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Investigation: Albanians Pay High Price for Power Games

30 04 2007  Years after it was told to stop doing so, electricity company still overcharges most vulnerable customers.

By Besar Likmeta in Tirana

Ruzhdi Milaqi never thought that after his store in Dures was demolished to make way for an apartment complex in 1997 the power company would continue to send electricity bills for a structure that no longer existed.

When the state-owned Albanian Power Corporation, KESH, charged Milaqi, 54, more than 1,300 US dollars, he took it to court. “KESH did not want to admit the mistake so I sued them,” he said. “I won my case in the district and the appeals court after the KESH employee that filed the bill admitted she had made a mistake but they appealed and the case is now before the Supreme Court.”

Milaqi is one of thousands of Albanians who feel furious about the combination of frequent 12-hour power cuts and expensive and sometimes unjustifiable bills.

Every day, angry KESH customers stream into the company’s office, complaining about bills. Many are customers without electricity meters who are convinced they are being overcharged. KESH routinely bills these people at flat rates, which means they often pay more than they would if they had meters.

The country’s regulatory energy agency, the ERE, has tried to intervene on the side of these disadvantaged customers. Numerous times they have told the company to stop billing customers without meters for more than their fare share.

Pressured by lawmakers, the ERE also ordered KESH in October 2004 to supply all its customers with meters by the end of the year.

This hasn’t happened. Although the World Bank lent the KESH about 13 million dollars to buy and install new meters, customers are waiting for years to get these meters installed in their homes.

Meanwhile, a Balkan Insight investigation into billing practices in Tirana and Durres shows KESH is continuing to bill customers without meters for more than the flat rates prescribed.

KESH sales director, Ilirian Shkembi, denies there is any malpractice, however. Shkembi also criticises the regulatory agency for interfering in its billing practices. The ERE is “trying to impose ‘welfare state’ policies onto a straight business relationship between the company and its customers”, he said.

Crisis Management of a Power Crisis

Utility bills are a major issue in Albania, which is the second poorest in country in Europe with average salaries of about 300 dollars per month.

The country has suffered energy crises since the early 1980s, when the isolated, cash-strapped, former communist regime stopped investing in new hydro-electric power plants. These produce more than 90 per cent of the electricity in the country.

During the 1990s, the power situation worsened as economic growth and a sharp rise in consumer demand placed new strains on supplies.

A massive internal migration in the 1990s from rural areas to the cities and a consequent construction boom meanwhile created hundreds of thousands of new customers for KESH.

But more than 16 years after the fall of communism, the gap between demand and supply continues to grow, resulting in frequent power cuts.

Recent investments in the power sector have failed to provide a real solution to the predicament that is stifling growth and deterring foreign and domestic investors.

In their frustration, the public, media and the politicians have hurled charges of corruption against KESH. But no cases have ever come to court.

The company has undoubtedly struggled to keep up with the pace of societal change and with the growth of a market based, fast-changing environment.

As a stopgap, KESH has linked tens of thousands of new clients to the grid without supplying them with the meters they need to measure consumption.

Not all Albania’s power problems can be laid at the foot of the power company. Non-payment of bills and energy theft are rampant. The Albanian Institute of Statistics says in 2006, thieves stole almost 18 per cent of the electricity on the grid.

But poor management in recent years has not helped. Gjergj Simaku, an energy expert at the University of Tirana, said KESH’s management in the Nineties had been chaotic.

“Since the disproportionate rise in consumption in the 1990s, the company’s sole strategy has been crisis management,” said Simaku.

Flat Rates – The Stopgap Solution

Unable to match market demand for electricity meters for a variety of reasons, KESH started billing these clients monthly on a flat-rate basis for a fixed amount of kilowatts.

The flat rates do not, of course, reflect the amount of electricity consumed in a particular month but are a temporary way of billing clients until KESH can supply them with meters.

The problem is that customers can wait for years for meters.

Until the ERE ruling in 2004, KESH calculated these flat rates for clients using a formula based on consumption averages that was not transparent to consumers.

What made the system especially unpopular was that KESH was believed to be using the high bills imposed on meter-less customers to cover the energy it was losing due to theft.

The government could little to ease consumers’ pain. Since 1998, Albania has been a net electricity importer, which means the government cannot afford to subsidise energy prices any longer.

As energy prices rose, consumers complained loudly about the calculations made by KESH for the flat-rate bills.

The ERE then intervened in October 2004 with its ruling that ordered KESH to supply all customers with meters by the end of the year.

In 2004, it also fixed the amount of electricity that KESH could charge to customers without meters. This was to depend on the type of area in which they lived.

But since then, little has improved, either over the bills for clients without meters or over the delivery and delivery of meters. KESH has missed several deadlines to finish the installation of meters; the last one expired in March 2007.

As KESH has a monopoly status on the Albanian market, the ERE has little choice when it comes to renewing the company’s license every year.

According to sales director Ilirian Shkëmbi, the lack of meters was down to the repeated failure of the meter tenders held.

Still Overcharging

Since the 2004 ruling, the ERE has investigated the way in which KESH bills customers without meters and found numerous discrepancies.

In one Tirana neighborhood, it found that KESH was over-billing the 4,756 consumers in this category for 400-600 kilowatts more than the amount laid down by the agency.

The ERE fined the corporation 300,000 lek (3,000 dollars), which is the maximum fine allowed by the law.

In its report for 2005, released in March 2006, it also urged the company to compensate the 4,756 families affected.

Some of those customers told Balkan Insight they have not been reimbursed. The company maintains it gave them rebates in the form of electricity. It was not able to provide Balkan Insight with any documentation showing this was the case.

In December 2006, Balkan Insight then filed several requests under the Freedom of Information Act to the Durres and Tirana KESH distribution offices where the largest cluster of customers is concentrated.

The documents that Balkan Insight obtained show the company is still overcharging customers in the Tirana and Durres areas to the tune annually of about 3 million dollars.

The documents show the total number of KESH customers without meters in the Tirana and Durrës electricity districts and the amount of energy they should have been billed for during this period, as established by the 2004 ERE ruling.

In Durres and Tirana, the ERE ordered KESH to bill customers without meters a flat rate of 400-600 kilowatts a month, depending on location. Clients in urban areas were to pay the higher figure and customers in rural areas the lower figure.

Based on the total number of customer in KESH ledgers, Balkan Insight estimated the total amount of electricity it should have billed customers for in a specific area and compared it to the amount that KESH reported.

Area by area, the documents revealed that the 3,904 customers without meters in Durres from January till the end of November 2006 were billed for using 15.269.000 kilowatts more than they should have been billed for.

With energy priced at seven lek per kilowatt, it seems that KESH overcharged these 3,904 by 106.883.000 lek (1.1 million dollars). In the rural areas of Durres, the 834 customers who lacked meters were overcharged for 250,400 kilowatts, amounting to 1.752.800 lek (around 18.000 dollars).

In the urban part of Tirana district, the 16,530 customers lacking meters were overcharged by 18,050,000 kilowatts, amounting to 126,350,000 lek (1.3 million dollars). In the rural area of the Tirana district, the 3,868 customers who lacked meters were overcharged for 12,138,600 kilowatts, amounting to 84.970.200 lek (900.000 dollars).

The total excess charge levied on all these customers in 2006, therefore, came to about three million dollars.

Presented with this figure, KESH sales director Iliarian Shkembi did not dispute the existence of a gap between the energy billed by KESH and the estimates of what they should billed clients, based on the ERE ruling.

But he said KESH did not bill customers solely on the basis of the 2004 ruling but took other ERE decisions into account. For example, he said ERE ruling No. 12 empowered the company to send bills higher than for 400 kilowatts to clients in rural areas of Tirana, if more than one family lived under one roof.

Shkembi also mentioned damaged or old meters as a factor, saying KESH was allowed to impose flat-rate bills on users of such meters.

What Shkembi did not say is that due to KESH’s arbitrary and routine use of ruling No. 12, the ERE cancelled this exemption in a subsequent ruling, No. 48.

He also did not say that ERE ruling No. 49 explicitly stated that KESH was not empowered to impose flat-rate bills on clients for longer than one month simply because a meter was damaged.

Balkan Insight looked through all the ERE decisions and found none that said customers owning older meters could be charged flat-rate bills.

Shkembi denied that corruption within the company was a major issue, adding that he was not in a position to go through every bill the company sent out to check.

Energy experts like Gergj Simaku, however, say the company is clearly using the flat-rate billing system to cover up a range of internal abuses from corruption to non-payment, poor debt collection and energy theft.

He told Balkan Insight that the company had long used this method of billing to cover up for the low rate of debt collection. “KESH is interested to bill customers as much as it can because it can cover abuses in this way,” he said.

“Flat bills are a way to cover up for ongoing abuses in the company.”

Simaku also pointed out that flat-rate bills had been “criticised by all the international financial institutions that assist KESH”.

He went on, “Even though these institutions have funded the installation of electricity meters for customers who lack them, due to many problems…KESH has failed to supply them.”

Nadir Muhamed, Albania director of the World Bank, which lent more than 13 million dollars to KESH to supply customers with meters, in December 2006 lambasted the company over the issue of meters.

“It’s unacceptable when for many years the World Bank has been providing a lot of credit and support for the installation of the last amount of meters,” he said. “Every time, we find there are new demands for 50,000 or 100,000 meters.”

Muhammad urged the company to start an auditing the process more transparently.

According to a KESH spokesperson, Klodiana Gjinaj, the company had not started an audit on the “meter situation” just yet but had just launched an international tender for a new supply of meters.

She denied a claim made to Balkan Insight by an engineer working for the company in Tirana, who said the company warehouses were full of meters but that company employees often sought bribes to install one.

Gjinaj said confusion had often arisen over the 5,000 lek (50 dollar) installation fee, which customers wrongly interpreted as a demand for a bribe.

Action In Sight?

Klodiana Gjinaj said that while corruption and mismanagement had occurred in the past inside KESH, the company’s new director, Gjegji Bojaxhi, installed only six weeks ago, was changing things.

She said Bojaxhi had set out a new platform for the company. At the top of the list was the more efficient collection of debts from non-payers and cutting the practice of stealing power through illegal lines that do not pass through meters.

KESH has, in fact, already taken action in this field. In a recent operation in Tirana and Shkodra, it cut off supplies of energy to non-payers and detected hundred of illegal lines that were being used to steal power.

The operation revealed that dozens of high-ranking officials and politicians, NGOs and even judges owed large amounts to KESH or were using illegal lines to steal power.

However, even if KESH is making some progress here, it is still relying on its old formula of charging clients without meters with higher-than-average bills to cover for such abuses as theft.

If that is the case, ordinary, law-abiding Albanians are still paying to make up for what others have stolen.

Besar Likmeta is a journalist for TV Ora News. Balkan Insight is BIRN’s online publication. The investigation was supported by the Danish association of investigative journalism, FUJ, under its SCOOP programme.