Veliaj’s €60M School Concession Plan Will Increase Taxes

The Municipal Council of Tirana is expected to approve on Wednesday a €60 million scheme to give out concessions for the construction of schools in Tirana. Under the cover of the public outrage about the water price hike, Mayor Veliaj tries to pass this controversial measure without too much noise.

The doubling of the drinking water price is a measure with severe consequences for many families in the capital, so it was certain that its announcement would create much opposition. But it seems that the principal aim of publishing these measures, which possibly will not even be approved, was to hide Mayor Veliaj’s clientelist scheme to hand out €60 million in concessions to private companies to build schools in Tirana.

Because in the same session that the Municipal Council is expected to discuss the water prices, it will also discuss the draft decision with the lengthy title “For the approval in principle of the feasibility study and the standard contract of the public–private partnership ‘For the improvement of the educational infrastructure in the Municipality of Tirana’ between the Municipality of Tirana and the private partner.”

The members of the Municipal Council, however, received neither the feasibility study nor the standard contract mentioned in the title of the draft decision. Mayor Veliaj only sent them an explanation with general information, without any detail or argument. The explanation contains the following statements:

  1. The Municipality seeks to build 17 elementary and middle schools;
  2. The Municipality will offer the land, or in a few cases private land appropriated by it, for construction of these schools for free;
  3. The construction costs, that will be paid to the private partner, has been set on about €350/sq.m. for schools and €410/sq.m. for kindergartens;
  4. The total costs of the school concession project is calculated to be €60 million, €40 million are the construction costs, and €20 million profit that will be paid to the private partner;
  5. The project will last 7 years;
  6. The entire cost of the project will be paid by the citizens of Tirana through a special education tax set by the Municipality of Tirana and a fund received from the government, also paid by taxes.

There is no analysis as to how this proposal has been drafted and no technical data regarding the project. Moreover, no legal, political, administrative, or technical argument or justification has been communicated to the members of the Municipal Council ahead of the decision that they are expected to take. Everything has been predetermined by the Municipality and the Council is just expected to formally sign off on a private project of Mayor Veliaj and Prime Minister Edi Rama.

The concession project is in fact a sophisticated, illegal, and clientelist scheme in which the state, the Municipality of Tirana, pays for everything: the construction costs, the profit of the banks that will give credit to the private companies, and the profit of the private companies that will build the schools. The scheme broadly works as follows:

  • The private company takes out a loan at a bank;
  • The loan is guaranteed by the municipality by guaranteeing an annual payment to the private company with which the company pays back the bank;
  • The private company designs, finances, and builds the school with the credit received from the bank;
  • The school remains private property of the company until the municipality has paid back all the construction costs, increased by the profit margin of the company and interest rate of the bank;
  • The municipality pays back the investment loan through annual payments for 7 years.

This financing scheme is illegal, because this type of contract cannot be justified under the concession law. The private partner in the construction takes no risk and in essence doesn’t offer any service that the government couldn’t contract directly. Rather, it is a scheme to hide public debt. Although the costs of €60 million are clearly a debt taken on by the state, the public–private partnership construction allows it not to be counted as such.

This financing scheme is also abusive, in that the municipality does not secure and cannot guarantee the quality or the costs of the construction work, which are managed solely by the private company. The municipality therefore has not control over how its own money is invested.

Moreover, this financing scheme poses a risk to public property, because the ownership of the schools and right to use them remains in the hand of the private company for as long as the municipality has not paid back the full investment. In other words, there is no way to prevent the private company from using the school building for purposes that have no relation to the education of children.

Finally, this financing scheme is unnecessarily expensive, because it covers the interest rates of the bank and a guaranteed profit for the construction company. However, this seems to be the entire point of the scheme: using public money to finance the profits of banks and private companies close to the government.

As Exit explained before, the financial construction of public–private partnerships is damaging to the public interest. In fact, the Municipality of Tirana has a very simple tool at its disposal to finance the construction of new schools, which is used all around the world: the municipality takes out a loan (at a much lower interest rate than a private company) and writes out a tender for the construction of the school, keeping full control over the costs and implementation, while also immediately owning the school when it finished, thus securing it as a safe place for public education.