A moratorium on public-private partnerships is currently indispensable

By Zef Preà§i*

For concession and for its various forms including recently the public-private partnership is spoken and written a lot, especially after 2000. As is already known, the concept of concession agreements is given in many definitions, but everyone seems to talk about the same issues. “Under a concession system, state gives exclusivity the right to finance, build, get owned, operate, and maintain a public infrastructure for a certain period of time, and to charge users for this service[1] “.

It is already known the fact that the Albanian governments after 1991 have met repeatedly with restrictions on funding sources for the implementation of its political-governance programs. This happened at the time when the infrastructure inherited from the period of centralized economy was outdated and unable to respond to the demands of economic and social development of the country. Meanwhile, in recent years the government has largely tended to rely on “public-private partnership”, which is also enshrined in the political program of the government[2].

The purpose of this paper is to analyze the problems that have arisen in the process of attracting foreign investments in the form of concessions or / and the involvement of private economic operators in providing various public services.

From an analysis of the progress that had concessions[3] in the Albanian economy during the period after 1991 and especially after 2000, there can be identified a number of problems, of course without being exhaustive. Among them we can mention:

1. Deadlines for the approval of the concession contracts and deadlines of implementation of concessions. The data show that in the early ‘2000, based on a deficient legal framework and in the absence of relevant experience or “successful cases”, negotiations for concession contracts in important natural resources like chrome, etc., have lasted for years while the operating period of the concession has been limited to a maximum of 20-25 years. Which means there is not only respected the principle of the respect of the business cycle, but contracts are constructed in a way that puts foreign party / investor in a privileged position in terms of business and extracting profit from the activity, but also in a privileged legal position, what means that the contracts “are armored” legally in order to prevent procedural or legal content review in the coming periods.

2. Investments, the lack of control for implementation of projects. In the multitude of problems that have arisen from the implementation of concession contracts in our country, mostly over the last decade, obviously the size of the investment / their officially declared value remains the “key” that guarantee not only the privileged position of the investor in relation to Albanian party, but even the “mechanism” through which were ignored and why not been violated in some severe cases Albanian national economic interests. The only evidence, in my judgment, is the tolerance that fiscal bodies and law enforcement have done to those concessionaires, which has led to tax debts of tens of millions of Euros or more, and the fact that even after the discovery of these debts, there was no punishment in appropriate management level of monitoring and supervisory units – responsible for generating tax obligations as to any investor or the concessionaire / other business in the Republic of Albania.

3. Insufficient transparency about the content of concession contracts. It is already known the fact that many research reports, research studies or reports regarding the reserves of natural resources, their location, initial technical projects, economic, etc., are mismanaged during the past quarter century. This is both because of the weakening of law enforcement and the frequent changes in the direction of political institutions those who are in subordination of the ministries responsible for these resources, as well as due to reduced interest of governments to a better-management of the natural resources of the country, for them to be treated as a tool to increase the employment and reduce poverty, to increase domestic production and exports of Albania on this basis. In this process, I think that the basic remains to increase the interest of domestic business lobbies and foreign ones in terms of exploiting favorable conditions of these resources, but also the use of these natural resources as a tool for providing necessary financial resources for the next political elite leadership. This explains the fact that despite the change of majority government – a rotation that is normally carried out increasingly, we are dealing with an “exemplary going concern process “, even in flagrant cases as in the case of scanning contract for containers at customs, which was ratified by both of the governing majority and that was the object of criticism and calls for abolition as an international agreement at the expense of public interests and the European integration process of the country even from the Department of International Trade of UN[4].

4. Weaknesses of monitoring and supervisory institutions among the activity of concessionary companies. A separate problem is also the weaknesses of monitoring and supervisory institutions among the activity of concessionary companies. These institutions are characterized by functional instability, by their frequent movements of staff , by moving again closer or far away from the office of the next prime minister, but always under his strict control or / and staff advisers and generally little or nothing under the authority of the responsible Minister for the economy. It should be mentioned as positive the fact that the last year the government decided to finally draw up a register of concessions[5].

5. Uncontrolled environmental impacts. Despite the fact that private investment, and among them multi-year concessions of the energy production sector based on water, about 1/4 of the electricity which is consumed currently from the Albanian economy, environmental problems occurring because of this are very sharp. But the biggest problem in this sector seems to be the fixing of the purchase price of electricity produced on the concession contracts by public entities, against the market model, as well as ignoring rules of this market, without talking about the speculation of some large investors on the amount of these investments.

6. The extensive and growing presence of offshore companies. As it is known, the companies known as “offshore companies” are legal companies, which are registered in a number of islands but also in some countries of the world including Switzerland and USA, known for their low cost entrance to the business, short time procedures of the registration for the companies in only a few hours every day of the week including holidays, for keeping the confidentiality of the real owners/shareholders, supervisory boards and making complicated bank transactions that can’t be found.   Thus this disturbing situation, after the publication of an international scandal in the end of the last year known as “Panama Papers” [6] has been the object of undertaking several laws in international level for the stabilization of the situation. In its reactive approach even important exponents of Albanian government were engaged for the investigation of similar activities in our country (so, investigating the possible involvement of high level politicians on corruptive affairs through offshore companies and the amendment of the legal framework in order to establish transparent conditions for the presence of foreign investments in the form of concessions, so not “offshore” [7] type. Actually in Albania, more than 50% of concessionary companies are “offshore” type for example the extraction and exploitation of the oil (in some other sectors too), meanwhile their contribution in budget are decreasing.
7. 7. The absence of internationally known companies “brand name” . Otherwise from the beginnings of the transition time when in the Albanian economy were offered big companies internationally known for their presence in their respective markets for many decades or multinational companies interested in participating in the process of privatization or in concessionary agreements. Over time the situation has changed in favor of new companies, which are created especially of a specific concessionary activity that use only the logo or the name of “mother company” , then they are administrated form other known partners but most of them are unknown and local. The departure of brand name companies from Albania and their replacement with other Chinese companies through the selling of their share, is the new phenomenon of the concessionary in Albanian economy, being present widely during the last three years.

8. The deviation from the objectives of the integration in Europe Union. Studies show that any government policy that does not comply with the objectives of European integration at the same time leads to increased undeserved profits of companies benefiting from concessions and public-private partnerships, as well as a violation of the country’s political commitment to this process. Here is an opportunity to mention the legal framework in force for strategic[8] investments that can be said without hesitation that features “state capture” , except that contradict itself open to the process of European integration of Albania. The same can be said for the contract for the scanning of containers in customs, in which law peacemaker, knowing that through this concession contract are violated the country’s obligations to the Stabilization and Association decided in the text of the relevant law defining received by the investor to review its obligation without penalties Albanian state agreement to the membership of Albania in EU[9]. Generally must be recognized that, beyond the political rhetoric of the day in recent years are taken a number of experiments that are costly for tax payers in scale, as is the case of the concession contract / public-private partnership to “check-up” operation or medical examination of persons aged 35-70 years, similar contracts for the sterilization of medical equipment, etc. Through these contracts they have achieved significant amount of tens and hundreds of millions of Euros from the taxes of citizens throughout the next decade to be addressed with 100% certainty in the accounts of companies selected in this way

9. The maintenance or establishment of the monopolistic positions, namely ensuring underserved profit during the concession period. A separate problem constitute specific provisions in the concession contracts to limitations in providing market leading undeserved profits from the concession companies and restrict the entry of other operators on the market. The classic example in the case of our country is the concession contract Rinas Airport.

1. 10Change in frequency and in many cases non-transparent ownership of concession companies. A separate problem is how concessionaires penetrate the economy of poor countries with weak institutions and corruption extensive as ours and how they operate after the signing of the concession contract. A number of cases, even among serious Albanian investments show that initially appear offshore companies with names of serious or associated with well-known companies, but after the signing of the concession contract, or after a few years, they sell shares and spend or in the hands of unknown persons without any connection with the criteria on which it won the initial contract and / or the partners or their rightful owners, in some cases local. In other cases, domestic enterprises use – trust against payment of big amount of money – names of large companies, with the knowledge of the latter, and so they are used merely as a cover for taking over the assets of strategic importance to the country or multi-million contracts public services, which in a normal competitive process would be impossible to deal[10].

1. 11. The limited role of Parliament, with an overrepresentation of entrepreneurs and oligarchs, some of them in a flagrant conflict of interest. In a country with a functioning democracy, so in a parliamentary republic, the Parliament plays a major role in protecting the public interest in deterring aggression stakeholders and especially the oligarchy and networks lobbyists to exploit in their interest assets strategically important to the country, to prevent competition, to install anti-competitive practices, namely by ensuring their undeserved profits in the market, customers and competitors penalized.

2. 12″Solution with understanding” of conflicts for concession contracts, but in any case in favor of the foreign party … It is a growing concern that one Albanian state must defend its interests on the other hand offering the necessary legal guarantees recognized internationally and by the Constitution of the Republic of Albania for foreign enterprises operating in the Albanian economy. The history of conflicts associated with privatization or concession contracts proves that due to the way they were designed concession contracts, large-scale involvement of the foreign party in the drafting of relevant documents, the gaps possible procedures for resolving conflicts and the lack of capacity of the government, these conflicts end in favor of the foreign party. This occurs when the conflict through arbitration considered relevant (ex of investment in railway electric train fast Tirana-Durres with General Electric Ltd.,) as well as in cases where contractual solutions performed with conflict and understanding (ex conflict CEZ Albanian government on the occasion of the latter’s nationalization from the Albanian state). For all the problems listed above, but also for others like them, I think that the Albanian government should suspend for a reasonable period of time, ex, at least for 6 months signing new contracts concession and to use this period for analysis needed to be taken to amend, revise, supplement and improve the regulatory framework and basic legislation in the area of concessions and contracts to so-called “public-private partnerships”.

(*The author is the executive director of the Albanian Center for Economic Research)

[1]   Look : http://schwarzlaw.ca/the-need-for-concession-laws-in-developing-countries/

[2]   Look : http://www.akti.gov.al/dokumenta/programi_qeverise_2013_2017.pdf, fq.31

[3]   For methodological reasons, the analysis will be based on open sources, and will cite only the names of companies that come from sources invoked, ie the known reports of third parties.

[4] “The fee is payable even when the load is not scanned, even at customs where there are no scanners installed. This is an unacceptable practice. It creates an effective tax, which is not based on law, to be removed “for more : http://fronti.al/portali/okb-i-kerkon-qeverise-shqiptare-te-heqe-skanimin-doganor/

[5]   Look : http://www.oranews.tv/vendi/themelohet-regjistri-elektronik-per-koncesionet/

[6] Look: http://www.balkaneu.com/albania-panama-papers/

[7]   Look:   http://www.gazeta-shqip.com/lajme/2016/04/06/manjani-kompanite-offshore-do-tregojne-pronaret-dhe-aksionet/

[8]   Look : http://www.panorama.com.al/dy-ligje-dhe-dhjete-probleme/

[9]   Look : https://www.parlament.al/wp-content/uploads/sites/4/2015/11/relacion_ligji_investimet_strategjike_21782_1.pdf

[10] Look : http://www.reporter.al/kompania-guacke-qe-fshihet-pas-projektit-morgan-per-portin-e-karpenit/