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DUKAGJINI ROAD Highway Or Existing Road Extension? HIGHWAY OR EXISTING ROAD EXTENSION? DUKAGJINI ROAD Highway or Existing Road Extension? 1 FEBRUARY, 2020 DUKAGJINI ROAD HIGHWAY OR EXISTING ROAD EXTENSION? DUKAGJINI ROAD Highway or Existing Road Extension? FEBRUARY, 2020 2 3 DUKAGJINI ROAD HIGHWAY OR EXISTING ROAD EXTENSION? SUMMARY 1. Executive Summary 7 2. Investments in road infrastructure, a way to disguise the lack of concrete plans for boosting employment and economic development? 9 3. Investment Planning Process and Strategic Priorities - From an Existing Road Reconstruction Project into Highway Construction? 11 4. Are Highways Bringing Benefits? - Cost and Benefit Analysis, Arben Xhaferi Highway Case 15 5. Opportunity Cost of Dukagjini Highway Investment 17 Conclusions 18 COPYRIGHT © 2020. Kosova Democratic Institute (KDI). Instituti Demokratik i Kosovës i ka të gjitha të drejtat të rezervuara dhe asnjë pjesë e këtij botimi nuk lejohet të riprodhohet ose të transmetohen në çfarëdo forme, mekanike apo elektronike, përfshirë fotokopjimin ose çdo sistem tjetër të ruajtjes dhe nxjerrjes së materialeve, pa lejen me shkrim të botuesit. Publikimi mund të riprodhohet ose të transmetohet vetëm nëse përdoret për qëllime jokomerciale. Kurdo dhe kushdo që përdor citate a materiale të ndryshme të këtij botimi, është i obliguar ta bëjë të qartë burimin nga do t’i ketë marrë ato citate ose materialeve që përdoren. Për çdo vlerësim, vërejtje, kritikë apo sugjerim, luteni të na kontaktoni përmes mundësive të ofruara më poshtë: Adresa: Rr. Bajram Kelmendi, Nr. 45, 10 000, Prishtinë, Kosovë. Tel.: +383 (0)38 248 038 E-mail: [email protected] Ueb: www.kdi-kosova.org Publikimi i këtij raporti është bërë i mundur me përkrahjen e Ambasadës Britanike në Kosovë. Opinionet, të gjeturat dhe rekomandimet e shprehura në këtë raport janë përgjegjësi e KDI-së dhe jo domosdoshmërisht paraqesin qëndrimet e donatorit. 4 5 DUKAGJINI ROAD HIGHWAY OR EXISTING ROAD EXTENSION? SKRAĆENICE 1. EXECUTIVE SUMMARY BDP Bruto Domaći Proizvod Since the declaration of independence in 2008, capital in- which could boost economic growth and reduce poverty.3 vestments have accounted for a high share in the state Investments in road infrastructure, in addition to encum- KDI Kosovski Demokratski Institut budget and Gross Domestic Product (GDP). Since 2008, bering the Kosovo budget for years, have been accompa- the annual capital investment budget has accounted for nied by poor planning, misuse, and corruption. 9% of GDP, which is higher than in other countries of the MI Ministarstvo Infrastrukture region. In addition, infrastructure capital expenditures During 2018, the Government of Kosovo decided to es- have accounted for 35% of total public expenditures with tablish an Inter-Ministerial Steering Committee for the an implementation rate of 90%. Nonetheless, in recent development of the “Istog-Peja-Deçan-Gjakova-Prizren 4 NRS Nacionalna Razvojna Strategija years, spending on highway construction in Kosovo has Highway” project, with an anticipated cost of around EUR absorbed the bulk of capital budget. For almost the entire 1 billion or approximately 50% of the 2019 annual state post-independence period, public capital expenditures budget. Following this decision, the Ministry of Infrastruc- PUŽS Procena Uticaja na Životnu Sredinu have been dominated by the construction of Route 7, con- ture had awarded the contract to the economic operator necting Prishtina to the border with Albania (at a cost of consortium Infraplus and Infratek, where together with 20% of GDP), and Route 6, connecting Prishtina to the bor- the annex contract, the contract cost for the concept and 1 SNEV Sadašnja Neto Ekonomska Vrednost der with Macedonia. implementation design for the highway had reached EUR All of Kosovo’s governments, without any proper econom- 1.14 million. The commitment of funds for this tender was ic analysis, have pursued billions of investments in road made from the budget line provided in the 2018 Budget for SNFV Sadašnja Neto Finansijska Vrednost infrastructure, which, despite the good intentions, did not the Rehabilitation of Istog-Peja-Deçan-Gjakova Regional produce the proclaimed effects. Only the construction of Road5, although the funds were to be spent on a project two highways (Route 7 and Route 6) at 144 kilometers, has other than what was provided in the budget. SOR Srednjoročni Okvir Rashoda incurred costs to Kosovo’s budget to the tune of 1.7 billion, For the Highway track, there were three possible options a figure close to the state budget for 20172. On average, offered by this company for the Inter-Ministerial Commit- just one kilometer of highway has cost the Kosovo budget tee to determine the final concept design, which was used EUR 12 million. to develop the implementation design. According to the re- Such predilections have produced adverse effects on the port prepared by the company engaged for designing the delivery of basic services to citizens, as these expendi- project, the estimated cost for highway construction was tures risk squeezing out funds for investments in priori- approximately EUR 590 million6, while together with the ty areas, i.e. health, education, and other capital projects, expropriation costs, the total cost was expected to reach 1 IMF, Republic of Kosovo, 2018 2 https://mf.rks-gov.net/desk/inc/media/DC67BF47-157C-4802-9837-976CBBDE9F5B.pdf 3 IMF, Republic of Kosovo, Public Investment Management Assessment, IMF, 2016 4 Decision of the Government of Kosovo, dated 13.02.2019 5 Request for Goods and Services, Ministry of Infrastructure, Commitment No. 2015-38338 6 Concept Design for the Construction of Istog-Peja-Deçan-Gjakova-Prizren Highway 6 7 DUKAGJINI ROAD HIGHWAY OR EXISTING ROAD EXTENSION? EUR 1 billion7. Although the project was scheduled to start cost-benefit analysis and identified as a priority in state in the fall of 2019 and be completed within four years, it strategic documents. is yet to begin. The research methodology is based on a review of official 2. Investments in road infrastruc- Prior to awarding the contract for designing the Dukagjini documents establishing the decision-making framework Highway Implementation Project, the Government had not for investment project selection, international institutions’ undertaken any feasibility study or project cost and ben- documents on the fiscal framework and capital invest- ture, a way to disguise the lack efit analysis that would support the need for investment ments in Kosovo, state strategies, preliminary infrastruc- and disclose the public benefits from this investment. The ture project reports, etc. The research has further been “Dukagjini Highway” construction is not even foreseen in enhanced by conducting interviews with institutional ac- of concrete plans for boosting any state strategic documents, such as NDS or the Gov- tors, meetings with stakeholders, etc. ernment Program of the Republic of Kosovo 2017-20198. KDI recommends that, before making any major capital employment and economic de- Such plans support only the reconstruction of existing Is- investment decisions, the Government of Kosovo should tog-Peja-Deçan-Gjakova-Prizren Road (R-107). conduct feasibility studies and cost-benefit analysis to es- The realization of this investment could adversely affect tablish whether the benefits of such investments justify velopment? other priority areas foreseen in the National Development and exceed budget expenditures. In order to strengthen in- Strategy as it would limit the possibilities for budget al- vestment in other strategic priorities for the country, rath- locations to key priorities, such as rule of law, education er than invest in the construction of the Dukagjini Highway, or employment, in the next four years. As an illustration, the Government should revert to the initial planning and In the last two decades, citizens of Kosovo continue to increase the level of exports13 and have failed to reduce the real cost in relation to the anticipated benefits of the needs for the implementation of the project to expand the face numerous economic, political and social problems, the unemployment rate14. recently completed “Pristina-Hani i Elezit” project has existing Istog-Prizren Road, as provided by the National while governing institutions continue to prove inefficient A comparison of values attributed to five key economic in- shown that this investment came at higher costs than Development Strategy, Government Program 2017-2021 in developing, and especially implementing, policies that dicators in Kosovo against the average of Southeast Euro- benefits9. Additionally, in this regard, there is no analysis and in the Sectoral Transport Strategy. would underpin sustainable economic development and pean countries, per NDS 2016-202115, clearly shows that whether the construction of the Dukagjini highway would enhance the well-being of citizens. Although the National Kosovo remains the poorest country in the region, with the bring economic benefits exceeding the estimated cost of Development Strategy (2016-2021)10 has defined the high- lowest level of exports, the highest unemployment rate EUR 1 billion. In fact, the highway construction could re- est development priorities and determined areas of weak- and the lowest gross domestic product. The World Bank duce traffic on the existing road and could negatively im- ness and measures to be taken to promote prosperity and Western Balkans Regular Economic Report16, where re- pact the economy and businesses in the area. economic development, in reality these areas still
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