“We are optimistic we will finalize the dialogue with the Albanian government in the next few weeks to bring sufficient resources and support reforms in the energy sector,” said Tahseen Sayed, the World Bank country manager for Albania.
TIRANA, May 26 – Reforms in the energy sector and pension system remain key to Albania’s economic recovery and fiscal consolidation, World Bank officials said at the launch at a South East Europe economic report this week in Tirana.
“The World Bank is assisting the Albanian government reform the energy sector in energy security, institutional aspects, distribution and transmission. We are optimistic we will finalize the dialogue with the Albanian government in the next few weeks to bring sufficient resources and support reforms in the energy sector,” said Tahseen Sayed, the World Bank country manager for Albania.
Speaking about ongoing negotiations with CEZ, Sayed said the World Bank could not intervene in the issue, but hoped for a solution in mutual understanding. CEZ received a 60 million euro guarantee from the World Bank as an incentive to take over Albania’s OSSH power distributor in 2009 but can no longer claim the guarantee after its departure from Albania in early 2013.
The hydro-dependent Albanian energy sector faces a chain of debts involving KESH power corporation and CEZ Shperndarje distribution operator which has been under state management since the Czechs had their licence revoked in early 2013. Energy Minister Arben Ahmetaj has earlier said debts the energy system operators owe to each other and banks are estimated at 1 billion dollars.
More than one and a half years after CEZ Group had its Albania licence revoked, the Albanian government says it is still negotiating with Czech Republic’s CEZ Group over an out-of-court solution that would not have severe financial consequences for Albania after the Czechs have initiated Arbitration procedures. CEZ says it will claim Euro 200 million in international arbitration while the previous Albanian government claimed that CEZ’s failure to fulfill its contract obligations over imports, investments and reducing grid losses caused the state USD 1 billion in damage.
The pension system, which is currently undergoing a reform targeting the increase in retirement age in a bid to reduce the widening pension deficit, is also a huge burden to the state budget.
The reform drafted under World Bank assistance foresees that starting January 2015, the retirement age for women, currently at 60, will gradually increase by two months per year to reach 63 years old by 2032. The increase in retirement age for men, currently at 65, will continue only after 2032, to reach 67. The retirement age for both men and women is expected to increase to 67 years old by 2056.
“The main reason that makes this reform necessary is that pensions will be lower and lower in the future and the deficit under the current system will continue widening,” said Prime Minister Edi Rama has said.
The deficit in the pension scheme for 2013 rose to around 44.5 billion lek billion lek (Euro 311 million), up from around 40 billion lek in 2012, unveiling the need for an emergency reform in the pension system which suffers poor collection rates due to widespread informality, according to Finance Ministry data. The current ratio is 1.4 contributions to 1 pensioner at a time when a stable pension scheme requires at least 3 contributions for one pension. Albania has more than 500,000 pensioners.
In line with the Albanian government and IMF forecasts, the World Bank expects the Albanian economy to accelerate to 2.1 percent in 2014, after growing by only 0.4 percent in 2013, the poorest growth in more than a decade.
“Albania’s growth is projected at 2.1 percent as the planned clearance of payment arrears by the government is expected to inject liquidity into the private sector and help accelerate growth,” says the World Bank in its report.
