Albania: Favorable Hydrological Conditions and Good Management Increased Profit of KESH Power Company

21. November 2016. / SEE Energy News

In 2015, KESH company has collected 100% of receivables from OSHEE and did not have additional costs and penalties because of delays in obligation payment. Along with the reduction of operating costs and interest, this had a positive impact on the company performance in 2015, announced Head of Albanian Energy Corporation Agron Hetoja.

In 2015, KESH was ranked among top five companies in Albania when it comes to annual turnover. What are the reasons that lead to improved financial performance?

Taking into account the organization and functioning of electricity market before the Energy Law entered into force, according to which KESH had the function of electricity producer and public supplier in the first six months of 2016 in the wholesale market, we can say that good management is the outcome of better financial result.

When it comes to power generation, at the beginning of 2015, the accumulation Fierzës was at the level of 286 m, which is the most optimal level that guarantees the fulfillment of company obligations.

Favourable hydrological situation resulted in increased production in the first six months, while in the second half of the year the production level was significantly below long-term average.

During 2015, we have produced 4.49 TWh, which is 600,000 KWh more than the average annual production.

Implemented Financial Recovery Plan in 2015 created conditions to normally develop trade relations from the past between KESH and partner institutions (OSHEE, OST, small producers, tax authorities, suppliers)

Company profit in 2015 amounted to 19.2 billion lek (EUR 138.5 million). This year can be characterized as the initial year of deep reforms in the energy sector, which has been difficult to imagine earlier.

This year KESH has achieved:

– 100% collection of receivables from OSHEE

– No additional costs and penalties because of delays in obligation payment

– Operating expenses decreased by 10% and interest on short-term loans decreased by 15%

– Electricity import costs for tariff customers are covered from its own resources.

In 2015 KESH also accomplished:

– Fulfilling obligations towards small hydropower plants in the amount of 9.3 billion leks (EUR 67 million)

– finalizing settling liabilities process to small hydropower plants in the amount of more than 5 billion leks (EUR 36 million) accumulated over the years due to inadequate tariffs in the period 2012 – 2014

– Payment of arrears in the amount of 327 million lek (EUR 2.4 million), in addition to current liabilities in the  amount of 765 million lek (EUR 5.5 million) to fiscal and customs administration.

– Reduction of short-term loans by EUR 7 million.

What is the possibility of further development and ensuring continuous revenues and profit?

The possibility for the company development in the future is the commercialization of activities under the provisions of the Energy Law.

Although this law envisages that as of 30.4 KESH operates on the electricity market in the function of electricity production and trade, due to delays in the adoption of secondary legislation KESH operates in the market under the provisions of the old law from 2003.

In the second half of 2016 KESH operates on the market on the basis of temporary market model but inheriting costs arising from the public supplier functions in the first six months of 2016. Fees approved by the regulator for the second half of 2016 reflect only the cost of electricity production, which makes it difficult for the timely payment of interest and the realization of investments.

Since 2017, the company expects a new phase of operation on the power market. The revenues that will be realized on the market will enable the company to cover all costs, investments and payment of debts.

How will electricity market model affect the financial position of KESH?

The adoption of the Energy Law stemmed from the need to harmonize the legal and regulatory framework with European regulations in the energy sector, in line with the commitments of Albania as a signatory of the Energy Community Treaty.

This law provides a comprehensive approach to the Directive on common rules for the internal electricity market and aims to guarantee a stable and reliable electricity supply for the customers by creating a functional and competitive electricity market, taking into account the interests of consumers, security and quality of supply, with the aim of integrating Albanian market in the regional and European electricity market.

The reform of the energy sector and the convergence of Albanian laws with European regulations, are passing through a phase that marks the period since the adoption of the new Energy Law until the moment when the establishment of the Albanian power exchange will be finalized.

The adoption of the Regulation laying down the conditions for obtaining a license for electricity generation, transmission, distribution and supply, is the next step towards the implementation of the new Energy Law.

KESH has an obligation to provide the amount of electricity which is determined based on years of rational use of production capacities for the needs of universal electricity supplier (OSHEE), in order to meet the needs of end users who use the services of the universal supplier.  In addition, this temporary market model enables KESH to achieve profit on the market by selling electricity at market prices after the fulfillment of public supplier obligations.

What are the challenges that prevent even more rapid growth?

Although the new Energy Law foresees the implementation of development policy of the Albanian Government and the structural reforms of the financial and commercial sector, along with achieving financial sustainability and independence from the state budget, which should guarantee the security of supply at reasonable prices on gradually liberalized, competitive and transparent market, delay in adoption of regulatory acts for its implementation is extending the transition period to full market liberalization.

Such situation does not allow the KESH company to perform natural functions of electricity production and sale on the organized electricity market, which is based on the principles of competition, transparency and equality.

The KESH company follows the development of Albanian electricity market and is ready to perform its functions so that as the largest producer of electricity in the country becomes the first example of the application of the best practices of European countries that have moved from a fully regulated market (monopoly) to the liberalized electricity market.

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