The World Bank is urging Albania to again increase the price of electricity. “The increase of the price was delayed by two months. As such, Albania lost the possibility to get sources for its imports or its production in crucial months, such as January and February. The World Bank is of the opinion that this price increase will not be sufficient and this is the reason why, along with the IMF, it is encouraging the government for another price increase”, said Camille Nuamah, the World Bank Country Manager.
KESH, the Albanian Power Corporation, is the second largest hole in the Albanian state budget after the “Road of Patriotism”. It seems that KESH has neither the will nor the ability to recover from its deep crisis. It is commonly believed that only privatisation can save KESH. However, no sale can go through unless KESH shows some profit, or at least the possibility of making a profit.
The IMF and World Bank are the two largest donors to the Albanian power industry. Last December, they demanded the Albanian government increase the price of electricity. The General Manager of KESH was insisting the government do the same. Prime Minister Berisha tried to postpone the decision. It was, after all, January and still too cold. Further, Prime Minister Berisha felt that he had to divide a huge price blow to two, or probably three, small blows. Therefore, in March 2008, the price of electricity was increased by only 15 percent for each KW over 300KW. Further, the Albanian government continued to finance the KESH budget deficit through funds from the state budget.
The last IMF report stated that the financial situation of KESH is not meeting their expectations. The problems remain the same. KESH is unable to reduce its losses in the power net and to collect its bills. The peak of mismanagement, technical problems and unpaid bills was achieved in January 2006. At that moment, KESH was being paid in cash for only one-third of the electricity it was pushing in its old power grid. At the same time, its Balkan neighbors were collecting some 75% of consumed energy. During summer 2007, the extended drought in the region doubled the price of electricity. Albania was using, at that time, 2 percent of its GDP to finance the import of electricity. The government is hoping that the new price increase is going to reduce the company’s quasi-fiscal losses to 1.2 percent of GDP by mid-June 2008.
Power production stable, reserves are at their maximum
Thanks to heavy snow and rainfalls during the first two months of this year, reservoirs are being filled to their maximal quotas. So far, water levels at the reservoir feeding the Fierza Power Plant is reaching its maximum quota of 296 metres. The water inflow is at 190 cubic meters per second, and the water level at the reservoir has increased by 8 cm every 24 hours. For the moment, all power turbines in the Drini cascade are in constant use, and KESH produces 12.2 million KW/h. Nevertheless, KESH is importing 3.3 million KW/h in order to meet the demand for electricity.
Distribution System Operator (OSSH) is for sale
During the last year, KESH completed the process of unbundling its main activities into separate legal entities. One of them, Distribution System Operator, is going to be sold before the end of summer. The government believes that the privatisation represents a sustainable solution to the energy problems and it would bring some cash to the state. The new owner will have to buy between 51 percent and 75 percent of all shares of the OSSH. The rest of the shares are going to be used to compensate former landowners who lost their property after 1945. Some of these shares are going to be sold to employees of KESH and the formerly politically persecuted.
The Albanian government has decided that the buyer should have at least three years of experience as a power distributor. Further, it should have distributed at least, 10,000 GWh to no less than 500,000 consumers, and managed at least, 20,000 km power lines.
According to the new law recently passed in the Albanian parliament, KESH would continue as the main supplier of the OSSH, while OSSH would be responsible for distributing to single consumers. However, prices are going to be decided by the Power Regulatory Board (ERE). ERE is going to decide both the price of power that KESH is going to sell to OSSH and the price that OSSH is going to demand from single consumers. In effect, ERE is going to decide the income rate of both KESH and OSSH. The sources at the Ministry of Economy say that the model is going to satisfy both parties, the distributor (OSSH) and the consumers.
However, there is another alternative. The model is going to satisfy neither the buyer nor the consumers. First, although the price of electricity was increased in March, the OSSH is still losing money. The buyer should do his homework because it is going to face some major challenges. Second, the buyer shall try to recover some of its losses by increasing the price for the consumers who are already paying. In a country plagued by monopolies, can readers guess who wins when the Company matches its forces with Consumer?
