Current Affairs ČEZ packing its bags in Albania after months of controversy

22-01-2013 16:15 | Daniela Lazarová

The Czech power giant ČEZ has had its license to operate Albania’s national grid revoked just three years after entering the market. The state regulator’s decision, announced on Monday, follows months of controversy over tariffs and unpaid bills. ČEZ is now counting its losses, estimated at around 5 billion crowns, and is weighing an arbitration suit against the Albanian government. Economic journalist Chris Johnstone says the Albanian investment was a calculated risk that failed to pay off.

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ČEZ office in Tirana, Albania, photo: CTKČEZ office in Tirana, Albania, photo: CTK “From the start ČEZ knew it was a risk and they actually had a guarantee from the World Bank that if this went pear-shaped then ČEZ could claim back some of the cost. And that still applies, it can still go to the World Bank and claim back some of the money it lost, though not all of it. So, Albania certainly was a big risk. A lot of people there don’t regard electricity as a natural commodity, as something you pay for. They take it for granted like the air they breathe. But as well as the risk there was a potential for quite a lot of profit if this thing had worked out; the local economy has the opportunity to develop quite fast, the electricity infrastructure was pretty poorly developed so there were plenty of investment opportunities and ČEZ was quite big in the Balkans already, it had made investments in Bulgaria, Romania and even considered at one time investing in Kosovo, of getting electric plants and coal mines there, so the Albanian investment was part of ČEZ’s overall strategy.”

So what ultimately went wrong? Was it the high power tariffs and the inability to raise prices for customers?

Chris Johnstone, photo: archive of ČRo 7 - Radio PragueChris Johnstone, photo: archive of ČRo 7 - Radio Prague “Most of the really serious problems blew up over the course of the last year. There were some really strange decisions by the Albanian regulator. ČEZ was distributing electricity there and was buying it from a state owned electricity producer which at a certain point put its price up by 100 percent. And the regulator said ČEZ could not project the price increase into its customer prices – for those who happened to be paying for electricity. So ČEZ immediately started running into losses. It was a totally incredible situation. ČEZ tried to work things out, it started talking to the government regulator but when it thought it had a solution it found that the government or someone turned round and said you are not talking to the right people. It has been a crazy situation there over the last year so I think that basically they will probably be relieved to wash their hands of this whole thing, although there will be lost of legal implications going on.”

Well, ČEZ is considering filing an arbitration suit against the Albanian government on the grounds that much of what has happened has been in violation of both international and Albanian law. What are its chances of getting compensation?

Photo: archive of ČRo 7 - Radio PraguePhoto: archive of ČRo 7 - Radio Prague “Well, ČEZ will have to chose where it will lodge its complaint, and I don’t imagine it will chose an Albanian court, they will go for an international arbitration suit in London or Paris. And I should think they have a pretty good chance of getting back what they initially invested in the company – they recon they spent as much over again developing it over the years. So we can expect a long, drawn-out process but eventually it will turn out well I think and they will be relieved that a firm line has been drawn in the wake of this debacle and it will become a legal problem rather than an ongoing economic one. Because basically what the Albanians have done now is they have withdrawn ČEZ’s whole responsibility, ČEZ has nothing left to manage there now. They have no license, they have no role there now, so at least they can’t be held responsible for any more losses because that’s basically it. “

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