Geri Kokalari: Sali Berisha the road of patriotic corruption
Posted: Mon Jul 20, 2009 4:55 pm
Geri Kokalari: Sali Berisha the road of "patriotic corruption"
Albania's "Big Dig"
by
Gary Q. Kokalari
There is no question that a modern highway system is crucial to Albania's future economic development. The need for such a highway was apparent to me during my first visit to Albania in 1994, but this conclusion didn't require any stroke of genius because the need for infrastructure development was as obvious as the bunkers that dotted the Albanian landscape. Ironically, if Sali Berisha had not plunged Albania into chaos in 1997, the road system that is currently under construction would have been built years ago and at a fraction of the heavy cost Albania is now paying.
Albania's Durres Morina highway will undoubtedly provide benefits over the long run, but it will also place a serious economic burden on Albanians in the short term because it has blown a gigantic hole in Albania’s budget. And the associated economic problems are a direct result of the gross misconduct and incompetence of Sali Berisha, a man whose track record for poor judgment proceeds him. At over $1.5 billion and still rising, the most obvious problem is that the cost to build the road has escalated to over three times the original estimate. And the costs will continue to pile up because, despite Berisha's fanfare, the project is far from complete.
I warned about the potential for excessive cost overruns at the project's early stages when it first became apparent that Berisha intended to proceed with awarding a no-bid contract to Bechtel. This American engineering company is known to be one of the most expensive in the world and is also well known for massive cost overruns on large scale civil projects, like Bechtel's scandalous “Big Dig” project in Boston. The people of Boston are very familiar with Bechtel because they watched their "big dig" grow from an original estimate of $2.6 billion to almost $15 billion. Of course Berisha didn't listen to my warnings, just like he ignored my warnings in 1996 when I wrote, "When, not if, these pyramid schemes collapse, it is highly possible that large scale civil unrest will ensue."
By taking this imprudent path to building the highway, and by placing his personal interests above those of Albanians, Berisha squandered hundreds of millions of dollars more than was necessary to build the road. If Berisha had not flushed this money down the drain, these funds could have been used in other sectors that are also crucial to Albania's forward progress, such as education and healthcare. So that it is clear, Bechtel was a company known to have relationships with the Bush administration, and at the time Berisha awarded the contract to Bechtel he was eager to accommodate Bush government officials so that he could satisfy his own selfish political and financial objectives. Bush is now gone from power, but the hundreds of millions of dollars in wasteful spending resulting from the no-bid Bechtel contract will continue to haunt Albanians for decades along with Berisha's pyramid schemes and the Gerdec tragedy.
To make matters worse, Berisha committed to Albania's version of the "big dig" before he had any clue about how he would pay for it. As a result, the Berisha government has been forced to enter agreements to borrow over $500 million at interest rates that would make a loan shark (fajdexhi?) blush with shame, and there is still the issue of the enormous hole in Albania's budget caused by the financial resources the road has sucked out of Albania. Had Berisha solicited bids through an international tender - as is standard practice around the world - in addition to saving money on the cost of construction, a contractor from another country could have provided a low cost loan through project financing subsidized by its home government. Instead, Albania will now be obligated to pay about $50 million a year to service the debt on loans that were required to fund Berisha's reckless spending.
For purposes of comparison, the New York State Thruway is a 1,030 km highway with annual debt service of $163 million or $158,000 per km. The Durres Morina highway system, at 170 km and with $50 million in debt service, will be about 1/8 the size of the New York State Thruway but will have an annual debt burden equivalent to almost one-third of New York’s highway, one of the largest in the U.S. This is equivalent to debt service of about $294,000 per km for Albania’s new highway - almost twice the $158,000 per km for the New York Thruway. This all assumes Albania will not borrow any more money, but this is a very big assumption given Albania’s enormous operating deficit and the probability that the cost of completing the road system will continue to escalate.
Just think, Berisha has already put Albania on the hook for $50 million a year to service loans for the road, and this is before we even consider the cost of administering and maintaining the road and paying operating expenses like electricity for highway lighting and salaries for the police who will patrol the road. As another comparison, the New York State Thruway had a 2008 annual budget for operations and maintenance of about $400 million, or $388,000 per km. Based on a length of about 170 km, if Albania's new road system required similar operating expenses it would amount to about $66 million a year. Some expenses in Albania, like salaries, will be much lower than those required to operate New York’s Thruway, while other costs will be just as high, but even if we assume that Albania can operate its highway for less than half the comparable expenses in New York, we are still talking about $30 million annually. If we add $30 million of operating expenses to the debt service of $50 million, this comes to a total of $80 million in total costs for just the first year of full operation.
How will Albania pay for this? One of the most obvious alternatives that comes to mind is that tolls will have to be imposed on all drivers who use the road. So my suggestion for those who thought they were going to get a free ride on this highway: stop dreaming. But tolls alone will not solve the problem.
If we assume Albania's population is about 3.5 million and that 1 out of every 10 Albanians owns a car, then this would imply there are about 350,000 cars in Albania, and this may be a high estimate. But if we assume there are 350,000 car owners and if Albania does impose tolls on the highway with an average toll of $1 per trip, this would require that every car owner in Albania would have to take more than 228 trips a year – an impossible scenario - to cover operating expenses of $80 million. Double the average toll to $2 per trip, and all Albanian car owners would have to take over 114 trips a year to cover the costs, still highly improbable. There are some New York state car owners who use the New York Thruway more than 200 times but there are many who never use it, and I'd be surprised to learn that the average New York car owner uses it even 20 times a year. Furthermore, there may be some variances with my estimates and you can play with the numbers all you want, but don't be fooled because any way you do the math the road building project has placed an enormous financial burden on Albania that cannot be ignored. In fact, if the matter is not addressed, it could bankrupt Albania. But this does not concern Berisha because, after all, he already bankrupted Albania once before in 1997.
So how will Albania resolve this looming financial disaster created by Sali Berisha, Lulzim Basha and Genc Ruli? Of course the tolls could be raised until they cover all costs of operation and debt service. But high tolls would be politically unpopular, and in any economic model there is a limit to how much prices can be raised before people seek alternatives or cut down usage, especially in a poor country like Albania. The government could always increase taxes, but this would be another politically unpopular option. Another possibility is to borrow more money, but this would have a direct corresponding negative impact on the cost of debt service, and it may not even be possible at this time given the difficulty Albania had in securing the last loan.
If there is a limit to the amount that can be charged for tolls and if it is not possible to borrow more money, there is a still another possibility, and it is one that Sali Berisha has been negotiating as part of a secret deal. And this calls for the privatization of the new highway, just like Berisha did with Albtelcom and ARMO. As the person who predicted the pyramid scheme chaos, and the one who warned about the New World Telecom scandal, the telecom interconnection fee abuse, and Fatmir Mediu's many watches and who also helped expose the illegal AEY arms deal, I am now making another prediction: if Berisha prevails in the upcoming elections he will sell Albania's new highway. And don't be surprised if the company that buys the road is set up by Argita Berisha, or if the intermediary for the deal is Damir Fazlic or if a silent partner in the deal is Sali Berisha.
To put this all in perspective, most, if not all, of the construction costs and loans I have discussed are a result of just the 60 km Rreshen-Kalimash segment of the road, so the picture is likely to get worse as the project proceeds to completion. And as long as Berisha is in power, despite his repeated lies, there will be no attempt at transparency. Any attempts by Ina Rama to uncover the truth about this deal by prosecuting Lulzim Basha have been blocked by Sali "Enver" Berisha in his blatant abuse of the rule of law.
Undoubtedly, there will be those who will dispute my estimates, and I will be the first to admit they may not be exact. Some will also argue that the benefits to Albania's economy will outweigh the costs, but this is something that remains to be seen. For the present, there can be no doubt that there is an immediate and acute burden for Albania's economy, and it was created because of Berisha's mismanagement and his wasteful spending. This all could have been avoided if Berisha had taken a rational approach, but this would have been too much to ask from the man who told Albanians their money was safe in Albania’s pyramid schemes. Furthermore, this Berisha created financial crisis cannot be solved by the type of corrupt, back room deals that have characterized the Berisha government. The solution will require a creative, forward looking financial plan and the type of vision for which Berisha and the hajdut who surround him are not capable.
Albania's "Big Dig"
by
Gary Q. Kokalari
There is no question that a modern highway system is crucial to Albania's future economic development. The need for such a highway was apparent to me during my first visit to Albania in 1994, but this conclusion didn't require any stroke of genius because the need for infrastructure development was as obvious as the bunkers that dotted the Albanian landscape. Ironically, if Sali Berisha had not plunged Albania into chaos in 1997, the road system that is currently under construction would have been built years ago and at a fraction of the heavy cost Albania is now paying.
Albania's Durres Morina highway will undoubtedly provide benefits over the long run, but it will also place a serious economic burden on Albanians in the short term because it has blown a gigantic hole in Albania’s budget. And the associated economic problems are a direct result of the gross misconduct and incompetence of Sali Berisha, a man whose track record for poor judgment proceeds him. At over $1.5 billion and still rising, the most obvious problem is that the cost to build the road has escalated to over three times the original estimate. And the costs will continue to pile up because, despite Berisha's fanfare, the project is far from complete.
I warned about the potential for excessive cost overruns at the project's early stages when it first became apparent that Berisha intended to proceed with awarding a no-bid contract to Bechtel. This American engineering company is known to be one of the most expensive in the world and is also well known for massive cost overruns on large scale civil projects, like Bechtel's scandalous “Big Dig” project in Boston. The people of Boston are very familiar with Bechtel because they watched their "big dig" grow from an original estimate of $2.6 billion to almost $15 billion. Of course Berisha didn't listen to my warnings, just like he ignored my warnings in 1996 when I wrote, "When, not if, these pyramid schemes collapse, it is highly possible that large scale civil unrest will ensue."
By taking this imprudent path to building the highway, and by placing his personal interests above those of Albanians, Berisha squandered hundreds of millions of dollars more than was necessary to build the road. If Berisha had not flushed this money down the drain, these funds could have been used in other sectors that are also crucial to Albania's forward progress, such as education and healthcare. So that it is clear, Bechtel was a company known to have relationships with the Bush administration, and at the time Berisha awarded the contract to Bechtel he was eager to accommodate Bush government officials so that he could satisfy his own selfish political and financial objectives. Bush is now gone from power, but the hundreds of millions of dollars in wasteful spending resulting from the no-bid Bechtel contract will continue to haunt Albanians for decades along with Berisha's pyramid schemes and the Gerdec tragedy.
To make matters worse, Berisha committed to Albania's version of the "big dig" before he had any clue about how he would pay for it. As a result, the Berisha government has been forced to enter agreements to borrow over $500 million at interest rates that would make a loan shark (fajdexhi?) blush with shame, and there is still the issue of the enormous hole in Albania's budget caused by the financial resources the road has sucked out of Albania. Had Berisha solicited bids through an international tender - as is standard practice around the world - in addition to saving money on the cost of construction, a contractor from another country could have provided a low cost loan through project financing subsidized by its home government. Instead, Albania will now be obligated to pay about $50 million a year to service the debt on loans that were required to fund Berisha's reckless spending.
For purposes of comparison, the New York State Thruway is a 1,030 km highway with annual debt service of $163 million or $158,000 per km. The Durres Morina highway system, at 170 km and with $50 million in debt service, will be about 1/8 the size of the New York State Thruway but will have an annual debt burden equivalent to almost one-third of New York’s highway, one of the largest in the U.S. This is equivalent to debt service of about $294,000 per km for Albania’s new highway - almost twice the $158,000 per km for the New York Thruway. This all assumes Albania will not borrow any more money, but this is a very big assumption given Albania’s enormous operating deficit and the probability that the cost of completing the road system will continue to escalate.
Just think, Berisha has already put Albania on the hook for $50 million a year to service loans for the road, and this is before we even consider the cost of administering and maintaining the road and paying operating expenses like electricity for highway lighting and salaries for the police who will patrol the road. As another comparison, the New York State Thruway had a 2008 annual budget for operations and maintenance of about $400 million, or $388,000 per km. Based on a length of about 170 km, if Albania's new road system required similar operating expenses it would amount to about $66 million a year. Some expenses in Albania, like salaries, will be much lower than those required to operate New York’s Thruway, while other costs will be just as high, but even if we assume that Albania can operate its highway for less than half the comparable expenses in New York, we are still talking about $30 million annually. If we add $30 million of operating expenses to the debt service of $50 million, this comes to a total of $80 million in total costs for just the first year of full operation.
How will Albania pay for this? One of the most obvious alternatives that comes to mind is that tolls will have to be imposed on all drivers who use the road. So my suggestion for those who thought they were going to get a free ride on this highway: stop dreaming. But tolls alone will not solve the problem.
If we assume Albania's population is about 3.5 million and that 1 out of every 10 Albanians owns a car, then this would imply there are about 350,000 cars in Albania, and this may be a high estimate. But if we assume there are 350,000 car owners and if Albania does impose tolls on the highway with an average toll of $1 per trip, this would require that every car owner in Albania would have to take more than 228 trips a year – an impossible scenario - to cover operating expenses of $80 million. Double the average toll to $2 per trip, and all Albanian car owners would have to take over 114 trips a year to cover the costs, still highly improbable. There are some New York state car owners who use the New York Thruway more than 200 times but there are many who never use it, and I'd be surprised to learn that the average New York car owner uses it even 20 times a year. Furthermore, there may be some variances with my estimates and you can play with the numbers all you want, but don't be fooled because any way you do the math the road building project has placed an enormous financial burden on Albania that cannot be ignored. In fact, if the matter is not addressed, it could bankrupt Albania. But this does not concern Berisha because, after all, he already bankrupted Albania once before in 1997.
So how will Albania resolve this looming financial disaster created by Sali Berisha, Lulzim Basha and Genc Ruli? Of course the tolls could be raised until they cover all costs of operation and debt service. But high tolls would be politically unpopular, and in any economic model there is a limit to how much prices can be raised before people seek alternatives or cut down usage, especially in a poor country like Albania. The government could always increase taxes, but this would be another politically unpopular option. Another possibility is to borrow more money, but this would have a direct corresponding negative impact on the cost of debt service, and it may not even be possible at this time given the difficulty Albania had in securing the last loan.
If there is a limit to the amount that can be charged for tolls and if it is not possible to borrow more money, there is a still another possibility, and it is one that Sali Berisha has been negotiating as part of a secret deal. And this calls for the privatization of the new highway, just like Berisha did with Albtelcom and ARMO. As the person who predicted the pyramid scheme chaos, and the one who warned about the New World Telecom scandal, the telecom interconnection fee abuse, and Fatmir Mediu's many watches and who also helped expose the illegal AEY arms deal, I am now making another prediction: if Berisha prevails in the upcoming elections he will sell Albania's new highway. And don't be surprised if the company that buys the road is set up by Argita Berisha, or if the intermediary for the deal is Damir Fazlic or if a silent partner in the deal is Sali Berisha.
To put this all in perspective, most, if not all, of the construction costs and loans I have discussed are a result of just the 60 km Rreshen-Kalimash segment of the road, so the picture is likely to get worse as the project proceeds to completion. And as long as Berisha is in power, despite his repeated lies, there will be no attempt at transparency. Any attempts by Ina Rama to uncover the truth about this deal by prosecuting Lulzim Basha have been blocked by Sali "Enver" Berisha in his blatant abuse of the rule of law.
Undoubtedly, there will be those who will dispute my estimates, and I will be the first to admit they may not be exact. Some will also argue that the benefits to Albania's economy will outweigh the costs, but this is something that remains to be seen. For the present, there can be no doubt that there is an immediate and acute burden for Albania's economy, and it was created because of Berisha's mismanagement and his wasteful spending. This all could have been avoided if Berisha had taken a rational approach, but this would have been too much to ask from the man who told Albanians their money was safe in Albania’s pyramid schemes. Furthermore, this Berisha created financial crisis cannot be solved by the type of corrupt, back room deals that have characterized the Berisha government. The solution will require a creative, forward looking financial plan and the type of vision for which Berisha and the hajdut who surround him are not capable.