Balkaninsight – 02 NOV 2011

Employers across Europe have read workers’ private emails and chat conversations by illegally using secret computer surveillance software; in Romania employees claim bosses have used private information gained to blackmail and bully them.

Most workers across Europe seem unaware that bosses can read their private emails and chat conversations (Image: Partners for Serbia).

Most Romanian workers log on to their computers each morning oblivious of the fact their bosses can not only monitor what websites they visit, but measure exactly how much time they spend working or surfing the net.

Of greater concern, hardly anyone realises their employer can, with the right software, intercept private emails sent from personal accounts such as Gmail or Yahoo!

“Employees should be aware that the content of their emails could be read,” says LF, an executive at Netsec Interactive Solutions, a Bucharest-based IT security consultancy, who asked not to be named.

“Sadly, although initially designed to be used constructively, IT monitoring tools are used by some employers for personal rather than professional goals. We are talking about blackmailing or even harassment.”

Netsec estimates more than 40 per cent of multinationals and large companies operating in Romania use specialist software to routinely intercept and track all information flow – including what an employee might write in an email or download onto a memory stick.

Secret surveillance of workers, banned under EU law, has been hugely controversial in other European states too, particularly Germany where companies have been forced to pay multi-million euro fines and lawmakers are debating new workplace privacy legislation.

In Romania, many allege that bosses not only collected information about them by illegal, covert means, but then used it against them.

Blackmailed by the Boss

No Romanian employees would talk openly to BIRN about their experiences of illegal workplace monitoring, fearing speaking out would jeopardise their new positions and mark them out as troublemakers.

One woman claims she was forced to resign after her boss accessed private emails she had sent to a friend, in which she criticised her line manger.

After being called into the boss’s office, she was shown printouts of her private emails and told it would be best for her to leave. She accepted a small payout after her employers threatened they would make sure she couldn’t get work anywhere else.

Another, a married man, claims he was blackmailed by his boss after she discovered he was having an affair with a colleague. The manager found out after accessing conversations between the two on Yahoo! Messenger that were recorded by computer surveillance software.

He claims the boss forced him to perform tasks he did not want to under threat she would tell his wife he had been unfaithful. When he finally refused and left his post, the boss rang his wife and told her about the affair.

Both say their employers never once informed them that their communications, both private and official, would be subject to surveillance.

While it is legal for employers to monitor their workforce and use computer software to do so, they are obliged by EU and national law to inform workers. In turn, employees must officially consent to the surveillance. In practice, this rarely happens.

Officially, not a single company in Romania subjects its workforce to surveillance. Employers are also obliged by the law to inform the Romanian Data Protection Agency (ANSPDCP) if they are monitoring staff, but not one has registered to date.

Software Sales Boom

WORKPLACE MONITORING AND PUBLIC AWARENESS

A survey by a Romanian monitoring software manufacturer suggests during an average working day, 20 per cent of employees spend between one and two hours playing computer games.

A 2008 Eurobarometer study looking at data protection and public awareness among EU citizens suggests:

Only 28% of respondents knew they had national data protection agencies

The level of trust in employers was low in Spain (34%), Cyprus (47%), Latvia (44%), Lithuania (39%) and Greece (37%), where less than half of respondents showed confidence in employers handling their personal data appropriately

Austrian and German citizens were most concerned about how their personal data was handled, with 86% stating they were concerned

In Bulgaria, the Netherlands and Finland, only one-third of respondents said they were concerned about data privacy (BG: 34%, NL: 32%, FI: 36%)

Around two-thirds of all respondents said they trusted banks and other financial institutions (66%) and employers (63%) to handle their personal data appropriately

The majority of respondents agreed it should be possible to monitor passenger flight details (82%), telephone calls (72%), internet and credit card usage (75% and 69%, respectively) when this served to combat terrorism

This appears to be rather at odds with estimates on surveillance software sales in Romania, where IT companies say business is booming.

The surveillance software market was worth an estimated €1 million in Romania in 2010 alone, according to Amplusnet, another software manufacturer, who stress it is a rapidly expanding business.

The Romanian Constitution stipulates that all correspondence is confidential but does not differentiate between private or official work-related communications.

Alina Savoiu, head of communications at ANSPDCP, says: “It is a violation of correspondence, which is a criminal act. All companies that are involved in such practices are infringing the law.”

The software manufactured by companies like Netsec track every activity on workers’ computers, not just their correspondence, private or otherwise.

The boss can see exactly which websites you visit, what content you view, and compare how much time you spend surfing the net rather than using Excel, Word or other office tools.

Lawyers who represent employers argue they need to ensure their workers are putting in their full hours and are not engaged in unproductive or unlawful activities – such as accessing porn sites or downloading illegal content.

Gay Worker ‘Asked to Leave’

But, as LF from Netsec says, bosses can use tools developed for lawful monitoring to gain information they can then abuse. Even the pages employees visit can reveal or suggest they may have personal problems, such as health issues, addictions or complex private lives.

Mihai Russu is a Bucharest-based lawyer who has represented companies involved in disputes with employees about privacy. He recently represented a medical firm that had secretly monitored its employees and in doing so discovered one of the directors, who was married, had been browsing gay dating sites. The director was asked to leave his job.

He initially refused, claiming the request was discriminatory. In the end, he gave up because he feared his family would discover he was gay.

Russu insists his sexual orientation was irrelevant and that he was asked to leave because “he was not working his eight hours”.

However, Russu acknowledges the company did break the law because it secretly monitored workers.

Savoiu says the ANSPDCP has not received any complaints about covert surveillance, but insists they would investigate if they did and seize equipment, including computers, if deemed necessary.

However, she admits they employ just one qualified IT expert who can track monitoring software.

Bosses Own the Evidence

Proving you have been the subject of unlawful workplace surveillance is no easy task, not least because the bosses own the evidence.

If the ANSPDCP was unable to investigate, employees can go to civil courts themselves but they cannot seize the bosses’ equipment.

“Can an employee bring to court all the servers and evidence on the employee’s computer that shows he was supervised? No. The state would only have the authority to seize this type of evidence, backed up by appropriate experts, in criminal cases,” says Cristian Driga, a lawyer specialising in IT crime.

“In civil cases, employees have to bear the cost alone… added to that, there is an acute shortage of certified computer experts available in the field,” he says.

On the other hand, employers argue they must monitor their staff to protect commercially sensitive information and safeguard their brand.

Russu quotes one case where an advertising firm he represented discovered, by means of covert surveillance, that one worker was copying confidential client databases that could have been financially damaging to the company.

She resigned after being challenged by the bosses and went on to set up a competitor firm of her own. The dispute is ongoing with the firm yet to decide whether to prosecute the worker.

Bogdan Manolea, a lawyer specialising in internet law, believes the Romanian government has failed to properly implement data protection laws and has not ensured the public is properly aware of their rights and responsibilities.

“The authorities did not do their job properly; they did not explain why it is important. People have a paranoid reaction – yes, we are all intercepted – but when you ask them what they are doing about it, they don’t know or don’t act. There are many who complain and few who act,” he says.

Asked if the ANSPDCP has done enough to inform bosses and workers about the rules, Savoiu says they have published the Romanian data protection law on its website.

The ANSPDCP site does not, however, carry an accessible summary or guide to good practice on monitoring that could be of use to both employers and employees.

Balkan Communist Legacy

Yet there seems to be little appetite among Romanians and Serbians alike to take on their bosses or the authorities – a legacy, in part, of communist rule.

An unwillingness to confront employers is also evident in neighbouring Serbia, an aspirant EU member that, in 2008, adopted European data protection laws.

Implementation has been slow and Serbians seem equally unaware, and disinterested, in privacy at work issues.

Aleksandar Resanovic, Serbia’s deputy information commissioner, believes people do not properly understand the concept of privacy after so many years of communism.

“We do not have complaints. People say ‘who cares if they monitor me?’ But it is not a question of whether you have something to hide or not. Privacy is something that belongs to you and you decide whether you disclose it [information] or not,” he says.

Together with the Partners for Serbia NGO, the commissioner is trying to make sure that at least employees responsible for processing personal data at large firms are aware of the law.

Serbia: Who Monitors the Monitors?

Blazo Nedic, president of Partners for Serbia, launched a campaign this year to raise awareness but remain concerned the law does not adequately check the people responsible for monitoring.

And there have been some eye-catching incidents that have made it to the press, including the posting on YouTube of Serbian police CCTV footage that captured a couple having sex in a car park.

Since then, the Serbian police have been required to follow new, strict procedures when collecting and processing CCTV data.

But confusion as to what remains private at work is certainly not confined to Belgrade and Bucharest; there have been numerous cases and campaigns across European countries.

The European Directive 95/46/EC does not spell out the limits of lawful employee monitoring but it does enshrine employees’ right to be informed that they will be subject to surveillance, grants access to the data and allows for workers to oppose data collection by the bosses.

Britons Trust the Authorities

Like their Romanian and Serbian counterparts, the British do not appear overly-concerned about surveillance either in or outside the workplace.

The reason why, however, might surprise Balkan readers who lived under communist rule.

“We never had a police state like Romania. In a sense, we trust our authorities more than most nations do and if something goes wrong, we have a very good legal system,” says Nicholas Lakeland, a partner and employment law specialist at London law firm Silverman Sherliker LLP.

But he warns workers should be aware of the sort of personal information bosses can collect and how it could be used.

“We had a case where the employer found out one employee had HIV. In the construction industry, employees using heavy machinery may be breathalysed… in that particular case they also found he had been using drugs which helped him with the HIV… the employer did nothing… but it was a [potentially difficult] situation,” says Lakeland.

EUROPEAN LEGISLATION: EMPLOYEE PRIVACY

Employees’ right to be informed about workplace surveillance is enshrined in Directive 95/46/EC, 2002/58/EC and 2006/24/EC

Bosses should not intercept even work-related emails if the company hasn’t set down clear rules and they did not get the employees consent

Across the EU, employers who suspect serious criminal activity among workers can ask the police to intervene, who are able to secretly monitor

Employers are banned from storing sensitive data, such as religious beliefs, political opinions, sexual orientation and racial/ethnic origin, under Directive 95/46/EC

Confusion over the law has led to scandals in Germany and a few privacy cases in the UK, some of which ended up at the ECHR in Strasbourg

In ECHR cases Copland and Halford vs the UK, a precedent was established setting down that employees are entitled to privacy at work while using the company computer or phone

Germany is the only EU country debating federal workplace monitoring laws

However, some British employees have taken privacy cases all the way to the European Court of Human Rights (ECHR), as demonstrated by the Halford and Copland cases.

In 1990, Alison Halford, a police officer in Wirral, accused her superiors of intercepting her phone and Lynette Copland, a secretary at a college in Wales, found out that her phone and office email have been intercepted over a six-month period.

The ECHR ordered the British state, which employed both, to pay damages on the grounds that they were entitled to privacy at their workplace.

However, despite the ECHR rulings little changed in Britain.

“A lot of employers do that [monitoring] without thinking. An employer comes to me and says ‘I find all these interesting things by looking in employees’ emails’. And I say ‘You did not tell them, there is no legitimate reason why you are doing it. You are just snooping, so stop it and destroy all the data you have’.

“There are a lot of small offices where employers are doing that, they don’t really know the law, people are curious and want to know what other people do. It is human nature but it is not legal”, says Lakeland.

This trust in the authorities will have been undoubtedly dented by the News of the World illegal phone hacking scandal that threw suspicion not only on unscrupulous journalists but also law enforcement and politicians.

Germans Keep State in Check

Germans are acutely aware of the importance of privacy and the need to keep state control in check.

They share a deep-seated distrust of authority figures with their eastern European counterparts – an unease informed by recent history including the Nazi era and the Stasi in what was East Germany.

Germany has had data protection laws on its statute books since 1970 and, although their legislation on monitoring does not differ from the rest of the EU, they have set down additional rules.

Unlike elsewhere, employers are forbidden from monitoring employees’ online activities if the company rules allow them to access private email accounts or surf the net for personal use from the firm’s computer.

Still there is unease about the scale of unlawful monitoring.

Bertran Raum, head of social services at Germany’s Federal Commission for Data Protection, quotes 2001 statistics suggesting that two out of three companies monitor their workforce.

“I think the number of employers who are monitoring their employees has risen since. I think that a lot of that monitoring would be illegal,” he says.

Workers’ Bank Accounts Accessed

The media heightened awareness of illegal workplace monitoring in Germany, says Jan Jurczyk at German trade union Ver.di

There was public outrage when it became known that Deutsche Bahn, the state-owned national rail company, had been secretly monitoring its employees for a decade.

In a bid to root out corruption, the company routinely accessed employees’ private bank accounts and checked payments against their supplier list.

In 2009, they were fined €1.2 million by the Berlin Data Protection Commissioner.

The LIDL retail chain was fined in 2008 a similar amount for employing private investigators to monitor staff, including video surveillance, by the data commissioner of North Rhine-Westphalia.

Their have been numerous other workplace privacy and surveillance scandals, involving high-profile companies, that have been covered in the German media.

Employees who suspected they were being illegally monitored talked to the press and the resulting coverage forced the authorities to take action on the issue.

Jan Jurczyk, press officer for Ver.di, the second largest German trade union, says that “we have more to thank journalists for than the authorities”.

Alexander Dix, Berlin Information Commissioner, admits: “It takes a lot of courage in Germany to complain about an employer. You cannot rely on the German courts, as it takes several years… and sometimes you don’t win.”

More Power for Bosses?

After so many scandals, the German parliament is debating a new federal law to regulate workplace monitoring which they are expected to vote on by the end of 2011. No one is happy with the proposed changes.

Currently, companies have to seek permission both from the unions and the labour courts before installing surveillance equipment. Under the proposed new law, they would only have to ensure they notified employees and secured their consent.

“Now the judge keeps the balance between employees and employers, but in the new project, the employer is the one who decides when to monitor. He is the judge,” thinks Sarah Thomé, lawyer for the human rights NGO the Humanist Union.

She believes that the focus on consent is misleading, as the employee could agree to all types of monitoring out of fear that not doing so would prevent them from getting the job in the first place.

For their part, employers say the rules do not address their key concern: corruption.

Thomas Prinz, a lawyer at the Confederation of German Employers’ Association, believes there is no need for a new law, just because some companies illegally spied on their employees.

“The draft has no clear provisions for preventing corruption. This is the main point for any German company,” he says.

Raf Jaspers, a Belgian lawyer and author of Big Brother in Europe, is convinced only public awareness and action will combat state and employer privacy intrusions.

“It will be a long struggle to convince the masses. Privacy is not like work or food, which you miss immediately if you don’t have them,” he warns.

Back in Romania, IT specialist LF offers workers some simple advice: “Do not forget that when you switch on your computer you are no longer alone and no password, no matter how complex, can block monitoring software.”

Dollores Benezic is a Bucharest-based journalist. This article was produced as part of the Balkan Fellowship for Journalistic Excellence, an initiative of the Robert Bosch Stiftung and ERSTE Foundation, in cooperation with the Balkan Investigative Reporting Network.

One opposition Socialist activist was wounded and several cars were damaged when Democratic Party activists clashed with supporters of the local opposition candidate over the posting of campaign material in the town’s main throughway.

This latest fight follows several similar incidents seen since the start of the campaign on Friday, as rival supporters clash over the territory where they can display their party colors.

Analysts warn that the clashes point to the growing tendency of various groups to stretch their muscles rather than present political programmes.

“The interests of economic clans are closely tied to political interests, and these are the interests that lead to this kind of crime, which draws political cover or a sort of political polarization of some kind,” says Fatos Lubonja, a leading writer and political analyst.

On Sunday, similar clashes were also reported in another Tirana suburb, the municipality of Kashar. According to the Socialist Party, one of their activists was hit with an iron bar by a government sympathizer during a fight.

Police responded with the arrest of three people, and issued warrants for four others.

Meanwhile, the fight led to a dispute between a deputy government minister and a police chief over an alleged order to send in special forces to break up opposition protests that preceded the clash.

Albanian Special Forces commander Shemsi Prenci filed charges in Tirana prosecutor’s office against the deputy minister of interior Avenir Peka, accusing him of trying to send in the special forces against the opposition protestors.

The general director of police is the only authority that can order the deployment of special forces.

Premci told reporters that Peka had “threatened and insulted him” after he refused the order that he believed was illegal.

“I won’t obey the illegal orders of deputy minister Peka,” Prenci said.

Peka declined to comment on the accusations for Balkan Insight, however on Monday evening through a statement his spokesperson announced that the minister would files slander charges against police commander Prenci.

Meanwhile opposition leaders called on Peka to resign, while asking police officers to follow Prenci’s example and refuse illegal orders issued under political pressure.

If it is found that Peka did indeed order the deployment of special forces, it would certainly represent the most serious incident of the campaign to date.

In a statement issued on Monday, a local coalition of elections observers warned that clashes between political activists were raising tensions artificially and ruining the image, climate of the campaign and the administrative nature of the poll.

“Such situations compromise the public engagement to take steps to insure mutual good faith between parties in order to ensure a process with standards,” the coalition said.

Speaking to reporters after the clashes, the US ambassador in Tirana compared the parties’ behavior “to a football match,” while asking them directly to take measures in order to avoid confrontation.

Lubonja, the political analyst, went further, saying that criminal elements among the party lists for the local election were aggravating an already poisoned political climate.

“Politics has increasingly become a hostage of crime in Albania, it has been captured by people with power that have become wealthy through illegal means, and the capture of politics by these people means that their private interests will be protected in a criminal manner,” he said.

This article was made possible through the support of the National Endowment for Democracy.
Source: Balkaninsight

“Shame” is the right word to express the feelings of members of Albania’s Facebook community over what happened on Friday in Tirana, when a protest called by the opposition ended in violence in which three people died and dozens of others were wounded.
Facebook surfers recalled poetry about madness. Alongside them were accusations from various politically affiliated participants aimed at the parties’ respective leaders.
Politically affiliated Facebook activists were in a minority and their posts did not attract as many comments as the rest, or perhaps this is what I liked to see.
Some journalists had abandoned their role as neutral reporters in calling for a boycott of those aggressive politicians who were continuing to urge people to protest. It was amusing to see the group of friends of the Mjaft Movement (the so-called young hope), now distributed among different political parties, blaming each other as killers of the three victims and using much the same aggressive language as their beloved leaders.
Some called for the resignation of both Prime Minister Sali Berisha and the opposition leader Edi Rama, saying both were equally responsible for the turmoil, and surely they were right. It was hard to avoid the conclusion that both government and the opposition had sought clashes.
Although the feeling of shame was strong, even stronger was the tone of debate about who bore most responsibility for what had happened. The mainstream media articulated two different views of the event. One group pointed to the fact that the police put there to take on the protesters were just low-paid Albanians who had not chosen to be there and did not deserve to be attacked.
These commentators neglected to mention the fact that three people had died and that it was surely possible to avoid deaths in a protest, which, though violent, was unarmed and did not seriously threaten the police. By contrast, when Berisha’s own supporters had attacked the same government building in 1998, they were well armed but “only” two people died.
Another group expressed horror at the fact that three people had been killed who had posed no real risk to the police.
In the meantime, the wave of information and misinformation about who killed whom remains ongoing.
The speculation started when a medic in the Military Hospital offered an unusually richly detailed report on the deaths only minutes after the event. According to him, two of the victims “were shot by small-calibre guns and at close range”. Prime Minister Berisha had claimed immediately after the protest that a conspiracy had been organized by the opposition, who killed their own protesters to score political points.
Journalists who felt that this version of events insulted their intelligence offered a barrage of filmed footage showing that at least one of the victims was fired on from within Government House and that some of the soldiers had opened fire not just in the air, but also horizontally.
Berisha did not repeat his scenario the next day. But police officials declared that they had arrested one protester who had been holding a pistol. Prosecutors, meanwhile, issued orders to arrest six National Guard officials, suggesting they had authority to open fire only toward people within the perimetre of the building while at least two of the victims were shot well outside the fences of Government House.
On Saturday evening, police ignored the orders issued by the prosecutors to arrest the National Guard officers, further undermining the legitimacy of the government. The police and the National Guard have the same boss, the Minister of Interior.
This was the first violent protest that Tirana had seen in 12 years, if we do not count a short, failed attempt by supporters of the Democratic Party (now in power) in February 2004. This was also the first time in more than a decade that the police had used tear gas and rubber bullets against protesters. The government had brought anti-riot equipment back in May 2008. Berisha, it seems, doesn’t feel secure without strong police forces and abundant equipment.
Berisha has a long record of using violence against protesters and often doesn’t discriminate between violent or peaceful ones. The opposition, for its part, is well known for the revolutionary and militant spirit it inherited from their founding fathers in the Second World War.
No one can believe that the protesters in Friday’s clashes were people genuinely offended by the glimpse of corrupt government provided by a recently aired video, which showed former prime minister Ilir Meta discussing two manipulated tenders and three public posts given to his supporters, one of whom had no university degree. They were simply angry that they did not have the same chance to get their hands on corruption as the government.
Both Prime Minister Sali Berisha and the head of Opposition Edi Rama are beloved figures in Kosovo – but Albanians from Kosovo have shown their support for Berisha. My hunch is that the feeling of shame among them over what happened in Tirana is related to the way they have always seen Tirana as a big brother with muscles who can protect his smaller sibling. They don’t like to see weakness in Albania.
It is strange that Albania has no experience of violence from soccer hooligans, or from anarchists and extremists attacking the police.  There are rumours of extreme Islamists, but nothing serious has happened yet among them. Albania’s only extremism is in its conventional politics, in politics that doesn’t differ much in terms of a political agenda, or in terms of love of bribes, but which still has the ability to mobilize big crowds to fight.
The current government is largely supported by those who were second-class citizens in the 1980s, some of whom were ousted in power struggles within the Communist government of the time. Others were condemned to remain outside the ruling circle simply because they happened to live outside Tirana and were forbidden to come in under the system of internal passports. Moving from one town to another required special permission. For these people, their fall from power in the 1980s was the equivalent of going from paradise to hell. Their seizure of power meant the end of provincial life and poverty.
The government seems occasionally also to enjoy the passive support of that bulk of Albanians who really suffered under Communism and were officially termed the “overrun classes”. These were the families of old businessmen, landowners or officials from the pre-Communist era. This last group doesn’t benefit so much Albania’s recent power shifts, but they strongly dislike everything linked to the current opposition.
The opposition, for its part, has the support of the old ruling class of the Communist regime. Their bad dream continues to be the period when they first fell from power in 1992. Scores of them suddenly became jobless, and that was a very bad period to be jobless. I would speculate that for all three groups, the nightmare is much the same: poverty related to loss of power.
Naturally, most Albanians don’t belong to any of these categories.
This triangle of “overrun” Communists from the 1980s, ex-provincials and former Communist officials creates the bulk of today’s political class. For all of them, power means money and honour, and opposition means economic stress and humiliation. Together they create the political groups who put their faith in the possibility of getting corrupted, and who have an easygoing attitude towards violence, as we have seen. More often than fighting each other, these groups join forces to create the conditions that forbid the majority of Albanians, who don’t belong to either group, from having any real share in affairs.
From a practical point of view, recent events in Tirana will have an effect that lasts years, in terms of the country’s record of stability. Some, who have opted to build a life in Albania, accepting a bad, corrupt government in the context of a stable and politically nonviolent environment, may now be rethinking.
Albania remains the poorest country in the region with a GDP per capita of just $4,000 a year. It doesn’t offer many people very good life for the moment, but if it remains peaceful, it still offers opportunities and some may hope that things will get better. After Friday’s violence, such hopes have been diminished.
Source: Balkaninsight.com

The economies of central and eastern Europe are expected to contract by an average of 6.3 percent in 2009 following steep output declines in the first half of the year. Signs of positive growth in the third quarter of 2009 suggest that the recession is now bottoming out in many countries of the EBRD region. However, any upturn in 2010 is likely to be fragile and patchy.

The EBRD’s Transition Report 2009, which will be published in full next month, points out there are likely to be significant cross-country differences in output growth in 2010, masked by an average growth rate for the region of about 2.5 percent.

“It is also clear that the social costs of the global economic crisis are only likely to be felt in earnest next year, when corporate bankruptcies and unemployment will continue to rise. Growth over the medium term in the EBRD region is also likely to be below the trend experienced over the last decade,” said EBRD Chief Economist Erik Berglof.

Although year on year growth in 2010 is now projected to be higher than the 1-1/2 percent seen in the EBRD’s May forecasts, this mostly reflects the recovery from a deeper than anticipated downturn in the first half of this year, rather than a more vigorous economy during 2010.

Factors restraining growth in 2010 include the subdued pace of export market recovery (particularly in the Euro area) and continuing tight credit conditions, as banks continue gradually to shrink their assets in the region and as lending to households and small firms remains constrained by rising non-performing loans.

The Albanian economy is expected to grow by about 3 per cent in 2009, down from expansion of 6.8 per cent in 2008. Following an expected further decline in the second half of this year, the economy is likely to start recovering in 2010″.

Peter Sanfey, EBRD Lead Economist covering south-eastern Europe, said: “The effect of the global crisis has been modest in Albania, primarily owing to the relative strength of banking system which developed well in recent years and limited exposure of the Albanian economy to international markets. However, growth will be impacted by expected lower exports, remittances and inward investment, and the large current account deficit will remain a big challenge in the coming years.  Fiscal restraint may be needed to retain the budgetary balance and commercial banks will need to monitor closely their loan portfolios as the economy adjusts to the post-crisis environment.”

Recovery masks cross-country differences

Economies that continue to face problems in their banking sectors and domestic obstacles to a return of confidence could contract further in 2010 or show only flat growth.

In some countries with hard currency pegs, the need to adjust real exchange rates through prices and wages could also weigh on aggregate demand. So could the need for further fiscal adjustment. This could slow the recovery in countries such as Bulgaria, Latvia, or Lithuania.

The speed of recovery is particularly uncertain in Russia and Kazakhstan, which benefit from stronger fiscal positions, but at the same time suffer from weak banking systems and high non-performing loans and commodity dependence.

The recovery prospects for these countries will depend on the success of the authorities in cleaning up banking systems, as well as the strength of the international recovery, particularly through its impact on commodity prices.

Russia’s economy is expected to shrink by 8.5 percent on a year-on-year basis in 2009, followed by a rebound in late 2009 and growth of about 3 percent in 2010 year-on-year. Kazakhstan will suffer a much milder output decline this year (of about 1.5 percent) but the recovery is expected to be weak, in the order of +1.5 percent.

Relatively faster 2010 growth, in the order of between about 2 and 5 percent is expected in some internationally competitive countries with relatively sound pre-crisis banking systems, such as Albania, Poland, Slovakia, and Slovenia.

Some commodity rich countries including Azerbaijan, Mongolia, Turkmenistan, and Uzbekistan, whose financial systems were smaller and less affected by the crisis, and whose growth is mostly driven by commodities, are also expected to grow faster in 2010, in the order of 5 percent or more.

In Hungary, which was hit particularly hard at the start of the crisis, the crisis has been contained thanks to strong international support as well as sound domestic policies. However, its growth is expected to remain slow in 2010 due to necessary fiscal adjustment and a continued credit crunch. It is expected to show slightly negative growth next year, driven by a weak economy in late 2009 and early 2010.

Looses were mainly the result of massive write-offs, with problematic loans jumping to 8 percent of the total loans portfolio. Loans classified as ‘lost’ jumped up to 8.2 billion lek, (61.7 million euro), up 16 percent from March -  186 per cent increase, year on year.

The banking system in Albania has been very profitable in the last decade. The system is 95 per cent foreign owned.

Lending has been increased by more then 50 per cent year on year since 2005, beginning from a very low base. However, the rapid growth has been a cause of concern for the Central Bank and the International Monetary Fund, IMF, both of whom have pushed to strengthen regulations on risk management. Anticipating looses, Albania’s Central Bank ordered banks to not distribute dividends for the last year’s earnings and temporarily halted loan operations for some.

“Banks will be less profitable this year, but they are still well capitalized,” Central Bank governor Ardian Fullani said in a statement.

“Banks in Albania have been the most profitable financial institutions in Europe,” Elvin Meka, general secretary of the Albanian Banks Association, told Balkan Insight. Their return to equity ratio was worth 20 per cent in 2007 and 15 percent for 2008.

However, the global financial crisis affected the credibility of the banking system in Albania. A bank run in the last quarter of 2008 wiped several hundred million euros of deposits from the banking system. Many experts blame poor lending practices in the past for bad loans, saying that the global financial crisis has only aggravated the situation.

Following the collapse of Lehman Brothers in the US, Albania faced a bank run. Deposits in the banks fell from 700 billion leks (5.7 billion euro) in September 2008, to 638 billion leks, (4.9 billion euros) in February 2009.

The Albanian government also has faced difficulties in refinancing its debt during the past months, but the market showed signs of stabilisation in March. Interest rates for 12-month treasury bills jumped to 9.24 per cent, almost one per cent, within a quarter. Source: Balkaninsight

With investors fleeing emerging markets in the aftermath of the global credit crunch, and little light at the end of Serbia’s political tunnel, the dinar currency slid to a new record low of 97.50 to the euro this week, having lost a quarter of its value in four months. Most Serbs, who have fixed salaries in dinars, feel bewildered by the fall of a currency that was considered stable until only a few months ago. Having seen their purchasing power slide as the weak dinar makes imported goods more expensive, they worry about meeting their mortgage payments or being able to repay consumer loans, usually denominated in euros.

“My wage is in dinars, so this is killing me,” Tomislav Tomasevic, a graphic designer in his 20s, told Balkan Insight. “Realistically I have lost more than 10 percent of my pay since I started my job a couple of months ago.”

As part of an inflation-targeting policy which sees a managed float for the dinar, the central bank has been intervening modestly but almost daily, with little effect. It has spent some 300 million euros supporting the dinar in the last month alone, a policy that has landed it in a tug of war between economists and the government.

“The amount of money that can secure the stability of the exchange rate does not exist, because we need an unlimited amount of money which we used to get from selling property and getting into debt,” said economist Ljubomir Madzar. “Everything has its expiration date. Exports must pick up and that is the government’s responsibility. I believe that the NBS cannot effect the trend of the dinar’s fall, even if it spends all of its foreign reserves, it can only contain the swings.”

Milan Kanjevac of the Institute for Market Research said the current exchange rate “is not realistic.”
“The realistic exchange rate is 150 dinars to the euro, and the state and National Bank of Serbia are fighting to decrease it,” Kanjevac said. “I think that the dinar does not have to be defended because that hurts exporters and works in the favor of importers, which damages our local industry.”

Although usually reluctant to meddle into the central bank’s business, the government has pushed the other way, taking the unusual step of counseling that the sinking dinar would do better with more aggressive central bank intervention.

“If I were the governor, I would have intervened more using our hard currency reserves” instead of waiting to see inflows of fresh capital, said Deputy Prime Minister Mladjan Dinkic, himself the predecessor of current central bank governor Radovan Jelasic.
“The governor has been reluctant to spend them, but the reserves are there to be spent in a time of crisis. It is important for the dinar to be stable, and the reserves will be replenished.”

Jelasic has deflected criticism, saying the central bank would continue trying to limit extreme daily swing, but conceding that there is only so much it could do.
“Clearly the market is looking for a new balance,” he told daily Blic  “and the central bank needs to weigh up both the issue of the exchange rate and the volume of foreign currency reserves.”

After Dinkic noted that defending a fixed dinar rate would cost “a maximum of 1.3 billion euros”, officials started offering their two cents on how to resolve the crisis.

Some help could come from the inflow of the 400 million euros owed Belgrade by Russia’s Gazpromneft for the sale of a majority stake in state oil monopoly NIS – an amount Energy Minister Petar Skundric said would be paid this week, as opposed to later in the year.

Finance Minister Diana Dragutinovic pointed to the IMF loan cushion and said that if the dinar continued to fall, Belgrade should consider withdrawing from the 402.5 million euro approved by the Fund earlier this month – a loan Serbia said at the time was just precautionary.

Deputy Prime Minister Bozidar Djelic went even further, saying that the government would extend cooperation with the IMF if necessary to boost foreign currency reserves.

“I want to inform you that I have initiated negotiations with our European partners, the European Commission, for receiving macrofinancial support, which means receiving 400 million euros that we can use for the budget as well,” Djelic said. “These funds will be available starting February, and exporters can count on them in these and complicated economic times.”

But analysts said that neither the IMF funds nor the NIS payment would be enough to change the trend, not without steady and regular capital inflows.

“If the supply of foreign currency on the domestic market increases, the dinar could be stable, but for only three to five years,” said Aleksandar Stevanovic of the Center for a Free Market. “For a longer period, we need direct foreign investments and improving the business atmosphere in order for foreigners to bring their money here.”

The timing could hardly be worse, as the global financial crisis means  tighter loan conditions that scupper the investment and expansion plans of many firms. As part of its downward revision of most east European countries, the European Bank for Reconstruction and Development also cut its forecast for Serbia’s 2009 growth to 2.0 percent from 3.0 percent in its latest report.

“I am concerned because I don’t know how far it will go and whether we are entering a longer period of insecurity again,” said Ivana Hercigonja, a Belgrade psychologist in her 50s. “The worst thing is that we do not know when it will end. This is not only tied to the situation in Serbia, like it was in the 1990s, the whole world is in crisis.”

Source:  Balkan Insight

Alija Krha bends his tall, gaunt frame to pick vegetables from his modest garden overlooking Podvelezje, a barren and lonely plateau covered in shrubs and occasional brambles in southern Bosnia and Herzegovina.

One of only three people to return to this desolate area following the 1992-1995 war, the 70-year-old man’s weather-beaten face lights up when the conversation turns to the wind.

“This is great news. Windmills wouldn’t bother anybody here,” he says, when told a Western investor plans to build wind farms on these blustery highlands. “It could help develop this area and convince youngsters to return here and to neighbouring villages.”

But it’s far from certain that wind farms – and the more distant promise of investment – will come. For more than four years, Vjetroenergetika, a local company founded by the Austrian firm Windkraft Simonsfeld GmbH, has been struggling to proceed with a 40 million euro project to build a wind farm at Podvelezje.

Each year has seen new delays and obstructions. “This is a classic example of how not to treat foreign investors,” complains Zejna Sanjevic–Kussmaul, a Vjetroenergetika manager.

Despite steadily rising prices for energy on world markets, and growing interest in environmentally-friendly, clean sources of electricity, the construction of wind farms in Bosnia meets resistance at every turn.

Most of this resistance is passive rather than deliberate, and stems from poorly defined legislation and red tape. It’s also partly from the ignorance of local government officials and from conflicts of interest between would-be investors and the state power companies, who want to control the construction of these facilities and harvest the profits.

The result: Bosnia is missing out on the green revolution in power production that has been sweeping the rest of Europe for the past decade.

The answer is blowing in the wind

Wind farms have become an increasingly familiar part of the landscape in Western Europe for several years now. Throughout the European Union, EU, governments have encouraged the development of alternative, green sources of energy,  for their positive environmental impact.

Wind energy has helped many countries meet their obligations under the 1997 Kyoto Protocol. This obliges both developed and so-called transitional economies to cut emissions of greenhouse gases – one of the main factors behind global warming – and develop and use a certain percentage of alternative energy sources. EU member states have agreed wind farms should meet 12 to 14 per cent of total electricity needs by 2020.

Significantly, investments by EU companies in the development of alternative energy sources in other countries are calculated as a part of the balance sheets of their own countries. This explains why an increasing number of European firms are using their expertise to invest in South East Europe.

Faruk Mustovic, author of Wind Farms in Bosnia and a leading local expert, is a committed enthusiast. “Not only do wind turbines not produce CO2 and greenhouse gases but they substitute fossil fuels, effectively reducing emission of greenhouse gases,” he says.

Austria leads the way

Austria, a leader in the field in Europe, uses renewable energy sources for one-quarter of the country’s total electricity consumption. Authorities there have allowed construction of about 900 wind turbines, many located in the fertile flatlands north of Vienna, near the villages of Bruck an der Leith, Parndorf, Neudorf and Zurndorf.

The meadows there teem with wind turbines that soar into the sky like giant sunflowers. Each is an average of 100 metres high with 50-metre-wide three-bladed rotors. Farmers and local wildlife have got used to this exotic intrusion: crops grow as usual and wild animals and birds live all around.

“The only opponents to wind farms in this area are the Viennese who have second homes here and who want to be surrounded by pristine nature on the weekends,” says Gottfried Pschill, an engineer in charge of Energiepark in Bruck an der Leith.

Pschill says the windmills have caused no problems with the local community or with environmentalists. Austria learnt from the mistakes made by Germany which, initially, did not conduct feasibility studies, and allowed the construction of wind farms near important bird-nesting sites and in the flight paths of migrating species.

Austria did not repeat this error. Today, Energiepark and other Austrian companies are financing the construction of wind farms in neighbouring Hungary and Romania.

Not in my village, thanks

Of all the countries in the Western Balkans, Croatia has made most progress in drawing up legislation to allow the introduction of wind farms into the energy system. As a transitional country, the Kyoto Protocol obliges Croatia to work towards generating 5.8 per cent of its electricity from renewable sources by 2010. The two existing wind farms currently produce around 1 per cent of Croatia’s overall energy needs.

It took five years before Croatia had drafted legislation for this purpose, exempting investors from fees for the use of land, for example.

Enersys of Germany has already built a wind farm with 14 turbines in the mountains north of Sibenik, Dalmatia. This wind farm, with a total strength of 11.2 MW, produces 30,000MW/h of electricity per year, which is enough to supply some 10,000 households.

Regional authorities now plan to issue building permits for additional wind turbines across Croatia’s South West. But despite official support, these plans still meet suspicion and resistance from some communities.

Villagers in Bruska, near Benkovac, Dalmatia, fear that proposed wind farms will wreak havoc with a natural landscape that they treasure. “They’ll ruin our pastoral haven and our environment,” laments Nikola Cacic, sitting under a walnut tree in front of his home.

Mate Bulin, an engineer at the Sibenik-Knin District Chamber of Commerce, says he hopes local objections will be overcome through offers of compensation in the form of water supplies or street lighting. Enersys, meanwhile, is voluntarily paying 0.5 per cent of its profits to the city of Sibenik. But some villagers in the areas where wind farms are planned still doubt they will reap any direct benefits from the projects.

Interest flags in Bosnia

While the problems in Croatia mostly stem from local objections, at least the law and administrative procedures regulating wind farms are in place. By comparison, Bosnia’s regulations in this field are still in diapers, says Zeljko Samardzic, manager of the wind farm near Sibenik: “Judging by our experiences in Croatia, things will get going in Bosnia in two years or so.”

“Not even the minimal conditions (for investors) have been met in Bosnia so far,” agrees Tonci Panza, director of Adria Wind Power which operates a wind farm on the Croatian island of Pag.

The first obstacle facing potential investors in Bosnia is the complex administrative setup inherited from the Dayton Peace Accord, which ended the 1992-1995 conflict in the country. This created two semi-independent entities, the Federation and the Republika Srpska. The former comprises ten cantons, each possessing its own mini-government.

The weak, overarching Bosnian state has neither developed an energy strategy nor adopted a specific energy law. The same applies to the assemblies of the two entities.

The power grid in Bosnia is divided along ethnic lines, managed by three different power companies: Elektroprivreda BiH, Elektroprivreda Herceg Bosne and Elektroprivreda Republike Srpske. Each offers different purchase prices for electricity generated from alternative sources.

Because of power grid limitations, the entity governments in 2002 limited the strength of any single alternative energy source to the power grid to only 5 MW. This decision, which has since been rendered redundant by the development of the power grid and alternative energy sources, poses another obstacle to investors, effectively preventing them from building and exploiting more than two 2MW wind turbines.

Other disincentives are slowing the production of alternative energy in Bosnia. Unlike Croatia, it is already energy rich and the only country in the region to export electricity, mainly generated from thermo and hydroelectric power stations.

Moreover, because Kyoto categorised Bosnia as a developing country, as opposed to a transition state like Croatia, Bosnia has no obligations to reduce its emissions of greenhouse gases and is not a party to ANNEX 1 of the Kyoto Protocol. These factors help explain the lack of interest on the part of  authorities in alternative energy sources, even though Bosnia has an estimated wind capacity of 1,000 MW. By comparison, Croatia has an estimated capacity of 1,700 MW, while the figure for Serbia is estimated at only 190 MW.

Wind taken out of investors’ sails

Despite the less-than-favourable climate facing foreign investors in Bosnia, several companies in the region have shown interest in exploiting its natural resources, hoping the legislative and institutional framework will improve in the meantime.

Energy 3, a company co-owned by the Slovenian firm E3 and Impro-Impeks of Bosnia, has been planning to build 15 wind turbines in the south of the country with a total capacity of 30MW. Austria’s Vjetroenergetika has developed a similar project for 16 turbines, with an overall capacity of 32 MW.

Both companies received concessions for construction from the government of the Herzegovina-Neretva canton in 2007. Yet, neither signed an agreement to start the implementation of the projects. In both cases, the main obstacle was bank guarantees required from the investors by cantonal authorities.

Bosnian law does not specify what percentage of a project’s total value the bank guarantee needs to cover; consequently, cantonal authorities have been demanding guarantees for the entire value of projects. Bosnia’s leading commercial banks, such as UniCredit Group and Volksbank BH, have confirmed their interest in supporting investments in environmentally sound electricity but say they cannot underwrite total guarantees for projects that cost 40 million euros each.

Esad Humo, economy minister for the Herzegovina-Neretva Canton, says the cantonal authorities are not to blame; the fault lies with companies failing to submit the required documents: “We’re all in favour of foreign investments and new technologies but we cannot take them at their word,” he said. “We must know if they are capable of fulfilling assumed obligations and this is why we need guarantees. I have to protect the interests of the state and abide by the law.”

But the various obligations are often irreconcilable, creating something resembling a Catch 22 situation. While the authorities demand full bank guarantees before they will sign project implementation contracts, the banks require signed implementation contracts before they will issue any guarantees.

Tonci Panza, of Adria Wind Power, notes that Croatia’s authorities have never demanded such bank guarantees, recognising they may not be feasible for expensive development projects.

Some would-be investors in Bosnia hope the situation will improve now that Bosnia has signed the Stabilisation and Association Agreement, SAA, with the European Union. The key trade deal with Brussels was agreed on June 16, 2008. “Bosnia will have to adjust to European Union directives, legislation and new technologies,” Energy 3’s manager, Miralem Campara, says.

But others remain doubtful, suspecting other factors behind government obstructions, such as corruption and conflicts of interest. Some foreign investors, speaking under condition of anonymity, have complained that government representatives have more or less openly sought bribes in order to push through projects.

Aside from corruption, local experts, such as Faruk Mustovic, suspect that Bosnia’s three national electric companies want to maintain an absolute monopoly on power and so block other companies seeking to develop wind power.

Keeping a grip on the supply of power

The case of Ante Andric, a small entrepreneur from Tomislavgrad, in south-western Bosnia, suggests the existing big three energy companies are keen to keep control of the country’s power supplies.

Andric installed a 100 kW wind turbine on his own land three years ago to provide electricity for a small factory producing plastic construction materials. Andric’s wind turbine is connected to the Elektroprivreda Herceg-Bosne system. But he feels the arrangement is far from fair or reciprocal, because he is obliged to give all his surplus electricity for free to the company, while he has to pay for electricity from the grid when he doesn’t have enough wind.

Elektroprivreda Herceg-Bosne says anyone producing their own electricity needs a permit if they wish to sell power to the company. But Andric says this is effectively impossible; the procedure is so complicated that he never even tried to apply.

On the other hand, the experience of companies that have applied to sell power to state companies is not encouraging. Loncar plast and Eurograniti from the town of Posusje, both own two 80 kW wind turbines and applied for permits to sell surplus electricity to Elektroprivreda Herceg-Bosna a year ago. Today, their applications remain bogged down in red tape.

Vlatko Medjugorac, of Elektroprivreda Herceg-Bosne, says the two applicants “failed to submit all the required documentation.” However, representatives of both Loncar plast and Eurograniti have now said they are tired of running in circles and are taking their cases to court.

Elektroprivreda Herceg-Bosne, meanwhile, is preparing to build three wind farm projects on its own, in Livno, Tomislavgrad and Mostar, to produce power by 2010. Elektroprivreda BiH says it supports initiatives to introduce alternative energy sources to its system, but only under the company’s terms and conditions.

Emir Aganovic, executive director for facilities and maintenance in the company, says projects such as those planned for Podvelezje may be implemented “if an acceptable agreement is reached,” with investors.

In such a situation, investors have little choice but to accept the power companies’ terms and offers.

In the cases of Energy 3 and Vjetroenergetika, for example, Elektroprivreda BiH offered to sign agreements in September 2008. The state power company will set up a joint venture with Vjetroenergetika, which will implement the original project, while Energy 3 hands over its entire project to Elektroprivreda BiH.

Despite this one-sided outcome, Campara from Energy 3, said the company was satisfied with the terms of the deal as their costs will be reimbursed and they hope this cooperation with the state power company will place them in a better position to carry out two similar projects planned in the same area.

Bosnia’s third power company, Elektroprivreda Republike Srpske, has decided to delay seeking potential investors in wind farms until it finalises a wind power exploitation feasibility study, expected in 2009.

While investors, governments and three state power companies continue their struggles and manoeuvres to control the future of alternative energy, the inhabitants of Podvelezje are still awaiting their wind turbines.

For them, alternative energy represents the last hope of new jobs and better infrastructure. “I hear they have promised to make a new road, and better power lines, as well as a water supply system,” says Ismet Stranjak, owner of Sunce, a small motel in Podvelezje.

“Nothing has been done here for ages,” he adds. “But God has given us this wind, which in the end may help secure people’s livelihoods in these parts.”

Homestead implies working farms , houses with land and out houses etctc

This article was produced as part of the Balkan Fellowship for Journalistic Excellence, an initiative of the Robert Bosch Stiftung and ERSTE Foundation, in cooperation with the Balkan Investigative Reporting Network

Source: Balkan Insight

The owner, Bashkim Osmani, says he has no option but to use the noisy appliances, which have cost him about 90,000 euros to install and run over the past 8 years. That was when he decided to cut supplies from Kosovo’s state power company, KEK, after becoming fed up with power cuts. “If you rely on KEK, it will kill your business,” he says.

Many businessmen share Osmani’s pain in Kosovo, where the lack of an adequate, sustainable power supply is hindering economic growth.

Kosovars face gruelling daily power cuts and in winter, when demand peaks, power is sometimes available for only 2 hours a day.

According to a May 2007 report by the KAF Financial Group, a company contracted by Kosovo’s Ministry of Energy and Mining to research the energy situation, power disruptions cost local businesses an average of about 2,188 euros each per month.

The use of private generators increases the operating costs of most businesses by about 10 per cent, says another 2007 report by the UN Development Programme, UNDP.

Many economists fear that if the power situation remains unchanged, Kosovo will be condemned to remain Europe’s poorest country. According to Kosovo’s Central Bank, the country has a Gross Domestic Product, GDP, per capita of only 1,400 euros. This is extremely low compared to the average GDP per capita in the EU, of about 24,800 euros. In fact, Kosovo is poor even when compared to its neighbours like Macedonia, for example, where GDP per capita is some 6,200 euros.

Kosovo’s economy is growing at only 3.5 per cent annually, whereas Macedonian growth is 5 per cent, and neighbouring Montenegro’s is some 7 per cent.

Not surprisingly, the unemployment level is exceptionally high, at 45 per cent of the working-age population, according to World Bank figures. The Central Bank of Kosovo reports that 28,000 Kosovars turn 18 every year and seek jobs, while the country’s current capacity cannot create more than 6,500 new jobs per year.

Living in the dark

One way to measure the impact of the power cuts on life in Kosovo is to look at satellite images of the country on Google Earth. Taken in winter after dark, and when the power is off, all one can see is a black hole, punctuated by a handful of lights from those lucky enough to own private generators.

Kosovo’s authorities, with the help of international donors, have tried to counter the problem, investing more than a billion euros since the Kosovo conflict ended in 1999. The European Union alone has invested over 400 euros million in energy for Kosovo during this period.

Officials from the European Agency for Reconstruction, EAR, say the main reason for the power shortages is old and outdated infrastructure. Odran Hayes, an EAR official in Pristina, says the EAR made urgent investments in the system after the end of the Kosovo conflict in 1999 – but these did no more than keep the dilapidated system limping along. “Our investments have kept the biggest power plant in the country, Kosovo B, operative, otherwise we would face a total energy collapse,” he said.

But demand for power has grown by leaps and bounds since then, leaving the energy sector in a critical condition. During the cold season, when demand for electricity exceeds 1,000 MWh – far above the 750 MW that local plants produce – KEK has both to import power, which is expensive, and impose severe restrictions.

Households in rural areas suffer the most. With no more than a few hours of power a day, people there feel frustrated and depressed. “It’s a never-ending nightmare,” says Nderim Berisha, from the Kamenica region of eastern Kosovo. “Sometimes we have electricity for only an hour a day!”

The condition in which families like the Berishas live would be inconceivable elsewhere in Europe. In wealthy Austria, for example, constant power is a given. Stephan Zach, of the Austrian EVN power company, says consumers can rely on their power supply almost 100 per cent of the time. EVN is forbidden to cut off power to consumers without due warning except in severe weather conditions, such as thunderstorms.

But even by the lower standards of its Balkan neighbours, Kosovo’s plight is uniquely dismal. Zlatko Popovski, of EVN Macedonia, says Macedonia never experiences nationwide power outages, although the country imports some 30 per cent of its electricity from abroad.

Roland Matous, from the Secretariat of Energy in Vienna, a regulatory body for energy, agrees that Kosovo’s plight is the worst in the Balkans: “Kosovo and Albania are the worst,” he said, “but the latter is in the better position of the two.”

Donors wary of corruption

International donors say their responsibility was to invest in the KEK’s production units with a view to making them functional. Maintenance, they say, is up to KEK, and most experts agree it has failed to properly manage its assets, scaring off potential investors.

Like the German government, Ganimete Huruglica, vice-chair of the German Development Bank in Pristina, KfW, the agency through which Germany invested 67.3 million euros in Kosovo’s energy sector, says Berlin withdrew support from 2003 to 2005, after the authorities failed to maintain the renovated generators.

“It was not justifiable to use German taxpayers’ money to invest in the energy sector when it was clear there would be no maintenance afterwards,” Huruglica said.

However, Germany has resumed its investments in KEK after 2005, mainly because the company has taken action to reduce its debts by forcing more non-paying consumers to clear their bills.

Arben Gjukaj, the acting managing director of KEK, says it is wrong to blame Kosovo’s power problem solely on KEK. He said foreign investments often did not go where they were needed, but where donors wanted them to go, which was not always the same thing.

Gjukaj concedes the energy sector in Kosovo has been mishandled for a decade after 1990, when Serbia stripped Kosovo of its former autonomous status.  The company had also to deal with low rates of payment for electricity by consumers. Between 1999-2007 KEK managed to collect only some 50 to 60 per cent of payments, creating a huge debt of 340 million euros.

The annual shortfall in income left KEK unable to maintain the units in which foreign donors had invested. “What we collect from our consumers is still not enough to cover the maintenance of KEK units,” Gjukaj said.

The media in Kosovo blame other factors for the company’s financial losses, however, starting with corruption in the management.

Sources in international organisations in Kosovo dealing with KEK agree. Some claim corruption in the public enterprise begins at the bottom, with bill collectors, and goes all the way to the top. “That’s why the company is bankrupt – and why consumers are reluctant to pay for their energy,” said a foreign official.

Sources within KEK don’t dispute the charges of corruption, saying a number of bill collectors had damaged KEK finances by accepting bribes from consumers to erase their debts, or ‘fix’ their energy metres, so as to conceal the amount of energy they consumed.

A 2006 report by US Agency for International Development, USAID, detailed the illegal methods used by KEK service units. The report, entitled Qualitative Assessment of Preparation for Transition to Local Management within KEK, which we obtained, has never been published. It claims KEK staff illegally classified numerous consumers as ‘passive’ consumers.

The term refers to consumers who use electricity for only short periods each year, usually during holidays spent back home in Kosovo. When they leave Kosovo, these customers are entitled to call on KEK service staff to denominate their units as ‘passive’, after which they stop receiving bills.

According to the USAID report, the number of these so-called passive consumers had grown from 27,000 to more than 100,000 in recent years. “It is believed that more than 70,000 consumers have been fraudulently declared passive by the KEK service unit,” the report stated.

Gjukaj, from the KEK, admitted staff had wrongly declared as ‘passive’ some consumers who had run up huge debts. He also admitted that some staff had changed the energy metres of consumers, installing new ones that were set at zero, as a result of which their previous debts were wiped off.

“There are certainly many active consumers who have been classified as passive,” he said. “Many had debts of over 10,000 euros but had new energy metres installed on their premises and so dispensed with the debt.”

This procedure goes clean against all KEK regulations, which clearly state that a consumer may not be labelled passive if he or she owes money to the company.

KEK officials claim they are fighting back, noting that the company has instituted legal proceedings against 46 employees for theft, bribery or bad management.

But corruption in the KEK does not stop with lowly service engineers and bill collectors. One of the darkest periods in KEK’s turbulent history occurred in 2002, when the company’s international director was arrested. Joe Trutschler, a German who was appointed to head KEK by the UN administration in Kosovo, UNMIK, was arrested by the German authorities for theft.

Trutschler was found guilty of authorising the transfer of €4 million from the company to a private bank account in Gibraltar and is serving a three-and-a-half-year prison sentence. Others say Trutschler was one of many corrupt big fish in the KEK – the only difference being that he was caught.

Why pay when you can steal?

KEK officials claim they invoice far less amounts of energy than they produce and import. Part of the power that is lost, disappears for technical reasons – leaks being inevitable on an old network – but some, they say, is stolen.

KEK’s claims are supported by the USAID report, which estimated the agency was losing about 34 per cent of the energy it produced through a combination of technical losses and theft. “Coupled with a collection rate of only 50 to 60 per cent, KEK is only collecting payments for about 35 per cent of the energy it produced,” the report said.

Another report, compiled by UNDP, identified losses of these kinds as the principal problem facing the energy corporation in Kosovo. The report, Human Development Report in Kosovo 2007, blamed use of faulty metres, improper ‘fixing’ of metres, theft of power through illegal networking, and the refusal of many consumers to pay their bills.

Indeed, KEK statistics show that between 2000-2002 alone, the company lost over 120 million euros. According to the same statistics, the loss is increasing and in 2007 KEK lost some 92.3 million euros.

One way that KEK could avoid energy losses is by implementing the use of digital energy counters. Differing from the current analogue counters which require KEK employees to go from door to door to read metres, the digital counters can be easily controlled remotely. Further more, KEK would be in a position to fully control expenditures and cut off some clients from its power-supplying network.

The Economic Association for Electric Energy distribution, Jugoistok, from Nis in southern Serbia, has gone ahead with this change already and, according to officials, the measure is an effective barrier to thieves.

Burim Latifi, in charge of maintaining energy equipment in Bujanovac, southern Serbia, says the changeover has been useful. The region once lost more energy than any other in the country. Now, according to Latifi, the company receives an alert whenever consumers try to open these devices and meddle with them.

Experts like Matous agree that such a system could be one solution for Kosovo. Indeed, in 2007, the EAR sponsored a project which would enable KEK to keep better track of its clients and their expenditures. Named the Geographic Informative System project, or GIS, it cost the EAR some 158,000 euros.

The core idea of GIS was to provide KEK with geographical maps, supplying the company with more accurate client information such as the region in which they resided and their rate of payment.

Typically, some would say, the project has not been implemented. Blerim Rexha, manager of CSE, the company hired by KEK to implement GIS in Kosovo, said the original plan was to gather the data for each of the 370,000 KEK clients. But only 500 were included in the testing phase.

Rexha, now deputy minister of energy, described the GIS project as a classic example of mismanagement of the energy issue. He recalls that he once asked KEK’s management in 2007 how the project was going. “They told me they stopped the project because the room in which the hardware was being installed was too hot,” he said, adding that it would have cost about 1,500 euros to install air-conditioning for the chamber.

However, Odran Hayes, of EAR, which financed the GIS project, disputes this version of events. He blamed complications over cadastral data for the project’s failure. “KEK needed cadastral data to implement the project,” said Hayes, explaining that EAR was unable to provide KEK with such data and no authority in Kosovo could do it, either.

Holding back the economy

Many stakeholders in Kosovo’s fragile economy describe the energy sector’s condition as critical and as a hindrance to development and job creation.

The KAF Financial Group study claimed the use of generators by private companies led to a potential loss of 3.5 new jobs per company annually.

Erich Lifka, of the Vienna Institute for Economic Promotion, WIFI, says many Austrian companies remain interested in investing in Kosovo due to the relatively low labour cost. But they are holding off due to the energy problem, as well as wider issues concerning the rule of law.

“Last year, KEK lost about 11 million euros from businesses not paying their bills,” Gjukaj said. “In a number of companies, the payment of electricity bills is the lowest priority.” However, he does regret KEK can’t supply power regularly even to those businesses that do pay their bills.

While the KEK management blame individual consumers and businesses for not paying their bills, Bashkim Osmani of Dona juices factory says the energy sector should be servicing the needs of business, not vice-versa. “We live in hope that this situation will improve. We’ve been living in hope all these years, but nothing has changed,” he says.

It looks like Osmani will have to wait a while longer for his hopes to become reality.

This article was produced as part of the Balkan Fellowship for Journalistic Excellence, an initiative of the Robert Bosch Stiftung and ERSTE Foundation, in cooperation with the Balkan Investigative Reporting Network

Source: Balkan Insight

As jubilant Kosovars danced in front of the Newborn statue unveiled in the capital, Pristina, to commemorate their long-awaited independence on February 17, 2008, many political leaders around the world watched the events with different emotions.

Their core concern was that granting independence to a former province could boost secessionist movements the world over, and not turn out to be a sui generis case, as Kosovo’s European backers have insisted.

The debate over the “Kosovo precedent” was revived in August 2008, when Russian forces poured into the breakaway Georgian regions of Abkhazia and South Ossetia. The conflict ended in Russia’s recognition of the enclaves’ independence, and the example of Kosovo as justification for this.

“We argued consistently that it would be impossible to tell the Abkhazians and Ossetians that what was good for the Kosovo Albanians was not good for them,” the Russian President, Dmitry Medvedev, wrote on August 27, 2008, in the Financial Times.

Advocates for the self-determination of various regions and provinces echo those sentiments. Some surveys estimate that there are over 200 secessionist movements worldwide.

Some of the most significant are in Europe. In Britain, there are Scottish and Welsh independence movements and the movement to unite Northern Ireland with the Republic of Ireland. In Spain there are Catalan and Basque independence movements while in Greenland, many seek independence from Denmark. Then, there is the push by Turkish Northern Cyprus and Transdnistria, already de facto independent states, to gain international recognition of their separation from Cyprus and Moldova.

In the Caucasus, outside the aforementioned Georgian enclaves, an unresolved conflict simmers over the ethnic Armenian province of Nagorno Karabakh in Azerbaijan, while secessionist movements are active in the Russian republics of Chechnya and Dagestan. In China, there are the Tibetan and Uygur (Xinjiang) independence movements and in Africa, conflicts continue over the Western Sahara in Morocco, and South Sudan. Kurdish nationalism, meanwhile, involves several states – Turkey, Iraq and Syria.

However, after travelling to two very different lands in which there are strong secessionist movements, Abkhazia and the Basque Country, it seems for the time being, at least, that international fears about the impact of Kosovo’s independence are largely misplaced. Separatists are certainly interested in events in Kosovo and draw courage from them. But there is little evidence that Kosovo’s independence or recognition has significantly boosted their prospects of statehood.

If Kosovo has it, why not Abkhazia?

At the bridge over the river Ingur, the only entry point to Abkhazia from Georgia, stands a monument of a pistol with its barrel tied in a knot. Erected as a symbol of disarmament, it is a small version of the sculpture, Knotted Gun, by the Swedish artist Carl Fredrik Reutersward. It expresses the aspiration of all the residents of this unrecognised country for peace.

But real peace still eludes this troubled land. The battered streets of the capital, Sukhumi, evoke a country that emerged from war yesterday, though the fight against Georgia ended in 1993.

At both ends of the bridge, Russian soldiers – the architects and supporters of Abkhazian independence – wait in white armoured personnel carriers, watching the few people crossing the bridge. They keep the peace along the administrative border with Georgia, albeit to the dismay of the Georgians who do not regard them as honest brokers.

With a population of around 220,000, and recently recognised by Russia, Abkhazia sees Kosovo as a possible role model, despite the fact that Russia, a staunch ally of Serbia, has bitterly opposed Kosovo`s independence, warning it could have a domino effect around the world.

The Abkhazians do not compare their situation directly with Kosovo but use the “double-standards” argument to insist they are entitled to the same treatment. By this, they mean the Western claim that Kosovo’s recognition is a sui generis case, which cannot be applied elsewhere.

Following the break-up of the Soviet Union during which time they were autonomous republics inside Georgia, both Abkhazia and South Ossetia declared independence in 1992, triggering armed conflicts that ended in a Georgian withdrawal. Provisional peace agreements, brokered by Russia, resulted in the deployment of Russian forces along the administrative border with Georgia, enabling these lands to become de facto independent states, though without international recognition.

Kosovo was also an autonomous province until the Serbian leader Slobodan Milosevic stripped it of its autonomous status and incorporated it into Serbia in the early 1990s.

The government suppressed the rights of ethnic Albanians, triggering an armed conflict with a local guerrilla force, the Kosovo Liberation Army. This ended in June 1999 after NATO forced the Serbian police and army to withdraw.

Kosovo then became a UN-administered territory. But, crucially, Western political leaders agreed that any return to Serbian sovereignty was out of the question, prompting rapid recognition of Kosovo’s unilateral declaration of independence from Serbia.

Georgians resent comparison between their struggle to regain control over their lost provinces and Serbian tactics in Kosovo. “The independence of Kosovo has worried us, although these conflicts are different and the reasons behind them are different,” says Alexander Rondeli, of the Georgian Foundation for Strategic and International Studies, in Tbilisi. “In Kosovo we saw the extremist measures of the Serbs towards the Albanians but in Abkhazia the Georgians have been the victims of ethnic cleansing,” he adds, referring to the several hundred thousand Georgian refugees from Abkhazia in the 1990s.

Temur Iakobashvili, Georgia’s Minister of Reintegration, makes the same point. “I don’t see similarities between Kosovo and Abkhazia, these are different conflicts,” he says. “The Kosovars were subject to ethnic cleansing, and here, this is the case with the Georgians, which is a significant factor.”

Diana Chachua, 22, a Georgian refugee from Abkhazia, remembers the day Kosovo proclaimed independence with pain. “I knew it was bound to happen but was still shocked,” she recalls. Georgians rarely travel to Abkhazia these days, she adds. “It is only Abkhazians that travel across the bridge.”

Since Kosovo’s independence, Russia has strengthened its ties with South Ossetia and Abkhazia, abolishing border controls and granting many locals Russian passports. Their currency is the rouble.

Vjacheslav Chirikba, a foreign policy adviser to the Abkhazian President, Sergey Bagapsh, says if Kosovo is entitled to statehood, so is Abkhazia. During the early years of the USSR it was a separate Soviet republic, he notes, and now it meets all the criteria for a recognised state. “Both main factors are met, political and state structure, plus economic sustainability, so where is the problem?” Chirikba asks. “Abkhazia will never be a part of Georgia,” concurs Maxim Gvindzhia, Abkhazian Deputy Foreign Minister. “Independence for us, as in the case of Kosovo, is an issue of self-preservation. Independence is the only guarantee of the preservation of our nation.”

While both Georgians and Abkhazians draw parallels between their situation and Serbia-plus-Kosovo, few outside experts believe events in Kosovo exerted any concrete effect on the Caucasus, or triggered the war in South Ossetia.

The five-day war in South Ossetia started when Georgia tried to retake control of the region on August 8, 2008. The move by Georgia`s president, Mikhail Saakashvili, triggered a fierce military response by Russia which sent troops to Georgia under the pretext of preventing genocide.

Tim Judah, an expert on both the Balkans and the Caucasus, says the conflict was inevitable, regardless of Kosovo’s declaration of independence.

“Even if Kosovo hadn’t existed, the conflict in South Ossetia would not have been avoided,” he says. “Russia is naturally very interested in using Kosovo as an argument. But Russia is not really interested in South Ossetia or Abkhazia, it is more interested in preventing Georgia from joining NATO.”

George Hewitt, Professor of Caucasian languages at the London School of Oriental and African Studies, SOAS, agrees. “I don’t attribute any upsurge in activity here in the Caucasus to what happened in Kosovo,” he says. “Events in South Ossetia can be more readily explained by NATO’s folly in Bucharest,” he adds, referring to the 2008 summit at which Georgia’s appeal for membership was rejected.

A model for the Basques?

While Abkhazians – and Armenians in Nagorny Karabakh – mull the dilemma of enjoying de facto but not de jure independence, the Basques face a very different challenge: how to peacefully convert their existing regional autonomy to full statehood inside a developed Western democracy.

Despite the terrorist attacks launched by the Basque independence movement, ETA, over the past 40 years, most Basque people now see peaceful talks as the only path to independence.

They welcome Kosovo’s independence. Iratze Urizar, who works in Bilbao for an organisation that helps Basques in Spanish jails, says Basque nationalists viewed the events in Kosovo as affirmation of the principle of self-determination.  “People here were happy for Kosovo,” she says. “What connects us is the right to self-determination.”

Historically, the Basque Country comprises seven provinces, four in Spain and three in France. Although the nationalist movement is spread over all seven, it is stronger in the three provinces in Spain, Alava, Biscay and Guipuscoa, which form the Basque Autonomous Country.

The autonomous Basque government proposed a referendum that would have paved the way for a referendum on independence, planned for 2010. However, the central government in Madrid strongly opposed the plan and Spain’s highest court in mid-September ruled the referendum unconstitutional. The conflict between Madrid and the Basques over the referendum coincides with a similar conflict over Kosovo: the Basque government supports Kosovo’s independence, while Madrid does not.

According to the Basque President, Juan Jose Ibarretxe, events in Kosovo show the right of nations’ to self-determination cannot now be denied. “The 21st century is the century of identity and nations; it is the century of respect for the will of the people,” he said in February, following Kosovo’s declaration of independence.

A survey by the Basque government claims that 78 per cent of Basques want the referendum to go ahead. They believe the process of self-determination has started, and that there is no turning back.

“In an age of globalisation, small nations must become independent in order to defend their sovereignty,” says Urko Aiartza Azurtza, a lawyer for Batasuna, a hardline Basque nationalist party that the Spanish government has banned. “It’s a process that has started and cannot be stopped.”

The Spanish government, on the other hand, steadfastly refuses to recognise Kosovo’s independence, one of five remaining EU refuseniks – alongside Romania, Slovakia, Greece and Cyprus. The government also denies most Basques support independence, saying only 30 per cent want it.

Aitor Esteban, deputy of the Basque Nationalist Party in the Spanish parliament, is not surprised by Madrid’s position. “It is a contradiction because if Kosovo is indeed an exception or ‘a unique case’, it should not represent a problem,” he says. “But, actually, they [the Spanish government] think this will not be the last such case, and that many other ‘hot’ issues over nationalities will now open up in Western Europe.”

The criteria for statehood is unclear

Back in Kosovo, whose independence had been recognised by 52 states at the time of writing, ordinary people are aware their struggle has stirred hopes among other small nations that feel occupied, repressed or enslaved. “I fully support those initiatives for independence that look to Kosovo, those nations striving for independence that are truly repressed and seek liberation,” says Agon Hamza, a law graduate in Pristina.

But while ordinary people sympathise with liberation movements, Kosovo leaders refuse to let their country become a standard-bearer for other liberation movements. “We have always stressed that Kosovo has special characteristics,” Kosovo’s President, Fatmir Sejdiu, has said. “It is a case sui generis and cannot be used as a precedent for other conflict zones, areas or regions.”

Experts in Kosovo are more nuanced, saying it is hard to define the standards by which a nation has a right to break away and start an independent existence.

One local NGO, the Kosovar Institute for Policy Research and Development, KIPRED, in a study released late last year, lists several criteria. These include borders established in the previous system before the dissolution of the state, the presence of an ethnic minority subjected to ethnic cleansing or serious violation of minority rights, and the existence of democratic structures recognised by the international community.

By applying these tests, Albanians in neighbouring Macedonia, for example, seem unlikely to win their own state. This is despite the existence of a strong secessionist movement dating from the early 1990s, and an armed conflict that erupted in 2001, pitting the security forces against Albanian guerrillas claiming to represent the 25 per cent minority.

Since then, however, Macedonia has moved back from the brink and been praised for its management of minority issues. Following an internationally-brokered peace deal signed in Ohrid in 2001, fighting has ended, minority rights have improved, and the wind’s been taken out of the sails of the separatist campaign.

But while Macedonia no longer sees independence for Kosovo as a direct threat – Skopje recently recognised the Pristina government – there are still fears in Macedonia that an ethnic division of Kosovo (if the Serb-dominated north secedes) could inspire Macedonian Albanians in the west of the country to follow suit.

“In the short term, there is no danger of instability spilling over from Kosovo into Macedonia,” Biljana Vankovska, pofessor of political science and defence at the Cyril and Methodius University in Skopje, says. “But any continued regional fragmentation, such as the division of Kosovo, or the separation of the Republika Srpska from Bosnia, may shift the tectonic plates. Many things will depend on the interests of the US and Russia in the region.”

As a result, Macedonian officials counsel against the redrawing of borders in Kosovo or Bosnia, fearing an impact down the line in Macedonia. After all, Kosovo may once again serve as an alibi.

“The West has demonstrated its ethical foreign policy in Kosovo and today, Russia is doing the same in the Caucasus,” Vankovska notes. “This is leading us into an insecure world in which all issues may be settled on the principle that ‘If this can be done here, why not there as well? Why should we be a minority in your state when you can be minority in ours?’”

Professor Hewitt says in the final analysis such cases cannot be judged solely from the point of view of international law: the moral aspect of the case for independence must be included.

“If a country by its actions loses the moral right to control this or that region, which may or may not be populated by an ethnic minority, then that region or ethnic minority has the right to press its case for self-determination,” he says. “Some laws are there to be broken.”

This article was produced as part of the Balkan Fellowship for Journalistic Excellence, an initiative of the Robert Bosch Stiftung and ERSTE Foundation, in cooperation with the Balkan Investigative Reporting Network

Source: Balkan Insight