TIRANA, June 26- The government is expected to finance about 13.9 billion lek (113.99 million euros) in Public Private Partnership (PPP) projects, according to budget estimates. This bill has increased with 1 percentage compared to the previous, and will account for 3.3 percent of actual tax revenues from 2018.
The lawful limit that the government can invest in concessionary projects is 5 percent of the previous year’s tax revenue. As these concessionary contracts are adding a burden to the budget, the government announced through the Ministry of Finance a prospective increase of taxes to manage the bills. In case this 5 percent limit exceeds, then the Council of Ministers shall take adequate and sufficient budgetary “correctional measures” over the next two years to lower the bar. The technical term “correction” in the revenue stream means tax increases so they sufficiently cover the programmed PPP costs.
The budget amounted to 419.3 billion lek (3.43 billion euros) in tax revenue in 2018, or 4.8 billion lek (39.3 million euros) less than planned, which increased the percentage paid for concession bills. The pace of revenue growth has slowed down in recent years. Last year’s tax revenues increased by 5.2 percent according to the actual budget, at a time when economic growth was namely the highest of the decade by 4.3 percent, and inflation around 2 percent, meaning the real growth was negative. Even for the first five months of 2019, tax revenues expanded by 5.3 percent due to the poor performance of VAT, a direct indicator of turnover in the economy. If the tax turnover doesn’t increase, then the concession payments are expected to increase by an average of 50 percent per annum.
In the 2018 budget, 8.76 billion lek (71.8 million euros) was funded for the net annual payments of PPP contracts, or only 2.2 percent of the total real income of 2017 which amounted to 398.6 billion lek (3.26 billion euros) from tax revenue in total. The value of these contracts will increase again this year because the government has already approved three of them valued at 370 million euros in the Economy Committees and they are expected to pass into the Assembly soon. Other contracts are under the reviewing process, which will require greater payments every year.
The number of enforced PPP contracts in 2018 reached 11, of which nine contracts received budget payments and two did not receive funding. A budget of about 8.85 billion lek (72.4 million euros) was planned for these contracts, but actual payments totaled around to 99 percent of the annual plan, according to the actual budget report.
Budget payments to companies that are in PPP contracts with the government through concessions will double by 2021, according to government projections. Based on the 2019-2021 mid-term budget proposal, concession payments will increase rapidly over the next three years to reach over 18 billion lek (147.4 million euros) in 2021.
The International Monetary Fund (IMF) has been constantly critical of high bills of concessions because they risk increasing the hidden debt, potential budget obligations, and have added fiscal risks. In a recent report on Albania, the IMF stressed that engaging infrastructure projects through PPPs has resulted in increased potential liabilities, while the contracts are poorly designed and may hamper public investment efficiency. The report also wrote that in addition to the existing stock of PPPs to 31 percent of GDP (covering more than 220 projects, including energy concessions with more than 23 percentage points), the 2019 budget documents provide a list of potential PPPs to reach up to 15 percent of GDP.
