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Bos/Hrv/SrpShqip 23 Apr 14

Albania-Kosovo Highway Costs Soar To 2 Billion Euros

Cache of official documents detail for first time how lobbying, poor-planning, “uncompetitive tenders”, failure to set cost caps and “inflated” prices left Albanian and Kosovan taxpayers with a two billion euro bill for just 137km of road.

Petrit Collaku, Erjona Rusi, Besar Likmeta, Lawrence Marzouk BIRN Pristina, Tirana, London
Albania-Kosovo Highway during construction in 2009 | Photo by : Besar Likmeta

The ‘Patriotic Highway’ slices its way through one of the poorest and most remote corners of Europe, where many villagers still live on the breadline, struggling to make ends meet.

This four-lane, 137km stretch of asphalt connecting the Albanian and Kosovan capitals has drained in the region of two billion euros from the state coffers of both nations - diverting funds from other much-needed infrastructure projects, such as the building of schools, hospitals and minor roads, many of which remain unpaved.

Following a six-month investigation, BIRN is now publishing previously unreleased documents from Kosovo and Albania that detail the scale of mismanagement and spiralling costs that have so far sparked three investigations into alleged corruption, abuse of office and wrongdoing linked to the contract.

Built on the premise of creating wealth from increased trade and tourism, the final price tags for the road at least doubled in both countries from those initially quoted.

Trade between Albania and Kosovo has seen only a modest increase since the road opened last year, but it has not led to the queues of trucks commonly seen at other Balkan borders. Experts estimate the road is being used at just 10 per cent of its capacity.

On the other hand, construction firm Bechtel-Enka pocketed profits running into hundreds of millions of euros thanks in part, critics argue, to a contract “heavily weighted” in their favour, high pricing and tax rebates.

Fast-track tender

The contract to build the first stage of the highway - connecting Tirana with the Kosovo border - was awarded in 2006 in a fast-track procurement process, which the World Bank and others argued was uncompetitive and unlawful.

US construction giant Bechtel and its Turkish partner, Enka, won the contract to build a 60km mountainous section for 418 million euros.

The US Embassy helped override World Bank and IMF concerns over the handling of the Albanian tender process, arguing the road would boost the economies of both Kosovo and Albania.

In the end, costs escalated with Tirana eventually shelling out 950m euros for the road, according to a leaked email from the then Minister of Finance, Ridvan Bode.

The contract to build the Kosovo section was awarded in April 2010 to the same partnership, following lobbying by the then US ambassador to Kosovo, Christopher Dell.

Dell has since been hired by Bechtel as a country director in Africa, raising questions among observers about the probity of the deal.

A Bechtel spokeswoman Michael Michelle strongly denied any impropriety and insisted Dell had followed US State Department rules as soon as the company approached him with a potential job offer as he prepared to leave Kosovo, including recusing himself from any matters related to the firm.

But a senior diplomat, Andrea Capussela, who had been charged with supervising Kosovo’s economy, called for the State Department to review Dell’s support for the scheme in light of the former ambassador’s new job.

There is no suggestion Dell did not comply with US “revolving door” regulations. While there is a one-year “cooling off” period before former ambassadors can lobby the US government on behalf of a private firm, they are not prevented from taking a job in the private sector with a company they helped secure a contract for.

Costs in Kosovo escalated too after the government failed to heed its own legal advice and set a fixed price for the road. The cost rose from 400 million for 102km of highway to 838 millon euros for 77km.

Bechtel-Enka received more from the Kosovan public purse in 2011, 2012, and 2013 than any other ministry. At the same time, other infrastructure projects, including new schools, were put on hold.

BIRN has obtained key material gathered for the aborted prosecution of Lulzim Basha - the Albanian politician who signed the deal in Tirana - on charges of abuse of office related to the contract.

The documents reveal that Bechtel-Enka’s prices were known to be more than double that of local contractors, costing Albanian taxpayers an extra 191 million euros.

According to the prosecution papers, “all the prices submitted by the winning company are many times higher than the Albanian prices”. The figures were compiled by two state auditors who produced a 158-page report, until now unpublished, detailing problems with the highway contract.

The findings formed the basis of the prosecution’s case against Basha and two of his advisers, Andi Toma and Armand Telti. All denied any wrongdoing and the case was dropped in 2009 on a legal technicality.

Signing of the contract Front row: Mike Adams, president, Bechtel Civil; Fatmir Limaj, Kosovo Minister of Transport and Communications; Sinan Tara, Chairman, Enka. Back row: Christopher Dell, ex-U.S. Ambassador to Kosovo; Hasim Thaci, Kosovo Prime Minister; Metin Husrev Unler, Turkish Ambassador to Kosovo; Andrew Sparkes, British Ambassador to Kosovo.

Photo courtesy of Kosovo Ministry of Transport and Communications

‘No price limit, no plan’

The prosecution team argues that because the contract was signed off without an agreed cost limit or detailed construction plan, the price spiralled seemingly out of control.

Prosecutors also criticised the appointment of Ecorys, the Dutch consultancy firm hired to pick the winning bid, as “unlawful” because the firm’s role was announced before the council of ministers even approved the decision to appoint a consultant.

The fast-track tender process - in which four shortlisted firms were evaluated on their ability to do the job without having to provide a price - was described by prosecution investigators as contrary to national and international law.

Claims that Bechtel-Enka were given the contract despite the absence of an agreed construction plan or cost limits have also been made by Niko Naska, the only Albanian member of a five-man tender evaluation committee, in an exclusive interview with BIRN.

“My first question was: ‘Is there a project [plan], did anybody look at this carefully?’ But there was no project [plan] at all. How can you build something without a construction plan, especially such a big infrastructure project like that, that goes from 400m to almost one billion euros?

“How could I, an engineer with years of experience who has built power plants and ports, stoop to such a level and accept being a part of that tender?”

Naska told BIRN he was asked to take part in the evaluation with just one day’s notice, despite being unable to follow proceedings conducted in English. He quit after one day.

“They [the government] called me the night before telling me that I was chosen by Prime Minister Sali Berisha, who said a lot of good things about me … but I didn’t know anything about the tender so how could I be part of it?” he said.

He also said he had not been given access to any tender documents written in Albanian.

In the end, the four remaining members of the evaluation committee selected Bechtel-Enka and negotiations over a target price began.

The then transport minister Basha argued at the time that Bechtel-Enka was selected transparently and the fast-track method was needed as a year’s delay would cost 75 million euros – 60 million euros from the economic boost and 15 million euros in increased costs. No evidence was ever presented to justify these sums.

BIRN asked Basha, who is now leader of the opposition Democratic Party and mayor of Tirana, a series of questions related to the highway, but he refused to comment.

A US diplomatic cable, also published by Wikileaks in 2009, detailed the scale of poor logistical and financial planning.

According to the memo by an official at the US Embassy in Tirana, Bechtel had first estimated that seven million metric tonnes of earth would need to be excavated, that grew to 14 million when the contract was awarded in 2006 and stood at 32 million by April 2009 more than a year before the Albanian section of the highway was completed.

The cable noted that despite the cost increase, the road remained “very profitable for Bechtel”.

US smoothed way for Bechtel

INVESTIGATION FINDINGS – AT A GLANCE

•    Costs doubled from initial quotes costing Kosovan and Albanian taxpayers around two billion euros

•    Contracts in both countries were signed without set price limits or construction plans

•    A series of international organisations – including the World Bank and senior EU diplomats – advised Tirana and Pristina against signing the deals

•    Pristina signed despite warnings from its own legal adviser that the deal was “heavily weighted” in Bechtel-Enka’s favour and did not adhere to industry standard terms

•    Bechtel-Enka received more Kosovo government funds from 2011 to 2013 than any single ministry

•    The US ambassador who lobbied for Bechtel in Kosovo has since been hired by the firm

•    The only Albanian appointed to assess the highway bids resigned after just one day because he believed the tender process was flawed

•    Three investigations have so far been launched linked to the highway deal with the first, in Albania, dropped on a legal technicality

 

Bechtel-Enka’s proposal also drew sharp criticism from the World Bank and the International Monetary Fund, which eventually refused to back the project or help Tirana fund it.

In a diplomatic cable published by Wikileaks from 2006 entitled “Impediment to Bechtel’s bid to build key section of highway”, Marcie B. Ries, then US ambassador to Albania, said she would help the government overcome the World Bank’s objections as a new highway “would not only help Albania's trade, but Kosovo's as well”.

US involvement went beyond support from the embassy. Ries wrote that Basha had told her a former US homeland security secretary, Tom Ridge, was advising Tirana on the deal. Ridge had been brought in on a 40,000 dollar-a-month contract to advise the government on its bid for NATO membership and establish links with Washington DC.

According to the same memo, Orsalia Kalantopoulos, World Bank regional coordinator for South-East Europe, told the government in Tirana that she strongly opposed the four-lane project, that Bechtel’s selection was “non-competitive” and that the highway should be downgraded to two lanes to reduce costs.

Fresh claims of wrongdoing linked to the deal emerged two weeks ago in Albania, after Minister of Finance Shkelqim Cani announced a new investigation into the financing of the highway via a 250 million euro bank loan. 

Albania was not able to borrow from international financial institutions because both the World Bank and IMF had advised against the highway project. The country was forced to look to commercial banks, allegedly borrowing at above market rates.

This latest investigation is unrelated to the now-dropped prosecution of Basha and his advisers, which focused on the terms of the contract and soaring prices.

Socialist Party MP Erjon Brace, a long-term opponent of the Bechtel-Enka scheme, said his party did not oppose the construction of a new road to Kosovo, but the scheme was poorly planned and has left Albania’s economy in tatters.

“There was no tender, no plan at all and no price cap for it. Even the World Bank and IMF were against this kind of procedure, they said that the tender was carried out without the necessary funding being in place,” he says.

Brace called for the original case, dismissed on a legal technicality, into the terms of the contract to be reopened so the evidence can be tested in court. Despite regular stories in the Albanian press speculating on the case reopening, the Prosecutor General’s office told BIRN it had made no decision on the matter.

Kosovo costs doubled

Hasim Thaci, Kosovo Prime Minister, Atifete Jahjaga, President of Kosovo, Christopher Dell, ex-U.S. Ambassador to Kosovo on the highway Vermice-Merdar

Photo courtesy of www.president-ksgov.net

Criticism and concerns over the deal are mirrored in neighbouring Kosovo, where the cost of the highway also more than doubled from the initial price quoted by Bechtel-Enka.

The Kosovo section, already expensive at 400 million euros for 102 km, eventually spiralled to 820 million euros for 77 km, according to an unpublished report compiled by highway supervisors Hill International and released to BIRN under Freedom of Information laws.

Figures from the Ministry of Finance suggest Bechtel-Enka was paid 838 million euro, more than Hill International reports, while the government had to find a further 128 million euros to acquire privately owned land.

Capussela, the Italian diplomat tasked with supervising Kosovo’s economy after its 2008 declaration of independence, told BIRN the signing of the contract between Kosovo and Bechtel amounted to a “political crime”.

“Picture the number of hospitals and schools and text books and computers and more useful roads that could have been built with that money spent on the highway,” he said.

Kosovan construction firms say the prices quoted by the US-Turkish consortium, and published for the first time today by BIRN, are also “two or three times” those offered by local firms.

Haziz Rysha, director of one of Kosovo’s biggest road builders Eskavatori, pointed out that 125 mm diameter PVC ducts cost around four euro per metre in Kosovo - while Bechtel charged Pristina 29 euros per metre, more than seven times the local market price.

Another company director, who asked not to be named, added the only section of the highway built by local firms cost Pristina two million euros per kilometre, compared to the 11.4m euros per kilometre that Bechtel-Enka charged.

A spokeswoman for Bechtel said: “We leave it up to our customers to discuss the costs of their projects. However, it is important to note that both motorways used a design-build approach meaning that construction began before the designs were completed.”

US ignored EU concerns

Pieter Feith, former head of Kosovo's International Civilian Office
Photo courtesy: European Parlament

International diplomat Pieter Feith, tasked by the EU and the US with supervising Kosovo after its 2008 declaration of independence, told BIRN the US embassy and its ambassador, Christopher Dell, stopped him “from doing my job”.

Feith left Kosovo’s International Civilian Office (ICO) as it shut in 2012. He says that during his time in office, “Dell told me in very clear terms that I should not poke my nose into the Bechtel contract - that was none of my business and this was a commercial matter between the United States and Kosovo”.

Feith, who was also the EU’s highest representative in Kosovo, was worried the contract with Bechtel would wreck the young country’s fragile finances, and argued the money could be better spent on tackling Kosovo’s 45 per cent unemployment rate. 

“Information was withheld, and all of a sudden we were presented with a fait accompli of this contract being concluded and being a liability on the budget.”

Dell declined to be interviewed but has previously defended the highway selection process, claiming it was one of the most transparent in Kosovo’s history.

Pristina’s own legal advisers, UK firm Eversheds, urged the government not to sign up, arguing the contract was heavily weighted in favour of Bechtel-Enka.

The Evershed document, now published in full by BIRN for the first time, warned that signing the contract would be “extremely dangerous”.

The law firm identified numerous areas where the standard contract for major infrastructure projects - the Federation of Consulting Engineers’ Red Book - had been amended “in a completely one-sided way”.

It also argued that Bechtel had “simply ignored” the tender guidelines for a fixed price and suggested that the procurement process might have to be rerun. This advice was ignored.

Bechtel-Enka maintains its proposal did comply with government guidelines. The firm argues it saved the government hundreds of millions of euros by devising a new route for the road, avoiding costly tunnels. It added that the project would have “economic benefits [that] extend well beyond Kosovo”.

Eversheds’ advice was issued in January 2010 and while some changes were made before the final signing of the deal three months later, many of the controversial clauses were retained.

The Kosovo contract is now being investigated by prosecutors at the EU rule-of-law mission in Kosovo, EULEX. Sources close to the investigation say EULEX is scrutinising the government’s decision to sign the highway deal.

While the target of the inquiry has not been disclosed, it is believed to be focused on whether or not the contract damaged Kosovo’s economy. There is no evidence to suggest Bechtel, Enka or Dell are implicated in any of the current or past investigations.

Bechtel-Enka was also exempt from paying tens of millions of euros of Value Added Tax in both Albania and Kosovo.

Kosovo construction firm Eskavatori boss Rysha stressed that local firms are not afforded these tax breaks, which ensured Bechtel-Enka received a 113 million euro rebate in Kosovo alone. It is likely Bechtel-Enka received a similar figure in Albania.

Officials from the Prime Minister’s office and Ministry of Infrastructure in Pristina refused to answer questions about the scheme and its impact on the economy.

At the road’s opening ceremony in November 2013, President Atifete Jahjaga, described the road as “a national dream and is now a national reality”. Prime Minister Hashim Thaci said it would cut journey times by up to three-quarters and contribute to “our future economic and social growth”.

“The Highway Is Little Used”

As various institutions try to figure out how a 134 km stretch of motorway could end up costing so much, ordinary Kosovans and Albanians continue to suffer because funds were diverted to pay Bechtel-Enka.

While key players have bagged top jobs, and Bechtel-Enka have landed another huge infrastructure project – the 600 million euro Pristina to Skopje road – the highway has failed to deliver much in the way of economic benefits.

Despite the huge investment, trade between the two countries has not strengthened markedly.

According to Kosovo’s Agency of Statistics, 10.3 per cent of all Kosovo exports went to Albania in 2005, while the figure in 2011 had increased to just 10.8.

Official figures show that exports from Albania to Kosovo in 2005 accounted for only 1.6 per cent of Kosovo’s total imports. In 2011, the figure was 3.9 per cent.

“This road is working at just 10 per cent of its full capacity,” said Kosovo construction tycoon and politician Behgjet Pacolli. "Something has to change in our economic cooperation to make that road serve the country's economy.”

Even the man put in charge of managing the highway admits its take-up has been poor.

Lahudin Myrtaj, head of highway supervision within the Ministry of Infrastructure, said the new highway was the best in the Balkans, but that it would not be well used until it is connected to other regional routes.

“The highway is little used because it is mainly used by citizens going for summer vacations in Albania,” he said.

“When the highway is connected with the region and goes up to Istanbul, then we plan to install tolls because it will be used more by the business community.”

Until then, the road will remain in the eyes of many little more than a luxury Kosovo and Albania can ill afford.

This article was produced as part of a programme titled “A Paper Trail to Better Governance”, with funding from the Austrian Development Cooperation (ADC) and implemented by BIRN. The content does not reflect views and opinions of ADC.

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