Reform in energy, what we found in this sector and what we did for it in 18 months
Published on : 23 April 2015
Today’s address of Prime Minister Edi Rama at the Assembly:
Given that the project we are discussing today is in the wake of a major reform to transform this sector, I believe this is the right moment to talk with figures and facts about the legacy of the sector, the current situation of the sector and the expected situation of the sector.
It is amazing how the people responsible for this legacy of the sector have the courage to speak as if they were watching the horizon from the beach towers, and not as if until yesterday, until 18 months ago, they had the power to do the things they say today. Not only did they not do them, by they have left behind an unutterable mess.
Concretely;
The Albanian Power Corporation, a key public enterprise for this sector, was left by them with 540 million dollars of debts created by made directly and blindly by the government.
The Transmission System Operator is another key enterprise of this sector which was left by them with a debt of 20 million dollars, and without any possibility to perform its function of operator in the market and transmission system, because they failed to pay dues to the distributor.
Everybody knows that the interconnection line with Kosovo was left blocked for totally completely unknown reasons.
In addition to a totally absurd legal situation, the Distribution Operator was left in complete economic and technological collapse, with a debt of 1 billion dollars which exceeded by several times the company’s capital. Not to mention uncollected invoices that totaled 1.3 billion dollars and led to an historical level of 48% in losses, which in the last moments ended up to 51% of loss!
Only in the period from January to August 2013, when they thought that they could keep the power by using and abusing everywhere, they accumulated $ 220 million of debts at the expense of the company by winking at every king of law offenders in order to not pay for electricity.
The 150 million Euros lost every year from theft of electricity were directly offset with the budget created by those who pay for electricity and those who pay taxes. With a ridiculous and scandalous tariff system that would only stimulate abuse and did not meet any need, neither for investment nor for content. With a production partially liberalized, but with outrageous contracts that still to this day represent a noose around the neck of the system, in addition to being a debt paid off again by citizens who are paying for energy, and by citizens who pay taxes; with a model of blocked and non-functional market in continuous emergency; with a legal framework that does not respond to the reality of the sector and did not absolutely guarantee any future for the sector.
This is the situation we have inherited.
What is the current situation and what have we done in just 18 months? I will show again figures and facts, because it’s not worth arguing with them using reason and logic beyond figures and facts.
We managed to considerably reduce the level of annual losses and today we are at a level of 31%, which is like night versus day compared to 18 months ago and, now on the basis of a fundamental stability in the sector, we have full right to believe it will go below 30%.
We increased by 100 million dollars the level of annual receipts by the beginning of April 2015. Imagine that until early April 2015, within a period of 18 months, we have managed to exceed 300 thousand contract agreements with debtors, whom they abandoned on the street along with entire system, because their minds were focused on streets, and only on streets, and as a consequence everybody was left on the street!
The total financial value of the contract agreements signed is 50.5 billion ALL, or 505 million dollars. On the other hand, the amount of arrears written off by the mitigation scheme that we proposed to debtors is 39 million dollars. In 2014, the Albanian Power Corporation purchased at a price less than 2.89 Euros compared with 2013, and less than 15.98 Euros compared with the average price of the last 5 years.
In 2014, the Albanian Power Corporation sold at an average price higher than 15.51 Euros compared with 2013 – and I am talking here a about sales made abroad – and 31.4 Euros more than the average price of the last 5 years. Calculations are simple and clear, and the difference is like night versus day and darkness versus light.
Compared with 2013, although with 40% less flow Fierze, resources have been used more efficiently and energy reserves have significantly increased. Investments made during 2014 have enabled 12 hydropower stations to start working with a total capacity value of 480 million dollars. Another 8 hydropower stations are expected to start working by 2015, with a planned investment of 280 million dollars. Debts accumulated by small producers, who used to receive contracts with children’s drawings and then bear the entire burden of the funding, have been paid by 70%.
This debt we have to small producers, to private producers, and which exceeds 60 million dollars, will be fully repaid by the first half of 2015. Meanwhile, it is clear that the support received by the World Bank and other financial institutions to invest in the system is a direct result of the reform that we have made in this sector, as a precondition to have this support.
This condition has existed before, but nobody committed to meet it because, for them, the policy of winking to thieves of and abusers with energy was the only policy.
The total chaos of the system, the total confusion within the system and violation of the rule of law in the system were clear political choices to keep the power at all costs, and which pulled the state to pieces. A first funding of 115 million dollars has been guaranteed from the World Bank to launch a major project for the recovery of the energetic system. This project is expected to exceed 400 million dollars for the distribution sector, which is our major challenge. For now, thanks to a total understanding of the vast majority of citizens and thanks to their support for this reform and these measures, we are able to start investing in the sector. Precisely because this reform has yielded results and has already a future, since the road opened ensures sustainability and has been set in motion by grant funding. So far, to this day, we have 15.2 million grants for projects to increase the efficiency of electricity. The tariff reform, the much sought after reform, the long-awaited reform, the long-delayed reform of the energy sector that revised the fundamental distortion of the market and ensured alignment with costs, by removing abusive ceilings of 300 kilowatts and by unifying the price, lower than the price of yesterday, from the average of 10.5 to an average of 9.5, has secured another cornerstone to take the sector in the right direction.
In addition, as we committed, we indemnified with an addition to the payment, rather than with compensation theories of “Bring us the bill and we will compensate for”, over 210 thousand families classified as poor and needy. There are over 210 thousand families who receive each month, directly, as an addition to the salary, a pension supplement to face the effect of the tariff reform.
We have revised the formula to determine the purchase price of energy by private HPPs, thus ending a scandalous chapter of abuse and financial speculation at the expense of public finances and at the expense of taxpayers and consumers who pay for energy in the country.
We have increased by $ 40 million dollars the funds for production and have moved to a whole new stage for the management of the cascade, through water control and an optimal regime. This has stopped political interference such as “let it be filled because we are going to sell”, and when it was filled more than it could hold, the whole area of Shkodra and lower Shkodra would be flooded, and people would be told “this was because we had the heaviest rainfall of the last 100 years”. The heaviest rainfall of the last 100 years occurred for five consecutive time within one year, but this one was slightly heavier than the one that occurred a few weeks ago.
We started procedures to breach concession contracts with over 30 hydropower plants in potency, when the concessionaire has failed to fulfill obligations. The time when concession contracts were signed and left in the drawer, unmonitored, and the so-called concessionaires would made of it a bond for the illegal market of contracts is over.
We have solved the problem for building the infrastructure that will replace project of the cascade in Devoll. Like all the problems inherited in all sectors, this was also an inherited problem, the big the problem inherited across their major project that was roads, roads and only roads, by those who not only did not complete even one road, but abandoned every road project. While we, in addition to covering all the debts they had to enterprises for what small proportion of road they did, they have done little way, are facing the challenge to provide funding in order to conclude the projects that were started with 5%, 3% and sometimes even 1% of the total amount in order to have the election ribbons cut.
We have ensured to continue and have the construction of the 110KW South Ring line thoroughly funded. In addition, the investment for both lots in 2014 amounted to 186 million dollars, work for the construction of Tirana-Pristina interconnection line of 400kW has started and investment for the preliminary phase in the first Lot has exceeded 4 million Euros.
A very important agreement has been signed on the project for the market liberalization that will be followed by the integration of the market on a regional level with Kosovo. This is the beginning of a larger project for a regional market on which we are discussing with other countries.
To conclude, let me say that we have invested approximately 9 million dollars on dam safety in the HPPs of Fierzë, Koman and Vau I Dejës.
I believe that all these figures and all these facts clearly show where the sector was 18 months ago, where it is today and where it will be by the end of the next 5 years. We are confident that for a sector with the biggest problems, the heaviest burden of obligations and of the greater financial pit, we will turn the energy sector of our country in a sector that not only is independent without any need to be financed from taxes to compensate for losses, but it will be a profitable sector of our economy.