Government plan to protect Albanian families from energy crisis

Address by Prime Minister Edi Rama:

 

Dear fellow citizens,

Few days ago, I shared a direct message with you over an emerging fierce energy crisis because of the skyrocketing electricity price in the international markets.

I stand before you today to tell you what we, your government, will do to deal with this crisis that poses a serious threat to the household budget, the budget of our power distribution utility, as well as to the stability of the Albanian energy system.

I have been listening to you very carefully and I think it is indispensable for us to listen to one another and agree on considering the real facts when confronting our opinions. Otherwise, we won’t understand each other.

You should all clearly know that there is no prime minister, even the worst one in the world, and there is no government in office, even the world’s worst, first and foremost not wanting to increase the wages and salaries as much as its citizens would wish for. But it is only the bad governments and the undeserving prime ministers and unworthy of the trust of their people who announce wages and pensions hike regardless of the serious consequences of such an increase, which is not based on the facts of the country’s economic and financial reality, but on their desire and on politics only.

Increasing wages and salaries or cutting taxes and contributions to an extent beyond capacities of the state coffers, it means governing the country by applying Ponzi schemes and not on consciousness and self-awareness, it means killing the future by walking blindly in the present.

Someone is saying we used to have the highest salaries in the region eight years ago and we now rank bottom regionally, because no salary hikes have been made in the last eight years.

But facts are not opinions and the salary table, but the salary table shows otherwise.

This was our position eight years ago, with us ranking bottom and with a dramatic difference.

Here you can see the increase in wages in the region over this period, when the gap has narrowed significantly with other countries, but where some others of course haven’t stayed in place, waiting for us to top the ranking.

Others claim we have abandoned the needy people, starting with the retired people, while increasing the electricity price higher than in any other country across Europe.

But again, facts are not opinions and let’s start with the latter.

This is the electricity price for the household consumers in Albania compared to many European countries.

Yes, someone else says, but the citizens in European countries receive much higher salaries and pension payments. This is true. This is very true! That’s why the electricity price currently in place in Albania doesn’t represent the real price of the electricity we purchase, but it is a state-controlled price aimed at protecting the consumer and, second, the government has also placed a shield to protect the neediest social categories and the pensioners.

What is this shield?

Again facts and not claims help us to explain what this shield is, but, first of all, let’s see what the official data show about what is continuously claimed for years now that we have increased the electricity price.

This is the chart.

During the time when one half used to steal the other half and the debt hole in our power sector became a precipice, which threatened to take the state down just like it happened back in 1997, Albanian consumers were divided into two segments.

A price of 13.5 lek per KWH was set for the upper segment, namely the middle and high income families, while a price of 7.7 lek was set for the low income families that theoretically consumed less than 300 KWH a month.

The energy reform we implemented lowered the electricity price to 9.5 lek per KWH for all residential consumers since 2015 and the electricity price has remained unchanged since then. This is a price below the production cost, which has been kept unchanged, precisely not to hurt any family.

On the other hand, this consumer segmentation was removed, as it had already become a marsh of unprecedented corruption and abuse, with factories or families owning seven-storey villas used to pay as if they were families benefiting from payments under the social welfare scheme.

However, we didn’t put them all inside the same sack, as the saying has it, and under a government decision in 2015, we actually created a protective shield for the really needy families and the state budget covers the electricity price difference since 2015; meaning that these families receive the compensation included in their economic assistance or pension payment since 2015.

This is the chart showing the funding provided by the state budget as provided by the treasury.

Later on you will see the total amount the state budget provides in direct payments to compensate for the difference in the electricity bill, after the price was changed in 2015.

But, this government didn’t stop there and, again by referring to facts and figures and not words, the government has added an addition payment as part of the social protective shield for the retired elderly living alone or those living with low-income families and this sum adds up to an overall amount of compensation granted to all retired people and this table shows data on compensation for electricity price for all retired people.

The annual amount of subsidy for the electricity price, benefiting a considerable number of families, and the total amount of direct payment to 187 669 families is estimated at $126 million a year, or around $1 billion since 2015.

It is a significant amount, isn’t it, if we are to take into consideration the fact that this is the Albanian state emerging from the financial collapse of the energy sector, and not only, in 2013.

One might claim, well, there is nothing new as long as pensions are not increased significantly. Some even dare say that the government should lift the minimum pension payment to 300 euros and the minimum wage to 500 euros a month.

But I tell them that if we were to increase the minimum pension to 300,000 lek, not 300 euros, we will have to stop public investments by end of next year and we would experience the state’s tragic bankruptcy within two years, with the state unable not only being unable to pay pensions, but for first time we would actually be witnessing what it does really mean to starve for first time since Skanderbeg era.

If we were to lift the minimum wage to 500,000 in the blink of an eye we would then see the first famine crisis in 500 years of history.

Put differently, for everyone to know clearly, increasing the wages and pensions in the country is like increasing the household income and there is no parent in the world who wouldn’t have wished to grant as much as he could to his kids, but there could also be no responsible parent in the world who would give today his kids everything he is supposed to provide for them in the future and let them his children die of hunger.

Pensions are funded by the social insurances, or the contributions provided by workers over the years.

Without going over details of the history of abuse and collapse of the social insurance fund, which we are helping to recover year after year,  let’s see how much we pay in social insurance contributions compared to other countries, which are randomly cited as an example for the higher pension payments.

With this current level of social and health insurance contributions, we wouldn’t be able to pay even half of the pension payments.

This means we haven’t forced people to cover the missing part of the contributions, but this difference has been covered by the state budget, allocating an amount of around $450 million each year. This is nothing else but the amount of the revenues collected in taxes on the economic activities and personal income of employed people. The chart clearly shows the relation between us and many other countries in the region and beyond.

On the other hand, although we use around half a billion of dollars in taxpayers’ money to cover the pension deficit each year, we have significantly reduced the personal income tax rate for around 97% of Albanian citizens since 2014. Since 2014, all Albanians earning less than 150,000 lek a month now pay less in personal income taxes than they used to pay until then. This means that thanks to this tax cut policy we have saved Albanian workers around 1.2 billion dollars in the last eight years, an amount which otherwise would have ended up in the state coffers as it was the case under the previous taxation system applied until 2013.

Likewise, small businesses with an annual turnover of up to $140,000 pay zero profit tax rates. Small businesses with an annual turnover of up to $100 are also exempted from having to pay VAT, while small business entities with annual turnover of up to $20,000 used to pay a 10% tax rate.

These are all facts and every nurse, teacher, and policemen, just like every water, cook or private sector employee used to pay a 10% income tax rate and what I am saying is easily verifiable and normally everyone knows it well. Just like every entrepreneur of small business knows that Albania is the only country in Europe imposing no taxes on agriculture, but on the contrary provides subsidies to the agricultural sector, just like Albania is the country with the highest number of categories exempted from having to pay a standard 20% VAT rate, which has actually failed to yield the desired effects, despite the fact that these measures have been put in place for a good reason to support the country’s productivity.

The simple question one should ask today is as following:

What else except through hard work and patience and more productivity and less non-productive state budget spending for VAT exclusion we can further increase revenues so that we can afford redistributing a lot more in wages and pensions?

If we wish to really be like the countries that have more than us and therefore redistribute more than we do, we must never forget the simple truth, that in order to reach to the height they stand today, they have worked hard, they have worked hard, they have endured a lot, they have significantly grown productivity of their societies, paying a lot for their state.

We lagged a lot behind them 30 years ago, but the difference has been narrowed now.

Let’s never forget this, if we don’t want to drown in the sea separating us from them, but instead cross this sea as well, as we crossed the ocean.

We chose this system 30 years ago, with the state not being the God reigning over the earth, but with the individual taking the responsibility for himself. It was the first time in our history we chose such a system on our will and not let others choose on our behalf, just like it had been the case for over 500 years. And of course we did the right thing and that’s why we have today a lot more that we used to have 30 years ago, but of course we still have much less than we should have and, in my opinion, much less than we could have today, if many things that we started doing properly just a few years ago were to be done many years ago.

The question today is how we will reach the height this country deserves to be and our children deserve to be in the future, while dealing with not only with the challenges we have chosen to face, but also challenges that pick us without our consent, like the earthquake, the pandemic and the latest energy crisis and the soaring electricity prices.

Shall we cope with these challenges by forgetting the choice we have already made 30 years ago and ask the government to provide us wages and pensions much higher than the state can really afford, asking the government to determine the market prices, remove any tax rate and deliver any public service for free?

Shall we deal with the crisis by asking the government and the Prime Minister to think for now only? Just like a good guy told me last night, suggesting that with the upcoming rainy winter season, the country will generate sufficient low-cost power and therefore we shouldn’t even think about what is happening with the electricity price in the international markets?

Shall will deal with it by speaking up without listening to others, without reading and confronting opinions with facts and persuade ourselves that Albania is rich both in water and oil and therefore the country should have the lowest electricity and oil prices, but it is the thieves in the government who are preventing us from enjoying the energy paradise that God has gifted us with?

Shall we deal with the crisis by reckoning without the host and by saying it would suffice not to increase wages of the government officials and increase taxes on wealthy people and this way we would be able to lift the minimum wage to 500 euros and the minimum pension to 300 euros, or will we do what the countries we envy today have done in the past when they dealt with the past and the wounds of their backwardness?

By the way, since you elected me to enter this very building, the wages of cabinet members and lawmakers have never increased, while the tax rate on their wages has increased!

Because when I climbed the stairs to enter the Prime Minister’s office, I was taxed less than the salary of the sanitary workers of this building.

In 2014, we cut the small business taxes in 2014, while increasing the big business taxes, because a bakery used to pay more than a big business in taxes.

But the taxation policies on the wealthy people must also be carefully thought, because, first of all, they are the most powerful engine of the economy and the largest employers in this country, and if taxes become an obstacle for them and further growth of their economic activity, they will be unable to increase neither the revenues for the state budget from those taxes, nor the salaries of their employees, nor the employment itself in this country, let alone the productivity. But let’s return to the energy crisis again.

Dear fellow citizens,

We need to pay more heed to each other’s words and you all should know and understand I am here neither to make your life more difficult, nor tell you we can do nothing to deal  with the earthquake effects, because it went out of our financial plan, we can do nothing to cope with the aftermath of the pandemic, because we lack the capacities of the United States or Germany, we can’t do anything   in the wake of the rising energy price in the international stock market. No. I am also not here to tell you that we chose capitalism 30 years ago, so whoever can afford it lets pay for it, and who can’t should have the power cut and live in darkness. I will never do so!

However, I am not here to ruin the state coffers so that everyone is happy today without caring at all about the future, just like it has been the case in the past after the today’s opposition once in power told people that capitalism was all plain sailing, so that you just throw your money to build anywhere you want, throw your money away into fraudulent schemes, graduate children from any so-called private universities, steal electricity and don’t pay electricity bills, do whatever you wish to do because capitalism is there to resolve for you.

I am not here to be silent, when you tell me that Albania generates the whole amount of power it needs, but we sell it cheap so that we can purchase it again at a much higher price so that we can steal. Because this is not true as Albania doesn’t generate sufficient electricity to meet its domestic needs.

And we sell electricity at a cheap price when the countries in the region don’t desperately need energy and we are forced to sell it so that we don’t discharge water from our dams and flood whole agricultural areas by doing so. On the other hand we purchase electricity at an expensive price as we are forced to access the international market when the need for electricity is alarming, because of prolonged drought.

That’s why we are building Skavica HPP, a project used to remain in the drawer for over 50 years, so that we can build a huge water catchment over Drin River cascade, reserving the abundant water inflows due to the rainfall for use later during the dry summer season.

I am also in office not to pretend as if being deaf when hearing individuals claiming that Albania produces sufficient oil supplies to meet its domestic demand and therefore Albania should have the lowest oil price in the world and not the highest one in the region; because indeed we don’t produce enough oil for our cars, because the oil we produce is very heavy crude oil, which is exported for its by-products, mainly for bitumen, while Albania imports 600,000 tonnes of diesel and gasoline each year.

And by the way, the diesel and gasoline prices, yes, are the highest in the region, because – how many times I have to repeat it – the oil price when you refill your cars includes the circulation tax, which is paid separately in other countries. The oil price also includes the carbon tax, because the environment is not polluted neither by retired people, nor by people with disabilities, or those treated with social assistance or children, but the cars and to return again to the support we provide for these social categories, I would say it is very kind of you to speak about their plight, but you won’t help by telling them to ask from the government to address their plight and by stating you won’t pay anything for them. How on earth is the government supposed to support these categories if nobody agrees to pay and contribute more? Those who pollute the environment more should definitely pay more.

However, this is a chart to show that anyone complaining over the increased oil price beyond any imagination can look at the facts that speak for themselves and clearly show that the diesel and gasoline prices are lower than in 2013.

Pjesa e dyte e fjales se KM Rama ne prezantimin e planit per perballimin e krizes energjitike:

This chart doesn’t actually show whether the previous government was a bad one and our government is a good one, because everyone knows it, but it shows that the market has its own rules and nobody can do anything to change the market prices and it is of course the right of everyone to complain, but if you don’t forget the fact of the past, then you will be able to fairly judge the today’s facts.

However, having said all these, I don’t cross my mind to tell everyone that since we chose the capitalist market economy instead of the centralized communist economy 30 years ago, now be the masters of yourselves and pay the increased energy prices.

Because, at least as far as I understand the state office in this system, where state is not God and where every individual should become his own master, our duty as this state’s government is among others to be the best friend in difficult times for all of those who, not because of their own fault, are incapable of facing life challenges, let alone the effects of such crisis.

But, by flatly refusing any claim or idea that this serious crisis doesn’t exist and that this crisis has no impact of whatsoever on Albania, and telling everyone that the ongoing crisis could be equally challenging like the pandemic was in financial terms, even with graver monetary effects on the country if we fail to react by employing all our strength and forces, not only as a government, but also as a community of self-aware citizens, I can confirm that our plan doesn’t project any electricity price hike both for residential and small business consumers. The plan also doesn’t include any scheduled power outage across the country.

The storm of this crisis – and it is again the time for us to pay heed to one another – according to the international experts, as well as according to the conclusions drawn by several friendly governments we have been consulting with to explore ways how to tackle the crisis, is expected to have its aggressive phase until early next summer. Of course, these are projections as it may end sooner, or it could even last longer.

However, our plan covers precisely this period, while the government is also making preparations for a national consultation process with each and every one of you within this year, where we will ask for your approval regarding this issue and not only on this issue indeed.

We need to pay attention to each other a lot and let’s do it by resorting to all means, because after all we are here to help each other, we share common goals for this country, although our opinions on how to achieve these goals may differ considerably.

But I believe it is time for us to turn the big difference between the politicians’ opinions and the contradictory opinions among ordinary people into a national advantage in the country’s best interest by transforming the clash among different opinions into a fresh precious source of national energies feeding the government’s difficult decisions. It is true that the government emerges as a representative of the winning side between two racing sides in elections, but it is in a four-year term in office to side with Albania and the national interest of the entire Albanian people regardless of the political differences and affiliations among Albanians.

Our action plan to tackle the energy crisis contains three points:

First, ensuring uninterrupted power supply to all consumers, coupled with a number of detailed measures;

Second, protecting residential and small business consumers;

Third, providing required liquid funding for the interaction with the energy market along with detailed instruments of the renewable sovereign guarantee fund at an amount of 100 million euros for the power distribution company until the end of this year and an amount of another 100 million euros by early next year to ensure full implementation of the first two points.

Dear fellow citizens,

When the British prime minister was asked what he was afraid of, he replied: I am afraid only of events, given precisely the fact that life is what happens to us while we might be busy making other plans.

Over the past few years, the life of everyone of us, and for that matter, life for the government and for me, has been mostly defined by what has been happening to us rather than our plans; namely the earthquake, the pandemic and not this storm of rising the most delicate price in our daily life. I know best that all these leave marks on minds and soul, but concluding I would like to tell you the following:

First of all, feel all good that we have succeeded and be confident that we will succeed again. And second, do your best not to forget that what we sow today through our attitudes and decisions, our children shall reap its harvest inevitably in the future. And for today’s children not to be so unlucky like the children in the ‘90s were as they harvested what inappropriately was sown back then, we should always refrain from seeking shortest of routes which always turn out to be the longest ones.

Thank you very much.