World Bank Country Manager in Albania Tahseen Sayed on Public–Private Partnerships in Albania

Dear Minister Ahmetaj, Minister of Economic Development, Trade & Entrepreneurship and Tourism Development; Distinguished Participants, Ladies and Gentlemen 

I am delighted to be here with you at this joint Government/World Bank Group Workshop on PPPs. This is an excellent opportunity to exchange ideas and deliberate on the necessary ingredients for successful public private partnerships.

Before I say a few words on PPPs in relation to this workshop, let me share the emerging direction of World Bank Group’s upcoming country strategy which will guide our engagement in Albania during the coming 4-5 years. As several of you know, we embarked on a Systematic country Diagnostics for Albania which addresses the question of how to accelerate equitable growth in a sustainable manner, thereby achieving progress in reducing poverty and boosting shared prosperity. In doing so, the Diagnostics identified the top priorities critical for Albania’s sustainable and equitable growth.

One of the top five priorities emerging from this Diagnostics pertains to establishing a high quality business environment. The SCD empirically demonstrates serious shortcomings in the business environment by global standards, notwithstanding some recent and notable progress – most visible through the Doing Business report. Central constraints include a heavy regulatory burden, inadequate framework for private investment (including Foreign Direct Investments (FDI), high informality, property rights issues, weak trade logistics and facilitation, and inadequate corporate governance. Given the central role and contribution of private sector in economic growth, and the top priority Government has assigned to it, the WBG will engage more deeply in this area and our new strategy will support Albania’s efforts towards creating the right conditions for accelerated private sector growth. This will be one of the three pillars of our new Country Partnership Framework. 

WBG engagement reflects not only our global comparative advantage in this area (most visible through our Doing Business Report) but also successful engagement in neighboring Balkan countries. Our engagement exploits the complementarity of IBRD and IFC, building on an ongoing IFC advisory engagement. It brings WBG expertise in assisting the Government to pursue legal and regulatory reforms aimed at improving the business environment and investment climate. We are pleased that the Ministry of Economic Development has a leadership role in this cross-cutting area. We see it as a strong champion and focal point for deepening reform in this area. 

We will support Government in accelerating private sector growth through policy, technical and advisory work such as being done under this workshop and through World Bank financing to support Albania in areas such Competitiveness and Jobs, and development of sustainable tourism. We will also work with Government in its legal and regulatory reforms to address the major constraints to private sector growth. At the same time, we intend to ramp up IBRD engagement on addressing infrastructure constraints – mainly in energy and transport sectors. 

Today’s event on PPPs needs to be viewed in the broader context of this World Bank Group engagement.

PPPs offer the private sector the opportunity to engage in areas which have traditionally been seen as part of public sector domain. These areas can benefit from the private sector’s capacity to innovate, leading to an increased efficiency and in offering a better value for money. PPPs have been successfully used in a number of OECD countries and in Central and Eastern Europe. While each country’s story is unique, there are some lessons which can be drawn for Albania to outline the principles for well-designed PPPs:

Albania is a country with a huge economic potential, due to its demographics, geographic location and natural endowments. Public – Private Partnerships can serve as an effective instrument to bring private sector investment and for using private sector efficiency to deliver better results. They are often seen as benefiting both public and private sectors – the reasoning is that both sector share specific qualities and if those qualities are combined, they lead to better results. And risk sharing is a major consideration in combining these qualities. Typically there is contractualization of risks in a very precise manner to attract private sector financing.

The process requires:

(i)An ability to reorganize sectors around such risks – by itself a complicated process requiring specialized expertise which public sector typically needs to develop; 

(ii) Adequate development time : a key lesson from global experience is that a badly prepared PPP rarely succeeds ( as it does not attract private sector interest ) and some patience is needed as preparing a PPP takes time – by some reckoning two years or longer (from concept to start of construction);

(iii) A fit for purpose environment from the legal perspective ( such as PPP law/ PPP institutions), an overall investment climate attractive to investors , an ability to attract long term bank financing , and an ability for specific sectors to be organized in such a way that private sector investment can happen;

(iv) Careful focus on sectors -- most PPP takes place in infrastructure sectors (such as energy transport, water and sanitation, telecom) and to a lesser extent in what are generally called soft sectors ( such as health).

(v) Attracting investors is likely to require a portfolio approach (a pipeline of projects is more attractive to investors). Smaller countries may have limited projects to develop. Right screening for projects is important, with a clear understanding of which project should be undertaken as PPP or not.

Underlying all this is the necessity of maintaining a transparent management of the procurement process.

Finally, I would like to say a few words on fiscal risks. Selecting a PPP versus a traditional public investment needs to be based on a cost-benefit inquiry and value-for-money comparisons. Experience shows that the government could indeed encounter larger fiscal costs with a poorly designed PPP, especially those related to resorting to guarantees to secure private financing or contract renegotiations. Guarantees are a crucial element in negotiating a PPP. They are necessary to hedge the private sector from risks which cannot be predicted such as exchange rate risks. However, at times guarantees may not be scrutinized in the same detail as a traditional public expenditure is during a budget process. Hence, Government needs to carefully examine the degree of risk transfer related to the PPP projects and to be mindful of potential contingent liabilities arising from them. In Albania’s case greater fiscal transparency and proper disclosure of contingent obligations is particularly important as fiscal consolidation is a top priority of the Government.

Let me wish you a very successful workshop leading to productive outcomes. I would like to thank the Government and WBG teams who have worked very hard to organize this event.