Lift of 300 kWh threshold to increase power prices

The reform would affect around three-quarters of Albanian households with a monthly consumption of 300 kWh starting next January.
TIRANA, Oct. 14 – Power prices for both household and business consumers are set to undergo an unavoidable increase next year as part of a reform in the country’s electricity sector which causes the state budget around $200 million in losses.
Finance Minister Shkelqim Cani says government is mulling over lifting the 300 kWh threshold charging lower prices for household consumers and apply unified tariffs at an average rate. Business consumers are also expected to face higher electricity prices starting next January, with the final decision by the energy regulator, ERE scheduled for next December.
In an interview with VoA in the local Albanian service from Washington where he attended IMF’s Spring Meetings, minister Cani argued the lift of the threshold was intended to prevent speculations and thefts and would not affect Albanian households.
“We will set an average price which will no way affect Albanian households,” said Cani.
However, the reform would affect around three-quarters of Albanian households with a monthly consumption of 300 kWh. Estimates show that a household with 300 kWh monthly consumption will pay an extra of around 1,000 lek (Euro 7) under the new average tariffs expected at a unified 9.53 lek kWh.
An annual report by energy regulator ERE shows the number of Albanian households with a monthly consumption of 300 kWh rose to 76.3 percent in 2013, up 1 percent compared to 2012. Household electricity consumption accounted for 57.6 percent of the total in 2013.
Energy Minister Damian Gjiknuri has earlier said the price increase is a result of mismanagement in the electricity sector, but even the sale of some public hydropower plants by the previous government.
“I would like to stress that household consumers as well as consumers in need will be protected,” Gjiknuri has said, hinting that the price increase will affect business consumers and state institutions considering that no price increases have been applied in the past four years.
The increase in electricity prices has also been recommended by the IMF and the World Bank which are assisting the Albanian government bring back the economy to sustainable growth after moderate growth of around 2.6 percent annually during the 2009-2013 crisis years compared to a pre-crisis decade of an average 6 percent, when it was one of the best performers in the region, according to INSTAT.
The energy regulator ERE had previously warned the two-tier billing system could be lifted by the end of this year and unified prices be set for all household consumers.
Currently, Albanian households pay electricity bills under a two-tier price level which charges them 7.7 lek/kWh for a consumption of up to 300 kWh a month and 13.5 lek for each kWh they consume above the 300 kWh threshold (VAT excluded). Average tariffs for business consumers vary from 8.5 lek/ kWh to 10 lek kWh based on low or medium voltage power access. Meanwhile, state institutions pay 11.5 to 14 lek kWh.
Power prices during the past six years have increased by 63 percent climbing from an average of 5.71 kWh in 2005 to 9.53 lek kWh currently.
In Albania power prices, which take a considerable part of households’ monthly income, have remained unchanged since the end of 2009 when the Energy Regulatory Entity (ERE) approved the latest increase in electricity tariffs. Yet, the electricity prices in Albania are relatively high considering that Albania has the lowest GDP per capita expressed in purchasing power standards.
Albania’s household electricity prices are higher than in six European countries, although the country’s GDP per capita, an indicator of the standard of living, is among the lowest in Europe, according to data by Eurostat, the statistical office of the European Union. At Euro 11.5 per 100 kWh, Albania’s household electricity prices including VAT at 20 percent, are higher than in Serbia at Euro 6.1, Macedonia at Euro 7.8, Bosnia and Herzegovina at Euro 8, Bulgaria at 8.8 Euros, Montenegro at 10.5 Euros and Iceland at 10.9 Euros.
With electricity prices set to increase for business consumers next year, the Konfindustria Association has warned the move would have a severe impact on the ailing Albanian economy.
In a statement, the Konfindustria association says an increase in electricity prices at a time when around half of the electricity fed into the grid is lost because of technical reasons and non-payments, risks further deteriorating the country’s economic development and the financial situation of the electricity generation and distribution operators because of the massive culture of non-payment of bills.
“The consequences of an increase in electricity prices will only affect businesses and honest citizens, increasing the risk of non-payment of bills, raising production and service costs for domestic industries, lowering their market competitiveness and posing a bankruptcy risk which is a direct blow to the country’s attractiveness of investors,” says Konfindustria.
The Albanian hydro-dependent electricity system is now wholly state run after a deal settling the dispute with Czech giant CEZ group which will be paid back Euro 95 million for 76 percent of the shares it bought in the Albanian electricity distribution operator in 2009 for Euro 102 million.
Prolonged drought in the first half of this year severely affected the country’s wholly hydro-dependent domestic electricity generation and electricity exports but grid losses in the now 100 percent state-run electricity distribution system suffered a moderate decline, according to a report published by the country’s state Institute of Statistics, INSTAT
INSTAT data shows grid losses, the overwhelming majority of which belong to distribution network losses, dropped by 7.3 percent to 1.546 GWh in the first half of this year, accounting for 38.4 percent of total electricity available for consumption. Technical losses due to the dilapidated grid remained almost unchanged at 37 percent of distribution network losses while non-technical losses (thefts) were down by 8 percent accounting for around two-thirds of distribution losses.