US embassy cable - 06TIRANA618

ENERGY POLICY CHANGES IN ALBANIA

Identifier: 06TIRANA618
Wikileaks: View 06TIRANA618 at Wikileaks.org
Origin: Embassy Tirana
Created: 2006-06-09 12:51:00
Classification: UNCLASSIFIED//FOR OFFICIAL USE ONLY
Tags: ECON ENRG EINV AL
Redacted: This cable was not redacted by Wikileaks.
VZCZCXYZ0031
PP RUEHWEB

DE RUEHTI #0618/01 1601251
ZNR UUUUU ZZH
P 091251Z JUN 06
FM AMEMBASSY TIRANA
TO RUEHC/SECSTATE WASHDC PRIORITY 4408
INFO RUEHTH/AMEMBASSY ATHENS 2927
RUEHBW/AMEMBASSY BELGRADE 2724
RUEHRL/AMEMBASSY BERLIN 1137
RUEHLO/AMEMBASSY LONDON 1196
RUEHFR/AMEMBASSY PARIS 1087
RUEHRO/AMEMBASSY ROME 5294
RUEHVJ/AMEMBASSY SARAJEVO 0441
RUEHSQ/AMEMBASSY SKOPJE 4120
RUEHVB/AMEMBASSY ZAGREB 2946
RUFNPKB/COMUSNAVEUR NAPLES IT
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHMFISS/HQ USEUCOM VAIHINGEN GE
RHEHNSC/NSC WASHDC
RUEHBS/USEU BRUSSELS
RUEHVEN/USMISSION USOSCE 2164
RUEHPS/USOFFICE PRISTINA 3426
UNCLAS TIRANA 000618 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR/SCE (MBENEDICT/DSAINZ/WILLIS) 
NSC FOR BRAUN 
TREASURY FOR ATUKORALA 
USDOC FOR 4233/ITA/MAC/OEERIA/CEED (MROGERS) 
 
E.O. 12958: N/A 
TAGS: ECON, ENRG, EINV, AL 
SUBJECT: ENERGY POLICY CHANGES IN ALBANIA 
 
REF: TIRANA 281 
 
1.  (U)  Summary: PM Berisha recently described a series of 
energy-related measures to improve Albania's business 
climate.  The GoA will alter its two-tiered electricity price 
structure to reduce energy prices for the private business 
sector to bring it more in line with regional norms and to 
spur economic activity.  This price decrease will be offset, 
in part, by a planned increase in electricity prices for 
households.  Poor families will continue to enjoy government 
subsidies.  Berisha also re-affirmed the GoA's commitment to 
build an IFI-financed thermal power plant near Vlore and the 
rapid privatization of parts of the state-owned electric 
utility.  End summary. 
 
Business Gets a Boost 
 
2.  (U)  PM Berisha told business community representatives 
in May that the GoA will significantly reduce the price of 
electricity for businesses starting July 1 as part of a 
larger set of measures to improve the business climate. 
(Note:  Albania employs a two-tiered pricing structure for 
electricity.  To date, household consumers paid low rates and 
business customers paid high rates - nearly double that of 
households.  End Note.)  Berisha said the price reduction for 
businesses -- 33 percent -- aims to reduce private sector 
costs, spur business activity and increase employment.  This 
measure, he indicated, was even more important in the context 
of the soon-to-be signed Stabilization and Association 
Agreement with the European Union, and existing free trade 
area agreements with regional countries, which will increase 
competitive pressures on domestic industries. 
 
3.  (U)  At the same time, the GoA will increase electricity 
prices for households in order to bring the cost to price 
ratio in line. However, to soften the social impact, the GoA 
will subsidize approximately 190,000 families who cannot 
afford the higher price.  The amount of the price increase 
will vary according to the amount of electricity consumed. 
Opposition lawmakers have opposed the plan and expressed 
concerns about its social impact.  Shortly after Berisha's 
announcement, the Energy Regulatory Authority approved the 
price changes. 
 
Balanced Electricity Production 
 
4.  (SBU)  Energy generation in Albania heavily depends on 
weather conditions because 95 percent of electricity 
production comes from hydropower plants located in the north 
of the country.  The GoA wants to balance sources and 
geographic location of generation facilities and is focused 
on constructing new thermal power plants in central and 
southern Albania where power consumption is highest.  (Note: 
the current mismatch between power generation in the north 
and heavy consumption in the south results in large 
transmission losses.  End note.)  Berisha confirmed his 
government's desire to build a long-planned (and World 
Bank/EBRD/EIB financed) thermal power plant in Vlore despite 
local opposition.  Berisha also said it was the GoA desired 
another, bigger plant in Korce, and the rehabilitation of the 
existing plant in Fier.  (Berisha offered no specifics on 
these last two projects).  Berisha also mentioned the giant 
natural gas power facility planned by ASG in southern Albania 
(see reftel). 
 
5.  (U)  Berisha added that the GoA would establish two 
energy parks, one in Porto Romano, north of Durres, and the 
other one in PishPoro, north of Vlore.  The ultimate goal, he 
said, was for Albania to become a net exporter of energy. 
 
6.  (U)  GoA commitment to building new hydropower plants and 
improving transmission facilities with neighboring countries 
remained strong, Berisha said.  To complement the already 
financed Tirana-Podgorice 400 kV line (which runs 
north-south), the GoA was seeking for funds for two other 400 
kV lines, both running east-west, Vau Dejes-Prishtine and 
Elbasan-Skopje. 
 
Privatization 
 
7.  (U)  Berisha said the GoA was interested in accelerating 
privatization of parts of the state-owned electric utility, 
KESh, particularly its distribution division.  (Note:  The 
privatization of large state-owned companies was one of the 
main requests of IMF representatives during their last visit 
to Tirana in May.) 
 
Comment 
 
8.  (SBU)  Most of the "initiatives" announced by PM Berisha 
have been urged upon the GoA in various forms for many years 
by donors and international advisors, and the GoA's movement 
on them is welcome, especially with regard to the realignment 
of energy prices.  KESh's previous price structure -- low 
prices for families, high prices for industries -- has always 
been criticized by experts as the reverse of what a 
developing country needed and has been cited by investors as 
a deterrent to investment.  The GoA will likely come in for 
serious grumbling by consumers but appears to be determined 
to stick with the new price structure. 
ZATE 

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