Category: Albania

“The political situation in Albania is charged at the moment,” says Eris Hoxha, Partner at Hoxha, Memi & Hoxha in Tirana, who explains that “because of the upcoming elections in April 2021, the political campaign is well underway.” 

“However,” Hoxha notes, “any vestiges of real opposition have been gone from the parliament for over two years. Many opposition MPs decided to leave, and the ones who stayed can be described as ‘opportunistic.’ They don’t really concern themselves with the best interest of the people, but rather their own.” 

In the absence of tangible checks-and-balances system in the parliament, Hoxha says, a controversial law on fiscal amnesty came close to passing. The law was supposed to offer amnesty for all businesses which had previously been operating in the so-called grey economy, and include them in the tax system. “The law did not pass, mainly because of heavy criticism by the EU and the IMF,” Hoxha says. “Their main concern was that the law would facilitate money-laundering, because it had the potential of allowing a lot of money made through criminal, and other suspicious activities, to enter the legal economy.” Hoxha isn’t sure the bill is gone forever, however. “I do not think we have seen the end of this. I have a feeling that the law will be brought back to the table as we get closer to the elections.” 

Another issue which burdens the legal system in Albania is the current deficiency in judges and prosecutors. “As a result of the Justice System reform which began in 2016, we have had a comprehensive overhaul of our judiciary system,” Hoxha says. “Although the core principles behind the reform were positive, we can see that it the system is facing many problems.” According to him, “currently, we do not have a functioning Constitutional Court due to the lack of judges. Our High Court also barely meets the quorum.” He sighs. “It seems that soon we will not have enough judges to render decisions in Albania. And in turn, it is difficult to obtain an effective legal remedy.” 

That’s not all, he says. “We are also in need of prosecutors, especially in the anti-corruption area. One of the innovations the reform brought to our country was a very thorough vetting process for selection of prosecutors, but most of them are reluctant to go through the process out of fear of political pressure.” There are, he said, political ramifications of this problem as well. “This state of affairs seems to suit the majority party very well, because they are less restrained by the judicial branch. So, there is very little incentive to change things around here.”

In 2015, Albania harmonized its legislation with EU Directive 2009/72/EC through law no. 43/2015 “On Electrical Energy Sector” (the “Energy Law”).

The Energy Law governs the generation, transmission, distribution, and supply of electricity, and regulates competitiveness in the electricity sector, open access to the market, and the criteria and procedures applicable to the granting of licenses, together with consumer protection provisions.

To stimulate renewable energy, Albania approved law no. 7/2017 “On Encouraging Utilization of Energy from Renewable Sources” (the “RES Law”) in compliance with the Energy Community Treaty and Directive 2009/28/EC “On Renewable Energy Sources.”

The RES Law provides various “Incentive Schemes” in order to reach targets related to the amount of electricity produced from renewable sources. These schemes achieve this goal by reducing the costs of such energy, raising the price at which it can be sold, and increasing the volume of purchased energy through obligations for the use of renewable energy, or other means.

Albania’s Renewable Energy policy is composed of two strategic documents – one document covering 2018-2030 and one covering 2018-2020. The country has set an objective to increase the production of renewable energy to 38% of gross final energy consumption for 2020, while for 2030 the renewable energy should account for 42%.

The main challenge producers of renewable energy face currently is the uncertainty of the price at which they will be able to sell the energy they produce.

Feed-In Tariff for Small Solar and Wind Energy Producers

The mechanism used to promote the construction of photovoltaic plants (up to 2 MW) and wind energy plants (up to 3 MW) is the feed-in tariff. The tariff is set by the Albanian Energy Regulator Authority (ERE), through a methodology based on the cost of the project to ensure a reasonable investment rate of return. 

ERE approved the tariff/price for energy produced from photovoltaic plants for 2017 and for 2018 in the amount of EUR 100/MWh and EUR 71.2/MWh, respectively. The feed-in tariff for projects authorized during 2018 was approved by ERE only in December 2019, creating uncertainties for investors. ERE explained that the delay was caused by the fact that the price was decided only following a review of the application documents during the year on the expected investment cost. ERE did not approve a price for energy produced from wind energy plants for 2018 and 2019 due to a lack of applications.

A new method of solar power production being utilized in Albania is the floating PV plant. There are currently two projects that have already received preliminary authorization. For projects signed in 2019, ERE approved a price of EUR 100.025/MW, which represents a favorable tariff compared to the one for 2018 for land-based PV plants.

Energy Price for HPPs

The methodology for the feed-in tariff for existing producers with priority (HPPs with installed capacity up to 15 MW) was approved through a Decision of the Council of Ministers of 2017, and the new tariff for each year is adopted annually through a decision of ERE.

The feed-in tariff is based on the price of energy in the Hungarian Power Exchange (HUPX). The formula for calculating the tariff (ALL/kWh) is: The average annual market price in advance (HUPX / DAM) of electricity in the band profile of the previous year of the HUPX of electricity in euro cents / kWh multiplied by the bonus for the promotion of renewable resources in the amount of X multiplied by the average EUR/ALL exchange rate for the previous year.

Through a recent amendment in May 2020, the Council of Ministers lowered the previous bonus coefficient in the methodology from 1.30 to 1.20 for the remaining part of 2020 and subsequent years. This decision led ERE to change the energy price purchased from priority HPPs, repealing its previous decision from January, thus lowering the price. The sudden change creates a liquidity risk for many producers, directly affecting their ability to repay the investment.

Thus, while PV plant producers have only an initial risk associated with the price, which, once approved, will remain unchanged for 15 years of production, priority HPPs already know the price when entering production, but are under constant threat that the government may change the methodology or potentially decrease the price of energy from HUPX.

The decision to lower the bonus was harshly criticized by producers. While it is uncertain if the methodology will change again in the future, it creates a negative precedent for investors concerning the security of their investment.

By Genc Boga, Managing Partner, and Alketa Uruci, Partner, Boga & Associates

This Article was originally published in Issue 7.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

“The pandemic situation is overrun with both uncertainty and challenges, but also opportunities,” says Jola Gjuzi, Partner at Kalo & Associates in Tirana. “I believe that the situation is the same for the Albanian Government as is it for businesses in the country.”

Gjuzi reports that, because of the coronavirus, “some measures have been taken which affect the way we communicate.” In many situations virtual communication is proving efficient and could well redefine social interaction even in the long-term. Still, she says, “for key business matters, virtual meetings remains just an imposed substitute of face-to-face interaction.”

Gjuzi notes that many companies in Albania have, in the months since the pandemic first hit, been forced to slow down and even recalibrate their portfolios. Her own industry suffered as well, she says. “In terms of law firms, the workflow was significantly reduced, especially in litigation, and, to a certain degree, arbitration. On the other hand, many companies unable to perform contracts required swift legal advice aiming to save their deals.”

Gjuzi says that, with the lifting of the restrictive measures, Governmental projects that had been put on hold have now resumed. According to her, “the bidding procedure for the award of a 140-megawatt solar power project restarted and now the Government is negotiating the concession contract with the winner. Other concession projects are being launched, such as the construction of a motorway in the Adriatic-Ionian corridor, a 400 MW hydropower plant upstream Drin River, and a new international airport in southern Albania,” and she says, “all of this is a sign of hope for the future.” On the other hand, although she thinks that Governmental projects are a good thing, she reports that they are often seen as a “marketing scheme put in place to attract voters for the upcoming election.” Ultimately, she says, “true or not, some businesses and laws firms will benefit from them.”

“Meanwhile,” she says, “some companies are considering claiming damages from the Government for losses suffered while the restrictive measures were in place. Yet, those efforts seem to be quite theoretical. The Constitutional Court and Supreme Court are still inoperative – an undesired effect of the ongoing judicial reform mostly centered around looking into judges and their property.” All of this is part of the country’s attempt to satisfy EU demands. “Albania is now going through a good development period with the EU, even though that is a long process.”

“At the end of the day, uncertainty in terms of what will happen is the greatest problem,” she says. “We don’t know a lot, but in the long run, I think there will be new opportunities in the way we do business and the way we work.”

“The pandemic situation is overrun with both uncertainty and challenges, but also opportunities,” says Jola Gjuzi, Partner at Kalo & Associates in Tirana. “I believe that the situation is the same for the Albanian Government as is it for businesses in the country.”

Gjuzi reports that, because of the coronavirus, “some measures have been taken which affect the way we communicate.” In many situations virtual communication is proving efficient and could well redefine social interaction even in the long-term. Still, she says, “for key business matters, virtual meetings remains just an imposed substitute of face-to-face interaction.”

Gjuzi notes that many companies in Albania have, in the months since the pandemic first hit, been forced to slow down and even recalibrate their portfolios. Her own industry suffered as well, she says. “In terms of law firms, the workflow was significantly reduced, especially in litigation, and, to a certain degree, arbitration. On the other hand, many companies unable to perform contracts required swift legal advice aiming to save their deals.”

Gjuzi says that, with the lifting of the restrictive measures, Governmental projects that had been put on hold have now resumed. According to her, “the bidding procedure for the award of a 140-megawatt solar power project restarted and now the Government is negotiating the concession contract with the winner. Other concession projects are being launched, such as the construction of a motorway in the Adriatic-Ionian corridor, a 400 MW hydropower plant upstream Drin River, and a new international airport in southern Albania,” and she says, “all of this is a sign of hope for the future.” On the other hand, although she thinks that Governmental projects are a good thing, she reports that they are often seen as a “marketing scheme put in place to attract voters for the upcoming election.” Ultimately, she says, “true or not, some businesses and laws firms will benefit from them.”

“Meanwhile,” she says, “some companies are considering claiming damages from the Government for losses suffered while the restrictive measures were in place. Yet, those efforts seem to be quite theoretical. The Constitutional Court and Supreme Court are still inoperative – an undesired effect of the ongoing judicial reform mostly centered around looking into judges and their property.” All of this is part of the country’s attempt to satisfy EU demands. “Albania is now going through a good development period with the EU, even though that is a long process.”

“At the end of the day, uncertainty in terms of what will happen is the greatest problem,” she says. “We don’t know a lot, but in the long run, I think there will be new opportunities in the way we do business and the way we work.”

Wolf Theiss has advised joint lead managers Banca IMI, Citi bank, JP Morgan, and Raiffeisen Bank International on the Republic of Albania’s EUR 650 million seven-year international bond issuance of June 9, 2020.

According to Wolf Theiss, “the transaction marks the Republic of Albania’s successful return to international capital markets, following prior issuances in 2010, 2015, and 2018.”

Wolf Theiss’ team included Partner Sokol Nako and Associate Kristaq Profkola.

Wolf Theiss did not reply to our inquiry on the matter.

Enkelejda Mucaj, a partner at Tonucci & Partners in Tirana, has been appointed the General Lawyer of Albania.

Mucaj was nominated for the role by Prime Minister of Albania Edi Rama, and the Albanian government accepted the nomination. She joined Tonucci & Partners in 2000, and according to the firm, “she has assisted foreign and local clients operating especially in oil, gas and mining sector as well as telecommunications industry in Albania in transactions related with the sale and purchase of the real estate and operational assets as well as the assessment and negotiation of the regulatory issues with the Albanian competent authorities, real estate acquisition and consultation on any relevant legislative issues.” Before joining the firm she spent two years as a Counselor with the Ministry of Culture, Youth, and Sports of Albania.

Mucaj holds an LL.B. from the University of Tirana and LL.M.s from the Academy of WIPO and the University of Turin.

During the last decade, Albania has undertaken several initiatives to liberalize the electric energy sector and increase local generation capacities. Such measures have created a lively market, especially in the renewal energy segment.

The internal market is under continuous improvement, both technically and commercially, and the renewable energy sector in Albania offers good investment opportunities, with a high degree of legal security for foreign investments. 

Electric Energy Framework

In 2015, the Albanian Parliament passed a new law reforming the electric energy sector that is designed to create a competitive and liberalized energy market by establishing the Albanian Power Exchange as a day-ahead and energy balancing market.

In addition, in 2017 the Parliament passed a new law promoting the use of energy from renewable sources (the “Renewable Energy Law”).

State of Play

With the exception of transmission and distribution activities, the sector is liberalized and a good number of local and foreign investors are active in energy generation and trade. However, as the majority of private energy producers currently enjoy feed-in tariff incentives, a degree of regulation is applicable to energy generation.

The supply of electric energy is also in principle liberalized, but with the exception of high demand customers (consuming more than 50 million kWh/pa) or those connected above 0.4 kV (with few exceptions) who must access the liberalized market, in practice households and other consumers continue to be supplied by the state-owned universal service supplier.

Domestic generation currently consists of almost 100% hydropower generation. A thermal pant of 98 MW is owned by the state-owned energy producer, but it is not operational.

Renewable Energy and Incentives

To reduce its dependency from imports and meet its UNFCCC commitments, in 2018 the Albanian Government approved the National Action Plan for Renewable Energy 2018-2020, which provides for the increase of renewable energy generation capacities by 798 MW (600 MW in hydro power, 70 MW in wind power, 120 MW in solar power, and 8 MW in waste to energy units). The Renewable Energy Law offers priority access to the grid, simplified grid connection requirements, issuance of transferrable certificate of origin, financial incentives, and a temporary exemption from the energy balancing regime (until December 31, 2022, or until the full establishment of a balancing marketplace, whichever occurs first).

The current financial support mechanism available to renewable energy producers is the feed-in tariff system, consisting of a fixed price for kWh (as approved by the energy regulator (ERE) on an annual basis of electric energy injected in the grid (currently approximately EUR 68/MWh)).In addition, ERE has approved premium tariffs to incentive small wind and solar plants of EUR 76/MWh for wind with up to 3 MW capacity and EUR 100/MWh for solar with 2 MW capacity (these tariffs are currently being updated).

The feed-in tariff mechanism will be available for a period of 15 years to renewable energy producers that start operations before December 31, 2020. Renewable energy producers that start operations after this date will no longer benefit from the feed-in tariff mechanism (with the exception of small wind and solar plants, which will continue to enjoy the feed-in tariff mechanism), but will be able to apply for the new financial support mechanism of the Contract for Difference (CdF).

Under the CdF mechanism, which will be accessible through competitive procedures, renewable energy producers will receive a fee equal to the negative difference between the price offered during the competitive procedure and the price they are able to achieve in the open market for the sale of the energy they generate

Renewable energy producers will be able to benefit from the CdF mechanism for a 15-year period, or until they have achieved the return on investment, minus other eventual received financial support.

By Shpati Hoxha, Partner, Hoxha, Memi & Hoxha

This Article was originally published in Issue 6.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.