Albania: The costs of failed energy projects

28. April 2017. / SEE Energy News

The Albanian Government settles the debt of EUR 130 million invested in the construction of a combined cycle power plant Valona (Vlorës) which was never put into operation due to faults in the process of construction. In addition, it has started to repay the loan of EUR 35 million, including interest, for the construction of interconnection Albania – Kosovo.

The construction of Valona power plant amounted to USD 129 million. Thermal power plant was supposed to cover 8% of domestic electricity consumption, and the restart of the project is uncertain for now, taking into consideration high costs. Even when the power plant was put into trial operation in 2012, the price of one kWh was 21 Albanian lek (EUR 0.16), which is three times more than the retail price of electricity for households and twice as much compared to the import price during this period.

Situation is further complicated by the arbitration proceedings with Italian Maire Tecnimont, due to defects of cooling pipes incurred during the warranty period.

The Albanian Government has prepared two new tenders, the first for the Feasibility Study that would consider projects review with the help of a TAP gas pipeline (Trans Adriatic Pipeline), and the other for the selection of consultants who will help to solve the defect in the pipes for cooling and determine the amount of repair costs. KESH estimates that only a consultant will cost more than a million dollars. Solutions that will be offered by these two studies, according to estimates, will bring multi-million expenditures for the state budget.

The Ministry of Energy claims that with the connection to TAP pipeline, Valona power plant will more serve as a support for the power system, and not as the primary electricity producer.

So far, USD 136 million have been invested in this project. Out of which the construction of facility with oil and gas combined-cycle was USD 125 million, while the costs for technical support and training were USD 4.8 million. The rest are operating costs and costs for the facility conservation.

When the loan for the power plant was got, Albania’s foreign debt increased by 2.3%, while maintenance costs of the facility amount to 10% of the public supplier costs (depending on the KESH sales volume). These costs are included in the price paid by end-consumers.

Fixed costs of Electric Power Utility TPP Valona for one fiscal year amount to EUR 11.1 million, including maintenance and repayment of the loan, according to estimates of the Energy Regulatory Authority from 2012.

Funding for the project was provided mainly by foreign loans. The largest creditors are EBRD with USD 48.7 million, the European Investment Bank with USD 48.7 million and the World Bank with USD 25 million. The total amount of loans reached USD 135 million, with an average interest rate of 5.6%.

With the progress in the construction of underwater cable between Italy and Montenegro, Albania definitely missed a chance to transfer electricity between the Balkans and Italy. Italian companies were very interested that underwater cable starts from Albania, considering that this is the shortest way which would allow the implementation of the project at the lowest price.

The Albanian Government signed a memorandum of understanding in 2007 with a company Enel, whose main focus was the construction of coal fired thermal power plants in Durres. The investment value would be USD 1.9 billion, and it would include the construction of an underwater cable with Italy.

However, at the end, Italy started the implementation of the underwater power cable with Montenegro. The value of TERNA company investment is EUR 760 million, out of which EUR 100 million has been provided for the existing network in Montenegro. The underwater transmission line, 415 kilometers long, will connect the towns of Vilanova and Kotor, and will have a capacity of 1,000 megawatts.

The European Commission analysis showed that the 400 kV interconnection between Albania and Macedonia will increase Albania’s GDP to EUR 314 million. The purpose of this project is to strengthen the joint power market in the Balkan region, which will lead to a continuous decrease of supply costs.

The European Commission has concluded that the existing transmission systems will not be able to cope with this new generation plants planned in the southern Albania, and that the new interconnection with Macedonia will ensure supply in this part of the country.

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