BALKAN BLOG: The controversial recipe for building up Albania

BALKAN BLOG: The controversial recipe for building up Albania
The coast at Vlora, where a new marina is planned under a proposed PPP project.
By Clare Nuttall in Glasgow January 13, 2021

The Albanian coastal city of Vlora, where the Adriatic Sea merges with the Ionian Sea, is a major industrial hub as well as tourist destination. Like much of Albania, its infrastructure needs are large and it is not only the likely destination for Albania’s second airport if an investor can be found but also the site of a planned 400-berth marina. 

Controversy surrounds the latter project after local media revealed that the infrastructure ministry has launched a tender offering a 35-year concession for the port of Vlora, that will include construction of the new marina. The project was proposed not by the government or municipality but by a company, as yet unnamed, interested in taking on the concession, in what has become common albeit much criticised practice in Albania in recent years as the government led by Prime Minister Edi Rama seeks to mobilise private investment through public-private partnerships (PPPs) for much needed infrastructure projects.

The debate erupted again in recent weeks, when President Ilir Meta rejected the budget for 2021 put forward by Rama’s government, citing PPP projects among his objections. 

The main problem with the Albanian take on the PPP concept, as repeatedly pointed out by the International Monetary Fund (IMF) and other international financial institutions (IFIs), is that many of the PPP projects that went ahead followed unsolicited bids where a private company approached the government with a proposal, rather than a tender being launched based on an assessment of needs by the authorities. Moreover, the companies that proposed the projects are typically given bonus points when considering bids, which have almost invariably led to that company winning the tender. 

In September 2020 the IMF made the point yet again: “There is an urgent need to strengthen public investment management and the quality of spending. Projects should be taken from a pipeline that has gone through a rigorous preparation, assessment and prioritisation process, and will contribute sufficiently to an inclusive recovery. We reiterate our call to establish a unified process for preparing, prioritising and evaluating all public investment projects, including public-private partnerships [PPPs]. The use of unsolicited PPPs should continue to be prevented.”

The IMF added that fiscal risks are increasing in Albania and need to be carefully monitored and managed. “Strong efforts are needed to rigorously assess and manage not only the direct budgetary impact but also contingent liabilities stemming from PPPs,” it said.

The European Bank for Reconstruction and Development (EBRD) head of Albania, Matteo Colangeli, told bne IntelliNews in an interview back in 2018 that a “PPP should share risk between the public and the private sector, and should be run transparently through a transparent process”. 

The way the financing tool is used in Albania, he added, is “not ideal, because the government is not really exercising its role of privatising projects; what gets tendered is what [is] offered by those who are interested in developing a project. The role of strategic planning of priorities is missing.” 

The EBRD went on to criticise such projects in its 2019-20 Transition Report, where it said that improving the conduct of PPPs required “urgent attention”. Large unsolicited PPPs continue to be awarded, particularly in the road sector … without a sufficient level of cost-benefit analysis and competition in the tender process. This increases the potential social cost and exposes the government to implementation risks, also given the general lack of track record and financial standing of the chosen bidders relative to the scale of the projects tendered.”

Among the more controversial unsolicited PPP projects are the major road projects singled out by the EBRD, namely the Milot-Balldren and Orikum-Llogara sections. Another was the plan to raze the old National Theatre in Tirana to make way for a new theatre building. Faced with fierce opposition, that project was eventually funded from the public budget instead. 

Following widespread backlash from both IFIs and the Albanian opposition, in September 2019 the parliament passed legislation banning PPP projects based on unsolicited proposals in the road sector, though they are still allowed for ports and airports as well as in the energy sector. The new legislation also ended the awarding of bonus points to the company that proposed the project. 

Moreover, at the end of December, the Central Electoral Committee (CEC) banned the launch of any new concessions including PPP projects that were not previously announced in the four months before the April 2021 general election.

Albania’s main opposition parties, the Democratic Party and the Socialist Movement for Integration (LSI) both of which have an extremely adversarial relationship with Rama’s Socialists have been highly vocal in their opposition to PPPs which they claim are enriching a handful of oligarchs close to the ruling party. 

Democratic Party leader Lulzim Basha wrote on his Facebook page on December 30 that Albania’s wealth is “concentrated in the hands of the oligarchs”. Rama’s decisions, he added, “have always favoured four to five oligarchs”, and over €2bn has been “dedicated to PPP concessions received by those oligarchs”.

After rejecting the 2021 budget, Meta expanded on his objections to the government’s use of PPP on December 15 when he wrote on Twitter: “The total value of PPP contracts in 2021 amounts to 838.2 BILLION [Albanian lek] ALL or 49.8% of GDP. Whereas for the fight against COVID-19 are foreseen 14.5 BILLION ALL or 0.86% of GDP.” 

The PPP situation is disappointing because there were high hopes from the new Socialist government led by Rama, who has done much to push Albania towards EU accession, including initiating judicial reforms, as well as a wide-reaching anti-corruption programme. The government also with great fanfare virtually wiped out drug cultivation at the village of Lazarat dubbed Europe’s “marijuana mountain” just before gaining EU candidate status in 2014. 

Yet since then, there have been reports that drug cultivation and trafficking have crept up again. A 2020 report from the Global Initiative against Transnational Organised Crime looking at illicit financial flows in Albania, Kosovo and North Macedonia found that far from the drugs industry being in retreat, the transit trade in drugs is estimated to be worth more than half a billion euros each year in Albania. The report also honed in on public procurement, pointing to recent investigations which showed that €300mn is lost annually to abuses in public procurement procedures, nearly 45% of the total bid value of public contracts awarded in 2019.