While CEZ has already hired U.K-based Schindlers law firm to negotiate its disputes, the Albanian government has also made its move by announcing a tender to select an international consultant
TIRANA, Nov. 8 – At a time when the Albanian government-CEZ divorce over the management of the country’s problematic power distribution network seems inevitable, both parties are preparing for a solution that would come from an international arbitration court. While CEZ has already hired U.K-based Schindlers law firm to negotiate its disputes, the Albanian government has also made its move by announcing a tender to select an international consultant. The move comes few days after the Czech Republic-based group announced it was seriously considering leaving Albania and claiming its Euro 60 mln guarantee by the World Bank three and half years after taking over the majority stake in Albania’s distribution system.
“The experienced international advocacy office government is seeking to hire must determine the rights the Albanian government has to intervene within the legal framework to minimize potential damage (material, social and political) and the government risk in case of failure to reach a negotiated deal in order to ensure the stability of power supply to consumers,” says an order by Justice Minister Eduard Halimi on the start of procedures to contract an international consultant on the CEZ issue.
Sokol Ramadani, the head of the Energy Regulatory Entity (ERE) which has postponed a decision to remove CEZ’s licence for three consecutive times, proposes the establishment of a state-run Administrator to manage the distribution system operator. However, experts fear that CEZ’s departure from Albania could further complicate matters in the Albanian distribution network where power losses are estimated at over 40 percent because of lack of investments and massive power thefts. The temporary takeover of the distribution company by the Albanian government could further deteriorate the situation in the hydro-dependent electricity sector which already suffers poor bill collection rates especially in rural areas. Ahead of 2013 the general elections, government’s ability to take extreme measures of collecting outstanding debts and cutting power to debtor customers would be doubtful, experts say. Pajtim Bello, a former opposition deputy Energy Minister says the temporary administration of the company by the state would further stimulate the culture of non-paying electricity bills and further increase power losses. Ruling Democratic Party MP Sherefedin Shehu suggests the immediate privatization of the distribution sector by another company. “A prolonged transition under state management would be harmful,” said Shehu.
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 has said 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.” The World Bank official also confirmed the Bank is working on a 100 million dollar loan to the country for the energy sector on emergency basis.
CEZ on the verge of leaving Albania
Prague-based CEZ Group has recently announced it will decide by the end of the year if it will sell its subsidiary in Albania, the CEZ Shperndarje distribution operator, following disputes with the Albanian government over tariffs, taxes and investments. CEZ has invested roughly 120 million euros ($155 million) in its Albanian unit, but due to ongoing regulatory and commercial hurdles the company posted a first-half 2012 loss of USD 119 billion.
Scenarios behind the cancellation of contract with CEZ Shperndarje include government taking over the distribution sector majority share, or the temporary takeover of the full shares and the contracting of another private company. Failure to import electricity for its grid losses, debts to state-owned power companies and lack of investments are the three main reasons the Energy Regulatory Entity (ERE) intends to strip CEZ Shperndarje, a subsidiary of Czech Republic CEZ Group, from its power distribution licence in Albania.
Government has recently cut 2.5 billion Lek (Euro 17.5 mln) in unconditional grants to local government units because of debts water supply companies under their administration owe to CEZ Shperndarje operator. Meanwhile, Albania’s Energy Regulatory Entity (ERE) has fined Czech-owned CEZ Shperndarje distribution operator 430 million lek (Euro 3 million) because of failing to cover grid losses with imports. CEZ had previously been fined Euro 30 million by the tax administration over VAT payments. CEZ Shperndarje, a subsidiary of Czech-Republic based CEZ Group has been operating the Albanian distribution network since 2009 when it signed a contract with the Albanian government buying the former OSSH 76 percent majority stake for 102 million Euros.
Turkey’s Calik Enerji roumored as CEZ’s successor
Opposition Socialist Party MP Taulant Balla says government has starting negotiating with Turkey’s Calik Enerji after CEZ’s intention to leave Albania. “Prime Minister Sali Berisha is negotiating with Calik Enerji on the fate of the electricity sector after CEZ’s departure,” says Balla on his Facebook profile. Calik Enerji, part of Calik Group, has recently taken over the distribution system in neighbouring Kosovo in a joint venture with Turkey’s Limak and already operates in Turkey, Turkmenistan, Uzbekistan, Iraq, the Balkans, Eastern Europe. ȡl
