Albania's struggling electricity sector could be dealt a further blow as the Czech utility CEZ said it's considering exiting its distribution business there because it hasn't been able to resolve its dispute with the government over tariffs and extraordinary taxes, newswires report.

CEZ board member Tomas Pleskac was reported by Bloomberg as saying that the transparency of the Albanian market is "nonexistent" and CEZ lacks a clear negotiation partner in the country, adding that it intends to make a final decision by the end of this year. "The problem in Albania is that we reach an agreement with some state body, and subsequently another body starts making completely different claims," Pleskac said. "There is no one clearly designated person with whom we could negotiate."

CEZ has been in a dispute with the state country's regulator after the latter ordered the Czech utility to pay the state-owned power producer KESH higher tariffs without allowing CEZ to raise prices for customers. The dispute with Albania escalated in the summer after the country slapped CEZ with an extra tax of EUR23m, which is pushing the subsidiary into a loss the company posted a first-half 2012 loss on earnings before interest, tax, depreciation and amortization, or Ebitda, of CZK2.3bn ($119bn).

CEZ said its officials have met with the Albanian PM Sali Berisha, who agreed to nominate a negotiating team by the end of October.

A pullout would be bad for Albania, which struggles to attract investment to its sclerotic electricity infrastructure. Power outages are common, exacerbated by the dry summers that have hurt the country's mainly hydroelectric power sector, which account forapproximately 98% of total production.

The issue is also one more blow to CEZ's now discredited and abandoned plan to become a pan-regional electricity player. Analysts say there are two main problems with its Albania business: the level of electricity theft from the network and lack of creditworthiness of customers. But Petr Bartek, an analyst for Erste told Bloomberg that legally it will be difficult for CEZ to exit the country elegantly." CEZ can claim a 60 million-euro guarantee from the World Bank, Pleskac said. The Czech company stopped all investments in Albania in the fall, he said.

Source: bne