Biggest Black Hole In The Albanian State Budget

By Altin Fuga
afuga@tiranatimes.com
Speaking on April 12, Tommaso Padoa-Schioppa, Minister of Economy and Finance and Governor of the IMF for Albania, Italy, declared, “This year’s temporary increase in the Albanian budget deficit is entirely due to the acceleration of capital spending in order to complete a major road project”. The report released by the IMF two days ago reiterates the same warning. The report repeats that the ‘Road of Patriotism’ constitutes the biggest fiscal risk that needs to be addressed head on. Only in the beginning of this year, the contractors demanded another Euro 100 million to cover the increased prices of raw materials and oil.
In 2002, Albania was forced to reduce its budget expenditures in a revisited budget in the middle of the year. At that time, the Albanian government, overconfident of its ability to increase state revenues from taxes and privatisations, began an investment spree. The result was chaos and worsened economic indicators. However, none of the interrupted projects had any special political value to the Socialist Party and its leadership.
The ‘Road of Patriotism’ is a completely different matter. Prime Minister Berisha and his closest staff have invested their political credibility in this project. Therefore, it is impossible for them to retreat from the project. Further, if they do, the road contractor, Bechtel, is going to demand payment of penalties if scheduled installments are not paid in due time or the project is postponed or cancelled.
It is clear the government is going to cut spending in other sectors and projects. The road is going to be financed, although no one knows the real cost of the project. The government borrowed Euro 230 million last month for the highway from two Greek banks, Alpha Bank A.E. and National Bank of Greece S.A. The loan is going to be used exclusively for the Rr촨en- Kalimash road segment. The Albanian Vice-Minister of Finance, Sherefedin Shehu, said the loan maturity is 15 years; the principal has to be paid in five years and the remainder in ten equal instalments. The interest for the new loan is Euribor +1.25 percent (around 5.5 percent for the moment). This was the first commercial loan ever taken by the Albanian government. Until then, the Albanian government had borrowed only from the International Monetary Fund, World Bank and similar financial institutions. However, the Albanian government could not apply for a new loan from the IMF or others for the road because it had no final project dates or budget for the new motorway.
The Durr촩- Morina motorway is being built to connect the main Albanian harbour, Durr촩, to the Albania-Kosova border and from there to Prishtina, the capital of Kosovo. Named by the Berisha government as the Road of Patriotism, the project began without a final project and budget. The main contract was awarded to Bechtel-Enka without a competitive tender. Since it began, the cost of the road has almost doubled and experts can only speculate about what the final cost of the project will be. It is said that the cost of the project until now is around Euro 600 million. However, no should be surprised if the total cost of the road, including interest payments, comes to Euro 1.2 billion.