Public-Private Partnership Stories Albania: Hydropower Privatization Photo © Nico Saporiti As part of a broader effort to liberalize and reform its energy sector, the Albanian Ministry of Economy, Trade and Energy decided to privatize four hydropower plants with a combined capacity of 76.7 megawatts. Some of the plants were in need of rehabilitation to allow them to operate with increased efficiency, safety, and reliabil- ity. Following advice from IFC, the four plants were packaged into two companies and privatized through transparent and highly competitive international tenders. They will be operated in compliance with strict environmental standards. Between 2005 and 2010 the government of Albania unbundled its transmission and distribution systems, introduced a new power market model, and granted concessions for the development of new hydropower plants to private investors. During the sum- mer of 2011 the government decided to privatize four existing medium-sized hydro- power plants on the Mat and Bistrica rivers. This series provides an overview of public-private partnership stories in various infrastructure sectors, The project was implemented with the financial support of DevCo, a multi-donor facility affiliated with the where IFC was the lead advisor. Private Infrastructure Development Group. DevCo provides critical financial support for important infra- IFC Advisory Services in structure transactions in the poorest countries, helping boost economic growth and combat poverty. DevCo Public-Private Partnerships is funded by the UK’s Department for International Development (DFID), the Austrian Development 2121 Pennsylvania Ave. NW Agency, the Dutch Ministry of Foreign Affairs, the Swedish International Development Agency, and IFC. Washington D.C. 20433 ifc.org/ppp BACKGROUND plants, once privatized, will operate as merchant plants, selling The government’s objectives for the privatization were to identify electricity on the national and regional electricity markets. private sector investors to acquire, modernize, and operate Additionally, the government required compliance with IFC’s efficiently four hydropower plants (HPPs), and to maximize Performance Standards for E&S matters. proceeds from privatization of the assets. HPP Ulëz is a medium-head hydropower plant with a reservoir BIDDING created by a dam on the Mat River, in northern Albania. It has an Eight companies were prequalified in a first tender launched in installed capacity of 25.2 megawatts (MW) and average generation May 2012. However, no offers were received by the deadline of 103 gigawatt hours per year (GWh/y). Built between 1952 and of September 2012. The accelerated timing of the tender, 1958, most of its electrical and mechanical (E&M) equipment the deepening European fiscal crisis and—perhaps most is in an advanced stage of productive life. Due to the antiquated importantly—the uncertainty associated with market risk, control system, the operation of HPP Ulëz requires the constant deterred the more established European utilities and typical presence of operators on site. As a result, close to 100 permanent renewable energy investors. staff are needed to manage the day-to-day operations. HPP Shkopet is located immediately downstream of HPP Ulëz. It has This provided a strategic opportunity for the entry of regional an installed capacity of 24 MW and average generation of 85 investors with an established presence in the Balkans, who came GWh/y. The plant was almost fully rehabilitated between 2002 with knowledge of where to sell (or how to use) the electricity and 2005. produced. One month after the first tender deadline, a new tender was launched. This time, IFC targeted regional investors, receiving The Bistrica river cascade consists of HPP Bistrica I and HPP 35 expressions of interest. A total of seven offers were received for Bistrica II, located in southern Albania. Bistrica I is a high-head HPP Bistrica and four for HPP Ulëz-Shkopet. HPP with a reservoir created by a dam downstream from a large natural spring. It has an installed capacity of 22.5 MW and Turkish company Kürüm International submitted the two highest average generation of 122 GWh/y. Bistrica II is a medium-head offers and was awarded both tenders; its iron smelter in Elbasan is HPP with an installed capacity of 5 MW and average generation one of Albania’s largest industrial consumers, and can absorb most of 30 GWh/y; its water intake is the tailrace of HPP Bistrica I. of the power produced by the HPPs. Thanks to a recent rehabilitation, the E&M equipment of the two Bistrica HPPs is in full operating condition. EXPECTED POST-TENDER RESULTS IFC’S ROLE • In May 2013, the government received privatization In 2011, Albania’s Ministry of Economy, Trade and Energy proceeds of almost €110 million, which it pledged (METE) requested that IFC perform a pre-assessment of the privatization of the four HPPs and subsequently hired IFC as the to the payment of outstanding debts with suppliers transaction advisor for the privatization of the two companies. and public works contractors. IFC conducted detailed legal, financial, technical, environmental, • The HPPs will now be operated to ensure and social (E&S) due diligence of the plants, identifying a number ecological flows. of E&S deficiencies. For example, the HPPs had no environmental • Kürüm is planning to rehabilitate HPP Ulëz to or social monitoring systems, no firefighting systems for improve the reliability of power supply. transformers and generators, no waste management, pollution prevention, or emergency response plans, and no practice of ecological flow releases. 06/2013 IFC recommended packaging the four plants into two companies. METE approved this approach, and IFC prepared contract documents, and managed the tender process and ensuing negotiations. TRANSACTION STRUCTURE The four plants were unbundled from KESH, the state owned energy generation company. Two new entities, owned by METE, were created. The entities own two plants each. In accordance with the Albanian Market Model, the hydropower