The government “puts up for sale” the Investment Corporation. After spending 38 million euros on it, it failed realize any projects

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  • The government is giving up on the Albanian Investment Corporation, after wasting considerable funds for two years in a row. The Ministry of Finance wants to give up ownership as well, as it considers it an institution with losses and no productivity. Currently, the public super company manages 38 million euros without any project, but, nevertheless, it spent 350 thousand euros on the salaries and fees of 5 employees, which it reports in the organizational chart.

    Author: Anxhelo Haruni

    Four years after not presenting any project, the Ministry of Finance is looking to “sell” the Albanian Investment Corporation. The draft law, published on March 20 on the website of the Ministry of Finance, sees this institution as a burden, which has burdened the budget with high salaries and operating costs.

    In the new conditions created, the Ministry of Finance seeks to withdraw legally and financially from the Albanian Investment Corporation and in the relation accompanying this draft law, the Ministry of Finance delegates ownership to the Council of Ministers.

    “The phrase “Ministry responsible for the economy” should be replaced with “representative of the owner”. This right belongs to the owner to authorize a domestic or foreign public entity as his representative, in accordance with the object of activity that the respective entity exercises”, quotes the relation that accompanies this draft.

    The change seems a bit of a surprise, when the Ministry of Finance itself answered a few days ago to Investigative Network Albania that more trust was needed in the Corporation, since as a new institution it needed budgetary support and time.

    “The first projects will be finalized in 2023”, – said the Ministry of Finance, just a week before publishing the new draft.

    The corporation will also be forced to dissolve the supervisory board, as well as seek funds to survive, since the Ministry of Finance refuses to support it with a budget. After analyzing the company’s financial balances, the Ministry considers it unprofitable.

    The former Minister of Economy, Zef Preçi, sees these changes only within the time frame of one week as an attempt to pass the next failure in silence.

    “What is happening now, when the government wants to make an elegant exit from the situation it has created, is something expected and not at all surprising. And not only to disconnect from the Corporation, but to give up the initiative itself, to consider it one of the many failures”, Preçi declares for INA MEDIA.

    The Albanian Investment Corporation would have been “forgotten” completely, if the government had not made two large payments to its account at the beginning of this year. Although at the same time the Ministry of Finance was working to cut the funds, at the end of last year, through changes in the state budget, the capital of this company increased by another 2.12 billion ALL. The budget increase came at a time when the company had not presented any projects.

    Physical payments were made during the month of January 2023, bringing the total budget of the Corporation to 4.3 billion ALL or 38 million euros.

    Created in 2019 with the aim of designing projects that bring money to sectors with development potential, four years later the Albanian Investment Corporation still has no concrete project ready and no list of registered properties.

    Although the International Monetary Fund criticized the Albanian government at the time for the fiscal risks that the Investment Corporation could bring, because it is free to take debts and loans, the Ministry of Finance saw the expansion of the capital of this corporation as a strategy to increase reliability to partners.

    "The Albanian Investment Corporation (AIC), like any other corporation in the private sector, needs to have adequate capital to prepare and implement investment projects, as well as to instill confidence in partners", argued the Ministry of Finance in a written answer to Investigative Network Albania.

    While it quietly administers about 38 million euros in its bank account, for experts the funds that go to the Corporation are unjustified, especially in the conditions of lack of transparency.

    "The agency, when seeking funding, must have a business plan. We want to know who the partners are. Where will this public money go, these 38 million euros? Are they more efficient, if they are used through this agency or should they be used through public procurement by the line ministries themselves?", notes the economy expert, Selami Xhepa.


    No list of state properties

    Amid the clashes over a mega-corruption affair, the Albanian Investment Corporation was created with the promise of waking up dormant, state-owned properties. This would be accomplished through the ownership of land and state buildings in degradation, to then turn them into profitable investments through financing with private co-sharers or 100% with the company's funds.

    The list of these potential properties was persistently requested by the opposition MPs during the discussion in the committees, while the representatives of the Ministry of Finance at the time stated that it would be available very soon. However, this inventory does not exist even today, 4 years later.

    Ermal Frashëri, the Executive Director of this company, declares for INA MEDIA that the delays have come due to the complexity of the process. He insists on explaining that it is about properties that are currently a cost to the state, but that they are thinking of monetizing.

    "We do not have a preliminary list, it is rather a dynamic and interactive process to identify assets and develop investment projects for them", says Ermal Frashëri for INA MEDIA.

    "In the case of AIC, the aim is to identify assets, for which investment projects can be created, to revitalize them and create an added value for them. So, we are talking about assets, which are currently a cost to the state, but which we think may have the potential to be developed ", explained the head of the Investment Corporation, just one month before the publication of the draft law that MFE wants to give up this institution.

    Despite the fact that there is still no potential list of these properties, Frashëri is optimistic that during this year the first investments of this corporation will begin to materialize. This, after they have identified 8 potential development projects, but which have not yet been made public.

    "Some of them are in the structuring phase and some others are more advanced and are expected to be ready for implementation within the year 2023, if no obstacles or delays are encountered", says Frashëri optimistically.

    "Consequently, it is expected that during 2023, as well as during the following 2-3 years, the first investments of AIC will materialize, mobilizing private capital as well", says the head of the Corporation to INA MEDIA.

    In the situation where the Corporation does not yet have any concrete project, experts are unclear as to why it needs so much money.

    "This capital does not even make sense financially, because you can lock 38 million euros in the bank, while only the interest covers the operating costs", says Rezart Prifti, lecturer at the Faculty of Economics at the University of Tirana.

    "There is no need to have a preliminary budget, but the project must be announced, advertising it to foreign investors. Then the call is opened, the costs are estimated and finally it goes to the Assembly to approve the budget that is needed based on them. The institution only needs an operating budget for its needs", further argues Prifti.

    According to the Corporation, priority will be given to renewable energy generation projects, industry, tech-parks and logistics, but in the absence of a list of properties or projects, which can be publicly advertised to all interested foreign companies, experts are skeptical about what the Corporation can accomplish.

    "I continue to believe that the efficiency of this institution has to be minimalist. I see it more for the cost that we are paying for the creation of an institution, the usefulness of which will be problematic or will never materialize", explains Selami Xhepa.

    Looking at the path the Albanian economy is taking and the context of our country, experts have warned that this model will not succeed.

    "I doubt that this Corporation will have a successful project. The Albanian context has not been taken into consideration. Models that work in one country, may not work elsewhere", says Prifti.

    On the other hand, the Executive Director of the Albanian Investment Corporation, Ermal Frashëri, says that this skepticism does not bother him, but the unjust, political attacks have damaged the "reputation" of the Corporation.

    "On the one hand, it is normal and to some extent accepted that for a new institution that is established, the ecosystem needs time to adapt to innovation. On the other hand, in the case of AIC, unfortunately there was an unfair and uninformed attack at the stage of the approval of the law in Parliament", says Ermal Frashëri.

    "This has made a part of the focus of our work to be on explaining and clarifying the role of AIC, examples with sister organizations in other countries, to mitigate the impact that political attacks on AIC have had on the public and partners. Therefore, we feel the pressure and we are very aware of the context in which we find ourselves", he concludes.

    In anticipation of these transformative projects, the properties of the Albanian public have continued to degrade during these four years, while the government seems to have forgotten the company that would pulverize them, although it persistently requested its creation.

    Debate has also been caused by the power given to this corporation for the administration of coveted state properties. According to the statements of the socialist deputy Eduard Shalsi, during the plenary session for the approval of the law, the concept for the Corporation was born after the failed negotiation with a consortium of Turkish companies for the construction of the Vlora airport. The argument was that there were hundreds of proposals from prestigious companies over the years, rejected, because the state did not have the legal framework to enter into partnership with them except for rent or 1-euro contracts.

    However, this reasoning does not hold either, creating an overlap of agencies that have undertaken the revitalization of the property. Since 2018, the Air Albania airline has been operating as a joint-venture (association of operators), with the participation of the state through Albcontrol, which has contributed with properties. On the other hand, the Law on Strategic Investments of 2015 allows not only the granting of state properties to foreign and Albanian investors, but also enables the expropriation of private individuals, if the land is a condition for the project.

    "The first and basic form is privatization and this is the normal way in any market economy. The second way is long-term leasing, a way of doing business, which has been successful in all those cases where there was interest; even with a concession, where we have an agency for handling concessions, which is assumed to have the appropriate expertise to negotiate contracts of this nature. Why do other additional agencies need to be created to carry out an operation that can be carried out quite easily through the institutional system we have?", asks expert Selami Xhepa.


    No initiative, lots of expense

    Although officially registered as a joint stock company on July 15, 2020, according to Frashëri, the Corporation became operational only one year later, in July 2021. During this period, despite the limited activity, this company has had increasing expenses.

    With a minimalist administration, with only 5 employees stated in the organizational chart, this corporation has actually spent around 350 thousand euros on salaries and fees for its manager and board members.

    In the first year of operation, only bank commissions were paid in the amount of 5,850 new leks (50 euros), but the expenditure curve increased significantly in 2021, with 6 months of activity the Corporation spent 19.4 million ALL or almost 170 thousand euros. A very important one, considering that the joint stock company had 4 employees in 2021, as stated in the audit report.

    Most of these expenses, about 9 million ALL, went to fees for the 4 non-executive members or about 375 thousand new ALL per month for each. More specifically, one of them is the Deputy Minister of Finance, Adelina Xhamati, while the other is Majlinda Dhuka, Minister of State and chief negotiator in the EU membership negotiations process.

    Arlind Gjokutaj, the former Secretary General of the Ministry of Finance, who was arrested a few months ago for corruption and then released, was dismissed from the position of member of the Supervisory Council at the end of February 2023. In his place Mimoza Selmani was appointed, while the two foreign members are Ellis Jesus Juan, a financial consultant, specialized in public-private partnerships, and David William Kennedy, a well-known international law lawyer from Harvard Law School.

    Approximately ALL 7.4 million were spent on salaries and contributions for 4 employees, while ALL 1.6 million went to travel and accommodation for foreign members visiting Albania.

    These salary expenses are considered very high and unnecessary even by the Ministry of Finance itself. In the proposal he has made for changing the law on the Corporation, it is revealed that the fat salaries have become a "bone of contention" between the ministry as the owner and the company's managers.

    "The Ministry of Finance and Economy in the capacity of the General Assembly, as the highest governing body of a commercial company, has asked the company to make changes in the salaries of the organizational structure, in order to unify with the relevant positions and the level of salaries with companies of similar (joint-stock company KESH, OSHEE). The request of the Assembly was not taken into consideration, with the argument that the determination of salaries is not the competence of the Assembly", is written in the relation that accompanies the draft law.

    For the economy expert, Zef Preçi, the responsibility lies with the government itself, which has created such a pattern of irresponsible and inefficient spending.

    "It is an effort for the Ministry of Finance to increase the institutional distance, that is, to avoid talk, but it should have been more direct. A company that has no activity does not have to have policies for high salaries and boards, when it was this majority that criticized the previous administrations for spending funds in this form", argues Preçi for INA MEDIA.

    The financial statements for the year 2022 are not yet available, but it can be seen from the public procurements that the Corporation has made during the past year, that there is a significant increase in operational expenses. A total of 8.8 million ALL was spent on the 18 signed contracts, where furniture and office equipment took the main weight.

    In total, during a year and a half of operation, it is calculated that the losses of the company are at least 350 thousand euros, while the income on the other hand stands at zero ALL. According to the head of the institution, these should not be seen as expenses of a private company, but as the costs of a job that is being done for the benefit of the public.

    "AIC, like any other corporation in the private sector, needs to have adequate capital to prepare and implement investment projects", says Frashëri.

    "At the end of the day, AIC is the property of the state and was established in order to maximize public inputs, which are oriented towards the implementation of investment projects. So, both the state and the public can see the corporation as an expression of their ownership", Frashëri declares.

    In the same line, asked by INA MEDIA, the Ministry of Finance and Economy justifies these high expenses, with the fact that the institution was newly created.

    "We must emphasize the fact that AIC is an organization that was established from the beginning, so it did not have its own, inherited basic infrastructure", says MFE to INA MEDIA.

    But, just weeks later, the ministry completely changed its attitude, stating that society must be transformed, to find the opportunity and the way to be self-financed. MFE even goes further, asking to remove the possibility for the Corporation to benefit again in the future from public funds and completely dissolving the Advisory Board, as an unnecessary structure.


    Waiting for the first projects

    The Ministry of Finance, which currently still owns 100% of the Corporation's shares, does not have a plan for when the company will become profitable or what the profit margin will be.

    According to the Ministry of Finance, we have to wait at least 3 more years to see how the market will react to these investments. Only then will we be able to have a clearer picture, thus making it possible to calculate the profit.

    "It cannot be claimed, from the complex projects it intends to develop, to make a profit in the first year of operation. It is expected that during the year 2023, as well as during the following 2-3 years, some of these business models will be finalized, mobilizing private capital, which will show us the corresponding returns on investments", - the Ministry tells INA MEDIA of Finance, just a few days before the new draft was published.

    The areas of interest for these investments of the Corporation include tourism, real estate, logistics, agriculture and free economic zones, with the ambition to set up tourist sites, marinas and real estate projects with economic impact.

    Experts are also skeptical about the areas where this corporation promises to "put its hands in" in order to revive them. For them, the focus should be on revitalizing poor areas and on projects that provide added value to the economy.

    "Tourism is a competitive advantage in Albania, it is a sector that sells itself. The state intervenes where there is a need. Even real estate does not prove anything, investing there. It is the simplest sector. They should focus on agriculture, energy parks, production, technology", suggests Rezart Prifti.

    For Selami Xhepa, the prioritization of these fields, which are flourishing on their own, shows that the Corporation's projects will not make a difference. Solving ownership issues would make a real difference.

    "If the ownership issues on the Albanian coast are finally clarified, I am sure that very important international operators are ready to come and invest. It is one of the sectors with great potential for the future, which has an extremely high rate of return on investment and there is no logic for us to invest public money in projects of this nature", argues Xhepa.

    Ky shkrim është pjesë e projektit që mbështetet financiarisht nga Zyra e Mardhënieve me Publikun e Ambasadës së SH.B.A. në Tiranë. Opinionet, gjetjet, konkluzionet dhe rekomandimet e shprehura janë te autor-it/ve dhe nuk përfaqesojnë domosdoshmërisht ato të Departamentit të Shtetit. / This article is part of a project that is financially supported by the Public Relations Office of the US Embassy in Tirana. The opinions, findings, conclusions, and recommendations expressed are those of the author(s) and do not necessarily represent those of the Department of State.