Law on the Construction and Maintenance of the Milot-Balldre highway
More resultsIntroduction
In 2018, the company A.N.K. SHPK submitted an unsolicited proposal to the government of Albania for the construction of the Milot–Balldre highway (see here). In June 2018, Council of Ministers Decision No. 387 awarded a bonus of 8.5 per cent more points to the company under the tendering procedure. In October of the same year, the Ministry of Infrastructure announced that a 13-year concession had been awarded to A.N.K SHPK for the construction of the 17.2-km Milot-Balldre highway (see here). Law No. 52 was passed in July 2019 specifically for this purpose.
- Country
- Albania
- Sector
- Construction and urbanism
- Type of Law
- Capturing a market, an industry or public resources
Description of the law
In 2018, the company A.N.K. SHPK submitted an unsolicited proposal to the government of Albania for the construction of the Milot–Balldre highway (see here). In June 2018, Council of Ministers Decision No. 387 awarded a bonus of 8.5 per cent more points to the company under the tendering procedure. In October of the same year, the Ministry of Infrastructure announced that a 13-year concession had been awarded to A.N.K SHPK for the construction of the 17.2-km Milot-Balldre highway (see here). Law No. 52 was passed in July 2019 specifically for this purpose.
As per the final contract, which was approved by Law No. 52/2019, the company will charge €256 million (€15 million per km) for the job, more than twice the amount that the government of Albania had envisaged for the construction of the road in its Transport Sector Strategy 2016–2020 (see here and here).
Still, the government allocated an extra €44 million to the project in its mid-term budget plan, increasing the total cost to nearly €300 million. The State Supreme Audit Institution of Albania (ALSAI) revealed an artificial increase in the costs of the project created by qualifying the project as a “highway” instead of an “interurban road” with a consequent increase in the price from €61.5 million to €140 million in the feasibility study (see here).
A.N.K. SHPK is closely connected to the ruling Socialist Party (SP) because it was founded in 1998 by Ndue Kola, an MP for the Socialist Party from 2009 to 2013. In 2009, the company was sold to Kola’s brother, Agim Kola, who is also closely connected to the SP government (see here). The company’s close ties with the ruling party make the deal look problematic.
Full Law Name
Law No. 52/2019 of 18 July 2019 on the Construction and Maintenance of the Milot-Balldre Highway (see here)
Type of law
Act of Parliament
Scope of application
Substantive: Contract between the Ministry of Infrastructure and Energy and A.N.K. SHPK on the construction and maintenance of Milot-Balldre highway and its 13-year concession
Personal: Government of Albania, the private company A.N.K. SHPK and, indirectly, other private companies operating in construction
Territorial: National
Temporal: Until the project has been completed as per the terms of the contract.
Time of adoption and entering to force
The law was adopted on 18 July 2019. The President of Albania returned the law to Parliament for reconsideration. Parliament rejected president's decree on 12 September 2019. The law entered into force on 4 October (15 days after it was published in the official gazette).
Who drafted it
Ministry of Infrastructure and Energy
Who submitted it to Parliament or to another collective body
Government of Albania (Council of Ministers)
Relevant developments in the process of adoption that show signs it’s tailor-made
In early 2018, the Government of Albania received an unsolicited proposal for the construction of the Milot–Balldre highway from A.N.K. SHPK, a company founded by Albanian businessman Ndue Kola in 1998. From 2009 to 2013, Kola was a member of the parliament for the (currently) ruling Socialist Party. In 2009, A.N.K. SHPK was sold to Kola’s brother, Agim Kola. Several media outlets have reported on the close links between the owner of A.N.K. SHPK and the ruling Socialist Party (see here and here).
In June 2018, the Government of Albania awarded an 8.5 per cent bonus to A.N.K. as the subject of the unsolicited proposal and announced the opening of the tender procedure for building the Milot–Balldre highway. The tender was published in July 2018 with a maximum budget of €161.5 million (nearly €50 million more than planned for in the state budget for 2018 (see here).
In October 2018, the Ministry of Infrastructure announced that A.N.K. SHPK had won the tender. Its offer was exactly € 161.5 million. After construction, the road would remain under concession to A.N.K. and Bardh Konstruksion SHPK for 13 years. During this time, the Government of Albania would start payment for construction of the road and a percentage of profit (or interest) to the company, which together brings the total cost for this road to €213.6 million, VAT excluded, or a total €256 million, including VAT (see here).
In addition to the owner’s political ties and the 8.5-per cent bonus, there are several other elements that make this project and the law that approved it a highly likely example of a tailor-made law.
The law was passed by Parliament on the same day Parliament adopted the amendment to the law on concessions removing the maximum 10% bonus for unsolicited proposals for road and other sectors.
The contract is approved in euros and not the local currency, leks. Thirdly, the government’s mid-term budget plan allocated an extra €4 million for this project, thereby increasing the (potential) total cost to nearly €300 million. Article 35 of the contract stipulates that the contracting authority may request additional changes in the project, in which case the state budget would cover all extra costs.
In addition, investigative media reports suggested that A.N.K. SHPK does not have the capacity to cover the cost of the project. While the company argues that it will cover nearly €52 million out of its own resources, its 2017 audit report suggests that A.N.K. SHPK's capital and assets are less than €20 million (with a profit of only €1 million in 2017). Lastly, the company will get a bank loan of approximately €70 million for which the Albanian state will offer bank guarantees (see here).
A report by the State Supreme Audit Institution of Albania (ALSAI) reveals that the costs of this project have been artificially raised by qualifying the project as "highway" (category A) instead of "interurban road" (II/C), thus increasing the price from €61.5 million to €140 million in the feasibility study. ALSAI notes that the Albanian state will pay for "works" that do not exist (in other words construction companies with get bank loans). ALSI also notes that it is unclear why the feasibility study opted for a "concession" when it did not have a financial analysis on the rate of investment return. Although these and other findings have been
Who adopted it
Parliament
Enforcement (is it enforced?)
Yes, since 4 October 2019
Initiatives to challenge it and their outcomes (Challenges could have been during the process of law-making or after the adoption)
The president of Albania refused to sign the law adopted by the parliament and listed several breaches of legislation, including the fact that the Ministry of Finance had not approved it (as is required by law); the fact that the contracting authority continued negotiations on the material terms of the concession contract although this was not foreseen in the invitation to tender and hence forbidden by law; the lack of a comparative economic analysis by the contracting authority; the procedure for selecting the project (law adopted by the parliament); concerns over the breach of public interest, rule of law principles and violation of free market competition (see here).
Affected sector
Construction & Urbanism, Public Contracting
Direct beneficiaries and related networks
A.N.K. SHPK and its current owner (Agim Kola), who is closely linked with the ruling Socialist Party
Direct victims
The Albanian state and its citizens, who will pay €256–300 million for the construction of 17.2-km road and concession tariff.
Other construction companies operating in this sector, which will be deprived of the benefits of the free market and competition
Socio-economic impact (on markets, sectors, etc)
This project has more than doubled in cost from the predicted initial plan of the state budget. In addition, the arrangement (PPP/concession) is not the most effective one, given that the state will also pay 5.5 per cent interest (in euros) for the use of A.N.K.’s capital and investment to build this road. Finally, the average cost per km of this road (approximately €15 million per km) is one of the highest in Europe and the second highest in Albania behind Tirana Outer Ring Road (€20 million per km). According to World Highways, the highest road construction costs in Europe are in Austria at approximately €12.9 million per km (see here).
Impact on rule of law
The unsolicited proposals and the bonus of up to 10 per cent, which used to be permissibly by law until September 2019, have been highly criticised by the European Commission in its reports on Albania and by international monetary institutions such as the World bank and the IMF. This provision of the law has seriously affected competition and the free market economy in Albania. Moreover, the costs will be borne by Albanian citizens in the form of higher taxes over the next decade or so. Contrary to legal provisions, as explained in the explanatory memoranda of the law, the Ministry of Infrastructure and Energy negotiated the content of the project that was submitted in accordance with the tender procedure although there was no legal basis for doing so (see here). The adoption of the law leaves no room for the prosecution to investigate this project.
Is there any corruption case that is linked to the tailor made law?
No
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