Feature story

Albania’s power company struggles to meet expectations

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Related links Albania homepage Power and Energy homepage Albania Power Distribution Rehabilitation [Project Summary Document] EBRD loan assists electricity rehabilitation in Albania [Press Release]

Albania is over-dependent on hydro power. Photo: Colenco Power

Kesh's Andis Harasani. Photo: A. Andjic

Kesh is pursuing people who illegally tap into power lines. Photo: A. Andjic

Just five years ago, Albania was caught in an extreme energy crisis. The hydroelectricity dams on which the country depends for 98 per cent of its power were empty, because of drought. Almost half the energy generated by Kesh, the national utility, was being lost, mainly stolen by people illegally tapping into the power supply. Most clients (including the government) didn’t pay their electricity bills, and Kesh was creaking with out-of-date, eroding infrastructure and a payroll of over 10,000 employees.

“So we had power cuts of eight to 10 hours per day, which were killing the economy,” says Andis Harasani, Kesh’s general director. “At the same time we had to import electricity that Kesh didn’t have the income to pay for.”

He leans forward to make his point: “I’d have to say it took such a crisis to get some action on all these problems and we really have the EBRD and the World Bank to thank for getting us on the right road. They sat us down and we worked together to prepare a clear, detailed strategy for the energy sector, from 2002-2017. That’s the roadmap we’re following now.”

Appetite for reform

That the strategy is working is unquestionable. “Since 2002 there’s been a 35 per cent increase in domestically-produced power going to the national grid, and a 10 per cent drop in losses to the system. By 2007, power outages should be a thing of the past,” says Mr Harasani. Kesh has computerised its bill collection system, raised collections by 15 per cent, its revenues have tripled and staff numbers have fallen by 38 per cent to 7,500.

“Yesterday I fired 100 people who are going to trial for their role in stealing power,” says Mr Harasani, noting that strong disciplinary measures also extend to clients. “Our customers must pay if we are to sustain, let alone improve the power supply. So when the municipal governments, even here in Tirana, ignore their bills, we turn off the power. They find the money rather quickly as a result.” Electricity tariffs, which were unsustainably low, have been increased, with subsidies provided by the central government to the poorest people.

Appetite for better performance

All of these unquestioned improvements have thrown up a new set of challenges. “By improving Kesh as much as we have, we’ve created an appetite for even greater and faster improvement,” says Mr Harasani, slightly exasperated.

Kesh’s performance vis-à-vis other European power utilities remains quite poor. One-third of power generated is still being lost, two-thirds of it through theft. Power outages and devastating voltage fluctuations are common in the heavy industry zones outside the capital, Tirana. Furthermore, the country’s reliance on rainfall-dependent hydropower still represents a weakness in security of supply, partly rectified by construction of a new oil-fuelled power plant at Vlore, financed with a €40 million EBRD loan.

The carrot of possible membership in the European Union is promoting reform in the sector. With EU encouragement, Albania and the other south-eastern European countries have committed to liberalising their electricity and gas markets and creating a regional common market in energy to ensure greater security of supply.

“In the last four years Albania has moved quickly to turn its power sector around and is progressing toward international standards in collection, losses, staffing and reporting,” says Tony Marsh, Head of the EBRD’s power sector team. Of particular note is the advice on sector reform and restructuring of Kesh, delivered by experts from the Italian utility ENEL under an EBRD technical assistance programme funded by the Italian government.

To date the EBRD has provided €95 million in a number of power sector loan commitments to Albania, along with approximately €4.7 million in grant funding from donors*. And more projects are in the planning phases. “This is a prime example of how progress in reform and operational discipline leads to greater outside investment,” says Mr Marsh.

Business is impatient

Time is not entirely on Kesh’s side. It recently lost a big customer – a cutting-edge cement plant under construction at Fushe Kruje – and risks losing others.

“With Kesh we still have two to four hours of power outages per day and the quality of the power is poor – voltage fluctuations can damage equipment,” says Derek Williams, project manager for the cement mill owned by the Lebanon Seament company. “When we were planning the new cement works, Kesh said they’d fix things up to improve our power supply. I think they might have been able to do so. But in the end we couldn’t risk our decision on their ability to deliver so we decided to build our own 24-megawatt, oil-fired power plant. We will be independent of Kesh.”

The agreed aim between Kesh and its international backers is that Kesh should be privatised over the medium term. “Luckily,” says Mr Marsh, “investors are gradually coming back into the market, and south-eastern Europe is of interest to many. More players are taking notice of Albania, including it in their potential buy-list, when just a year or two ago Albania would not have figured in their plans.”

*Donors and co-financiers include Austria, the European Commission, the European Investment Bank, Italy, Japan, Switzerland and the World Bank.

13 May 2005