TIRANA, Feb. 12 – As Albania has started implementing an ambitious €1 billion public private partnership project, the International Monetary Fund has warned that Albania must ensure that the country’s potential benefits are realized while managing the PPPs fiscal costs and risks.
In a report examining public infrastructure in the six EU aspirant Western Balkans countries, the IMF notes that the region’s economies have one of the worst scores for the management of PPPs.
The IMF brings Albania’s experience with the 20-year concession contract it signed back in 2005 with a German-led concessionaire on upgrading and operating the country’s sole international airport as a deal under which important lessons can be learned.
“The PPP achieved some main objectives, but important lessons can be learned. Albania secured construction and operation of a modern airport of high standards, allowing for continued strong growth in travel demand and imposing only minimal fiscal risks on the country. The investment, however, could have been better designed from the onset, facilitating stronger traffic growth, increasing revenue growth associated with higher levels of activity, and positioning Albania more competitively in the regional aviation market,” says the IMF.
“Many Albanians travel by bus to airports in Kosovo, Montenegro, and Macedonia, and the relatively high costs of flights to Albania may also have affected inbound tourism,” says the IMF, attributing the low number of low-cost carriers to the airport’s high landing fees.
The Tirana International Airport consortium had its exclusive rights on international flights lifted only in mid-2016, about 12 years after it launched its operations in return for extending its concession term for another couple of years until 2027 for the operation of the Kukes airport, in northeastern Albania, which is unlikely to launch operations as the country’s second international airport in the short to mid-term due to its unfavorable geographical position.
The Albanian government’s latest initiative of building a new international airport in Vlora, southern Albania, is set to extend the Tirana airport’s concession term by another two to three years depending on the year it becomes operational.
Albania recently concluded its first major project as part of its ambitious, but rather controversial €1 billion PPP project for the next four years to upgrade road, health and education infrastructure. The project is a long-awaited major road linking Albania to neighboring Macedonia which will be built by an Albanian company for €240 million in the next four years in return for repayment in annual instalments and traffic guarantees for a 13-year period until 2031.
Insufficient fiscal space and public sector inefficiencies make private financing of infrastructure investment attractive, but the IMF says PPPs involve risks in all stages of the project.
“PPP investments involve fiscal risks in all stages of the project cycle, including budget preparation, procurement, financing, and managing performance-based contracts. PPPs can generate large explicit and implicit contingent liabilities (for example, guarantees), and encourage off-balance operations that reduce transparency,” says the IMF.
The Washington-based lender of last resort has earlier warned Albania’s €1 billion PPP project will not only fail to bring public debt down to 60 percent by 2021, but could create hidden costs which if included in the debt stock could take it to 71 percent of the GDP, a high burden for Albania’s current stage of development.
Albania has already had troubled experience with a more than a dozens of concession contracts in the key health, customs sectors which are expected to cost taxpayers about €70 million in 2018 and much more in the next few years as more PPPs become operational.
The IMF suggests sound planning and project selection as well as strong fiscal institutions with sufficient control at each stage of the PPP process including possible contract renegotiations as some of the key elements for ensuring government success in PPPs.
The Washington-based financial institution says it expects Albania’s growth to slow down to 3.7 percent of the GDP in 2018, down from 3.9 percent this year as investment by large energy related projects such as the Trans Adriatic Pipeline and Devoll Hydropower project taper off and no new major projects appear in sight to replace them.
The IMF’s role in Albania was downgraded to advisory in early 2017 after the conclusion of a 3-year binding deal supported by a €331 million loan also conditioning the government’s tax policies.
Infrastructure gap
All Albania, Bosnia and Herzegovina, Kosovo, Macedonia, Montenegro and Serbia have underdeveloped transport, power and telecoms networks compared with the European Union average, says the IMF report.
“Better transportation, energy, and telecommunications networks would help Western Balkan countries raise productivity, integrate deeper into the bloodstream of global trade, and improve the region’s attractiveness for foreign investment,” says the IMF.
However, lack of ample budget resources and strong institutional frameworks governing the selection, execution, and monitoring of projects are missing in the Western Balkans where most countries already have high public debt and budget deficit levels.
“A regionally coordinated public infrastructure push, coupled with better management of actual projects, could significantly increase per capita income. The long-term gain of real GDP per person could be as high as a 3-4 percentage points,” says the IMF.
The World Bank has earlier warned catching up with the average EU income could take Albania and other EU aspirant Western Balkan economies about six decades unless current sluggish GDP growth doubles to 5 or 6 percent.
Western Balkan countries are preparing to adopt measures for an EU-backed regional economic area, a test before their apparent eventual European Union integration.
Short and mid-term enlargement prospects for the six Western Balkan countries have been hampered by internal developments in the bloc with the Brexit, the migrant and financial crises as well as rising populism high on the agenda.
A recent European Commission enlargement strategy has recently unveiled only Serbia and Montenegro, the only two Western Balkans that already launched accession talks, are likely to join the block by 2025.
