Milot-Balldren maintenance too expensive

Tirana Times
By Tirana Times June 5, 2019 10:48

Milot-Balldren maintenance too expensive

Story Highlights

  • In the axes of PPP, the maintenance starts in the last six years as the working need three to four years to be completed, and for two years after the completion of the works it is assumed that there is no need for maintenance and if so, they are covered by the company's own funds. For Milot - Balldren PPP the maintenance costs 10 million euros for the entire period.

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TIRANA, June 3- According to official budget data, the Albanian government spent 1.5 billion lek (12 million euros) last year to maintain all road axes in the country. This amount of funds was used for national and local intercity axes across the country which amount to about 3800 kilometers, of which 1400 kilometers are national roads. Given that maintenance goes mainly to national roads, maintenance cost per kilometer is about 7,400 euros.

However, the road maintenance service is expected to cost more in the public-private partnership (PPP) concession contracts already signed by the Albanian government. According to the PPP concession contract for the construction of the 17 kilometer long Milot – Balldren, the annual maintenance costs 1.25 million euros and it is now in its sixth year of the project, totaling 10 million euros. The annual maintenance value of 17 kilometers through PPP in the Milot – Balldren case is as much as 12.5 percent ​​of the current fund that the Albanian government is committed to maintaining about 3800 kilometers.

In the axes of PPP, the maintenance starts in the last six years as the working need three to four years to be completed, and for two years after the completion of the works it is assumed that there is no need for maintenance and if so, they are covered by the company’s own funds. For Milot – Balldren PPP the  maintenance costs 10 million euros for the entire period. As the government is contracting roadworks with PPP contracts at very high costs, the use of funds to maintain these concessions is equally expensive.

When designing road construction with PPP, the government argued that the costs for their maintenance would be very low after construction. According to officials from the Ministry of Infrastructure at that time, as companies would take care of the last six years of concession maintenance, they would carry out quality work in order to avoid maintenance costs later on. But in the final PPP contracts, maintenance comes at a high cost as well. Road maintenance projects have been a black hole in the history of public spending, as millions of euros have been invested in several axes for which only a few paint buckets have been spent. The peak reached the investment of signal improvement in the Tirana-Vora highway, the Rinas branch where the government spent nearly 5 million euros a few years ago only for the lighting and planting of ornamental trees, which were later allowed floodings in the highway bringing millions of euros damage to area businesses for several consecutive years.

The costs of the 17.2 kilometer Milot – Balldren road project are 213 million euros plus VAT, according to the financial proposal part of the PPP concession contract, which is an unsolicited one given to A.N.K. According to contract specifications, the company’s financing is 140 million euros. 70 million euros is from a bank loan to be received from one or more financial institutions, 19.5 million euros are supplier funding, and 52 million euros are alleged to be from company’s own capital.

The remaining 72 million euros will go to payout interest and company profits, as this represents about 34 percent of the total (excluding VAT), or about one third of the total cost of the road, which leads to the total cost per kilometer to 15 million euros per kilometer (including VAT), of the most expensive in Europe. While the company promises to finance 52 million euros from its own equity, official data from the 2017 balance sheet show that its total assets are only 16 million euros and its total capital is 3.2 million euros. The company had revenues of 16 million euros in 2017 and a minimum profit of less than 1 million euros. Company liabilities are almost 4 times over capital, which makes it unattractive to banks when a loan-making decision is to be made. 

 

Tirana Times
By Tirana Times June 5, 2019 10:48