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IdentifierCreatedClassificationOrigin
06TIRANA995 2006-09-22 12:33:00 CONFIDENTIAL Embassy Tirana
Cable title:  

IMPEDIMENT TO BECHTEL BID TO BUILD KEY SECTION OF

Tags:   EINV ELTN PGOV ECON EFIN AL ZL 
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TO RUEHC/SECSTATE WASHDC IMMEDIATE 4856
INFO RUEHPS/USOFFICE PRISTINA PRIORITY 3494
RUEHBW/AMEMBASSY BELGRADE 2790
RUEHRL/AMEMBASSY BERLIN 1153
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					  C O N F I D E N T I A L TIRANA 000995 

SIPDIS

SIPDIS

E.O. 12958: DECL: 09/21/2016
TAGS: EINV ELTN PGOV ECON EFIN AL ZL
SUBJECT: IMPEDIMENT TO BECHTEL BID TO BUILD KEY SECTION OF
HIGHWAY BETWEEN KOSOVO AND DURRES

REF: 2004 TIRANA 00159

Classified By: Ambassador Marcie B. Ries, Reasons 1.4 (b) and (d).

-------
Summary
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1. (C) Bechtel Corporation on August 7 was selected by the
Albanian Ministry of Transportation (MOT) to build a 60 km.
segment of difficult mountain road on the main route between
the Adriatic port of Durres and the town of Kukes, in
northeastern Albania near the Kosovo border. When completed,
this will become a major trade corridor, providing Adriatic
port access to Kosovo and southern Serbia. Minister of
Transport Basha on September 20 told Ambassador Ries that the
World Bank (WB) considers the selection process, in which a
WB-recommended consultant evaluated four companies on eight
criteria, non-competitive and is pressuring the MOT to
re-tender. The WB also wants the MOT to re-specify the
project as a two-lane instead of a four-lane highway to
reduce costs. The MOT argues that time is money, and
re-tendering will delay construction by at least a year. The
MOT also insists on four lanes for safety reasons, and
because a four-lane highway would increase the capacity for
freight. This project is important for the economic
development of Albania, especially the impoverished north,
and could also give positive impetus to Kosovo's economy by
providing ready access to a seaport. End Summary.



--------------------------


Expedient Selection


--------------------------




2. (SBU) Albania's Ministry of Transport in July 2006
announced an international tender to rebuild and improve a 60
km. segment of road along the route connecting the Adriatic
port of Durres with Pristina, capital of Kosovo. The segment
lies between the towns of Kalimash and Rreshen through the
rugged mountains of northeastern Albania, and is the last of
three segments to be renovated/rebuilt on this highway.
Completion is expected in early 2009. The project is
economically important to both Albania and Kosovo, since it
will provide access to the Adriatic port of Durres from
Kosovo and southern Serbia. The MOT's selection process was
designed to minimize the time required before construction
could begin.



3. (SBU) Four companies -- Bechtel (UK office), Strabag
(Germany), Al Kharafi Group (Kuwait), and Konstruktor
(Croatia) -- submitted proposals focusing not on the project
itself, but on the company's ability to do the job. An
evaluation committee led by Dutch Ecorys Group, one of the
companies recommended by the WB, evaluated the bidders on
eight criteria, such as experience on regional projects, unit
pricing models, and annual turnover, and selected Bechtel on
August 7. Because Ecorys evaluated the responses of each
company to only these eight criteria, the evaluation took
only a matter of days. The MOT expects to conclude price
negotiations with Bechtel and issue a Government decision
approving the contract by the end of September.



--------------------------


Financing


--------------------------




4. (C) The GOA is planning to finance the Rreshin - Kalimash
project through USD 350 million budget financing over four
years, supplemented by institutional loans, and set a target
cost of USD 500 million. (Note: This target cost was not made
public and has been misreported by the press.) Potential
lenders/donors that have expressed interest include Ex-Im,
the European Investment Bank, the Kuwait Development Bank,
the Overseas Private Investment Corporation (OPIC), and the
Islamic Development Bank. Minister of Transport Basha on
September 20 told Ambassador Ries that Bechtel would meet the
target price. The segment between Kukes and the Kosovo
border has already been awarded to seven Albanian companies
at a total cost of USD 70 million and construction has begun.
A short segment near the western end, between the towns of
Milot and Rreshen, is currently out for bid and will be
financed by the WB.



--------------------------


The WB Objects


--------------------------





5. (C) Although the WB does not have a financial stake in the
Kalimash-Rreshen project, Prime Minister Berisha on September
15 told Ambassador Ries that he had heard the WB was unhappy
with the way Bechtel was chosen and would oppose the project.
Minister of Transportation Basha on September 17 told the
Ambassador that World Bank Country Director for South-East
Europe, Orsalia Kalantzopoulos, told him she strongly opposed
the project, citing potential problems with Belgrade and
Athens. According to Basha, the WB says the selection of
Bechtel was non-competitive, and all bidders should have been
asked for pricing proposals. In addition, the WB is
insisting on a two-lane highway to keep costs down.



--------------------------


Basha Counters


--------------------------




6. (C) Basha told the Ambassador that the selection of
Bechtel was done transparently (the WB does not dispute the
transparency of the process) and in accordance with EU norms.
He said the MOT chose this selection methodology to save
time, emphasizing that the company used by the GOA to
evaluate the bids was the one recommended by the WB.
Further, the Bank had evinced no objections when the
competition was held. It was only very recently, when
Kalantzopoulos visited, that she raised objections.
Evaluating and comparing different unit pricing models from
multiple bidders could have delayed start of construction by
a year. According to Basha, the costs of such projects
increase every year. In addition, he calculates that the net
economic benefit to Albania of a completed, four-lane highway
will be over USD 80 million per year, so that a year's delay
could cost the country well over USD 100 million. Basha also
said that a Slovenian engineering company did an independent
rough estimate of the cost, and came up with much higher
figures than Bechtel's.



7. (C) As for the four-lane argument, Basha pointed out that
the two-lane highway the WB insisted on from Durres to the
northern city of Shkoder is one of the most dangerous in
Albania, despite the fact that the terrain is relatively
flat. He will not budge on a four-lane highway from Durres
to the Kosovo border for safety reasons, since the road is a
twisty, mountainous road expected to support heavy truck
traffic, and subject to snow and ice during the winter.
Although initial costs will be higher than for a two-lane
road, he expects a higher economic return since a four-lane
road will attract more commercial truck traffic. He also
pointed out that widening a two-lane highway in the future
would be much more expensive than building a four-lane road
in the first place.



8. (C) Concerning Kalantzopoulos' political arguments, Basha
said he has discussed the project with his Serbian and Greek
counterparts, and received no objections from them. He also
told the Ambassador that Kalantzopoulos had raised concerns
about this highway diverting freight coming from Serbia and
Kosovo to Thessaloniki. While he agreed that cargo from the
southern Serbian town of Nis could reach Durres in about four
hours on the new road, roughly the same time it now takes to
go to Thessaloniki, he said that Durres should be seen not as
a competitor to the port of Thessaloniki, but as a
complimentary seaport to others in the region, and as part of
an overall regional transportation plan. Basha mentioned
that Kalantzopoulos had opposed and shut down other Albanian
infrastructure projects, including a thermal power plant in
Fier and a General Electric bid on a USD 73 million rail
project. (Please see reftel. GE is currently suing the GOA
for breach of contract.)



--------------------------


Tom Ridge Will Advise


--------------------------




9. (C) Minister Basha said that former Secretary of Homeland
Security, and now advisor to the PM, Tom Ridge, would
evaluate the proposal and advise the GOA on a course of
action. Basha thinks that Ridge might ask him to come to
Washington to promote the project.



--------------------------


Comment


--------------------------




10. (C) Albania's poor infrastructure is high on everyone's
list of obstacles to economic growth. A transport corridor



connecting Kosovo to the Adriatic would not only help
Albania's trade, but Kosovo's as well. We ought to work with
the GOA to help resolve whatever objections the World Bank
might have.
RIES