By Bujar Leskaj
The closing statement of 20th of March 2018 of the first International Monetary Fund monitoring mission, after having granted Albania a three-year loan of 330.9 million euro on 28th of February 2014 (hence, and passage of this prestigious institution to the mere observer role, on the basis of Article 4 of the IMF-related agreement, and not any more having a direct influential role through conditioning loan installments based on performance of our public finances) raises some fundamental concerns that we all need to properly read and address: the Parliament, the Government, the Local Government entities (municipalities), the independent constitutional institutions, the civil society and the media.
The statement rings the alarm that “Given the high level of public debt (71.2 percent of GDP by the end of 2017 …), such negative shocks as the slowdown in economic growth … or materialization of conditional liabilities can have a negative impact on debt and economy’s external sustainability, which would require a strong fiscal correction[1]” The IMF with conditioned liabilities refers mainly to State Budget payments to public-private partnerships that have so far been operating and that will be contracted in the future, both by the central government and local government units.
Concerning public-private partnerships, the IMF emphasizes in the mission statement that “… a key priority is the reduction of fragmented decision-making and the strengthening of risk assessment processes within the Ministry of Finance. These processes are of critical importance given the large conditioned liabilities that are often part of PPP contracts with a long-term horizon. The current practice of unsolicited bids should be eliminated[2]“.
In line with the IMF’s recommendations, in his greeting at the launch of our National Energy Strategy 2030, on March 26, 2018, a greeting read by USAID’s Albania director, Ms Catherine Johnson, the US Ambassador Mr. Donald Lu said, “Let me echo the message that has been conveyed by the IMF that Albania will benefit by not giving non-competitive concessions to individual businesses because there should be a transparent standard contract for all competitors in the energy sector. No one should receive special treatment[3]”
This strong statement comes from Ambassador Lu, a great friend of Albanians, the generator and promotor for the realization of the necessary reform in justice, for the strengthening of the rule of law, of the public institutions and the Albanian nation. In particular, his concern that no private company should enjoy special treatment during public tenders should make us reflect deeply. The situation is really problematic. Legislation in the field of concessions and public-private partnerships (PPPs) faces an essential handicap. It does not provide for a technical and professional opponent think tank, independent from the Executive, which functions under the direct jurisdiction and supervision of the Parliament. Article 18 of the Law no. 125/2013 “On Concessions and Public-Private Partnerships”, under the head “Commission for the Concession / Public Private Partnership”, provides for the establishment of this structure, depending entirely on the Contracting Authority (which is in the vast majority of cases the line minister or the Prime Minister), including the payment of the commission of the work done. The experience so far brings numerous examples of poorly contracted and managed concessions, also due to the lack of a professional and independent opponent from the Executive.
Today, we are in the conditions when the 1 billion euro program of projects made public by the Government and, in general, all the plans for provision of public services at the central and local level through concessions or PPP formula, as the IMF, the World Bank, the USAID and other important donors and partners have emphasized, are strongly pointing to the increased exposure of our economy to the risks of (i) the wrong selection of a public-private partnership without a profound study of the cost-benefit ratio (ii) the long-term nature of these projects and the complexity of their contractual terms, (iii) a missing or incomplete legal framework, (iv) low transparency and public participation in the process, and (v) to high possibility of project’s failure at big and long-term cost over the State Budget.
The IMF professional advice should be respected and implemented. Facing the above-mentioned risks, preparing the strategy and action plan for mitigatings these risks is an immediate and urgent responsibility for the main institutions of our State.
The recent experience, ascertained during some of our audits as well, as supreme audit institution has proved that the given concessions and the first years of implementation of the first public-private partnerships have generated numerous problems, including social ones, whereby the most important are:
- Concession contracts that are very favorable to certain businesses and uncompetitive for the vast majority of private enterprises;
- Unjustified increase of production or service costs for the purpose of avoiding the payment of the profit tax or impacting on the final price on consumer or on the State Budget;
- Extension of the concession deadline beyond any time limit;
- Difference in the selection criteria for choosing the winning company: different criteria offered to the Albanian public with the criteria announced in the foreign press and in the tendering documents;
- Bank guarantee waiver by failed concession;
- Very short deadline for the announcement of invitations to concession projects (the world practice has an average of 2 years, while we have been announcing the invitations within a few weeks!);
- Complete and chronic lack of prior public discussion of a concession or public-private partnership to be awarded;
- Lack of strategies for specific sectors where concession or public private partnership is given and broad involvement of central government in project selection and concessionary licensing;
- Non reference to and use of the Stabilization and Association Agreement of Albania with the EU, or of other international conventions in which Albania is signatory, which prevail over domestic legislation and are a good premise for the review of previously granted problematic concession contracts, which affect free competition and exacerbate commodity and service prices for citizens.
I think that some concessions or PPPs, for the very strategic importance they bear (eg ports, airports) today and in the future, should be presented and discussed by the Government to the National Security Council. In these cases, the orientation should be towards our strategic allies such as the USA and Germany. Meanwhile, the companies registered off shore, therefore having an unclear and not transparent ownership, should not be allowed to participate in public tenders.
On 20 March 2018, the European Court of Auditors (ECA), the supreme audit institution of the European Union, published the findings and recommendations of its Special Report on Public-Private Partnerships that are co-ordinated by the European Commission (which we will translate and make available to the Parliament and the Executive) stated that “Public-Private Partnerships co-funded by the EU in the Member States can not be considered as an economically feasible option for building or making public use of public infrastructure[4]“.
According to ECA, the audited public-private partnerships (PPPs) posed widespread deficiencies and limited benefits, resulting in 1.5 billion euros of inefficient and ineffective spending. In addition, value for money and transparency were largely undermined by unclear policies and strategies, inadequate analysis, out-of-balance registration of PPPs, and a lack of balance in risk-sharing between the private and the State. We naturally raise the question: when in European Union countries, with a much more consolidated State legislation and culture, the PPPs are considered problematic, how should they be with us?
In the press release, the ECA states that its auditors have audited 12 private partnerships co-funded by the EU in France, Greece, Ireland and Spain in the field of road transport and information and communication technology, with a total cost of 9.6 billion euros and an EU contribution of 2.2 billion euros.
The ECA, the Supreme Audit Institution of the EU strongly states that “The auditors found that PPPs allowed the public authorities to provide large-scale infrastructure through a single procedure, but this increased the risk of inadequate competition and therefore the public authorities servings as contracting parties were placed in a weaker negotiating position. Moreover, most of the audited PPPs demonstrated significant inefficiencies during the construction of the infrastructure they had undergone, with seven out of nine completed projects (corresponding to € 7.8 billion as project costs) that caused delays of up to 52 months and large cost increases[5]“.
In Greece (by far the largest recipient of EU contributions through PPPs, with 3.3 billion euros or 59% of the total), the cost per kilometer of three audited highways rose significantly to 69%, while the level of profitability of these projects was significantly reduced, dropping by 55%. The ECA states that the main reason for this ineffective expense was the fact that the financial gaps caused by the renegotiation of PPP contracts were allowed to be covered by the EU budget and the investing State, with badly prepared projects by public partners and contracts with private concessionaires, signed before the outstanding pending issues had been resolved.
All the institutions of our State should be fully aware of the deep and serious problems of the management of public-private partnerships that we face. The risks associated with concessions and PPPs make it imperative and necessary for the Parliament to look into opportunities for creating a unit of permanent and professional opponent thinking to the generation and implementation of these contracts, a secretariat within the Parliament, initially composed even by two or three experts, personalities in public finance or in public administration, composing this way a team that functions under Parliament’s authority and is financially independent from the Executive. This Unit should have sufficient financial capacity to commission experts in respective areas for the study/ opponent survey of the concession or PPP being considered, on behalf of and for the account of the Parliament and the relevant parliamentary Committee. Creating such a structure would give the first signal that the recommendations and suggestions of the IMF, the World Bank, the USAID and other important international partners, to the risks that are accumulating on the sustainable management of our public finances, are being heard properly, advice is being implemented and counteraction to these risks is adequate and timely.
[1] http://www.imf.org/external/lang/albanian/np/ms/2018/ms032018a.pdf Closing Statement of IMF mission in Albania, page 3, third paragraph, 20th of March, 2018.
[2] The same, page 3, third paragraph
[3] http://www.tpz.al/2018/03/26/ambasada-amerikane-ultimatum-rames-ndal-koncesionet/
[4] https://www.eca.europa.eu/Lists/ECADocuments/INSR18_09/INSR_PPP_EN.pdf ECA’s Press Release, Njoftim pà«r Luxemburg, March 20, 2018, page 1, first fragment
[5] https://www.eca.europa.eu/Lists/ECADocuments/INSR18_09/INSR_PPP_EN.pdf The same, page 1, third fragment
