Local company gets ‘lucrative’ €50 mln PPP for Albanian Riviera access road

Local company gets ‘lucrative’ €50 mln PPP for Albanian Riviera access road

TIRANA, Nov. 12 – Another local Albanian company has been awarded what looks like a lucrative public private partnership project to upgrade and maintain road infrastructure following an unsolicited proposal claiming it a bonus and facing no competition at a

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Indian-led consortium to build first major solar plant in Albania

Indian-led consortium to build first major solar plant in Albania

By Ervin Lisaku TIRANA, Nov. 12 – Albania has selected an Asian consortium led by India Power Corporation Ltd to build the country’s first major solar power plant in a bid to diversify current wholly hydro-dependent domestic electricity generation that

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Albanian apple growers face below-cost prices

Albanian apple growers face below-cost prices

TIRANA, Nov. 8 – Apple growers in the northern Albanian region of Dibra say thousands of metric tons of apples are destined to be sold below cost or go rotten because of overproduction and lack of refrigerated warehousing that could

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Vienna Institute warns of PPP, judiciary reform risks to Albania’s outlook

Vienna Institute warns of PPP, judiciary reform risks to Albania’s outlook

TIRANA, Nov. 7 – The Vienna Institute for International Economic Studies says it expects Albania’s economy to grow by an average of 4 percent annually over the next couple of years, but warns of risks that public private partnerships and

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2019 fiscal package: Albania tightens tax evasion rules, offers incentives

2019 fiscal package: Albania tightens tax evasion rules, offers incentives

By Ervin Lisaku TIRANA, Nov. 7 – Albania’s ruling Socialist Party majority has unveiled a series of legal changes aimed at fighting tax evasion among high income earners, local businesses and transactions involving foreign-owned assets starting next January, in addition

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Experts urge faster business reforms to catch up with regional competitors

Experts urge faster business reforms to catch up with regional competitors

TIRANA, Nov. 6 – Albanian economy experts say the country has to speed up reforms so that it catches up with regional competitors in becoming a more attractive investment destination. The suggestions come after Albania climbed only two steps to

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Reform fails to make Albania’s new municipalities financially independent, auditors say

Reform fails to make Albania’s new municipalities financially independent, auditors say

TIRANA, Nov. 6 – Almost four years after Albania started implementing a territorial and administrative reform that reorganized local government units, the new larger 61 municipalities continue remaining largely dependent on central government funding and their further decentralization and fiscal

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Tax dispute holds back Albania’s new ‘National Arena’ stadium

Tax dispute holds back Albania’s new ‘National Arena’ stadium

TIRANA, Nov. 5 – Albania’s football association says the completion of the ‘National Arena’ stadium, the new home of Albania’s national side in the Albanian capital city Tirana, has been called into question due to a tax dispute with the

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‘No-deal Brexit could have implications for Albania, region,’ EBRD warns

‘No-deal Brexit could have implications for Albania, region,’ EBRD warns

TIRANA, Nov. 5 – A no-deal Brexit would hit Albania and other Western Balkan countries through indirect trade links, lower EU accession funds and delayed accession prospects, London-based European Bank for Reconstruction and Development has warned. In a recent report

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Albania mulls turning key Tirana-Durres highway into toll road

Albania mulls turning key Tirana-Durres highway into toll road

By Ervin Lisaku TIRANA, Nov. 1 – The Albanian government is mulling turning the country’s key highway linking the two main cities of Tirana and Durres into a toll road through a concession which apparently does not affect public finances,

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                    [post_content] => TIRANA, Nov. 12 – Another local Albanian company has been awarded what looks like a lucrative public private partnership project to upgrade and maintain road infrastructure following an unsolicited proposal claiming it a bonus and facing no competition at a tender held last September.

Albanian-owned Gjikuria has been announced the winner of upgrading a 15-km road project linking the southern Albania town of Orikum and its yachts port to the Dukat village and the Llogara Pass along the Albanian Riviera in a project that authorities say increases road safety and serves tourism development in the southern Albanian region of Vlora, one of the country’s top destinations

The announcement is made by the transport ministry on this week’s bulleting of the public procurement agency.

The Gjikuria company, which had earlier been awarded a six percentage point bonus for its unsolicited proposal, bid to complete the project for €50.5 million, almost the same to authorities’ estimated value in the tender. Once contract negotiations conclude, the project is expected to be carried out under a 13-year PPP with the Albanian government in return for initial investment and maintenance at the company’s own funds. The company will start getting taxpayer support in annual instalments once it has carried out a quarter of construction works.

The winning company faced competition by a single operator which bid €63 million but which a public procurement transparency portal said was disqualified for also failing to submit a bid guarantee of about 2 percent of the project's value.

The Albanian government said it is undertaking the reconstruction due to the current 16 km road segment being in a degraded condition and causing traffic chaos in summer, the peak of Albania's tourist season.

Authorities say the new 14.7 km extended road will make access to the Ionian Riviera easier through a wider road allowing drivers to travel twice faster at an average of 60 to 100 km/h and give a boost to future development in the area.

The new wider road will yet be a two-lane road that leaves open a future solution of crossing the Llogara Pass either through a costly tunnel or through the existing winding and panoramic but narrow road.

A local business portal described the project's cost at €3.4 million per km, in costs that also include maintenance for 13 years, as too high for a two-lane road considering the country’s previous experience with similar roads and even highways at construction costs of about €1 million/km.

Last month, the government also selected Albanian-owned “A.N.K.” company to build an 18-km highway that improves access to the northern region of Lezha and neighboring Montenegro through a similar PPP. The Milot-Balldren project will be a €161.5 million investment on a 6-lane highway on a completely new track that also includes 9.5 km of secondary roads, new bridges on the Drin and Mat rivers and an 850 meter long tunnel. The winning concessionaire will get taxpayer support for construction and maintenance costs for the next 13 years.

The new road is part of several key road segments, including a highway linking Albania to Macedonia that are being built as part of a €1 billion PPP program under which concessionaires complete the projects using their own funds and financing and the government pays them back in annual instalments for investment and maintenance costs for up to 13 years.

Taxpayer support to some controversial public private partnerships is expected to increase by around 50 percent to €100 million for 2019 as the government starts paying on three news public private partnerships, taking PPP spending to 3 percent of the previous year’s fiscal revenue, compared to 5 percent threshold that the government has set.

International financial institutions have already warned that local PPPs, most of which given the okay following controversial unsolicited proposals and without thorough cost-benefit analysis, could pose a threat to the public debt reduction agenda because of the risk of creating new arrears which if included in the public debt stock could increase it by 7 percent of the GDP considering an ambitious €1 billion PPP program.

Interest by foreign companies to participate in the €1 billion PPP projects has been vague amid allegations of pre-determined winners in tenders where Albanian companies submitting unsolicited proposals have been advantaged through pre-tender bonuses.

Both the International Monetary Fund and the World Bank have asked the Albanian government to give up the unsolicited proposal as a procedure that places bidders at unequal position and leads to controversial PPPs with no thorough cost-benefit analysis that could create new arrears undermining the public debt reduction agenda.

Albania’s public debt is already at around 70 percent of the GDP, a high level for the country’s stage of development that places at risk macro-economic stability and much-needed public investment due to high debt servicing costs. The authorities target is to bring public debt down to a more affordable 60 percent of the GDP by 2021.

 
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                    [post_content] => By Ervin Lisaku

TIRANA, Nov. 12 - Albania has selected an Asian consortium led by India Power Corporation Ltd to build the country's first major solar power plant in a bid to diversify current wholly hydro-dependent domestic electricity generation that often puts the country’s public finances in trouble in cases of prolonged droughts.

The country’s energy ministry says the 100 MW solar plant will be a private investment of €70 million in return for government commitment to buy electricity at a fixed price for a capacity of 50 MW for 15 years and allow investors to freely trade the remaining electricity in what would apparently pave the way for the Albanian energy market and the establishment of a long-awaited power exchange.

The winning consortium is led by India Power Corporation Ltd, one of the leading power generation and utility companies in India, which the Albanian government describes as guarantee for the project’s success. The project would also mark the first investment by India, Asia’s third largest economy at a time when Asian investment in the country has received a significant boost with China’s 2016 acquisition of two major assets such as Albania’s sole international airport and the country’s largest oil producer.

UAE-based Mining Resources FZE and Hong-Kong-based Midami Limited are also part of the winning consortium out of a mid-September tender when six bids were submitted, says the energy ministry.

Albanian authorities say the state-run distribution operator OSHEE will buy electricity at €59.9/MWh for 15 years for a capacity of 50MW and allow investors to freely trade production from the remaining 50MW capacity.

The energy ministry says the agreed €59.9/MWh fee for the next 15 years is one of the region's lowest for solar energy, “lower compared to Greece's €63/MWh and Turkey's €62/MWh and much lower compared to average fees for electricity imports,” in what authorities say “confirms confidence in the development of the Albanian electricity market.”

Once contract negotiations successfully conclude, the plant is expected to be built in 18 months at the Akerni salty lands of Vlora, some 130 km south of Tirana, where the Albanian government is also planning to build a new airport.

"The €70 million project will also create a lot of employment opportunities. This project will be an important step for the diversification of the electricity resources in Albania and pave the way for Albania turning into a solar energy hub in the region," says Energy Minister Damian Gjiknuri in a statement.

The Albanian energy regulator, ERE, has set a €100/MWh price on the electricity produced by small solar energy plants of up to 2 MW and €76/MWh tariff on wind energy plants with a capacity of up to 3 MW for projects initiated in 2017 as part of efforts to diversify domestic electricity generation, currently wholly hydro-dependent, with two-thirds generated by state-run hydropower plants in the northern Albanian Drin Cascade, built under communism in the 1970s and 80s.

The solar power project comes as hydropower continues to dominate electricity investment in Albania with the Devoll Hydropower project, a €535 million investment with a capacity of 256MW by Norway's Statkraft as the most important electricity generation investment in the past three decades. The project is already in its final construction stage with a new larger power plant under way after having already made operational its first plant.

The Albanian government already offers support to more than a 100 small and medium-sized hydropower plants built under concession contracts, purchasing electricity at regulated prices based on the Hungarian Power Exchange average prices.

State-run power utility KESH says it is also planning to build the country’s first floating solar power plant on the northern Drin River cascade where it generates about two-thirds of the country’s domestic electricity from three hydropower plants built in the 1970s and 80s under communism.

KESH says the more efficient plant will be an 118,000m2 floating system with a capacity of 12.9 MWp that will be built on the Vau i Dejes reservoir where the country’s third largest hydropower plant is situated.

Because of the country’s favorable geographical position and Mediterranean climate with plenty of sunshine, Albania’s is advantaged in solar energy production, but has no major such plant yet. However, solar panels are being increasingly used by households and businesses to meet part of their own needs and cut huge electricity costs.

“Due to the very good solar resource and relatively satisfactory wind speeds (3.3-9.6 m/s), there is high, untapped potential for the deployment of solar PV (up to 1.9 GW) and wind (987-2 153 MW),” says UAE-based International Renewable Energy Agency (IRENA) in a South East Europe report.

Much cheaper Caspian natural gas expected to flow by 2020 from the under construction Trans Adriatic Pipeline is another opportunity to diversify Albania’s domestic electricity generation and reactivate the Vlora thermal power plant, a costly World Bank-funded 2011 investment of $112 million that has been unavailable for use due to high costs of operating on fuel, problems in its cooling system and a legal dispute with an Italian company that built it.

A prolonged drought cost the Albanian government about €200 million in costly electricity imports in 2017 when Albania faced one of the worst droughts in decades, putting public finances at risk.

Access to electricity in the country has considerably improved in the past few years following nationwide campaigns to collect huge accumulated unpaid debts and cut off illegal connections, but losses in the distribution grid still remain high at about a quarter of electricity fed into grid and huge investment is needed to upgrade infrastructure often dating back to the 1960s and 1970s when the country was fully electrified.

Albania ranked 140th out of 190th countries in the latest World Bank Doing Business, worse than regional competitors, with poor reliability of supply and transparency of tariff index.

 
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                    [post_content] => molleTIRANA, Nov. 8 - Apple growers in the northern Albanian region of Dibra say thousands of metric tons of apples are destined to be sold below cost or go rotten because of overproduction and lack of refrigerated warehousing that could allow them to sell their top fruit at higher prices later in winter.

Apple growing has turned into the main business for farmers in Dibra, one of the country’s poorest regions where agriculture and mining are the main employers and migrant remittances play a key role for thousands of households to make ends meet.

More than 8,000 metric tons of apples are pending sale in Dibra with most of production destined to go rotten as farmers have no refrigeration infrastructure and have turned to archaic methods such as laying them on the ground and putting straw to preserve them, says the ‘Rruga e Arbrit’, a local monthly newspaper focused on developments in Dibra which is named after the under construction Arbri Highway linking Albania and the Dibra region to neighboring Macedonia.

A region of some 140,000 residents, Dibra has more than 500,000 apple trees planted in more than 460 hectares that include Golden, Starking and Granny Smith varieties, being one of the top two producers along with Korça, southeastern Albania, where overproduction has also led to prices that often don’t justify huge costs this season.

Local farmers in Dibra say they are being offered a mere 30 lek (€0.4) per kg by local warehouse collectors, in prices which they claim don’t even justify pesticide and irrigation costs not to mention their efforts.

Poor infrastructure in some isolated Dibra villages and high transportation costs to Tirana are also a key barrier, in addition to failure to get subsidies because of land fragmentation and the need of farmers to come together in agricultural cooperatives and enterprises in order to gain access to local and now EU funds under the newly launched IPARD II, the Instrument for Pre-accession for Rural Development programme.

"I have 4 to 5 metric tons of apples of various varieties at a good quality which are destined to go rotten because the prices we are being offered are not even enough to cover pesticide and irrigation costs. If we had better road access, we would go and sell them on our own to Tirana," says a local Dibra farmer.

Another farmer says local farmers should be more cooperative to join and benefit from subsidies and examine export opportunities.

"We farmers must necessarily cooperate and look at export opportunities. Support schemes give a priority to cooperatives rather than individual farmers and if farmers come together they can succeed," says Veip Sallaku, a Dibra farmer as quoted by the local newspaper.

Farmers in the southeastern region of Korça, the traditional largest apple producers, have also been facing problems with sales this year due to overproduction, but have better access to markets due to more established links and some of their apples already destined for exports.

Albania has more than 30 million apple trees, with an annual production of about 73,000 metric tons.

Agriculture is a key sector of the Albanian economy that employs about half of the country’s population but which due to its poor productivity provides only about a fifth of the national output.

Experts say unclear property titles for around half of the country’s agricultural land is a key barrier for the development of larger farms and access to local and EU subsidies that could make Albania’s products much more competitive.

In addition to land fragmentation, poor financing, lack of subsidies and key infrastructure such as irrigation as well as a high tax burden are a serious problem for Albania’s agriculture sector, with high costs often making local products uncompetitive.
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                    [post_content] => TIRANA, Nov. 7 - The Vienna Institute for International Economic Studies says it expects Albania's economy to grow by an average of 4 percent annually over the next couple of years, but warns of risks that public private partnerships and the implementation of a justice reform could pose to the country's public debt reduction agenda and EU integration prospects.

In its latest autumn forecast, wiiw, one of the top centers for research in Central, East and Southeast Europe, upgraded Albania’s 2018 growth prospects to 4.1 percent, but left unchanged the 2019 and 2020 forecast at 4 percent on the back of domestic and external demand and higher commodity prices giving a boost to the country’s oil industry.

“Our forecasts are largely unchanged from the spring, and we continue to expect the [Albanian] economy to remain strong and grow above 4 percent in the medium term. Both domestic and external demand will support growth. Higher international oil prices should mean higher investments and exports in this sector,” says the Vienna Institute.

The research center suggests the Albanian government’s public private partnership must be transparent and well monitored in order to continue the public debt reduction agenda.

“Public private partnership projects must be transparent and well monitored in order to avoid rises in public debt. Tangible progress of judicial system reform is critical for the start of EU membership talks,” says the Vienna Institute.

The warning comes as international financial institutions such as the IMF and the World Bank have asked the Albanian government to give up the unsolicited proposal as a procedure that places bidders at unequal position and leads to controversial PPPs with no thorough cost-benefit analysis that could create new arrears undermining the public debt reduction agenda.

The Albanian government is currently implementing an ambitious €1 billion PPP program to upgrade road, health, education and waste management infrastructure through taxpayer support in return from private investment and management.

Taxpayer support to 11 PPP contracts is expected to increase by around 50 percent to €100 million for 2019, taking PPP spending to 3 percent of the previous year’s fiscal revenue, compared to 5 percent threshold that the government has set.

Albania’s public debt is already at around 70 percent of the GDP, a high level for the country’s stage of development that places at risk macro-economic stability and much-needed public investment due to high debt servicing costs.

Albania is also implementing a long-awaited justice reform which is slowly progressing with a vetting process that is scanning judges and prosecutors over their wealth, moral integrity and professionalism and whose progress is considered key to the country’s hopes of launching EU accession talks next year.

Experts say that if properly implemented, the judiciary reform is also expected to give a boost to the country’s business climate by boosting rule of law and investor confidence in a sector perceived as highly corrupt.

The Vienna Institute has earlier noted the emerging tourism sector and new planned infrastructure investment will keep the Albanian economy growing at about 4 percent over 2019 and 2020 at a time when TAP and the Devoll Hydropower, the two major energy-related that drove growth in the past four years complete their investment stage by the end of 2018, leaving a huge gap of about €300 million unless other major projects replace them.

At an average of about 4 percent over the next couple of years, wiiw expects Albania to register the highest growth among the six EU aspirant Western Balkan countries where overall 2019-2020 is estimated at 3.35 percent, mainly because of a significant slowdown in Serbia, the region’s largest economy.

The Vienna Institute’s forecast are slightly higher compared to the World Bank and the IMF which expect Albania’s economy to slow down to 3.5 to 3.7 percent in 2019 on the back of lower FDI following the completion of two major energy-related investment, but yet lower compared to the Albanian government’s target of 4.3 percent for 2019 and growth gradually picking up to 4.5 percent by 2021 when Albania heads to general elections.
                    [post_title] => Vienna Institute warns of PPP, judiciary reform risks to Albania’s outlook
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                    [post_content] => By Ervin Lisaku

TIRANA, Nov. 7 – Albania’s ruling Socialist Party majority has unveiled a series of legal changes aimed at fighting tax evasion among high income earners, local businesses and transactions involving foreign-owned assets starting next January, in addition to several tax incentives in a carrot and stick approach ahead of next year’s June 30 local elections.

In its 2019 fiscal package, the ruling Socialists have proposed legal changes that fight tax evasion among high-income professionals such as private hospital doctors, lawyers, consultants, engineers fictitiously registering as small businesses to avoid paying the 23 percent personal income tax for income of more than 130,000 lek (€1,017) a month, a threshold which under newly proposed legal changes is raised to monthly salaries of higher than 150,000 lek (€1,188).

Albania currently applies progressive taxation of up to 23 percent on personal income for monthly wages of more than 130,000 lek (€1,017) under a system that excludes the first 30,000 lek (€225) from taxation and a 13 percent rate on income from 30,000 to 130,000 lek.

Authorities say the new legal changes ease the tax burden for some 15,400 employees in the country but calculations show what high income earners benefit from hike in the personal income threshold taxed by 13 percent is a mere 2,000 lek (€16) a month.

Proposed legal changes allow tax authorities to use 'alternative assessment methods' that will re-categorize taxpayers in case of fictitiously operating as a business to escape personal income taxation.

Tax evasion with wages in Albania’s private sector is high and progressive taxation replacing the former 10 percent flat tax on personal income and corporate income is estimated to have contributed to businesses continuing the practice of ‘envelope wages’ to avoid paying higher taxes.

Another key sanction in the 2019 fiscal package involves making it compulsory for foreign investors to pay a capital gain tax of 15 percent in case of selling their Albania assets in a bid to avoid key transactions that bring nothing in income to the Albanian government.

Finance Minister Arben Ahmetaj says the legal changes are aimed at preventing tax-free transactions such as that of the country's largest oil producer, former Canada-owned Bankers Petroleum which in mid-2016 was acquired by China's Geo Jade for C$575 million (€390 mln) following a decade of operations in the country.

"When Bankers Petroleum was sold outside Albania, the country earned nothing from the sale operation. It couldn't manage to tax it because of the fiscal system and rules it has not adopted yet and which is adopting under this advanced OECD package," Ahmetaj said this week.

Several other major assets in Albania, including the country’s sole international airport and banks have changed hands in the past couple of years and shareholders in lucrative concession contracts sold their stakes for ridiculously low prices, reportedly escaping the 15 percent capital gain tax because of operating under offshore tax haven laws.

The 2019 fiscal package also makes it compulsory for businesses to initially pay off tax obligations before switching to passive status.

The move comes at a time when the number of businesses temporarily closing down has seen a sharp double-digit increase amid a hike in the tax burden on small businesses, already facing tougher competition from shopping chains and supermarkets as well as a decline in the purchasing power.

Another legal change proposed as part of the 2019 fiscal package is related to small family-run businesses registered as natural persons whose owners will not be allowed to obtain more than one tax ID number to avoid paying profit tax or pay at a lower rate by dividing their business into separate companies and keep the turnover low.

 

Tax incentives

The tighter sanctions against tax evasion come along with a series of tax incentives that the Albanian government is offering in bid to further improve the business climate by reducing the tax burden, which the latest Doing Business report described as the highest among Western Balkan countries.

Tax evasion in Albania is estimated at high levels of around 30 percent despite several nationwide campaigns in the past few years having formalized thousands of businesses and workers.

The major change in the upcoming fiscal package includes a reduction in the dividend tax to 8 percent, down from a current 15 percent in a measure that foreign business associations say is expected to provide a positive effect on boosting and diversifying investment and creating more favorable treatment for employees.

The government says the 8 percent dividend tax rate will also apply to undistributed profits in the pre-2018 period provided the tax is paid by Sept. 30 2019.

The year-end fiscal package follows a mid-2018 package when the ruling majority approved lower corporate income tax for mid-sized businesses and incentives on agribusinesses.

Proposed changes under the new fiscal package also increase the mining royalty on the key chromium exports to 9 percent, up from a current 6 percent in a move that discourages exports of raw chromium and gives a boost to local processing industry where major investment has been made.

Other proposed changes include cuts in the value added for imports of electric buses and VAT exclusions on imports of agricultural machinery and raw material for the pharmaceutical industry as well as cuts in the plastic and glass packaging to reduce local production costs at a time when imports have become much cheaper due to Europe’s single currency trading at a 10-year low against the Albanian lek.

Business representatives have called on the Albanian government to consider a fiscal package that would remain unchanged for at least a mid-term period so that they can plan their investments more accurately.

The current tax policy, changing almost on an annual basis, is rated as one of the top concerns for Albania’s foreign and local businesses, in addition to a high tax burden compared to regional competitors, widespread tax evasion, corruption and an inefficient judiciary.

The ruling Socialist Party majority expects the country’s economic growth to recover to 4.3 percent and public debt to drop to 65 percent of the GDP for 2018, in forecasts that are significantly much more optimistic compared to what international financial institutions such as the World Bank and the IMF predict for the Albanian economy in 2019 when contribution by two major energy-related projects that drove FDI growth over the past four years considerably wanes.

 

Opposition worried

The main opposition Democratic Party says the 2019 budget fails to bring development and welfare for the country’s households and businesses and what it mainly focuses on is favoring what it calls oligarchs who will get $100 million from taxpayer money next year to fund their ‘corruptive’ public private partnerships that the Albanian government has signed in road, health and waste management sectors.

"This is a budget that is accompanied with an extra $40 million in taxes for Albanians and an increase in the public debt, which according to the Supreme State Audit Institution, exceeds 72 percent of the country's GDP if the concessions' bill is included," says Jorida Tabaku, an opposition Democratic Party MP who is also the deputy chair of the parliamentary economy committee.

According to her, Albanians have paid an extra 5 billion lek (€40 mln) in taxes since 2014 after Edi Rama took over as the country's Prime Minister and currently pay a third of their income in taxes, making the cost of living in Albania the most expensive in the Balkans at a time when income remains one of the lowest.

The main opposition Democrats, who have been boycotting Parliament since last September over the ruling majority's alleged linked to gangs and rising corruption, says a flat tax, strict public debt rules and the right infrastructure investments can give the right impetus to the country's economy.

The Democrats say their proposed anti-mafia package will put an end once they assume power to what they call corruptive concessions, tenders and permits by seizing assets and making them available to improve access to education, healthcare, road infrastructure and create new jobs.
                    [post_title] => 2019 fiscal package: Albania tightens tax evasion rules, offers incentives
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                    [post_date] => 2018-11-06 17:09:57
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                    [post_content] => TIRANA, Nov. 6 – Albanian economy experts say the country has to speed up reforms so that it catches up with regional competitors in becoming a more attractive investment destination.

The suggestions come after Albania climbed only two steps to rank 63rd out of 190 global economies for the ease of doing business in the latest Doing Business report, continuing to lag behind most of its regional competitors that rank in the top 50 and having the highest tax burden among EU Western Balkan countries.

Zef Preçi, the head of the Albanian Center for Economic Research, says the important thing about Albania's ranking is how much the legal framework is applied and how it performs compared to regional countries.

“With this tax and licensing policy that Albania is following, favoring of oligarchs and current public investment policy, Albania is losing step by step its comparative advantages,” says Preçi, who has earlier criticized the government’s €1 billion public private partnership program to upgrade road, health and waste management services as a scheme favoring oligarchs and money laundering.

The 2019 Doing Business report published by the World Bank, a reference point in foreign investors’ decision-making, shows Macedonia was the Western Balkans top performer for several years in a row as it climbed to the 10th best global destination for the ease of doing business, followed by Kosovo 44th, Serbia 48th, Montenegro 50th and Bosnia and Herzegovina 89th.

Paying taxes ranked Albania the world’s 122nd worst performer with medium-sized companies spending an average of 252 hours a year and having to pay about 37.3 percent of their profit in taxes and contributions, higher even compared to 36.6 percent in Serbia, the region’s largest economy.

Dealing with construction permits also remains a doing business barrier, although Albania having introduced an electronic platform making the application process easier since mid-2016 and the construction sector recovering following a long-ailing period due to a new boom in construction in Tirana.

Luigj Aleksi, the head of the Association of Albanian Developers, says obtaining construction permits has become more difficult as developers are required to carry out detailed local government plans on their own, something that he says must be conducted by local government units.

A construction tax at 8 percent of the sale price for housing facilities since 2017, up from a previous 4 percent of the construction costs has also raised construction costs in Tirana and developers want its payment divided into three instalments and that it is recognized as tax deductible expense due to road, water and electricity infrastructure costs they incur in the construction process.

The latest Doing Business report shows it takes 18 procedures, 299 days and 5.6 percent of warehouse value to obtain a construction permit in Albania, in much lengthier procedures and higher costs compared to last year.

Economy expert Besart Kadia says Albania's risks lagging behind the region's competitors for a long time due to high taxes, endemic corruption, undeveloped infrastructure and a labor force that is seeking to leave the country, suggesting that it is vital that pro-business reforms become primary in government policies.

"The 2019 Doing Business report shows that countries with a small population and not very competitive labor force can be more attractive in the global economy only through institutional incentives. But Albania seems to have lagged behind in the Ottoman era with political bureaucracy dominating and a belief that reforms can be carried out slowly and with no quality,” Kadia, an entrepreneurship secretary at the main opposition Democratic Party, has written in an op-ed published on local media.

Kadia says a competitive institutional infrastructure has made Macedonia a success story by managing to climb to the top 10 doing business destination compared to 69th in 2010.

“A small country with no access to ports and with strong ethnic tensions and open political conflicts with its southern neighbor Greece, Macedonia has managed to become innovative enough and now ranks the tenth best place for doing business, turning into a success story of reforming in tough times,” he adds.

The high tax burden, corruption and inefficient judiciary are the main concerns for local and foreign businesses who often complain of Albania being uncompetitive to other regional countries applying flat tax regimes of about 10 percent.

Finance minister Arben Ahmetaj says the 2019 fiscal package reducing some taxes and making procedures easier will further improve Albania's business climate.

Albania has been the Western Balkans' second largest foreign direct investment recipient for the past decade, but FDI has mainly focused on low value added energy sectors such as oil, mining and hydropower.
                    [post_title] => Experts urge faster business reforms to catch up with regional competitors 
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                    [post_date] => 2018-11-06 13:48:28
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                    [post_content] => TIRANA, Nov. 6 – Almost four years after Albania started implementing a territorial and administrative reform that reorganized local government units, the new larger 61 municipalities continue remaining largely dependent on central government funding and their further decentralization and fiscal autonomy remains at risk, a report has shown.

A recent report by Albania’s Supreme State Audit Institution, ALSAI, shows that with eight months to go before Albania holds the upcoming local elections, the much-rumored territorial and administrative reform that cut the number of local government units from 373 very fragmented communes and municipalities that now operate as municipal units to just 61 consolidated and larger municipalities has failed to increase income for most municipalities, which state auditors say is the gist of the decentralization reform.

The new larger municipalities continue relying on central government grants known as ‘unconditional transfers’ which account for half of their total budget while funds allocated on a competitive basis are often politically motivated and discriminatory against specific municipalities run by opposition-proposed mayors, auditors say.

“The current level of 1 percent of the GDP for the unconditional transfer is insufficient to turn municipalities into drivers and promoters of the country's economic development and contribute to the reduction of asymmetries among the country's regions and cities. The current rate is more or less the same to the pre-administrative and territorial reform level and the central budget allocates about 1 percent of the GDP which is the lowest regional level and prevents municipalities from increasing the quality of services they provide," says the report.

Albania's central government allocated around 15 billion lek (about €120 million) in unconditional transfers to the local government units for 2018, some 15 percent of which went to the country's largest municipality of Tirana, the country’s largest local government unit with a resident population of more than half a million.

State auditors says the state-run Regional Development Fund that allocates central government investment grants to municipalities on a competitive basis triggers uncertainties in the budget planning and political patronage with some right wing-led municipalities such as northern Shkodra and Lezha municipalities and Kamez, the latter a municipality of some 105,000 residents outside Tirana, receiving little or no support at all.

“Albania is the region's sole country that applies a system requiring municipalities to compete in order to finance their exclusive operations,” says the report.

State auditors are also concerned over what it calls the ‘frequent and groundless’ central government intervention in the local tax system destabilizing local government finances.

The report shows local government units lost about 1.7 billion lek (€13.5 mln) in 2017 after the central government scrapped local taxes on small businesses in 2015.

 

Poor collection rates 

Albanian local government units collect only 2.5 percent of the GDP in income and about 9 percent of total national income, compared to an average of 6 percent of the GDP and 17 percent of national income in the South East Europe region, according to a report by NALAS, the Macedonia-based Network of Associations of Local Authorities of South-East Europe.

State auditors say local government revenue grew at a slower pace compared to central government over 2015-2017, in a handicap that should have been addressed through new legislation sharing benefits and the burden of economic growth at a national level.

A local government finances portal show total income by the country's 61 municipalities grew by 16 percent to about 81 billion lek (€644 mln) in 2017, but the hike was mainly attributed to the performance of the municipality of Tirana, due to a boom in the construction sector boosting the local government tax on the impact on infrastructure.

The report says the municipality of Tirana, which alone collects the same to the remaining 60 municipalities in local taxes, has deepened inequality among the country’s local government units.

Auditors say the construction triggered revenue hike in the municipality of Tirana does not reflect sustainable performance for the country's largest municipality due to the considerable construction tax share in its total revenue and being dependent on the construction sector, which has recovered only in the past couple of years following a long-ailing period.

The municipality of Tirana, where construction recovery was focused, collected about 3.5 billion lek (€28 mln) in infrastructure tax in 2017, accounting for more than two-third of total tax on new constructions collected nationwide and about a fifth of its income.

In 2017, the tax on the impact on infrastructure for the municipality of Tirana, was raised to 8 percent of the sale price for housing facilities, up from a previous 4 percent of the construction costs, in what developers described as a four-fold hike and blamed for triggering a hike in apartment and business facility prices. The infrastructure tax was revised down to 4 percent for business facilities earlier this year as multi-storey towers projects get under way.

Due to several tax hikes and stronger central government support, the municipality of Tirana has seen its budget almost increase by two-thirds in the past three years, allowing it to boost much-needed investment in the country's capital.

 

‘Badly drafted reform’

The Albanian state audit institution says the administrative and territorial reform that the Albanian Parliament adopted in 2014 violated the European Charter of Local Self-Government by failing to have residents have their say through a referendum on the new division of local units. Auditors say the territorial and administrative reform failed to take into account population, geo-cultural criteria, creating an asymmetry in municipal borders, triggering amalgamation of local government units in northern Albanian and fragmentation in southern Albania.

Auditors have made a series of recommendations, including increasing the number of taxes shared with local government units in order to guarantee financial autonomy for the new 61 municipalities and reform central government support through grants.

The report says local government units need an extra 12 billion lek (Euro 96 million) in order to fulfil obligations under new legislation and rehabilitate infrastructure from former central government-run public services such as water and sewerage companies.

Albania will hold its next local election on June 30, 2019 following the mid-2015 elections that paved the way for the implementation of the current administrative and territorial reform.

Albania's state audit institution is set to have a new leader in the next few months following the expiry of the 7-year mandate of incumbent head Bujar Leskaj. President Ilir Meta has nominated Vitore Tusha, a former Constitutional Court member as his choice to receive the parliament’s okay for one of the country’s key constitutional institutions dealing with auditing public finances.
                    [post_title] => Reform fails to make Albania’s new municipalities financially independent, auditors say
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                    [post_content] => TIRANA, Nov. 5 - Albania's football association says the completion of the ‘National Arena’ stadium, the new home of Albania’s national side in the Albanian capital city Tirana, has been called into question due to a tax dispute with the Albanian government.

The football governing body says it will undertake legal action against the Albanian government after failing to get back €2 million in value added tax refunds from its part of investment. The new stadium is a €50 million public private partnership project under which an Albanian-owned company was offered public land to build commercial facilities in return for building a new modern stadium.

With construction works already in their final stage following the mid-2016 demolition of the old “Qemal Stafa” stadium, the football association says the tax appeals body of the finance ministry has turned down a complaint over €2 million in VAT refunds from the association’s UEFA-supported €10 million investment in the stadium.

The association says the Tax Appeals body is behaving like ‘ultra fans,’ hinting of politically motivated reasons following the re-election of incumbent president Armand Duka for a fifth consecutive term at the helm of the country's most important sports organization in early 2018 and the failure of his main Bashkim Fino, a former Prime Minister and current ruling Socialist Party, to beat him.

What the football association can do now, is address the country’s three-tier administrative court system to get back €2 million which it says compromises the completion of the new stadium, initially scheduled to become operational by early 2019.

There has been no reaction by the finance ministry, where the Tax Appeals Directorate operates as legally independent body examining tax disputes before any further appeal with administrative courts.

The Appeals Body [of the Finance Ministry] has refused refunding VAT for the part of investment carried out by the football association at the 'National Arena' stadium. That means the investment lacks €2 million and that practically its completion is seriously called into question," says the football association in a statement.

Representatives of the football association say VAT statements with authorities have been regularly filed by a joint venture with the Albanian government set up in 2014 to oversee the construction of a new stadium in the country.

The majority 75 percent stake at the "Qendra Sportive Kuq e Zi' (The Red and Black sports center) company is held by the football association whereas the Albanian government holds a minority 25 percent.

"The Football Association will address court over this issue, but it’s unfortunate that a group of government and politics bureaucrats are not happy yet that Albania qualified for the Euro 2016 and are yet more angry that Tirana is going to have a modern stadium," says the football association.

The Albanian national side claimed a historic first-ever qualification at a major football tournament in 2016, but has been struggling to impress since then, initially failing to qualify for the Russia 2018 World Cup, and is now almost out even from the Nations League, an inaugural competition largely set to replace friendlies, but which provides teams with another chance to qualify for the UEFA Euro 2020 final tournament.

 

New stadium

The new ‘National Arena’ stadium is a €50 million public private partnership deal with an Albanian construction company that has invested €40 million to build a stadium in return for being offered public land and a permit to build a 24-storey tower next to it that will host commercial facilities, including a hotel.

The Albanian football association which has invested around €10 million in the stadium project through UEFA funds will also get considerable facilities, but not have its headquarters there. The new football association headquarters that will also serve as an accommodation center for the national side are already being built elsewhere in Tirana at a former sports complex.

The new National Arena stadium is a 22,000-seat facility that is being built on the site of former ‘Qemal Stafa’ stadium in Tirana, which ceased being used for international matches in 2013 after failing to meet international standards. Unlike the old stadium, the new facility has no athletics track, a key barrier for some of Albania’s athletes.

Former ‘Qemal Stafa’ stadium served as Albania’s national stadium for over 70 years since 1946 when it was inaugurated for the Balkan Cup as an Italian-designed facility.

Lacking a permanent home, the Albanian national football team has in the past five years played their home matches at the newly reconstructed Elbasan Arena and Shkodra stadiums, both reconstructed through government funding of around €14 million.

The stadium PPP is similar to that of a recent controversial bill that is offering an Albanian company to demolish an Italian-built WWII theater building in downtown Tirana and build a new contemporary architecture theater in return for being offered public land to build business towers next to it. The bill has been turned down by the country’s president over lack of transparency and competition and putting at risk the country’s cultural heritage.

While the stadium and the pending national theatre PPP do not affect public finances because of being private investments, international financial institutions have warned that a series of other government funded PPPs through taxpayer support following initial private investment, most of which given the okay following controversial unsolicited proposals and without thorough cost-benefit analysis, could pose a significant threat to the public debt reduction agenda.

Albania’s public debt is already at around 70 percent of the GDP, a high level for the country’s stage of development, undermining macro-economic stability and much-needed public investment due to high servicing costs.
                    [post_title] => Tax dispute holds back Albania’s new ‘National Arena’ stadium
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                    [post_date] => 2018-11-05 13:32:11
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                    [post_content] => TIRANA, Nov. 5 - A no-deal Brexit would hit Albania and other Western Balkan countries through indirect trade links, lower EU accession funds and delayed accession prospects, London-based European Bank for Reconstruction and Development has warned.

In a recent report examining a possible departure of the United Kingdom from the EU with no agreements on trade and investment, the EBRD says south-eastern European countries where it invests, a region that includes six EU aspirant Western Balkan countries as well as EU members Greece, Cyprus, Romania and Bulgaria, would be the hardest hit in case of a no-deal Brexit.

While trade and investment links between Albania and Europe's second largest economy are quite modest, the EBRD says a disruption of cross-border supply and value chains between the UK and advanced economies that are key trading partners for Albania and other countries in the region could lead to spillover effects.

“The economic impact of a no-deal Brexit is projected to be largest for economies of south-eastern Europe, mainly through disruption to trade linkages encompassing the UK and other advanced economies in Europe, the impact on the EU accession reform momentum and a reduction in the EU structural and cohesion funds,” says the EBRD regional economic prospects report.

The report estimates lower expected purchasing power in the UK compared to a no-Brexit scenario will affect the UK's demand for imports and lead to lower exports from Europe's advanced economies to the UK, indirectly affecting demand for imports of intermediate goods from the EBRD regions.

Albania conducts almost half of its trade with Italy, the Eurozone’s third largest economy whose growth prospects have slowed down in the aftermath of its recession and after a populist government has taken over. Albania exports the overwhelming majority of its low-value added garment and footwear products to Italy, which is often not the final destination of the top Albanian exports.

While the modalities of Brexit still remain to be determined two and a half years after the UK's shock Brexit referendum result, scenarios range from the UK staying in the EU customs union to the no-deal scenario of the UK departing the EU with no special agreement governing trade, investment and other aspects of bilateral relations, says the EBRD report.

Back in mid-2016 soon after the UK voted to leave the European Union, Albania's central bank also warned that while the Albanian economy and financial system are largely immune to the Brexit, the country could face indirect spillover effects from blows to Albania’s main trading partners.

“Albania has a larger exposure to indirect blows that Brexit could have on the European economy and financial system in countries which are Albania’s main trading partners and every negative Brexit reaction by them would attempt transmission even to Albania,” central bank governor Gent Sejko  earlier warned.

 

Lower accession funding

“Unless other member states increase their contributions, Brexit will lead to a 10 to 15 per cent decline in structural and accession funds available to countries in central and south-eastern Europe, amounting to a reduction of up to 0.4 percentage points of GDP in EU-supported investment. Brexit may also weaken the (perceived) prospects of EU accession for candidate and potential candidate countries. A slower reform momentum in these countries will then weigh on growth,” says the EBRD report.

The UK, which in mid-2018 hosted an EU-Western Balkan Summit, has said Brexit will not affect its support to the six EU-aspirant countries, vowing increased support to boost security, investment and fight organized crime.

The European Union has committed a total of €650 million in financial assistance under the Instrument for Pre-Accession Assistance II from 2014 to 2020, but Albania's absorption capacities remain poor with the country managing to absorb only more than a third of funds allocated for the 2007-2013 period due to problems with the quality of tendering, property rights and time-consuming procedures. Albania had only €184 million disbursed in IPA funding from 2007 to 2013 out of €504 million committed by the European Commission, in one of the region’s poorest absorption rates, according to a regional report examining IPA II absorption capacities.

An earlier EBRD report has shown Albania and other Western Balkans EU aspirant countries could need up to two centuries to catch up with EU living standards. The 200-year gap is the pessimistic convergence scenario that the EBRD predicts for the region to fully converge with average EU living standards compared with a baseline scenario of 60 years and an optimistic scenario of 40 years.

Some catch-up with EU living standards has already taken place in the past 15 years when the Western Balkan economies grew by an average of 3.2 percent from 2001 to 2016 compared to a growth rate of 1.4 percent in the European Union.

An EU-candidate since mid-2014, Albania is hoping to launch accession talks next year, but EU leaders have said an eventual green light will depend on further progress with reforms strengthening rule of law and the judiciary as well as fighting organized crime and corruption.

Serbia and Montenegro are the only two regional countries to have opened accession talks that could join the EU by 2025, according to the new EU enlargement strategy and forecasts by experts.

 

International trade conflict impact

While estimated Brexit impacts are smaller in a scenario where the UK remains within the EU customs union, the EBRD report shows the escalation of trade conflicts such as China-US or spillover effects from the economic slowdown in Turkey is a major risk to the outlook.

“If trade conflicts remain confined mainly to bilateral China-US trade, economies in the EBRD regions will be relatively little affected, as most of the region’s trade takes place within or with the European Union. In contrast, a scenario in which trade tensions escalate globally and international supply chains become severely disrupted entails high risks for the region’s economies that are strongly integrated into global value chains,” says the EBRD report.

“Spillovers from the projected deceleration of growth in Turkey to the economies in the EBRD regions are expected to be limited owing to the relatively modest extent of economic linkages via trade, cross-border investment and remittances,” it adds.

The World Bank has also recently warned Albania is almost immune to current global trade tensions between leading economies and Turkish market volatility to the Western Balkans, but a possible escalation of trade conflicts between key players could also affect the small Albanian economy as it did in the aftermath of the 2008-09 global financial crisis.

Due to stronger trade and investment ties with Turkey, a possible escalation of the crisis in Turkey, where the Turkish lira has lost about 40 percent of its value against the US dollar this year could affect Albania more than the current round of trade disputes involving the United States, China and other U.S. trading partners, which a World Bank report says may create both opportunities and risks for Western Balkan countries.

 

Albania-UK trade, investment ties

The UK has a stock of only €56 million of foreign direct investment in Albania, although two key companies, leading Vodafone mobile operator and Shell oil giant which has made some key oil discoveries in the country and is planning a multi-billion dollar investment stage, originate from the UK.

Trade exchanges between the two countries are quite modest at about 6 billion lek (€48 million) and dominated by Albanian imports of machinery and equipment, according to Bank of Albania and INSTAT data.

Some 14,000 Albanian are officially reported to live in the UK, where Albanians need visas to get to and often enter illegally, but are a key source of remittances for poor northern Albanian regions.

The British pound currently trades at a decade low of 141 lek against the Albanian national currency but not with any significant impact to the Albanian economy due to modest trade, investment exposure. A weaker British pound against the Albanian lek, mostly affects recipients of remittances from the UK, accounting for about 10 percent of total remittances.

Remittances from more than 1.2 million Albanian migrants mostly settled in Italy and Greece slightly increased in 2017 when they recovered to €636 million, up from €616 million in 2016, but yet were about a third below their peak level of €952 million in 2007 just before the onset of the global financial crisis.

London-based EBRD is one of the country’s largest lenders with investment of almost €1 billion in some 80 projects in the country.

 

Growth prospects slightly improve

In its latest economic outlook, London-based EBRD slightly revised Albania's 2018 economic growth outlook upward to 4 percent and left unchanged its 2019 forecast at 3.9 percent, rating the Balkan country as one of the fastest growing economies in its South-eastern Europe region.

“The short-term outlook remains positive but risks remain. We expect growth of 4.0 per cent in 2018 and 3.9 per cent in 2019, with private consumption and investment being the main drivers of growth,” says the EBRD.

The London-based financial institution says some ‘unrecorded cross-border activities’ may also be contributing to the appreciation pressures on the Albanian lek which it says reflects the ongoing de-euroisation policy initiative of the central bank in the financial sector, as well as the capital conversion of some banks.

Europe’s single currency currently trading at a 10-year low against Albania’s national currency, having lost 6 percent since late 2017, with a series of negative effects on Albania’s highly euroised economy, primarily hitting Eurozone-destined exports, but also sizeable Euro-denominated savings and remittances, is now considered a threat to the Albanian economy by local experts in case of further shocks.

The Albanian economy grew by an average of 4.4 percent in the first half of 2018, in a decade-high growth fuelled by heavy rainfall lifting the state-run electricity sector out of crisis, but yet not producing any significant hike in consumption or investment which experts estimate can receive a boost only in case the Albanian economy manages to grow by 6 percent annually, a growth rate it enjoyed for about a decade until the 2008-09 global financial crisis.

The EBRD expects Greece, Albania's traditional second largest trading partner and top foreign investor whose six-year long recession came to an end in 2016, to grow by an average of 2.2 percent in 2018-19.

The Western Balkan's largest economy, Serbia, is expected to grow by 4.2 percent this year after its economy expanded by an annual decade-high of 4.9 percent in the year's first half on the back of stronger demand and investment.

The EBRD expects Macedonia to register growth rates of 2 to 3 percent over the next couple of years after overcoming a political stalemate that brought down growth to zero in 2017. Macedonia, where more than a quarter of population is ethnic Albanian, recently made it as the top 10 country for the ease of doing business in the World Bank’s 2019 Doing Business report and is heading for a solution to its decade-long name dispute with Greece, paving the way for its Euro-Atlantic integration.
                    [post_title] => ‘No-deal Brexit could have implications for Albania, region,’ EBRD warns 
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                    [post_date] => 2018-11-01 10:46:20
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                    [post_content] => By Ervin Lisaku

TIRANA, Nov. 1 – The Albanian government is mulling turning the country’s key highway linking the two main cities of Tirana and Durres into a toll road through a concession which apparently does not affect public finances, but sharply increases travel costs for the country’s residents, already facing one of Europe’s highest fuel prices.

The ruling Socialist Party majority says it has received an unsolicited proposal on the upgrade of the current 30-km highway linking Tirana to Durres and the construction of a new 44-km highway from Kashar, just outside Tirana, to Rrogozhina, a hub to southern Albania.

The infrastructure ministry says the unsolicited proposal will be a build-operate-transfer public private partnership which unlike some of the current PPP road projects under way receiving government financial support, will be funded by the concessionaire itself in return for introducing tolls to get back investment and make a profit for a period that could be up to 35 years.

Several key road segments, including a highway linking Albania to Macedonia are being built as part of a €1 billion PPP program under which concessionaires complete the projects using their own funds and financing and the government pays them back in annual instalments for investment and maintenance costs for up to ten years.

The infrastructure ministry says the proposed project envisages extending the current Tirana-Durres highway to a three-lane dual carriageway, turning it into the country's second toll road after the Albania-Kosovo highway where average tolls of €5 are being charged since mid-September 2018 following protests leading to toll revision for local northeastern Albania residents and discounts for frequent users.

In return, the concessionaire will have to rehabilitate access roads for businesses along the highway and reconstruct the old Tirana-Durres road through Ndoq village, which will both serve as free of charge alternatives to the toll road.

The proposed project also envisages the construction of a Kashar-Rrogozhine highway through a new track in the post-2025 period.

"Under the proposed scheme, all construction costs will be handled by the private concessionaire who will introduce tolls to guarantee the return of investment and make a reasonable profit without affecting the state budget. Citizens will also have the opportunity to use alternative free of charge roads," says the infrastructure ministry.

The authorities’ reaction came after local media alleged the government will fund the road projects through taxpayer money, the same as it is doing with some controversial PPPs in the public health, road infrastructure and waste management sectors.

In its proposed 2019 budget, the government says the expected investment on the rehabilitation and extension of the Tirana-Durres highway could be up 49 billion lek (€391 mln), while the new Kashar-Rrogozhine highway could cost double, at around 85 billion lek (€675 mln), with total cost for both highway projects at €1 billion, about 7 percent of Albania’s GDP.

The finance ministry says it is still examining the unsolicited proposal by a company which it does not specify and has no decision-making yet on the build-operate-transfer concession that could be awarded for 30 to 35 years.

In case of receiving an initial okay, the concessionaire would receive a bonus for its unsolicited proposal and become an apparent winner, the same as has happened with similar PPPs where favorite companies face little competition at eventual tenders.

However, such a concession contract could also have indirect costs for the Albanian government such as traffic guarantees to secure the company’s return of investment.

According to the IMF, PPPs entail construction, financial, demand, political, force majeure and renegotiation risks and the Albanian government’s legislative threshold of annual payments to concessionaires not exceeding 5 percent of the previous year fiscal revenues is not reliable, reflecting a mix of mandatory and expected payments and worst-case estimates if pre-determined minimum revenue guarantees are triggered such as in the case of toll roads not meeting minimum traffic.

International financial institutions have asked the Albanian government to give up the unsolicited proposal as a procedure that places bidders at unequal position and leads to controversial PPPs with no thorough cost-benefit analysis that could create new arrears undermining the public debt reduction agenda.

Albania’s public debt is already at around 70 percent of the GDP, a high level for the country’s stage of development that places at risk macro-economic stability and much-needed public investment due to high debt servicing costs.

 

A key corridor

The Tirana-Durres toll road would significantly increase travel costs for all Albanians through a main corridor that is home to about half of the country’s 2.8 million resident population and produces half of the country’s national output.

Due to the huge tax burden levied on oil, Albanians already face one of Europe’s highest fuel prices while struggling with one of the region’s poorest income.

Plans to make the key Tirana-Durres highway a toll road come after the key segment got a facelift through a €600,000 emergency intervention only in late June after having turned into a nightmare for drivers and a cause of road accidents for the previous couple of years.

The World Bank-supported emergency intervention that only repaired damaged layers of asphalt is only considered a temporary solution to Albania’s main 30-km highway which needs deeper intervention to bring to standards.

The main economic corridor of Albania, the 30-km highway dual carriageway connects Tirana and northern Albania to the Durres port, the country's largest, and is a hub to southern Albania.

Some of the most important businesses and shopping centers operate along it and half of the country GDP is produced there. The highway's daily traffic flow is estimated at 45,000 vehicles.

Built in the early 2000s, the Tirana-Durres highway was the country’s first major infrastructure work following the early 1990s collapse of the communist regime when private car ownership was banned.

However, high traffic and poor quality construction works at that time and lack of proper maintenance have taken it to bad condition, leading authorities to consider a toll road concession for its upgrade and maintenance.

Albania has one of Europe’s highest death tolls from road accidents with an estimated 15 fatalities per 100,000 inhabitants with poor road condition and careless driving being the main reasons behind such high death toll. About 2,000 road accidents took place last year in Albania, with a death toll of 222, the lowest level for the past six years when data is available.
                    [post_title] => Albania mulls turning key Tirana-Durres highway into toll road 
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            [post_content] => TIRANA, Nov. 12 – Another local Albanian company has been awarded what looks like a lucrative public private partnership project to upgrade and maintain road infrastructure following an unsolicited proposal claiming it a bonus and facing no competition at a tender held last September.

Albanian-owned Gjikuria has been announced the winner of upgrading a 15-km road project linking the southern Albania town of Orikum and its yachts port to the Dukat village and the Llogara Pass along the Albanian Riviera in a project that authorities say increases road safety and serves tourism development in the southern Albanian region of Vlora, one of the country’s top destinations

The announcement is made by the transport ministry on this week’s bulleting of the public procurement agency.

The Gjikuria company, which had earlier been awarded a six percentage point bonus for its unsolicited proposal, bid to complete the project for €50.5 million, almost the same to authorities’ estimated value in the tender. Once contract negotiations conclude, the project is expected to be carried out under a 13-year PPP with the Albanian government in return for initial investment and maintenance at the company’s own funds. The company will start getting taxpayer support in annual instalments once it has carried out a quarter of construction works.

The winning company faced competition by a single operator which bid €63 million but which a public procurement transparency portal said was disqualified for also failing to submit a bid guarantee of about 2 percent of the project's value.

The Albanian government said it is undertaking the reconstruction due to the current 16 km road segment being in a degraded condition and causing traffic chaos in summer, the peak of Albania's tourist season.

Authorities say the new 14.7 km extended road will make access to the Ionian Riviera easier through a wider road allowing drivers to travel twice faster at an average of 60 to 100 km/h and give a boost to future development in the area.

The new wider road will yet be a two-lane road that leaves open a future solution of crossing the Llogara Pass either through a costly tunnel or through the existing winding and panoramic but narrow road.

A local business portal described the project's cost at €3.4 million per km, in costs that also include maintenance for 13 years, as too high for a two-lane road considering the country’s previous experience with similar roads and even highways at construction costs of about €1 million/km.

Last month, the government also selected Albanian-owned “A.N.K.” company to build an 18-km highway that improves access to the northern region of Lezha and neighboring Montenegro through a similar PPP. The Milot-Balldren project will be a €161.5 million investment on a 6-lane highway on a completely new track that also includes 9.5 km of secondary roads, new bridges on the Drin and Mat rivers and an 850 meter long tunnel. The winning concessionaire will get taxpayer support for construction and maintenance costs for the next 13 years.

The new road is part of several key road segments, including a highway linking Albania to Macedonia that are being built as part of a €1 billion PPP program under which concessionaires complete the projects using their own funds and financing and the government pays them back in annual instalments for investment and maintenance costs for up to 13 years.

Taxpayer support to some controversial public private partnerships is expected to increase by around 50 percent to €100 million for 2019 as the government starts paying on three news public private partnerships, taking PPP spending to 3 percent of the previous year’s fiscal revenue, compared to 5 percent threshold that the government has set.

International financial institutions have already warned that local PPPs, most of which given the okay following controversial unsolicited proposals and without thorough cost-benefit analysis, could pose a threat to the public debt reduction agenda because of the risk of creating new arrears which if included in the public debt stock could increase it by 7 percent of the GDP considering an ambitious €1 billion PPP program.

Interest by foreign companies to participate in the €1 billion PPP projects has been vague amid allegations of pre-determined winners in tenders where Albanian companies submitting unsolicited proposals have been advantaged through pre-tender bonuses.

Both the International Monetary Fund and the World Bank have asked the Albanian government to give up the unsolicited proposal as a procedure that places bidders at unequal position and leads to controversial PPPs with no thorough cost-benefit analysis that could create new arrears undermining the public debt reduction agenda.

Albania’s public debt is already at around 70 percent of the GDP, a high level for the country’s stage of development that places at risk macro-economic stability and much-needed public investment due to high debt servicing costs. The authorities target is to bring public debt down to a more affordable 60 percent of the GDP by 2021.

 
            [post_title] => Local company gets 'lucrative' €50 mln PPP for Albanian Riviera access road 
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