TIRANA, June 3- One kilometer of the A category highway costs 6 million euros, according to a recent research by the World Bank which analyzes the costs Albania has to cover for road maintenance from natural disasters. One kilometer of the B interurban road costs 4 million euros, one kilometer C interurban road costs 1 million euros, one kilometer of the main urban street category D costs 1.2 million euros, one kilometer secondary urban roads of category E cost 1 million euros, and one kilometer of local road F costs 800 thousand euros. The WB has revised the construction costs of road construction in Albania mainly by rising oil prices, labor costs and raw materials.
The new costs per kilometer range from 800 thousand to 6 million euros. These values ”‹”‹are much lower than government contracts for road construction, both with budget funds and with public-private partnership (PPP) contracts. 4.2 kilometers of A2 highway were built during 2018 with 5.3 billion lek (43.3 million euros), which were internal funds. According to official data from the Ministry of Infrastructure, the cost per kilometer is estimated at 1.27 billion lek (10.3 million euros) per kilometer. The Albanian government spent 4 million euros last year building a one-kilometer highway, or 40 percent more than the new World Bank costs. But catastrophic spending is coming from PPP contracts, which from the beginning to the engagement of works have gone through complete lack of transparency and which values ”‹”‹are kept secret.
Renown economist Sherefedin Shehu, argues that the 1 billion-euro package will actually invest very little. A 13-year loan with 12 percent interest payable with 13 equal annual installments, costs 2.2 times more than the value of the loan received today.
The government’s main reason for Public-Private Partnership projects was related to the fact that the state budget did not have enough funds to build these major works. So, companies would build them with their own funds or through bank loans, and then state would pay back in installments and interests, starting when at least 25 percent of the works had been completed.
The Arber National Roadway is being constructed by Gjoka Konstruksion for more than a year, but the full contract published in the Official Gazette does not contain the full value of its financial. The investment value estimated by the Ministry of Infrastructure is 33.7 billion lek (276 million euros) without VAT. The full funding for the Arber Road is much higher because the state budget has already funded its 20 kilometers with budget funds. Including VAT and budget funds already stipulated, the real value exceeds 300 million euros. The Arber Road is of C2 category with a length of 75 kilometers. A category C interurban route costs 1 million euros per kilometer according to WB, but the Albanian government is paying Gjoka 6 million euros per kilometer.
Among other things, the government is using an absurd procedure in awarding PPP contracts as it is negotiating bank interests, profit rates and maintenance costs with companies after selecting the winner from the Ministry of Infrastructure. In any case, the total final financial value in PPP contracts is 50 percent higher. This practice followed for the Arbr Road was also valid for the construction of PPP of the Milot – Balldren and Orikum – Dukat axes. While the government has approved the contracts without announcing their values, the Ministry of Finance is negotiating the interests increasing the total value of the contracts.
In the last week of June 2018, the government approved A.N.K sh.pk for the Milot-Balldren road construction. The approximate construction value programmed by the government was 110 million euros at the official exchange rate of that time. During the winner’s announcement process, the value of the investment went up 168 million euros, as the government decided to consider the company’s proposal for the project rather than its variant, planning a 50 percent higher expense than initial planning. But in the negotiations conducted by the Ministry of Infrastructure and Finance with A.N.K. for bank interests and profit rates, it led the contract value from 168 million euros to 256 million euros. The Milot – Balldren Street is an 18 kilometers long highway of category A. With the WB latest standard, one kilometer of this category costs 6 million euros, while the government contracted it with 14.2 million euros per kilometer of its construction, or 132 percent more.
The Orikum-Dukat Street with the size of a two-lane 7 meter-wide C2 touristic local street, received government approval earlier this week. In the first half of 2018 the Ministry of Infrastructure decided to approve Gjikuria sh.p.k. the bonus with 6 percent of points, which has made an unsolicited bid for a 15 kilometers long segment which costs 67 million euros for 13 years. This value includes construction and maintenance with a cost of 50.5 million euros, and interests at about 17.5 million euros.
Road construction is a dark story in the transition economy of Albania, because planning and building them is done without having initially a development model, which further led to misplaced projects with low feasibility and high costs through PPPs, that risk bringing the country into a fiscal catastrophe. Renown road engineering professor Faruk Kaba, who has done almost all roadside projects in Albania, says a bad practice has been followed for road construction. According to him, the first investments should be made in the central area, as it has the highest traffic. In this perspective, the axis of the center should be completed through the Thumane – Rrogozhine axis, the Tirana – Durres highway should be expanded, and a new railway line should be developed. Experts say the ongoing projects don’t bring benefits as they see them only as halved construction. The Thumane – Kashar concession of Thumane – Rrogozhine highway was canceled by the government earlier this year, with the justification that the funds would be transferred to Higher Education.
For years, there is a practice where built-up roads cost far more than the same street category built with foreign funding. This systemic margin in the cost per kilometer of construction with domestic and foreign funds shows mismanagement of public funds in the investment process,because foreign-funded investment passes into audit procedures and practices that do not allow non-logical costs. According to official data from the Ministry of Infrastructure the factual expenditures for road construction were around 15 billion lek (122.7 million euros), out of which about 9 billion lek (73.6 million euros) was domestic financing and 6.3 billion lek (51.5 million euros) in foreign financing. The official figures of the Ministry of Infrastructure indicate that for the same street category, from the domestic financing were spent 4.2 billion lek (34.3 million euros) for 28.7 km of roads with the cost per kilometer being 1.1 million euros. With foreign funds on the other hand, 205 million lek (1.6 million euros) were spent for 12 kilometers of roads with a cost per kilometer at 136 thousand euros. Ministry data showed that on average the cost of domestic financing per kilometer with domestic funds is 10 times higher than with foreign funds. Expenditures are not included in the calculation, as these are a separate item covering the costs both for domestic and foreign financing.
Expensive PPP road projects will bring negative implications to the country’s public debt. A similar situation happened in 2007 when Albania’s public debt was 53.4 percent ”‹”‹of the GDP. As the government invested in the Nation’s Road and Tirana – Elbasan, and other border and tourist axes increased the debt to 65 percent at the end of 2013. The cost of the Durres – Kukes road alone is estimated to have costed about 1 billion euros, or about 10 percent of the GDP(of which one-fifth has been profitable for the main construction company). The beginning of the global crisis in 2008 made it harder for debt finance operations, which has made Albania today one of the countries with the highest levels of debt in the region and as a consequence with higher risks.
