ENERGY LEGISLATION IN ALBANIA

Table of Contents

Letter to Stakeholders 3

FREQUENTLY ASKED QUESTIONS (FAQ) 5

What are the electro-energetic systems in Albania? 5

What is the body responsible for establishing electric energy tariffs? 5

Which body has the authority to license activities in energy sector? 6

Who is the owner of the distribution network? 6

What are the powers of ERE? 7Who can exercise an activity in the

energy sector? 7What are the fields of energy system for

which you can obtain a license? 8Who can obtain a license to produce

energy? 9What are the requirements to obtain a

license? 9What terms are applied? 11Are there any cases when the license is

revoked? 11What obligations do licensed subjects

have toward ERE? 13Can a licensed person request changes

in his activity? 14Can subjects transfer their license to

another subject? 15How should companies reflect their

activity? 15What is the term for utilization of

interconnection lines? 16How is interconnection connected to

the other systems? 17What are the criteria to obtain a license

for constructing an electric energy production source? 17

Is there an audit body for energy and who has the authority to license this body? 18

What requirements should the audit fulfill? 18

In what sectors is concession possible according to Albanian Legislation? 20

Who is responsible for supervising concession procedures? 21

Which body monitors the implementation of this law? 22

What is the role of the Concession Management Unit? 22

Who can identify potential concessions and how? 22

Is it possible, according to Albanian legislation, to sign concessionary contracts without going through competitive procedures? 23

Can interested subjects make a proposal that has not previously been announced by the contracting authority? 23

Which body has the authority to identify a concession project? 24

Company Registration 24WHAT DO YOU HAVE TO KNOW, IN

ORDER TO OPEN A BUSINESS? 24Who should be registered in QKR?

(NCR-National Registration Center) 24

SOURCES 26

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Dear Reader,

This booklet presents a summary of the legislation on the Energy Sector to be considered by those thinking of investing or doing business in Albania. We have provided you with this brochure to inform you on the laws and legislation of Albania in regards to the Energy Sector.

This brochure is put together in the form of frequently asked questions and the information herein reflects the current legislation as of November 2008. Most of the questions are answered in a short form, therefore, you might deem it necessary to look at the legislation in more detail.

We hope you find this brochure very useful in helping you with your investment plans in Albania. I would like to take this time to send a warm felt thanks to our partners and the Albinvest staff who worked restlessly to put this brochure together.

As I close this letter, I thank you for taking the time to read this very useful information.

Respectively,

Viola PuciExecutive Director Albanian Business and Investment Agency

Letter to Stakeholders

SPOTLIGHT

ON

ALBANIA’S

ENERGY

LEGISLATION

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FREQUENTLY ASKED QUESTIONS (FAQ)

What are electro-energetic systems in Albania?

The electro energetic system in Albania consists of power plants, transmission system with its respective equipment for interconnection, communication and information systems, distribution networks and consumers’ electric equipment.

What is the body responsible for establishing electric energy tariffs?

1. ERE (Energy Regulatory Body) is the body responsible for establishing electric energy tariffs for all regulated activities, exercised by licensed subjects in the electric energy system.

2. ERE drafts and approves a regulation of procedures and standards, according to which ERE approves, changes or refuses tariffs, terms and conditions of electric energy services.

3. ERE drafts and approves a regulation to define payments for public service obligations and procedures for fair allocation of obligation costs for public service among all retail costumers of electric energy.

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Which body has the authority to license activities in energy sector?

Every subject who wants to exercise an activity in this field should obtain a license by ERE according to this law.1. ERE is the licensing body.2. Licenses are issued by ERE, according to

procedures which guarantee equal, non-discriminatory and transparent treatment during the licensing process. These procedures apply to every type of application for license.

3. According to this law, ERE approves the regulation of licensing procedures which specifies the criteria and conditions to obtain, change, transfer or remove the license, as well as respective payments for each type of license application. ERE is authorized to approve a regulation with simple and rapid licensing procedures for power plants directly connected to electric energy distribution network.

Who is the owner of the distribution network?

The distribution network is owned and operated by the distribution network operator which has a license to exercise activity in the distribution of electric energy.

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What are the powers of ERE?1. ERE can refuse to issue a license when it

endangers people’s life, health, environment, third party properties and consumers’ interests or negatively affects the sustainable supply with electric energy.

2. A subject is not issued a license:a) When the subject has no possibility to pay

debts or liquidation, according to bankruptcy legislation;

b) When his license has been revoked or removed and the term defined on ERE’s decision has not finished yet.

3. In case of refusal, the applicant can present a new application for license for the same activity, but not before six months after the effective date of ERE’s decision of refusal to issue the license for the previous application.

Who can exercise an activity in the energy sector?

Every Albanian or foreign individual or company can exercise an activity in the energy sector, after they have obtained the respective license.

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What are the fields of energy system for which you can obtain a license?

1. ERE issues licenses for the following activities:a) Electric energy productionb) Electric energy transmissionc) Electric energy distributiond) Wholesale and retail electric energy supply.e) Electric energy franchising inside and outside

the countryThe form, manner and payment for application are stipulated by ERE.2. ERE can issue an electric energy transmission

license only to a state company.3. ERE can issue an electric energy distribution

license only to a company.4. Subjects exercising different activities, which are

subject to licensing, can obtain special license for such activities. ERE is obliged to avoid any incompatibility in the requirements for licenses granted to the same subject for different activities.

5. No transmission or distribution license is required for a direct line.

6. Self-producers not connected to the electro energetic system do not need a production license.

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Who can obtain a license to produce energy?

Electric energy production can be made by a company or individual who has an electric energy production license, according to the law. Production activity also includes the transformation of electric energy produced by power plants and connection with the transmission or distribution network.Having obtained a production license does not exclude its holder from the obligation to obtain authorizations or other approvals foreseen by legislation in force.In the case of electric energy production from hydro power plants, the producer should first obtain an administrative permit by the responsible body to use water for public purposes, as foreseen by legislation in force.

What are the requirements to obtain a license?

1. ERE stipulates the requirements for every license, taking into account:a) Terms required for license validity;b) Locations and territories where licensed

activities in electric energy will be exercised;

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c) Safe and stable operation of power plants, equipments or networks;

d) Requirements for the type of primary energy sources;

e) Requirements related to national security, citizen’s life, property, public health and order;

f) Financial requirements;g) Environmental protection;h) Promotion of energy efficiency in the electric

energy sector;i) Obligations of public service, as foreseen in

this law;j) Promotion of a competitive electric energy

market and lowest-cost principles in electric energy supply;

k) Impact on security and stability in the electric energy supply inside Albanian territory.

2. ERE can search evidence, facts and documents, necessary to verify the qualifications and competences of applicants for license.

3. ERE can refuse to issue the license to an applicant when he fails to fulfill one of the requirements defined in point 1. When ERE concludes that one of the unfulfilled requirements is not essential and can be met, it can issue the license provided that the licensed subject will fulfill the requirements within a period of time stipulated by ERE.

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What terms are applied? 1. For every license application, according to this

article, within 14 days after the application is made, ERE will publish the notification of license request, as defined in the regulation for licensing procedures.

2. Licenses are issued after all remarks or complaints for this request have been reviewed. ERE will not take into account remarks and complaints presented after 2 months from the date of the first publication of the notification.

3. When an interested local authority presents a remark or complaint and ERE considers them not based on facts, ERE will inform the local authority in writing, presenting the reasons for this decision.

Are there any cases when the license is revoked?

1. ERE can revoke the license when the licensed subject:a) Does not fulfill the license requirements

according to the law;b) Violates the environment protection law

while exercising his activity in his sector;

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c) Endangers people’s health, life and property;d) Can not afford to pay for adjustments defined

by ERE;e) Has failed to start the licensed activity during

the time stipulated in the license;f) Fails to fulfill license requirements because of

financial reasons;g) With the request of the licensed subject.

2. If ERE thinks that revoking the license may affect public interest, it will act according to article 64 of this law.

3. ERE approves the regulation which defines license revoking procedures. According to these procedures ERE is required to:a) Notify the licensed subject in writing that it

has proposed to revoke the license, at least 60 days before revocation becomes obligatory, with the reasons for doing so;

b) Offer the licensed subject the possibility to make a statement within 30 days from the date when he receives the notification;

c) When it is in the common interest, ERE can give the licensed subject another 30 days to comply with the license in order to avoid the reasons for which license revocation has been proposed.

4. When revoking a license, ERE should implement one of the temporary conditions, so that equipments or assets owned by the licensed subject can continue their work to ensure electric energy service for clients:

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a) Allow the licensed subject to continue using these equipments and assets, according to special requirements and terms;

b) Contract one or more private companies that can undertake the continuation of this service;

c) Nominate an administrator to supervise or operate the equipments and properties according to the license.

5. Temporary conditions are set until the license is given to another subject that will continue this activity.

When a license is revoked, the Council of Ministers stipulates the expropriation of the assets of licensed subject against a fair compensation, according to law number 8561, date 22.12.1999 “On expropriation and temporary acquisition to use private property for public interests”.

What obligations do licensed subjects have toward ERE?

1. Licensed subjects should present at ERE the complete financial balance sheet, no later than 3 months from the end of the year. These annual reports include:a) Overviews of all incomes and expenses for every

special activity in the production, transmission, supply and distribution of energy;

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b) Overviews of respective incomes and expenses for all enterprise branches and an overview of rules governing the distribution of incomes, used assets and responsibilities between business activities and respective branches;

c) Other supplementary materials required by ERE.

2. These financial balance sheets should comply with the same standard accounting system, after they have been approved by ERE according to article 21 of this law.

Can a licensed person request changes in his activity?

1. Every licensed subject can request license changes. ERE can make changes in the terms and requirements of the license, with the request of the licensed subject, after it evaluates the effects of proposed changes on the obligations of the licensed subject, according to this law and his license, and with the condition that such changes are requested in a written statement and accepted by the licensed subject.

2. ERE can request to change license requirements when there are changes in the legal framework regulating the activity in the energy sector.

3. The following provisions apply to license changes:a) ERE publishes an application notification of the

licensed subject according to the form defined in the licensing procedures regulation;

b) ERE can not make any changes before taking into account all the remarks and complaints for this application within 2 months from the first publication of the application and after analyzing them.

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4. Before approving a license changing and with the request of the licensed subject, ERE publishes the proposed changes and reviews all remarks and complaints presented for the proposed changes within 2 months from the first publication of notification.

Can subjects transfer their license to another subject?

Based on the law, licensed subjects can not transfer their license or any of their assets used in the licensed activity through sale, pawn, rent, exchange or other forms, without a written approval from ERE.

How should companies reflect their activity?

Every licensed company in the electric energy sector performing one of the activities related to the production, transmission, distribution and wholesale or retail public supply, should keep separate accounts for every activity on their accounting unit, and also prepare consolidated balance sheets according to the required accounting practices. Companies should also keep separate accounts of activities not related to those of production, transmission, distribution and

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wholesale or retail public supply of electric energy.1. Licensed subjects performing one of the activities

in public generation, transmission, distribution and supply of electric energy should present their investment plan for the following 3 years to ERE for approval.

2. Licensed subjects included in point 1 of this article are obliged to present to ERE, within 31 October of each year, the updated investment plans for the following year.

3. For licensed subjects applying for a tariff of regulatory period longer than one year, investment plans should contain a planned investment analysis for the respective regulation period.

4. Within 6 months from the date this law enters in force, ERE should draft and approve a regulation for procedures for presenting and approving investment plans.

What is the term for utilization of interconnection lines?

The term for the utilization of commercial interconnection line by an investor is 20 years. At the end of this term the assets become property of the Transmission Operator System.Operation of commercial interconnection lines is made by the Transmission Operator System, according to articles of network performance code and trade regulations.Maintenance of commercial interconnection lines is under the responsibility of private investor for as long as they have property on this line.

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How is interconnection connected to the other systems?

The Albanian electro-energetic system is connected with electro-energetic systems in other countries through interconnection lines. These lines are built with a decision from the Council of Ministers, after the proposal from the minister responsible for energy.The functioning of electro-energetic system, parallel with other electro-energetic systems and interconnected electro-energetic systems, is done according to bilateral or multilateral agreements in the electro-energetic field, respecting technical standards and safe performance requirements, as well as other interconnection standards defined by ERE. Construction of commercial interconnection lines is approved with a decision of the Council of Ministers.

What are the criteria to obtain a license for constructing an electric energy production source?

1. Electro-energetic system safety;2. Public health and life protection;3. Environmental protection;4. Land use;5. Energy efficiency;6. Type of primary energy source;

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7. Applicant’s characteristics in terms technical, economical and financial capacities.

When approving permits to construct an electric energy production source the Council of Ministers has the right to request that part of this production be wholesaled to the public supplier, with prices regulated by ERE for tariff client needs.

Is there an audit body for energy and who has the authority to license this body?

Yes, it is the energy auditor who is licensed from the minister.

What requirements should the audit fulfill?

1. A person can obtain a license as an energy auditor when:a) He/she has finished university for technical

studies in the field of energy and has 5 years of working experience in energy utilization or has finished an acknowledged training course for audit techniques;

b) He/she has not been convicted for criminal offences in the course duty;

c) He/she has passed the expert test, according to point 2.

2. The expert test is conducted in front of a testing board whose activity and reward are defined in a regulation, approved by the minister.

3. License application for energy auditor is presented

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with a statement in AKE. The application form is defined in a regulation approved by the minister.

4. The following documents should accompany the license application for energy auditor, according to point 3:a) University degree in technical or economical

sciences;b) Criminal certificate released no earlier than 3

months from the application date;c) Certificate confirming 5 years of work

experience in the field of energy utilization and the certificate of audit training course;

d) Certificate of expert test from AKE.

Energy auditor is obliged to confidentiality for all data regarding individuals or companies and power plants that have been object of an energy audit. The energy auditor should not profit in any way from these data and should not use them to favor or to harm a third party. The obligation to confidentiality ends only when individuals or companies, whose power plants have been object of an energy audit, give their approval or when this is foreseen by the law.

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In what sectors is concession possible according to Albanian Legislation?

1. Concession is possible in the following sectors:a) Transport (railways, railway transport, ports,

airports, roads, tunnels, bridges, parking, public transport);

b) Production and distribution of electric energy and heating;

c) Production, distribution and administration of water, treatment, collection, distribution and administration of the sewage, irrigation, drainage, cleaning of dam canals;

d) Accumulation, transportation, elaboration and administration of solid waste;

e) Telecommunication;f) Education and sport;g) Health care;h) Tourism and culture;i) Prisons infrastructure;j) Land and forest recycling and rehabilitation

projects, industrial parks, sheltering, governmental buildings, maintenance services for information technology and database infrastructure;

k) Natural gas distribution;l) Administration contracts or public service

provision, also including the above mentioned sectors.

2. The Council of Ministers, with the proposal of the minister responsible for economy, can also authorize the application of concessions in other sectors.

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3. In special cases, in order to promote investments in sectors mentioned in point 1 or in other primary sectors in the economic development of the country and in accordance with strategic objectives, the Council of Ministers can offer concessions to Albanian or foreign investors with a symbolic price of 1 Euro. The Council of Ministers, with the proposal of the responsible minister of economy, approves the list of assets to be offered in concession.

4. This law does not apply to issuing licenses, except when licenses are issued within the framework of the concession contract.

5. This law does not apply to public procurements for services, goods, constructions and private investments.

Who is responsible for supervising concession procedures?

Public Procurement Agency with the Council of Ministers has the responsibility to supervise implementation of concession procedures and administrative review all complaints against such procedures.

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Which body monitors the implementation of this law?

It is the Procurement Lawyer’s responsibility to monitor the implementation of this law and sub legal acts thereof in the course of concession procedures, in defense of bidders’ legal interests.

What is the role of the Concession Management Unit?

Concessions Management Unit is set up and depends from the minister of economy to promote and assist the contracting authority in the evaluation and negotiation of concessions.

Who can identify potential concessions and how?

Identification of potential concessions is made by responsible ministries or local government in collaboration with the Concession Management Unit. Potential concessions can also be identified by a proponent through non-required proposals, according to procedures provided by the law. Responsible ministries or local government, with the assistance of Concession Management Unit, conduct a financial and feasibility analysis in order to judge about the implementation of a potential concession. This analysis is based on the money-per-value principles, potential concessions’ compatibility with the strategic national objectives and strategic sector objectives, technical and commercial effectiveness of the potential concession and its ability to attract potential concessionaires and private funding.

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Is it possible, according to Albanian legislation, to sign concessionary contracts without going through competitive procedures?

Yes, the contracting authority can negotiate concessionary contracts without going through competitive procedures only with the approval of the Council of Ministers if:

1. The project threatens national security. Cases of threats to national security as a result of competitive procedures are approved by National Security Council;

2. The concessionary contract has been cancelled because of a serious offence by the concessionaire and there is an urgent need to ensure the continuity of the activity.

Can interested subjects make a proposal that has not previously been announced by the contracting authority?

Yes, the contracting authority is authorized to review and accept proposals not requested in accordance with procedures provided in this law, provided that such proposals have nothing to do with another project which is already subject to selection procedures.

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Which body has the authority to identify a concession project?

In the case of requested proposals, responsible bodies for each respective activity area in cooperation with Concession Management Unit identify concession projects.

Company Registration Any foreign and joint capital company which wants to exercise mining activity in the field of design, evaluation, consulting and monitoring, should register in the Main Registration Book of the Company, presenting the required documents for its licensing according to article 21 of this regulation.

WHAT DO YOU HAVE TO KNOW IN ORDER TO OPEN A BUSINESS?

Who should be registered in QKR (National Registration Office)?

All the subjects who belong to the following categories should register at the National Centre of Registration (QKR):

a. Individuals who exercise economical, commercial activity.

b. Simple companies, according to the Civil Code articles.

c. Commercial Companies.d. Branches and offices of foreign representation

companies.e. Saving-Credit Companies and Unions.f. Reciprocal Cooperation Companies.

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SOURCES

For more information please contact the following:

• Ministry of Economy, Trade and Energy (METE):

www.mete.gov.al;

(Energy Policies and Legislation);

• Company Registration/National Registration Centre

(NCR);

www.qkr.gov.al;

• Law No 9663, date 18.12.2006 “On Concessions”;

• Decision of Council of Ministers No 27, date

19.01.2007 “On the approval of evaluation rules and concessions”;

• The Public Procurement Agency www.app.gov.al;

• ERE (Energy Regulatory Entity) www.ere.gov.al;

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Blv. “Gjergj Fishta”, Pall. Shallvareve,Tirana, AlbaniaTel: +355 4 2252 886, Fax: +355 4 2222 341E-mail: info@albinvest.gov.alWeb: www.albinvest.gov.al