Transaction Costs in Constructing Small and Medium Hydro Power Plants in Albania

Abstract

Identifying the transaction costs helps knowing which are the real costs of starting a new business, finding bottlenecks, can serve to reduce inefficiencies and encourage more effective reforms. In this article we analyze the impact of transaction costs in interactions between firms and public authority, when firms participate in the bidding procedure for constructing new hydropower plants until the stage of producing electricity. In the first years, after granting the concession right, firms face many difficulties due to a complex normative regulation, contractual conditions and bureaucracy. Although in the majority of the cases, winning firms are provided by the public authority with the concessionary permit within the legal deadlines, they fail to start producing electricity within the declared timetable. Even though direct transaction costs computed by measuring the actual costs that firms or individuals face during these procedures may be relatively low, fairly 1-2 % of the total cost of investment, opportunity costs considering the potential loss in the revenues due to delays in producing and selling electricity, in some cases, can be equal to the total cost of constructing the implant. Keywords: transaction costs, concessions, hydro power constructing, regulation.