State-owned companies under the weight of tax debt and mutual debts

The accumulated debt by public companies in Albania does not represent merely a technical accounting issue, but a deep symptom of structural deficiencies in the way these entities operate in relation to the state, market, and society. Companies such as OSHEE, KESH, OST, and water and sewerage enterprises are not only providers of basic services but also direct actors in the fiscal and financial balances of the state.
Based on 2024 data and their debt statements up to early 2025, it is clear that they represent a significant share of the carried tax debt, with OSHEE and water companies bearing the largest weight.

2. Size of debts and institutional interconnections
In absolute terms, the debt of public companies to tax and financial institutions exceeds 17.5 billion ALL, representing about 11% of the total carried tax debt at the end of 2024 (approximately 162.5 billion ALL). This debt is not isolated. It also includes:
• Inter-institutional obligations (between OSHEE, KESH, and OST) that exceed 57 billion ALL;
• Debts of water companies to OSHEE for unpaid electricity reaching 36.7 billion ALL;
• Obligations of water companies and OSHEE to the Ministry of Finance, reflecting unmet payments to the state budget, for guaranteed loans or unpaid contribution obligations.
This situation constitutes a closed and regressive debt cycle, where one party does not pay the other, deepening each actor’s deficit without creating any measurable accountability.

3. The impact of debt on the operational performance of public companies
OSHEE, the company with the broadest impact in the economic system, suffers from high technical and non-technical losses in the network (over 20%), which prevents it from generating sufficient revenue to repay obligations to KESH, OST, and the GDT. Meanwhile, distribution tariffs remain regulated in such a way that they do not reflect the real cost of losses or necessary investments.
KESH, although it exports energy under favorable climatic conditions, fails to meet all obligations as OSHEE does not settle payments. More than 36.8 billion ALL unpaid by OSHEE to KESH puts the company in an uncertain liquidity position and hinders capital investments in the hydropower sector.
OST, on the other hand, has less reported debt to the tax authorities but suffers from unpaid bills that disrupt cash flow and negatively affect its capacity to carry out strategic transmission investments.
Water and sewerage enterprises, about 50% of them, are unable to cover operational expenses, let alone pay for electricity which accounts for over 40% of total costs. Furthermore, they face very low (non-economic) tariffs, a high number of illegal connections, and poor technical efficiency, resulting in unpaid debts to OSHEE and consequently, to the entire public energy chain.

4. Their weight in the tax and fiscal system
The tax liabilities of these companies are not insignificant. OSHEE and water companies alone represent over 10% of the entire carried tax debt, competing with large private businesses. However, unlike the private sector, public companies do not face strict enforcement or confiscation procedures, creating tax inequality and market distortion.
Furthermore, their debt is not only tax-related but also translates into repeated subsidies from the state budget, often outside any reform logic. This makes the issue not only fiscal but also political, as it transfers the cost of managerial inefficiency to taxpayers.

The debt of public companies – a full cycle requiring a shift from paper reforms to real implementation
The public economic sector in Albania, represented by state-owned companies and public service enterprises, continues to be a dual source of pressure on public finances: as ongoing beneficiaries of subsidies and budgetary support, and as contributors to the accumulation of carried tax debt.
Although structural reforms have been undertaken in some areas, the data and institutional behavior show that the problem is no longer the absence of a framework but the lack of implementation and the absence of enforcement and accountability mechanisms.

a. The tripartite energy agreement: implementation that is not happening
In the energy sector, the agreement between KESH–OSHEE–OST for netting and mutual compensation of obligations has existed for several years. However, it is not being implemented in practice, due to:
• Institutional conflict of interest and pressure for artificial financial indicators, where each company tries to preserve its financial balance, even at the cost of not paying obligations to others.
• The absence of a binding and sanctioned legal mechanism to dictate the automatic fulfillment of the agreement.
• The cyclical impact of debt and lack of real cash flow restructuring, where liquidity is used for emergency operations rather than repayment of structural debts.
ALTAX experts believe the existing agreement should move to a second phase with legally binding status, through a DCM that sanctions reciprocal obligations and links them to criteria for budgetary support.

b. Water sector reform: from consolidation to depoliticized management
The consolidation of water companies into 15 regional units is an important institutional achievement that has theoretically increased technical and operational capacity. But the real problems no longer lie in fragmentation, but in:
• The politicization of company management, where directors and boards continue to be political appointments unrelated to technical performance.
• The lack of autonomy in tariff decision-making, which remains hostage to the short-term interests of municipalities or central influences.
• The low level of collections and abuse with illegal connections, which indicate that the issue lies in enforcing financial and legal order, not in the managerial structure.
ALTAX experts believe the reform should transition into a phase of depoliticized management, through competitive appointments and good governance standards, as well as strengthening the oversight role of the Water Regulatory Entity and the Supreme State Audit.

c. Financial monitoring system: it exists, but is ineffective
In theory, the financial monitoring system exists and functions at the reporting level from public companies to the Ministry of Finance and other relevant structures. The fundamental problem is that:
• Reporting is not followed by corrective actions – there is no mechanism that penalizes or halts financing if the public company significantly deviates from objectives.
• The data is fragmented, delayed, and often inconsistent with operational reality.
• There is no real audit of financial performance in relation to tax and inter-institutional debt, and no one is held accountable for poor results.

ALTAX experts believe there is a need to establish a “strict fiscal regime” based on three fundamental pillars:

1. Automatic measures for enterprises showing a quarterly deterioration of financial indicators;
2. Restriction of access to public funds for entities that fail to meet their tax obligations;
3. Comparative publication of tax performance, in order to stimulate healthy competition across sectors.

d. Tax discipline for public enterprises: a severe systemic gap

Unlike the private sector, public enterprises are not subjected to the same punitive tax compliance regime. The lack of enforcement of fiscal discipline in these entities has resulted in:

• Systematic accumulation of tax debt, carried forward without any concrete plan for repayment or restructuring;
• The development of a fiscal immunity culture, where state-owned enterprises are perceived as “untouchable”, generating systemic unfairness in comparison to private sector businesses;
• Lack of transparency and qualified oversight by the tax administration, which often categorizes this debt as “inactive” and defers it for political resolution.

ALTAX experts recommend the involvement of the General Tax Directorate (GTD) in a dedicated program for the restructuring of tax debt of public enterprises, including:

• a structured payment plan,
• clearly defined penalty conditions, and
• temporary exclusion from public contracts until compliance is fully achieved.

The current situation clearly reflects a significant gap between institutional design and the real implementation of reforms. While agreements exist and systems are in place, the absence of political will, mandatory enforcement mechanisms, and depoliticized decision-making has turned many of these reforms into mere formal façades. To break this cycle, a new fiscal pact is needed between the government, public enterprises, and supervisory institutions—anchored in accountability, transparency, and rule enforcement with tangible measures. Only under these conditions can reforms truly translate into a reduction of tax debt and an increase in the sustainability of public finances.