Rail line cancellation hits Albania with 20 million dollar fine, after government negated 70-million-dollar electric rail line project, saying it was too rich for the budget.
TIRANA, March 25 – When an American court ruled last week that Albania’s government should pay 20 million dollars to General Electric over the cancellation of an electric rail line contract in 2005, the news came at the worst possible time for the Albanian government.
Dealing with an increasing budget deficit and a need for more money for infrastructure projects, it is unclear if, when and how the government will pay for the damages awarded against it.
The train was, according to the World Bank and the IMF — a luxury – for a poor and small country like Albania. They wouldn’t finance it, so it had to be done via expensive commercial loans.
When he came to power back in 2005, Prime Minister Sali Berisha kept his election promise to cancel the rail contract signed in 2003 by his predecessor, Fatos Nano.
So shortly after winning the 2005 elections, the new government unilaterally broke the contract for the construction of a fast, electric-powered train to connect Tirana to Durres and the Mother Teresa International Airport.
The government described the contract as unacceptable because it was to be financed by a commercial loan that was too rich for the budget.
The government’s argument that the 75-million dollar contract was too expensive did not sit well with General Electric, the giant American company which had been contracted for the project. It sent the matter to court, saying it had a valid contract under international law.
Albania had lost another court case on the matter. After reviewing the claims of the parties, the International Court of Arbitration ruled in 2008 that Albania must pay 20 million dollars in damages to General Electric over the unilateral cancellation of the contract.
The Albanian government appealed the decision, but the latest verdict in the United States kept the decision standing.
The cancelled project included a new 40 kilometer line to connect Tirana to Durres, which would include new trains, stations and supporting infrastructure. There would also be a 6 kilometer line connecting to airport.
Costing a total of 75 million dollars, the project would take 2 years to finish.
However, the government failed to get funding from the International Monetary Fund and the World Bank, which considered the train line to not be inline with the country’s immediate and basic needs.
So the government then started looking for a commercial loan to finance the project, setting in motion the events that doomed the project.
