The latter problem was a barrier which needed to be resolved swiftly and reasonably in order to put Albania’s energy sector in order. A protracted legal battle over sector governance would have been an insurmountable obstacle in attracting new investment to the sector—including investment financed by the World Bank. I want to commend the Government for understanding the urgency of resolving this dispute and for moving with speed to begin addressing the most pressing problems of the sector.
Fixing the power sector is one of the most important foundations for increased investment, growth and job creation in Albania. Unreliable power supply is seen as a top constraint to doing businesses here. Today, cumulative losses in the energy sector—which are financed by Government--total some 55 billion lek. That amount would be expected to rise above 80 billion lek by 2018 if serious reform is not undertaken now. That is 80 billion lek that otherwise could be spent by Government to finish priority roads, improve the quality of education or procure essential drugs. So it isn’t just about business: fixing the power sector is necessary so that Government can redirect resources toward priority public services like education, health and water supply.
The historic problem of the Albanian power sector—including the so-called CEZ dispute—has been a lack of accountability. How can the sector sustain itself if half the electricity is stolen? How can citizens trust their Government if public agencies don’t pay their own bills? Mutual accountability is the key to finally turning around Albania’s bankrupt and inefficient energy sector. Government must be held accountable for investing wisely in the sector, paying its bills to power utilities, pursuing those who steal electricity and protecting the poor and elderly through a well-targeted energy safety net. Utilities must be held accountable for reliable and affordable service delivery. And households and firms must be held accountable for using energy efficiently and for paying for what they use.
I am encouraged by recent reforms aimed at clamping down on abuses of the system and instilling a culture of accountability. Maintaining an arbitrary threshold of 300 Kilowatt Hours has served only to fuel abuse by both households and businesses. The decision to move to a unified tariff for all household use is commendable, as is Government’s allocation of resources to an improved safety net that ensures access to energy for the poor, disabled and elderly. Early reforms are already producing results: collection rates have increased and losses have declined from 45 percent in early 2013 to around 35 percent today. In India, Northern Delhi Power and Light was able to reduce losses from above 50 percent to less than 15 percent over several years. If India can do this, so can Albania!
Reforms will need to be sustained for the next four to five years. The $150 million Power Sector Recovery Project signed here today will support Government with medium-term investments and technical advice to reduce losses, improve governance and restore investor confidence in the sector. Confidence in the financial sustainability of the sector is the key to unlocking billions of dollars of investment in Albania’s hydropower potential. Increasing generation capacity will gradually reduce reliance on imports and lower the cost of providing electricity to consumers.
Putting the power sector on a sustainable path is an essential element in creating a business environment that is attractive to investors and generates jobs for young Albanians. But it doesn’t stop there. Government has also begun reforms to bring a mediocre business environment up to global standards. In the World Bank’s 2015 Doing Business Report launched last week, Albania rose for the first time into the top half of the global ranking for ease of doing business. Albania rose 40 places in one year, thanks to reforms in starting a business, registering property and obtaining construction permits. Albania still has significant work to do in areas such as land titling and contract enforcement—but it has been a promising showing over the past year, and complements nicely the work underway in the energy sector.
Investors also expect a stable and well-managed macroeconomic and fiscal environment. This is an area where Government has shown considerable courage in confronting the severe imbalances that emerged after the Eurozone crisis and which have hindered economic recovery in Albania. Stabilizing public debt, clearing public arrears, reducing fiscal deficits, reforming pensions and improving public service delivery are creating the conditions for higher private investment and growth. International ratings agencies have upgraded Albania based on Government’s commitment to this medium-term macro-fiscal stabilization. This year alone, Government has cleared 26 billion lek in arrears, with another 9 billion expected by year’s end. Economic growth is now on the rise which should continue if reform momentum is maintained.
I am seeing notable progress in the past 14 months on some of Albania’s highest priorities. Much has been accomplished, and—even more importantly—the momentum for further reform is strong. Albania has become a leading reformer in the Balkans, and the granting of EU candidate status reflects this increasing momentum. It speaks to the relationship of trust that is emerging between Government and citizens, and to a sense of mutual accountability for building Albania’s future within Europe. As we see in the Balkans and beyond—delaying reform only exacerbates difficult problems, increases the pain of adjustment and undermines economic recovery and future prosperity. So, please, embrace reform today.