TIRANA, July 16 – Another Albanian company has won a major project as part of the Albanian government’s ambitious but controversial €1 billion public private partnership program for the next four years in a bid to upgrade road, health and education infrastructure, adding to the list of Albanian companies getting PPP contracts through controversial unsolicited proposals and bonuses putting them at an advantage.
Gener 2, one of the biggest Albanian companies in the construction industry, has been announced a winner to build and operate a 21-km highway linking Tirana’s industrial area to the airport and the so-called Highway of Nation connecting Albania to Kosovo, significantly cutting distance to the current lengthy and narrow roads.
Gener 2, which last July was awarded an 8.5 percentage point for its unsolicited proposal for the Thumane – Fushe-Kruje – Vore – Kashar highway, bid about €226 million to build and maintain the road for 13 years in exchange for annual government instalments, beating Albanian and Italian competitors who bid to complete the project for €274.5 million to €298.4 million, according to an announcement by Albania’s Public Procurement Agency.
One of the country’s biggest companies, Gener 2 also runs two shopping centers in Tirana and is engaged in two hydropower plant constructions along the Valbona River, northeast Albania, in a project that has triggered strong protests by environmentalists and local residents relying on the emerging mountain tourism there. The company has also recently announced a partnership with U.S.-based CNN giant to launch a local news channel by the end of 2018 and “bring CNN standards to the Albanian media market.”
The new PPP is the second major road project that the Albanian government is implementing under an ambitious €1 billion PPP program amid criticism by international financial institutions that the country’s public debt reduction agenda is being put at risk and that the program is being carried out under controversial unsolicited proposals and without a clear cost-benefit analysis.
The first major project that has already been concluded involves the construction of a 40-km segment in the Arbri Road linking Albania to neighboring Macedonia for 33.6 billion lek (€265 million) in a public private partnership that is expected to receive government financial support for 13 years and allow the concessionaire to introduce a tolling system once the highway is completed in about three years.
Gjoka Konstruksion, an Albanian-run company which had been awarded a 10 percent bonus for its unsolicited bid after the failure of the 2015 contract negotiations with a Chinese company, was the apparent winner of the late October 2017 tender, facing no rivalry from two other Albanian companies disqualified for not submitting financial bids.
The €1 billion PPP program that the Albanian government intends to implement for the next four years also includes several other major road projects in central and southern Albania, the construction of a regional hospital in Fier, the country’s second largest district, and several new schools in Tirana.
Last June, the government also awarded a bonus to a local company for submitting an unsolicited proposal to build a new road linking the Yachts Ports in Vlora, southern Albania to the Llogara Pass, which is expected to become a toll road following its completion
In early 2017, a consortium of Albanian companies was announced the winner of a public private partnership project with the municipality of Tirana to build and operate the first five pre-university schools in Tirana for 1.94 billion lek (€15 million) as part of a nationwide €1 billion PPP project.
While the PPP projects are expected to be completed in four years, the government intends to repay concessionaires over 12 years in annual instalments and road concessionaires are also expected to collect tolls to meet investment costs.
Controversial unsolicited proposals
To date, almost all companies that have been awarded bonuses for their unsolicited proposals have resulted in apparent winners in tenders where competition has been poor, giving rise to allegations of pre-determined winners.
While international financial institutions such as the IMF and the World Bank have called on the Albanian government to put an end to unsolicited proposals in PPPs, the ruling Socialists says the practice will be discontinued only by 2021 when their second consecutive term of office expires and after a controversial €1 billion PPP project to rehabilitate road, health and education infrastructure has come to an end.
Unsolicited proposals are becoming widespread even in projects outside the €1 billion program.
Last June, the Albanian government approved a bonus for an Albanian company for a new PPP to inspect fuel and liquid gas measurement systems, a service currently carried out by the state-run Directorate of Metrology. The concession would be the second in the oil sector after the fuel marking concessionaire and probably further increase costs for Albanian consumers, already suffering one of Europe’s highest oil prices due to the high tax burden levied on them.
Another major Albanian company, Kastrati, has been given a bonus for its unsolicited bid to make operational a small airport in the northeastern Albania region of Kukes, on the border with Kosovo, in a bid to break the de facto monopoly the Tirana International Airport currently has on international flights, reduce ticket prices and serve the country’s emerging tourism industry.
The government says it is also concluding contract negotiations with a Turkish consortium to build a new airport in Vlora, southern Albania.
The International Monetary Fund has earlier warned Albania’s €1 billion PPP project will not only fail to bring public debt down to 60 percent by 2021, but could create hidden costs which if included in the debt stock could take it to 71 percent of the GDP, a high burden for Albania’s current stage of development. The Washington-based financial institution has described the PPP projects as economically the same to borrowing.
PPP contracts also involve three controversial waste-to-energy plants which the European Commission has recently warned pose concerns in terms of compliance with EU principles since disposal and incineration are the least preferred waste management options.
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.
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
Foreign and Albania investors perceive public procurement procedures as one of top barriers for doing business in the country.
The latest Balkan Barometer survey showed companies in Albania cite tailor-made criteria for certain participants and deals before the tender is even published for not participating in public tenders.
Albania has been actively using concessions and PPPs to facilitate public investment in the past decade with more than 200 concession/PPP contracts signed by mid-2017 with an estimated total investment of 505 billion lek (€3.7 billion), about 36 percent of the GDP. Almost half of them include small and medium-sized hydropower plants.
The Albanian government is in conflict with several foreign investors and faces the threat of being punished with a staggering €2 billion, about a fifth of the country’s GDP, from a handful of arbitration cases, according to a leaked late 2017 confidential document by the country’s justice ministry.
