CEZ says it has already initiated a process to claim a Euro 60 million guarantee from the World Bank as it is preparing to leave Albania over deteriorating financial performance
TIRANA, Nov. 20 – The government-CEZ conflict reached its peak last weekend 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. The warned extreme measure by CEZ on Nov. 16 left some of Albania’s key cities such as Durres, Elbasan, Lezha, Vlora and Fier and Korca without water supply for several hours forcing government to intervene after the company cut power to pumping stations in water supply companies which owe the distribution operator Euro 38 million. Under an order by Interior Minister Flamur Noka, police stopped CEZ employees from cutting power to debtor water supply companies, considering them objects of special importance. Six CEZ employees were arrested. CEZ considered the police intervention as illegal and an indirect form of expropriation, saying that the company has the legal right to cut power to debtor customers, public or private ones. In a press conference, deputy Economy Minister Sokol Dervishaj described CEZ’s action of cutting power to debtor water supply companies as unprecedented. “This is an unprecedented act which severely compromises citizens’ security, public security and the country’s national security. This action also severely compromises the mission of this company to fulfill a pubic obligation extremely important and vital for citizens,” said Dervishaj. He argued that water supply systems owe CEZ 1 billion lek, while CEZ owes Albanian public companies 14 billion lek.
ERE starts removing CEZ’slicence
Following the reconnection of power to water supply companies later on Friday, Nov. 16, ERE’s board of commissioners held an emergency meeting deciding to start procedures for the removal of CEZ’s licence.
The decision had been postponed three times until then. Four of ERE’s board members voted in favour of removing CEZ’s licence while only one voted against with the argument that the energy crisis will escalate and unbilled electricity increase.
Government and CEZ were later engaged in a battle of figures on who owes more money to each other. The Czech company owes state-owned power corporation KESH over 208 million euros, a figure confirmed on Friday night by KESH. On Friday CEZ also confirmed state institutions owe the company 165 mln euros, of which euro 38 mln by water supply companies. In its latest decision, the Energy Regulatory Entity (ERE) determined four conditions CEZ has to meet within 30 days or else it will have to leave Albania. The four conditions are related to the resumption of electricity imports to cover grid losses, the submission of the audited financial balance sheet for 2012, not making collective power cuts, and normalizing financial balance sheets. ERE says CEZ has not carried out investments and grid losses have increased to 50 percent.”If CEZ intends to stay here, it must consider it very carefully,” said ERE head Sokol Ramadani. CEZ has not guaranteed uninterrupted supply of power, it fulfilled only 7 percent of its 2012 investment plan while grid losses have reached a record 50 percent, the ERE head added.
Court rules CEZ must not cut power
The Tirana District Court banned on Saturday CEZ to cut power to water supply companies or public institutions until a final and legal deal is reached. Based on this decision CEZ cannot cut power to water supply companies until a legal deal is reached between parties. The Energy Ministry said that for each case CEZ Shperndarje will violate the court decision it will be fined 100 million lek/hour for each power cut.
CEZ considers Arbitration
CEZ, the Czech Republic’s largest power producer, is weighing an arbitration suit against the Albanian government after its attempt to unhook power from non- paying utilities ended with police arrests of six employees, Bloomberg reports. CEZ, which started disconnecting the utilities in Albania at the end of last week, had to reconnect them again to comply with a Nov. 17 decision by a Tirana court. CEZ’s management is considering the arbitration as attempts at negotiations with Albanian government authorities have so far failed, CEZ spokeswoman Barbora Pulpanova said.
“The situation is clearly heading to CEZ’s exit from Albania,”Miroslav Adamkovic, an analyst at Komercni Banka AS (KOMB) in Prague, wrote in a note to clients. “CEZ is losing money there and Albania stopped all payments for power in the summer.”
CEZ reported a nine-month operating loss of 3.8 billion koruna ($190 million) in Albania, forcing the company to lower its full-year earnings forecast on Nov. 8.
In two statements released by CEZ’s central headquarters and its Albanian branch, the decision on cutting power to water supply companies was described as legal and in accordance with legislation in force. Underlining that it has acted in accordance with law, CEZ explained that the company’s finances depend on the collection of bills for each consumer, public or private. “Based on legislation in force CEZ has the legal right to cut power to each debtor, public or private who with their non-payment of obligations contribute to the deterioration of the company’s financial situation and affect fair consumers.”CEZ Shperndarje reiterated that it intends to continue cutting power to every debtor public or private.
CEZ demands World Bank Guarantee
CEZ says it has launched legal steps to activate a 60 million euro ($76.8 million) guarantee issued by the World Bank for its power-distribution operations in Albania. CEZ received its guarantee from the World Bank, already active, as an incentive to take over Albania’s OSSH power distributor in 2009.
“We’ve raised our demand against Albania for the compensation of our losses, which are covered by the guarantee of the World Bank,” Tomas Pleskac, the head of CEZ’s foreign distribution operations told foreign media. CEZ and the Albanian government now have 60 days to reach a settlement or the World Bank guarantee will become payable, Mr. Pleskac said.
“The situation has become very tense,” Mr. Pleskac said, adding that CEZ would protect its investments by launching international arbitrage against Albania if its business license was revoked by the government.
World Bank rejects collateral execution
While CEZ is seriously considering leaving Albania and getting its Euro 60 mln guarantee, World Bank’s Regional Coordinator for Southeast Europe Jane Armitage said few days ago while in Tirana the Bank is “certainly not ready to execute its guarantee at this point.”
“At this point at both sides there is a lack of trust and at this point this is a marriage that is headed now to divorce. I fear at this point that time has run out. There have been a lot of efforts to try and get an agreement between CEZ and the government and I think at this point it is a divorce that is on the cards in the next few months,” said Armitage in recent press conference in Tirana. The senior official said the World Bank was extremely disappointed at the outcome of the privatization of the electricity distribution system in Albania. She blamed both CEZ and government for the situation. “We are extremely disappointed on the CEZ side. They have not been able to reduce technical commercial losses, which was the expectation. To the contrary they have increased. They have not been able to increase billing and collection, the situation has got worse. At the same time, government institutions and consumers have not paid their bills. All parties in a sustainable energy market need to play their roles and it is essential that both consumers and government institutions pay their bills and accept increases in tariffs.”
Decision on CEZ retail supply licence delayed
On Wednesday this week, ERE’s Board of Commissioners postponed a decision to examine a request by CEZ Shperndarje on the renewal of its retail public supplier licence. “Considering that the company has been left a 30-day deadline to meet conditions such as lowering grid losses or carrying our investments, ERE cannot renew the licence at this moment. The decision will be taken at the end of the process of negotiations,” said ERE in an announcement. This is the second licence ERE has awarded to CEZ after that of distribution of power. The retail public supplier licence expires on Jan. 25 2013 while the distribution licence is long-term and expires on Jan. 25, 2038. ERE has already started procedures to remove both licences to CEZ giving the company a 30-day deadline to negotiate.
ERE: CEZ’s departure not tragic
The Energy Regulatory Entity (ERE) does not consider CEZ’s departure as tragic. For ERE’s head Sokol Ramadani, the worst situation in the energy sector is already a fact because CEZ is not importing electricity and power corporation KESH is replacing CEZ. Ramadani says ERE decided to start procedures on removing CEZ’s licence because they were violating market rules on imports. There were also other problems related to non-payments, collective power cuts and fixed-rate billing. Ramadani says CEZ had informed ERE that the company would hand its licence to ERE if the CEZ assembly and owners did not inject the amount of money needed to the company until Nov. 15. The second reason is that CEZ has not certified its 2012 balance sheet by accounting experts. “They say they want to relinquish the licence themselves, but even if they have the licence removed the procedure would take two months. Government and CEZ could agree that the Albanian side takes the majority shares,” says Ramadani.
U.S’s Patton Bogs, government’s lawyer against CEZ
U.S-based Patton Bogs will be government’s lawyer in its case with CEZ. Government will be represented by the American consultant, which already has experience in Albania most recently with the successful privatization of Albpetrol for Euro 850 million. The negotiations with the Czech company last 30 days starting from Nov. 16 when ERE decided to start procedures on removing CEZ’s licence after massive power cuts. The Czechs have already made their proposals and demand Euro 102 mln for their purchase of the OSSH, Euro 80 mln of investments in the distribution grid and the Euro 60 mln guarantee by the World Bank in exchange for their departure. The Albanian government claims CEZ owes euro 208 million.
CEZ reports improved bill collection
CEZ’s bill collection rate reached a record 98 percent in October 2012, the company said in a statement this week. CEZ’s bill collection rate drastically improved in 2012 when it reached 89 percent in the third quarter of the year and was at 98 percent in October. The positive developments were a result of intensive measures applied by the company focused mainly on big debtors and power cabins with high level of debts, said CEZ. The company also says losses dropped from 57 percent in the first quarter of the year to 36 percent last October.
