Tackling infrastructure gaps to lift Albania’s economy

Tackling infrastructure gaps to lift Albania’s economy
Albania's railways are in urgent need of rehabilitation.
By Clare Nuttall in Tirana January 10, 2019

Albania has a pressing need to invest into infrastructure across the board, from transport to energy to municipal infrastructure. Tackling this will put the country on a much stronger growth path for the future. 

Not only did Albania face similar problems to other post-communist countries during the transition era in finding funds for major infrastructure projects, it also started from a lower point than other states in the region, said Matteo Colangeli, the European Bank for Reconstruction and Development’s (EBRD’s) head of Albania, in an interview with bne IntelliNews. While the Albanian government, supported by the EBRD and other international financial institutions and donors, is now investing into new projects, there is still a long way to go. 

“Infrastructure needs are enormous, not only in Tirana but in all the country,” Colangeli sums up the situation. “In general there is an infrastructure gap even between Albania and its neighbours in the Western Balkans. This is to do with the starting point of Albania, which was far lower than the rest of the region. Yugoslavia had infrastructure Albania did not, so the 90s starting point was not the same for everybody.” 

The development bank is committed to invest into Albania’s railways, lending €36.9mn for the upgrade of the existing Tirana-Durres rail line and new link to Tirana International Airport alongside the EU and its partners in the Western Balkans Investment Framework (WBIF), which are providing up to €35.5mn in grants. Work is expected to start in the first half of 2019. 

The need for investment into Albania’s rail system is urgent and highly visible. At the station in Durres, the port city on Albania’s Adriatic coast that is currently the country’s main railway hub, just two trains stand alongside the deserted platforms. Covered in graffiti and with at least half of their windows either broken or missing altogether, they look derelict, though a sign on the station indicates they are serving routes to the cities of Skoder and Elbasan. 

The capital Tirana currently has no railway station as it was demolished to make way for a brand new highway extending King Zog I boulevard that runs north from the central Skenderbeg Square. A railway station is due to be built as part of the development of a new city district, but the completion date is unclear, and for now the closest station to the capital is around 10km away at Kashar. 

According to the EBRD, the upgrade of the Tirana-Durres line will make a tangible difference to people and businesses in the region, by making the journey time between the country’s two main cities shorter and safer. The bank also points out that it will encourage a shift from road to rail services, reducing carbon emissions. 

The Tirana-Durres connection is an “important line from all points of view,” says Colangeli. Over half of Albania’s population live in or around the two cities, the vast majority of GDP is generated in the area, and Durres is the country’s main port. 

“Now you ship something to Durres and only have roads available to move your goods around the region,” Colangeli tells bne IntelliNews. “Roads are improving but it can still take many hours to cover a couple of hundred kilometres, so having a rail connection would greatly increase the potential of Durres port, which is an asset for Albania. Durres could have more importance regionally for Kosovo and parts of Macedonia if it were better infrastructuralised.” 

In 2019, the EBRD hopes to sign another project on the rehabilitation of two quays at Durres port alongside the WBIF, which, Colangeli says, “should contribute to make the port more efficient for importers and exporters, more attractive and also safer.” 

Roads prioritised 

While Albania’s railways were neglected, the majority of investments in the last decade in the transport sector were concentrated on improving the road network where, Colangeli says, “there is certainly an improved picture”. 

The most significant road project was the Nation’s Highway to Kosovo, which is also the first toll road in Albania, although there are other important projects such as the Arber highway connecting Albania to Macedonia. “There is still a long way to go to properly connect Albania with its neighbours, but roads are certainly the priority of this government when it comes to transport. There is quite a lot of money going in this direction,” says Colangeli. 

Some of these projects have sparked controversy as they have been funded by public private partnership (PPP) type deals that critics, which include the International Monetary Fund (IMF) and other international financial institutions, have warned are increasing Albania’s fiscal risks.

Also in the transport sector, there are plans to open a second airport now that Tirana International Airport’s operator no longer has exclusive rights to international flights to and from the country. There are already plans to revive the idled airport at Kukes, and to build a new airport at Vlora on the Adriatic coast. 

“Improvements are needed in the road system, having a functional rail system would be fantastic, but eventually there is the issue of whether one airport is sufficient for a country like Albania,” says Colangeli. 2017 data from the World Travel and Tourism Council (WTTC) shows tourism directly contributed 8.5% of Albania’s GDP in 2017, but destinations such as the historic southern cities of Saranda and Gjirokaster are many hours drive from the sole airport in Tirana.

Beyond transport 

Yet Albania’s infrastructure needs go far beyond transport. Colangeli points to the urgent need for investment into municipal infrastructure: there is virtually no wastewater treatment and water supply is limited to a few hours a day, even in Tirana. This puts almost unbearable pressure on coastal cities during the peak tourist season. While Albania is rich in water resources, the water distribution network is old and losses are extremely high. 

Citizens have adapted; houses and apartment blocks have installed water tanks on their roofs, which they fill up when the water is on, and use for the rest of the day. 

A decade ago urban life in Albania used to be accompanied by the roar of thousands of generators parked on the pavements powering shops, cafes, offices and private homes during the extremely frequent power outages. While water supplies are still sporadic, the absence of the generators today demonstrates the huge progress that has been made in making electricity distribution more efficient and reliable. 

“The situation in the electricity sector has improved considerably in recent years, starting with payment discipline — until recently more than half the population were not paying their electricity bills, which of course made it difficult to invest in the sector. Now, following a pretty harsh campaign of enforcement of payment discipline conducted by the previous [Socialist Party / Socialist Movement for Integration coalition] government, collection rates are much higher,” says Colangeli, though he points out that, “there is still a long way to go, especially in the distribution network. Losses are still high but power cuts are more infrequent than they used to be and the picture is gradually improving in the sector, which is very important for the country and for the budget.” 

An uncontrollable variable 

As other European countries work hard to move away from polluting fossil fuels towards renewables, Albania has a clear advantage: it already generates virtually all of its electricity from a renewable source: hydropower. Around 85% of the electricity consumed in Albania in 2016 was generated from renewable sources, a compilation of data released by Eurostat at the end of September showed. This put the Western Balkan nation ahead of all the EU member states and behind only Iceland and Norway in terms of the proportion of energy consumed from renewable sources. 

However, the dependence on hydropower causes fluctuations in economic performance that the government is trying to address. “Albania is an almost entirely hydro-powered country. All electricity produced comes from hydropower, which means when it rains there is enough and there is also the ability to export electricity, but when it doesn’t rain the country is forced to import electricity, and the cost — which is of course greater than the cost of domestic hydropower — is not passed through to end users, but absorbed by the state-owned enterprises that operate in the sector and ultimately by the country’s budget. This creates a risk which is not controllable from the point of view of budgeting,” says Colangeli. 

2016, for example, was a dry year during which Albania spent almost €200mn on importing electricity. By contrast, the fast economic growth in the first half of 2018 was largely due to the rainy weather, which resulted in a hike in electricity production and lucrative power exports. Such fluctuations represent “an uncontrollable variable in the macro picture of the country which should be addressed with diversification,” says Colangeli. 

This point was also made in an EBRD report on the Western Balkans’ energy sector in December. It said that while countries form the region have to join forces in order to switch to hydropower, renewable energy sources and gas from coal to reduce pollution, hydropower is not reliable enough to guarantee the countries meet their annual power generation needs. 

“Perhaps the most promising opportunity lying ahead is regarding other renewable energy sources, such as wind, solar, and sustainable biomass. Their technology related costs have come down dramatically and they can now be present as an important low cost alternative to more traditional sources of energy,” the EBRD report said.

And in an important recent development, in November Albania selected a group led by India Power Corporation to build a 100 MW solar park, the first utility scale solar installation in the country, in a €70mn deal. The project will be located in the southern Vlora region. Given Albania’s sunny climate, investment in the solar sector would be an “optimal complement to hydro generation,” says Colangeli. 

Overall, the Socialist government led by Prime Minister Edi Rama wants to install 120 MW of solar and 70 MW of wind power capacity by 2020.