Energy Shortages Endanger Small Businesses
Acute Energy Crisis Underlines Importance of Assistance to Sector

KORÇË—2006 was going to be a very good year for Petraq Dodi’s small shoe-producing factory, Angelo’s Shoes. Dodi received a $16,000 expansion loan, teamed up with a Greek leather producer to begin supplying raw material to other companies. Demand for his quality leather shoes was rising.

But in the past three weeks, constant power outages have hurt Dodi’s business. Now he has costly generators to keep up, and his Greek partner is about to flee. The ability to pay back his loan, his venture into leather production, and keeping his business open are all in jeopardy.

“Albania is the China of Europe; I know I can produce both low-cost and high-quality shoes. But because of the problems with electricity, my partner who closed down his business in Greece wants to return home—after only two weeks!” said Dodi.

Foreign investment in Albania is the lowest in the region. Despite recent energy sector reforms, the lack of adequate energy remains a key deterrent to investment and economic growth.

Despite fifteen years of transition, the energy sector’s capacity to supply electricity has actually deteriorated from the Communist period. Based on European directives countries separate the three energy operations—generation, transmission, and distribution– into independent competitive entities, Albania maintains a state-owned, centralized system that is inefficient and unreliable. Albania has not built a new power plant since 1986. It relies almost exclusively on the fluctuating energy generation from hydropower, while consumption and demand have steadily increased. In 2005, residential consumption of energy rose by eight percent from the previous year. Since 1991, household consumption levels have risen by 500 percent, while Albanian capacity to generate energy remained constant or declined.

To make up for what the hydropower plants cannot generate in any given year, Albania imports from neighboring countries. Unfortunately, there are only three power lines linked to the country; one large line of 440kV, with the capacity to transport 500MW of power from Greece to the central Albanian city of Elbasan, and two from Montenegro and Kosovo, each 220kV and a capacity to transport 200MW. The limited capacity of the hydropower plants and the lack of a adequate interconnection lines support network make it impossible for Albania to meet its growing energy needs.

“The only thing that will help Albania in the short-term is rain,” explained USAID Energy Specialist, Sokol Aliko. “In the last five months, the water level in the largest reservoir dropped 40 meters; today that reservoir is only eight meters above the minimum level needed to generate any electricity.”

“In normal seasonal conditions, the power plants can generate on average 12 million kWh per day, the maximum transmission capacity to import is 10 million kWh per day, and the demand is between 15-27 million kWh per day,” Aliko added. “The water levels in the reservoirs are very low, so even if we import at full capacity, we will not be able to meet the increasing demands of the coming winter months.”

The new government elected in July 2005 points to mismanagement of energy resources by the previous government, specifically the lack of conservation of water levels in the reservoirs and poor planning for securing imports. Officials of the former government deny such accusations and blame the current government for the crisis.

In the capital city of Tiranë, neighborhoods experience 10-12 hours of intermittent energy cuts daily. In rural areas, cuts last even longer. This affects households’ water supplies, leaving families with young children and the elderly vulnerable to health hazards. Most Albanian businesses in the productive sector require electricity to either create or maintain their products. Power cuts require businesses to use costly, diesel-fueled generators to keep production lines running and foodstuffs safe. Many industries receive special electricity allowances from the government, which reduces the time without electricity, but no business is immune to cutbacks.

The current energy crisis underlines the importance of USAID’s assistance to Albania’s energy sector. Since 1998, USAID/Albania has had programs to support the restructuring and reform of the energy sector. While other donors, such as the World Bank and the Italian and German governments, are financing the building of the interconnection lines linking the southern and northern parts of the country, USAID’s Electricity Sector Reform and Regulatory Strengthening Program has focused on making the energy sector more efficient, reliable, transparent, and market-oriented.

There are new signs of investments and enhanced regional cooperation. On October 25, 2005, The Energy Community Treaty, the first multilateral treaty in the region, was signed among the European Union and Croatia, Bosnia and Herzegovina, Serbia, Montenegro, Macedonia, Albania, Romania, Bulgaria, and UNMIK on behalf of Kosovo. The treaty outlines the reforms and investment, up to $20 billion, required to make the electricity sector in the Balkan Peninsula meet EU standards by 2015.

“From the economic point of view, the demands facing this region are so great that only through regional co-operation can limited resources (human and financial) be put to the most efficient and effective use, “ said Erhard Busek, special coordinator of the Stability Pact, at the signing ceremony of the treaty establishing the Energy Community.

According to USAID’s Senior Energy Specialist for the European and Eurasian Energy and Infrastructure Division, Jamshid Heidarian, “By increasing the electricity generation and transmission capacity in region, Albania (and other countries in region) will have access to more reliable and cheaper supply of electricity. Once the treaty is ratified by the Albanian parliament, the government will have to take steps to implement reforms to meet the EU standards.”

For Dodi and hundreds of other small and medium Albanian enterprises who are struggling to keep their businesses running during the country’s acute energy crisis, these events might come too late.

“We’ve worked with the company on many issues including helping him develop a marketing plan, a product catalog, a website, and a company logo. Angelo’s is now registered in the international footwear industry database and we have helped him develop contacts in Greece, which we believe will be most valuable to him in the future,” said James Parchman, a leather consultant working with Dodi through the USAID-funded Albanian Center for International Trade (ACIT) and Enterprise Development and Export Market Services Project (EDEM).

“Mr. Dodi, like all business owners in Albania, is upset with the lack of power and the need to operate back-up generators at a high level. This is a major expense in a low margin business. However, he has had the good business foresight to purchase a large generator, which will be installed as the facility nears completion,” Parchman added.

Although Parchman believes Dodi’s reliance on the generator will not significantly suspend the opening of the leather production venture, Dodi explained, “If the energy cuts continue as they are, I’m afraid to open the leather factory. I am keeping my Greek partner with the hope that this is not the real situation. It looks like he will stay for 20 days; finish the work he has here, and leave.”

The leather factory requires 350kW of electricity and that energy supply must be constant when leather is in the finishing process, he explained. “If there is an interruption in electricity, it will ruin the quality of the leather. I don’t want to risk five tons of leather, worth more than 20,000 Euro—I don’t know if I can take the financial risk,” Dodi said.

According to USAID/Albania’s Mission Director, Harry Birnholz, “Businesses that we have helped through our projects are struggling and will impact Albania’s growth rate. Solving this problem requires a long-term commitment, continued donor coordination, and strong political will. Our energy program does not pretend to be able to keep the electricity on twenty-four hours a day this winter, but it will work to help insure that Albanians will not have to face this type of debilitating crisis in the future.”