Holding onto its complete control over the distribution and supply of electricity to Kosovo’s homes and businesses, a single consortium dominates the Kosovo energy market, with smaller companies attempting to enter the market still frozen out.
On paper, Kosovo’s energy market has many registered companies able to provide electricity to consumers. However, in reality, there is one consortium that dominates.
Kosovo’s energy market was effectively monopolized following the privatization of the Kosovo Energy Distribution Company, KEDS, and the Kosovo Electricity Supply Company, KESCO, in 2013. The controversial deal saw the Kosovo Electricity Company, KEK, split into separate entities and privatized its distribution and supply branches, with the Limak & Calik consortium buying both KESCO and KEDS for 26.3 million euros.
According to a World Bank report from June 2017, the privatization went ahead in order to reduce the burden KEK’s functioning had placed on the Kosovo state budget, reduce reliance on expensive imported energy and increase the coverage and reliability of Kosovo’s energy network.
However, the move has also made liberalization of the energy market all but impossible: with both the distribution and supply of Kosovo electricity controlled by the same consortium, smaller traders that have applied for licenses do not stand a chance competing against the low prices of electricity that KEDS provides to KESCO, the only energy supply company currently operating.
While there are no explicit legal obstacles for companies other than KESCO to join the energy market, Rinor Klaiqi, the owner of Enercopower, says that he could not start working even after obtaining his license almost a year ago.
“I cannot operate my company because Kosovo does not have a genuine liberalization of the energy market. The market is monopolized,” says Klaiqi, explaining that households and businesses are automatically supplied electricity by KESCO, while a deal with the Kosovo Government means all the energy produced by KEK is sold to KEDS. “There is no energy available in Kosovo to be traded, and at the same time, there are no clients we could supply to.”
Photo: Drita Vitia.
Before 2005, almost every aspect of Kosovo’s power was managed and overseen by KEK, from its generation, transmission and supply to its distribution to consumers. In order to remedy the serious financial problems KEK was facing following the war, the government took the decision to separate these branches into different public companies and launch their gradual privatization.
Klaiqi said that with the privatization agreements for KEDS in May 2013 and then KESCO in late 2014, the monopolization of the market was set in stone.
“KEK is obliged to sell almost all energy produced in Kosovo [to KEDS] at a price below the market value,” says Klaiqi, explaining that his company would not be able to supply Kosovo consumers with electricity at the same low price. “On top of this, it is not possible for us to be operational in the energy market because of the high cost of obtaining licenses, the need to fulfil all of the criteria to obtain one, as well paying office expenses and staff. The damage is clear.”
Until now, Kosovo’s Energy Regulatory Office, which sets out the regulatory framework for Kosovo’s energy market, has issued licenses for seven companies who have the right to supply consumers with electricity. Alongside KESCO, Enercopower, Sharrcem, Jaha, HEP Energjia, GSA Energy, and Future Energy Trading and Exchange Dynamics all have licenses.
However, despite possession of these licences, KESCO alone benefits from a deal to purchase energy for cheaper than the market recommends.
Questionable legality
While the privatization process was overseen by the Kosovo Government’s Privatization Committee, a KFOS report from 2015 noted a lack of transparency and little monitoring or oversight from the Kosovo Assembly, which saw the monopolization pass with little or no objection from public institutions in Kosovo, leaving the process vulnerable to political influence and corruption. To date, no formal investigation into malpractice of the committee has been held.
The ERO, who is responsible for the licensing of Kosovo’s energy companies, has acknowledged the monopolization of the energy market that occurred following the government’s privatization agreements with Limak & Calik.
The director of the Licenses and Legal Department at the ERO, Afrim Ajvazi, noted that opening up the energy market to multiple supply companies is an international legal obligation that Kosovo has not yet met. Kosovo is a signatory to the Athens Treaty and a member of the Energy Community of South-Eastern Europe since 2005, which requires an open energy market.
“The contract for the privatization of the distribution and energy supply networks created a monopoly in Kosovo. We made every possible stakeholder aware of this. Everything that was within our competence, we did,” says Ajvazi. “The ERO complied with all its legal obligations in regards to the process of opening the market. Every obligation deriving from the legislation for which ERO is responsible, we did, but these two [KEDS and KESCO] are outside of our domain now.”
Ajvazi admitted that that the contract signed between KEK and KESCO is an obstacle to the liberalization of the market and confirmed that almost all of the power produced by KEK, which owns both of Kosovo’s coal-fired power plants, Kosova A and B, must be sold to KESCO.
According to the agreement signed in 2012 between KEDS and the Kosovo Government, KEK is required to “ensure the optimal availability of generating capacities of Kosovo A and Kosovo B facilities,” and “unless explicitly stated otherwise in this Agreement, it will sell to KEDS the entire electric power which may be supplied from these facilities.”
Destroying the competition
The privatization agreement between Limak & Calik and the government also stipulated that KESCO will supply every Kosovo consumer with electricity only until new supply companies enter the energy market.
However, Trim Ternava, the director of Jaha electricity supply company, says that in practice, this agreement prevents him and other potential competitors from entering the market on an even keel, obstructing their access to Kosovo’s energy infrastructure. “The biggest problem for us is that our main competitor, KESCO, shares the same owner with the company that owns the distribution, and this is a serious problem in building competition,” he says.
Ternava explains that it is not just difficult for his company to compete with KESCO because it is owned by the same company that distributes the energy, but also because KEDS has control over the electricity distribution network itself, which takes electricity from the transmission system and channels it directly to consumers.
KEDS owns and manages the electricity network in Kosovo, which Terrnava notes makes it difficult for energy supply competitors to convince consumers to leave KESCO’s services.
Photo: Drita Vitia.
“It is really difficult for us to convince consumers to sign a contract with us, when they know very well that the network maintenance is done by our competitor,” he explains, adding that a lack of oversight concerning the functioning of KEDS could harm the business of other suppliers. “This makes a huge difference. We know that the law does not work here, no one can guarantee us that KEDS will not shut off the electricity [provided to consumers by other suppliers] on purpose, and pretend that all suppliers are having the same problem.”
Dardan Abazi from the Institute for Development Policy, INDEP, says that the EU’s third package of legislation on the energy market, introduced in 2009, demands more than one energy producer as well as more than one supplier in a country’s energy market, adding that the suppliers must have individual contracts with each consumer to protect their right to choose who supplies their electricity.
However, no such contracts with Kosovo citizens were ever pursued by KESCO, Abazi explains, adding that KESCO should be held legally responsible for such failures. “KESCO simply took all the consumers and put them automatically into a contract with them,” he says. “They did not explain their rights to the consumers, despite a specific article of the law defining the guaranteed right of each consumer to change their supplier.”
Challenges in Kosovo continue
In 2017, the ERO set out its two year plan for opening up the energy market to the other registered suppliers. However, in March 2019 the ERO announced that the plan had been delayed after objections from Kosovo businesses and consumers to the Kosovo Chamber of Commerce. The timeframe for implementation has been extended to March 2020.
According to the ERO, part of the reason for the extension was because the newly licensed energy suppliers in Kosovo are not yet operational. “The ERO has so far licensed seven suppliers, but taking into account the non-functioning of all these suppliers, the ERO has extended the terms for the transition of customers connected to the 10 and 35 kilovolts voltage levels [household distribution lines] for an additional year,” an ERO press release reads, explaining that its aim in the future is to protect consumers and prevent any company’s abuse of its dominant position in the electricity supply market.
It is Kosovo businesses that are the most afraid of market liberalization, says Berat Rukiqi, the chairman of the Kosovo Chamber of Commerce, adding that a free market would initially entail higher electricity prices for businesses.
“In the last two to three years, supply companies have been receiving recommendations from the ERO to enter the energy supply market,” Rukiqi said. “However, despite the existence of an open market, due to the lack of other suppliers [KESCO remains the only supplier], energy prices would be 30 per cent higher than they are regulated [by KEDS].”
KEDS spokesperson Viktor Buzhala said that the company has played no role in stopping the liberalization process for the energy market, and that KEDS and KESCO are companies that simply implement decisions taken by the ERO.
“This was done at the request of the American and Kosovo Chambers of Commerce, which conveyed the request of the consumers onto the Kosovo Assembly, demanding that liberalization be halted due to businesses not being ready, and this being a huge burden on them,” says Buzhala. “This was not our request, but one from businesses that was approved by the Kosovo Assembly.”
Buzhala added that the liberalization process, while stalled, is already underway. “Market liberalization has already started with the [2017] decision of the ERO and the Kosovo Assembly. Last year, we moved closer towards an open market,” he said, explaining that consumers connected to higher voltage distribution lines (which vary from carrying between 10 and 30 kilovolts, kV, of electricity) are expected to be the first to be able to choose from a selection of suppliers.
With the new March 2020 deadline for registration of energy suppliers with the ERO approaching, Rukiqi expects the Kosovo Government, the Assembly and the ERO to find a solution and create a market model that would enable competition in the market and a long-term solution for the problem.
He emphasized that energy supply businesses are interested in true liberalization of the market, but one that would provide real competition and competitive prices, and not at such a disproportionate cost.
“We demanded the extension of the timeline set by the ERO for private companies to enter the open market until the moment when full conditions for a functional energy market are created,” Rukiqi concluded.
International rifts over transmission and distribution lines
When the energy agreement signed between Kosovo and Serbia in Brussels in 2015 is fully implemented, the operation of Kosovo’s energy market is expected to change significantly. Among other provisions, the agreement obliges Kosovo to allow Serbia’s public energy company, Elektroprivreda Srbije, to establish a supply company within Kosovo for the supply of electricity in the four Serb-majority municipalities.
The agreement foresees the establishment of two companies: an electric power supply and distribution company named Elektrosever, and the electric power trading company named EPS Trgovina. So far, only Elektrosever is registered with the Kosovo Business Registration Agency.
Photo: BIRN.
The deal reached between Kosovo and Serbia in Brussels states that “this new company will provide a power supply and will be entitled to carry out distribution services (such as billing and collection, maintenance and physical connection of new consumers) for consumers in the four Serb-majority municipalities in the north, while it will be able to buy and sell electric power in the open market.”
While the 2015 agreement also foresaw that Kosovo and Serbia would join each other’s power grid, connecting their transmission and distribution lines, this has not yet been enacted. Kosovo’s transmission system and market operator, KOSTT, caused a stir in December 2019 when it signed a deal with the Albanian Government agreeing to share the power grids of the two countries.
According to KOSTT, Kosovo and Albania operating as a regulatory bloc for energy will “facilitate the operation of two power systems both technically and economically.”
Director of Serbia’s Office for Kosovo Marko Djuric objected to the deal, stating in December that “Serbia is the owner and builder of the power grids in Kosovo and Metohija,” and accusing Prishtina and Tirana of attempting to create a “Greater Albania of energy” and further complicating the implementation of the energy agreement.
This publication has been produced with the assistance of the European Union. The contents of this publication are the sole responsibility of Drita Vitia and can in no way be taken to reflect the views of the European Union or BIRN and AJK.