UPDATE 3-Czech CEZ wins Albania power deal with 102 mln euros

                                
  (updates with winning bid)
                                
 By Benet Koleka
                                
 TIRANA, Sept 29 (Reuters) - The Czech power utility CEZ
<CEZsp.PR> offered 102 million euros on Monday to win a 76
percent stake in Albania's power distributor DSO after Albania
found Italy's ENEL <ENEI.MI> technical bid insufficient.
                                
 CEZ and ENEL had hours earlier submitted technical and
financial bids to a government commission that was to evaluate
their technical offers first. Austria's EVN <EVNV.VI> and
Energie Steirmark had withdrawn.
                                
 "The financial offer from CEZ is 102 million euros," Fatjon
Tugu, a member of the government commission told the audience.
                                
 Deputy Energy Minister Neritan Alibali had authorized the
commission to open the CEZ financial offer after he said ENEL's
technical bid was "not compatible with the criteria" set by
Albania while CEZ's bid "fully met" the conditions.
                                
 "We'll now prepare the report for the government," Alibali
said. The approval is expected to be a formality.
                                
 Albanian officials were happy with the price paid for the
ailing distributing arm of the state-owned KESH monopoly whose
performance they have not been able to turn around since Albania
toppled communism in 1990.
                                
 Albania hopes the sale of DSO will gradually reduce chronic
power shortages that have hurt the quality of life and growth
for a decade in one of Europe's poorest states.
                                
 CEZ has taken part in power sale tenders in Albania.  ENEL
ended four years ago a management contract with KESH.
                                
  Albania expects the buyer to reduce both technical losses
and theft in the Distribution System Operator's (DSO) grid from
32 percent at end-2008 down to 15 percent in 2014.
                                
 CEZ will now become Albania's distribution monopoly and
cater to almost one million clients and supplying 5.3 TWH of
electricity per year, which it will buy from KESH utility.
                                
 MARKET MODEL
                                
 Energy Minister Genc Ruli told reporters on Friday Albania
had created a market model under which KESH would bear the risk
for its failure to supply DSO with power while DSO would bear
the risk of failing to avoid losses in the network.
                                
 Albania relies 100 percent on rainfall into the basins of
its communist-era hydropwer stations for electricity to cater
for growing demand.
                                
 Lack of rain over the last years and insufficient imports
have caused up to half-day long power cuts and blackouts
throughout Albania and caused GDP to fall by half a percentage
point to 5.5 percent in 2006.
                                
 "On the other hand, the risk deriving from the losses will
befall on the distribution operator. It will be obliged to
invest and take all measures to reduce losses in an aggressive
way, be they technical or not," Ruli said.
                                
 "It will be forced to import energy to compensate for the
losses. Thus, this is a stimulation mechanism for the private
operator to get it to cut losses so it won't be forced to import
to supply power to the network," Ruli added.
                                
 He admitted the least attractive side of DSO sale -- unique
to Albania even in the unruly Balkans -- was the fact that 35-40
percent of power was lost in DSO's grid because of technical
losses and theft. It also managed to cash in only 83 percent of
the total of the power it billed to consumers.
                                
 DSO has a 140 million euro ($218.4 million) debt, which is
from a revamp of its operations. Electricity prices will not
increase in 2008, but they are expected to go up gradually over
the ensuing five years, Ruli said.
 (Reporting by Benet Koleka, editing by William Hardy)