Confidential Report: The Vlora TEC (Thermal Power Plant) cost 130 million euros to build, it was allowed to deteriorate for only 13 million euros

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  • Two confidential reports reveal that KESH (Albanian Power Corporation) has left in a lethargic slumber for 10 years an asset that could be repaired with a bill of 13 million euros. Since its construction twelve years ago, the Vlora Thermal Power Plant has burdened Albanians with a bill of around 200 million euros, without operating a single day.

    Author: Esmeralda Topi

    A sea storm that struck the shores of Vlora in January 2012 irreparably damaged the cooling system of the Vlora Thermal Power Plant, just a few months after its completion.

    With an investment value of 130 million euros from three international institutions, the power plant was meant to address the energy shortage during crisis situations or periods without rainfall. It was also conceived to reduce the need for purchasing energy from abroad, but it never ignited the turbines.

    “From the high wave action, the water pipes took in air, which mixed with sand, as there was no breakwater to calm the waves,” says one of the engineers who worked at the TEC at that time, recalling that the wind reached 80 km/h and there was a rainfall of five centimetres.

    Immediately after the incident, attempts were made to put it back into operation, but they failed, resulting in damage to a multimillion-euro investment.

    Kasem Mahmuti, an engineer appointed as the General Director of TEC Vlora two months after the defect, reveals that during the period he served in this facility (March 2012-November 2013), they only performed maintenance and conservation.

    “Specialists tried to make it operational, but the pumps, which drew seawater to bring it into the plant, were filled with impurities. Due to the storm and strong wind, the pipes had risen, surfaced, as air had entered them along with water. This large amount of air created the airlock effect,” explains Kasem Mahmuti, adding that the problem with this facility went beyond weather conditions.

    Considered an investment of particular importance, since its construction twelve years ago, the Vlora Thermal Power Plant has burdened Albanians with a bill approaching 200 million euros, without operating a single day.

    Two confidential reports reveal that KESH has left dormant for ten years an asset that could be repaired with a bill of 13 million euros. Currently, the Albanian Power Corporation spends 3 million euros more than this amount from its budget for maintenance, credit interests, and personnel expenses, resulting in degradation and losses.

    How much does the commissioning of the Vlora Thermal Power Plant cost?

    Planned to meet the needs in times of crises or emergencies, the Vlora Thermal Power Plant was not operational even during the crisis Albania experienced two years ago as a result of the Russia-Ukraine war.

    Officially, the Albanian Power Corporation denies having a conclusive result regarding the repair of the defect that hinders the commissioning of the 130-million-euro investment in Triport.

    “Some inspections and assessments have been carried out, but a final and categorical conclusion has not been reached on whether the system is repairable or needs to be replaced by a new one,” said KESH in a written response to Investigative Network Albania.

    In contrast to KESH’s response, INA Media had access to at least two detailed studies for the reactivation of the Vlora thermal power plant with gas through TAP.

    Two confidential reports were prepared on behalf of the Ministry of Energy during the socialist government. One of the studies was conducted in June 2017 by the German consulting company Roland Berger.

    In the analysis of the commercial model and future ideas for the Vlora Thermal Power Plant, the German consultant calculates that the rehabilitation investment of the TEC would cost 13 million euros (including the costs of converting to gas supply).

    On the other hand, another confidential report submitted to the World Bank by the British company Economic Consulting Associates outlines a plan for the gasification of the Vlora Thermal Power Plant through TAP.

    “10 million euros for repairing the cooling system and 3 million euros for the conversion cost of the asset to gas. Also, infrastructure for gas supply is required from the TAP exit point in Fier to Vlora,” the report details.

    Gjergj Simaku, an energy expert who has also held the position of deputy minister, says that Albania could have revitalized this strategic facility through TAP but lost this opportunity.

    “Specifically, it was requested that the TAP gas pipeline have an exit point solely for the TEC, but even for these exits for the TEC, a contract was requested to be renegotiated by TAP, with the aim for Albania to buy gas. However, Albania will not buy gas for the next 10 years because it did not sign this agreement when TAP became operational,” Simaku explains.

    The bill that had to be paid to put it into operation was much more favourable than what we currently have to pay for the floating power plants.

    “We could have paid around 15 million euros and put it into operation with gas, but we don’t have gas because the gas agreement with TAP was not made in time, and then in crisis, we found as an emergency solution the acquisition of two other floating power plants – which, for me, was the worst thing that happened due to outrageous costs,” he further argues.

    The conservation plan of the thermal power plant at that time suggested that putting it into operation after repairing the defect would only happen in a situation when Albania faces a crisis, but 2022 proved that this did not happen.

    The TEC was not operational even at the peak of an energy crisis that affected the world with uncertainty and stratospheric prices due to the Russia-Ukraine war.

    Albania imported 1.4 billion kWh of electricity, about 11% of consumption, with a total bill of 503 million euros. The average price paid for the energy to deal with the crisis was 305 euros/MWh, the highest ever recorded in history.

    “The thermal power plant could have produced energy at a price twice as cheap as import prices last year,” says Azmer Dulević, an electrical engineer.

    The Vlora Thermal Power Plant is designed to produce energy through oil combustion as well as through steam generated by oil combustion. In addition to operating with gas, engineer Klodian Gradeci, who has previously led important enterprises in the energy sector in the country, says that KESH could have utilized the TEC during the crisis of 2022 even with oil.

    “The TEC Vlora has a defect in the cooling system, which activates the steam turbine. The reason why the oil turbine alone could not be put into operation until 2021 was the very high cost of production and uneconomic feasibility,” he argues.

    KESH explains that if it were operational, the cost of producing energy with oil would go up to 180 euros/MWh, while it imported energy at almost double this price. On the other hand, the production of energy with natural gas is even cheaper.

    “The cost prediction with current gas prices could be 101-112 Euro/MWh. These costs are added to fixed costs, about 15 Euro/MWh,” says KESH.

    These costs are considered competitive by the Energy Regulatory Authority.

    “Now there is a possibility that the cost of production is competitive in the market. Situations have changed,” says Petrit Ahmeti, the chairman of the Energy Regulatory Authority.

    But the thermal power plant was not put into operation, neither with oil nor with gas.

    “Even more concerning is the fact that no one takes responsibility. Today we are facing facts that there is financial damage in the sector, and no one takes responsibility for this,” says energy expert Azmer Dulević.

    In March 2021, the Albanian government signed an agreement with the American companies ExxonMobil and Excelerate Energy to introduce liquefied gas into Albania, convert the Vlora Thermal Power Plant to gas, and build a new gasification terminal in Vlora.

    The Americans aimed for the project to start at the end of the year we left behind, but the fact is that we are still far from turning on the gas turbines. Until the gasification of the TEC, the facility will continue to spend millions, as it has done over the past decade.

    To cope with the energy crisis as a result of the Russia-Ukraine war, the Albanian authorities chose not to turn their eyes away from the Vlora Thermal Power Plant but to rent two floating power plants.

    According to the contract, the Albanian state will pay around 68 million dollars in rent for two years to the company Excelerate Energy, or, in other words, 94 thousand dollars per day.

    This figure is almost 5 times higher than the value of 13 million euros needed to put the Vlora TEC into operation.

    Despite the fact that Albania is no longer in an emergency situation and the floating power plants have not ignited the generators for a single day, the Albanian state will continue to fully pay the contract, artificially increasing the costs.

    Millions on maintenance

    Positioned in the Sodë Forest, just 6 kilometers from the city of Vlora, the thermal power plant doesn’t give the impression of a neglected facility. Otherwise known as the Vlora Thermal Power Plant, it commenced construction in 2007 and was intended to address Albania’s electricity deficit, particularly in the southern part of the country where there is a lack of energy producers.

    According to the Albanian Power Corporation (KESH), the owner of this facility, from 2012 until the end of 2022, the maintenance bill for the thermal power plant amounted to 150 million lekë per year (1.4 million euros per year). In other words, a total of around 16 million euros has been spent on maintenance, even though it has not been put into operation. (The Euro amount is calculated at the current exchange rate of 106 lekë).

    However, these are just a part of the hefty annual maintenance bill. The thermal power plant’s financial statements indicate that keeping it non-functional is burdening KESH’s budget with high annual losses.

    Its construction cost 130 million euros, and for the past ten years, it has been absorbing tens of millions of euros for maintenance. It was financed through a soft loan from the EBRD, the World Bank, and the European Investment Bank.

    From 2012 until the last balance sheet submitted to the National Business Center for the year 2021, maintaining the TEC outside of operation has cost the Albanians 5.8 billion lekë or 55 million euros.

    “In this case, the Tax Authority should have initiated bankruptcy procedures, given that, since 2013, TEC Vlora has been reporting losses, as well as negative financial continuity,” says Eduard Gjokutaj, a financial expert from the ALTAX organization.

    The largest losses come from depreciation and asset impairment expenses, a clear indicator that the investment is causing harm, and putting it into operation is imperative.

    The TEC has an installed capacity of 97 MW, with which it could produce up to 730,000 MWh per year, an amount that could cover more than half of the country’s annual electricity deficit. At the end of 2011, when it was completed, it accounted for 7 percent of the installed capacity in the country.

    A thermal power plant for the prolonged crisis

    During the entire 90s and 2000s, the country experienced a continuous electricity supply crisis. Domestic production became unpredictable, depending on rainfall, the distribution network was outdated, and a significant portion of consumed energy went unpaid. This situation led to frequent power outages. In that context, experts and policymakers were desperately seeking alternative energy sources.

    A portion of the alternative production would come from private hydroelectric plants, while another part would come from burning fossil fuels. “It was seen as a solution because we were in a crisis,” says Zana Guxholli, who was an economic advisor to the government at that time.

    “Generators were shutting down everywhere, and the distribution system was very weak.”

    The planning began in the early 2000s, and despite delays, in 2007, an Italian engineering company, Tecnimont, was contracted, bringing international experience in energy resources.

    Tecnimont would construct for KESH a so-called combined cycle power plant, as energy would be produced in two ways that complement each other: one turbine with 67 MW power would generate electricity from burning oil, and another with 30 MW would utilize steam created by heating used water to cool the oil turbine.

    Water would be drawn from the sea through a 600-meter-long fiberglass pipe with a diameter of 150 cm. It would be cleaned of debris, and salt would be removed in a reservoir at the thermal power plant complex. The water would cool the oil turbine during combustion and then be discharged into the sea through another equally long pipe, with a temperature change of no more than three degrees from the sea temperature, to avoid harming marine life – the fish.

    Tecnimont started construction in 2007 and had it ready in October, two years later. However, a sea storm damaged the pipes that carried water to the thermal power plant and discharged it into the sea. According to a report, the company blamed the subcontractors, a group of divers from Ortona, a city near Ancona, specialized in underwater construction.

    Tecnimont took it upon themselves to fix the issue. They hired another group of divers from Italy to repair the pipe, and it extended the project by about a year more. But shortly after completion in October 2011, another storm damaged the pipes and introduced sand into the plant. About 10% of the funds remained unutilized.

    At that moment, Albanian authorities and the company entered into an open dispute. KESH blocked the disbursement of the final payment, 10% of the contract value. Tecnimont denied responsibility and abandoned the works. The case is now in the International Arbitration in The Hague.

    “That power plant is now getting very old and is morally dead, meaning its control system has become expensive but not insurmountable,” concludes Gjergj Simaku, energy expert.

    Ky shkrim është pjesë e projektit që mbështetet financiarisht nga Zyra e Mardhënieve me Publikun e Ambasadës së SH.B.A. në Tiranë. Opinionet, gjetjet, konkluzionet dhe rekomandimet e shprehura janë te autor-it/ve dhe nuk përfaqesojnë domosdoshmërisht ato të Departamentit të Shtetit. / This article is part of a project that is financially supported by the Public Relations Office of the US Embassy in Tirana. The opinions, findings, conclusions, and recommendations expressed are those of the author(s) and do not necessarily represent those of the Department of State.