Legalization of informality in energy

Legalization of informality in energy

IBNA Analysis/”Electric energy has been the main source of the financial hole and it has caused many threats for the financial and budgetary stability of the country. Currently, there’s a fall of the consumption of power supply, a very significant one, almost 15%. This means that people are being more careful with the consumption of power supply and there’s an increase of billing by 10%. This means that legalization has started, if I may use this term, of informality in energy”

By Damian Gjiknuri

Minister of Energy and Industry of Albania

State Budget in Albania has been year after year exposed to a hole caused by the energy sector. This has occurred as a result of financial guarantees that the Albanian government has offered for the import of power supply or to fill the financial void that exists in the energy sector.

Last year, guarantees accumulated in the amount of over 200 million USD. Had we continued without intervening, with concrete and deep reforms that we’re undertaking in order to restructure the entire sector, this financial void would demand even more government guarantees. This means that the values will be unaffordable for the State Budget. This time, our budget represents support for all the targets that we’ve set, as far as policies for the energy sector and also in terms of the guarantees that the state will offer in relation to lending or necessary reforms, such as the project of the World Bank for the recovery of the sector.

A project worth 150 million USD, which will also be backed with the funds from other donors, but also local counter parted funds.

On the other hand, the budget is also backed by other projects for the promotion of energy efficiency, whereby through our donors, we have secured funds in order to implement concrete projects, such as the rehabilitation of several schools last year. For next year, we have planned investments to transform all of the “Student City” into a project of efficient energy. This is why local funds have been secured, because the majority of funds come from the German KFV.

There are also funds to support the development of policies for renewable energy in the Devoll project. Thus, we have to do with the compensation of the necessary infrastructure, something which has not been done by the former government. Funds are allocated year after year, and for this year, 1.2 billion ALL were allocated and these will continue in the years to come in order for the state contribution for that missing part to become effective and at the same time, for the Devoll project to end in 2018, as projected, by increasing energy production by 20%. This is an important concessionary project.

Currently, we’re in a very intensive phase. The measures that we have taken are yielding results. This is why the use of police forces has been necessary to enforce law in the darkest part, which relates to the theft of power supply, causing the losses.

The preliminary results are significant and concrete. Improvement this year have been concrete, given also the difficulties that we’ve had about the fact that we took over the sector after settling a long conflict with the Czech side, which would expose the sector to undesirable financial risks in the future. Above all, this would not have given us an opportunity, had we not ended this conflict, to start the reform and investments, because nobody was ready to invest in the energy sector without settling this open conflict.

What has this brought?! This year alone, we have collected 66 million USD more in terms of payments, which means that receipts have improved and amount to 85%.

On the other hand, we have a reduction of losses with around 7% compared to last year.

This year, we have planned on bringing losses down to 38%, as opposed to 40% that we had initially planned. Our aim has been for theft not to be a burden for consumers, something which has caused a big void or a big financial hole in this sector, which constantly demands funding from the state budget and something which make it impossible for energy prices to cover its cost.

This month we’ve noticed a fall of the consumption of power supply, a very significant one, almost 15%. This means that people are being more careful with the consumption of power supply and there’s an increase of billing by 10%. This means that legalization has started, if I may use this term, of informality in energy. This, combined with higher payments, which amount to 20 million USD in this period alone, bring a positive trend in the system. We are determined to continue with this pace there’s no doubt that we won’t back off from this new approach of the state with power supply consumers.

A sector which must support itself

Energy sector is a sector which must support itself, something which has failed for the past 24 years. Why?! Because energy was below its cost, energy was misused, stolen. Experiments have been made with the energy sector, such as the sale of four power plants, of four very precious assets which helped for a very positive result in 2012. The state lost much needed assets.

We’re also putting an end to unplanned concessionary agreements. A day after tomorrow, the government will adopt the respective decision, by restructuring the charges applied by private concessionary power plants. The energy purchased from them was not reflected in power supply price, something which constantly led KESH to borrow and further obliged the state budget to allocate funds for the Albanian Power Corporation.

No dependence from import

Albania needs internal sources, but in order for internal sources to increase, in order for production of power supply to increase and Albania not to import 40% of the energy that it uses, we must encourage investments.

Stimulation of investments is done through two elements, having above all, a better climate for investments and we’re doing this with the new legislation on power supply, which will make rules easier for investments in the energy sector.

There must better planning and there cannot be investments which do not have efficiency in the energy sector. Above all, there must be a financial discipline, because nobody would invest in the energy sector if we didn’t have cash flow, guaranteed funds and a solvent sector.

This is achieved by regulating the payment and secondly, by liberalizing the market. Private investors will start and purchase energy in the free market. This brings two positive effects. Firstly, it relieves the operator’s burden, by limiting the problem on household customers or the problem relating to the poor voltage, relating to small businesses in the cities. Secondly, this offers an opportunity for the sale of energy and for the purchase of energy from private investments.

An Albanian and a regional problem

The energy sector is problematic in all the countries of the region. Albania has had very big problems not only as a result of the lack of investments and its archaic system, but above all, as a result of populist policies, anti-national policies which have often been associated with the sale of assets or unwise privatizations.

Unfortunately, we’re suffering a big financial void which amounts to 1.1 billion USD and which can only be regulated through strong measures that we have undertaken. /ibna/