Power Prices Kept Unchanged, CEZ Offered Cheaper Rates
By ervin lisaku
TIRANA, Dec. 7 – Albania’s Energy Regulatory Agency (ERE) decided on Tuesday to keep electricity prices for 2011 unchanged, turning down requests by the three local operators which would increase power prices by an average of 12 percent. The decision was made behind closed doors while dozens of labour union and NGO activists staged protests in front of the ERE building, opposing a possible price increase.
ERE’s board of Commissioners decided to continue applying the two-tier price level, under which Albanian households will pay 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.
However, the ERE decision obliges state owned electricity producer KESH to sell energy to private distribution operator CEZ at 1.48 lek kWh starting from next January, down from 2.03 lek currently, considerably increasing the Czech company’s revenues which had desperately demanded price increase to handle rising costs and new grid investments.
Meanwhile, electricity rates for business and public consumers at peak hours will drop to 5 percent more than the base tariffs for each group, down from 30 percent this year.
“Considering the good hydro situation, the board of Commissioners approved a proposal to reschedule electricity exports so that part of exports goes in favour of consumers and prices are kept unchanged,” said ERE head Bujar Nepravishta.
The regulatory agency says the continued application of the two-consumption 300 kWh block structure discourages the use of electricity for heating and cooking and that these two services can be guaranteed by alternative sources at competitive costs such as gas. The ongoing implementation of this system had also been demanded by the Consumer Association, the Ombudsman’s office and the Energy Ministry in separate hearings with ERE ahead of the December 7 decision.
ERE said the decision was aimed at achieving the equilibrium among the interests of investors, consumers and state, setting affordable rates for consumers of all categories, and allowing companies to carry out investments and get the necessary income to operate in accordance with legislation in force.
The current 2010 prices will allow all operators, private CEZ Distribution and the three public ones, state-owned electricity producer KESH, Transmission System Operator (OST), and newly built but not yet fully operational Vlora thermal power plant to cover costs and be able to provide 24/7 power supply to all consumers who pay their bills regularly, said the agency in a statement.
ERE’s decision came at a difficult moment in Albania, when thousands of people, mainly in the northern Shkodra region, have been forced to abandon their flooded homes because of heavy rains and the massive water discharges from the three hydropower plants of the northern Drin Cascade which produce more than 90 percent of the country’s domestic electricity. The good performance of the Albanian Power Corporation KESH, whose exports considerably rose to 86 million euros during the first half of this year allowing the state monopoly to pay off part of its debts, has also influenced on the decision to keep prices at the same levels.
Meanwhile, the financial situation of Albanian consumers continues remaining poor with retail sales registering year-on-year drops, immigrant remittances down, unemployment rate at 13.5 percent, and lending standards remaining tight because of bad loans rising to a record 13.5 percent. Economy experts say the gap between the poor and the rich has been getting wider during the past two year, since the effects of the global financial crisis began to be felt in Albania despite the economy being less integrated into the global market.
CEZ’s application
CEZ, the Czech Republic company owning the majority stake in the Albanian electricity distribution operator (former OSSH, current CEZ Distribution) had applied for an average increase of 12 percent in electricity prices to cover the company’s rising costs and continue its investments.
Meanwhile, state owned companies, Albanian Power Corporation (KESH) and Transmission System Operator (OST) had also submitted requests for increases in their production and transmission tariffs. Under the proposed changes, average prices applied to different categories of customers by CEZ would increase to an average of 10.51 lek/kWh, up from 9.53 lek/kWh currently.
Last Year, CEZ had requested a 24 percent price increase in electricity for 2010 but the Energy Regulatory Entity approved only a 13 percent increase which entered into force on January, 1 2010. In March 2009, CEZ signed a contract with the Albanian government after buying 76 percent of OSSH’s state-owned shares for 102 million euros.
According to the country’s national statistical institute, INSTAT, losses in the electricity grid continued rising in the first half of 2010. Data show electricity losses increased by 3.7 percent, accounting for 27.2 percent of power available for use. Distribution losses made up a majority of 88.9 percent of losses in the electricity grid.
Government, NGOs reaction
Speaking at a press conference on Tuesday, Economy and Energy Minister Ilir Meta described ERE’s decision as fair and positive, especially for household consumers.
“I believe this decision clearly shows ERE’s professionalism and integrity and at the same time turns down media speculations, simply for political reasons.”
Meta assured consumer protection through tariffs closer to the real costs would remain a priority for government.
Meanwhile, the Coalition for Consumer Protection, newly established to opposes a possible increase in power prices, hailed Tuesday’s decision, but reminded ERE that consumers still do not have a contract with CEZ Distribution, a situation which it described “an open violation to the consumer protection law and ERE’s mission.”
The Coalition, which had threatened to take legal action against the ERE’s commissioners in case of a possible increase in power rates, called on the regulatory agency to hold a public hearing within this month on the need to approve a contract between consumers and the private operator in order to eliminate everyday abuses.
The Coalition composed of 50 NGOs and led by lawyer Altin Goxhaj warned last week ERE had no legal grounds to examine the request by the three monopoly operators without having the annual balance sheet covering the January 1 – December 31 period to assess the real costs of private CEZ Distribution, state-owned KESH electricity producer and transmission operator OST.
The business community represented by Konfindustria had also warned improvements in the contracts were a necessity because of the poor quality of power supply which causes million of euros of damage to the domestic industries each year. The acceleration of the review of contract with consumers, obliging CEZ to protect Albanian consumers by respecting serve quality indicators has also been recommended by the Competition Authority in a recent report.
Competition Authority
The Energy Ministry and ERE have been asked to take further steps liberalizing the country’s highly monopolized electricity market by allowing competition which would lead to better service and lower prices. Under some recent recommendations made to government and ERE, the latter being a legally independent institution, the Competition Authority demands that both state owned electricity producer KESH, and private electricity distribution operator CEZ should operate financially and functionally separated from their wholesale and retail public suppliers.
Currently, state owned KESH, is composed by two vertically integrated segments known as KESH-Gen and the public wholesale supplier. Meanwhile, CEZ Distribution also continues operating under the same vertical structure, with two units known as CEZ Distribution and the Public Retail Supplier which are a single economic unit.
The Competition Authority says that the continuation of such a situation by KESH runs counter to a March 2008 government decision envisaging that both its units should operate financially and functionally independently. The functional and financial independence of the public wholesale supplier from KESH-Gen would create the conditions for competition for all the interested electricity producer operators such as independent, small ones or qualified suppliers. The Authority also says that the separation of the retail public supplier from CEZ Distribution would ensure efficient competition, offer consumers the option of choice, and eliminate inter-subventions in these segments of the market.
The Competition Commission concludes that the current state of the liberalization of the energy market does not allow or create spaces for new operators in the retail electricity supply, denying the consumers the right to get power supply from another operator. According to ERE, the functional separation of CEZ from the public retail supplier cannot be carried out before 2014 even though this is an already legal obligation.
World Bank
In a recently released report, the World Bank said that tariff reform will have to take into account the impact on the poor and vulnerable sections of the population. Currently, efforts to guarantee a basic level of energy consumption for the poor are addressed both through the tariff structure and subsidies offered by the social protection system. The tariff structure ensures that lower levels of energy consumption are priced at lower tariffs. “In the case of Albania, the first consumption block may be too big to guarantee “life line” consumption only, while the subsidies offered through the social protection system, although well targeted, have relatively low coverage (only 12 percent of the poor benefited from the social assistance system). There is thus a need to assess the options available to guarantee basic levels of electricity consumption in the context of reform. Of the two tools currently used, the tariff structure seems too expensive an instrument to protect the poor due to the high leakage to higher income groups,” said the World Bank in the “Albania, the new growth agenda” report.
