Corruption and politics tarnish Kosovo's appeal to investors

By bne IntelliNews May 4, 2010

Nicholas Watson in Budapest -

The politics of the region intrudes on virtually every aspect of Kosovan life, so it came as little surprise that the government's attempt to privatise its most profitable company, telecommunications company PTK, quickly ended up in a spat with Serbia. Such incidents, as well as growing concerns about corruption, do little to inspire confidence in this country, which two years after declaring independence from Serbia is struggling to improve its image among international investors.

In an attempt to make PTK more attractive for investors ahead of the state-owned post and telecoms firm's privatisation by August or September, Kosovo's government announced on April 26 it was starting to remove unlicensed transmitters of Serbian mobile operators located in Serb enclaves in Kosovo; PTK claims it's losing around 200,000 potential consumers because of these illegal transmitters. The head of Kosovo's Telecommunication Regulatory Authority, Ekrem Hodza, said that 26 out of 28 transmitters of Serbian phone companies that are located south of the Ibar river - the river that divides the northern municipality of Mitrovica into Serb (north) and ethnic Albanian (south) parts - had been taken offline.

In this still-volatile region, like one of Newton's laws of motion, whenever one side exerts a force on a second, the second exerts a force on the first that is equal in magnitude and opposite in direction. In the hours following Pristina's move, some PTK transmitters were damaged in Serb enclaves, while Telekom Srbija posted guards at its base stations in the northern part of Mitrovica to counter threats by the Kovovan authorities that they would take more action on other illegal transmitters found. Serbian President Boris Tadic described Kosovo's move as a "violation of human rights" and said he would seek to restore the connections. Some chance: Eulex, the EU's civilian mission in Kosovo, regards the decision by the Kosovan telecom regulator as legitimate.

On the block

All this is an unwelcome distraction from the business at hand, which is for the Kosovan government to push ahead with its crucial investment effort for 2010, of which PTK is major part. The other three big projects are: Pristina International Airport; the highway that will link Kosovo with Albania in the west and Serbia in the east; and the building of a coal-fired power station. "These four big projects will improve and change the image of the country," says Spiro Brumbulli, managing director of the Kosovo unit of Albanian lender Banka Kombetare Tregtare. "The names of the investors involved are very well known, very reputable. And if they are showing interest, then it indicates there is a present and future for Kosovo."

On April 12, Kosovo signed a €735m deal with the US-Turkish consortium Bechtel-Enka - made up of California-based Bechtel International and Istanbul-based Enka - to build the four-lane motorway that will run from the border with Albania at Morine to north of Pristina. The Bechtel-Enka joint venture will be responsible for design management, procurement and construction of the vital road, which will create up to 10,000 jobs.

Also that month, the tender for the €100m concession to upgrade and operate Pristina International Airport entered its final phase, with the government inviting three international consortia to present their final bids by April 15. The bidders are: the Bouyges Batiment/Egis/Eurokoha-PAIC consortium; the Fraport IC ICTAS Havalimani Isletme consortium; and the Limak/Aeroport de Lyon consortium. Pristina's airport saw its profits rise more than 50% in 2009 to €11m as the number of passengers grew 6% and flights rose 20%.

The planned power plant has been a harder sell, mainly because the government pitched the size of it too high at 2,000 megawatts (MW), as it wanted to export some of the power. On March 5, the government announced it had short-listed four international bidders for a tender to build a scaled-down, 1,000-MW power plant, which will cover the domestic energy needs of the state of about 2m people. The four groups are: the Indian-led Adani power group; US-based AES with Turkey's Demir Export; Turkey's Park Holding; and a consortium of US-UK Contour Global with Greece's public power company. The winner of tender for the Kosova e Re, or New Kosovo, project will be selected by July, said Justina Shiroka-Pula, minister of mining and energy. Construction is scheduled to start in 2011 and take about five years, she said.

And it's not just large projects. On April 12, the Privatization Agency of Kosovo launched wave 43 of the sell-off of socially owned enterprises, ie. those owned by the people who work in them or reside in the vicinity; the latest wave consists of 15 SOEs from which 17 companies have been created. The previous 42 waves have sold off nearly 500 SOEs, raising more than €400m. Some 200 more still need to be privatised.

Road to ruin

The success of these high profile and, clearly transparent, infrastructure tenders should do much to enhance the reputation of the country in international eyes. However, there are numerous other smaller tenders that lack this transparency and oversight, which are adding to the growing reputation highlighted by the European Commission in its annual progress report on Kosovo in autumn of last year that the country is becoming a nest of organised crime and corruption.

EU foreign ministers in their meeting in Luxembourg on April 26 expressed support for Eulex's "approach to intensify its efforts in the fight against organised crime and corruption," in what is being regarded in diplomatic circles as an expression of growing concern at the lack of concrete results by the Kosovo authorities in fighting corruption. Currently, Eulex has a mission of 2,000 personnel in Kosovo that includes judges, prosecutors, police and customs officers. The mission took on some cases of war crimes from the former UN administration of Kosovo, but has seen fewer corruption and organised-crime cases.

If Eulex cares to look, conflicts of interest aren't hard to find. Balkan Insight, an online publication from the Balkan Investigative Reporting Network, in April made a forensic examination of the €170m spent on road tenders by the Ministry of Transport and Post-Telecommunications since 2007 and found a disturbing number of contracts that had gone to companies associated with Kosovo's transport minister, Fatmir Limaj, some of which had only been set up since Limaj took over the ministry and appear to have had little experience in the relevant field or should've been disqualified for failing to provide the necessary documentation.

Endrit Shala, chief of cabinet at the ministry and Limaj's right-hand man, told Balkan Insight that the minister had played no part in tenders awarded to his friends and family, adding that given Kosovo's small size, it's no surprise that "somebody knows someone." However, the investigation turned up information that showed Limaj's ministry awarded two large contracts, worth €5.8m and €4.5m, to a close friend, Habib Morina, and handed the second-largest contract to date for a road-building project, worth €11m, to another friend, his relative, Colonel Haxhi Shala.

In the case of the former, an audit of the ministry's accounts by the Auditor General revealed that another bidder had offered to do the same work for less. The ministry said it chose Morina's consortium because it scored maximum points for "technical criteria." However, the auditors wrote that they detected "no big advantage" on technical grounds between Morina's bid and the cheaper rival offer.

Myzejene Selmani, chair of the Kosovo parliament's committee for economy, trade, industry, electricity, transport and telecommunications, and a deputy for the opposition New Kosovo Alliance, said corruption in road tenders was a major concern and is reflected in the poor state of roads despite the Ministry of Transport having a budget that is three times higher than any other ministry. "I have raised my concern many times about this corruption disease, and therefore all the time I have insisted on transparency and correct procedures," Selmani tells bne. "Unfortunately, in different cases we have seen that this is a true problem for Kosovan society, especially in the case of infrastructure building. But this is not just a problem there - in other sectors as well we are still faced with those kind of problematical issues."

Selmani warns this is working against the government's efforts to turn around the negative perceptions that investors have on the country. "Investors have never shown willingness to invest in any country where the rule of law takes second place. That is why we have seen a decrease in investments, and an increase in poverty and unemployment."

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