Getting service delivery right in Albania through effective PPP monitoring

Albania has one of the largest infrastructure gaps in the Western Balkan region. Yet, high public debt and limited project management capacity in the public sector have created a need for looking beyond traditional means to provide society with infrastructure. In the last two decades, successive Albanian governments have increasingly resorted to PPPs as the most feasible way to build roads, energy infrastructure, hospitals and schools among other infrastructure.

PPPs offer many benefits, including crowding-in private sector finance and expertise, while allocating risks to the party best equipped to handle them. Currently, Albania boasts a portfolio of over 200 PPPs, 186 in energy  with the rest in transport, health, environment and agriculture. This portfolio represents investments that exceed 30 percent of GDP half of which is actually foreign direct investment in the energy sector.

In a context of constrained fiscal space and a rule that caps the stock of PPP fiscal commitments at 5 percent of the general government revenues, PPPs represent many benefits including the allocation of risk to the party best equipped to handle it. However, the growing PPP portfolio in Albania has given rise to the issue of the potential fiscal risks from PPP contracts. It is therefore vital that Albania continue to bolster its PPP management framework. The objective of a strong monitoring and disclosure framework for PPPs is, precisely, to address fiscal risks and ensure value-for-money. 

We want to meet several objectives:

• Better management of fiscal risks – a centralized framework gives a bird’s-eye view to monitor aggregate PPP budget commitments and contingent liabilities across government contracting authorities, ensuring that new PPPs remain consistent with overall fiscal sustainability.
   
• Timely intervention in underperforming projects – a standardized monitoring framework ensures that contracting authorities systematically review the performance of their PPPs and that they intervene quickly in case of underperformance.
   
• Learning from successes and failures – monitoring enables parties to learn what works and what doesn’t across the government portfolio, strengthening the quality of future PPP designs.
   
• Increasing government accountability and value-for-money – government becomes more accountable to ensure that PPPs meet value-for-money targets.
   
• Strengthening market confidence – transparency allows markets to more accurately assess the fiscal sustainability of the government’s PPP portfolio, strengthening investor confidence.

In 2019, recognizing the importance of PPP monitoring, the government of Albania, with technical assistance from the World Bank’s Macroeconomics, Trade & Investment and the Infrastructure Finance, PPPs & Guarantees practices, has therefore designed a new comprehensive PPP monitoring framework.

Beginning with the 2019 budget execution instruction, contracting authorities across government are required to submit to the Ministry of Finance and Economy regular and systematic information on the current and expected future performance of their PPPs. PPP risk analysis follows the framework set out by the World Bank-IMF PPP Fiscal Risk Assessment Model (PFRAM). The Ministry of Finance and Economy will use these regular submissions to publish a detailed annual report on the performance of Albania’s PPPs. This report will outline not only the general performance of the portfolio, but also do deep-dives on the performance of the most strategic infrastructure projects, including their efficacy at service delivery—as well as any potential risks.

With the establishment of this monitoring framework, Albania is joining a select group of countries that have taken the crucial step to develop a systematic approach to manage PPPs.  As is evidenced by the table below, the frequency, institutional arrangements, capacity, and protocols needed to implement such a framework vary from country to country, reflecting the local legislative, political, and institutional context. Nonetheless, all approaches reflect the fundamental insight that a formal monitoring framework is an important step towards managing fiscal risks from PPPs and ensuring that projects deliver value-for-money for the public. 

   Source: Technical Assistance Recommendations on PPP Monitoring Framework for the Government of Albania.

Where does the government of Albania go from here? Its PPP monitoring and disclosure framework will gradually improve over the coming years, as technical staff gain more hands-on experience in monitoring PPPs, monitoring procedures are further anchored in the regular operations of government, and the framework is further fine-tuned to reflect lessons learned. The evolution of this process towards more transparency and accountability will include continuing to advise the government on the next phase of disclosure, which would include a platform widely available to the public.

Do you have experience to share about PPP disclosure frameworks or want additional information? Feel free to reach out in the comments section.

Technical assistance has been financed through a SAFE Trust Fund supported by the EU and the Swiss Confederation.

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