Newly proposed Albania PPP raises concerns over transparency, oil price hike

Tirana Times
By Tirana Times September 24, 2018 15:08

Newly proposed Albania PPP raises concerns over transparency, oil price hike

Story Highlights

  • The 20-year PPP would guarantee the concessionaire an estimated €50 million in income for the next 20 years at current fees and much more under an expected hike in technical control tariffs

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TIRANA, Sept. 24 – A new concession that the ruling Socialists intend to award in the oil industry has come under fire from the main opposition Democrats and raised question marks whether the new public private partnership, the second in the oil industry, will lead to a new hike in oil prices in Albania, already facing one of Europe's highest oil prices, but poorest income.

The finance ministry has already called a tender for October 18 to select a company that will inspect fuel and liquid gas measurement systems for the next 20 years, switching to private hands a service currently carried out by the state-run Directorate of Metrology. The tender comes four months after an Albanian company was awarded a 10 percentage point bonus for its unsolicited proposal, making it a frontrunner in the upcoming tender and an apparent winner.

Last June, Noa Control, an Albanian company cooperating with Spain-based Applus testing, inspection and certification services, received a 10 percentage point bonus for its unsolicited bid for the upcoming 20-year PPP.

To date, almost all companies that have been awarded bonuses for their unsolicited proposals, a procedure that has been heavily criticized by international financial institutions, have resulted in apparent winners in tenders where competition has been poor, giving rise to allegations of pre-determined winners.

Fuel station pumps currently undergo technical controls on meeting quantity and safety standards twice a year by state inspectors of the General Directorate of Metrology, with annual costs for fuel operators estimated at 14,000 lek (€110)/pump in a service that generates €2 million to €3 million a year to state coffers.

The 20-year PPP would guarantee the concessionaire an estimated €50 million in income for the next 20 years at current fees and much more under an expected hike in technical control tariffs.

That would be the second concessionaire in Albania's multi-million dollar oil industry following the fuel marking concession run by Global Fluids International, a subsidiary of Canada-based Eurocontrol Technics Group, which in late 2013 started its 10-year national fuel marking and tracing contract with the Albanian government, charging 1 lek (€0.008)/liter.

The new concession also means a drastic cut in staff for the General Directorate of Metrology, a state-run institution that has 120 employees and generates the overwhelming majority of its income from fees coming from technical controls on fuel and liquid gas station pumps.


Fuel prices rising

Albania's fuel prices have registered a hike this year, fuelled by a rise in international prices, lower domestic refining and an increase in the tax burden.

Diesel and petrol in Albania currently trade at 180 lek (€1.42)/liter, reflecting international oil prices hitting a three and a half-year high of $80 a barrel, higher local license fees and lower domestic refining following the suspension of work at the country's main refiner in early 2018 leading to a sharp hike in oil imports.

The high tax burden levied on oil at about 100 lek (€0.79)/litre, make Albania's fuel prices one of Europe's highest, with a chain of negative effects on the budgets of car owners and consumer prices due to high transportation and distribution costs.

Albania's GDP per capita is at about a third of the EU average while price levels on consumer goods and services are at an average of 52 percent of the EU average, but at only a quarter below the EU average when it comes to food and non-alcoholic beverages, the key item in the consumer basket that takes almost half of the monthly budget for an average Albanian household. Meanwhile, price levels on clothing and footwear are almost on par with the EU average.

At €1.42/liter, Albania's diesel prices were among Europe's 15 highest in mid-September, and the Western Balkan's highest, significantly higher compared to neighboring Macedonia's €1.07/l and Montenegro's €1.26/l and even more expensive compared to Germany, Europe's leading economy, at €1.31/l, according to the Global Petrol Prices portal.

Albania is a major oil producer but due to the poor quality and heavy refining needs of domestically produced oil, the Balkan country imports the overwhelming majority of its needs.

Media investigations have unveiled Albania has one of the region's poorest oil quality, and almost everything goes unpunished despite a series of negative effects on the environment, pollution-related diseases and some 430,000 cars possessed by Albanians.

The fuel trading market, one of the country's biggest industries, is represented by more than 1,000 fuel stations with an annual turnover of more than €1 billion, half of which goes in taxes that consumers pay in excise, circulation, VAT and carbon taxes.


Opposition concerned

The main opposition Democratic Party says the upcoming concession will be awarded to one of the Albanian companies with close links to the government which has also been handed a PPP to build schools in Tirana and almost got a digital vehicle number plate concession in 2016 before the government withdrew following concerns over privacy.

"The profit for the concessionaire, a client of [Prime Minister] Edi Rama is estimated at €60 million, which be paid by Albanian citizens either in the final price or the quantity of fuel they will be provided by pumps technically controlled by the private company," says Izmira Ulqinaku, an MP of the main opposition Democratic Party.

"Because of the criteria set for the tender to be won by [businessman] Gentian Sula's company, the technical control of petrol station pumps, creates a monopoly, destroying race and deepening the concentration of the economy in few hands," says the Democratic Party MP.

The main opposition Democratic Party has labeled the public private partnerships that the ruling Socialists are using to rebuild road infrastructure and offer public services as schemes benefitting the country's oligarchs and allegedly used to launder money originating from crime proceeds, vowing to cancel them once it comes to power.

International financial institutions such as the IMF and the World Bank have also expressed concern over the government's ambitious €1 billion PPP agenda, especially on projects initiated through unsolicited proposals lacking transparency and thorough cost-benefit analysis. The IMF says the controversial PPP program puts at risk the government's public debt reduction agenda and could create new hidden arrears which if included in the public debt, risk taking it to 71 percent of the GDP by 2021, compared to 60 percent target.

However, Prime Minister Edi Rama is optimistic the program targets putting into motion considerable capital "to trigger with higher intensity a process of all-inclusive reconstruction that has already kicked off, but needs greater financing throughout the country on the road, education and health infrastructure."

The Arbri Road linking Albania to Macedonia as well as several internal highways, some 150 schools, hospitals and healthcare facilities are on the €1 billion PPP agenda for the next four years. 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.

The Albanian government is optimistic growth will recover to 4.2 percent this year after hitting a 9-year high of 3.8 percent last year.

However, the World Bank and the IMF expect Albania's economy to grow between 3.5 to 3.7 percent over the next couple of year as TAP and Devoll Hydropower, the two-major energy-related that drove growth and FDI in the past four years, complete their investment stage, leaving a huge FDI gap of about €200 million annually.

Tirana Times
By Tirana Times September 24, 2018 15:08