro situation, what is also transmitted to us,” said OSHEE sources.
OSHEE purchases from KESH at a price of 1.45 lekà«/kwh and sells it to the end customer with 9.5 lekà«, while for some business categories, even 14 lekà«/kwh. The price that OSHEE purchases from KESH is significantly lower than that of OSHEE from the unregulated market. The recent rainfall appears to have had no apparent effect on domestic production. Energy-intensive manufacturers have a modest output, which does not make a big difference according to OSHEE, while KESH itself is trying to create a hydro reserve. Under these conditions, it seems to both distribution operation and the Corporation, the eyes are drawn from the sky and the hope for more rainfall.
Procedures to ensure funding
KESH has been implementing optimization practice for years, trying to improve the economic portfolio. Even during this year, KESH is involved in this kind of process, which means it sells a certain amount of energy in peak time, providing a good price and buys during night hours at a cheaper price. The latest optimization case was in March when KESH sold 3360 MWh of energy at a weighted price of 57.34 euros, while buying 3332 Mwh at a weighted price of 45.02 euros/MWh. Only by this procedure KESH managed to emerge with a positive balance of about 43 thousand euros.
The same practice KESH attempted to develop in April for the period 13-22 April 2019. The schedules selected for this procedure were in peak hours, while KESH’s buying would focus on 11 p.m. to 12 a.m.. However, the April procedure did not prove successful, which made KESH announce its suspension.
“After reviewing the bids submitted by the participants in the notified optimization procedure for the period 13-22 April 2019, the Contracting Authority decided to cancel the procedure for abnormally high purchase and low sale prices, not justifying thus the purpose of announcing the procedure,” notified KESH in its company’s website.
OSHEE suspends investments without deadline
Under conditions where energy imports reached about 100 million euros, excluding Value Added Tax, the Energy Distribution Operator had to make the decision to suspend the investments in order to ensure the necessary financial means. Their priority is to provide energy supply and the situation has not been at all favorable. There are at least 30 million euros of frozen investment contracts, while the overall suspension for investments has no deadline. So it is unknown when the situation will rest, and it will depend very much on the performance that will have the hydraulic aspect in the country.
The company has planned a total of 8.5 billion leks (68.9 million euros) as an investment plan for 2019, while during the 2015-2018 period approximately 33 billion euros have been invested in the distribution network. A good part of these investments are backed by the company’s own revenue, which has been steadily increasing due to shares against illegal connections and the procedure for arrears. Another part of these investments were financed by a loan with the World Bank, which in 2015 committed 150 million dollars to recover the energy sector and include some components.
OSHEE needs to liquidate bills soon
The distribution company announced at the beginning of March that it was in an emergency situation with liquidity difficulties, due to considerable energy-saving costs. At that time, the company demanded that the repayment term be 180 days out of previously 90 days. The Energy Regulatory Entity (ERE) however, dismissed the first request as unsubstantiated. OSHEE submitted to ERE a second request for the same demand which also received the support of the Ministry of Infrastructure and Energy. The second request submitted by OSHEE stated that the company made electricity purchases during October, November, and December 2018, and then January, February and March 2019, the Free Market providing most of it due to the significant production absence by the company KESH sh.a. (sh.a. for joint stock company). OSHEE didn’t only find it challenging to recover the losses caused by the 2017 extraordinary drought, which increased the cost of purchasing electricity, but faced an additional cost of purchasing electricity as a result of the lack of electricity supply from KESH sh.a. in the second half of the year, as well as from increased production of Independent Power Generators in the first part of 2018.
“Lack of liquidity, as a result of the above factors, forced OSHEE sh.a. to slow down the 2018 network investment program, which is about 2 billion lek (16.2 million euros) lower than the one envisaged in the approved Financial Program,” underlined the request.
Further, the company argued that in January-February 2019, electricity purchase costs were 3.7 billion leks, or 29.6 million euros higher than planned, and according to expectations this may continue in the first half of 2019, which affects its solvency. OSHEE sh.a. analyzed very carefully the emergency situation and according to these analyzes it was foreseen that during February, March, and April 2019, faced financial impossibility of payment to Free Market Purchase Invoices as a result of the collision of these payments with current HEC bills and KESH sh.a. during January, February, March 2019, with a 30-day payment term, which during these months they expect a significant increase in their production.
OSHEE estimated in the report to ERE that the risks and damages that would be caused by this impossibility of liquidity related to the penalties that would be applied by the energy companies, the risk of the inability to purchase electricity during February, March, etc. 2019 , as a result of the debts created, would lead to the deterioration of the reputation of the distributing company as a result of non-compliance with the contracts on energy business companies. And seeing this submission, as well as the support provided by the Ministry of Infrastructure and Energy, the Energy Regulatory Authority approved the postponement of the deadline for OSHEE bill payments to third parties from 90 days to 180 days.
Improved indicators
The public power distribution company has managed to provide positive indicators in the first three months of the year, but in spite of this it seems that the financial difficulty has been impossible to overcome. OSHEE reported a general loss reduction and increase in receipts for the period January to March, but the biggest challenge remains the fact that 26.2 percent of the electricity fed to the grid is lost. OSHEE reported that the total revenues have increased by 4.6 percent compared to the previous year, while the number of new subscribers has increased by 2.3 percent. In the first quarter, revenue from receipts was 18.3 billion lek (148.4 million euros), an improvement of 816 million lek (6.6 million euros) compared to the previous year.
An important element in the company’s finances is the performance of bad debt collection for overdue bills. According to official OSHEE data, the bad principal debt for 2007-2014 bills was 44.3 billion lek (359.4 million euros) at the end of March 2019, from 67.8 billion lek (550 million euros) at the end of 2014. This indicates a 1.1 percent reduction by the end of 2018 and a 34.7 percent by the end of 2014. OSHEE said that this indicator has been improved due to debtors’ follow-up through ongoing processes, as well as reactivating the deals.
The operator also said that in the first three months of this year there has been a decrease in the number of billing complaints by 19.8 percent compared to the previous year, which is evidenced by the increase in quality of service and billing. The average monthly complaints in relation to the total number of bills issued is at the level of less than 0.6 percent.
