Interview of Mr. Nadir Mohammed, World Bank Country Manager with Journalists from Voice of America, Top Channel, ATN1, Vizion Plus, Shqip Newspaper

Enkelejd Llanaj, Top Channel.
Question 1: Can you tell us, what are the reasons of the energy crisis in Albania? Which are the root causes and a description of the situation of KESH (APC) from the viewpoint of the indicators?
Question 2: Is the WB playing a role in the direct monitoring of the project? Have you been frequently monitoring and on permanent basis monitoring and controlling the situation so that the situation would not lead to such a crisis? Because otherwise this would lead us to think that you’re also responsible.

Migena Nelaj, Vizion Plus
Question: Actually KESH for the second year in row is going through an energy crisis, do you think this is related to bad management of KESH?

Shqip Newspaper Journalist
Question 1: How is actually work progressing with regard to generating thermal power facilities, such as the Vlora thermal-power plant? Or Fier thermal-power plant for which the World Bank has actually promised on having another study because according to the National Territory of Adjustment Council they have canceled recently construction in the area of Seman. (This is related to Fier thermal-power plant).
Question 2: What are your comments about the work of the Ministry of Economy on the concessions for the mini-hydro-power plants?

Ilirjan Agolli, Voice of America
Question 1: We have been in this office for 5 to 6 year, we have attended press conferences and the World Bank experts have issued very accurate technical recommendations for KESH. According to your comments has KESH and other energy authorities adhered to the World Bank experts recommendations?
Question 2: Is this the right time for Albania to relinquish or begin to relinquish or to move away from the hydro as the main source of energy and think of other main generator that are not water related?

Nadir Mohammed, Country Manager:
Answer: Let me give you an overall view. I think it’s very important for you and for your viewers to understand the overall situation. Energy is one of the most critical sectors and I don’t want to dwell why it’s important for economic growth, for productivity, for poverty reduction, but also for consumer welfare. It impacts on education, it impacts on health. That’s why the World Bank has been according a lot of priority to this sector in terms of financial support, policy dialogue, and donor coordination.

Our interests are really to make sure that the sector is reformed, and its contribution to economic growth is ensured. Most of the issues that we will discuss today are of medium to long term nature. I want to emphasize this more because you need to have this in view and I’ll come to the existing electricity shortages situation.

There are four important factors in the energy sector. I’ll speak about one by one and try to answer your questions. Within each of these factors, I want to emphasize short term, medium term and long term perspectives. It’s important for you to have this in mind when you look at the current shortage.

Let me speak of the first factor: the exogenous factor. Here I mean Mother Nature but also the regional situation as well. These are things beyond the control of Albania in the short term, but not in the medium and long terms. You know very well there was a shortfall in rains this season, so this answers one of your questions why there is a shortfall. It didn’t rain enough. But also there isn’t enough in the region. So these are things in the short term which are beyond of the control of the Albanian government and KESH. They shouldn’t be in the medium and long terms. In the short term probably we pray or we take immediate measures to try to secure imports. In the medium to long term these are things that should be addressed.

Coming to Voice of America question, Albania is one of the few countries in the world with the highest reliance on hydro sources. That’s should be addressed in the medium, long term but we need to work on it right now. My colleague Demetrios who is an expert in this sector can give you more information, but in most countries you need to have a base, forty percent of your electricity from thermal or other sources not hydro. In Albania this ratio is very high ninety seven percent. So the country every year is subject to vulnerability in the climate. Despite human advances, we can only predict weather for the next four days. You know very well that cycles, you have seven years of good rains, three years of dry weather. These are not very precise. To address the issue there are dimensions I want to speak about exogenous factor, government action, KESH and I want also to have a message at the end for the consumers. Because these are basically the major important factors or actors in the energy sector issue. 

How can the government address the reliance in hydro in the medium and long term? I think it’s important for the government to make sure that the existing projects are implemented and quickly. This includes Vlora thermal-power plant and more thermal-power plants. The country still has more potential in hydro. The concession law has been approved. It’s important that the government move quickly to try to attract foreign direct investments into this important sector. The government is working actively on a new law on the mini-hydro sector.

To answer to the Shqip Newspaper question on mini-hydros, it is important that this get approved as soon as possible so that you can attract domestic as well as foreign investments in the mini-hydro sector as well as in the bigger hydro sector.

Now let me complete the exogenous factor. It’s also very important to know that there are energy shortages in Europe but also in the Western Balkan Region. So, this is not only confined to Albania. There are difficulties to import even the electricity is available in the region. Again, a lot can be done and should be done to change this situation. I spoke about how the country can build internal capacities to produce more electricity.  But the country should also build enough capacity to import. This includes or requires major investments in transmission, collection lines to Montenegro, to Kosovo, so this is the responsibility of the government to make sure also that the available projects that are financing to improve the capacities to import, are implemented and quickly.

So let me give you a view of what are the things that the government can do to facilitate. I’m not really focusing on the short shortages. Because you all know that there is a shortage that has reasons. It’s important that the government actors need to work closely together to make sure that enough imports are secured. This should be in place every year. Shortages are predicted. Albania in a normal hydro produces half of what it needs. There is always need for imports. Imports need to be secured every year if you want to avoid such a situation. So, I spoke about these exogenous factors because it’s important to understand that there are regional shortages, there are exceptional weather changes, but I think for us it is also important to focus on what should be done and what could be done.

Let me speak about things that are under government control and could be done to facilitate the current situation. There are a number of projects in the pipeline. Vlora thermal-power plant is only one of them. There are many other projects with many other donors in terms of transmission, connection. Speeding up the implementation of these projects in entirely the responsibility of the government and the implementing agency. This will not solve the problem we have now. To build a thermal-power plant it takes eighteen months. To build a dam and a hydro you may need two to three years. But we need to work today to make sure we don’t have this crisis two years down the road. So this is very important and in the short term the government and the KESH need to work in securing electricity import.

As I mentioned the concession law has been approved, it’s important for the government to move quickly also to attract more foreign direct investment into more thermal into more hydro. You know more than I do the country has its potentials in Bushat, Skavica, Kalivac. You need to put in place a good system to attract foreign investments in thermal-power plant and the government could also move quickly on the mini-hydros. Good progress has been made by the government team who is working on this issue. So we expect Council of Minister approval and subsequent Parliament approval of this new system. Mini-hydros are very small. They don’t resolve the problem. But collectively if you put in place a system that really work on mini-hydros to get a country important source of energy.

The government need to take more actions to ensure that the speedy privatization of the distribution arm of KESH. More measures are needed also to increase liberalization of the sector to attract private investments.

The government need to pay its obligation to the power utility KESH. It’s unacceptable that the government, not the government but public enterprises or public entities that don’t meet their obligation for KESH. There is an accumulation of arrears being carried from one year to another year. This is something that the Ministry of Economy and the Ministry of Finance need to work together to ensure that there is a good system in place and that this doesn’t occur in the future.

The government and KESH need to work together to ensure that every household has a meter. This is one of the issues I will come to discuss in KESH but it’s unacceptable also that after many years the World Bank has been providing a lot of credit and support to install the last amount of meters. Every time we realize that there are demands for hundred thousand or fifty thousand meters. I think it’s important that this issue is resolved. A major study or an audit to verify the actual situation and then once and for all KESH should have enough meters for every household to be installed.

One final area in which we would like to see more progress in situation like this when there is a shortage the government always under pressure to try to secure import. And the government always faces difficulties because of rigidities in the existing procurement law. The public procurement law has been amended or changed. We have a new law now. We have suggested to the government that it’s important given the unique nature of the sector it’s important to have a new procurement law for utilities and energy in particular. The Bank and other donors will be happy to provide the needed support. You need a good law that would satisfy efficiency, effectiveness and transparency.

Ilirjan Agolli, Voice of America
Question: When you say utility you mean services in KESH?

Nadir Mohammed, Country Manager:
Answer: No, just import of electricity. In most countries they have a separate law, because it’s a different commodity. It’s unique. Last year there were delays in the procurement because of the rigidity in the existing law. So it’s important to have a transparent law that tackles the sector specific issues to enable you to secure imports in the most effective and efficient way.

Management of KESH is the responsibility of government as well. It’s a public enterprise.  So there is a government oversight responsibility of the management of the utility. So, I hope I answered most of your questions on the issues related to exogenous factor and things under government control.

There are two important dimensions that I want to also emphasize on KESH specifically but also on the consumer side. KESH needs to take a lot of measures. To answer your specific questions we agreed with all donors and the government that KESH would meet quarterly target or monthly target. The most important targets are those related to reduction in technical losses. And the second target is on collection rate. These are very important for the financial position of KESH. KESH has not delivered very well on those fronts in the last year also. For sixteen consecutive quarters that’s basically for four years KESH has been able to meet those targets. And now for almost more than a year or four quarters KESH failed to meet these targets and the situation has deteriorated particularly in the last six months of 2006. These measures are hundred percent responsibility of KESH and a lot could have been done and needs to be done to reverse this situation.

Securing more imports again or enough imports on a timely manner is responsibility of KESH. Installation of meters is a responsibility of KESH; they need to ensure that meters are installed. The case of the implementation of existing projects is again the responsibility of KESH. KESH is an implementing agency at least for three projects on our side and for many other projects for other donors supported programs and so we would like to make sure that KESH has enough capacity for systematic implementation, follow up and supervision of these projects. A lot of financial resources are available from the Bank and other donors. Conceptive efforts to make sure that these resources are utilized are entirely the responsibility of KESH. KESH needs to do more work to make sure that also the financial management within the public utility is improved. This answer I hope all your questions about the utility.

Again, we make an assessment of quarterly target and I just summarized you that KESH has not delivered on those. Some of the targets we have also to be fair were caused by other exogenous factors. I spoke about this with the media several times. National elections and issues surrounding those contributed. Weather conditions contributed. Regional shortages contributed. But let me give you a figure. I think this is again unacceptable. Let’s say Albania produces one megawatt of electricity. It’s only one third of that is paid for. Two third are either stolen or not paid for. This is entirely KESH responsibility as well as consumers. The increase in technical losses is the responsibility of KESH. We are committed as well as many other donors to provide the necessary financing to make sure that these technical losses are reduced. But it’s also very important for KESH and for consumers to work on the collection target. This is a very important message for the consumers. Electricity is no longer a free commodity. It’s no longer hydro. In a normal condition and in a normal weather the country needs to import half of its demand. Prices are increasing everywhere in the region. Actually prices doubled or tripled just the last year for import. Somehow someone needs to pay for this import. While KESH should reduce the technical losses, it’s consumer responsibility to pay for the electricity bills. It’s cyclical otherwise than consumers don’t pay, financial position of KESH is not strong. The ability of KESH to import and its credibility in the regional market to import is weak because consumers don’t pay for it.

I come from a very poor African country. I was just home for vocation in Sudan. You go to the supermarket, as I buy my things from the grocery, I go to the supermarket to buy my card for the telephone. I pay for my electricity. I pay fifty dollar, I go home I put my numbers I charge my electricity. People in Africa, in very poor countries pay in advance for the electricity they consume the way individuals pay here for telephone. So these collection targets are really very disappointing and it’s important for consumers to pay and to demand government actions.  They need to demand good governance from KESH, good management of KESH but at the same time is also important for consumers to be responsible to pay for the electricity. This is a very important message.

Hopefully I answered all your questions. For Top Channel this was the question the reason why we have a shortfall. KESH indicators, I answered your question. We monitor the situation very closely. We have agreement with KESH. We have very good working relations with KESH. They submit to us monthly report as well as to other donors. We monitor these quarterly targets, the World Bank, the IMF, the most active donors who are supporting Albania look at these targets.

Vizion Plus, again management of KESH, I think this is something for the government to make sure that they have oversight the public utility that it’s being managed very well.

For Shqip Newspaper, new projects? We are hoping that the government will move quickly. We lost some time in the past. There were some delays in the implementation of the projects. I think now we are on track for the implementation of the Vlora thermal-power plant. I have no information of Fier project. The World Bank is not involved in any project in Fier. So we have only a project that we are working together with KESH, with EBRD and European Investment Bank for the Vlora thermal-power plant, which if implementation starts it still needs eighteen months to become operational. These are very important projects in the medium and long term. They will not address issues now but we lost quite time in the past, I think it’s important that the government needs to move quickly and KESH to make sure all these necessary investments are in place.

Mini-hydro, I answered the question. I am aware there is very good effort being made by the team in the Ministry of Economy lead by Deputy Minister Gjergji Bojaxhi. My colleague Demetrios has been working closely with him. There is a draft law on mini-hydro that I really hope that Council of Ministers can approve and following that if needed there is a parliamentary approval. A good system needs to be in place and than private Albanian investors, which I understand are very keen to start working on this issue. Things should move quickly without any delay.

For Voice of America, I think I answered all your questions. It’s important that Albania needs to move to other sources. Has KESH specifically followed the World Bank recommendations? Yes, I think our working relation with the government, Ministry of Economy, with KESH for ten years has been quite good. Every time we submit our recommendations, our views, they understand that we are a development partner. We really want to understand constrains within which KESH and the government were but our policy dialogue with the government has been very good. We have some disappointments in the last year on a number of projects.

Some technical recommendations have not been followed through. Every time we urge KESH to take immediate steps or actions to make sure that this situation should has been reversed. We have been systematically advising KESH that the existing shortfall will take place and the measures should be taken early enough to ensure imports are in place in a timely manner. And then water resources and reservoirs available are used in the most efficient and effective way. So we have a good working relation. We will continue to provide our technical support and advice and our financial resources given the importance of this sector.

Ilirjan Agolli, Voice of America
Question: You actually said before that only thirty percent of the energy is actually been paid for out of the total. What is this average in the region or other countries in terms of payments?

Nadir Mohammed, Country Manager:
Answer: These averages don’t exist anywhere. Maybe I’ll pass to Demetrios; he has more expertise to give you. He has recent experience in Latin America but for me I can tell you look at the average in the Western Balkan. Look at Macedonia, or Croatia, or Italy or Greece; it will give you an indication.

Ilirjan Agolli, Voice of America
Question: I actually wanted to ask you a question on a debate which has been a recurrent theme in Albania for some years. Whether the policy you should pay to have it (electricity), that’s to say if you’re not paying then you should be cut out of electricity or a new approach that people need to be supplied despite the fact whether they’re paying or not. What is your opinion about this?

Nadir Mohammed, Country Manager:
Answer: Two systems exist and I still pass to Demetrios to answer. I maybe give you an indication of the regional average of payments. In any country around the world there are some technical losses but they’re really marginal and there is a lot you can do to reduce them. I don’t see why collection rate can not be one hundred percent. In countries where it’s difficult to improve collection rate one option is to use prepaid meters. I gave you the example. In my city nobody gets electricity if you don’t pay for it in advance. That ensures you one hundred percent payments. Nobody in Albania speaks on the mobile telephone if he doesn’t pay for it. Why should it be different for electricity particularly if it’s important, it’s hard currency? In short, you could have system in place.

I don’t want to get involved in this debate about this collective punishment what you call it in the media but we know for sure in Albania if you look at the indicators there are certain pockets and area of various payments rate. It’s very important that it should be a lively public debate on this issue among politicians, local government, KESH that prepayment rates or payment rates for electricity in particular area need to be improved. Electricity is not a free commodity. If you produce it domestically it costs you a lot in terms of even for hydro, for thermal. You need to import for the input.

But in a country in which the government or the country import half of the demand for the electricity at increasing regional and international prices it’s important for the consumers to pay back for the electricity otherwise either the public corporation would fell or we go back to a situation in which the government basically subsidize the electricity prices. This could be done at the expense of other things and the country would be vulnerable again to macroeconomic disequilibria which we don’t want to see back in Albania.

Imports could reach two hundred million Euro if hydro is not favorable. Where this money would came from? If the government pays for it this mean less money is going to education, less money is going to health, less money is going for public utilities for roads. So these are really important question. Also you have a role to play in the media to make sure you cover this lively debate on the role of consumers and the payment issue. I personally don’t favor this collective punishment. If I pay for my electricity I would like to have electricity as a consumer. If my neighbor doesn’t pay for electricity I think he shouldn’t have it. It’s fair. But even to reach that point I think more investments are needed because you need to put in place more transformers.

The prepaid meters are one option that the government and KESH have to maybe think about. This ratio needs to improve significantly because one year hopefully down the road the government is very serious and committed to put KESH arm for privatization. I think the World Bank and many other donors would like to support the government efforts in this area. But we will not succeed if these ratios are not really improved. We can not attract credible strategic investors into this sector if this ratio of technical losses and collection rate remain as disappointing as currently.

Demetrios Papathanasiou, Senior Economist
Answer: Just to address the question on where Albania stands in terms of other European countries? I haven’t seen recent fact figures but I’m firmly convinced that they’re near the bottom in terms of collection. What I would like to add is that we have already seen improvement in the technical losses in the transmission system. This is a result of the investment that we have supported as the World Bank together with other donors.

However as my Country Manager just mentioned the important thing is that you have to think about the collection of the bills of the electricity. The system is like a tree. The root of the tree is the distribution system. What they’re facing with now is that water doesn’t flow from the root upper to the tree. So, the big risk and what makes worried most of the donor community and me personally is that the longer we stay in the condition where people don’t have electricity and because they don’t have electricity they don’t want to pay their bills. The result is that KESH will have even less money to buy electricity which is needed. And the greatest risk that this might impact the very hardware, the very already existing investments, the lines, power-plant in the country. 

So we really urge KESH and we even told the government that more efforts need to be made so collection rates improve. And in addition so that the consumers don’t face these difficulties of not knowing where electricity might come or not come, what could KESH possibly do is that if there is improvement of collection rate in certain area they could at least let people know in advance when they will have electricity and when not. However I’m afraid that in the short term unless the weather really changes the situation may get worse before its get better.

Shqip Newspaper Journalist:
Question: Do you think the energy crisis we are facing is because people are not paying or because nothing is being produced? This is 2007; we had the energy crisis in 2001, 2002, which means by 2007 we are talking about the medium term. So, this is a story basically which should have happened in the past. So, now that we are talking about the medium term, what can actually secure us that this situation will not happen again in a longer period and then be considered as a crisis?

Nadir Mohammed, Country Manager:
Answer: I answered this question. Is the cause consumers don’t pay? Yes, it also contributed because the financial position of KESH is not strong enough to secure enough imports in a timely manner. So, is KESH responsibilities, weather contributed to this, is the consumer responsibility? You have a good statement from his Excellency the Prime Minister of the government responsibility. The Minister of Economy also made a statement on the issue, accepting also moral responsibility for the issue.

Who contributed is not important. I think is important to know but I think what needs to be done the real question is the second one. How can we altogether make sure next year we don’t have the same situation? That means you need to move quickly on investment projects, put in place a good system to attract foreign direct investments, improve management of KESH and its performance. Have in place a good system to procure imports in the future. Next year we don’t want to be in the same situation. We need to work today to make sure that we have imports and systems that are effective to procure imports in future. It’s everyone responsibility and we really hope that this situation will be over quickly before it really has an impact on economic growth and poverty reduction efforts in the country.