Albanian energy minister rejects charges over CEZ settlement

By bne IntelliNews October 15, 2015

bne IntelliNews -


Albanian Energy and Industry Minister Damian Gjiknuri denied any wrongdoing in relation to the government’s 2014 settlement with Czech utility CEZ in a statement to parliament on October 15. Gjiknuri and attorney general Alma Hicka had been charged with abuse of power the previous day.  

This is the first time a state institution in Albania has filed criminal charges against a sitting minister. The charges brought by the Supreme State Audit (SSA) follow pressure from the opposition Democratic Party (DP) for an international investigation into the CEZ settlement, and Gjiknuri claims they are politically motivated. Shortly before Gjiknuri and Hicka were charged, the energy ministry filed charges against two former ministers from the DP for their role in a series of murky privatisations.

Under the agreement, Tirana agreed to pay €95mn in installments until 2018 to compensate the Czech utility for its failed investment in an Albanian distribution company. A reopening of the dispute with CEZ could put at risk Albania’s progress towards EU accession, since Prague only lifted its objections to giving Albania candidate country status once the settlement was agreed in June 2014. There are currently no indications that the SAA will take action against CEZ officials.

Albania’s Supreme State Audit (SSA) said on October 14 that the deal with CEZ, which brought to an end a long-running dispute between the utility and the Albanian government, had resulted in damages of €479mn.

A statement published on the SSA’s website claimed that in addition to the compensation, the deal benefitted CEZ by allowing it to hand over CEZ Shpërndarje to the Albanian government, which then became responsible for the company’s crippling debts.

Two audits completed by the SSA in September focused on the procedures and negotiations of the working group established by Prime Minister Edi Rama’s government to find an amicable settlement to the dispute between the state and CEZ. It also looked at the submission of the settlement agreement to the Council of Ministers and the parliament for approval. Gjiknuri and Hicka were members of the working group.

The audit concluded that damages caused to power distribution company OSHEE, which is now 100% state owned, amounted to €479mn. The bulk of damages, €352mn are for arrears for overdue financial obligations, resulting from alleged mismanagement of CEZ Shpërndarje in the period 2009-2012. It also includes damages of €95mn - the payment agreed in the settlement deal - and €32mn for depreciation to a value of zero of the 24% of shares held by the state

The SSA claimed that when CEZ Shpërndarje was abandoned by the Czech group, it was on the verge of bankruptcy. “If it went into bankruptcy the company CEZ would recover no amount from the sum, while with the settlement agreement, the risk of bankruptcy has passed on entirely to the Albanian state that even paid to take the risk. Thus, the state not only inherited a bankrupt company, but also paid money to assume losses and debts,” statement said.

A CEZ spokesperson declined to comment on the news of the charges against Gjiknuri and Hicka, saying it was an internal matter for Albania.

Gjiknuri defended himself at a parliament session on October 15, accusing the head of the SSA of conspiring with Sali Berisha, the founder of the opposition Democratic Party. The SSA’s chairman Bujar Leskaj is a member of the DP, and served as minister of tourism, culture and sport in Berisha’s cabinet between 2005 and 2007.

He also questioned the figures in the SAA’s report and said the organisation “intentionally hid some facts”.
Recently Albania's opposition parties have been trying to unwind the 2014 settlement agreement and submitted to the parliament draft legislation on an international investigation into the deal in September. Since Rama’s Socialist Party-led coalition has a majority in the parliament, the proposal was turned down.

At the same time, the government has also been targeting members of the former DP administration over energy sector privatisations. Just days before the charges were filed against Gjiknuri, the energy ministry filed charges against the ex-minister and deputy minister of economy and energy in Berisha’s government, Florion Mima and Enno Bozdo. They are accused of abuse of power related to the privatisation of hydropower plants, which the ministry said caused losses to the state budget of €3.4mn.

CEZ became an investor in Albania in March 2009, when it bought 76% of the Albanian power distributor. At the time the deal was seen as a step forward for Albania’s power sector, which had long suffered from lack of investment, resulting in low efficiency and a high level of technical losses. The deal had the backing from the World Bank, which is still working with Tirana to reform the power sector.

However, the deal turned sour almost from the beginning. CEZ complained that its new acquisition was hamstrung by unpaid bills by state companies, power theft and unrealistic regulation of prices. It was forced to run the company at a loss after the state generator raised wholesale prices, while increases in consumer prices were forbidden. Another problem for CEZ was the failure of consumers - both state and private - to pay their bills. Meanwhile, the Albanian government criticized CEZ’s failure to fulfill its investment commitments.

In January 2013 Albanian power regulator ERE stripped CEZ Shperndarje of its distribution licence. ERE said at the time that it would claim damages from CEZ, estimated at the time at up to $1bn.

The failure of CEZ’s investment into Albania, the first by a major international power company, undermined Albania’s reputation as an investment destination.

However, the 2014 settlement, which was brokered by the Energy Community Secretariat in Vienna, ended the long and bitter dispute, and averted the need for international arbitration. It also made it possible for Albania to progress towards EU accession; Albania was accepted as an EU candidate country immediately after the settlement was agreed.

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