Gov’t revenue miss target by €60 mln in year’s first half

Gov’t revenue miss target by €60 mln in year’s first half

TIRANA, Aug. 2 – Albania’s government revenue missed the year’s first half target by a considerable amount, triggering a mid-year budget cut that was also influenced by a sharp strengthening of the Albanian lek against Europe’s single currency trading at

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Albania’s central bank to continue euro purchase operations

Albania’s central bank to continue euro purchase operations

TIRANA, Aug. 2 – Albania’s central bank says it will continue its euro purchase operations from the local currency exchange market in a bid to curb any further strengthening of the Albanian lek against Europe’s single currency following a series

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Societe Generale withdraws from Albania

Societe Generale withdraws from Albania

TIRANA, Aug. 2 – The Albania subsidiary of France’s Societe Generale has changed hands part of a deal the France-based lender has concluded to sell its Bulgarian unit to Hungary’s OTP Bank. The takeover was initially announced by Reuters news

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Albania selects joint lead managers for upcoming €500 Eurobond

Albania selects joint lead managers for upcoming €500 Eurobond

TIRANA, Aug. 2 – American, Italian and French financial institutions have been selected to manage Albania’s upcoming Eurobond in the next few months when the Albanian government plans to raise up to €500 million in international capital markets. The finance

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President turns down legal changes allegedly easing gambling tax burden

President turns down legal changes allegedly easing gambling tax burden

The following is an updated version of the online article that appeared earlier on Wednesday, Aug.1  TIRANA, Aug. 1 –  Albania’s President has turned down some legal changes to the gambling tax by exercising his suspensive veto, arguing the proposed

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Orthodox Church sued over HPP damage to bridges

Orthodox Church sued over HPP damage to bridges

TIRANA, July 31 – The Albanian Orthodox Church has been sued by a local government unit over damage to local bridges while building and operating three hydropower plants in Elbasan region, central Albania. Reporter.al news agency, BIRN Albania’s online Albanian

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Albania rated top Balkan country to overuse controversial negotiation in public procurement

Albania rated top Balkan country to overuse controversial negotiation in public procurement

TIRANA, July 31 – About a third of all public procurement in Albania is carried out using the little transparent and limited competition negotiated procedure, making Albania the top Western Balkan country that overuses this procedure, according to a report

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Corruption remains top concern for potential U.S. investors to Albania, report shows

Corruption remains top concern for potential U.S. investors to Albania, report shows

TIRANA, July 31 – The U.S. State Department says Albania continues to remain a difficult place to do business with endemic corruption as the top concern that keeps potential American investors away from the country. In its 2018 investment climate

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ECB: Euro-denominated savings, credit increase by €100 mln

ECB: Euro-denominated savings, credit increase by €100 mln

TIRANA, July 30 – Albanians increased their euro-denominated credit and savings by around €100 million in 2017 when lending in the national currency continued gaining ground but yet remaining below half of the total credit, according to reports by the

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Big hotels, restaurants handed 30-day ban for tax evasion

Big hotels, restaurants handed 30-day ban for tax evasion

TIRANA, July 30 – Big Albania seaside hotels and restaurants are facing temporary closure penalties for failing to comply with tax authorities during the peak tourist season as part of a nationwide campaign to tackle widespread tax evasion in the

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                    [post_content] => TIRANA, Aug. 2 - Albania's government revenue missed the year's first half target by a considerable amount, triggering a mid-year budget cut that was also influenced by a sharp strengthening of the Albanian lek against Europe’s single currency trading at a 10-year low.

Finance ministry data shows government revenue rose by a mere 2.2 percent to a total of about 217 billion lek (€1.7 billion) in the first half of this year, but missed the target by a considerable 3.4 percent equal to 7.5 billion lek (€59.6 mln) for the January-June period.

The value added tax and excise duties, the two key taxes that account for about half of total government revenue and serve as indirect indicators for consumption, significantly underperformed in the first half of this year.

VAT, which is levied at a fixed 20 percent rate on almost all products and services, rose by a mere 3.1 percent in the first six months of this year, but failed to meet the target by 5.4 percent or 1 billion lek (€8 million).

Excise duties collected from the so-called luxury items were down by 2 percent compared to same period last year due to lower tobacco and coffee imports.

Fuel imports in the first half of this year rose by a huge 59 percent, but the hike in imports was triggered by domestic oil refining suspended in early 2018 and only partially activating in the second quarter of the year with no significant impact due to excise duties collected at the same rate for both imported and domestically produced fuel.

The profit tax levied under a three-tier system that applies zero, 5 and 15 percent rates depending on businesses’ annual turnover, also missed the revenue target by about 1 billion lek (€8 million) in the first half of this year, apparently triggered by lower profits by exporting businesses hit by euro’s free fall against the Albanian lek during this year.

The underperforming revenues forced the Albanian government to pursue a tight spending policy that also affected public investment which although higher compared to the same period during the first half of the 2017 general election year, failed to meet targets by a huge 4 billion lek (€32 million).

The first-half performance ended in modest surplus amid a careful spending policy as the government tries to bring public debt down from its current 70 percent of the GDP, a high level for the Albanian developing economy and estimated to pose a key threat to the country’s public finances due to the high servicing cost.

The mid-year budget cut that the Albanian government approved last week slashed central government spending by about 4.5 billion lek (€35.5 mln), but left the budget deficit unchanged at 32.3 billion lek (€256 mln), at about 2 percent of the GDP as part of a public debt reduction agenda targeting to bring debt down to a more affordable 60 percent of the GDP by 2021.

The Albanian government expects growth to recover to 4.2 percent this year following a 9-year high of 3.8 percent in 2017, but international financial institutions predict GDP growth could slow down to 3.5 to 3.7 percent in the next couple of years as two major energy-related conclude their investment stage by the end of this year and no major project replaces them.

GDP in the first quarter of this year grew by 4.45 percent but growth was largely fuelled by the rainfall-fed hydropower sector escaping the 2017 crisis triggered by a prolonged drought and domestic electricity generation meeting the country’s needs and resuming exports.
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                    [post_content] => TIRANA, Aug. 2 – Albania’s central bank says it will continue its euro purchase operations from the local currency exchange market in a bid to curb any further strengthening of the Albanian lek against Europe’s single currency following a series of negative effects on the country’s highly euroised economy.

The ongoing operations come at a time when the Bank of Albania’s emergency interventions in the free floating currency exchange regime during the past couple of months have only managed to curb euro’s unprecedented free fall in the local Albanian market during this year and a time when euro inflows in the local market are expected to register a sharp hike due to the peak tourist season under way and dozens of thousands of Albanian migrants coming home to spend their summer holidays.

Europe's single currency has been trading at a 10-year low of about 126 lek during the past couple of months, down 6 percent from the mid-January peak level of about 134 lek and 10 percent below mid-2015 level when euro’s five-year reign of about 140 lek came to an end.

This week, the euro fell to 125.55 lek, down 0.36 lek compared to the peak level in late July, reflecting the rising euro inflows from the peak tourist season adding to the already excess euros in the local currency exchange market.

Experts predict the national currency will continue strengthening in August due to higher euro inflows from the peak tourist season and remittances by migrants in Italy and Greece coming to spend their holidays at home and that the Bank of Albania can’t do much to stop euro’s free fall under a free floating regime determined by market demand and supply.

The central bank’s currency purchase operations have not been fully disclosed yet, but in one case Albania’s central bank converted last June into national currency a €118 million loan disbursed to Albania’s state-run power utility, KESH, by London-based EBRD.

 

Negative effects

The sharp strengthening of the Albanian lek has negatively affected the country’s Eurozone destined exports, local producers facing tougher competition from cheaper imports, sizeable Euro-denominated savings and remittances as well as government revenue.

On the positive side, the situation is having a positive effect for the Albanian government's external debt and households and businesses who have borrowed in Europe's single currency but generate their income in the local currency, making loan repayments slightly cheaper.

A weaker euro makes Albania’s Eurozone dominated imports much cheaper, but that is not being translated into lower prices as consumer prices rose by an average of 2 percent in the first half of this year.

Last week, the Albanian government was forced to make a mid-year budget cut and suspend planned salary hikes and has cited the euro’s free fall as one of the main reasons behind the underperformance in government revenue during this year.

In a parallel move, Albania's central bank also cut the key rate to new historic low of 1 percent in early June to avoid negative effects from lower imported inflation delaying plans to meet the 3 percent inflation target, estimated to have a positive effect on Albania’s developing economy.

Albania’s inflation target has been running below the 3 percent target for five consecutive years and Albania’s central bank now expects the 3 percent inflation target to be met by 2020, a one-year delay compared to last March’s announcement, and the easier monetary policy to continue until the first half of 2019, postponing plans by six months.

 

Tourism effect

Speaking at a press conference this week, central bank governor Gent Sejko said the Bank of Albania would continue its intervention program to fight what he called seasonal effects related to the tourism sector after managing to stabilize the exchange rate at an average of 126 lek during the past couple of months.

"We are monitoring the market and we will see how thing go. We could not forecast there would be such sharp appreciation of the national currency and that's why we were forced to intervene," said Sejko.

“Our analysis suggests of an imbalance in the demand and supply ratio at the currency exchange market, partly as a result of high seasonal [foreign currency] inflows while a fast and further appreciation of the local currency would put at risk the mid-term inflation target,” adds Sejko.

The travel and tourism industry was one of the key drivers of the Albanian economy in 2017 when authorities say it generated a record high of €1.7 billion in income, about 14 percent of the country’s GDP, according to Albania’s central bank.

 

Question marks over reasons

Albania’s central bank and the government says the strengthening of the national currency reflects higher euro inflows from major energy-related projects, tourism revenue and market expectations following a loan to a state run company and banks converting part of their capital to local currency following two mergers in the past year.

The central bank has also hinted of a possible psychological effect from the de-euroisation package targeting to reduce high levels of Euro-denominated savings and loans, currently at about half of the total, by making it more expensive for banks to provide euro loans since mid-2018.

Meanwhile, the main opposition Democratic Party and some economy experts have linked the national currency’s constant strengthening to alleged illegal euro inflows resulting from the peak 2016 cannabis cultivation and ongoing drug trafficking in the country, considered a major cannabis producer and a key transit route for cocaine and heroin for European markets.

 
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                    [post_content] => TIRANA, Aug. 2 – The Albania subsidiary of France’s Societe Generale has changed hands part of a deal the France-based lender has concluded to sell its Bulgarian unit to Hungary's OTP Bank.

The takeover was initially announced by Reuters news agency before it was officially confirmed later this week by the French lender.

“Societe Generale has entered into an agreement to sell its majority stake in Societe Generale Expressbank (Bulgaria) to OTP Bank. Societe Generale has also entered into an agreement to sell its majority stake in Societe Generale Albania to the same purchaser,” France-based Societe Generale said in a statement without disclosing the amount of the transaction that it expects to have a positive impact on the Group’s financial performance.

OTP is the largest financial services provider in Hungary and one of the key players on the financial market in Central and Eastern Europe.

The closing of the transactions is expected to take place in the coming months, subject to formal receipt of clearances from the relevant banking and antitrust authorities, and relevant third parties’ consents.

Philippe Heim, Deputy Chief Executive Officer of Societe Generale Group described the sale operations in Bulgaria and Albania as “an important milestone in the implementation of Societe Generale’s Strategic and Financial plan ‘Transform to Grow,’ whose primary objectives are to focus and develop its presence on markets and activities with a critical size and the potential for generating synergies with other Group businesses."

Citing confidential sources familiar with the process, Reuters news agency reported earlier this week that Societe Generale was expected to offload its unit in Albania to OTP as part of its strategy to dispose of units that either lack critical size or potential for synergies within the group.

 

Fifth largest bank in Albania

Societe Generale Albania is the fifth largest bank in terms of assets in Albania and the fourth largest in terms of lending. The French lender, whose 2017 Albania assets were at 81.4 billion lek (€643 mln) accounting for 5.5 percent of the total, has been present in Albania since a decade after acquiring a 75 percent stake from a local bank in 2007.

Societe Generale is the sole remaining French banking group operating in Albania following the sale of Credit Agricole’s Albania unit in 2015 when it was acquired by the Albanian-owned American Bank of Investments.

In its 2017 annual report, the Albania unit of the Societe Generale says the bank had 38 outlets and a staff of 413 at the end of 2017. The bank's 2017 net profit dropped to 302 million lek (about €2.4 million).

 

Third bank to change hands in a year

The transaction is the third takeover in Albania’s banking system over the past year after two internal market mergers.

Albania’s banking system has already entered a consolidation stage as two small commercial banks were acquired by bigger internal competitors, reducing the number of active banks to 14 after more than a decade of 16 commercial banks.

In early 2018, the Albanian subsidiary of the National Bank of Greece was acquired by the American Bank of Investments, an American-Albanian bank that has been operating in Albania since 2016.

Back in mid-2017, Italy’s Intesa Sanpaolo Albania unit, the country’s fourth largest bank acquired the bankrupt Veneto Bank in Italy and its subsidiaries in several European countries including Albania.

Intesa Sanpaolo Bank Albania and its newly acquired loss-making Veneto Banka Albania are set to merge by the end of this year.

Several other small banks operating in the country are reportedly on sale.

 

Bank consolidation

Experts say bank consolidation, the process by which one banking company takes over or merges with another, is expected to continue and further reduce the number of banks in the country, but at the same time not affect competition in a market where the four largest banks already hold more than two-thirds of total assets, at 68 percent at the end of 2017.

Experts believe the consolidation process will lead to tougher competition and improved access to banking services at a time when credit still remains sluggish, negatively affected by both tight lending standards applied by banks and poor demand by businesses and households.

However, the restructuring and growing online banking is expected to have a negative impact on bank employees.

The 16 commercial banks operating in the country cut dozens of branches and jobs nationwide last year as lending remained sluggish and e-banking gradually expanded despite banks registering record high profits.

The country’s banking system is considered well-capitalized, liquid and profitable.

Yet, in its latest statement, the International Monetary Fund recommends that “ensuring that new market entrants have solid banking experience and meet fit and proper criteria to operate in the Albanian banking market will be critical.”

The Albanian banking system is overwhelmingly foreign owned but the market share of EU-owned banks has dropped by 15 percent to about 52 percent in the past four years as domestic owned banks expand and EU-owned banks continue deleveraging.

Turkish-owned BKT, Austria’s Raiffeisen and Albanian-owned Credins bank were the top three banks in terms of assets that include loans, investment in securities and interbank placement at the end of 2017.

 
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                    [post_content] => TIRANA, Aug. 2 - American, Italian and French financial institutions have been selected to manage Albania's upcoming Eurobond in the next few months when the Albanian government plans to raise up to €500 million in international capital markets.

The finance ministry says it has picked Citi, an American multinational investment bank and financial services corporation, Banca IMI, a subsidiary of Italy's Intesa Sanpaolo specialized in investment banking and capital markets and French lender Societe Generale as joint lead managers for Albania’s third Eurobond.

Albania’s previous two Eurobonds were managed by Germany’s Deutsche Bank and U.S.-based JP Morgan Chase.

The government says it intends to issue by the end of this year Euro-denominated bonds of up to €500 million with a maturity of five to ten years and buy back a fraction of the existing €450 million Eurobond maturing by 2020.

The current market conditions seem favorable as the European Central Bank continues to keep its key rates at a historic low of zero while Europe’s single currency currently trades at a 10-year low against the Albanian lek, making external debt repayments much cheaper for the Albanian government.

However, Albania's public debt at about 70 percent of the GDP, considered too high for the country’s current stage of development and posing a key threat to the country’s macro-economic stability, will apparently lead to higher interest rates compared to regional countries with lower and more affordable public debt levels.

The last time Albania addressed international markets was in late 2015 when it managed  to secure €450 million in a five-year Eurobond at a coupon rate of 5.75 percent, down from 7.5 percent in its inaugural €300 million Eurobond in 2010.

In January 2018, Macedonia, whose public debt is at about 47 percent of its GDP, borrowed €500 million in a 7-year Eurobond at an interest rate of 2.75 percent, in the lowest ever rate while tapping international markets for a sixth time. The low rates came amid abundant supply, reflecting investor confidence in the neghbouring country’s economy which is projected to grow by about 3 percent in the next couple of years after GDP fell to zero in 2017 as Macedonia struggled with a political crisis.

Montenegro, whose public debt stands at about 60 percent of the GDP, issued its €500 million Eurobond with a 7-year maturity at an interest rate of 3.37 percent last April.

Albania intends to bring public debt, currently the region’s highest, to 60 percent of the GDP by 2021 hopeful that the economy will grow by 4 percent, but international financial institutions are skeptical such a scenario can be achieved.

U.S.-based Standard and Poor’s and Moody’s, two of the ‘big three’ rating agencies, rate Albania B+ and B1, with a stable outlook.

Both S&P’s B+ and Moody’s B1 ratings signify that the issuer or carrier is relatively stable with a moderate chance of default and that investors and policyholders of the rated entity are taking a low to medium risk.
                    [post_title] => Albania selects joint lead managers for upcoming €500 Eurobond
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                    [post_content] => The following is an updated version of the online article that appeared earlier on Wednesday, Aug.1 

TIRANA, Aug. 1 -  Albania's President has turned down some legal changes to the gambling tax by exercising his suspensive veto, arguing the proposed amendments reduce the tax burden for gambling operators and fail to discourage what is considered a booming business in the country with negative effects for one of Europe’s poorest countries.

The president’s office argues the legal changes approved by the ruling Socialists in early July cut the gambling tax to 15 percent of gross earnings compared to a current 15 percent turnover rate, significantly reducing the tax burden on gambling operators.

Meanwhile, the finance ministry argues the sole change to the 2015 gambling law is that the gambling tax on the loss-making Austrian-run national lottery has been unified to 15 percent.

In his decree returning the legal changes for reconsideration by Parliament, President Ilir Meta says easing the tax burden on the gambling industry is a serious barrier to the country's sustainable economic and social development.

The President argues the legal changes promote gambling and disorientate households in earning livelihoods and meeting daily needs through unproductive activities.

“The implementation of the legal changes would only benefit gambling businesses at a time when the expected effects on the state budget or household economy are negative. Article 6 of the law also runs counter to meeting Albania's social targets and legislation in force discouraging gambling activities and increases the probability of negative phenomena on Albanian households,” argues the president as quoted in a statement.

"The gambling business model does not produce added value for the society, on the contrary the expansion of this industry brings potential risk that impoverish Albanian households and cause social drama,” adds the president’s press office.

The President also argues the legal changes run counter to the government's will and stance against gambling whose informality it fought through a nationwide campaign in late 2013 and the latest initiative to move casinos to suburban or tourist areas.

“The promotion of this business model through an easier tax regime has a negative effect on the state budget, is harmful and no productive at all for the Albanian economy, is not based on sustainable socio-economic arguments and does not guarantee a healthy development of the Albanian society,” concludes the president.

 

Gov’t denies lower tax claims

Reacting to the president's decree, the finance ministry said there was no easier tax burden but only a unification of the 15 percent tax rate on gambling industry, which in the case of the national lottery operator was applied at lower 10 percent.

The ministry says gross income under the existing law is also calculated as the amount remaining after the distribution of profits to gamblers and not as a rate on total turnover as the president’s office has misinterpreted it.

"There is no change to the gambling law and no relaxation as far as gambling taxation is concerned, on the contrary there is unification for all gambling categories. If the changes turned down by the president, don't become effective, then we will have differentiated treatment for a market operator that will continue to be taxes at 10 percent," the finance ministry said in a statement.

Austrian Lotteries launched its Albania operations in 2013 after it was given a 10-year licence to organize Albania’s first ever national lottery and offered a 10 percent tax rate. Back in mid-2016, the Austrian Lotteries Albania operations were taken over by another Austria-based company already present in Albania with a chain of electronic casinos following accumulated losses.

A booming business

Gambling is a booming business in Albania and varies from casinos to sports betting. Thousands of betting shops are scattered across the country. A gambling law, which has been in force for several years, bans people under 21 from entering betting shops, but regardless, teenagers are often seen there.

In late 2013, the then Socialist Party-led coalition undertook a nationwide campaign "End of Madness" to tackle high informality in the sector but data shows gambling companies have been paying less in taxes despite Albanians significantly increasing their spending.

Albanians reportedly spent a record 16.6 billion lek (€132 mln) in gambling in 2017, up 10 percent compared to the previous year, according to turnover data reported by the main electronic casino, lottery and sports betting companies.

In a report on inspections carried out in the first half of 2017, the Supreme State Audit said it identified about 50 billion lek (€395 million) in income that state authorities failed to collect from 2014 to 2016. The revenue miss is related to the Gambling Supervisory Authority’s failure to impose and collect fines following seizure of games of chance equipment, often operated informally or not meeting technical requirements.

In late 2016, the ruling Socialist Party-majority approved a two-year extension to a law disciplining gambling in downtown areas, citing concerns over gambling businesses not being ready to move to tourist attractions, the possible spread of illegal gambling and the state budget losing millions of euros in taxes, in a move which came following apparent successful lobbying by the lucrative gambling industry. The law, initially scheduled to come into force in January 2017, will now be implemented starting 2019 unless a new extension takes place.

Albanian authorities have selected an Austrian-Polish-Albanian concessionaire to set up, operate and maintain an online central monitoring system on Albania’s gambling industry for the next 30 years.

The government says the concession is aimed at preventing tax evasion and money laundering in the industry which employs about 1,800 people and generates more than $125 million in annual turnover.

Second presidential veto in few days

This is the second time in a few days that President Ilir Meta has returned bills to be reconsidered by Parliament where the majority can still use their votes to turn the bill into law at a time when the country’s constitutional court is non-operational due to a vetting process underway as part of a judiciary reform having dismissed several judges after failing to justify their financial assets.

President Meta has also exercised his suspended veto power on a bill paving the way for the demolition of an Italian-built WWII building in downtown Tirana that has served as the country’s national theater for about eight decades in a controversial project that has divided Albanian politicians and actors. The new contemporary architecture theater is supposed to be built by a private company in return for being offered public land to build business towers next to it, but the president argues the bill has violated market competition through its negotiated procedure and fails to preserve national heritage values.

Meta is a former experienced politician who has served as the country’s Prime Minister and Parliament Speaker and also led the country’s third largest party for more than a decade until he took office as president in mid-2017.

 

 
                    [post_title] => President turns down legal changes allegedly easing gambling tax burden
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                    [ID] => 138133
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                    [post_date] => 2018-08-01 09:13:49
                    [post_date_gmt] => 2018-08-01 07:13:49
                    [post_content] => TIRANA, July 31 - The Albanian Orthodox Church has been sued by a local government unit over damage to local bridges while building and operating three hydropower plants in Elbasan region, central Albania.

Reporter.al news agency, BIRN Albania’s online Albanian language publication, says the Librazhd Municipality is seeking compensation from the Autocephalous Orthodox Church of Albania over damage to local bridges that could put local residents’ lives at risk.

A lawyer with the municipality of Librazhd, a local government unit of some 32,000 residents, says water discharges and construction works for the Rapuni hydropower plants run by the Orthodox Church's “C & S ENERGY” company have damaged a rope bridge, putting at risk the lives of a neighborhood just outside town.

Local government officials and residents also reportedly blame the Orthodox Church for damage to a bigger concrete bridge linking two villages to Librazhd.

The municipality says it undertook legal action after the Orthodox-church-owned company declined to assume responsibility over claimed damage estimated at 11 million lek (€87,000).

However, a spokesperson for the Orthodox Church told BIRN they were not aware of the legal action and that the church had good relations with the municipality and settled issues with local residents by repairing the bridges twice.

The Orthodox Church said it build the Rapuni HPPs to strengthen its economic independence and contribute more to education and health projects throughout the country.

Orthodox believers were officially reported at 6.7 percent in the latest 2011 census, but the Orthodox Church did not recognize the outcome, claiming that Orthodox community in Albania is the second largest and at about a quarter of the resident population.

The small Rapuni HPPs are situated at Shebenik-Jabllanicë National Park, central-east Albania close to the Macedonia border, where dozens of other HPPs have been built, triggering environmental concern that led to a legal changes banning the construction of hydropower plants in Albania national parks starting 2017.
                    [post_title] => Orthodox Church sued over HPP damage to bridges 
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                    [post_date] => 2018-07-31 14:39:33
                    [post_date_gmt] => 2018-07-31 12:39:33
                    [post_content] => TIRANA, July 31 - About a third of all public procurement in Albania is carried out using the little transparent and limited competition negotiated procedure, making Albania the top Western Balkan country that overuses this procedure, according to a report by the European Court of Auditors, the EU's independent external auditor.

Referring to findings by Albania’s Supreme Audit Institution, the report shows about 30 percent of all public procurement procedures in Albania over the period 2010 to 2016 were done using the negotiated procedure which due to its specific nature is one of the least transparent types of procurement procedure where competition is limited, “increasing the risk that the national budget is not used in the most transparent way.”

The report shows that in two-thirds of the cases, the negotiated procedure, officially known as “negotiation without prior publication of a contract notice” was used to procure basic goods such as medicine, security items and food.

"The proper use and operation of the negotiated procedure is crucial for the budget of Albania, which is facing high deficits. It is in the interest of the Albanian people to ensure effective and efficient procurement of goods, works and services as this directly impacts on the availability and prices of strategic goods and services such as medicine, food and roads," says the report.

Auditors say the negotiated procedure is used extensively in Albania mainly by stretching the argument that a case is an emergency. Albania's legislation allows 12 different possible arguments for defining a case as an emergency, including procurement needed at the beginning of the year, especially for essential, urgent goods such as foodstuffs and medicine until the relevant budget is transferred by March to allow for normal procurement procedures.

Albania's Supreme Audit Institution audited institutions such as the Public Procurement Agency, the central body which coordinates the public procurement system in Albania, the Albanian Road Authority and regional road directorates, Albania's largest hospitals, and municipalities with the largest funds procured to assess whether the negotiated procedure is transparent, non-discriminatory and ensures equal treatment of private operators.

Albanian auditors also unveil the electronic system is frequently unused for negotiated procedures even in cases where this would be possible and appropriate and that the law on public procurement procedures is not fully harmonized with the European Union acqui and the financial management legislation.

"No specific or detailed guidance exists on the steps, deadlines and actions the contracting authorities should apply when using the negotiated procedure and there are no guidelines for the monitoring of public procurement procedures," concludes the report.

In its recommendations to Albanian authorities, Luxembourg-based European Court of Auditors says the Albanian Public Procurement Agency should address problems related to the definition of cases as emergencies by economic operators and lobby for legal changes to minimize the number of these cases and related problems.

“Emergency procedures inherently lack transparency and are not fully cost-effective. Bidders who do not get an opportunity to participate in such tenders may file complaints and, due to this, the authorities may be forced to annul the tender procedure and start a new one. This causes further delays … with the final effect of jeopardizing the functioning of institutions and their timely and satisfactory provision of services to citizens,” auditors say.

The watchdog, whose report is based on findings by national supreme audit institutions, says Albania authorities should promote the use of electronic public procurement system for negotiated procedures in order to increase transparency and develop specific guidance for their use detailing the steps, deadlines, evidence of standards and technical specifications.

Auditors also recommend harmonizing the law on public procurement procedures and financial management legislation and draw up guidelines in cooperation with the relevant ministries for the monitoring of public procurement procedures.

 

A regional issue

Citing reports by researchers, the media and non-governmental sector, the European Court of Auditors says fraud and corruption are often the main cause of inherent problems in public procurement in the Western Balkans, resulting in problems in fulfilling those public sector functions that depend on procurement.

In their audit reports, the six Western Balkan supreme audit institutions unveiled untimeliness and unpreparedness, the use of direct negotiation procedures, annulment of tenders, failure to achieve the cost/quality ratio as the most frequently observed problems in public procurement systems.

The report shows that the overall problems in public procurement in the Western Balkans can be traced back to poor planning and poor preparation of the procurement process.

"Failure to estimate future needs properly and in good time, accompanied by a failure to conduct proper market research and prepare clear tender specifications, is at the root of many problems that occur at a later stage. These often cause delays, incorrect deliveries, inappropriate supplies of goods, works and services, tender annulments, and an inability to effectively implement contracts with suppliers," says the report.

Public procurement accounts for about 11 percent of the GDP in Albania, among the highest levels in six EU aspirant Western Balkan countries, showed the report.

 

Direct negotiation keeps rising

Albania’s central and local government institutions slightly increased the number of public procurements with limited competition in 2017 when public tenders were suspended for about four months prior and after the June 25 general elections, according to a report by the Public Procurement Agency.

Some 2,234 such procedures, representing 31.8 percent of the number of public tenders were carried out in 2017, representing a 2 percent increase compared to 2016.

When it comes to their value, ‘negotiations without prior notice of the contract,’ were worth 7.6 billion lek (€60 million) in 2017, accounting for 8.3 percent of the total tenders, only 0.1 percent lower compared to 2016 when Albania procured more, about 8 billion lek (€63 mln) under such contracts.

As a rule, negotiations without prior notice of the contract are carried out to meet year start needs at an amount of 20 percent of the previous contract, in case contracting authorities have not had their budgets disbursed yet or due to prolonged procurement procedures because of appeals with the Public Procurement Commission.

The Procurement Agency has earlier warned such negotiations lead to limited competition and discrimination of operators.

“Being held in a written form and limited to a few economic operators invited by the contracting authority, the use of negotiation without prior notice of the contract leads to lack of competition and discrimination of candidates,” the Public Procurement Agency said in 2016 report.

Surveys show public procurement continues to remain one of the main doing business concerns for investors in Albania due to perceived limited competition and discriminatory criteria although the country has been offering e-procurement procedures for about a decade now in a bid to reduce corruption and increase transparency.

In the latest Balkan Barometer survey, some Albanian companies cited tailor-made criteria for certain participants and deals before the tender is even published for not participating in public tenders.

The e-procurement system in Albania is mandatory, including for low-value procurement of more than 100,000 lek (€770). A central public procurement portal is in place and all tender documents are available in e-form.
                    [post_title] => Albania rated top Balkan country to overuse controversial negotiation in public procurement
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                    [post_date] => 2018-07-31 11:08:27
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                    [post_content] => TIRANA, July 31 - The U.S. State Department says Albania continues to remain a difficult place to do business with endemic corruption as the top concern that keeps potential American investors away from the country.

In its 2018 investment climate statement for Albania, the State Department's Bureau of Economic and Business Affairs says foreign investors cite corruption, particularly in the judiciary, lack of transparency in public procurement and poor enforcement of contracts as continuing problems in Albania.

"The implementation of judicial reform is underway, including the vetting of judges and prosecutors for unexplained wealth, but foreign investors perceive the investment climate as problematic and say Albania remains a difficult place to do business," says the report.

U.S. investors to Albania, whom the State Departments advises to include binding international arbitration clauses in agreements with Albanian counterparts, report ongoing concerns that Albanian regulators use difficult-to-interpret or inconsistent legislation and regulations as tools to dissuade foreign investors and favor politically connected companies.

“Despite hospitable legislation, U.S. investors are challenged by rampant corruption and the perpetuation of informal business practices. Several major U.S. investors have left the country in recent years after contentious commercial disputes, including several that were brought before international arbitration,” says the report.

The U.S. State Department says major foreign investors in Albania report pressure to hire specific, politically connected subcontractors and express concern about compliance with the U.S. Foreign Corrupt Practices Act while operating in the country.

The rising concern came after two major North American oil companies, former Canadian-owned Bankers Petroleum and U.S.-based TransAtlantic Petroleum left the country in 2016 following disputes with tax authorities in the country and a slump in international oil prices.

Public private partnership, which are commonly being awarded through unsolicited proposals favoring proposing companies through bonuses that make them eventual winners in tenders, are also cited as a concern.

“The increasing use of public private partnership contracts has narrowed the opportunities for competition, including by foreign investors, in infrastructure and other sectors. Poor cost-benefit analyses and a lack of technical expertise in drafting and monitoring PPP contracts are ongoing concerns,” says the report.

The U.S. Bureau of Economic and Business Affairs also expresses concern over the long-standing issue of unclear property titles and uneven enforcement of legislation as barriers to doing business in the country.

“Property rights remain another challenge in Albania, as clear title is difficult to obtain. Some factors include unscrupulous actors who manipulate the corrupt court system to obtain title to land not their own. Uneven enforcement of legislation, cumbersome bureaucracy, and a lack of transparency are all hindrances to the business community,” says the report.

The high tax burden, government bureaucracy and monopoly and unfair competition have been the main barriers to doing business in the country for the past few years, according to annual surveys conducted by the American Chamber of Commerce representing some of the key foreign and local investors in the country.

Albania lost seven places to rank 65th among 190 economies in the 2018 Doing Business report, lagging behind almost all regional competitors, according to a World Bank report.

 

Potential investment sectors

Despite the considerable number of doing business barriers identified, the State Department says energy and power, tourism, water supply and sewerage, road and rail, mining, and information communication technology represent the best prospects for foreign direct investment in Albania over the next several years.

The identified sectors have also been included in the strategic investment law that the Albanian government approved in 2015 offering tax incentives and state protection and assistance. However, as the December 2018 deadline for application to receive the status of strategic investment/investor is approaching, no major foreign investors have taken advantage of the law and it’s only several projects proposed by domestic companies or consortiums of local and foreign partners that have been designated as strategic investments, mostly in the tourism sector, says the U.S. State Department report.

The critical investment climate report comes at a time when the modest investment and trade ties have failed to make progress in the past few years.

The stock of U.S. foreign direct in Albania has been on downward trend in the past three years, dropping to €74 million in early 2018, down from a peak €97 million in early 2015, according to Bank of Albania of data, ranking the U.S. out of the top 10 largest investors in Albania.

Trade exchanges between the U.S. and Albania are at a modest of about 12 billion lek (€95 mln, $111 mln) annually, accounting for only 1.5 percent of Albania’s trade volume, according to Albania’s statistical institute, INSTAT.

The trade exchanges are overwhelming dominated by machinery and equipment Albania imports while medicinal plants lead the country’s exports to the U.S.

Some 200,000 Americans of Albanian descent live in the U.S. while the number of Albanian-Americans who permanently live in Albania is estimated at 20,000, making it a huge potential for investment at home.
                    [post_title] => Corruption remains top concern for potential U.S. investors to Albania, report shows   
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                    [post_date] => 2018-07-30 17:01:35
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                    [post_content] => TIRANA, July 30 – Albanians increased their euro-denominated credit and savings by around €100 million in 2017 when lending in the national currency continued gaining ground but yet remaining below half of the total credit, according to reports by the European Central Bank and the Bank of Albania.

A European Central Bank report on the international role of the euro shows euro-denominated savings by Albanian households and businesses rose by a mere €64 million to €3.5 billion in 2017 to account for 43.5 of total savings with the banking system and 85.3 percent of total foreign currency deposits.

Euro-denominated savings have been constantly increasing in Albania where the euro is quite a common currency especially in real estate and vehicle trade.

Meanwhile, credit in Europe’s single currency increased by a mere €41 million to €1.88 billion in 2017 as lending in the national currency increased its share to 45 percent of the total compared to only a fifth a decade ago just before the onset of the global financial crisis.

Euro-denominated loans accounted for 47 percent of the total credit at the end of 2017 with U.S. dollar loans as the second largest foreign currency loans.

The high euroisation levels are part of a Western Balkan trend where half of total loans and deposits are denominated in foreign currency, mostly euro. Kosovo and Montenegro, already use the euro as their de facto currency without the EU’s blessing.

A previous ECB report has shown unofficial euroisation in the Western Balkans is determined by factors such as poor confidence in the domestic currencies, trade relations with the euro area and Euro-denominated remittances.

Albania conducts two-thirds of its trade exchanges with Eurozone countries, mainly Italy, and receives about €600 million in remittances from more than 1 million migrants, mainly in Italy and Greece, about 40 percent less than pre-crisis peak level a decade ago.

A survey conducted as part of the ECB report shows euro cash holdings remain widespread in the region with about 30 percent of respondents in Albania reporting euro cash, lower only compared to Bosnia and Herzegovina.

Starting mid-2018, Albania's central bank has been implementing some de-euroisation measures in a bid to accelerate the reduction of the current high levels of foreign currency in the country’s banking system, considered a key barrier for the transmission of its easier monetary policy and giving a boost to sluggish credit and consumption.

Albania’s central bank governor says the de-euroization measures will target a gradual reduction in the current widespread use of Europe’s single currency by about 10 percent to below 40 percent as the International Monetary Fund has suggested.

The measures involving higher reserve ratios for foreign-currency assets are expected to make it more expensive for banks to provide Euro-denominated loans, triggering an eventual hike in interest rates and discouraging borrowing in Euro, currently accounting for about half of total.

The de-euroisation package also targets offering protection against currency exchange fluctuations that could hurt both savers and borrowers.

Europe’s single currency is currently trading at a 10-year low of about 126 lek against the Albanian lek with a series of negative effects on Eurozone exporters, local producers facing tougher competition from cheaper imports as well as euro-denominated savings and remittances.
                    [post_title] => ECB: Euro-denominated savings, credit increase by €100 mln
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                    [post_date] => 2018-07-30 11:56:32
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                    [post_content] => TIRANA, July 30 – Big Albania seaside hotels and restaurants are facing temporary closure penalties for failing to comply with tax authorities during the peak tourist season as part of a nationwide campaign to tackle widespread tax evasion in the emerging tourism sector.

Tax authorities say they have imposed 30-day suspension of activity on dozens of hotels and restaurants along the country’s Adriatic and Ionian coasts for repeated failure to issue tax receipts in what is the first time such penalties are being massively imposed during the peak tourist season.

Tax inspectors say they identified violations in about 40 percent of the inspected tourism-related businesses in the past couple of months as part of nationwide campaign to curb informality in what is gradually becoming one of the key sectors of the Albanian economy.

Authorities say 2,000 businesses have been fined a total of 75.2 million lek (€595,000) out of more than 5,000 inspections carried out in June and July 2018 for violations such as failure to issue tax receipts, undocumented goods and informal workers.

In inspections carried out along the southern Albanian Riviera, inspectors say they also identified several unlicensed hotels which have had their activity suspended until they register with authorities.

In some cases, hotel and restaurant owners have condemned what they call arbitrary behavior by tax inspectors and describe the 30-day bans as severe punishment for their businesses at a golden time such as the peak tourism season.

Hotel owners also complain they face unfair competition from smaller accommodation units operating informally or households who informally rent out their apartments at much cheaper rates.

Small and medium-sized hotel owners along the Adriatic coast say the June and July performance has not been what they expected and rather lower temperatures and rainy days have also had a negative impact compared to last year’s heat wave and one of the hottest summers in decades.

Tourism experts say a hike in prices, often not justifying the quality of service especially in the southern Albanian Riviera, and a sharp strengthening of the Albanian local currency against Europe’s single currency making holidays in Albania much more expensive has also negatively affected this year’s tourist season so far when demand has not met expectations.

All eyes are now on the August performance, the peak season, when dozens of thousands of migrants also come home to spend their holidays, adding to the issue of seasonality in Albania’s emerging tourism industry.

Meanwhile, big hotels and resorts operating under contracts with tour operators have been booked up for summer due to hike in Nordic and central European tourists.

Already in its peak season, tourism is a booming business in Albania in summer when thousands of companies reactivate their business, but informality in the sector is considered one of the highest, second only compared to agriculture sector which employs about half of the country’s population but produces only a fifth of the GDP.

Albania has some 16,000 businesses operating in the travel and tourism industry, about a tenth of the total number of businesses in the country, but a considerable number of them operate only seasonally.

Tourist accommodation units have been facing a reduced 6 percent valued added tax for the past year, down from a previous standards 20 percent VAT, but the lower rate only applies to accommodation fees and excludes food, drinks or entertainment.

In a bid to promote elite tourism, the Albanian government is now offering tax incentives for four and five-star hotels with an investment value between €8 million to €15 million.

The travel and tourism industry was one of the key drivers of the Albanian economy in 2017 when authorities say it generated a record high of €1.7 billion in income from more than 5 million foreign tourists.
                    [post_title] => Big hotels, restaurants handed 30-day ban for tax evasion 
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            [post_date] => 2018-08-02 17:00:04
            [post_date_gmt] => 2018-08-02 15:00:04
            [post_content] => TIRANA, Aug. 2 - Albania's government revenue missed the year's first half target by a considerable amount, triggering a mid-year budget cut that was also influenced by a sharp strengthening of the Albanian lek against Europe’s single currency trading at a 10-year low.

Finance ministry data shows government revenue rose by a mere 2.2 percent to a total of about 217 billion lek (€1.7 billion) in the first half of this year, but missed the target by a considerable 3.4 percent equal to 7.5 billion lek (€59.6 mln) for the January-June period.

The value added tax and excise duties, the two key taxes that account for about half of total government revenue and serve as indirect indicators for consumption, significantly underperformed in the first half of this year.

VAT, which is levied at a fixed 20 percent rate on almost all products and services, rose by a mere 3.1 percent in the first six months of this year, but failed to meet the target by 5.4 percent or 1 billion lek (€8 million).

Excise duties collected from the so-called luxury items were down by 2 percent compared to same period last year due to lower tobacco and coffee imports.

Fuel imports in the first half of this year rose by a huge 59 percent, but the hike in imports was triggered by domestic oil refining suspended in early 2018 and only partially activating in the second quarter of the year with no significant impact due to excise duties collected at the same rate for both imported and domestically produced fuel.

The profit tax levied under a three-tier system that applies zero, 5 and 15 percent rates depending on businesses’ annual turnover, also missed the revenue target by about 1 billion lek (€8 million) in the first half of this year, apparently triggered by lower profits by exporting businesses hit by euro’s free fall against the Albanian lek during this year.

The underperforming revenues forced the Albanian government to pursue a tight spending policy that also affected public investment which although higher compared to the same period during the first half of the 2017 general election year, failed to meet targets by a huge 4 billion lek (€32 million).

The first-half performance ended in modest surplus amid a careful spending policy as the government tries to bring public debt down from its current 70 percent of the GDP, a high level for the Albanian developing economy and estimated to pose a key threat to the country’s public finances due to the high servicing cost.

The mid-year budget cut that the Albanian government approved last week slashed central government spending by about 4.5 billion lek (€35.5 mln), but left the budget deficit unchanged at 32.3 billion lek (€256 mln), at about 2 percent of the GDP as part of a public debt reduction agenda targeting to bring debt down to a more affordable 60 percent of the GDP by 2021.

The Albanian government expects growth to recover to 4.2 percent this year following a 9-year high of 3.8 percent in 2017, but international financial institutions predict GDP growth could slow down to 3.5 to 3.7 percent in the next couple of years as two major energy-related conclude their investment stage by the end of this year and no major project replaces them.

GDP in the first quarter of this year grew by 4.45 percent but growth was largely fuelled by the rainfall-fed hydropower sector escaping the 2017 crisis triggered by a prolonged drought and domestic electricity generation meeting the country’s needs and resuming exports.
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