Tirana-Times-February-1-2013 LPA Law Firm Albania Company Formation

7/29/2019 Tirana-Times-February-1-2013 LPA Law Firm Albania Company Formation

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CMYK

TIRANA TIMESFebruary 1 - 7, 2013. Vol 8 / No 4 (399) www.tiranatimes.com Weekly L. 350 Euro 3

A Very SimpleAnswer Albanians Everestclimb in an

exhibition

Page 17Page 7

Five months ahead of the generalelections, Prime Minister SaliBerisha has undertaken anotherstep to reduce the tax burden forpeople receiving low wages.Speaking at a meeting with hisDemocratic Party MPs this week,Berisha said the 10 percentpersonal income tax, launched in2008 as part of a flat tax reform,

will be lifted for monthly wagesof up to 30,000 Lek (Euro 210).This is not only a 10 percentincrease in wages, but at thesame time huge support toenterprises and the labourmarket, said Berisha.

Govt to liftincome tax onlow wages aheadof elections

Continued on pages 5

Company Formation, Debt Collection,

Legal Due Dilligence, Employment,

Legal Assistance, Tax, Banking, Commercial Real Estate

LPA Law Firm

Rruga e Bogdaneve St. EuroCol Tower, 5th Floor, T irana, Albania

[email protected] www.lpalbania.com

Office: +355 4 48 05 499

EDITORIAL

CEZ case notuniversalThe failure of CEZ in Albania hasshown it can be tough for a

foreign company to do businessin this country, but the reasonsbehind the failure are specific tothis particular case, and other

foreign companies should not bescared to invest in the future.

Albanian authorities and Prague-basedCEZ Group have officially parted ways in

what will likely be a lose-lose situation for

both sides. Albania's reputation as a placewher e privat izat ions and foreigninvestments bring returns has beenchallenged. Albania and CEZ now face aprotracted arbitration fight overinvestments already made.

Continued on page 6

Continued on page 9

Albania-Azerbaijan

relations beyond

TAP

Central bank

cuts key interestrate to historiclow of 3.75%

Announcing the Bank of Albaniadecision to lower the key interestrate by another 0.25 percent,governor Ardian Fullani said themove was aimed at increasingsluggish consumption andinvestments by easing lending inthe national currency.

Farewell CEZWhat the Czech energy giants departure says about

the tough realities of doing business in Albania Pages 3,4

By Alexander A. ArvizuU.S. Ambassador to Albania

Interview with Ambassador ofAzerbaijan to AlbaniaRahman Mustafayev Page 8


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2 | TIRANA TIMES - FEBRUARY 1 - 7, 2013

NEWS

TIRANA, Jan. 31 - Peoplemovin, whichcovers migration flows around the world,reports that 1,438,451 Albanian citizenslive outside the country.

The figures from the Peoplemovin,which ag gregate s data from severalsources, show Albania has some 4.2million citizens, of which 2.9 million livein Albania.

Albanian authorities have no numberon the Albanian immigrants abroad andoften different figures are listed. Mostfigures come from neighboring Greeceor nearby Italy, though this is the first

time a global compilation has beenassembled.But it is also not clear whether all the

number given from the Peoplemovin areAlbanians who have migrated and stillhave the Albanian citizenship, or not. Insome countries they are forced to leavethe Albanian citizenship when they takeon another, like the cases of Austria andGermany for example.

The figures also show how manyAlbanians are in separate countries. Weknow that officially there are some676,000 Albanian immigrants in Greecethough in practice the figure could be upto one million as many of them have yetto get Greek documents.

Peoplemovin also shows that 522,647

Police seize drugsheaded for Italy

TIRANA, Jan. 26 - Police have seized

almost 1.5 tons of cannabis destined forItaly. The cannabis was found at aspeedboat near the northwestern

Albanian city of Shkoder, close to theborder with Montenegro. But police couldnot arrest any trafficker who managed toflee.

Preliminary investigation showed thatthe drugs would be taken to Italy, viaMontenegro.

Albania is considered a major transitzone for narcotics and the main providerof marijuana in Europe, according tointernational police reports.

Fighting drug traffic remains a toppriority for local police who regularly seizedifferent amounts from north to south.Nearby Italy and neighboring Greece arethe two main target markets for Albaniantraffickers but they also exploit otherneighboring Balkan countries to takedrugs to western Europe.

American flu arrives inAlbania

TIRANA, Jan. 29 - Albanian healthauthorities say that there have been fivecases of the dangerous new flu virusoriginating the United States.

They called on the health personneland also on the common people to takegood care of any suspected case. They alsosaid there is no room for panic as there isno epidemic but it is good to be vigilant.

Health authorities say there have beensome 13,000 people touched from thenormal flu virus and only five with the

AH3N2, the new strain.H3N2 is a subtype of the viral genus

Influenza virus A, which is an importantcause of human influenza. Influenza A

virus subtype H3N2 (also H3N2) is asubtype of viruses that causes influenza(flu). H3N2 Viruses can infect birds andmammals. In birds, humans, and pigs, the

virus has mutated into many strains.H3N2 is increasingly abundant inseasonal influenza.

Teenagers murdererget 25 years

TIRANA, Jan. 28 - The Durres districtcourt on Tuesday sentenced ShabanNorja, 81, to 25 years imprisonment forthe murder of the 18-year old Aishe Vata.

The murderer earned a lower of thesentence from life imprisonment to 25

years because he acknowledged that hehad committed the crime.

In October last year Norja killed Vataand then cut her head and hid it. Heclaimed that Vata herself had asked forthat after she had learnt she was pregnant.She had not agreed to stop the pregnancy.The old man and the teenager had anaffair which their families were not awareof. The crime was committed in Xhafzotajcommune in Durres district.

I do not know how I committed thatcrime. Only God ad me know how much Ihave repented, he said at the court.

The murderer was wearing a bulletproof vest during all the sessions of thetrial. His family members have totallyneglected him and have not been presentat all.

Tracking one third of Albanias

population that lives abroad

Al banians li ve in Ita ly , 91 ,128 inMacedonia, 83,018 in the United States,15,964 in Germany, 11,985 in Canada,3,712 in Turkey, 3,065 in Britain, 3,037

in France and 2,628 in Australia. Thereare Albanians in other countries as well.

Albanians are a small part of about 216million migrants worldwide.

TIRANA, Jan. 29 - Three Albaniansailors have been arrested and are on trialin Yemen accused of illegal ammunitiontrafficking, the local media reportedreferring to the Yemeni news agency.

Captain Ari Bakillari, officer MihalCangonji and mechanic Nezir Shahaj werearrested at the Yemeni port of Al Mukallain Dec. 19 last year together with twoIndian sailors and a Greek one with theEOS ship flagged in Moldova. It belongsto the Greek company Eos Navigation

SA administered from CoastersMaritime SA.The ship stopped there to get fuel and

provisions. After the arrest it was foundthat the ship was carrying 180 tons ofexplosives and ammunition taken fromMontenegro. The ship had come fromneighboring Greece and then it was taken

by the three Albanian sailors to go toMontenegro to get loaded with theammunition of Serb production based ona contract. The ship had started the trip

Three Albanian sailors in Yemen limboin July 17 and it reached Yemen in Dec.16. It aimed at reaching the Iraqi port ofUmm-Qasir.

Yemeni authorities said that the shiphad lost its way for five months. They alsoclaimed that the Albanian captain hadtestified contradictory things on theammunition load denying it was contraryto the local and international laws. The

Yemeni authorities said the ship aimed totake the load to suspect groups, thusendangering the rule of law at the

destination.The Albanian embassy in Saudi Arabiahas been in contact and is taking care ofthe three Albanians in Yemen.

The captains son in Albania has askedauthorities to take care of them througha letter he has sent to the senior offices.He has written that the ship had a legalload of ammunitionbased on the NATOlaws and a correct documentation.

He says has not received any answerfrom the authorities.

Captain Bakillari has been contactedby ph on e fr om th e Sh qi p da il ynewspaper telling his version. He saidthat this is an IMO load verified as legalfrom the international authorities too,adding they had moved to Greece,Turkey, Egypt, Aden in Yemen and thento Kenya. He said there has been noproblem with authorities in all thosecountries before reaching Yemen. Healso said that he had continuouslyreported to the NATO office and

Interpol during the trip.Bakillari also said they could not havea lawyer in their trial, but only atranslator from English. It is onlyBakillari who understands a little ofEnglish among the three. They could not

be contacted from the journalists too.They feel abandoned at a time when theGreek and the Indian diplomats aretaking good care of their citizens. No onefrom the Albanian diplomats hascontacted them, he said.

TIRANA, Jan. 26 - Last week, the

European Bank for Reconstruction andDevelopment , or EBRD, announced thatit was supporting the development of theleasing sector in Albania with a five-year1 million euro loan given to Landesleasethat would expand its services to smalland medium-sized enterprises (SMEs).

EBRD supports leasing in AlbaniaThe reasons for the loan -- when

businesses continue to face limited accessto bank loans, thus serving as an alternativefunding source for the development ofSMEs -- is another sign that the country isin a critical moment for its finances,despite government words that they aredoing fine. The transformation of this small

economy definitely needs funding support

as it is still at an early stage of development.Since 2005 when it was launched theLandeslease is the second-largest leasingcompany in Albania focused on small andmedium-sized companies. It has used theleasing of vehicles, equipment andmachinery.


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TIRANA TIMES - FEBRUARY 1 - 7, 2013 | 3

COVER STORY

Farewell CEZTIRANA - Feb. 1, 2013

Last October, hundreds of drivers onthe main four-lane highway linkingAlbania with Kosovo were stuck near thecity of Kukes for several hours, asresidents from the nearby villages blockedthe road, angry that the powerdistribution company, CEZ Shperndarje,had cut off their electricity, citing non-

payment of bills. Some protesters saidthey had paid the bills. Others said they

were too poor to do so. Nonetheless, therehad been a collective cutoff. Theprotesters invaded the local powerdistribution station, which forced thecompany to shut off the power to theentire city, over safety concerns at thestation. The situation went back to normalonly after the company was forced to turnthe power back on for everyone. Theoverdue bills simply went unpaid.

This was just one of many similarincidents the Czech state-owned CEZGroup faced in the last few months as ittried desperately to save its business in

Al bania, CEZ Sh perndarje, whic h

managed Albanias power distributionsystem. CEZ went as far as switching offpower to public companies like watersupply systems which had not paidtheir bills an action that landed someof the companys employees in policecustody and forced the Albaniangovernment to resort to a court order toforce the company to back off, arguingCEZ had committed an unprecedentedact which severely compromises citizenssecurity, public security and the countrysnational security.

Within weeks, the verdict was in CEZwanted out putti ng it s Al banianbusi nes s up for sale . For CEZShprndarje was not acceptable toconstantly subsidize Albanian citizens

and state institutions, which are not usedto pay for their electricity bills, BarboraPulpanova, a spokeswoman for CEZGroup, tells Tirana Times.

And the Albanian authorities angrythe Czech company had failed to fulfill itscontractual investments and increasepayment levels wanted CEZ out too.The Energy Regulatory Entity, ERE, tookaway CEZ Sherndarjes license and placeda state administrator at the helm of thecompany. In effect, authoritiesnationalized CEZ Shperndarje, the firsttime in post-communist Albania this hadhappened to such a large company.

EREs head, Sokol Ramadani, said thecompany was being stripped of its license

bec aus e of not ful fil lin g con tra ctu alobligations, plunging the system intocollapse and risking massive power cuts.He identified CEZs failure to cover itsrising grid losses with imports as the keyreason for the removal of the license.Since September 2012, when CEZdeclared its financial inability to carry out

its compulsory power imports, state-runpower corporation KESH was forced tocarry out all imports, a situation whichfurther deteriorated the utilitys financesand forced government to award severalloan guarantees to secure power supply.

CEZ Shperndarje is responsible fordamage caused to ERE, the Albaniangovernment and market operators. TheCouncil of Ministers is charged withimmediately acting on the expropriationof CEZ Shperndarjes assets at a faircompensation under procedures foreseenin the law on expropriations andtemporary takeover of private propertyfor public interest, EREs commissioners

wrote in their decision.The dispute is now headed for

international arbitration, because theCzech company says it doesnt trust thelocal courts to deliver a fair verdict, apractice in line with what major investorsdo in many other countries as well.Prague-based CEZ Group says it is veryoptimistic it would be successful at thearbitration court asking for some 200million euro in lost investments.

No matter the outcome, the case of CEZand the realities it faced in Albania will

be a case study for years to come both forforeign companies wanting to do businessin Albania as well as for futureprivatizations and Albanian joint ventures

with large foreign investors. While thesaga might be over, independent experts

say the outcome appears clear:Independent experts note some of thelearned lessons include:Doing businessin Albania is no picnic, and often thingsuniversally understood and accepted in adeveloped economy dont function in

Albania. But they also note CEZ is notentirely innocent in the affair, failing to

deliver on promised investments andunable to navigate Albanias culturalissues any better than when the company

was state owned.

The sweet deal that turned sour

It wasnt supposed to be this way. WhenCzech energy giant CEZ arrived in Albania

back in 2009 to take over the countryspower distribution network by purchasingthe state-owned monopoly, OSSH, thesale promised millions for state coffersand massive improvements to Albaniasproblematic power distribution network.CEZ would give 102 million euros for 76percent of OSSH and promised 400million more in investments to the grid.

Plus, Albania gained a major, credibleforeign investor with billions of euros incapital.

Almost four years later, much of thepromised investment never materialized,and there was a major public spat betweenthe company and the government eachaccusing each other side of owingmillions. The Albanian government saysCEZ owes state-owned power corporationKESH and transmission operator OSTaround Euro 300 million in unpaid bills.CEZ also claims Euro 165 million eurosfrom Albanian state institutions, of whichEuro 38 million by water supplycompanies.

Finance Minister Ridvan Bode had

earlier warned government wasconcerned because of CEZs performancenegatively affecting public finances andthe budget. The government awardedKESH Euro 14 million from itscontingency funds in early 2012 to makeelectricity imports and Euro 40 millionfew months later and is also negotiating

with the World Bank over a new USD 100million loan to cash-strapped powercorporation to secure electricity imports.

CEZ says this was an Albaniangovernment problem and it should havenot been burdened on the foreigninvestor.

The situation in Albania got morecomplicated early last year when, due tothe drastic drought of last year, the

Albanian state-owned company KESHhad to import power from abroad formuch higher prices, which brought it onthe verge of bankruptcy, says Pulpanova,adding the Albanian government had togive KESH money to keep it afloat. Thelocal government tried to resolve thesituation with a decision unprecedentedin Europe: All costs were placed on theshoulders of the foreign investor, CEZShprndarje, she added.

The Albanian authorities focus onother items as well. In its detailed reportof 110 pages over CEZs violations, EREidentifies that consumers complaintsfiled over overbilling, and economicdamage climbed to 1,720 in 2012 up from350 in 2010 and 1,019 in 2011. ERE saysthat grid losses at the end of 2012 climbedto around 45 percent, higher than 32.7percent at the end of 2008 when thedistribution system was under statemanagement. Under the regulatory

agreement approved by ERE, grid lossesshould have dropped to 24 percent at theend of 2012. CEZs investments during thepast two years also failed to meet settargets. CEZ invested around 2 billion lek(Euro 14 million) in 2011 and 934 millionlek (Euro 6.5 million) in 2012 fulfillingonly 39 percent and 14 percent of theannual targets respectively.

Political consequences

When CEZ arrived in Albania back in2009, the Czech Republic held therotating presidency of the EuropeanUnion, and Albania had just officiallyapplied for membership. Such a large

Czech investment in Albania appeared tobe an excel lent match of political andeconomical interests intertwining.

Fast forward to 2013, and revocationof the license of CEZ has sparked angerin Prague which has said it will hurtTiranas chances of joining the EuropeanUnion.

Czech Prime Minister Petr Necaswarned the move by Albanian regulatorswould hurt Tiranas chances of joining theEuropean Union and gave hisgovernments full backing to CEZsdecision to seek financial arbitration overthe dispute.

I see the removal of a license fromCEZ, the largest Czech investor in theregion, by the Albanian authorities as a

very negative signal for the traditionallyvery good and friendly relations betweenthe two countries, Necas told reports.For membership in the European Union,

Albania must show that it is a state whichrespects the rule of law and observes the

What the Czechenergy giantsdeparture saysabout the toughrealities of doingbusiness in Albania

Continued on page 4


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NEWS

basic rules which govern the standardmarket environment. The report worried

Al banian authorit ies enough to

immediately call the Czech ambassador toTirana for a meeting.Albanian Deputy Prime Minister and

Energy Minister Edmond Haxhinastosaid the very good relations between thecountries should be separated from theproblems of the commercial dispute. Afterthe meeting with the Czech ambassadorhe added: Every call to mix these twoproblems is damaging and does not helpanybody.

A tough business environment

But in addition to likely financial lossesfor both Albania and CEZ, the break upcarries perception costs that cant beimmediately calculated. It tells a lot about

the difficulties of doing business inAlbania and the state of the country sdevelopment, something prospectiveforeign investors will likely weigh in.

CEZ says its case is a negativecommentary for the case to invest in

Albania.For foreign investors this is a clear

signal that in Albania is unstable andunpredictable business environment,says Pulpanova, the CEZ spokeswoman.

Senior government officials also admitthat the failure of such a large strategicprivatization doesnt look good for

Albania, but that this was a unique case.The departure of a big investor such

as CEZ is not good news. It was an

investor which could have helped us in theelectricity area, but they showed they didnot meet criteria in performance andrevenues. We cannot risk the Albaniansinterest for the sake of a reputablecompany, Finance Minister Bode said ina recent interview with and Albaniantelevision.

Pavel Cyrani, the chief strategy officerat CEZ Group says Albania was theexception to the rule of other CEZinvestments in the Balkans

It is important to mention that the

overall performance of foreignacquisitions is excellent. CEZ has alreadyrecouped 71 percent of its investment. Forexample, CEZs efforts in optimizingoperating costs and reducing grid lossesin Bulgaria and Romania weresuccessful, he said in an interview withPrague Post.

EU experts note that many of theproblems Albania faces demand a culturalshift. The laws on the books might be upto par with EU standards, but theirimplementation often is not.

Local experts also note that culturalshift is nowhere more evident that 40 to50 percent of the electricity in Albaniagoes to network losses a large portionof which is electricity which is used butnot paid for. Many parts of the countrysimply use the energy without paying hiding behind improper infrastructure or

corruption. As a result, many Albanians families and institutions do not paytheir electricity bills either because they

cant afford to do so, or because they claimthey are owed money themselves,Albanian analysts note.

The CEZ situation is also a hot potatofor the government which entering anelection year is unwilling to do anythingthat would upset potential voters.

But at the end of the day, it was adispute about money, and running aprofitable business that led to the divorce.

The Albania Government claims thatCEZs failure to fulfill its contractobligations over imports, investments andreducing grid losses has caused the stateUSD 1 billion in damage which willprobably end up as a claim when thedispute is examined by an internationalarbitration court. CEZ says it haslaunched legal steps to activate a 60million euro ($76.8 million) guaranteeissued by the World Bank for its power-distribution operations in Albania. CEZreceived its guarantee from the WorldBank, already active, as an incentive totake over Albanias OSSH powerdistributor in 2009.

Cyrani told the Czech newspaper thatfinancial pressures from authorities notallowing to reflect higher energy costs inthe prices for Albanian consumers as wellas banning the company from effectivelycollecting even the low payments forsupplied electricity when police forced itto reconnect state-owned waterworks thathave long failed to pay their electricity

bills.Such a situation is not at all

sustainable for us. Our team has been andstill is working very intensively to solvethe situation in Albania, but the behaviorof the Albanian side is veryunpredictable, he said.

Farewell CEZ

CEZ Shperndarje issued several publicity campaigns trying to convince Albaniansto fully pay for their bills. Screen grab from the companys website.

Continued from page 3

TIRANA, Jan. 29 U.S. Ambassadorto Tirana Alexander Arvizu on Tuesdaymet with the leadership of the Red-and-Black Alliance Party, urging them tofocus on patriotism instead ofnationalism. The ambassador said theaim is to stop further nationalisticrhetoric, which is exploited for politicalpurposes.

The partys leader, Kreshnik Spahiu,and his political grouping started apetition on the 100th anniversary ofindependence asking for the union of

Albania with Kosovo. They have handedit over to the Central ElectionCommission with a request to hold areferendum.

Despite harsh rhetoric protecting the

interests of Albanians in relations withGreece and Serbia, the RBA has made itclear it doesnt want any conflict with

Albanias strategic international allies --the United States and the EuropeanUnion.

Political competition is good; in anydemocracy you need to have politicalcompetition, said Arvizu. We alsotalked about the importance of anyresponsible political party in Albania and

U.S. urges end to nationalist rhetoric

its obligation to continue what iscritically important to the United States and that is to continue to be a force forstability and moderation in the region. Iurged Mr. Spahiu in the sense thatpatriotism is a good thing, but its

important in your platform and in youragenda to avoid the temptation to slipinto nationalist rhetoric, which cancounter the stability and the moderationthat we talked about.

Prime Minister Sali Berisha has

escalated his own national rhetoric inrecent weeks, prompting concern among

Albanias neighbors and allies. Analystssay the rhetoric is tied to theparliamentary elections, which are lessthan five months away.

U.S. Ambassador Alexander Arvizu met with Kreshnik Spahiu, leader of the Red-and-Black Alliance Party, urging him to focus on patriotisminstead of nationalism


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NEWS

Govt to lift income tax on lowwages ahead of elections

Prime Minister Berisha saysthe 10 percent personalincome tax, launched in 2008as part of a flat tax reform,will be lifted for monthlywages of up to 30,000 Lek(Euro 210)

TIRANA, Jan. 29 - Prime Minister SaliBerisha used his Facebook page to againpush the idea of holding a referendum

whether the thre e remaining la wsrequired from the European Union rulesshould be approved.

The three draft laws have remained notvoted in parliament because they need thevotes of the opposition, or three-fifth ofthe 140-seat parliament, which cannot bereached without the opposition.

The opposition says that before votingthose laws the government should applythe existing ones and refers to the

violation of the court laws for a conflictof the local power in the southwestern cityof Fier. They say Europe needs more theapplication of the laws rather than passingon paper new ones. The Socialists havesaid they will vote the laws in after theJune elections.

TIRANA, Jan. 29 - Five months aheadof the general elections, Prime MinisterSali Berisha has undertaken another stepto reduce the tax burden for peoplereceiving low wages. Speaking at ameeting with his Democratic Party MPsthis week, Berisha said the 10 percentpersonal income tax, launched in 2008 aspart of a flat tax reform, will be lifted formonthly wages of up to 30,000 Lek (Euro210). This is not only a 10 percentincrease in wages, but at the same timehuge support to enterprises and thelabour market, said Berisha, admittingthat the initiative will mostly help theprivate sector, especially the garment andfootwear industry which employs morethan 60,000 people as wages in the publicsector overwhelmingly stand above

30,000 lek.Commenting on his Facebook profile,

Prime Minister Berisha said some200,000 private sector workers and15,000 public sector employees would

benefit from the removal of the 10 percentpersonal income tax, equal to one extramonthly wage.

Reacting to the Prime Ministersproposal, the opposition Socialist Party

which has int rod uced a pro gressivetaxation system in its electoralprogramme, said the Prime Minister wascopying part of the SPs programme.Urging the Prime Minister to apply a fullprogressive taxation for wages, theopposition said fair taxation means that

whoever earns les s wil l pay les s andwhoever earns more will pay more. Theopposition Socialist Party has proposed aprogressive taxation system to replace the

10 percent flat tax in an effort to lowertax burden for people with low income.

Albania has been implementing the 10percent flat tax on salaries and corporatetaxes since 2008 in an effort to improve

business climate and attract more foreign

direct investment. However, data showthe implementation of this tax has hadminor impacts during the past few yearssince government revenues from this taxhave increased by only 8 percent in the2008-2011 period.

In the first 11 months of 2012, personalincome tax was up only 0.8 percent butdown 5.9 percent compared to set targets,according to Finance Ministry data.

Employees receiving low wages will stillhave to pay a compulsory 11 percent insocial security and health insurance.Social security contributions currentlystand at 24.5 percent, of which 15 percentis paid by employers and 9.5 percent byemployees. Meanwhile, health insurancecontributions are at 3.4 percent, shared

by 1.7 percent between employers andemployees.

INSTAT data show the average

monthly wage for people employed bothin the private and public sectors was at34,767 lek in 2011. The average wage inthe public sector climbed to 46,655 in2011 while since mid-2012 the minimummonthly wage stands at 21,000 lek. The

public sector provides only 17.7 percent

of total employment in Albania. Theprivate non-agricultural sector accountsfor 27.6 percent while the privateagricultural sector has a 47 percent share.

The official unemployment rate waskept at almost the same levels 13.3 percentlevel only thanks to the private sector

which in the third quarter of 2012, thepeak of the tourism season, hired an extra10,688 people compared to the previoussecond quarter taking the total numberof employees to 272,667.

The proposal by the Prime Ministercomes soon after the ruling Democratsapproved last December a new fiscalpackage which lifts VAT on investmentsin priority sectors, reduces taxes on coffeeimporters and tightens measures againstinformality.

Government had earlier decided to liftthe 20 percent VAT on imports ofmachinery and equipment as well ascement and steel for the construction ofhydropower plants.

The 20 percent VAT on importedmachinery and equipment will be liftedonly for investments of Lek 50 mln (Euro351,000) or more. The changes wereapproved in Parliament on December 20and are expected to enter into force

starting from next January.

Prime minister pushes for referendum on integrationBut Berisha and his governing

Democratic party insist that they shouldbe voted before the polls and blame theopposition of acting stalling countrysintegration.

Alba nia ha s applied for the EUcandidate status since 2009 but it has gotnegative responses from Brussels that hasset a number of laws and reforms to bepassed. It is also clear now that holdingfree and fair elections in June is offundamental importance to the

integration steps.Experts note Berisha is using the lawsas part of the electoral campaign. It is notclear if that is what is holding up theintegration process, as EU will likely alsofocus on what happens in the upcomingparliamentary elections, which are alwaysproblematic in Albania.

CMYK


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TIRANA TIMESAn independent Albania-basedEnglish-language newspaperPublished by THNEGEL Ltd.

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EDITORIAL

CEZ case not universalThe failure of CEZ in Albania has shown it can be tough for a foreign company to do business inthis country, but the reasons behind the failure are specific to this particular case, and other

foreign companies should not be scared to invest in the future.

Albanian authorities and Prague-basedCEZ Group have officially parted ways in

what will likely be a lose-lose situation forboth sides. Albania's reputation as a placewher e privat izat ions and foreigninvestments bring returns has beenchallenged. Albania and CEZ now face aprotracted arbitration fight overinvestments already made.

No matter the outcome of theinternational arbitration, the case ofCEZ and the realities it faced in Albania

will be subject of study for years to comeboth for foreign companies wanting todo business in Albania as well as forfuture privatizations and private

Al ba ni an jo in t ve ntur es wi th la rg eforeign investors.

CEZ will be an example of the fact thatdoing business in Albania is no picnic, andoften things universally understood andaccepted in a developed economy - legalenforcement on payment of bills andcredit worthiness of customers - don'tfunction as well in this country as they doelsewhere.

But CEZ, which has been successful indoing in places like Romania and Bulgaria

what it couldn't do in Albania, is notentirely innocent in this affair. It failed todeliver on promised investments andproved unable to navigate Albania'scultural issues any better than when thecompany was state owned. Complaints of

unfair billing practices jumped and lossesspiked after the private company tookover, authorities note.

That is not to say the company is toblame that many Albanians still don't seeelectricity as a good like anything else,

which comes at a price that must be paid.Albanian authorities were also not assupportive as they should have been.

Both Albania and CEZ were alsounlucky. Drought and the heavy relianceon hydro-electric power productionnegatively affected the entire chain in thepower supply. State-owned powerproducer KESH nearly went bankruptand the government had to bail it out.Privately-owned monopoly CEZ,sandwiched between KESH andconsumers, understandably did not wantto share any of the burden.

But perhaps the more worrying factorhere is the political one. The Czechgovernment, which owns CEZ Group andon which CEZ yields immense power, has

warned the move by Albanian regulatorswould hurt Tirana's chances of joining theEuropean Union. (CEZ is so powerful inPrague, the Czechs sometimes jokinglycall their country the CEZ Republic,according to The Economist.) Mendingfences with Prague might be hard forTirana, but the decision to boot CEZ out

was cle arl y a calcu lat ed ris k for theAlbanian government. It simply couldn't

afford the losses the relationship with CEZwas leading to. The Albanian governmentsays it aims to keep politics and theeconomy separate, but in this case theyare not.

At th e end of the day, it is theperception of Albania as an unstable andunpredictable place to invest that should

wor ry Al banian off icia ls mor e th ananything. Losing a strategic privatizationdoesn't look good for Albania.

However, CEZ was a unique case - amonopoly that was part of the life of every

Albanian family and institution - andwhich fac ed a very specif ic se t ofcircumstances in Albania's complicatedenergy sector.

Other privatizations have gone farbetter. A huge example is Albtelecom, theonce state-owned telephony monopolyprivatized by a Turkish group. UnlikeCEZ, Albtelecom has thrived in Albania,transforming Albania's access to internetand landlines with far better services than

when it was state-owned. This, despitefacing high competition from smallercompanies.

The failure of CEZ in Albania hasshown it can be tough for foreigncompany to do business in this country,

but the reasons behind the failure arespecific to this particular case, and otherforeign companies should not be scaredto invest in the future.


7/24


OPINION

ByALEXANDER A. ARVIZUU.S. Ambassador to Albania

Alba nia ce le br ated its 100thanniversary in November. It was a timeto be proud, a time for reflection on thecountrys success in overcoming greatturmoil to become a NATO member andEU aspirant. Now, as Albanians lookforward to the June 23 Parliamentaryelections, we stand at the beginning of anew chapter in Albanias history -- onethat should be defined by flourishingdemocracy indisputably built upon the

will of the people. Trav eling arou ndAlbania, I find common themes in myconversations, regardless if it is inShkodra or Gjirokastra, Vlora or Elbasan.

Albanians are worried about real issues -- employment, providing for theirfamilies, health care, education,environmental degradation, and crime toname a few. Many have complained tome that the political leadership (and herelet me be clear respondents speak of boththe ruling coalition as well as the

ByEastern ApproachesEconomist.com

FOR theDaily Mail, a populist Britishdaily prone to anti-immigrant rhetoric, arecent report by MigrationWatch, a lobbygroup, was grist to the mill. It said thatstarting in 2014after the lifting ofEuropean Union (EU) restrictions onRomanians and Bulgarians working in EUcountriesRomanians and Bulgarians

will add between 30,000 and 70,000 toBritains population in each of the next

five years. It also warns that the Roma area wild card in connection with futuremigration from these countries.

TheDaily Mailalso pounced on therecent admission by Oliver Letwin, aBritish government official, that he didnot know how many will be coming whenBritain fully opens up its labour marketto Romanians and Bulgarians. BeforePoland became a member of the EU in2004, the Home Office, Britains interiorministry, predicted that between 5,000and 13,000 Poles would come to Britainevery year. Within two years 264,560 hadarrived. This time the government hasrefrained from making a forecast.

On January 16th Stewart Jackson, aconservative member of parliament,presented a bill calling for limits to beimposed on the immigration process forRomanian and Bulgarians coming toBritain. We dont want to make the samemistake that we made in 2004, which wasto import a very large number of low-

wage, low-skil l wor kers and emb ed

A Very Simple Answeropposition) seems solely focused onpersonal or party interests rather than onsolving these widespread problems. As

Albanians prepare to embark on this newchapter, one element of change seems torise above all others in terms ofimportance: the way elections areconducted in Albania, specifically theneed to shift focus on the people, withgovernment institutions and politicalparties serving the peoples interests.

When Secreta ry Clinton addr essedparliament, she made one clear plea toelected officials in the audience to ensurethat the upcoming elections are free andfair, and seen as such by the world, so thatthe people of Albania can have faith in theresults and democratic institutions, andtrust in their leaders. Democracy is not aconcrete bunker that isolates the politicalleadership from the people. On thecontrary, elected officials have theobligation to serve in a responsiblemanner and to use their positions ofpower to benefit all citizens. Leaders mustearn the peoples trust through atransparent, free and fair process.Furthermore, political parties behaviordirectly impacts the publics confidencein the election. As Albanias moststeadfast and enduring internationalfriend and partner over the years, theUnited States calls on the government andall political parties to focus onstrengthening the publics faith in the

electoral process and trust in theirleaders.Let me state a simple, painful truth:

public faith in the electoral process is low.Consequently, so is ours. In a strongdemocracy, the government and politicalparties have a responsibility -- make thanan obligation -- to earn the trust of thepeople. They can do this by cooperating

wi thin el ectora l inst ituti ons, bydeliberating avoiding political trickery,and by abstaining from destructive andinflammatory language in public rallies orparty literature. Messages that threatenother individuals or incite violence in anyform will only erode the confidence thatcandidates and parties are willing to worktogether. The legitimacy of anygovernment resulting from the nextelection will depend on how the parties

behave during the coming months.The government has the solemn

obligation to act accountably,transparently, and impartially. This is akey tenant in the Copenhagen criteria,

which defines whether a country is eligibleto join the European Union.Furthermore, the government must beinclusive and nonpartisan in theinstitutional decision making. The rulingparty has the responsibility to encouragetrust by actively seeking consensusthrough compromise and dialogue. Noless important, the opposition mustcommit to participating constructively in

the process, and avoid threats to block orto boycott. Everyone is responsible forcooperating fully with law enforcementand other agencies to promote thesecurity and integrity of the electoralprocess.

When I think about Secretary Clintonsspeech, one particular passage stands out.She explained that people frequently askher how she could work with PresidentObama after having fought so hard againsteach other in the 2008 Presidentialcampaign. Its a very simple answer, shesaid, we both love our country. Love forcountry means putting national interestsabove party interests. It means doingeverything possible to keep partisanpolitics out of electoral institutions. Lovefor country means voting freely andresponsibly. Love for country is borne ofactions, not words, with an eye toward thenext 100 years of nation building. WithJune 23 soon approaching, I call on all

Albanians to start a new chapter withthese elections, to put aside individualand party interests, to insist onaccountability from the political class.More than anything, I appeal to you toaccept individual responsibility formaking this happen. For only individual

Albanians putting Albanias interests firstcan build the just, democratic society that

will make present and future generationsof Albanians justifiably proud. And make

Albania the country you love.

EU and immigration: Fear-mongering

welfare dependency in our indigenousworkforce, he said . In a speech las tmonth, Theresa May, the home secretary,said that migration puts downwardpressure on wages and has a bad influenceon the social cohesion of the country.

Mr Stewart and Ms May omit tomention the positive effects of the last biginflux of workers from new EU membercountries. It was vastly higher thanpredicted, but it was also more successfulthan forecast. According to a studyconducted by The Migration Observatoryat the University of Oxford, migrants fromso-called A8 countries (the eight countriesthat joined the EU in 2004) made apositive contribution to the countrys

public finances in each fiscal year sincetheir EU accession. Although they mostly

work in low-wage jobs, their labour-forceparticipation and employment rates tendto be higher than average, which offsetsthe impact of their lower wages.

A numbe r of studies sh ow thatimmigrants are slowing the ageing ofBritains population. And despite thepopular belief that a new wave ofimmigrants will increase unemployment,the National Institute of Economics andSocial Research says there is no aggregateimpact of migration on unemployment.

Perhaps most importantly, Britaintoday is less attractive to would-beimmigrants than it was ten years ago. In

2004 only Britain and two other countriesdid away with almost all restrictions for

workers from A8 countries. Because it wasthe largest economy of the three and itseconomy was booming, Britain became amagnet for them. This time, all EUcountries are opening their labourmarkets Romanians and Bulgarians. AndBritains economy is in dire straits.

Titus Corlean, Romanias minister offoreign affairs, believes the figures beingcirculated in the British pressfor thenumber Romanians who will immigrate

to Britain next year are wildlyexaggerated. According toMrCorleanthe issue has become aBritish domestic political game, kindled

by the United Kingdom IndependenceParty, an insurgent outfit devoted toBritains withdrawal from the EuropeanUnion. He is relying on the Britishgovernment to respect what is written inthe European Treaty for the accession ofRomania, that from January 1st 2014there will be a free access for Romaniansto the labour market in Britain.

Surveys show that immigration is oneof Britons biggest concerns. A report byBritish Future, a think-tank, has revealedthat people worry more aboutimmigration as a national than a localissue. Its State of the Nation poll foundthat 19% chose immigration as a top local

worry while 30% placed immigration firstwhen thinkin g about tens ions facingBritish society as a whole. This suggeststhat immigration is more a problem ofperception than of reality.


8/24


CMYK

INTERVIEW

Mr. Ambassador, Minister of youth andsports of Azerbaijan Azad Rahimov

recently paid an official visit to Albania.What was the purpose of this visit?

This visit should be considered asanother concrete and important step in theprocess of strengthening comprehensivecooperation between two our friendlycountries. So the main purpose of the visit

was to open another one dire ction inAzerbaijani-Albanian cooperation agenda,to establish legal basis for cooperation inthe fields of youth and sports, to promotedirect contacts between national sportiveand youth associations and organizationsand implement concrete projects andprograms in these fields.

In recent years Azerbaijan achievedgreat success in the field of sports and

youth., can you tell us a little more aboutthis?

Yes, you ar e right. Aze rbai ja n ha sbecome a recognized leader in the worldsports movement, one of the leadingEuropean countries in terms of the numberof international sportive events, heldnationwide.

For example, the year 2012 has beenvery successful for Azerbaijani athletes. In2012, they won more than 700 medals in

va riou s inte rnat ional compet it ions ,including 255 gold. Our country has hosteda number of prestigious internationalcompetitions. Among them, I want toemphasize the World women football cupU-17. The presidents of FIFA and UEFAhave both praised the championship held

in Azerbaijan as one of the most successfulchampionships. Of course, speaking aboutsports events of 2012, we cant but mentionthe London Olympic Games. In theseOlympics, our athletes have achieved thegreatest success, delighted all our peopleand succeeded in making Azerbaijan oneof the leading sporting nations. Tenmedals, including two gold, two silver andsix bronze this is our historicachievement. It is the 30th place in the

world, and the 15th - in Europe.On December 8, the session of the

General Assembly of the EuropeanOlympic Committee in Rome decided toaward the first 2015 European OlympicGames to Baku. This is also a historicdecision. First of all, these will be the first

European Games. Although the Olympicmovement historically originated in theEuropean region and the modern revivalof the Olympic Games also occurred on theEuropean continent, European OlympicGames have never been held before. Thefirst such games are a serious step, aturning point in the Olympic movement.

Albania-Azerbaijan relations beyond TAPOpening new areas for bilateral cooperation

The fact that these Games have beenentrusted to us, that we have been giventhis responsibility, of course, is an eventof great historic importance. If you add tothis, that in 2016 we wi ll host World ChessOlympics and in 2017 - Islamic SolidarityGames, you will understand, that

Azerbaijan plays increasing role in worldsports movement.

At the same time, we have continuedefforts to develop the sports infrastructure.The number of Olympic sport centers builtin different regions of Azerbaijan hasreached 35. The construction of eight othersportive complexes is under way.

All these achievements are the result of

the great attention given by the governmentand the president of the country to thedevelopment of sports and transformationof Azerbaijan into a truly sporting country.In general, this particular field of sportiveactivities plays increasingly important rolein social and economic life and developmentof our country. And we are ready to shareall these achievements and experiences withour Albanian colleagues.

As far as youth movement is concerned,I would like to mention, that the Presidentof the country approved in 2010 stateprogram "The youth of Azerbaijan in 2011-2015", which plays important role of all-embracing national program fordevelopment of national youth movementand youth organizations, assistance in

implementation of different youthprograms in social, economic and culturalfields, opening of "Youth centers" indifferent regions of Azerbaijan (till now 18centers were opened and another 15 areunder construction), promotion ofinternational cooperation of Azerbaijani

youth organizations.

So, what are the results of thevisit, what can we expect in thissphere of bilateral cooperation?

First of all, our delegation,headed by Minister A. Rahimov,had very fruitful meetings anddiscussions with Prime MinisterS. Berisha, Speaker theParliament J. Topalli, Minister A.Bumci, Mayor of Tirana L. Bashaand the Rectors of the Universityof Tirana D. Kule and Universityof Sports of Tirana V. Rizvanolli,during which wide range of

bilateral cooperation issues andconcrete projects in the field ofyouth and sports were discussed.

Important fact is that the legalbasis for partnership in this fieldwa s es ta bl is he d, and inter-ministerial Cooperation Programin the field of youth and sports for2013-2015 was signed. Thisdocument will provide forstrengthening of cooperation

betw ee n re lative sportinstitutions, National SportsFederations and NationalOlympic committees of twocountries, promote the realizationof joint youth activities.

During our meeting at theUniversity of Tirana we haveagreed with our Albaniancolleagues on implementation of

"What do I know about Azerbaijan" essaycompetition among the students of theUniversity. The idea of this project is tosend 10 winners of this contest to

Azerba ijan for cultural tourism. This isjoint project of ministries of Youth andSports and Foreign Affairs, which have

been alre ady real ized in more than 15countries of Europe, Asia, Middle East and

Af rica am ong the students of 40universities, academies and colleges. Thisproject proved to be a very efficientmechanism for youth and culturalexchanges, strengthening relations

be tw een young people of di ffer entcountries. And we hope that Albanianstudents will successfully join this project.

Last year was marked by high activityin the development of bilateral relationsbetween our countries. What are the plansof your Embassy for 2013?

Indeed, we are really witnessingstrengthening bilateral political relations

between Azerbaijan and Albani a in thecourse of 2011-2012. Our countries areopening to each other more and more, and

you are right, last year was very active andsuccessful in terms of high-level visits andstrengthening of legal basis for cooperationin different areas. We had arranged with our

Alban ian col leagu es off ici al visit toAzerbaijan of Prime-minister of Albania andworking visits of 3 Albanian ministers to

Baku, as well as official visits to Albania ofthe Speaker of our Parliament (Milli Mejlis),minister of economic development andminister of culture and tourism of theRepublic of Azerbaijan.

As a result of this activity, we elaboratedsolid agenda of bilateral relations,

comprising of political, economic, energy,cultural and even city-to-city cooperationissues. Establishment of legal basis of ourcooperation is also under way - we have 6

basic agreements signed, and 8 are in theprocess of consideration. At the end of last

year we arrange d in Tirana - with thepartnership with the Ministry of tourism,culture, youth and sports of Albania -concert of Azerbaijani music, performed byour famous jazz pianist Emil Afrasiab andhis group, which opened to local audienceand music-lovers the world of Azerbaijaniclassical and jazz music. So, all these visitsand events proved once more, that our

countries have serious intentions todevelop bilateral relations in all areas, andthat Baku and Tirana consider each otherimportant partners at present and for longfuture.

In the year of 2013 we plan to keep thispositive trend in our relations with morefocus on implementation of concreteprojects and programs. We have in ourschedule for the first half of this yearofficial visit of deputy prime-minister,minister of economy, trade and energy, Mr.Haxhinasto, to Baku with the aim atdiscussing concrete projects in the fieldsof economy and energy. We also hope that

Albani an delegati on head ed by theMinister of tourism, culture, youth andsports will take an active part in the 2nd

World Forum on Intercultural Dialogue,which will be held in Baku on May 29-June01 under the patronage of H.E. Ilham

Aliyev, the President of the Republic ofAzer baij an , Mi nistry of culture an dtourism of Azerbaijan, UNESCO, ISESCO,Council of Europe, UN Alliance ofCivilizations, UN World TourismOrganization. I would like to mention, thatinitiative of holding a high-levelinternational annual forums in Bakudevoted to various aspects of peacefulcoexistence and dialogue between differentcultures and religions of the world has beenproposed by the President of Azerbaijan atthe 65th session of the UN General

Assembly on September 23, 2010 and wassupported by leading internationalorganizations. The 2nd Baku Forum onIntercultural Dialogue will be one of themajor political and cultural events in ourcountry this year and we would like to seeour Albanian friends and colleagues inBaku.

And the last but, may be, the mostimportant thing is, that we strongly believe,that this year will mark - if TAP project isselected as final route for the export of

Aze rbai jan i gas to Europ e - str ong ercooperation between our countries in thefield of energy security. Azerbaijan isready, as I have already mentioned onmany occasions, to cooperate bilaterally

with the Government of Albania to decidejointly how TAP`s success could contributeto our bilateral cooperation in the field ofgas sector development in Albania. We are

also ready to share with the government,public and private companies of Albaniaour experience in the development of oiland gas sector, and are open to discuss andimplement concrete projects in this fieldon the basis of feasibility and mutualadvantage.

InterviewwithAmbassadorof Azerbaijanto AlbaniaRahmanMustafayev

Prime Minister Sali Berisha and Minister of Youth andSports of Azerbaijan Azad Rahimov


9/24


BUSINESS & ECONOMY

By ERVIN LISAKU

TIRANA, Jan. 30 - Albanias centralbank has made a new cut to the keyinterest rate taking it to a historic low of3.75 percent in an effort to give a new

impetus to the countrys ailing economysuffering crisis impacts from theEurozone partners, and problems at home

with sluggish consumption, high levels ofpublic debt, and a sharp drop in lendingas bad loans have reached a record 22percent. Announcing the Bank of Albaniadecision to lower the key interest rate byanother 0.25 percent, governor ArdianFullani said in a press conference this

week the move was aimed at increasingthe sluggish consumption andinvestments by easing lending in thenational currency.

Low inflation pressures have allowedthe Bank of Albania to cut the key interestrate by 1.5 percentage points to a historiclow of 3.75 percent since Sept. 2011 in an

effort to stimulate the economy but themoves have been poorly reflected in lowerloan interest rates and an increase ininvestments. Bad loans at a record 22percent, tighter lending standards andfalling demand for new loans by both

businesses and consumers have led tocredit growth dropping as low as 4 percentat the end of 2012 compared to recordhigh growth rates of 30 to 40 percent inthe pre-crisis period until 2008, and amoderate growth of 10 to 12 percent evenfrom 2009 to 2011.

In its latest report on Albania the IMFsuggests that if domestic demand were to

weaken further and credit to contract,then the authorities could considerfurther monetary easing, providedinflation expectations remain wellanchored. However, the effectiveness ofsuch a policy would be limited by sluggishcredit demand and bank risk aversion ina weak economy, and could result inexchange market pressures, warns thereport.

Central bank cuts key interestrate to historic low of 3.75%

Albanias annual inflation rate droppedto 2 percent in 2012, down from 3.5percent in 2011, according tointernational financial institutions.

Albanias central bank itself estimates thatby preserving the inflation rate around the3 percent rate, the monetary policy willcontinue having positive contribution tothe development of the Albanianeconomy.

The latest cut to the key interest rateby 0.25 percent to 4 percent in July 2012

positively contributed to lower T-billyields and lek-denominated interest rates.Yields on 12-month T-bills dropped to6.53 percent in the latest January 29auction, down from 6.6 percentpreviously, and a record 7.5 percent inMarch 2012.

Meanwhile, average interest rates onlek-denominated loans climbed to 10.21percent in November 2012, up from 9.11percent in the previous month and 12.17percent in November 2011. Averageinterest rates on Euro-denominated loansdropped to 7.3 percent in November 2012,down from 7.38 percent last October and7.21 percent in November 2011.

Interest rates on 12-month lek-

denominated deposits dropped to 5.25percent in November 2012, down from anaverage of 5.85 percent a year ago.

The reduction in loan interest rateshave been unable to increase lending

which rose by only 4 percent during thefirst ten months of 2012.

Latest central bank data show total

credit at the end of October 2012 was at552 billion lek, up only 4 percent year-on-

year. Compared to the end of 2011, totallending during the first ten months of this

year has increased by only 10 billion lekor 1.9 percent.

Differently from loans, 63 percent ofwhich are issue d in foreign currency,mainly in Euro, the situation withdeposits appears more balanced with lekdeposits accounting for 52 percent of totaldeposits.

Pessimism among both businesses andconsumers is on the rise while banks areexpected to further tighten lendingstandards, according to quarterly surveysconducted by the Bank of Albania.

Below potential growth

Speaking of Albanias economicperformance, governor Fullani said thatdespite progress in the second half of the2012, the Albanian economy remains

below potential and sources of growth areunstable. The increase in production hasnot been reflected in the reduction ofgeneral uncertainties, which curbconsumption and private investments as

well as influence on the reduction of creditdemand and supply. The banking systemis healthy and liquid but continues beingcharacterized by increased caution infinancing long-term investments. Thesetrends will condition economicdevelopments even in the future, saidFullani.

The governor said the Bank of Albaniaexpects the economy to grow at the same2012 levels affected by lower externaldemand because of unfavourabledevelopments in trade partners and thelow level of diversification of Albanianexports.

GDP growth slows down

With an average growth rate of 1.5percent during the first nine months of2012, the Albanian economy is reflectingclear signs of crisis from the Euro areapartners and developments at home

where domestic consumption and exportsremains sluggish, and public debt now

beyond the previous legal ceiling of 60percent of the GDP poses a real threat tothe countrys macroeconomic stabilityThe third quarter performance provesgovernments reviewed GDP growthtarget at 3 percent for 2012 is animpossible challenge and that morerealistic forecasts are needed in the initial

budget s. Under a normat ive act las tDecember, government cut the 2012

bud get by 15. 8 bil lion lek (Eu ro 111million) to 381 billion because ofunderperforming revenues.

The growth rates for the first threequarters of 2012 are in line with forecasts

by international financial insti tutionssuch as the IMF and the World Bank

which expect the Albanian economy togrow by 1 percent in 2012 and around 2percent in 2013, citing impacts fromEurozone crisis and high public debtlevels.

The Albanian economy shrank by 0.2percent in the first quarter of 2012 andgrew by 2.1 percent in the second quarterof the year, registering the poorest first-

half performance since the collapse of thenotorious pyramid schemes in 1997.Short-term statistics published by

INSTAT show that despite top industriesregistering increases in their turnoverindices, almost all of them cut staff,lowered wages or indexed them only toinflation.

Albanias economy slowed downsignificantly in the first half of 2012, butsome growth returned in the thirdquarter, largely as a result of recovery inmanufacturing and extractive industries.However, Albanias strong trade,investment and remittance ties to Greeceand Italy, both of which face continuedeconomic gloom, are likely to continue toconstrain growth in the coming year, andthe high level of public debt, at close tothe statutory limit of 60 per cent of GDP,

will limit the room for fiscal manoeuvre,says London-based EBRD in its latestoutlook report. The EBRD expects the

Albanian economy to grow 1.8 percent in2012 and 2 percent in 2013.

Announcing the Bank ofAlbania decision to lowerthe key interest rate byanother 0.25 percent,governor Ardian Fullani

said the move was aimedat increasing sluggishconsumption andinvestments by easinglending in the nationalcurrency

Bank of Albania Governor Ardian Fullani


10/24


BUSINESS & ECONOMY

TIRANA, Jan. 29 - Fuelled by anincrease in compulsory car insurancerates, Albanias insurance market rose bya moderate 7.4 percent in 2012,registering the biggest increase in thepast three years. Data published by theFinancial Supervisory Authority showtotal insurance premiums in 2012

reached around 9 billion lek (Euro 63million), up 7.38 percent compared to2011 despite the number of insurancepolicies falling by a sharp 19 percent. Themarket continued remaining non-lifeoriented with around 90 percent of thetotal premiums, leaving life insurance

with a 9.8 percent share and reinsurancewith 0.32 percent. Compulsory insurancecontinues holding the majority 51percent of the market share. Paid claims,three-quarters of which belongs to carinsurance, grew by 27 percent to 2.8

billion lek in 2012.Data show insurance premiums in the

domestic MTPL compulsory carinsurance grew by 53 percent despite the

number of insurance policies growing byonly 3.7 percent compared to 2011. TheMTPL market share rose to 42 percent in2012 down from 30 percent in 2011.

Back in 2011, the liberalization ofcompulsory insurance marketconsiderably affected revenues forcompanies operating in Albania with

Insurance market growth accelerates to 7.8% in 2012Data show insurancepremiums in the domesticMTPL compulsory car

insurance grew by 53 percentdespite the number ofinsurance policies growing byonly 3.7 percent compared to2011. The MTPL market sharerose to 42 percent in 2012down from 30 percent in 2011

competition bringing lower fees. Datapublished by the Financial Supervisory

Authority show new insurance premiumsin 2011 reached 8.3 billion lek, up only 1.8percent compared to 2010 despite thenumber of insurance policies registeringa sharp 77 percent increase to 1.3 million.Back in 2010, the insurance market grew

by 4.17 percent despite the number ofpolicies dropping by 2.5 percent.

In February 1 2012, rates forcompulsory motor vehicle insurancemore than doubled in a suddenunexpected move following a sharp dropafter the market was liberalized in mid-2011.

The insurance market shrank by 15percent in the first quarter of 2012 and

5.5 percent in the first half.Last October, eight insurance

companies operating in Albania werefined a total of 89 million lek (Euro625,000) after the Competition Authorityuncovered a price-fixing deal incompulsory motor insurance policy. Thedeal was made in February 2012 when allcompanies fixed motor insurance pricesin a banned deal severely damagingcompetition.

Concerned over a sharp drop incompulsory car insurance rates over thepast two months, the Albanian FinancialSupervisory Authority has warned it willintervene in the already liberalizedmarket if the companies do not reflectrisks in calculating premium rates. In a

recent meeting with directors of the nineinsurance companies operating in

Albania, Enekeleda Shehi, the director ofthe Supervisory Authority warned the

companies efforts to offer low rates notcovering risks are short-term goals whichcould bring negative impacts on theirfinancial stability in the long-term. Shecalled on company officials to show moreprofessionalism in determining insurancerates and claims.

Currently, compulsory motorinsurance rates have dropped to 6,000 to7,500 lek annually, almost twice lesscompared to a couple of months ago.

Tirana dominates insurancemarket with a 60% share

The region of Tirana, where aroundone-third of the countrys 3.2 millionpopulation lives and most businesses

operate, accounts for 60 around two-thirds of the insurance market in Albania,according to a 2011 report published bythe Financial Supervisory Authority. Thereport on Albanias insurance geographyshows the region of Tirana, whichincludes the districts of Tirana and Kavajaconstitutes 60 percent of the insurancemarket.

Second comes the region of Durreswit h 7.89 perc ent fol lowed by thesouthern regions of Fier with 5.45 percentand Korca at 4.96 percent. Insurancemarket share in the remaining regions

varies from 0.59 percent in Kukes to 4.12percent in Gjirokastra.

However, Albanias per capitaconsumption of insurance althoughincreasing by 385 lek to 2,937 lek isconsidered one of the lowest in the region.

Albanians pay on averag e 25 dol larsannually for compulsory and voluntaryinsurance of vehicles, as well as propertyand life insurance, a small amountcompared to other European countries.

High State Audit

uncovers Euro107 mln of abuses

TIRANA, Jan. 30 - The High State Audithas unveiled 15.3 billion lek (Euro 107million) of abuses in controls carried outin central and local governmentinstitutions during 2012. Inspectionsshowed the direct economic damage isestimated at 13.5 billion lek, whilefinancial damage is reported at 1.8 billionlek.

The financial abuses belong to theeconomic and financial activity covering2008-2011 period and the first 9 monthsof 2012.

Most damage was identified in the sale

Most damage was identified in the sale and rent ofstate-owned assets, worth 674 million lek

and rent of state-owned assets, worth674 million lek. The Ministry ofEconomy, Trade and Energy is reportedto have caused a damage of 607 millionlek in violations to concession contracts

because of failing to collect concessionfees. Procurements rank second with atotal damage of 444 million lek of which225 million lek only by the InteriorMinistry.

Several municipalities such as that ofSaranda, Pogradec, Peshkopi, Berat etchave also caused the state budget 125million in urban planning because of not

paying the infrastructure tax whichstands at 1 percent of the investment

value.Operating expenditure rank third with

damage estimated at 104 million lekfollowed by violations in the salarysystem with 72 million lek. The customssystem has also caused the state budget62 million lek in damage while the tax

administration has abused 38 million lekThe High State Audit says it filed 40

lawsuits for officials involved in abuse ofoffice mostly in local agencies for thelegalization and urbanization of informalzones, as well as municipalities andcommunes. The Audit also gave 1,221disciplinary measures against abusiveofficials.


11/24


BUSINESS & ECONOMY

TIRANA, Jan. 29 - Affected by sluggishdemand from crisis-hit EU partners, thedestination of three-quarters of totalexports, Albanias export growth ratehalved in 2012 while imports shrankunveiling the poor domesticconsumption, which is the key driver ofeconomic growth. However, Albaniastrade deficit narrowed and the export-import coverage ratio rose to 40.3 percentin 2012 up from 36 percent in 2011 and24 percent in 2010, according to datapublished by the state Institute ofStatistics (INSTAT). Statistics show

Albanian exports rose by 8.2 percent in2012, down from 20 percent in 2011. In2012, Albania exported 213 billion lek ofgoods (Euro 1.5 billion), up from 197

billion lek in 2011.Minerals and fuels were the only

products keeping crisis-hit Albanianexports growing at a moderate pace in2012. At a time when the garment and

footwear industry, until recently the topexporting industry, and the constructionmaterial and metals are suffering ashrink in external demand, a 29 percentincrease in sales of minerals, fuels andelectricity in 2012 kept Albanian exportsgrowing. The contribution is attributed tominerals and fuels as electricity exportsin 2012 were negligible due to fallingdomestic hydroelectricity generationunable to meet even the countrys needs.

At 76 billion lek (Euro 535 million) in2012, exports of minerals, fuels andelectricity ranked on top of the list,registering a 28.5 percent increase year-on-year. Chromium and copper are themost exported products in this category.

The garment and footwear sector, one

of the top employers and exporters in thepast few years, continues suffering crisisimpacts as demand from top EU partnersfalls. INSTAT data show textile andfootwear exports failed to recover,shrinking by 3.2 percent to 60 billion lekin 2012. The garment and footwearindustry, which employs more than60,000 people now accounts for 28percent of total exports, down from morethan 30 percent in the previous years.Under the new fiscal package approved byParliament, starting from January 2013the 20 percent VAT on importedmachinery and equipment has been liftedonly for investments of Lek 50 mln (Euro351,000) or more. However, Prime

Minister Berisha has pledged the garmentand footwear industry, the countrys topexporter, which this year has beensuffering crisis impacts from lowerdemand by crisis hit EU partners Italy andGreece, will have VAT on machineryimports removed for all kinds ofpurchases.

Exports growth halves,imports shrink in 2012

Minerals and fuels werethe only products keepingcrisis-hit Albanian

exports growing at amoderate pace in 2012, ata time when the garmentand footwear industry,until recently the topexporting industry,suffered a slight shrink

Construction materials and metalsranked the third most important exports

with 40 bill ion lek in 2012, down 3.7percent compared to 2011.

Exports in 2009-2011

Bank of Albania data available in Euroshow exports continued to positivelyperform in 2011 despite the crisis-hit EUmember countries, which are thedestination of 70 percent of Albaniasexports. Fuelled by ongoing risingdemand from Italy, Albanian exportscontinued registering double-digit growthfor the second year in a row after theshrink in the outbreak of the global crisisin 2009. Central bank data show Albaniasexports rose by 19.7 percent to Euro 1.4

billion in 2011, compared to an annualgrowth rate of 56 percent in 2010 and an18 percent shrink in 2009. Despite

suffering severe debt crisis and itseconomy slowing down, Italy continuedremaining Albanias top trade partneraccounting for 53 percent of exports and30 percent of imports. Detailed INSTATdata show the faon industry, producinggarment and footwear products withimported raw material, continuedremaining the top export performer alsothanks to Arab spring turmoil and theremoval of customs fees.

Top trade partners

Exports to top trade partner Italy, thedestination of more than half of Albanianexports, have also been affected by thecrisis there, with their growth rate slowingdown. In 2012, Albania exported around108 billion Lek of goods to Italy, up only3.6 percent compared 2011, when exportsgrew by 28 percent year-on-year.

Meanwhile, exports to Greece, thecountrys second most important tradepartner have been severely affected by the

crisis in the neighbouring country. Oncethe second destination of Albanianexports, Greece now ranks only the fifthmost important partner with exports in

2012 at 9.4 billion lek, down 5.2 percentcompared to 2011. Greece is the secondmost important partner for imports withtrade exchanges accounting for 12.5percent of the total.

Crisis-hit Spain surprisingly ranks thesecond most important destination ofexports in 2012 with around 20 billion lek,up 180 percent compared 2011. Kosovoranked the third most important partner

with 17.4 billion lek. Albanian exports toneighbouring Kosovo registered a 18.5percent increase in 2012 despite tradedisputes on potato and cement referenceprices.

Imports shrink

While exports continue their moderategrowth, the slight shrink in importsreconfirms the slowdown in domesticconsumption in a net-import countrysuch as Albania. Total imports in 2012dropped by 3 percent to 528 billion lek,according to INSTAT data. The sluggishdomestic consumption is also indirectlyshown by the poor performance of the

value added tax. Businesses hesitationabout making new investments is alsoconfirmed by imports of machinery andequipment which during the whole of2012 dropped by 11 percent to 97 billionlek. The import list is topped by mineralsfuels and electricity which rose by 8percent to 110 billion lek. Imports of food,

beverages and tobacco rose by only 1.3percent to 93 billion lek in 2012.

Lower imports contributed to the tradedeficit dropping from 347 billion lek in2011 to 315 billion lek in 2012.

Italy accounts for 30 percent of totalimports followed by Greece and Germany

with 9 percent and 6 percent respectively.

Gas marketliberalizedTIRANA, Jan. 30 - Albanias productiveactivities parliamentary commission hasapproved a draft law which liberalizes thegas market in Albania ahead of theexpected approval of the TAP pipelinestripping Albpetrol oil firm of itsdistribution exclusivity. The draft law wasapproved this week, receiving only the

votes of the ruling majority. An EnergyMinistry representative said the legalchanges precede infrastructuralpreparations on TAP and the Ionian-

Adriatic, the two pipelines expected topass through Albania.

A misunderstanding that could comeup in the future arose regarding TAPsapplication to transmit gas so theapproval of this law was considered anecessity, said Stavri Dhima, a Ministryof Energy representative.

The Albanian government had grantedAlbpetrol oil firm, whose privatizationprocess has stalled, exclusive rights todistribute gas in Albania.

Considered as the shortest and mosteconomical route to bring Caspian gas toEurope, Albania officials hope the ShahDeniz consortium will decide on theTrans Adiatic Pipeline as the winningproject.

If selected as the winning pipeline tobring Caspian gas to Western Europe, theTrans Adriatic Pipeline (TAP), which alsoincludes Albania in its itinerary, wouldhave a major impact on the contribution

to GDP, number of jobs created and taxrevenues raised, a study conducted byOxford Economics has found out.

Rival Nabucco West pipeline passesBulgaria, Romania, Hungary to end upin Austria will send gas to countries

whi ch hav e a hug e dep end enc y onRussian gas.


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BUSINESS & ECONOMY

We call on the FinanceMinistry to keep its promiseof paying off debts toprivate enterprises in thefirst six months of 2012,says Nikolin Jaka of theTirana Chamber ofCommerce

TIRANA, Jan. 29 - The approval of thelegal framework paving the way to the

Administrative Court and the payment ofaccumulated debts to private companiesare the two key requests the businesscommunity represented by the TiranaChamber of Industry and Commerce hasmade to the political class ahead of nextJunes elections. Speaking at a recentpress conference, Nikolin Jaka, the headof the Chamber, called on the oppositionto give its concent on the AdministrativeCourts system, and government to pay offaccumulated debt to private companies,estimated at Euro 200 million, owedmainly to construction companies forfinished public works.

We call on the Finance Ministry tokeep its promise of paying off debts to

private enterprises in the first six monthsof 2012, said Jaka.Worried over the cris is impac ts on

Albanian enterprises and the tensionedenvironment ahead of the generalelections, the Tirana Chamber ofCommerce says it will soon introduce adetailed platform protecting the interests

Administrative Court, unpaid bills

top concerns for businesses

of enterprises in Albania.Government is expected to use part of

Euro 110 million income collected fromthe sale of four small and medium sizedenterprises to Turkeys Kurum to pay offunpaid bills to private companies.

Unpaid bills

The Albanian government owes theprivate sector in unpaid bills over Euro200 million, according to economyexperts and business representatives. Themajority of unpaid bills, at an estimated

Euro 120 million, belong to the crisis-hitconstruction sector, followed by Euro 50million to service companies and 12million euros in unpaid bills tohydropower plants concessionaries forelectricity purchases. Businesses also

claim dozens of millions of Euros in VATrefunds.International financial institutions

such as the IMF and the World Bank havealso expressed concern over governmentsunpaid bills to the private sector,suggesting government to useprivatization receipts.

Privatization receipts should beutilized in a balanced manner, to reducedebt and clear unpaid bills. Given the

weak state of the economy today, and therecent buildup of unpaid bills and VATrefunds, part of the receipts should also

be used to clear the backlog, which willsupport growth in the near term, says theIMF.

Administrative Court

Ongoing political conflicts between themajority and the opposition this time over

the deadlock in the Fier regional council,continue preventing the establishment ofthe Administrative Courts. Six monthsafter the approval of the law in Parliament

both the ru ling De moc rats and theopposition Socialists have failed to makesome changes to the Supreme Court lawneeding a qualified majority of votes inorder to complete the full legalinfrastructure on the establishment ofthese courts ensuring the independentlegal review of administrative decisions.

Although supporting the changes to theSupreme Court law, the oppositionSocialist Party has warned it will not giveits consensus if the dispute in the regionalcouncil of Fier, a stronghold of theopposition, if not resolved. Both the

majority and the opposition claim theyhave the head of the Fier regional counciland the process is being legally examinedin prolonged trials. The case is alsoholding back key reforms required by theEuropean Commission after Albania wasgranted conditional candidate status as

both parties refuse making concessions.

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BUSINESS & ECONOMY

Balfin Group, led byAlbanian businessmanSamir Mane, has also boughtback Euromax retailer whichit founded in 2005

TIRANA, Jan. 30 - TIRANA, Jan. 30 -Albanias Balfin Group has acquired theAlbanian subsidiary of Aust ria-basedDCM Decometal which since 2007 has

been operating the Bulqiza chromium

mine, the countrys biggest. Thetransaction is revealed in anannouncement by the Competition

Authority which confirms Tirana-basedBalfin Group, one of the biggestenterprises in Albania known for thedevelopment of shopping malls and itschain of retailers, has acquired AlbanianChrome, the Albanian subsidiary of

Aus tri a based DCM Decom eta l. TheAuthority says Balfin has acquired 100percent of Albanian Chromes shares foran undisclosed amount.

Since February 2007 DCM has beenproducing high grade chrome ore fromthe Bulqiza Mine in northern Albania. Themine employs 660 people and currentlyhas an annual output of 82,000 tonnesof the lumpy ore and fines, at a grade of40-45% chromite. DCM planned to investapproximately 15 million euros inextending the reserve base, improving the

work and safety conditions for miners andincreasing production capacity toapproximately 100,000 tonnes.

Austrias Albanian Chrome had failed

TIRANA, Jan. 30 - The InternationalMonetary Fund expects the Albanianeconomy to grow between 1 to 2 percentin 2012, compared to a mere 0.5 percentin its October 2012 outlook, suggesting

that the impacts from the European crisishave not been that huge. This is confirmedby Nadeem Ilahi, the IMF representativefor Albania who in an interview for VoAin the local Albanian service warns 2013

will also be a difficult year for the Albanianeconomy, citing risks from key top tradepartners Italy and Greece, high publicdebt levels and problems in the bankingsector also identifying the need forstructural reforms.

Forecasts in these unstable times aredifficult. When we saw the performanceof the Albanian economy last October,indicators showed the economy wasfragile. There are indications the impactfrom the crisis in Europe has not been that

big. Our opinion is that growth will in factbe higher maybe more than 1 percent butwe doubt it will reach 2 percent, saysIlahi. Last October, the IMF forecast the

Albanian economy would grow by 0.5percent in 2012 and 1.3 percent in 2013.

Commenting on Albanias public debt,whose 60 percent of the GDP ceiling has

Toughermeasures to

curb illegalmining

TIRANA, Jan. 31 - In a task forcemeeting held this week, Energy MinisterEdmond Haxhinasto called for an endto illegal practices in the mining sectorso that efficiency increases and localcommunities benefit more. The miningsector is a very important branch of the

Albanian economy in its trade balance,the development of rural areas andespecially in increasing employment.Some 10,000 new jobs were created inthis sector only last year, said the

minister calling for an increase in safetymeasures.Government revenues from mining

royalties rose to 5.2 billion lek in the first11 months of 2012 up 2 billion comparedto the same period in 2011, according todata published by the General CustomsDirectorate. Compared to 2009 whenlegal changes increasing royalty rates

were not ef fect ive, co ll ec tio n ha sincreased by almost seven times.

Data show the customsadministration collected 3.6 billion lek(Euro 25 million) in 2011, up from 2.1

billion lek in 2010 and only 893 millionin 2009. The mining royalty varies from4 to 10 percent based on the kind ofmineral. For chromium and copper, twoof Albanias most extracted minerals, theroyalty is at 6 percent.

The increase in royalty is also a resultof the increase in the number ofconcessions government has beenawarding in the mining

Tirana-Times-February-1-2013 LPA Law Firm Albania Company Formation

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