CEZ is facing losses of as much as CZK10.15bn (€402m) to 2015 from its Albanian distribution arm CEZ Shperndarje as it battles the country's regulator over electricity tariffs, the Czech power giant's 2011 annual report reveals.
CEZ claims that a new tax introduced at the start of 2012 has led to a 91% hike in the cost of the power it buys from the Albanian state-owned power producer, but that the regulator prevents it from passing on the higher costs to consumers.
On top of the CZK3.5bn loss it expects to incur by being forced to sell power below cost, the Czech utility also forecasts a CZK6.5bn loss due to power losses from the distribution network caused by technical equipment failures, theft and unpaid bills. Again, reports Lidove noviny, the regulator refuses to raise tariffs to allow the distributor to cover its losses, CEZ claims. "CEZ Shperndarje Sh.A challenged the decision on tariffs after its publication in an official gazette. CEZ Shperndarje would record a negative impact of up to CZK10.15bn in 2012-2014 as the result of the application of the new tariffs," the Czech company said in its report.
State-controlled CEZ paid €102m for a 72% stake in the Albanian power distribution monopoly Shperndarje in 2009, and claims that under the privatisation agreement, these costs should be reflected in regulatory decisions. However, having apparently failed to convince the Albanian government, despite enlisting senior Czech officials, the company says it now plans to turn to the World Bank, which guaranteed the original acquisition.
The claim of huge losses is part of a long-running battle with the Albanian government, which saw Czech Prime Minister Petr Necas recruited to negotiate directly with his Albanian peer Sali Berisha in April. Whilst a host of diplomatic platitudes emerged from that meeting, the mood between CEZ and Tirana has been growing increasingly hostile for months, following on from a catastrophic summer in Albania when reduced rainfall cut production from its hydropower plants - the overwhelmingly dominant source of power in the country - forcing it to buy in electricity at sharply higher cost.
The anger from CEZ is palpable in private. In November, a bne correspondent boarded a flight in Tirana alongside a government official who happened to be headed to Prague for a CEZ Shperndarje board meeting. He met several fellow representatives from the CEZ side on the plane, who could barely hold back their surprise and fury over Tirana's plans for its power sector.
The losses expected by the Czechs explain that anger, particularly as the company is also reported to be struggling with other assets it bought in Southeast Europe - Bulgaria being a prime example - over the last decade as part of a grand scheme to build itself into the dominant power company in CEE. Meanwhile, the fracas does little to prove claims from Berisha and his government that its reforms have made Albania one of the most investor friendly countries in the region.
The Czech utility says it is now preparing to appeal to the World Bank to intervene, and insists it could call in the international institution's €60m guarantee on its investment into Albania if Tirana fails to honour its obligations. CEZ would then have to launch arbitration proceedings against the Albanian state to recuperate the remainder of the loss on its investment and for compensation on loss of profits, it says. "In a legal dispute, we will demand compensation for damages which could in the coming years potentially arise unless there is a resolution of the situation concerning regulation of electricity prices," CEZ spokeswoman Eva Novakova said, according to Czech Position.