Albania: Assembly considers EBRD Loan Agreement Worth EUR 218 Million for the KESH Company

, SEE Energy News

The Agreement between Albania, represented by the Ministry of Finance, and the European Bank for Reconstruction and Development on the loan for the KESH company, has been submitted to Parliament for ratification.

The loan was intended for debt restructuring and cost optimization of KESH company.

KESH intends to use this long-term loan for the repayment of expensive short-term loans from commercial banks. This creates the possibility of avoiding state guarantees that are provided each year for the KESH company.

In this regard, KESH, together with the Ministry of Energy and the Ministry of Finance negotiated with the EBRD on providing long-term loan worth EUR 218 million. The loan is granted for a period of 15 years, with an interest rate of 6M EURIBOR + 1% per annum. The repayment is planned in two tranches, EUR 118 million and EUR 100 million.

KESH began to raise short-term loans from commercial banks since 2005 in order to ensure the liquidity of the company. In the period from 2012 to 2014 the amount of these loans reached 30 to 40 percent of the company value, which jeopardized the stability of power supply, given that KESH was appointed public supplier.

KESH currently has loan obligations to eight commercial banks: Raiffeisen, Intesa San Paolo, National Commercial Bank, Societe Generale, Credins, Tirana Bank, American Investment Bank and Union Bank.

The amount of short-term loans on 31.12. 2015 was 33,679,277,761 lek (EUR 244.2 million).

Around EUR 218 million (or 87% of total short-term loans) are covered by state guarantees, while EUR 32 million (13% of total short-term loans) is provided without state guarantees.

Energy Sector Recovery Plan, which was adopted by the Government, does not foresee that in 2016 or in the next three years, OSHEE will repay to KESH company the debt for electricity delivered for the period 2012 – 2014.

Given that it has an aim to improve corporate governance, in addition to continuous negotiations with commercial banks on interest rates reduction for short-term loans and their partial repayment, KESH focuses on restructuring the debt and optimizing costs. To this end, KESH has planned the repayment of expensive short-term loans through more favourable long-term loan which would be provided by international financial institutions.

KESH estimates that the total annual cost of interest payments on loans from commercial banks will be approximately equal to costs for tranches repayment (principal amount and interest) of EBRD loan.

As a result of this project, it is expected that at the annual level state guarantees that were provided by the Albanian Government for the short-term loans will be reduced by 17.1 billion lek (EUR 8.5 million), which corresponds to the first loan tranche of EUR 118 million, 993 million lek (EUR 7.2 million), which corresponds to the second tranche of EUR 100 million.