Albania seeks to remove state debt cap to pay for power imports

By bne IntelliNews November 27, 2012

bne -

In a sign of the crisis reaching Albania - one of only two European countries not to fall into recession in 2009 - the government on November 26 asked parliament to lift the constitutional cap on public debt in order to allow it to revive the sluggish economy, as well as fund power imports.

Parliament needs first to allow the government to scrap the 60% of GDP

debt cap (instituted in 2008) before it can review and pass the 2013 budget. That plan targets raising state debt to 62.6% of GDP from the 60.5% at the end of this year.

The Balkan nation has seen the growth rates of around 6% that it has enjoyed over the last decade slashed by the spillover effects of the Eurozone crisis. The government still forecasts 3% growth this year, but that's far above either the 0.5% projected by the International Monetary Fund or the 0.6% seen by the European Bank for Reconstruction and Development.

Adding to the fiscal problems is a twin pronged crisis in the power sector. Given Albania's huge reliance on hydropower for domestic production, a drought in the summer cut output drastically. On top of that, a fight with Czech energy giant CEZ - which owns the country's electricity distributor - looks likely to result in the company quitting the country.

With Albania needing to import electricity at prices above local tariffs, should it lose CEZ as the country's distributor, it will be forced to cover the losses itself.

On November 20, the Albanian Energy Regulation Authority notified CEZ Shperndarje that the regulator plans to withdraw its operating licence. That came after the Czech firm cut off non-paying customers, including some state-owned water companies.

As well as legions of non-paying customers, CEZ complains that the regulator has forced it to absorb huge losses by rejecting all price increase requests since 2010, even though the price of power supplied by the state-owned generator to CEZ has risen 91%.

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