Electricity Sectors in Transition: A Transaction Cost Approach to the Albanian Electricity Reform

Abstract

The analysis of electricity sector reforms is essential if not a sine qua non because this sector represents an important pillar of a nation's economic development. Reforms per se are ongoing processes where experimental models are being applied around the world, where successful and unsuccessful stories are being written. Albania is among the countries in Southeastern Europe (SEE) undergoing reforms in the public sphere, and the electricity sector is a vivid example of the challenges and obstacles that such implementation faces in the developing world. Starting in the early 2000’s, Albanian electricity reform now faces a failed distribution privatization, inability to fully secure the electricity supply from the domestic generation, and distorted market standing between regulation and liberalization. There is therefore a need to analyze this process and to question whether the reforms are headed in the right direction. Using the rationale provided by Transaction Cost Economics (TCE), I argue that the current model of partial deregulation produces high transaction costs. TCE has gained prominence in recent years for explaining utility reforms, emphasizing the idea that, in some cases, full competition and market deregulation is not the first best option.