The next biggest hole in the Albanian state budget

The number two problem among fiscal risks is the Albanian Power Corporation, commonly known in Albania as KESH. Unfortunately, KESH lacks cash. The precarious situation at KESH comes as the result of a number of factors. KESH is staffed with many party members rewarded for their contribution to the 2005 elections. It suffers from a lack of infrastructure investments in the last 17 years, poor management, and its inability to collect electricity bills.
The solution provided by the IMF and the World Bank, the two largest donors of KESH, is its privatisation. However, privatisation cannot take place unless KESH shows that it can turn a profit. Therefore, in the beginning of 2008, the IMF and WB put pressure on the Albanian government to increase the price of electricity for the home consumers. The government agreed in March to increase the price of electricity by 20 percent for every KW spent over 300 KW. The price increase was considered as insufficient by IMF, WB, and KESH itself. Since then, they have joined forces to push forward another price hike. Last week, representatives of IMF and WB met at separate meetings of the Albanian Power Regulatory Board. According to the leader of the Power Regulatory Board, Bujar Nepravishta, the Board refused to increase the price of electricity. The Board has already calculated that Albanian consumers pay prices that are higher than the current cost of the product including imports of electricity. The critics say that the Board refused to increase the price of electricity under pressure from the government. In any case, many observers consider it unfair that those who already pay should pay even more in order to compensate for poor management and those who refuse to pay. Nevertheless, KESH is expected to lose some Euro 135 million this year. The IMF warned that if this continues, KESH is going to cost up to 1.4 percent of country’s GDP or more than half of all public spending on health. (Tirana Times Staff)