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Kosovo: Power Games Delay Escape from Poverty

Lavdim Hamidi Pristina, Podujevo, Bujanovac, Skopje and Vienna

In spite of generous foreign investment, the electricity is still ‘off’ for much of the time in Kosovo – damaging the impoverished country’s prospects.

At the Dona juices factory in Podujevo, in north-eastern Kosovo, two huge generators roar constantly. Deafened by the noise, employees shout at each other and use signs to communicate as their words cannot be heard.

The owner, Bashkim Osmani, says he has no option but to use the noisy appliances, which have cost him about 90,000 euros to install and run over the past 8 years.

That was when he decided to cut supplies from Kosovo’s state power company, KEK, after becoming fed up with power cuts. “If you rely on KEK, it will kill your business,” he says.

Many businessmen share Osmani’s pain in Kosovo, where the lack of an adequate, sustainable power supply is hindering economic growth.
 
Kosovars face gruelling daily power cuts and in winter, when demand peaks, power is sometimes available for only 2 hours a day.
 
According to a May 2007 report by the KAF Financial Group, a company contracted by Kosovo’s Ministry of Energy and Mining to research the energy situation, power disruptions cost local businesses an average of about 2,188 euros each per month.
 
The use of private generators increases the operating costs of most businesses by about 10 per cent, says another 2007 report by the UN Development Programme, UNDP.
 
Many economists fear that if the power situation remains unchanged, Kosovo will be condemned to remain Europe’s poorest country. According to Kosovo’s Central Bank, the country has a Gross Domestic Product, GDP, per capita of only 1,400 euros.

This is extremely low compared to the average GDP per capita in the EU, of about 24,800 euros. In fact, Kosovo is poor even when compared to its neighbours like Macedonia, for example, where GDP per capita is some 6,200 euros.
 
Kosovo’s economy is growing at only 3.5 per cent annually, whereas Macedonian growth is 5 per cent, and neighbouring Montenegro’s is some 7 per cent.
 
Not surprisingly, the unemployment level is exceptionally high, at 45 per cent of the working-age population, according to World Bank figures.

The Central Bank of Kosovo reports that 28,000 Kosovars turn 18 every year and seek jobs, while the country’s current capacity cannot create more than 6,500 new jobs per year.
 
Living in the dark
 
One way to measure the impact of the power cuts on life in Kosovo is to look at satellite images of the country on Google Earth. Taken in winter after dark, and when the power is off, all one can see is a black hole, punctuated by a handful of lights from those lucky enough to own private generators.
 
Kosovo’s authorities, with the help of international donors, have tried to counter the problem, investing more than a billion euros since the Kosovo conflict ended in 1999. The European Union alone has invested over 400 euros million in energy for Kosovo during this period.
 
Officials from the European Agency for Reconstruction, EAR, say the main reason for the power shortages is old and outdated infrastructure.

Odran Hayes, an EAR official in Pristina, says the EAR made urgent investments in the system after the end of the Kosovo conflict in 1999 – but these did no more than keep the dilapidated system limping along.

“Our investments have kept the biggest power plant in the country, Kosovo B, operative, otherwise we would face a total energy collapse,” he said.
 
But demand for power has grown by leaps and bounds since then, leaving the energy sector in a critical condition. During the cold season, when demand for electricity exceeds 1,000 MWh – far above the 750 MW that local plants produce – KEK has both to import power, which is expensive, and impose severe restrictions.
 
Households in rural areas suffer the most. With no more than a few hours of power a day, people there feel frustrated and depressed.

“It’s a never-ending nightmare,” says Nderim Berisha, from the Kamenica region of eastern Kosovo. “Sometimes we have electricity for only an hour a day!”
 
The condition in which families like the Berishas live would be inconceivable elsewhere in Europe. In wealthy Austria, for example, constant power is a given. Stephan Zach, of the Austrian EVN power company, says consumers can rely on their power supply almost 100 per cent of the time.

EVN is forbidden to cut off power to consumers without due warning except in severe weather conditions, such as thunderstorms.
 
But even by the lower standards of its Balkan neighbours, Kosovo’s plight is uniquely dismal. Zlatko Popovski, of EVN Macedonia, says Macedonia never experiences nationwide power outages, although the country imports some 30 per cent of its electricity from abroad.
 
Roland Matous, from the Secretariat of Energy in Vienna, a regulatory body for energy, agrees that Kosovo’s plight is the worst in the Balkans: “Kosovo and Albania are the worst,” he said, “but the latter is in the better position of the two.”
 
Donors wary of corruption
 
International donors say their responsibility was to invest in the KEK’s production units with a view to making them functional. Maintenance, they say, is up to KEK, and most experts agree it has failed to properly manage its assets, scaring off potential investors.
 
Like the German government, Ganimete Huruglica, vice-chair of the German Development Bank in Pristina, KfW, the agency through which Germany invested 67.3 million euros in Kosovo’s energy sector, says Berlin withdrew support from 2003 to 2005, after the authorities failed to maintain the renovated generators.
 
“It was not justifiable to use German taxpayers' money to invest in the energy sector when it was clear there would be no maintenance afterwards,” Huruglica said.
 
However, Germany has resumed its investments in KEK after 2005, mainly because the company has taken action to reduce its debts by forcing more non-paying consumers to clear their bills.
 
Arben Gjukaj, the acting managing director of KEK, says it is wrong to blame Kosovo’s power problem solely on KEK. He said foreign investments often did not go where they were needed, but where donors wanted them to go, which was not always the same thing.
 
Gjukaj concedes the energy sector in Kosovo has been mishandled for a decade after 1990, when Serbia stripped Kosovo of its former autonomous status.  

The company had also to deal with low rates of payment for electricity by consumers. Between 1999-2007 KEK managed to collect only some 50 to 60 per cent of payments, creating a huge debt of 340 million euros.
 
The annual shortfall in income left KEK unable to maintain the units in which foreign donors had invested. “What we collect from our consumers is still not enough to cover the maintenance of KEK units,” Gjukaj said.
 
The media in Kosovo blame other factors for the company’s financial losses, however, starting with corruption in the management.
 
Sources in international organisations in Kosovo dealing with KEK agree. Some claim corruption in the public enterprise begins at the bottom, with bill collectors, and goes all the way to the top. “That’s why the company is bankrupt – and why consumers are reluctant to pay for their energy,” said a foreign official.
 
Sources within KEK don’t dispute the charges of corruption, saying a number of bill collectors had damaged KEK finances by accepting bribes from consumers to erase their debts, or ‘fix’ their energy metres, so as to conceal the amount of energy they consumed.
 
A 2006 report by US Agency for International Development, USAID, detailed the illegal methods used by KEK service units. The report, entitled Qualitative Assessment of Preparation for Transition to Local Management within KEK, which we obtained, has never been published. It claims KEK staff illegally classified numerous consumers as ‘passive’ consumers.
 
The term refers to consumers who use electricity for only short periods each year, usually during holidays spent back home in Kosovo. When they leave Kosovo, these customers are entitled to call on KEK service staff to denominate their units as ‘passive’, after which they stop receiving bills.
 
According to the USAID report, the number of these so-called passive consumers had grown from 27,000 to more than 100,000 in recent years. “It is believed that more than 70,000 consumers have been fraudulently declared passive by the KEK service unit,” the report stated.
 
Gjukaj, from the KEK, admitted staff had wrongly declared as ‘passive’ some consumers who had run up huge debts. He also admitted that some staff had changed the energy metres of consumers, installing new ones that were set at zero, as a result of which their previous debts were wiped off.
 
“There are certainly many active consumers who have been classified as passive,” he said. “Many had debts of over 10,000 euros but had new energy metres installed on their premises and so dispensed with the debt.”
 
This procedure goes clean against all KEK regulations, which clearly state that a consumer may not be labelled passive if he or she owes money to the company.
 
KEK officials claim they are fighting back, noting that the company has instituted legal proceedings against 46 employees for theft, bribery or bad management.
 
But corruption in the KEK does not stop with lowly service engineers and bill collectors. One of the darkest periods in KEK’s turbulent history occurred in 2002, when the company’s international director was arrested. Joe Trutschler, a German who was appointed to head KEK by the UN administration in Kosovo, UNMIK, was arrested by the German authorities for theft.
 
Trutschler was found guilty of authorising the transfer of €4 million from the company to a private bank account in Gibraltar and is serving a three-and-a-half-year prison sentence.

Others say Trutschler was one of many corrupt big fish in the KEK – the only difference being that he was caught.
 
Why pay when you can steal?
 
KEK officials claim they invoice far less amounts of energy than they produce and import. Part of the power that is lost, disappears for technical reasons – leaks being inevitable on an old network - but some, they say, is stolen.
 
KEK’s claims are supported by the USAID report, which estimated the agency was losing about 34 per cent of the energy it produced through a combination of technical losses and theft.

“Coupled with a collection rate of only 50 to 60 per cent, KEK is only collecting payments for about 35 per cent of the energy it produced,” the report said.
 
Another report, compiled by UNDP, identified losses of these kinds as the principal problem facing the energy corporation in Kosovo. The report,

Human Development Report in Kosovo 2007, blamed use of faulty metres, improper ‘fixing’ of metres, theft of power through illegal networking, and the refusal of many consumers to pay their bills.
 
Indeed, KEK statistics show that between 2000-2002 alone, the company lost over 120 million euros. According to the same statistics, the loss is increasing and in 2007 KEK lost some 92.3 million euros.
 
One way that KEK could avoid energy losses is by implementing the use of digital energy counters. Differing from the current analogue counters which require KEK employees to go from door to door to read metres, the digital counters can be easily controlled remotely.

Further more, KEK would be in a position to fully control expenditures and cut off some clients from its power-supplying network.
 
The Economic Association for Electric Energy distribution, Jugoistok, from Nis in southern Serbia, has gone ahead with this change already and, according to officials, the measure is an effective barrier to thieves.
 
Burim Latifi, in charge of maintaining energy equipment in Bujanovac, southern Serbia, says the changeover has been useful. The region once lost more energy than any other in the country.

Now, according to Latifi, the company receives an alert whenever consumers try to open these devices and meddle with them.
 
Experts like Matous agree that such a system could be one solution for Kosovo. Indeed, in 2007, the EAR sponsored a project which would enable KEK to keep better track of its clients and their expenditures. Named the Geographic Informative System project, or GIS, it cost the EAR some 158,000 euros.
 
The core idea of GIS was to provide KEK with geographical maps, supplying the company with more accurate client information such as the region in which they resided and their rate of payment.
 
Typically, some would say, the project has not been implemented. Blerim Rexha, manager of CSE, the company hired by KEK to implement GIS in Kosovo, said the original plan was to gather the data for each of the 370,000 KEK clients. But only 500 were included in the testing phase.
 
Rexha, now deputy minister of energy, described the GIS project as a classic example of mismanagement of the energy issue. He recalls that he once asked KEK’s management in 2007 how the project was going.

“They told me they stopped the project because the room in which the hardware was being installed was too hot,” he said, adding that it would have cost about 1,500 euros to install air-conditioning for the chamber.
 
However, Odran Hayes, of EAR, which financed the GIS project, disputes this version of events. He blamed complications over cadastral data for the project’s failure.

“KEK needed cadastral data to implement the project,” said Hayes, explaining that EAR was unable to provide KEK with such data and no authority in Kosovo could do it, either.
 
Holding back the economy
 
Many stakeholders in Kosovo’s fragile economy describe the energy sector’s condition as critical and as a hindrance to development and job creation.
 
The KAF Financial Group study claimed the use of generators by private companies led to a potential loss of 3.5 new jobs per company annually.
 
Erich Lifka, of the Vienna Institute for Economic Promotion, WIFI, says many Austrian companies remain interested in investing in Kosovo due to the relatively low labour cost. But they are holding off due to the energy problem, as well as wider issues concerning the rule of law.
 
“Last year, KEK lost about 11 million euros from businesses not paying their bills,” Gjukaj said. “In a number of companies, the payment of electricity bills is the lowest priority.”

However, he does regret KEK can’t supply power regularly even to those businesses that do pay their bills.
 
While the KEK management blame individual consumers and businesses for not paying their bills, Bashkim Osmani of Dona juices factory says the energy sector should be servicing the needs of business, not vice-versa.

“We live in hope that this situation will improve. We’ve been living in hope all these years, but nothing has changed,” he says.
 
It looks like Osmani will have to wait a while longer for his hopes to become reality.

Fellow Bio

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Lavdim Hamidi

Lavdim Hamidi was born in 1982 in Trnovac and is currently living and working in Kosovo. He is an experienced economics reporter and works for the daily newspaper, Zeri

Topic

Topic 2008: Energy

Energy is a topic that preoccupies officials, politicians and citizens across Europe - and arguably one of the biggest challenges facing this continent and the international community.