VZCZCXRO5878
RR RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHTI #0828/01 3251545
ZNR UUUUU ZZH
R 201545Z NOV 08
FM AMEMBASSY TIRANA
TO RUEHC/SECSTATE WASHDC 7610
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 02 TIRANA 000828 
 
SIPDIS 
SENSITIVE 
 
DEPT FOR EUR/SCE JISMAIL, EB/ESC/IEC 
 
E.O. 12958:N/A 
TAGS: ENRG ECON PREL AL
SUBJECT: ALBANIA:  ELECTRICITY UPDATE 
 
REF: TIRANA 811 
 
Summary 
------- 
 
¶1. (SBU) Albania's electricity generating capacity is totally 
dependant on hydroelectric power.  So far, rainfall in 2008 has been 
below normal, causing key reservoir levels to drop.  The GOA, facing 
parliamentary elections in June 2009, fears a return to the 
2006/2007 electricity crisis, during which most of the country faced 
blackouts of up to 16 hours per day.  While the GOA has taken 
important steps to deal with its chronic electricity problems, such 
as privatizing the distribution operator, adding transmission line 
capacity, licensing new hydroelectric power plants (HPPs), and 
beginning construction of a thermal power plant, none of these 
measures will begin to take effect until after the elections. 
Compounding the problem is the artificially low price of electricity 
to consumers.  The GOA will not raise prices before the elections, 
forcing it to import electricity at prices well above consumer 
retail prices.  If the GOA cannot generate enough of its own cheap 
electricity, its budget deficit will continue to balloon, 
exacerbating the effects of the global financial crisis on Albania. 
End Summary. 
 
Plugging the Leaks 
------------------ 
 
¶2. (U) On October 29, the GOA finalized the award for the 
privatization of the Distribution System Operator (DSO) to the Czech 
company CEZ Group, one of the ten largest energy companies in 
Europe.  CEZ will pay USD 130 million for 76 percent of DSO and will 
also assume DSO's long term debt of USD 180 million.  CEZ has agreed 
to the GOA's plan to reduce technical (line and transformer) and 
non-technical (theft and non-payment) losses from the present 35 
percent to 15 percent by 2014. 
 
¶3. (SBU) This privatization is a major step forward for the entire 
energy sector, which has suffered from lack of capital investment 
and technical expertise, and widespread corruption.  Theoretically, 
CEZ could make a major difference in how much electricity gets to 
consumers and at what net cost to the GOA.  How much of a free hand 
CEZ will have is another question.  The ruling party in the past has 
used electrical service to reward its supporters and harass its 
opponents.  For instance, in February 2007, during the height of the 
most recent energy crisis, EconOff was meeting with the Prefect 
(ruling political party boss of the region) of Himare, a southern 
coastal village.  The entire region was dark, with just a few lights 
powered by generators.  A villager from a nearby village approached 
the Prefect and asked to have their lights turned on for a few hours 
so that they could conduct a funeral.  The Prefect made one call and 
the lights came on immediately.  The Prefect was running for mayor 
of Himare against the incumbent from another party. 
 
Water Power 
----------- 
 
¶4. (U) Almost all of Albania's electricity comes from hydroelectric 
power plants (HPP), which have not been able to meet domestic demand 
for at least the last eight years.  Demand for 2005, 2006 and 2007 
held steady at about 6.5 TWh (terrawatt-hours), while HPP generation 
for wet years 2005 and 2006 was about 5.4 TWh.  2007, however, was 
abnormally dry, with below average rainfall from June 2006 through 
late 2007.  Generation in 2007 fell 47 percent requiring a five-fold 
increase in imports to 2.8 TWh, costing USD 250 million.  Reservoirs 
in June 2006 were full, as they were in June of this year. 
Unfortunately, 2008 seems to be following the pattern of 2006 and 
power parastatal KESH expects to import as much electricity in 2008 
as in 2007, but at a higher price.  The GOA is trying to keep as 
much water in the reservoirs as possible coming into the 2009 
elections to ensure the minimum possible power disruptions.  But 
despite large imports, the water level at Fierza Lake (the highest 
lake in Albania's critical Drin Cascade) is already too low to 
guarantee uninterrupted supply since Albania lacks the 
interconnection capacity to import sufficient electricity. 
 
¶5. (U) The GOA, supported by World Bank studies, plans to exploit 
more of Albania's mountainous terrain and many rivers.  The Kalivac 
HPP is under construction and construction of the Ashta HPP in 
northern Albania is expected to start soon.  The GOA has signed 25 
concession agreements for construction of small HPPs and is 
evaluating 87 additional proposals. 
 
Alternatives? 
------------- 
 
¶6. (U) The GOA has considered, announced, and then rejected (for 
various reasons) many proposals for TPPs.  The only one actually 
started is the 97 MW gas-fired TPP near Vlore, which is scheduled to 
come on line in summer 2009.  However, initial indications are that 
electricity produced by that TPP will cost at least as much as 
 
TIRANA 00000828  002 OF 002 
 
 
imported electricity.  Several other large TPPs are being 
considered, including the ASG LNG gassification and generation 
project near Fier (400 MW expanding to 1.2 GW) and an 800 MW 
coal-fired plant (expandable to 1.3 GW) planned by Italian energy 
company ENEL in the new Porto Romano energy park near Durres. 
(Note:  The ASG project was announced by the GOA, World Bank, and 
other international institutions in the spring of 2006.  ASG has not 
been able to raise capital for the project and has not made any 
concrete steps forward.  On November 19, the GOA cancelled ASG's 
license for an undersea cable to Italy.  End note.)  Current HPP 
capacity is about 1.5 GW, so if these TPP projects are completed, 
Albania could become a net exporter of electricity to the region in 
the foreseeable future.  Alternative energy from wind, solar and 
nuclear have been proposed and considered, and some licenses have 
been granted, but so far, no one has been able to raise capital to 
begin any of the projects. 
 
Electricity Pricing 
------------------- 
 
¶7. (U) The IMF has insisted that the GOA raise retail electricity 
prices to reduce Albania's budget deficit.  While the GOA is not 
expected to comply, at least until after the elections, a widening 
deficit could cause other financial problems related to the global 
financial crisis (reftel).  On the other hand, the global economic 
slowdown could cause an electricity glut in the region, reducing 
Albania's cost of import. 
 
Comment 
------- 
 
¶8. (SBU) CEZ has its work cut out for it.  While anyone walking 
through most of Tirana's neighborhoods can see obvious examples of 
electricity theft, such as wires connecting residences directly to 
overhead power lines, little has been done to disconnect these 
illegal users.  A large group of non-payers include entire villages 
in politically-favored areas.  How successful CEZ will be in making 
a dent in non-technical losses remains to be seen.  As for new 
generating projects, the GOA opened the floodgates with its 2006 law 
on concessions, allowing anyone to submit unsolicited proposals. 
Since then, it has been swamped with proposals it does not have the 
capacity to evaluate properly, resulting in lack of action on 
worthwhile projects. 
 
WITHERS