EC Raise Concerns: PPPs Value Set to Increase to 46% of GDP in 2019

The European Commission has criticized the Albanian government for its policy in public–private partnership (PPP) contracts, the value of which have reached the highest level ever in Albania: 31 per cent of GDP. Moreover, the EC and IMF predict that the total value of PPP contracts will increase to a staggering 46 per cent of GDP within 2019.

PPPs have now reached a value of 31% of GDP, with additional projects planned that would increase the total value by 15 pps of GDP for 2019 (IMF 2019).

The European Commission assessments of the 2019-2021 Economic Reform Programmes (ERP) submitted by the Albanian government underlines that the further increase in value of PPP contracts will also bring an increase in public debt, which officially stands at 67 per cent of GDP. However, the EC questions the credibility of the government reported public debt:

Unrecorded arrears and contingent liabilities undermine the credibility of the public debt position.

The European Commission raises concerns that PPP contracts are being awarded without making the necessary risk analysis and without assessing the cost-benefit ratio. In doing so, the government could reduce the many fiscal risks that come from the highly controversial contracts which were criticized by several international financial institutions.

The EC report also notes that the Albanian government has not provided additional staff to monitor the increased number of PPP contracts.

At the same time, there has not been a corresponding increase in the numbers of staff available to monitor and assess these complex contracts and projects. This means that the public financial obligations related to the PPPs are not being comprehensively assessed and statistically recorded.

The Albanian government also drew criticism on PPP contracts given without transparency or competition in the EC progress report for 2018, published in May 2019. The EC criticized the government’s approach to accepting ‘unsolicited proposals’ from private companies, which have brought about a reduction in competition between companies during the bidding process. Unsolicited proposals practically make the company a bid winner because of the ‘bonus points’ the government awards to the proposing company.

The same concerns about PPPs have been raised earlier by the World Bank, the International Monetary Fund and the European Bank for Reconstruction and Development. Their main concerns are the lack of transparency and competition, the lack of risk analysis and the acceptance of unsolicited proposals by private companies, which in most cases bring huge profits to private companies and increase the public debt and fiscal burden on public.