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Albania has moved to liberalise its electricity market in a bid to ameriolate the impact of falling domestic production on the country's budget. Tirana complains it is having to subsidise both major consumers and power distributor CEZ by tens of millions of euros a year.

The parliament adopted a bill on November 26 that will allow big industrial consumers to buy from suppliers other than the state-owned monopoly producer KESH and power distributor CEZ Shperndarje.

The new legislation was adopted as Albania's power consumption rises, while output from hydroelectric power plants - which generate over 95% of the country's electricity - has declined because of the lack of rain. That has forced KESH to borrow funds in order to import electricity, and the government's guarantee on those loans could push up Albania's public debt, currently at 59.4% of GDP, warned Finance Minister Ridvan Bode.

Energy Minister Nasip Naco told parliament that the bill will halt the practice of having to subsidise the power distributor, a subsidiary of Czech utility CEZ, and major customers, Reuters reports. KESH is obligated to supply CEZ Shperndarje at a regulated price of ALL2 (€0.014) per kilowatt hour (kWh) from its own output, and import electricity to cover any shortfall. CEZ, which is regulated to sell at ALL7 (€0.049), needed 800m kWh of electricity on top of domestic output so far this year - an amount approximately equal to the electricity consumption of the country's steel and cement plants.

Naco said that by selling electricity at 3.5-times the price it is buying it from KESH, CEZ Shperndarje is currently being subsidized with €35m-40m a year by the Albanian state. He added the new bill complied with the EU's July 2009 directive aimed at promoting competition in the domestic energy markets.

Under the new legislation, KESH will no longer be required to import electricity, and will concentrate solely on generation, continuing its obligation to supply CEZ. Any business consuming more than 50m kWh per year will qualify to buy electricity from the unregulated market under the new bill.

Meanwhile, Albania will continue to subsidise domestic customers and small business. Tirana has said it expects electricity demand to rise in 2012 and the liberalisation of the market will allow for the power produced by hydropower plants with 100% public ownership to go to the supply of households and small and medium-sized business.

According to data released by Albania's statistics office INSTAT, electricity consumption in the country increased by 8.7% on the year in the first half of 2011, but at the same time production dropped by 45% on year in the same period due to lower rainfall, forcing KESH to import 1,452 GWh of electricity in the first six months of 2011.