By ZEF PREà‡I*
The official data indicate for an annual economic growth between 2 and 3 percent. However, it can be easily seen with a simple search on the Internet about the main macro-economic indicator, to understand the current stagnation of the Albanian economy. This state is almost unchanged for the past three-four years, meantime the Albanian government adopted the policy of ‘’taking new debt to pay off old debt’’, while currently the debt public level has met the potential limits to be managed by the government. Likewise, the policy of increasing taxes during the past two years seems to have been extremely counterproductive: the relationship between labor tax and capital tax has become unbalanced, thus aggravating the first one; country is losing its competitive advantage, while foreign investors present in the Albania are currently showing nervousness and some of them have left or are considering to leave Albania and go to neighboring countries.
A similar ‘’exit strategy’’ seems to be followed by several very well-known investors considered as ‘’the giants of the market economy’’, which have used during these two last decades, the natural resources of the country on oil, chromium, etc. In this shebang are included even those investors who have entered the Albanian market against the concession agreement, which in fact are unfavorable to Albanian state, through which they have received exclusive rights to the state i.e providing monopoly position in the market for long periods of time (eg. concession on flights at Rinas airport), by “kidnapping” real services of state (eg scanning of containers concession in the country’s customs system, in contrary to the economic practices, where citizens and businesses are paying for a service which are not taking); by mismanaging and bringing to the brink of bankruptcy, important strategic public companies (eg the failed concession of the Czech company CEZ, in the distribution of electricity).
Furthermore, it is noted a “race against time” of the current government cabinet to convey on the hands of private economic, operators of a number of public services or “concessions unsolicited” (a term not only legal for the lack of competition required in this process, but an expression of interest to provide profits in a fast time, without any serious investment and risk investment, and mainly due to the political affiliation with one or another group, governing the country). Another group of suspected beneficiaries, for whom the local press also speaks for alleged violation of competition in the tendering of the relevant procedures, are concessions in the health system, which is estimated that “have contracted” in advance more than 1/5 of available health funds for the next 20 years, given that the health service was and is a priority sector of budget spending of the last decade and will remain such to at least in the medium term.
Public agencies’ data on the audits of budgetary funds’ performance, such as the State Supreme Audit, talk about deterioration of this performance, for selection without competition of the winning companies, for the lack of infrastructures, the specific experience and the financial capacity of the “winners” the main merit of whom appear to have been their visible and invisible connections with the powerful business lobbies that influence and dictate the political decision-making in parliament and in government. The analysis of the legal framework on concessions, along with their respective amendments during the last 3-4 years, show that the political leadership of the country is aware of the lack of budgetary constraints in financial resources for accelerating economic and social development of the country, in the framework of the implementation of the political program of the government.
This is either due to the presence of the global economic crisis on the domestic economy, slower economic growth, the fall of domestic consumption, constant unemployment and growing, especially among young people, lack of crediting from commercial banks, as also due to the growing pressure for investment and safe profit areas by representatives of postcommunist oligarchy in the country, which judging from their CV-s, shows that the number of deputies is widely represented in the Assembly.
Hence, in my perspective it should be looked for the main causes of legal amendments on concessions during the last years, through which it is extended any action of extending concessions by overcoming the concept of strategic investments that is typically used in the literature, but at the same time has increased significantly the possibility for the government “to bring in market” important services, to “sell” them for long periods of time, even using special budgetary funds as security in case private economic operators (concessionaires) do not meet their foreseen profits. Similarly to the central government can be considered a number of local government units, which in the implementation of the administration reform and reorganization due to this government, have rushed to offer concession services such as management of urban waste, public parking, even lighting in two major cities (Tirana and Durres) which are under discussion in the recent weeks.
Taking for granted the legal framework on concessions, is noticed that in the implementation process appear the main gaps related to the inadequate public announcement; the predominance of “the unsolicited proposal” , an understandable approach for the early 2000s when the countries’ economy was not known in the world and its natural resources were not sufficiently studied; in the “provision” of investors mainly registered in “offshore areas” (the press writes about 1/2 of them e.g.in the area of extraction and exploitation of oil and gas); Supervision State institutions of these contracts implementation are “controlled” by the biggest lobbyists of the Albanian Parliament, while the entire selection process of foreign companies is generally airtight, is treated as an exclusive right of few people with power in the country, and the decision-making of the Parliament is very formal.
There are doubts also on decision-making concession cases of important national resources given for long periods of time (20, 25 or 99 years) to foreign companies is influenced by these latter and the Parliament generally lacks ‘voices’ which analyze financial benefits and the utility that these concessions bring to the national economy, budget, employment, etc. While overseeing their implementation remains generally limited even for constitutional monitoring institutions. It is worth mentioning that companies universally recognized or “brand names” do not come in Albania mainly for the same reasons related to the business climate in the country, meaning simply because of the high level of corruption of the political establishment, due to the government failure to punish corruption within its ranks, namely for violation of the “rules of the game” in a market economy, lack of enforcement of contractual obligations, for a widely corrupted judicial system in all its levels, etc.
During the last decade, it is interesting to note that generally political groups with aim governing, embrace populist slogans of “returning looted assets to the people (from the previous government)” , which feeds a climate of public skepticism towards them. But then immediately after coming in power, the whole state apparatus is made available for them, expressed this in the weak government control in respect to legal norms and standards on environmental protection, in the regular payment of fiscal obligations by the companies, till the tolerance on noncompliance with legal norms for damages caused from them to certain communities, to employees fired massively, etc.
It is worth mentioning that during the last three years solving concession contracts issues with agreements has become a trend, as for the issues that only require the correct implementation the correctness of the legal framework in force, as well as for issues which need specialized assistance in the field of international jurisdiction. What catches the eye in this process is the insufficient transparency of the negotiations, the impunity of those responsible for the damage caused to the national economy and the lack of legal and institutional arrangements that preclude repetition of violations and damages from them in the future.
Furthermore a number of concession contracts of the Albanian government with foreign investors, trumpeted in the mass media as “strategic investments” are changing their ownership without any consultation with the responsible governmental Albanian authorities, knowing that the main reason of the given concession, in most cases with only a “unsolicited” request, has been their worldwide well-known experience in the sector and their financial capacity to invest in technology adoption, increased employment of Albanian workers, improving management and increasing production, export, and so also the benefits for the Albanian state budget.
This happened in the recently detected case by Panama Papers of some “offshore” companies, a process that is likely to bring the discovery of new shocking on the ways real ownerships were hidden and how a considerable tax evasion was caused, through high taxes that these companies would have had to pay the Albanian state in years. Monitor wrote some time ago that as by UNCTAD – an organization of the United Nations – the more investments from offshore areas, the less the taxable profits from governments. In Albania, the royalties paid by companies exploiting oil and other natural resources has not exceeded 100 million Euros a year, or about 3-4% of the total budget revenues, while exports of natural resources, without adding value had occupied almost a third of the total sales abroad. In the recent days this value was reported in the 2015 budget for only 22 million Euro…
The striking silence of state institutions responsible for the prosecution of criminal activities in the area of money laundering, conflict of interest, etc., on these findings is noted, as well as the quietly seen off by the government of the increased public sensitivity on these discoveries, but also to the increased presence of Chinese and Russian investments in Albania and Balkans (e.g. a way conciliatory approach of the Ministry of Energy on the share selling of one of the biggest companies of extraction and exploitation of oil, regardless of the fact that the latter, according to documents published by BIRN Albania had serious problems in ballooning costs and consequently the concealment of liabilities to the state budget under the relevant concession contract, etc.).
This happens when Western countries have activated all available legal, institutional, banking and inter-governmental mechanisms to increase control over’offshore’companies, in order to prevent political corruption and fiscal evasion, damaging especially poor countries like Albania, but also to prevent the looting of national assets in these countries by a corrupt political leadership from the highest state functionaries responsible for granting a concession of natural resources in the respective countries. Another feature of concession contracts in Albania remains their duration.
Starting from yearly permission for the construction of temporary ‘booths’ for starting a business a quarter-century ago, today talking about hundreds of hectares of farmland or coastal land to be given on a business plan without any binding mechanism for making the predicted investments and achieving financial and economic parameters of this business plan on employment, on contributions in taxes, etc. even for 99 years (e.g.the repeated concession in process of Spitalle, Durres). In a way, the duration increased beyond the ordinary mandate of a government (4 years) brings implications for the technology used – it changes very quickly; the business plan itself – the markets behavior changes; for the competition – the long period freezes competition and prevents the entry of new market operators, etc.
We should not forget that every government has the mandate of its citizens to set political-governing priorities in the economic program and long-term concession are “shackles” in the flexibility of building this program in accordance with layers / social groups which represents, deforming this way democracy and its normal functioning. In this sense, we come to the paradoxical situation of today, that the current government spent the public colossal debt increased during three years of its mandate to repay the debts founded and established itself, not realizing almost none of its promises for investment in infrastructure, etc., by being an “accountant” to the previous government.
While if the current government, under increasing pressure from lobbyists within the current majority and oligarchs surrounding it, will rush to concession through the so-called “public private partnership” a number of public assets remaining still in the hands of the state such as the basic government services (the collection of VAT, customs, etc.) there will be a high risk that the governance will simply be a “fiscal agent” of the legalized oligarchs, which per se constitutes a real threat to the normal functioning of the rule of law in the country and the European integration process.
It is worth mentioning that due to the extensive involvement of business lobbies, even the criminal ones, in the political life of the country, there aren’t only the oligarchs seeking for safe areas of investment and flowing profits in next decades, limiting the competition and the freedom functioning of investment and markets, but there is also a number of “entrepreneurs” with suspicious past and criminal connections, who step by step are trying to take control of important public assets, tenders, etc., while the business community in general collaborates slightly or hesitates and refuses the cooperation with the law enforcement agencies due to the increasing role and influence of this “businessmen” group coming from the underground crime world.
Other problems regarding concessions are those related with the limited capacity and insufficient expertise of public agencies that supervise the markets, their politicization andsubstitution of staffs and managers whenever change the governing majorities, nominating in high level positions persons that have no professional managerial experience, or worse, in some cases, persons which come directly from industries that theoretically should supervise through the public institutions they lead, etc. Blocks apart are concessions in the field of energy production, largely given from the previous government administration. Several studies show that these concessions have brought not little environmental problems, a number of them are given in protected areas in which buildings of any kind are prohibited, have brought climate change and difficulties in the functioning of agriculture and drinking water supply for some residential areas, have issues in securing financing for their construction, the government has revised the terms of the wholesale power purchase in a market that is still not open, etc.
Despite this, the latest data of the Energy Regulatory Authority discuss on an increase of the specific weight of this group of producers in relation to the total energy produced in the country. In the recent years also severalactivity closing cases and preparation for the bankruptcy process of a number of concessionary companies have been made public, which result in unpaid tax liabilities for 4-5 years in the amount of tens of millions of Euros as well as with unpaid bank loans within the amount many times greater. In fact, the public opinion, expert circles and a number of state institutions are worried of the irregularities that occur in this process. Therefore, it is not abnormal to analyze and bring for discussion the responsibility of tax administration about how unpaid obligations to the state are accumulated.
The same can be said for liabilities to banks, for which there is suspicion that, are involved in corruption practices in the provision of such loans. It is a known fact that about half of “non performing loans” in commercial banks, reported to be about 700 million Euros, belongs to companies known as “big businesses” (in country terms “VIP businesses” ) among which are also a number of concession. Audit institutions e.g. Supreme State Audit have called for the government and other agencies of law enforcement to be prudent in relation to several bankruptcy cases of this kind, because it turns out that this step is being undertaken by them to skip the arrear obligations for failing to pay taxes and returning bank loans.
Monitoring the court litigations between the concessionaires and Albanian state is noted that in almost all cases the foreign part (concessionaire) is in afavored position due to the content of the clauses of the contract approved by the government and / or the Parliament of Albania in disfavor of the country interests and violating the parity of the parties, as well as for the fact that foreign companies are supported by powerful law studios, also have the opportunity to influence domestic or international arbitration court, etc. Cases when state representation is made by incompetent individuals and in some cases in open conflict of interest with foreign party (the concessionaire), are present.
The issue of concessions and the hurry of the government that on behalf of publicprivate partnership in order to “appoint” as co-owners and beneficiaries of a number of public services without doing the necessary cost-benefit analysis, but also widely perceived as clientelistfavoring in favor of lobbyists and oligarchs inside and outside the Albanian Parliament faced direct criticism of international financial institutions such as the IMF and World Bank, particularly with regard to the risks of increased costs of concerned public services, etc.
Despite public concerns about the deterioration of public services as in health, customs, etc. and the increase of their cost to citizens and businesses, the concerns of the opposition or ever more direct criticism of international institutions, the current government seems committed in advancing its program in terms of increasing the number and range of concessions, public-private partnerships, although the current results and the medium term ones are far from expectations, not to say counterproductive and in violation of the public interests, the complexity of the concession contracts increases and negative impacts of most of them in the domestic economy are already evident.
(Zef Preà§i is the executive director of the Albanian Center for Economic Research)
