Albania Distribution Privatization Support Program
The USAID-sponsored project provided technical assistance to help improve electric power sector performance through the privatization of the electric distribution operations of the Albanian utility KESH (Albania Electricity Corporation). For this project, AEAI provided independent expert advice to the Ministry of Economy, Trade and Energy (METE) and other government agencies on the privatization of the electricity distribution function of the state-owned utility, KESH; helped establish a legal, regulatory, and market framework to promote the privatization of distribution assets to an experienced strategic investor who would improve the utility’s commercial operations and quality of service and invest in its modernization; and advised on measures to improve the transparency of the sector and increase the capacity of the Energy Regulator (ERE) to effectively monitor the electricity market and oversee the new private distribution owner.
AEAI supported the five primary tasks specified in the Task Order as follows:
1. Independent Privatization Advice and Public Information. AEAI provided independent policy and expert technical advice to METE and the Privatization Task Force on the distribution privatization strategy and process. It advised on means to enhance public information and understanding of the privatization process and implications for improving sector performance. It undertook analyses and provided advice on the strategy, timetable, key issues and effectiveness of the process related to successful privatization. AEAI also provided seminars for major stakeholders and public media on the objectives, cost and benefits, issues, and overall implications of distribution privatization.
2. Legal Framework for Market Reform and Distribution Privatization. AEAI supported the establishment of a legal framework for the privatization of the distribution company in compliance with EU directives, the Athens Energy Community Treaty and international standards. For this, AEAI analyzed the existing legal framework; drafted laws that were in compliance with the EU and Athens Treaty requirements; helped developed draft laws and regulations to enhance transparency and the public access to information; provided workshops on accounting, customer service, tariff issues, monitoring and enforcement; and reviewed power purchase or sales agreements, fuel supply agreements, labor agreements, and equipment purchase agreements.
3. Implement Albanian Market Model: Market Rules, Pro-Forma Contracts, Licenses and Codes. AEAI assisted the development and implementation of a detailed Albanian Market Model (AMM) that included market rules; templates for contractual agreements for participants in the electricity market; and grid, distribution, and commercial codes defining responsibilities and penalties. AEAI helped draft secondary legislation; financial settlement procedures; and licenses for distribution network and supply.
4. Tariff Reform: Methodologies, Calculation, Training, Implementation and Evaluation. AEAI provided technical assistance to the ERE and other parties in developing a revised tariff system for the unbundled and partly privatized system reflecting costs of service and providing incentives for improved collections, reduced losses, increased efficiency of operations and end-use consumption, and new investments. AEAI trained ERE and utility experts on Tariff Design and Implementation; and helped draft a system for reporting and evaluating the impact of tariffs on and variations between tariff customers.
5. Transparency and Regulatory Reporting. AEAI promoted effective regulatory reporting, market monitoring, and development of institutional capacity by providing specialized training for the ERE; reviewing current regulatory reporting and the need for modifications or adoption of a Uniform System of Accounts; analyzing market operations; and supporting the development of a formal monitoring system.
The extended project was concluded with the successful privatization of KESH with a majority share sale to CEZ, a large European electric utility in 2009. Under its new ownership, the utility’s operations have benefitted by tariff adjustments, new investments in the distribution system, and reorganization of the management undertaken to improve reliability and quality of service.
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