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EBRD financing Albania’s power system overhaul

Published

March 22, 2016

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Published:

March 22, 2016

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The European Bank for Reconstruction and Development will conduct a final review of the project for the restructuring of Albanian Power Corporation (KESH sh. a.) and the energy sector of Albania in general with focus on sector management and operational efficiency. The international financing institution’s project summary document said loan proceeds will be used to refinance and lengthen the tenors of short-term sovereign guaranteed overdrafts which KESH has entered into with commercial banks on an emergency basis and require annual reapproval, perpetuating a liquidity crisis as well as uncertainty and instability.

The sovereign guaranteed loan of EUR 218 million will be divided into two tranches. Involvement of commercial banks for co-financing will be explored, mainly for the second tranche. The full amount of the proceeds will be applied to refinancing short-term debt.

The loans were necessary to alleviate critical cash shortages created by hydrology conditions and sector organization, the document adds. The reforms aim to include KESH’s corporate governance, market practices and regional trade. The refinancing of the balance sheet should lengthen tenors and relieve the utility of urgent liquidity concerns, EBRD stated.

The project supports both the bank’s policy dialogue efforts for reform in the sector as well as opportunities for the country to develop regional and internal market principles. The project will promote regional integration and trade. It will promote the adoption of secondary legislation consistent with and required for the implementation of the new Power Sector Law. This is expected to include improvements in tariff formation. The bank said it will also require a thorough corporate governance review and recommendations for how to bring KESH to best international standards in compliance with international norms and codes.

The state-owned electricity utility meets almost 70% of Albania’s electricity demand. Due to the general corporate nature of the project, the bank will review all operations of the company and review whether current investment plans allow KESH to attain European Union’s environmental standards, the document said. The potential impacts of the restructuring on workers (for example the risk of retrenchment) or on tariff affordability will need to be addressed, according to EBRD.

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