FOURTH POVERTY REDUCTION
STRATEGIES FORUM
POWER SECTOR AND FISCAL ISSUES
KESH sh.a., Albania Case
Athens, June 26 - 27, 2007
Prepared by: Ilir ZEQO
Director of Economic Department
KESH sh.a., Albania
OVERALL PROGRAM OF ECONOMIC REFORMS
OF ALBANIAN GOVERNMENT
 MARKET LIBERALIZATION;
 PRIVATIZATION OF STRATEGIC SECTORS
 PRIVATIZATION OF ENERGY SECTOR
 AMBITIOUS TOWARDS STRENGTHENING, RESTRUCTURING
AND BETTER FUNNCTIONING OF ENERGY SECTOR
ARE A CRUCIAL MOMENT IN THE CREATION OF THE
MARKET ECONOMY
IMPROVEMENT OF THE STRATEGY IN ENERGY
MARKET AND REFORMS IN ENERGETIC
SECTOR STATE OWNED COMPANIES
DETERMINED BY:
 THE PRESENCE OF THE QUALIFIED EXPERTISE OF
INTERNATIONAL FINANCIAL INSTITUTIONS
and
 A GREAT SUPPORT TOWARDS:
 REFORMS IMPLEMENTATION
 MARKET LIBERALIZATION AND DE-MONOPOLIZATION
PROGRAMS
 STRENGTHENING AND INCREASING THE FREE
REGULATION ENTITIES ROLE
 PROGRAMS OF COMERCIALIZATION
 RESTRUCTURING AND PRIVATIZATION OF ECONOMIC
UNITS
 PROGRAMS COORDINATED WITH DEVELOPMENTS OF
REGIONAL AND EUROPEAN MARKETS
RECOMANDATION
 THE POSSIBILITIES OF EFFICIENT USE OF ENERGY DURING
THE IMPLEMENTATION OF PROJECTS
 INTERNATIONAL FINANCIAL INSTITUTIONS ASSISTANCE TO
OUR COUNTRIES TO ACHIEVE THE TARGETS OF KYOTO
PROTOCOL
 THE INCREASE OF THE ENVIRONMENTAL PERFORMANCE OF
THE PROJECTS AND ZONES IN WHICH IT HAS TO BE
IMPROVED
 THE SUPPORT FOR THE COUNTRIES TO EXPAND STRATEGIES
OF ENERGY GROWTH IN ACCORDANCE WITH THE PRINCIPALS
OF DEVELOPMENT SUPPORT
 THE NATIONAL DECISIONS OF OPTIMIZATION OF THE
STRUCTURE OF ENERGY SOURCES
THE SITUATION AND MAIN
INDICATORS OF THE ALBANIAN
POWER CORPORATION (KESH sh.a.)
PREFACE
ECONOMIC DEVELOPMENTS
•
Referring to the statement of IMF mission (25 April 8 May 2007) related to
the Preliminary Agreements with the Albanian authorities on Third Review
Under the Program, Albania has reached a pivotal stage in its economic
development. Increasing foreign direct investments and rapid financial
sector development, supported by macroeconomic stability, point to a faster
pace of convergence to emerging market standards.
•
However, risks – primarily to price stability, but also to - growth have
increased reflecting as well as the deterioration of financial position of the
KESH. This is consider as a major obstacle to progress of country
development.
•
The main risk - the weakened financial position of our public electricity
utility, KESH
– poor collection performance
– sharp increase in the import price of electricity
the result
– reduced cash flow and net worth
ENSURING THAT MACROECONOMIC OBJECTIVES
REMAIN ON TRACK REQUIRES AN INCREASINGLY
CAUTIONS AND PRUDENT APPROACH TO POLICY
FORMULATION THE ISSUES:
THE IMMEDIATE GOAL OF OUR POLICIES IN THE FISCAL AREAS IS TO
ENSURE THAT THE FISCAL TARGETS ARE PRESERVED IN THE FACE OF
PREVIOSLY – UNFORESSEN RISKS.
 THE PROJECTIONS AND CONTIGENCIES BUILD INTO THE BUDGET
WERE ADEQUATE AT THE TIME OF THE 2007 APPROVAL
 WERE NO SUFFICENT TO LOWER PREVIOSLY UNPROGRAMMED
FISCAL COSTS THAT AROSE FROM THE DETERIORATION OF KESH
STABILIZING THE FINANCIAL POSITION OF KESH – KEY TO CONTAINING
RISKS TO THE BUDGET AND MAINTAINING MACROECONOMIC
STABILITY
The financial position of the KESH by end 2006 and
forecast in the beginning of the 2007
How has to be expeditiously and comprehensively
addressed the situation?
The Seventh Energy Sector Action Plan 2007-2009
The Performance of the KESH for the period
January-May 2007
1
The financial position of the
KESH by end 2006 and
forecast in the beginning of
the 2007
Energy sector weaknesses reflect a combination of factors:
 Poor hydrological conditions are expected to reduce domestic
power generation by about 30% this year compared to the 2006.
LAKE LEVEL (m)
Jan
Feb
Mar
Apr
2003
May
2004
Jun
Jul
2005
Aug
2006
Sep
Oct
2007
Nov
Dec
DESPITE ALLOWING FOR LIMITED AND WELL –PLANNED LOAD SHEDDING
OF POWER TO PARTLY OFFSET THE SHORTFALL IN PRODUCTION, THE
AMOUNT OF NECESSARY ELECTRICITY IMPORT WILL BE INCREASED IN
2007.
2007 – 1,800 GWh – 1 ¼ GDP
Net Production and Import (GWh)
6,000
3,500
5,394
5,356
5,451
4,254
5,000
4,867
3,813
3,000
2,500
4,000
2,000
1,994
1,800
1,500
1,000
500
633
365
567
2,000
1,000
2,400
3,000
0
0
2004
2005
2006
Net Production
2007
2008
Import
2009
 The regional import prices for the electricity have increased
sharply and are well above the domestic retail prices which have
remained fixed since the last year..
9.1
9.2
7.2
8.0
7.3
9.4
8.5
6.7
7.1
6.0
4.6
2004
4.9
2005
2006
Import Cost (Leke/KWh)
2007
2008
Energy Tariff (Leke/KWh)
2009
 There are problems with the debtors arrears.
Customers
1
Collected
(Total)
Collection Debt created
(%)
during 2007
3=(5+7)
4=(3/2)
Accumul.
Debt
9=(2-5)
10=1+2-3
46,206,654
12,915,353
10,349,584
80.13
12,915,353
48,772,423
Household
Private
Budgetary
2006
2007
Non-Budgetary
80.1
TOTAL
78.1
42,005,270
3,930,129
1,278,497
1,558,526
84.1
7,699,239
3,247,648
802,784
1,165,682
80.1
73.01
92.90
91.09
84.10
91.1
5,621,058
3,016,924
731,259
980,343
92.9
7,699,239
3,247,648
802,784
1,165,682
92.6
39,927,089
3,699,405
1,206,972
1,373,187
73.0
Household
Private
Budgetary
Non-Budgetary
69.5
1
2
3
4
2
86.4
Nr
Debt untill Billed from
December January 1st,
31st. 2006
2007
TOTAL
2
How has to be expeditiously
and comprehensively
addressed the situation?
OUR AIM IS TO MAKE THE POWER UTILITY
SELF – RELIANT AND TO ENSURE A STABLE
SUPPLY OF ELECTRICITY IN ALBANIA
 Temporarily the company’s financial position stabilization.
•
•
•
•
•
•
•
•
•
•
New management
Foreign (Italian) management consultancy
Seventh Power Sector Action Plan
Incentive package for the key employees in sale and collection to achieve
performance targets
Eliminating the financial gaps of the power utility in 2008 and beyond including
through higher tariffs, if necessary
Financing from the foreign donors (WB) for the technical improvements needed
to reduce losses and theft.
New investments for the increasing the power generation and supply (TEC Vlora,
etc.)
KESH – reduction cost and improving performance (revenue collection increased
equal to 0.6 percent of GDP.
Budgetary support of leke 5 Billion (about 40.6 million EURO) or 0.5 percent of
GDP
And the last but not the least strong political support and determined efforts,
KESH’s financial performance could be improved relatively quickly
 The interim package of financial situation summary
Government
Beginin Gap
KESH
Overdraft
Investment
reduct
Perf Imp
+890
+1,514
- 15,957
+4,413
+5,000
red in OpAct Ending Cash
+4,070
 The privatization of the KESH (Distribution System Operator)
• Important objective of the Government
• Preliminary decisions already are taken.
• Already is selected IFC as adviser.
 Elimination the financial gaps of power utility in 2008 and beyond,
including through higher tariffs if necessary
 Eliminating the need for budget support for KESH in 2008 and setting it
on more sustainable path – essential to safeguard the budget
3
The Seventh Energy Sector
Action Plan 2007-2009
 Agreement with the Government authorities and no objection from the IMF
and WB
 Optimistic scenario, very ambitious targets, minimum limited impact
budget affect
 Main factors affecting the scenario:
•
•
•
•
•
•
•
Power Generation based on hydrogical conditions
Quantity Import reduces in minimum that indicates the reducing the import cost
Load shedding increased
Local Cost of investment decreased
Operational cost decreased
KESH domestic borrowing increased
Budget support
Summary of Last Action Plan (Energy Balance)
GWh
Demand
Net Production
Net Import
Eligible Import
Load Shedding
2004
6,429
5,394
478
0
556
2005
6,640
5,356
504
20
760
2006
6,465
5,451
545
60
409
2007
6,659
3,813
1,888
0
958
2008
6,855
4,254
2,400
200
0
2009
7,061
4,867
1,994
200
0
Eligible Import
Load Shedding
Net KESH Import
Demand
2004
2005
Demand
2004
Net Production
2006
Net Production
2005
2006
2007
Net Import
2007
2008
2009
Eligible Import
2008
2009
Summary of Last Action Plan (Losses & Collections)
2004
% Total Losses
39.7%
% Distribution Losses
36.0%
% Collections (W/O Arrears) 78.9%
% Collections (Total)
83.8%
39.7%
40.9%
38.1%
36.0%
2005
40.9%
38.1%
76.3%
80.4%
2006
41.0%
39.4%
80.1%
82.7%
2007
36.6%
35.0%
86.8%
91.6%
2008
34.3%
32.0%
89.6%
89.6%
2009
31.5%
29.0%
91.2%
91.2%
41.0%
39.4%
36.6%
35.0%
34.3%
31.5%
32.0%
29.0%
2004
2005
2006
% Distribution Losses
2007
82.7%
2009
% Total Losses
91.6%
83.8%
2008
89.6%
91.2%
86.8%
80.4%
80.1%
78.9%
76.3%
2004
2005
2006
% Collections (W/O A rrears)
2007
2008
% Collections (Total)
2009
4
The Performance of the
KESH for the period JanuaryMay 2007
 Energy Balance Up to May 2007
Main Indicators
April
Plan
Rel 14
520,563
221,878
215,933
5,944
209,000
6,421
437,298
83,264
Unit
Demand
MWh
Net Production
MWh
KESH Net production
"
Net Production by private plants "
Import
MWh
Net Exchange
"
Available Energy
"
Load Shedding
"
May
Plan
Rel 14
487,314
239,343
233,399
5,944
171,000
6,421
416,764
70,551
Fact
520,563
261,024
253,670
7,354
200,208
10,647
471,879
48,683
Fact
487,314
281,680
275,395
6,285
142,465
25,192
449,337
37,977
January - May 2007
Plan
Fact
Rel 14
2,964,132 2,964,132
1,255,014 1,337,106
1,227,625 1,307,672
27,389
29,434
1,207,399 1,170,072
43,055
66,053
2,505,468 2,573,231
458,664
390,901
Net Production
Import
Plan
2,573
66
43
1,170
1,207
1,337
1,255
2,505
Cumulative 2007 (GWh)
Net Exchange
Fact
Available Energy
 Losses Up to May 2007
April
Plan
Rel 14
May
Fact
Plan
Rel 14
Fact
January - May 2007
Plan
Fact
Rel 14
Main Indicators
Unit
Available Energy in TSO
Losses
Losses
MWh
"
%
460,057
19,489
4.2%
463,385
15,573
3.4%
439,522
18,627
4.2%
448,634
16,628
3.7%
2,538,160
94,272
3.7%
2,550,657
88,632
3.5%
Available Energy in Distribution
MWh
Losses
"
Losses
%
402,809
142,022
35.3%
440,115
152,768
34.7%
383,111
129,025
33.7%
412,844
136,294
33.0%
2,334,804
911,008
39.0%
2,402,516
929,083
38.7%
KESH Sales
MWh
275,787
303,617
269,086
296,384
1,499,710
1,555,270
TOTAL LOSSES
%
MWh
%
161,511
36.9%
168,341
35.7%
147,652
35.4%
152,922
34.0%
1,005,279
40.1%
1,017,715
39.6%
Losses TSO
Losses DVSH
39.6%
40.1%
38.7%
39.0%
3.5%
3.7%
Cumulative 2007 (GWh)
Total Losses
Plan
Fact
 Collections Up to May 2007
April
Main Indicators
Unit
January - May 2007
Plan
Rel 14
Fact
Plan
Rel 14
Fact
Plan
Rel 14
Fact
12,603,456
12,915,353
2,170,845
10,082,506
10,349,584
Collections
%
80.3%
81.3%
88.4%
87.6%
80.0%
80.1%
Plan
Fact
April
Plan
Fact
May
80.1%
2,477,631
2,086,071
80.0%
2,359,809
2,070,157
87.6%
2,545,075
1,887,853
88.4%
2,351,000
"
81.3%
(000 Leke)
Collections
80.3%
Billing
May
Plan
Fact
Cumulative
 Profit & Loss Statement Up to April 2007
2007
Million Leke
Plan
Total Operating Revenues
Total Operating Expenses
Gross Operating margin
Gross Financial margin
Profit before taxes
Net Profit/Loss
Total Operating
Expenses
Gross Operating
margin
8,707
-15,854
-7,147
-251
-7,398
-7,398
Gross Financial
margin
8,835
-14,689
-5,854
-252
-6,106
-6,106
Profit before taxes
Net Profit/Loss
-6,106
-7,398
-6,106
-7,398
-252
-251
-5,854
-7,147
-14,689
-15,854
8,835
8,707
Total Operating
Revenues
Fact
Plan
Fact
Thank You for your attention
and remaining…