The inability to win EU contracts and the PPP tricks

Tirana Times
By Tirana Times July 29, 2019 16:33

The inability to win EU contracts and the PPP tricks

By Ornela Liperi*

Albania is ranked last among Western Balkan countries for attracting infrastructure projects, within the framework of the Liaison Agenda, a European Union initiative to improve transport and energy infrastructure in the region. This initiative aims to provide the region with grants worth 1 billion euros by 2020, which could attract up to 4 billion euros in funding. For the period 2015-2019, according to official data of the European Commission, Albania has managed to attract only 7.3 percent of the amount of nearly 3 billion euros, engaged so far within the agenda.

Our country has benefited a total of 214 million euros, of which 36 percent are grants and the rest investments in energy and infrastructure. Concretely, there are three projects that have attracted grants and funding:

 -The Albania-North Macedonia (I) interconnection line: The Albania section (Fier – Elbasan – the border between the two countries), which has received a grant of 14.3 million euros and can attract funding of 70 million euros. The project was selected in the period 2015-2016 and works are expected to begin in late 2019.

- Reconstruction of the Port of Durres, approved in the period 2017-2018, with a grant of 27,7 million euros, which could attract funding of 62.4 million euros.

- Mediterranean Corridor: Montenegro – Albania – Greece, the Railroad Interconnection, Tirana – Durres, the Albanian section, with a grant of 36.3 million euros, which could attract funding of 81.6 million euros.

The country that has attracted the most projects is Bosnia and Herzegovina, with a total of 1.1 billion euros, followed by Serbia with 627 million euros; Montenegro (a country with a much smaller population than Albania), with 399.2 million euros; Kosovo, 330 million euros and the second to last, Northern Macedonia with 272.2 million euros.

Ardian Haçkaj, Research Director at the Institute for Cooperation and Development (CDI), which produces the annual monitoring reports of the Berlin process, says that the main problem of why Albania fails to attract projects lies in the low technical and managerial capacities of local institutions.

At the last Summit held in Poznan, Poland, Albania did not win any projects. One of the biggest beneficiaries was Bosnia, which received again funds for the Mediterranean Corridor (VC). 

With a total length of 700 km, the VC connects Central Europe, specifically Hungary and Eastern Croatia, to Bosnia and Herzegovina and to the Adriatic Sea. The longest part of the road (approx. 335 km) passes Bosnia and Herzegovina, facing a demanding geomorphologic ground, which is the construction of tunnels and bridges. Investments received for segments of this road amount to about 430 million euros.

Kosovo has attracted 56.2 million euros worth of investments for the rehabilitation and modernization of its 148 kilometer rail network, which constitutes the only railroad link between Kosovo and the region and is part of the Western Balkans Trans-European Transport Network. North Macedonia received 124 million euros in investments for the rail network linking the East and Mediterranean corridor, which has branches in Serbia and Macedonia. Another North Macedonia project is the gas corridor that connects it to Greece.

Meanwhile, Serbia has received around 59 million euros to improve its energy transportation network. 

Public-Private Partnership contract zeal 

Albania is included in the European TEN-T interconnection network, through the Adriatic-Ionian highways (mostly in Albanian territory matched to the North-South axis) and which is the Corridor of the Mediterranean, starting from Spain (Almeria) and passing in six European countries (Spain, France, Italy, Slovenia, Croatia and Hungary) at a length of 6,000 km.

The Adriatic-Ionian highway connects the Mediterranean TEN-T corridor, crossing the Croatian coast, with the roads along the Montenegrin coast and crosses Albania from Muriqani to Lezha -Tirana – Fier – Tepelene – Gjirokaster and ends in Kakavija. The Adriatic-Ionian highway was the only one that was assessed as a feasibility even by the 2014 Berlin Initiative for the Western Balkans, where the EU committed itself to its financing. Albania can benefit from grants and funding under the Connectivity Agenda, as Bosnia is doing to fund its part of the corridor.

While Albania has not been very active in taking advantage of the “European generosity,” it has engaged in a wave of PPP projects to finance its infrastructure gap. 

Only in April of this year  the route of the Adriatic-Ionian corridor was adopted by the Albanian Road Authority (ARA), paving the way for financing the preparation of the final project. But, meanwhile, the Albanian government is rushing to deliver some parts of this road through PPPs. The Albanian government has approved an unsolicited concession from the company A.N.K for the construction of the Milot – Balldren segment, with a total length of 17.2 km, worth 256 million euros with VAT, which is part of the Adriatic-Ionian corridor.

This concession created numerous debates, due to the high cost of 15 million euros per kilometer and the way it would be funded. Another government effort for the construction and operation of the Tirana-Thumanë-Vora axis, worth 360 million euros and constructed by Gener 2, was suspended earlier this year. Another project to be awarded as a PPP is the Kashar-Rrogozhina highway, worth 678 million euros. Only by implementing these three projects it would cost the government nearly 1.3 billion euros – an amount experts have estimated as too big. 

PPP projects are strongly opposed by international institutions. The IMF warned in the second review for Albania that the country faces significant gaps in infrastructure compared to the region – a gap currently being addressed through the widespread use of PPPs and projects worth about 15 percent of GDP which are underway. 

However, the IMF warns, PPPs are not well integrated into the overall public investment management framework for assessing feasibility, affordability and risks. At the same time, the planned annual budget payments for PPPs (now funded by the government) are approaching the lawful limit of 5 percent of last year’s fiscal revenues.

Most projects are related to infrastructure and are still in the planning or construction phase. Accompanying fiscal risks could materialize in the medium to long term. The government, for its part, has again postponed the commitment not to accept any unwarranted bidding, as the law prohibiting them is not expected to be approved until at least the start of the new parliamentary session in the fall.

Hackaj claims that the government’s orientation towards PPPs is linked to two reasons. First, EU-issued grants must be met by credit, which is on average four times the grant value, which would directly increase public debt, while through PPPs public debt can be hidden, as only current payments rather than the full cost is reported. 

Secondly, he says, “PPPs were also preferred because project preparation, including technical identification and design, was made by the proposed company directly to the Albanian government without going through the technical and financial verification links applied by international institutions in the case of projects, which they finance. This closed Albanian cycle has accelerated the implementation of the project, but has resulted in comparatively much higher costs, either financial (price per kilometer) or technical features of the project.” 

While applications coming directly from Western Balkans authorities are controlled by the European Commission and other stakeholders, such as the Energy and Transport Community’s Secretariats, against various criteria. The most important parameters are the maturity of the projects and their strategic importance.

 

Tirana Times
By Tirana Times July 29, 2019 16:33