The Status Quo of PPPs in Albania

Introduction

Last week I was the facilitator of a Public-Private Partnership (PPP) workshop that was held in Tirana, Albania. The invitation only workshop was attended by over 40 senior public-sector officials and executive level representatives of the private and banking sector. The purpose of the workshop was to engage the public and private sector in an interactive discussion on the current status of PPPs and the path forward for the next few years.

Albania has an interesting history and the quixotical architecture of the city which includes a superimposition of historic Ottoman, Italian Fascist, and Stalinist architecture, out of which a new modern city infrastructure is emerging is a true reflection of the many underlying economic and political factors that have defined modern Albania.

The current drive to develop infrastructure and improve public services has as its primary focus the need to correct the negative impact of 50 years of invasions and oppressive Stalinist central planning that left Albania as the poorest nation in Europe in the 1990’s. Albania has made remarkable forwards strides in its efforts to become a modern and functioning state in the Balkans, irrespective of the problems that its neighbors which include Montenegro, Macedonia, and Kosovo have experienced.

PPPs as a Mechanism for Development

Since the collapse of Communism in Albania in the 1990’s, successive government have made concerted efforts to improve and develop infrastructure and provide public services that promote economic growth. Due to a large public-sector infrastructure funding gap that was a legacy of the communist era, the potential of PPPs as a source of alternative finance was recognized quite early by the Albanian Government which made numerous efforts to create a PPP enabling environment that would support PPP initiatives.

The first PPP enabling legal reforms were made in the 2000’s. Further legal reforms were introduced after this, such as the Albanian parliament passing an Amending Law in 2015 (no. 77/2015) which amended the PPP Law of 2013 (no. 125/2013). The current Albanian PPP law and its amendments clearly establishes the legal framework for PPPs and clearly describes institutional responsibilities (e.g. line ministries and local government agencies). The government has also established a PPP Unit located in the Ministry of Finance which serves as a national technical advisor across all government institutions.

Albania has a history of successful and less successful PPP procurements. In the recent World Bank Publication “Benchmarking PPP Procurement 2017” Albania scores well in preparation and procurements of PPPs and with unsolicited proposals. However, its score for PPP contract management is lower.

The Current PPP Market

Over the years Albania has made concerted efforts to learn best practices from its past PPP procurements and apply them to new procurements. Reform was driven by improving economic circumstances and an increasingly sophisticated public sector understanding of the potential of PPPs. It was also realized that circumstance change in a country and what seemed to be good terms and conditions for PPP contracts in the 2000’s were not that great for more recent projects.

Currently a great focus is being placed on ensuring that procurements are competitive and transparent and that proposed projects offer value for money. The changing economic circumstances have led to amendments being made in procurement laws and to strategic approaches to PPPs, specifically contract terms and conditions. An area that is currently receiving greater attention is the operations and maintenance stages of projects as PPP projects mature, as well as oversight needs from the PPP Unit and the Ministry of Finance and Economy.

The Mother Teresa Tirana International Airport is an example of a project where contract terms were changed to alleviate unintended monopolistic contract clauses that prevented the development of low budget airports in Albania. Consequently, the original German monopolistic concessionaire was able to sell its concession to a new Chinese operator (with the permission of the government) and the aviation field was opened to other airport PPP projects.

The Tirana Municipality is also exploring the option of PPP procurements, specifically for schools and municipal transport. It has launched an ambitious partnership with the private sector to build desperately needed schools in the capital city. Improvements to the municipal transportation system will also be launched through a collaboration with private concessionaires.

A major project of national importance that is currently underway is the Trans Adriatic Pipeline. Although it is not a PPP project, its potential contribution to the gasification of household in Albania might create opportunities for PPPs in the near future. There is also some possibility for PPPs in the exploitation of domestic oil reserves in Albania. Currently Albania exports all its crude oil and reimports refined petroleum products from Italy. It is possible that PPP refinery projects could have some potential for investors in the future.

Waste water and waste management projects in smaller municipalities is also a potential area for PPPs. There is a need to improve waste water processing in smaller municipalities. However, the relatively small size of the projects could be a deterrent to investors, especially when their transactional costs are considered.

In the transportation sector, PPP potential is somewhat limited. Albania is a small country and there are only so many roads, ports and airports that can be built. Roads to its neighbors are currently being improved and there is some scope for coastal port improvements as well.

 Hydroelectric power is a major source of electricity in Albania. Most power is generated by hydroelectric plants (especially mini-hydroelectric) - so much so that Albania is known as the Norway of the Balkans. The history of PPP procurements in this sector has a mixed history. There was a proliferation of mini-hydroelectric concessions that were awarded by the government through unsolicited proposals. Unfortunately, a arge number of concessionaires seemed to have been opportunistic and have never met their project commitments to build operational mini-hydroelectric plants. There is also some interest in diversifying the generation of electricity in Albania. It is possible that the gasification of Albania (through feeder lines from the Trans Adriatic Pipeline) might raise the potential for power plants financed through PPPs.

Financial Fluidity

In conversations with representatives of the domestic banking sector I was surprised to hear that the domestic banking sector is extremely fluid. Many workshop participants commented that there is more finance available in Albania than projects. Although this is good news, this situation is also driven by the banks which are risk averse and are cautious about long-term loans and investments in PPP projects. However, there is increasing interest being shown by the domestic banking in proposed projects that have comprehensive feasibility studies that can prove a high level of certainty regarding project bankability and sustainability.

Some Takeaways

On the positive side, Albania is a surprisingly mature PPP market which has a favorable PPP enabling environment. The PPP legal framework also clearly defines the roles and responsibilities of public sector agencies. In addition, it is encouraging to note that there is a focus on oversight from the PPP Unit located in the Ministry of Finance and Economy on ensuring that projects that are selected are affordable, meet the countries strategic needs, and are transparently and competitively procured.

On the downside, unsolicited PPP procurements have caused some concern. Currently Albania’s maturing PPP market requires increasing public-sector oversight over the private sectors management of existing PPP projects, especially when it comes to project operations and maintenance. The national PPP Unit is small and its limited technical and staff resources could see this critical function becoming increasingly difficult to carry through. As pointed out in the referenced 2017 PPP World Bank Procurement Report, PPP contract management is an area that needs attention from the government.

It would also behoove the Albanian government to develop a comprehensive and centralized National PPP Pipeline registry which would serve as an indicator to private investors of the future potential of the Albanian PPP market.

Over all, the fact that 40 public and private sector employees and executive voluntarily took part in the two day workshop points to a commitment to improving and delivering meaningful PPP projects in Albania.

In closing, I would like to thank the sponsors of the PPP workshop - ABKONS – for being responsible stewards of PPPs in Albania (see www.abkons.com).

Sources:

LinkedIn post on the Tirana Workshop –

https://www.dhirubhai.net/feed/update/urn:li:activity:6372433450992963584/

World Bank - Benchmarking PPP Procurement 2017 -

https://ppp.worldbank.org/public-private-partnership/library/benchmarking-ppp-procurement-2017