Albania to scrap unsolicited PPP projects in the road sector

Albania to scrap unsolicited PPP projects in the road sector
The Albanian government has prioritised the road sector.
By bne IntelliNews January 22, 2019

The Albanian government plans to stop accepting unsolicited proposals for public-private partnerships (PPP) from private companies in the road sector, but not for other sectors that are seen as strategic. 

The practice of accepting unsolicited proposals for PPP projects and giving them an advantage during the tender process has been heavily criticised as the winners of tenders were in effect pre-determined, leaving no space for fair competition.

Critics of the series of PPP projects launched under Prime Minister Edi Rama’s government include the International Monetary Fund (IMF) and other international financial institutions, as well as Albanian opposition parties. 

The finance ministry has now drawn up a set of amendments in which it attempts to address the IMF’s concerns, Arben Ahmetaj, Albania’s finance minister until the end-December reshuffle and the author of the new legislation, wrote on his Facebook page on January 22. The proposals have been submitted to the parliament’s economy and finance committee, and they are expected to enter force in mid-2019. 

However unsolicited proposals will still be possible for contracts related to provision of works and services in ports and airports, the electricity sector as well as natural gas distribution.

The legal changes only partially meet recommendations from international financial institutions, specifically the World Bank and the IMF, which sought the full removal of such procedures, the Tirana Times reported. 

At the same time the practice of awarding bonuses of up to 10 percentage points for companies submitting unsolicited proposals, putting them at an advantage during tender procedures, will be scrapped, Ahmetaj said. Instead, companies that initiate new projects through a feasibility study will receive financial compensation of up to 1% of the investment value if they fails to win a tender. The government believes that this will put an end to unfair competition.

In addition, monitoring will be increased both during the tender process and during the implementation of the project, according to Ahmetaj. 

The IMF said in November 2018 that the rapid increase in PPPs has raised fiscal risks, and called for additional improvements in the public investment framework. 

“The rapid increase in Public-Private Partnerships (PPPs) has raised fiscal risks, calling for additional improvements in the public investment framework,” the Fund said in November. 

The IMF also advised promoting a competitive bidding process by halting the acceptance of unsolicited PPP proposals.

IFIs have also criticised the way such deals have been structured. “The issue is that a PPP should share risk between the public and the private sector, and should be run transparently,” said the head of the European Bank for Reconstruction and Development (EBRD) office in Tirana, Matteo Colangeli, in an interview with bne IntelliNews in late 2018. 

Colangeli added that “The vast majority [of the PPP projects] do not contain any cash flow generation from the project, they are simply an agreement between the government and the construction company. The latter will build the road, for example, and be paid by the government over five to 10 years in instalments.”

In general, says Colangeli, the EBRD “loves” PPPs as a way to develop infrastructure, “but they need to be structured properly, and tendered openly, ideally internationally.”

The World Bank too commented on the issue, saying in October that fiscal risks from PPPs and state-owned enterprises “need to be actively managed”.

Meanwhile Tirana Times reported that the Albanian government has cancelled a €244mn PPP motorway project awarded to a local oligarch.

The project relates to the construction of a highway between Kashar, an industrial area outside Tirana, to Thumane village in northern Albanian close to the entry of the Highway of Nations linking Albania to Kosovo.

The government argued that it canceled the project as it wants more money to finance public universities. This came following the pressure over PPPs, as well as protests by students who are seeking more financing for universities.