ProviSIONs in THE Albanian ConstitutION

The Albanian Constitution is the youngest one in Europe. It was approved on 22^nd of November 1998 and is coherent with EU legislation framework. It provides many articles in the field of: ownership, free economic activities of individuals and enterprises, social services, etc.

The rights of ownership are provided in the following articles:

Article No. 41

1.      The right of private property is guaranteed.

2.      Property may be gained by gift, inheritance, purchase, or any other classical means provided in the Civil Code.

3.      The law may provide for expropriations or limitations of a property right, on public interests.

4.      The expropriations or limitations of a property right that are equivalent to expropriator are permitted only against fair compensation.

5.      For disagreements connected with the extent of the compensation, a complaint may be appealed to the court.

Article No. 42

1.      On freedom, property and rights recognized in the Constitution and by law may not be intruded without due process.

2.      Everyone, to protect his constitutional and legal rights, freedom and interests, or in the accusation raised against him, has the right to a fair and public trial, within a reasonable time limit, before an independent and impartial court, specified by law.

Free economic activities of individuals and enterprises are provided in those articles:

Article No. 11

1.      The economic system of the Republic of Albania is based on private and public property, on market economy and on freedom of economic activity.

2.      Private and public economy is equally protected by law.

3.      Limitations on the freedom of economic activity may be established only by law and only for public reasons.

Social Right and Services are provide in the following articles:

Article No. 49

1.      Everyone has the right to earn the means of living by lawful work that he has chosen or accepted by himself. He is free to choose his profession, place of work, as well as his own system of professional qualification.

2.      Employees have the right to social protection of work.

Article No. 50

1.      Employees have the right to unite freely in labor organizations for the defense of their work.

Article No. 51

1.      The right of an employee to strike in connection with work relations is guaranteed.

2.       Limitations on particular categories of employees may be established by law to assure to the society social services.

Article No. 52

1.      Everyone has the right to social security in old age or when he is unable to work, according to a system set by law.

2.      Everyone, who remains without work for reasons independent of volition, and has no means of support, has the right to assistance under the conditions provided by law.

Article No. 53

1.      Everyone has the right to get married and to have a family.

2.      Marriage and family enjoy special protection of the state.

3.      The entering into and dissolution of marriage are regulated by law.

Article No. 54

1.      Children, the young, pregnant women and new mothers have the right to special protection by state.

2.      Children born out of wedlock have equal rights with those born within marriage.

3.      Every child has the right to be protected from violence, ill treatment, exploitation and work, especially under the minimum age of work, which could damage their health and moral and endanger their life or normal development.

Article No. 55

1.      Citizens enjoy in an equal manner the right to health care from the state.

2.      Everyone has the right to health insurance pursuant to the procedure provided by law.

Article No. 56

1.      Everyone has the right to be informed about the status of the environment and its protection.

Article No. 59

1. The state, within its constitutional powers and the means at its disposal, aims to supplement private initiative and responsibility with:

a. employment under suitable conditions for all persons who are able to work;

            b. fulfillment of the housing needs of its citizens;

            c. the highest possible standard of health, physical and mental;

d. education and qualification according to ability of children and the young, as well as unemployed persons;

e. a healthy and ecologically adequate environment for the present and future generations;

f. rational exploitation of forests, waters, pastures and other natural resources on the basis of the principle of sustainable development;

            g. care and help for the aged, orphans and persons with disabilities;

            h. development of sport and of recreation activities;

i. health rehabilitation, specialized education and integration in society of disabled people, as well as continual improvement of their living conditions;

j. protection of national cultural heritage and particular care for the Albanian language.

2. Fulfillment of social objectives may not be claimed directly in court. The law defines the conditions and extent to which the realization of these objectives can be claimed.

The economic model in Albania may be considered a liberal one. There are many factors that indicated the creation of this model. The industrial sector   suffered for a long time from problems, which depress the employment and the income. Before the transition, official statistics indicated that employment was very low, but in reality it existed, and unemployment and underemployment increased with the privatization of industry, particularly primary resource and manufacturing enterprises. New industrial enterprises were not created quickly enough to employ many of these people. The 1997 riots hurt many businesses that had been established, and many foreign investors left the country altogether.

Mining and manufacturing enterprises are scarce throughout the country. The two major private-sector employers are services and construction. Employers in the service sector are mainly small, family-run businesses that do not create many new jobs. Additionally, work in the sub sector tends to be casual, intermittent and low wage. The construction industry has created more jobs, but most of them are also part-time, casual, intermittent and low wage. The new jobs that were created tend to provide little or no opportunity of learning new skills. Because of the closure of many industrial enterprises in the 1990s and the lack of new job creation, the government remains the biggest employer in many locales, particularly in the northern areas that formerly were homes to state-owned industry.

In 1992 the Albanian government liberalized prices, ended subsidies of unprofitable enterprises, restricted bank credit, and opened the economy to the foreign competition. These initiatives, which were necessary to make the economy competitive in the long term, deeply depressed existing industrial production. Some industries – extraction of minerals, metallurgy, equipment, chemicals, papers and textiles, among others- could not compete and either closed or greatly reduced operations.

Simultaneously, the government implemented the agricultural reform and created a large number of landholders who sustained themselves on very small and fragmented landholdings. The relatively large-scale production of agriculture rapidly became a very small scale. Independent family farmers began to produce, but their small-scale production was a mismatch for the input suppliers and the processors, who were used to supplying large-scale farms and cooperatives and who also struggled amid the turbulence of the industrial reforms. As a result many of the input suppliers and processors failed. These failures reverberated back to small-scale farmers, who then lacked the formal institutions and organizations, which a short time before had enabled the agricultural economy to work.

From 1993 to 1996, the private sector grew and unemployment declined. But the pyramid schemes that attracted so much capital during the period collapsed in 1997, bringing considerable economic and social destruction. Unemployment rose again precipitously.

FOREIGN INVESTMENT PROTECTION AND AGREEMENTS

CONCERNING AVOIDANCE OF DOUBLE TAXATION  

Albania is a member of the following International and European organizations:

Ø      United Nations

Ø      Council of Europe

Ø      World Intellectual Property Organization

Ø      International Monetary Fund

Ø      International Bank for Reconstruction and Development (World Bank)

Ø      European Bank for Reconstruction and Development

Ø      Islamic Development Bank

Some of the most important international aid programs in Albania are: World Bank /IDA, EC/PHARE, USA/ USAID, United Nations/ UNDP, Italy/ Project Co-financing, EC/Cross Border, Germany/GTZ, EBRD, Switzerland/ Swiss Trust Fund, Japan/OECF, UNIDO, UNDP, EBRD, MIGA, WAIPA, SIMEST, FINEST, etc.

The foreigners, either juridical or physical persons, enjoy the right to exercise different economic activities in the Republic of Albania and to invest their capital in different sectors of the Albanian economy.

They are allowed to participate in economic activity and carry out investments in Albania, generally enjoying no less favorable conditions than those given to local subjects, aside from the right of landownership.

The most important law, which in reality provides a number of basic guarantees and protections for foreign investors, is Law No. 7764, dated on November 2,1994 " On Foreign Investments". According to this Law, all foreigners, either physical or juridical persons, who intend to invest in Albania, have no need to ask for permission or authorization, they shall not be expropriated or nationalized or be subject to any other equivalent measure. The foreign investor enjoys the right to transfer all funds in currency and in kind related to his investment out of the Republic of Albania. The investor enjoys legal protection of his rights related to an investment made in Albania. Such protection is guaranteed for a dispute, which arises between a foreign investor and an Albanian party.

It is up to the disputing parties to define the procedures for the resolution of the dispute through arbitration. In the event of the failure of such provision, the foreign investor has the right to submit the matter to an Albanian court or to an Arbitration Court in Tirana. In the event of a dispute involving discrimination, transfer of assets, or indirect expropriation of a foreign investment by the Albanian Government, the investor may submit the dispute to the International Center for the Settlement of Investment Disputes ("ICSID").

Special protection is guaranteed to foreign investments in Albania and to foreign investors from the states, with which the Republic of Albania has signed agreements, concerning the avoidance of double taxation and the mutual guarantee of investments.

To provide security and protection against lost arising from political risks (thereby providing confidence to potential exporters and investors in Albania), the International Development Association (the World Bank) has approved a credit of USD 10 million to the Albanian Government under its Private Sector Recovery Project to support a Political Risks Guarantee Facility, to be administered by the Albanian Guarantee Agency (AGA), a statutory corporation owned by the Government of Albania.

This is a Program to provide guarantees to private sector entities, which have financial exposure in Albania, for a productive purpose. The guarantee covers a range of political risks, including the risk of civil disturbance of the kind experienced in March of 1997.

Bilateral Agreements on Promotion and Protection of Reciprocal Investments and those on avoidance of double taxation Albania has signed a number of Bilateral Agreements on the Promotion and protection of Reciprocal Investments as an instrument for promotion foreign investment and co-operation.

The following is a list of countries with which Albania has signed the Agreement (as per end 1997) Austria, Israel, Malaysia, Bulgaria, Italy, Turkey, China, Netherlands, United Kingdom, Croatia, Poland, USA (OPIC), Egypt, Rumania, Slovenia, France, Sweden, Switzerland, Germany, Greece, Tunisia.

On the avoidance of double taxation Albania has signed Agreements with the following states (as per September 1996 - as ratified by the Albanian Parliament): Croatia (1995), Czech Republic (1997), Greece (1995), Russian Federation (1995), Hungary (1992), Italy (1995), Malaysia (1995), Poland (1995), Turkey (1995), Rumania (1995)

TAXATION SYSTEM

There are two level of taxation in Albania:

*        at national level

*        at regional level ( municipality level)

Taxes at national level are by far the most important ones, while those at municipality level are mostly related with hotels, restaurants, advertising, cleaning and ambulatory trade.

National tax system in Albania can be classified as follows:

Direct taxes:

a) On income: corporate income tax (tax on profit) personal income tax

b) On assets: tax on buildings tax on agriculture land

Both these taxes are marginal and normally do not play any important role

a)      Indirect taxes:

b)      value added tax

c)      excise tax

d)      custom duties on imports

Legal acts

The main legal acts that determine the Albanian tax system are the followings:

*        Law nr. 7681, dated 4.3.1993 "On the administration of taxes and fees in the Republic of Albania"

*        Law nr. 7677, dated 3.3.1993 " On the tax on profit"

*        Law nr. 7678, dated 3.3.1993 " On excise tax"

*        Law nr. 7679, dated 3.3.1993 " On small business tax"

*        Law nr. 7928, dated 27.4.1995 " On value added tax"

*        Law nr.7805, " On Property tax" and their amendments.

There are a number of circulators issued by the Ministry of Finance on the implementation of the legal acts concerning the tax system.

Corporate income tax (Tax on profit)

This tax applies to all legal persons, Albanians or foreigners, who exercise economic activity in territory of Albania and for that reason are considered as resident in Albania for tax purposes. This applies equally to companies with their seat in Albania and to branches of foreign companies.

A tax on profit of 30% is level on profits made by resident companies in Albania, irrespective of their legal form. Normally the tax on profit is prepaid each quarter and by the end of the year the balance is set off.  For companies that exercise economic activity in tourism, this tax is 40%. Companies that exercise economic activity in oil and gas exploitation pay an average of about 50% tax on profits depending on the quantity produced.

Taxable income is determined according to the Law No.7671, dated 19.1.1993 “On the Accounting” and is in line with standard western business practices.

Personal income tax:

This tax is a progressive one. Foreigners are considered as residents in Albania and liable for personal income tax if they have an income in Albania and spend a period of more than 183 days in the country.

The minimum wage and remuneration taxable is 10000 lek/month. The maximum level of personal tax is 20%. Other kind of income is taxed at 10%. Exempt the creative work is taxed at the level of 5%.

Property Tax:

The tax on buildings and Agriculture land by Law 7805 on Property Tax, Revenues Tax on agriculture land which varies depending on the quality and dimensions of the agriculture activity. The owners of the buildings pay the tax on the building. It varies from 3 to 6 lek/m2 year for living houses depending on whether the house is ingle building, buildings in co-ownership or in the country side. For buildings for manufacturing activities or service activities including trade activity, the tax rate varies from 50 to 100 lek/m2 year.

Tax on agriculture land varies depending on the quality of agriculture land from 1500 to 6000 lek/ha year.

Value added tax:

The value added tax entered in force in July 1, 1996 and substituted the turnover tax that was applied up to that moment. The basic purpose of VAT law was to adapt the Albanian legislation to EU VAT directives and regulations.

The value added tax is levied on all legal and natural persons that performs goods or services supply and is calculated based on the total sum paid for the goods or services.

The tax rate is 20% (Law 8240 dates 16.9.1997). For exports and international services the tax rates is 0%. Following the EU model certain transaction are VAT exempt e.g. services and supplies of goods related to financial activities, transaction related to shares, stocks, bonds and other securities, transactions related to bank accounts, transfers, cheques, transaction related to life insurance policy, management of pension funds, rental of residential property etc. Business is required to register for this tax if their annual turnover exceeds 5 million LEK (1 January 1998). Also goods supplied under the temporary importation regime for job processing activities, are VAT-exempt. VAT must be paid within the first 14 days of the next month. First, the taxpayer must have carried forward a VAT tax credit for six consecutive month, and second, the total refund claimed must exceed 400,00 lek.

Excise tax:

Excise tax is applied on a limited number of goods such as tobacco, cigars, cigarettes, alcoholic drinks, soft and fresh drinks, electrical energy, derivatives of petroleum and coffee.

This tax is applied only for goods produced in Albania or imported. For goods produced in Albania the excise tax is calculated on the bases of the value of each good sold and for imported goods it is calculated on the bases of the custom value. Excise tax is not applied on above-mentioned goods when they are exported.

Excise tax for tobacco and tobacco products is 50% to 70% when produced in Albania and 100% to 105% when imported. Alcoholic drinks have an excise tax of 40% to 105% when produced in Albania and an additional of 25% when imported.

For derivatives of petroleum the excise tax is in the range of 25% to 85% and for some specials derivatives up to 300%. Normally the excise tax stimulates the domestic production of goods rather than the import of goods.

The Government has prepared a new law on excise. In this law there will be applied the same excise system for both the products that are produced on the country and those imported.

Custom duties:

The “Harmonized Goods Classification System” has been in force in Albania since 1992. The main body of legal acts concerning customs is comprised by:

Law nr. 7599, dated 2.9.1992 “ On Custom Code”

Law nr. 7609, dated 22.9.1992 “On Custom Duties”, and a series of amendments updating it, as well as a number of Council of Ministers’ Decisions and Circulators of the Ministry of Finance. According to the Custom Code, the management, organization and the control of the custom activity in Albania is realized by the General Directory of the Customs. Normally the custom value includes the price of the good, the transport and insurance expenses.

In the beginning of 1999 the New Custom Code went out. The Custom Legislation is composed by: the Custom Code International Custom Legislation linked with conventions in which the Republic of Albanian is adhered. Legal acts in performance of the Code others legal acts according to the custom activities.

Tax on small business:

This tax is applied on individuals exercising private economic activities. It includes learned professions as well as small-scale individual ambulatory trade activity. It is calculated on the bases of the total revenues and varies from 2% to about 10% depending on the type of activity. Albania is trying to develop a diversified modern financial system. The operators in the Albanian financial system can be classified as follows:

1. the central issuing bank

2.   commercial banks including savings bank

3. stock market

4. investment funds

5. insurance and reinsurance companies

6. credit associations (co-operatives)

Banks

Law No. 7559, dated 22.4.1992 " On the Bank of Albania" and Law No. 7560, dated 28.4.1992, transformed bank system from a centrally planned, single tier system, to a Western two-tier system with the Bank of Albania as the central bank and second level or commercial banks. Law No. 8076, dated 22.2.1996 and Law No. 8075 dated 22.2.1996 further developed the banking sector.

The activities of the Bank of Albania have paralleled those of central banks in other market economies. The main principle behind the legislation is that banks should operate on a fully commercial base whether they deal with public or private sector.

Bank establishment:

Joint banks or totally private banks with Albanian or foreign capital can be established. The license to establish and operate a bank is obtained upon written application at the Bank of Albania. In accordance with a form issued by the Bank of Albania, a list of documents must be presented together with the request for getting a license. Actually in Albania there are three state-owned commercial banks, two joint banks with participation of foreign capitals, three foreign private banks and the branch of the National Bank of Greece. Other foreign banks or branches of foreign banks have got the license and are in the process of establishment. There are programs for the privatization of second level state-owned banks.

Albanian Bank System:

The structure of the bank system in Albania at the end of the year `91 was typical of a centralized and planed economy. It included four state institutions: (I) Bank of the State of Albania, which applied at the same time the functions of the central bank and of the commercial bank: (II) Bank for Agriculture and Development, which credited co-operatives and the state farms: (III) Savings Bank, the holder of the almost individuals deposits: (IV) Albanian Commercial Bank, which performed the transactions of the foreign market. The Bank of the State of Albania was changed in the Bank of Albania and has only the functions of a central bank.

The approving of the new law on Central Bank and of law on bank activity in April 1992, which brought the creation of the two level bank system.

On 1 January 1993 its commercial operations jointed with the Albanian Commercial Bank and created the National Commercial Bank of Albania.

In September of 1993, the Bank for Agriculture and Development was restructured and its deposits and good assets were transferred in a new bank, the Commercial Rural Bank. In Albania till the end of the year 1993 existed: a central bank, three states owned banks and the Bank for Agriculture and Development without any activity. The Bank of Albania estimated the important role that the foreign equity, management and technology can play in the modernization of the bank system in Albania. At this stage an important forward step was the creation of the first common bank in the country at the end of the year 1992.

At the end of March 1998 the system bank of Albania presented as follows:

 1. National Commercial Bank of Albania (NCBA): has a network of 7 branches in all around the country. Most parts of its passives, the deposits of enterprises and an important part of its loans are for the enterprises of the private and state sector. It applies short-term loans for enterprises in supporting their production and commercial activity and long term loans for the most important investment projects.

NBCA has created relationships with 21 analogue banks - 19 in Europe and 2 in USA. Also it has ownership interests in the equity of the Italian - Albanian Bank and of Islamic Arab- Albanian Bank possessing 40% of the shares of each of them.

   2. Albanian Savings Bank: has 33 branches in all the country and the biggest bank network in the Republic of Albania. Actually the deposits of the individuals firstly compose its passives. Its portfolio of the loans consists mainly in the short and middle term loans for the private sector. It issues Euro card, MasterCard, travel cheques, American Express, Thomas Cook and Eurocheques.

Both, National Commercial Bank and Savings Bank, perform exchange money transactions with enterprises and individuals.

3. Rural Commercial Bank: is created as the result of the restructuring and the recapitulating of the Bank for Agriculture and Development. RCB performed commercial bank commonly activity, especially in the agricultural sector. It didn’t offer transaction of the exchange money, it even accepted deposits in foreign money by its clients. During the first three months of the year 1998 the RCB was devised in two parts. The good part represented by deposits and liquids was gathered with Savings Bank. The other resting part of actives and passives were transferred into the Credit Treatment Agency to be liquidated.

4. Ital. – Albanian Bank is the first common bank. Its shareholders: the National Commercial Bank of Albania holds 40% of the shares, the Bank of Rome holds 40 % of shares and the European Bank for Reconstruction holds 20 % of shares. This bank acts as a universal bank offering the performing of deposits, transfers, commercial credits and exchange money transactions.

5. Islamic Arab -Albanian Bank is also a common bank. NCBA holds 40% of the shares and the foreign banks and individuals hold the other shares. It doesn’t offer credits and doesn’t accept deposits with time limit. It operates according to the bank Islamic principles.

6. The Dardania Bank is the first private bank in the country and up to now has developed a simple bank activity.

7. The Bank of Tirana began its activity in Tirana on September 1996 with a paid equity of 2 million USD, which is recently growing to 4 million USD. Its main shareholder is the Bank of Pirea in Greece. This bank offers universal commercial bank transactions and operates as consulate.

8. The National Bank of Greece began its activity at the end of September 1996. It insures a complete of the bank transactions.

During `97, the Albanian Bank System was growing with two other foreign private banks (International Commercial Bank and Alpha Credit Bank). These two banks began their activity respectively in May `97 and in January 1998. Both are universal banks and sitting in the city of Tirana. At this stage the number of the banks is growing in seven and the general number of the banks that actually operate is nine.

The Bank of Albania as a monetary authority. According to the Law No. 8269, date 23.12.1997 "On the Bank of Albania", the Bank of Albania is responsible for the monetary police and its implementation; the issuing of the domestic money; the administration of the foreign currency reserves; the adjustment of the commercial banks and their supervisory; the keeping of the government accounts, etc. The main aim of the monetary police in Albania is to hold the inflation under control and to stabilize the prices. The intermediate and operational objectives of the inflation control are: the control of the monetary offer and of the monetary base, superfluous reserves, net foreign assets, the real percentage of the interests and the credit limit for economy.

The main used instruments for the implementation of the monetary police are: the obligatory reserve, the limit of the credit for the commercial banks, the minimum of the interest percentage for the state owned banks, Lombard credit and of Refinance, the agreements of buying again, the transactions of the secondary market.

Stock market

Tirana’ s stock exchange was established on May 1996 and is a relatively new institution. For the moment governmental bonds, treasury bills with 12month maturity and privatization vouchers are traded. A National Stock Exchange Commission controls the activity of the stock exchange and co-operates in the development of its regulations

Indication on security rates, as per March 1999.

3-M Treasury bills

17.95%-19.0%
6-M Treasury bills

18.90%-20.5%
12-M Treasury bills

20.80%-21.3%
Government bonds

20 Years 1.5%

Investment Funds

Law no. 7979, dated 26.7.1995, regulates the establishment and operation of Investment Funds. Investment Funds are joint stock companies involved in investment, reinvestment, hold or exchange of privatization vouchers. The minimum capital requirement is the equivalent in lek of USD 20 000. Foreign entities and companies whose capital is partly owned by foreigners may subscribe no more than 50% of the basic capital of the Fund.

A licensed administrator in accordance with the management contract manages the Fund. The administrator must be a subject not employed in the investment fund.

The investment fund must appoint a licensed depositor to carry out depositor’s duties, as well as a certified public accountant. Normally the organization of an Investment Fund follows the rules found in the Company Law for joint stock companies, except for some specific rules and regulation as specified in the Investment Law

Three-year Macroeconomic Framework

In the government’s view, strong growth remains the main instrument for sustained improvements in the living conditions of the population and the elimination of poverty. The government is therefore determined to take all the necessary measures for preserving macroeconomic stability and to implement further structural reforms, with a view to keeping the economy expanding at its potential growth rate of about 8 percent a year. To allow a gradual reduction in reliance on foreign resources, and to create scope for more rapid private sector credit growth, the government will continue its policy of fiscal consolidation and reduction in the current account deficit. However, this adjustment will be gradual, in light of the need to increase spending on poverty reduction measures, with the general government deficit declining from 9.4 percent of GDP in 2000 to 7.4 percent in 2003. To create scope for private sector credit growth, the domestically financed deficit, which is currently financed at high interest costs, will decline somewhat faster, from 4.3 percent of GDP to 2.1 percent of GDP in 2003. Such a program of fiscal consolidation will also allow the government to keep the public debt-to-GDP ratio on a gradually declining path and reduce interest expenditure from 5.9 percent of GDP in 2000 to 3.2 percent of GDP in 2003.

Strong efforts to boost revenue collection will provide resources for increasing public expenditure and simultaneously improving the fiscal balance. The government plans to raise non-interest public expenditure from 26.0 percent of GDP in 2000 to at least 27.5 percent of GDP in 2003, with a view to providing resources for additional programs for poverty alleviation and continuing with the public investment program. Combined with the targeted fiscal adjustment and the expected decline in interest rates (which will affect central bank profit transfers and, thus, government non-tax revenue) the tax-to-GDP ratio is required to rise from around 15 percent of GDP in 2000, to 17 percent of GDP in 2003. This increase will be largely a result of better tax administration and a broadening of the tax base, to include, inter alias, agriculture. Moreover, possibilities will be explored for reducing tax rates to strengthen incentives for private sector activity. As foreign trade liberalization will continue, reliance on the taxation of imports will have to be reduced. Monetary policy will be geared to keep inflation in the 2-4 percent range. In response to reforms in the financial sector, private sector credit is assumed to grow from a very low base by an average annual rate exceeding 30 percent over the coming three years. Monetary policy will continue to be conducted in the context of the flexible exchange rate regime that has served the country well.

The current account deficit is projected to decline from 8.4 percent of GDP in 2000 to 6.4 percent of GDP by 2003. Financing this deficit will require continued support from foreign donors, with foreign assistance for the budget in the form of grants, as well as concessionary and close to concessionary loans equivalent to about US $ 220 million per year in the period 2000–2003. The government is committed to cooperate with the donors in obtaining and effectively using these resources. With most of the financing provided on concessionary terms and with longer maturities, the debt-service payments are expected to remain at a prudent level of less than 10 percent of the annual exports, and foreign debt will remain broadly unchanged relative to GDP. To preserve the capability of the economy to react and to adverse shocks, financial policies will be geared toward keeping the foreign reserves of the Bank of Albania at a level of at least 4.2 months of imports.

     Forceful financial sector reforms, privatization of the remaining state-owned enterprises, and progress in creating an institutional and legislative environment conducive to foreign and domestic investment, will be crucial for attaining the ambitious 8 percent target growth rate over the medium-term. The privatization of state-owned banks and legal reforms to strengthen financial markets will improve the effectiveness in channeling financial resources to the most productive uses. Enterprise privatization will focus on the strategic enterprises Albtelecom and KESH, as well as on the remaining medium-size enterprises. Regarding the legislative agenda, the government intends to approve a new bankruptcy law and a new law on the office for execution of judicial orders in civil cases, which should enhance enforcement of private contracts. To create a better business climate, the government intends to establish a mediation center that will offer alternative means of dispute resolution in commercial cases. To attract more investment, the government will explore in cooperation with donors the establishment of a one-stop investment shop, which will provide all the services associated with the promotion, approval, and facilitation of investment projects within the same agency. In addition, an industrial park will be created in Durres, with a view to providing foreign investors with a strategic location and adequate administrative and logistical support for their activities.

Privatization

The important transformations that happened in Albania during the passing in the market economy have involved several important reforms. These reforms involved the price liberalization, the development of trade and the enforcement of the state’ s role in maintaining the economic stability. The second important aspect during this period is related to the determination of the law on property, privatization of state owned enterprises, establishment and enforcement of market in supporting the institutions. An important reform is attended related to social care, education and employees assistance, in order to facilitate the transition problems, to decrease the poverty and to meet the market demands.

During these last years, Albania was confronted with many difficult economic situations. The sharp decline in Albanian economy after the closing of pyramidal schemes and all the effects related to this, brought a considerable aggravation of the situation in the country. Most of the enterprises were on the verge of failing, and some of them were closed or completely destroyed. Foreign investments in the country were decreased, doubting the future of many important branches of the Albanian economy.

After the public order and economical stabilization, the Albanian Government followed two main directions to reach the development of market economy: the establishment of an appropriate environment for a new private business and the fast privatization of the small and medium enterprises and the starting of strategic sectors of privatization.

In this way, within 3 years it was possible to restore the trust of the foreign investors. This was manifested in the participation of the foreign capital in the investments done in petroleum, telecommunications, industry, constructions etc. With the taken measures, the Government accomplished successfully the privatization of small and medium enterprises, urging the development of the private sector and the traditional industries, which were stopped for years.

            The privatization of the public economy has been rapidly and successfully whilst implementing the core objectives of this process:

-        Attract the foreign capitals

-        Deregulation and promotion of the competition in the public sectors, provide a constant long-term economic development, increase of the economic efficiency and private sectors’ participation in all the sectors of the economy. 

The basic law on which the process of privatization is based is that of 10^th August 1991, No.7512 “On Sanction and Protection of Private Property, Free Initiative and Privatization." This law is considered liberal, because it allows enough space for the regulation of the privatization process through the Government’s decisions. At the same time it is very broad, because it included many aspects of market economy. Privatization was only one part of this law.

It defined the National Agency of Privatization (NAP) as the central institution responsible for the transfer of state property into private property. NAP sets the rules and procedures for the privatization up to the total transfer of ownership.

A critical point in this law was the existence of many difficulties for the foreigners to participate in Albanian privatization process. This was corrected only partially, by the Law No. 7653, "For some changes in Law No. 7512", dated 23.12.1992.

Only five years later, the Decree No.1632, dated 1.11. 1996 "For some amendments of Law No.7512 and the Law No. 8159, "For approving with changes of decree No. 1632.", allowed definitely foreigners to buy sites and state properties through different privatization methods, including Mass Privatization.

Law No.8159, dated 7.11.1996, defined the Ministry of Privatization as the leading institution for the privatization process and the NAP was independent by the Ministry of Privatization.

Law No. 7638, dated 19.11.1992, "On Commercial Companies". This law defines the forms of the organization of commercial companies in the Republic of Albania. It clearly defines the forms of the organization of commercial companies in the Republic of Albania.

It clearly defines the right and duties of the partners in various types of companies, the main conditions including the contracts and statues of the companies, limitation as well as the rights of solving disagreements. It defines the rules, regulations and deadlines for the registration of existing companies and those to be founded in the future.

This law is the base for registering and functioning of joint-stock companies (corporatization).

Law No.7926, dated 20.4.1995 "On transformation of State-Owned Enterprises in Commercial Companies". The aim of this law was to make the corporatization of SOEs the first step of privatization (mass privatization in particularly). The law declared the every enterprise should be transformed in one or several anonymous or limited companies. In every one of them would be created a supervisory board. The whole transformation procedures had to be finished in less than four months.

The law no. 7926, is as well a law on ownership, because it defines the state institution, which is responsible for the ownership of the state equity. The state, as an unique owner, was represented by the Ministry of Finance during 1995 - 1996, by the Ministry of Privatization from June 1996 to June 1997 and since 1997 by the Ministry of Public Economy and Privatization.

The implementation of the Law no. 7926, faced many difficulties. In particular the time for transformation of SOEs (less than four months) was an utopia. Also many enterprises could not be transformed, because their debts were very much higher than their equity.

The articles of this law were amended several times. The most important amendment was the President Decree No. 1631, "For some amendments of the Law No.7926”. This Decree charged the Ministry of Privatization to finish the transformation of SOEs.

President’s Decree No. 1030, "On Issuing and Distribution of Privatization Vouchers " approved with some changes by the Law No. 7918. This decree created the legal base for the privatization of the state property by MPP. All the citizens over 18-years-old profited by vouchers. Only those, who had obtained properties free of charge from the privatization process, would not get any voucher. Vouchers have a nominal value, they are anonymous and tradable in the free market. Foreigners were not allowed to own vouchers until November 1996 (Law 8162, dated 1.11.1996). The Bank of Albania is charged to emit vouchers according to the criteria defined by the Ministry of Finance. The Savings Bank is charged with the registration and distribution of privatization vouchers.

The privatization of non- strategic SOEs is regulated by the Council of Ministers’ Decisions (CMDs), until now. While the privatization of strategic sectors is mostly regulated by laws. Some of them are: Law No. 7963, dated 13.7.1995 "On the privatization of the Electrical Power Sector"; Law No. 7973, dated 26.6.1995 "On concessions and participation of the private sector in public service and infrastructure"; Law No. 8026, dated 9.11.1995 "On the privatization of the commercial companies of the mining sector"; Law No. 8103, dated 28.3.1996 "On privatization of Water Supply, and Waste Water Collection Enterprises".

The privatization process is still considered to be the crucial points of the economic reform in transition the countries it addresses. The interests of different groups also dynamically help the re-dimensioning of the role of the state in various aspects.

In Albania, privatization started with the privatization of the trade and services networks in all the districts in the country, and continued with the privatization of small and medium sized enterprises, and eventually the massive privatization program for large enterprises.

The privatization program, which is being prepared by the Government, includes the completion of privatization of medium enterprises, as well as the privatization of the most strategic sectors of the country’ s economy.

The program covers 80% of the overall assets of the economy in oil, electric power, telecommunication, transport infrastructure, water resources and tourism.

The main factor is ensuring sustained economic growth and the attraction of private foreign capital to recover, and use efficiently, the electric power and mineral resources in the country. Within this framework, the Government considers as necessary steps to guarantee the success of its economic program further liberalization of the economy in these strategic sectors, which are still state monopoly, and implementation of the privatization program.

Considering the importance of the privatization program the Government has prepared the Strategic Sectors Privatization Strategy. According to this strategy, all enterprises or companies with state owned capital in the strategic sectors of the economy are considered as potential candidates for privatization.

The main sectors privatized are:

Small and medium-sized industrial enterprises, most of which are concentrated in the capital, Tirana, and are generally perceived to offer low-risk opportunities for investment;

Large enterprises in the mining and utilities sectors;

Electric Power Corporation, the electricity monopoly, which will probably contract out its management before privatization;

The three state-owned commercial banks, which are to undergo significant restructuring before they are sold. Under the guidance of the International Monetary Fund (IMF) and the World Bank, the Government is preparing to liquidate at least partially the National Commercial Bank and the Rural Commercial Bank.

Albania’s oil reserves are estimated at some 550 million tons and both onshore and offshore exploration has aroused the interest of international oil companies.

Early in 1998, the Government signed 5 oil exploration agreements with two international consortia covering six onshore blocks.

Privatization of the majority of small units opened the way to the implementation of the privatization program of small and medium enterprises. The privatization of small enterprises has undergone same stages. The first stage (from 1992 to April 1993) had involved the privatization of bakeries, factory lines and other assets. The second stage (from 1993 to February 1994) had involved the sale of 1300 small and medium sized enterprises and the third stage (from March 1994 to 1997) has involved the privatization of about 6000 objects.

During the year 2000 was completed the privatization of some mid-size enterprises operating in agro-food, pharmaceutical and cement production industry

incomes by privatization

1991 –1997                 10.5 billions leke

1997 – 2000                19 billions leke

1991 – 1999                13 billions leke

2000                            16 billions leke

The privatization of the strategic sectors is the most important phase of the privatization process in total, which will guarantee the consolidation of the new capital market and will create the incentive conditions the foreign potential investors on the frame of the economical reform in general and particularly on the frame of the implementation of the Stability Pact.

For the strategic sectors, the privatization process is developed in two lines, with the process of the liberalization of the respective market and in the same time with the preparation of the companies for privatization.

The Albanian Government aims to create and implement legal and regulatory conditions to guarantee the liberalization of the markets for private investors and at the same time for the development of a real competition between the state and the private operators. 

Implementing the privatization process of the strategic sectors, the Albanian Government will aim to realize the transfer of the state rights to the privates in the sectors of energy, post and telecommunications, mines, oil and gas, ports and airports and in the transport infrastructure (railway and air).       

Privatization of the stake of the shares of the commercial companies, which operate in the Strategic sectors, is realized according to the strategy of the privatization, approved with the Law no.8306, dated 14.03.1998 “For the privatization strategy of the sectors with a special importance” and is managed by the Committee of the Consultation and Transparence (Steering Committee). This organism is created according to the decision of the Council of Ministers no.621, dated 25.09.1998. With reference to this decision, the Committee of the Consultation and Transparence gives the instructions and controls the whole the privatization process.

1.      Privatization Formula

2.      Rules and conditions for the privatization process

3.      Regulatory framework

4.      Social impact of the privatization for the population and for employees

5.      General legal principles concerning the implementation of the laws
 

1.      Privatization Formula

It is not yet regulated or stated by any law. Therefore the Government has the faculty to decide which kind of formula shall request the consultants to adopt. Such decision should have the form of a special law for each company to be privatized.

2.      Rules and conditions for the privatization process

The existing rules and conditions for the privatization process have been conceived for the privatization of the non-strategic companies. It should be, therefore suitable to adapt special rules and conditions for each strategic company to be privatized according to the international standard procedures of privatization.

3.   Regulatory framework (monopoly, licenses exclusivity, duration, creation of a sector legislation, regulatory authorities, tariffs, taxation, adoption of international directives and regulations, conventions, treaties. etc)

The actual regulatory framework should be deeply analyzed and accurately modified with the purpose to create a strong and safe ambience for the strategic investors.

4.      Social impact of the privatization for the population and for the employees

The private investors shall be exempted from all social problems facing with the privatization: the modality of the distribution of the quotas reserved to the owners of the privatization vouchers, the fight against the insolvency people or predatory use of the services.

5.      General legal principles concerning the implementation of the laws

A particular attention shall be dedicated to improve the legal instruments that shall be available for the private investors in order to recover the credits, to suspend the service towards the insolvency people, to protect the property of the company against predatory actions or against third parties’ claims (e.g. claims on ownership of the land or buildings) 

The procedures for the strategic sectors’ privatization

In implementation of the Law no.8306, dated 14.03.1998, for every company of the strategic sectors to be privatized, shall be prepared a specific law of the privatization. 

Afterwards, in the implementation of the specific law, shall be prepared sub-legal acts, which shall be approved from the Council of Ministers, like for the tendering procedures for the selection of the strategic investors and transfer of shares owned by the State in commercial Companies of sectors with a special importance, for the criteria for the selection of the strategic investors interested in purchasing the shares, for the criteria for the evaluation of the offers for the privatization of the companies, for the method of using the income of privatization, for approval of the share purchase agreement and bid instructions and last for the approval of report for the evaluation of offers.

According to the proccedures, the Offers Evaluation Commission prepares the report of evaluation of offers and presents it to the Council of Ministers, which approves the report and winner of bid. With the winner, shall be performed the negotiation and the sale agreement.

To confirm the necessary guaranties for the purchaser, the share purchase agreement shall be ratified by parliament.

Regarding to the financial and legal guaranties for the purchaser interested for the acquisition of the shares, it’s very important to underline that the requests for the purchasers are published in the invitation for the expression of interest and shall be checked in the decision of the Council of Ministers, for the criteria for the selection of the strategic investors. All such requirements shall be certified by means of official certificates issued by the relevant authorities or by other written official documents.

In the process of the strategic sectors’ privatization, the Albanian Government is supported with assistance of the World Bank, IMF, EBRD, etc. The international strategic privatisation advisor is an Italian company IMI San Paolo Milan (Italy), selected with an international bid procedure with the World Bank. An example for the role of the assistance of the international advisor, was Albanian Mobile Communications (AMC) privatisation. Only owing to the assistant of the consultant company IMI, is achieved AMC privatisation to be most successful at the last ten years.

Albanian Mobile Communications (the mobile phone company) was the first privatised company of the strategic sectors. The company was privatised through an open international bid, where various operators from world-wide participated. The privatisation of the company resulted in important investments from the private owner, which improved rapidly the quality of the service and the area coverage within the country. The revenues generated by AMC’s privatisation, were a very significant income for the state budget and proceeds are comparable with the total revenues from the privatisation process since 1991. 

The success of AMC privatization searched an universal preparatory period, at which the compactness of her value is realized, on the whole of the business- plan, fastening the manager staff in his too active practice in the relation with the capital of the company. This period can consider the capitalization and commercialism period, which incites the manager staff to working discipline, to perfection of the techniques and labor instruments, to the submission that their work and value were the part of company value and its active economical- financial business- plan of the market.

This practice, too successful in the case of AMC, is a valuable experience and lesson for the privatization of other companies in the sectors with a special importance of economy. In this compactness, the quality of staff and the presence of the international consultant company's assistance during the preparatory phase, was determinant. Their co-operation achieved to keep a high tonus of the interest of the AMC staff, because without these elements could not be aimed at the success.

In the absence of the stock exchange, only owing to the assistant of consultant company IMI, is achieved a content value of the shares of this company.

It's very important to underline that the success of AMC privatization contributed in creating a climate of confidence among the private investors and this was shown by the participation of various operators in the tender for the second license. That must be accepted as a rather clear positive signal to increase the interest of the foreign investors for other sectors of economy too.

The strategy of Government to start the privatization of the strategic sectors with AMC company, can be considered as one of the bases for the successful realization on the whole of the first privatization's process of the strategic sectors.  

Albtelecom is also being prepared for the privatisation. The restructuring process for this company was initiated with its transformation into a joint stock company, which was realised during 1999. In co-operation with the privatisation adviser, were prepared and approved by the parliament a law for the privatisation of Albtelecom Sh.a and some sub-legal acts in implementation of this law. Public participation in this privatization process is expected to be implemented through a public offer. At the same time, the company is implementing a long-term investment plan with the aim of increasing the penetration rate. Currently, Albtelecom is one of the largest and the most profitable companies in Albania. Aiming the liberalization of the telecommunications market, as part of the international open bid, a license to operate a GSM network and to offer GSM services will be issued to the strategic investors purchasing Albtelecom’s share capital stake.

In the mining sectors, the Albanian Government agreed a 20-years concession contract for the cooper industry with a foreign company.

The smelting plants of ferrochromium production and several chromium mines were given in concession where private investors made investments.

The former state owned Petroleum Company, Albpetrol was restructured through establishment of the holding company APC (Albanian Petroleum Corporation) and three controlled operational companies. Albpetrol (production of crude oil and gas), ARMO (refining and marketing of product) and SERVCOM (service companies). The restructuring process gave very positive effects as the entire group resulted with a positive net profit during 2000, the first after several years of accumulated losses and difficult financial position. The case of Albpetrol was the largest process of restructuring and a clear example of the positive effects of this process prior of the privatization process.

In the transport and utilities sectors, the government approved the construction of a new terminal for the Rinas airport through a concessionaire BOOT scheme. For this purpose, an international adviser was appointed in order to prepare the necessary international tender, which will select the international investor.

The service operations in Port of Durres were privatized during 1999-2000 and a master plan for the development of Port is prepared.

In the water supply sectors, efforts were made to commercialize the activity of the water supply enterprises by the transformation in joint stock companies. The national railroad enterprise is also transformed into a joint stock company. Request for taking in concession such enterprises was presented by some foreign operators and a contract for the Elbasan water supply was signed with the Berlin water supply company.

In the water and wastewater sector the privatization is implemented through the transformation of the state enterprises in the water and wastewater sector into joint stock companies. The internal restructuring of such companies is a priority for the government. A successful restructuring leads to a steady process of privatization.  There are made big steps too for the privatization in this sector through the concessionary and management contract.

In this sector of the transport infrastructure is realized the transformation of the state enterprises into the joint stock company for the ports, railway and air transport.

The Energy Company KESH (Albanian Electricity Corporation) faces difficulties with the deterioration of the energy supply for the country. The government is fully committed for the energy sector and the company is undergoing a full restructuring process at this time. The government has approved a specific action plan in order to improve the supply of the nation with electricity and major investments are being implemented by KESH to reach such objective. Through a program of the World Bank, which aims the restructuring of KESH, the company is assisted in management by the Italian energy utility.

The success of the privatization process in an assurance for the successful continuation of this process in the future. At the same time, the privatization enhances the rapid economic development of the country and creates the necessary positive climate for the attraction of foreign investments, which are required in Albania. Lastly, a success in the privatization process is also an important factor for the promotion of the private businesses in Albania, which are the major contributor to the economy of the country.  

Key points of a successful privatization program in Albania are the following:

INTERNAL RESOURCES’ INVOLVEMENT

The involvement of motivated and professional internal resources represents the “the real scarce resource” to manage successfully a very ambitious process, in particular having into account: 

THE PROCESS OF PRIVATIZATION IN ALBANIA

Privatization itself represents a key tool to foster the development of the country, but is just one many factors affecting the marketplace.

FACTOR

DESCRIPTION

LIBERALIZATION

Liberalization and introduction of competition represents one of the greatest driving forces in the development of the scenario.

INTEGRATION

The horizontal and vertical integration continues to act as driving force of the consolidation process in progress in many sectors

COMPETITION

The growing level of competition among the companies represents the key issue in any sector

TECHNOLOGY

Technology is one of the most important dynamics affecting the sectors today

 

Main activities

Drivers and issues

Phase 1: Privatization Strategy

•          Role and objectives of the sectors within the Albanian Development Program •         Privatization Formula •         Legal framework

•          Strong need for the Government’s participation in the definition of key strategic and macroeconomic priorities •          Time constraints posed need to modify and update the current legal framework

PHASE

Objectives

 Assignment of the amount of ownership to the strategic investors selecting best industry practice, maximizing premium price relatively to the bidders and identifying the match of their international expansion strategy. 

v                    State ownership of post privatization to be agreed through evaluation of financial burden forecast for the companies relatively to the Government budget constraints.

v                    The amount of stake to distribute to the public needs to be established by deeply analyzing the liabilities towards the owners of vouchers accounting for all the future needs to raise capital.

v                    Development of sound control mechanism for post-privatization ownerships and dynamics.

Phase 2: Preparation	•             define the most suitable business configuration for privatization process •             Regulatory framework •             Financial and industrial restructuring	•         information available and reliability •         degree of definition of regulatory framework Current status (process, systems, technology and resources) •         Adequate timing for creation of credibility and expectations in investors
Phase 3: Execution of the  sale process	§       Information to investors §       Due diligence §      Final negotiation and selection	§                     Direct dependence upon the completion of Phase 1 and 2 §                     Identification of potential investors §                     Additional timing required by investors for acquisition and due diligence process

PHASE 2 

Objectives

v                    Identify preliminary actions to carry out in the company to privatize relatively to interventions of legal and accounting nature need to sell the companies (e.g. transform into limited companies, create a capital structure, edit a balance sheet, etc) 

v                    Perform detailed analysis of activities managed by the companies, assets, employed resources and technologies to uncover elements not related to the production process and to exclude from the offer, in order not to impact on the already copious restructuring effort that the investors will have to bear.

v                    Analyze obligations imposed by regulators to industry player, like the Universal Service in telecommunications, or compulsory territorial presence in oil distribution, and the evolution of framework considering EU standards and Albania potential membership.

KEY POINTS OF A SUCCESSFUL PRIVATIZATION PROGRAM

1.      INTERNAL RESOURCES’ INVOLVEMENT

The involvement of motivated and professional internal resources represents the “the real scarce resource” to manage successfully a very ambitious process, in particular having into account:

Ø      The lack of standard financial and industrial information;

Ø      The logistical issue.

2.      COUNTRY CONDITIONS

Political and social stability must be considered as a pre-eminent condition for the development of the privatization process.

3.      POSITIVE TESTIMONIAL

The availability of a foreign successful entrepreneur to act as a testimonial would play a key role in the positive perception of the Albania “clime” in the international business community.

4.      POLITICAL/SOCIAL CONSENSUS

Launching the sale procedure of the strategic companies for the Albanian economy could have both a political and a social impact. In order to ensure a positive consensus towards the privatization process it will be necessary to implement a massive education and marketing program.

5.      MANAGEMENT COMMITMENT

The commitment of management of the companies involved in the project will allow to reach the significant goals of the privatization program.

THE SOCIAL PROTECTION SYSTEM

It is based on those 3 main pillars:

1. Social security

2. Universal Benefit System

3. The Social Assistance System

The part of the Constitution which provides clear norms for the protection of the social well being is mainly gathered in the chapter concerning the economic, social and cultural rights and freedom of the citizens and the one in social objectives (above mentioned).

Legislative Coverage: In general, the State provides institutional and legal assistance to those vulnerable groups (children, elderly and disabled), for which traditionally Albania used to have structures and rules, even during the regime. From a juridical point of view, the law provides quite a complete legislation for children, elderly and disabled, while on women, the legislation does not go beyond a general statement, where discrimination based on gender and other factors is not legitimated. 

The Constitution protects vulnerable people, at least economically, by entitling everybody to benefit from social security, by protecting those who lose employment against their will and by authorizing financial assistance for those, who have no means. However, these benefits are often too low and often not able to guarantee acceptable and minimum standards of living, which are indeed not properly defined by the Constitution.

Albania is currently involved in a series of economic reforms as part of its transition to a market economy. This policy or reforms has been implemented in a very difficult period, with the collapse of external markets and the falling of the industrial output. In these conditions, wages and incomes policy have an important role to play, responding to these increasing social needs while reflecting the new economic constraints. It is in this context that the Ministry of Labor asked for UNDP and ILO assistance in the field of wage policy. For the first time in Albania, a working group of wage experts of a tripartite nature was created, with equal participation of experts from the Ministry of Labor and the main trade unions and employer organizations, and also the active involvement of the National Institute of Statistics and the Ministry of Industry.

This volume is the result of the work done by all members of this group and it includes the most recent analyses of Albanian and international experts in this complex and sensitive field. They try to identify the effects of wage policy, social as well as economic, on both macro and micro levels. Particular attention is paid to payment systems in the budgetary sector, reform of the minimum wage, the implementation of payment systems more closely linked to productivity and economic performance, and more generally to the need for progressively moving from a centralized system towards a more negotiated wage policy.

This volume also benefited from the contribution of experts from the Hungarian Ministry of Labor, which agreed to share the experience of their country, already advanced in this process and already experienced in the elaboration and implementation of a tripartite wage-fixing process. This project also provided the opportunity to carry out in September-October 1994, for the first time in Albania an extensive survey among all industrial enterprises. The results of this survey, which cover not only wages but also other labor market issues are presented and analyzed in this volume.

Social Protection in Albania

The Albanian pension system is: pay-as-you-go. Participation in this funded pillar would be voluntary.

This country profile is designed to provide a comprehensive overview of the social protection mechanisms of the countries of the region, ranging from social security schemes such as pensions, sickness and maternity benefits, employment injury and unemployment benefits, to health care, family benefits and social assistance. The profiles are intended to cover all statutory social protection benefits, but they do not seek to provide in- depth descriptions of social services, or non-statutory and indirect benefits provided on the basis of private initiative or by the state. These types of benefit are generally too heterogeneous to be described within the constraints of comparative technical papers.

The profiles limit themselves to a presentation of basic facts and the underlying structure of the national system. Although there is always an element of subjective interpretation, as far as possible the authors refrain from comments, judgments and advice. The profiles should serve as an information base and a starting point for the technical work of planners, managers and researchers in the field of social security. They do not set out to solve technical or policy problems within national social protection systems; they are intended as a service for both national and international users. By trying to piece together all the information available on national social protection systems, the authors hope to improve the understanding of such systems and encourage policy-makers and planners to examine the complex web of interactions between specific social protection subsystems in the course of their efforts to reform their national social protection system.

This country profile about Albania reflects the state of the law as of early 1994 and data up to 1993. It comes to the conclusion that Albania took swift and comprehensive action to bring its social protection system into line with the new economic and political environment. Following some preliminary modifications of the previous system (e.g. the introduction of unemployment benefit) it commissioned all income-related social insurance benefits to the Social Security Institute in October 1993. The Institute is governed by a tripartite council supervising four branches of social insurance (short-term benefits, pensions, employment injury benefits and unemployment benefit) providing a comprehensive benefit package. Albania has thus avoided the fragmentation of social insurance, with which so many other countries in the region are struggling.

The Strategy of poverty reduction in Albania

Over the last three years, Albania has made substantial progress in achieving macroeconomic and financial stability and has implemented many structural and institutional reforms required to establish a functioning market economy. In these endeavors the government has been supported by the arrangements under the Enhanced Structural Adjustment Facility (ESAF) and the IDA Structural Adjustment Credit (SAC). The results of these efforts have helped the government to put the economy on a rapid path of growth and to improve the well being of the population.

Despite this progress, Albania continues to have one of the lowest levels of per capita income in Europe. The government is aware of this reality and is of the view that rapid growth is the main instrument for reducing the development gap of the country relative to the rest of the Europe, improve the standard of living of the population, and reduce the poverty of those most in need. To address these objectives in a comprehensive fashion, the government is planning to prepare a Poverty Reduction Strategy Paper (PRSP) by mid- 2001 and launch a new national poverty reduction plan. This policy is consistent with the initiative under the Stability Pact and Albania’s aspirations to become more integrated in Europe. To strengthen its effectiveness, the strategy will be formulated through a broad participatory and consultative process that will include, among others, representatives of civil society, local communities, the poor, and the donor community.

To ensure that the economy stays on a rapid growth path and to promote private investment, the Albanian government has agreed with the Fund and the Bank staff on a three-year macroeconomic framework and a set of policy measures, which are described in the attachments to this document. The Government also intends to request a new three-year arrangement under the Poverty Reduction and Growth Facility (PRGF) in 2001 following the termination of the current three-year arrangement, and it will continue to cooperate with the World Bank to deepen its reform program in the context of structural adjustment and other operations.

II. Poverty Profile

Poverty in Albania is a multidimensional phenomenon. As indicated by various studies, poverty defined in terms of low income and/or consumption in Albania is relatively high, mainly due to limited job opportunities and low incomes, particularly in agriculture. But poverty in Albania does not only manifest itself in low income for parts of the population, but also importantly in limited access to and poor quality of basic services like education, health, water, and sewerage. Large differences exist between rural and urban areas. Furthermore, repeated shocks and crisis, as well as large external and internal migration have contributed to the weakening of social cohesion and traditional family and community based safety nets, leading to increased vulnerability and social exclusion of different groups of the population.

Albania ranks low in comparison with other Southeastern and Central European transition countries in terms of commonly used living standard and human development indicators. Per capita GDP in Albania is lower than the average of Southeastern European transition countries, and significantly below the average of Central European transition countries. UNDP' s human development index places Albania 100th (based on 1997 data) out of 174 countries ranked, significantly below the rankings of other transition countries in Southeastern (55-73) and Central Europe (33-47). UNICEF’s Report on the State of the World’s Children for the year 2000 ranks Albania 90th out of 175 countries with respect to under-five mortality rate (based on 1998 data).

A study based on the 1996 Living Standard Measurement Survey (LSMS) data, conducted in the areas outside Tirana, suggests that poverty in Albania is a rural phenomenon with almost 90 percent of the poor residing in rural areas and 60 percent of the heads of poor households being self-employed in agriculture. The incidence of rural poverty was found to be five times higher than urban poverty and is the highest in the North of Albania, where a large portion of families own less than 0.5 hectare of land each. Many households in these regions require subsidized wheat and cash transfers to survive the winter. Limited access to public services, often aggravated by poor rural infrastructure, especially roads, is a contributing factor to rural poverty. According to 1998 data, 27 percent of farms do not sell products to market and only 50 percent of farms use machinery.

Children are especially at risk of poverty according to the results of the 1996 LSMS data. The poverty rate for children under 6 was found to be almost the double one of the rate for adults at the age of 64 and over. Moreover, the number of children is a strong poverty correlate – approximately one third of the poor have 5 or more children and the poverty incidence among families with five or more children is 60 percent.

Other results of the LSMS study indicate that poor families tend to be young, that poverty is strongly linked to education, while gender does not appear to be a poverty correlate, and that remittances constitute a major informal safety net. The poverty rate drops as the age of a household head rises; poverty is almost 10 percent higher for households with heads 16 to 35 years of age than for households with heads aged 64 and above. Households headed by people who are illiterate or have basic education are 20-30 times more likely to be poor than households headed by university graduates. Especially in rural areas, the poverty rate is minimal where household heads have migrated and returned home; the poverty rate is slightly higher where household heads abroad are currently sending remittances.

The social stratification since the 1996 LSMS may have changed as a result of the economic downfall caused by the pyramid scheme crisis, and large-scale internal and external migration. There are indications that significant pockets of urban poverty have appeared. Slum-like communities have formed around Tirana and other major cities, lacking urban infrastructure and services. Children from these communities often have to walk for about an hour to reach at school. It is estimated that in Tirana there are about 800 street children. Parents working abroad often leave their children with grandparents or relatives, who in some cases are not able to take adequate care of them. The number of elderly people who live alone and without help has risen. Problems such as drug abuse, prostitution, trafficking in women, child abuse, and other social problems have also increased.

Access to health services in Albania is limited and services tend to be of poor quality. Budgetary spending on health in Albania (2.1 percent of GDP in 1999) is one of the lowest in the region and since 1990 has fallen significantly in real terms. Currently, 30 percent of the existing health centers are not functioning due to a variety of reasons. Albania has fewer physicians and nurses than other countries in the region. Large rehabilitation needs still exist for the physical infrastructure. Informal payments for health services, which are supposed to be free, are a common phenomenon. Albania compares unfavorably with other countries in the region with respect to infant and maternal mortality rates. In contrast, both male and female life expectancy in Albania is high, notwithstanding the fact that they seem to have fallen since 1991.

Enrollment rates in education, particularly at the secondary level and especially for children from rural areas have fallen since 1990. As a result, the expected duration of schooling of children has dropped to below 10 years. This drop occurred against the background of a decline in public expenditures on education from 3.8 percent of GDP in 1995 to 2.8 percent of GDP in 1999, much below the level in neighboring countries. The declining enrollment rates reflect deterioration in the quality of education, the diminishing relevance of traditional forms of vocational and technical training, as well as the increased opportunity costs of attending school. During the last ten years about 3 percent of children have dropped out of school each year, which means that illiteracy which had been virtually eradicated in Albania, could be rising again. There are also serious concerns about the quality of education. In some urban areas the number of pupils per classroom now exceeds 40, while especially in rural areas the percentage of unqualified teachers is quite high. In addition, many schools still are in poor condition.

Access to basic services is far from universal and services are often not reliable. In urban areas about 80 percent of the population has access to piped water; access levels in rural areas are considerable lower. Furthermore, an urban household on average has running water for only 2-3 hours a day. About 40 percent of the urban population has a sewerage connection. No sewerage treatment facility exists in the whole country, and sewerage is discarded directly into rivers, lakes and the sea. Because of the poor condition of existing pipes, sewerage often contaminates drinking water. Because of the obvious health risks, a high chlorine concentration is used to kill bacteria in piped water. Access levels for electricity are high, but there are frequent disruptions in the service, especially during the winter months.

Poverty Reduction Strategy

A-Sustainable and Inclusive Economic Growth

The promotion of sustainable growth and inclusive development is the overarching priority in Albania’s development and poverty reduction strategy. A poverty reduction strategy for Albania should therefore focus on a fair distribution of the benefits of growth for the entire population and should take into account existing social capital at the community level. In the past sustainable growth has been a main pillar of Albania’s economic program and structural reforms has been aimed at achieving better governance and improving social cohesion. The PRSP approach provides Albania with the opportunity to deepen these efforts by focusing more clearly on poverty reduction as a policy goal and by formulating the strategy in a participatory fashion thereby increasing ownership.

Poverty reduction requires stronger public and private sector institutions that can operate in a transparent and accountable fashion and that are accessible to the entire population, including the poor. Economic activities in Albania have been severely constrained by the weak institutional capacity for enforcement and the lack of transparency in administration, which have fostered the development of corrupt practices. Since the 1997 crisis, progress has been made in building a framework for improved and transparent public organizations in cooperation with the World Bank. However, the government realizes that more needs to be done to improve the targeting, transparency, and effectiveness of expenditures and to increase Albania's capacity to absorb foreign aid. As a step in this direction, a medium-term expenditure framework (MTEF) is being introduced to improve the budget planning process and to facilitate more effective expenditure prioritization

In recognition of the important role that the public sector must play in ensuring sustainable growth through improved human capital, the government is taking a number of actions aimed at enhancing the inclusiveness and citizen-responsiveness of Albania’s public institutions. These include the establishment of a fully functional People’s Advocate (ombudsman), the establishment of a Civil Service Commission, and the appointing of a Central Elections Commission. Also, complementary measures are being taken to improve the delivery of health, education and social services.

The government has also initiated major steps to reform the judicial system by: upgrading the quality of legal education; improving the functioning of the judicial system; creating a system for an out-of-court resolution of commercial cases; and, making essential legal information more accessible. The government intends to complement these steps, particularly by anti- corruption measures, in cooperation with the World Bank and other donors within the framework of the Stability Pact. The anti-corruption program is a major component of the public sector and the judicial reform, which is essential for building a more transparent and accountable state in Albania. It is also vital for poverty alleviation, because studies show that corruption affects the poor more.

Reducing poverty also requires community-based activities that develop institutions and social cohesion from the bottom up, and build on the traditions and social conventions that govern the behavior and actions of individuals. The absence of these institutions impedes economic development and increases poverty. In addition to supporting public sector reform, the government’s strategy focuses on building institutions rooted in local culture, enjoying the full trust and ownership of the community and community-driven programs. These programs would stimulate growth and alleviate poverty in rural areas.

In line with this view that strong growth remains the main instrument for sustained improvement in the living conditions of the population and gives the strong links between economic stability and growth, the government has, in consultation with the IMF, elaborated a macroeconomic framework for the next three years with projects, that will expand Albania’s economy at a growth rate of 8 percent over the next three years. This framework is underpinned by a comprehensive set of structural reforms - including financial sector reforms, privatization of the remaining state-owned enterprises, and measures to create an institutional and legislative environment conducive to foreign and domestic investment.

B. Human Development

The Government recognizes that economic growth that does not translate into improvements in the standard of living for everyone is socially, politically, economically and environmentally unsustainable. To ensure that sustainable economic growth is inclusive in Albania, the government will therefore promote human development through the design and implementation of comprehensive and integrated strategies in health, education, child poverty, and social protection sectors.

B.1 Health

Against the background of unsatisfactory health outcomes – in particular for children – and poor access of the population to health services, the government’s objectives are to improve the health status of the Albanian population, to ensure full access to primary health care regardless of income level, and to ensure comparability in access to health services between rural and urban areas. Priority will therefore be given to reforms in the health sector, particularly in public health measures and preventive and primary care services. The Ministry of Health’s program calls for undertaking measures to improve the institutional capacity in the provision of public health services, particularly in ensuring full coverage of vaccination programs and in improving the monitoring and treatment of infectious diseases. The government will also develop a program that will provide better family planning and reproductive health services in order to improve the health status of women and children.

The government will give high priority to the increase of the level and effectiveness of public health expenditures, which have fallen significantly in recent years. It will also finalize, in cooperation with WHO and the World Bank, the National Health Policy and Strategy document, which deals with all aspects of the Albanian health sector, e.g. financing, management, institutional arrangements, etc. over the short- and medium-term

B.2 Education

The government aims to increase enrollment in basic and secondary education. In basic education, the government will undertake an analysis of the recent decline in gross enrollment rates. It will also review the structure of the secondary education system in order to make it more appropriate to current demands in the labor market and to identify measures for improving the quality of secondary schooling. For the entire education system, the government will adopt more appropriate curriculum standards, improve arrangements for the supply of textbooks, and address issues of the quality of teaching staff. It will also explore how to improve the integration of internal migrants into the education system. Furthermore, the government will use its school-mapping database to rationalize the allocation of resources for school rehabilitation and construction

B.3 Child poverty

The government will pay particular attention to alleviating poverty and vulnerability among children. The 1996 LSMS indicates that the incidence of poverty among children, particularly in rural areas, is high. Moreover, other evidence indicates that in northeastern areas, malnutrition is observed in around one quarter of children. In urban areas, the growing number of street children needs to be addressed. The government intends to address child poverty and vulnerability through its programs in education, health and social protection. In the area of social protection, the government will take steps to ensure adequate income support to poor families with children. Introduction of other programs, such as school feeding, food supplements for infants and pregnant women, and assistance in kind to children from poor families will also be considered.

The government will pay particular attention to protection of children without parental care. As an alternative to their institutionalization, foster care arrangements will be developed, including necessary legislation, financial support to foster care providers and appropriate monitoring and supervision institutions and mechanisms. The government will prepare a plan for the introduction of community based social care services (daily care centers, family counseling centers, respite care centers, etc.) in order to provide assistance and support to handicapped children and their families, dysfunctional families, children and youth with disturbed behavior and other vulnerable groups.

B.4 Labor Market and Social Protection

Currently, 18 percent (or about 239,000 people) of the workforce is officially registered as unemployed. In order to create a flexible labor market that promotes employment opportunities, the government will review and, where necessary, revise its labor market legislation and regulations, labor market policies and social insurance programs. The Ministry of Labor and Social Affairs (MoLSA) will examine the possibility of implementing public works programs focusing on poor communities, particularly in rural areas, and strengthening job counseling and job search assistance for the unemployed. Well targeted, demand driven training programs will continue to be implemented, with special focus on training and retraining of workers who have been made redundant by privatization, structural changes, etc. In addition, efforts will be undertaken to improve labor statistics.

The government will develop a plan for restructuring its unemployment insurance program to improve its targeting consistent with Albania’s level of social and economic development. The government will also review its social insurance programs, with particular emphasis on pensions. It will complete the actuarial evaluation of the pension system by end-2000 and prepare reform proposals in order to achieve its fiscal sustainability in the medium term.

The government will review, by November 2000, its cash-benefit social assistance program, with particular emphasis on the assessment of its poverty impact in order to improve its targeting effectiveness. The MoLSA has already initiated a pilot study for Tirana to review its social assistance program. According to the 1996 LSMS data, the program was modestly effective in targeting and contributing to the alleviation of poverty in the poorest strata of the society and reducing inequalities of consumption. The MoLSA will complete and make operational its database on social assistance beneficiaries. In addition to cash social assistance programs, the government will prepare a plan for the development of a system of community-based social care services in order to improve the well-being of vulnerable groups, such as children deprived of parental care, the disabled, single mothers, frail elderly people living alone and dysfunctional families.

C. Rural and Urban Development and Access to Basic Services

The Poverty Reduction Strategy will aim to identify incentives for inclusive and sustainable economic development in order to ensure that all sections of Albanian society benefit from growth, and broaden income and employment opportunities for both the rural and urban poor. Specifically, the government aims to increase access to basic services (e.g. water, sewerage) for the entire population and to improve the quality of these services.

While a fully-fledged policy to address rural poverty will be developed in the PRSP, the government has already begun to address some of these issues. Moreover, the government will remain committed to improving efficiency in the agricultural sector, focusing on land consolidation and the development of a rural land market.    It will also continue with the project for small-scale local infrastructure improvements. The government will improve the enabling environment for village savings and credit associations and will expand the micro-credit rural savings scheme, which has proved to be a very effective instrument. Based on the findings of the PRSP, the Steering Committee will recommend to the Albanian Development Fund (ADF), how to use ADF more efficiently for poverty reduction and local development.

The rural poor are particularly vulnerable to natural resource degradation. Therefore, the government will promote sustainable use and management of natural resources, especially water, forests, pastures, and fisheries. It will explore possibilities for expanding community-based activities that have proven effective, such as community forest and pasture management, water users associations, and community-based institutional frameworks for their operation and maintenance. It will also facilitate fishermen’s associations in order to introduce community-based marine resource management. The National Environmental Action Plan will be completed providing the framework for sustainable natural resource use. In addition, it will develop a plan to address the linkage between energy and poverty, with the intention of improving the targeting of subsidized energy and increasing access of the poor to competitive sources of energy.

The government will take steps to tackle problems associated with rapid urbanization that has occurred since 1991. Massive internal migration to urban areas has caused large informal settlements on suburban public land. An estimated 20 to 30 percent of Tirana's current residents are reported to live in such settlements mostly without title registration and with little or no access to essential urban infrastructure. Additional problems have resulted such as degradation of the urban environment due to free discharge of sewage and disposal of solid waste. Pockets of urban poverty have appeared as migrant families tend to be excluded from the formal urban fabric. Through initiatives such as the ongoing Urban Land Management Project as well as community-based social services, the government will provide essential infrastructure networks in informal settlements with community participation and ownership; develop and implement clear rules to regularize and legalize informal settlements to achieve social cohesion in urban areas; and nurture partnership among central and local governments, and communities to set up effective institutional frameworks for the urban sector.

The Ministry of public works will examine the issue of homelessness that has resulted from the privatization of state-owned homes, the pyramid schemes, and migration to urban areas. It will also evaluate deficiencies in water supply and quality of water, and garbage collection and disposal in both urban and rural areas.

The government will evaluate its strategy for strengthening local governments with a view to fully ensure the realization of its poverty reduction objectives. The Strategic Plan on Decentralization was approved in December 1999 and a task-force is currently preparing the legal framework and an action plan. Care will be taken to ensure that the delegation of tasks to subordinate levels of government and funding allocations will not conflict with poverty reduction goals.

Employment

	In thousands					In %
	1995	1996	1997	1998	1999	1995	1996	1997	1998	1999
Total Number of Employees	1.138	1.116	1107	1085	1073	100	100	100	100	100
State Sector	276	239	226	213	209	24.2	21.4	20.4	19.6	19.5
Agricultural Private Sector	276	276	276	276	276	276	276	276	276	276
Non-Agricult. Private Sector	276	276	276	276	276	276	276	276	276	276

Registered unemployment, long term unemployment and unemployment rate 

		1995	1996	1997	1998	1999
Total Number of unemployed People	In thousands	171	158.2	193.5	235	240
- long term unemployed people	In thousands	124.3	120.2	162.6	209	216
- unemployment rate	In %	12.9	12.3	14.9	17.7	18.3

Wages and pensions                                                                   (in Leks) 

	1993	1994	1995	1996	1997	1998	1999
Unemployment Salary Minimum Official Wage Average Monthly Wage Maximal Pension Urban Rural	1.237 1.200 3.084   1.710 750	1.920 2.400 4.778   3.840 750	2.150 3.300 6.406   4.400 750	2.150 4.400 8.638   5.920 1.138	2.150 4.400 9.558   6.500 1.248	2.500 5.800 11.509   8.000 1.248	2.500 5.800     8.800 1.250

Monthly retirement pension 

	1993	1994	1995	1996	1997	1998	1999
Minimal Pension
Urban	1075	2200	2710	3750	3750	4000	4400
Rural	528	700	700	1075	1075	1075	1150
Maximal Pension
Urban	1710	3840	4400	5920	6500	8000	8800
Rural	750	750	750	1138	1248	1248	1250

Family economic Protection                                      (in thousands Leks) 

	1993	1994	1995	1996	1997	1998	1999
Total	153.0	145.0	134.9	143.5	145.9	137.7	149.7

Out of which:

With 1 member	13.1	12.2	10.7	10.4	10.5	9.6	9.6
2 members	21.7	20.4	18.8	17.7	15.9	14.8	14.8
3 members	30.1	29.1	28.2	29.7	28.6	25.9	25.9
4 members	34.2	33.4	33.2	37.4	41.8	40.1	43.9
5 members	22.6	21.0	19.8	21.7	23.3	22.8	26.5
6 members	14.3	13.1	11.5	12.6	12.7	12.3	14.2
More than 6 members	16.9	15.8	12.6	14.0	13.1	12.2	14.8

Family economic protection by prefecture 

	1994	1995	1996	1997	1998	1999
Total	145.0	134.9	143.5	145.9	137.7	149.7
Berat	8.4	8.6	9.3	10.3	10.1	12.3
Diber	21.5	17.7	17.8	16.5	12.7	19.1
Durres	6.0	5.4	4.8	5.2	4.1	4.3
Elbasan	18.8	18.9	19.9	20.7	20.3	19.9
Fier	6.2	3.1	5.8	7.2	6.6	6.6
Gjirokaster	2.8	2.1	2.4	2.6	2.4	2.9
Korce	11.1	11.2	11.3	12.3	12.6	12.8
Kukes	14.9	11.3	14.8	12.4	12.5	14.1
Lezhe	9.9	9.4	9.0	9.7	9.7	10.3
Shkoder	17.2	20.3	23.6	21.5	24.3	25.7
Tirana	22.1	21.2	19.8	19.4	16.3	16.5
Vlora	6.2	5.7	5.2	8.1	6.1	5.2

L A W

No. 8306, dated 14.3.1998

   ON THE STRATEGY FOR THE PRIVATIZATION OF STRATEGIC SECTORS

Based on article 16 of law no. 7491, dated 29.4.1991 "On main constitutional provisions", on the proposal of the Council of Ministers

  THE PEOPLE’S ASSEMBLY

   OF THE REPUBLIC OF ALBANIA

D E C I D E D:

   Article 1

 Definitions

In understanding of this law:

"Right to ownership" is the right to enjoy and make free of an object within limits defined by law.

"Right to use and develop" are rights stemming from enjoyment of an object in order to make use of it, exploit and develop it.

"Golden share" is a share of special characteristics, which the state holds for a definite period of time in order to exercise exclusive rights on decision-making for special decisive society issues, but not for its daily work.

"Privatization vouchers" are privatization money, privatization bonds and vouchers issued by the Bank of Albania.

"Strategic Investor" is any juridical person who holds a financial guarantee and is a licentiate of an economic activity, at a special sector.

Article 2

The strategy for the privatization of strategic sectors prepared by the Council of Ministers is approved.

Article 3

State enterprises and trade companies with state capital operating in strategic sectors of the economy are open to privatization.

By privatization is meant the total or partial transfer of the right to ownership, use and development to the juridical or physical person.

Transfer of right to ownership will be realized through the sale of company’s shares or sale of special objects issued by companies or state enterprises.

Article 4

By strategic sectors of economy are meant: the industry of energy and mining, oil and gas, post, telecommunications, forests and water reserves, roadways and railroads, sea ports, airports, air and rail transport, as well as the sector of second level banks and insurance companies with total state capital.

Article 5

The definition of the form and structure of the privatization formula for companies with state capital in strategic sectors is made by law

Article 6

The Council of Ministers should, for each decision to be taken on the privatization of enterprises and companies operating in strategic sectors, foresee the necessary steps to confront social problems according to definitions made to laws for the privatization of relevant sectors.

Article 7

The privatization of these sectors will be carried out with the participation of strategic investors to whom not less than 30 percent of shares are offered.

Definition criteria and procedures for the selection of strategic investors are decided by the Council of Ministers.

Article 8

Participation with privatization vouchers in order to privatize companies and enterprises of strategic sectors is defined in the privatization formula, but it should, in no case, be higher than 20 percent of the capital. The way to represent shareholders and the rights deriving from them are defined by the Council of Ministers.

Article 9

In the cases of total or partial transfer of property, the privatization formula is implemented. The privatization formula denotes the company’s capital to be withheld by the state, the strategic investor or other investors, and the possible limit of participation with privatization vouchers. It will be considered case-by-case by the Council of Ministers. Each time the packet to be privatized with the participation of the strategic investor will be paid in cash.

Article 10

When the state has the right to decide on issues concerning public and strategic interests or when a certain level of control is required to be preserved, the state holds "the golden share" or a defined packet of shares under ownership. Such cases are defined on the sale contract laws for each sector.

Rights stemming from "the golden shares" are defined on the sale contract.

Article 11

In order that the privatization procedures be implemented, from the moment the decision on the privatization of a company is issued, a minimum term of 6 months will be regarded during which the necessary legal transparency on data, procedures and decisions taken will be ensured.

Article 12

The Council of Ministers is in charge of formulating the necessary draft laws according to definitions and terms decided in the privatization strategy, as well as approve sub-legal acts, which are necessary for the implementation of this strategy.

Article 13

The Ministry of Public Economy and Privatization with the attribute of the representative of the state property owner is in charge of carrying out the implementation of the privatization strategy on sectors as defined in article 4 (except for banking and insurance sectors conform to all relevant procedures in line with the approved legal framework.

Article 14

The Ministry of Finance is in charge of carrying out the implementation of the privatization strategy in the sector of the second level banks with total state capital and of insurance companies with total state capital, following all respective procedures in line with the approved legal framework.

Article 15

Second paragraph of article 3 of law no. 7512, dated 10.8.1991 "On sanctioning and protection of private property, free initiative, independent private activities and privatization" becomes invalid.

Article 16

This article becomes effective 15 days after being issued at the Official Newspaper.  

LAW

                                          No. 8334, date 23.4.1998

ON PRIVATIZATION OF COMMERCIAL COMPANIES WHICH OPERATE IN NON-STRATEGIC SECTORS

According to article 16 of law no.7491 date 29.4.1991 "On main constitutional dispositions", with the proposal of Council of Ministers

PARLIAMENT OF

REPUBLIC OF ALBANIA

DECIDED:

Article 1

Definitions

According to this law:

Package of shares of commercial companies or the offer for privatization is the number of shares that the State, as the sole owner, represented by the Ministry of Public Economy and Privatization, offers for privatization.

Demand is the amount in lek (national currency), privatization lek or vouchers, invested to buy shares of commercial companies to be privatized.

Share Capital is the capital of company expressed in the Court Decision for the registration of the company as a juridical person. The value of the land, within the boundaries of the company is an inseparable part of this share capital.

Privatization formula is the technique the company shares are distributed among:

·        Package of shares is the package that is offered for sale to buyer.

·        Cash sells this package.

·        Package of shares for the ex-owners of land is the package by which the ex-owners participate in the commercial company without taking part in auction.

Ex-owners of land, by their request have the right to receive shares in proportion of the value of land recognized to them by a decision of Committee for Property Compensation and Restitution. Land value is defined according to effective laws and by-laws. The compensation expressed in percentage and defined as the ratio of the value of land to share capital, will remain unchanged no matter what the auction result will be. 

Share package for the public is the number of shares, which is offered to public and company employees in exchange for privatization lek and vouchers. Company's employees have the right to exchange the nominal value of personal privatization vouchers as well as vouchers of their families with shares of the company. Employees of the company will be considered the actual employees, as well as former employees under unemployment social assistance according to the law no.7521 date 30.10.1991 "On social assistance for the people which become redundant from the implementation of economic reform", one year before the company has been announced for privatization.

State-owned package of shares is the part of shares, which the State holds for itself.

Article 2

Ministry of Public Economy and Privatization (Ministry of Public Economy and Privatization) defines the privatization formula after the calculation of the shares for ex-owners of land and company employees, and together with respective documentation turn them in to National Privatization Agency (National Agency of Privatization).

Article 3

The method of privatization for these packages of shares of commercial companies is the auction, organized by National Agency of Privatization.

In special cases the Council of Ministers defines the tender as the method of privatization, and at the end of the tender, decides for the privatization of package of shares.

Article 4

Privatization of the package of shares of commercial companies through auction starts initially with the package offered to the buyer.

Article 5

Revenues from the sale of shares package are distributed as follows:

- National Agency of Privatization receives 5 percent of the initial announced value. This value is transferred to treasury branch office on National Agency of Privatization account.

- Ministry of Public Economy and Privatization receives 20 percent of the sale price, which is used as development fund for state-owned enterprises and companies. Administration and use criteria will be defined by special decision of Council of Ministers.

- The remaining sales price is transferred to the State Budget.

Article 6

Ministry of Public Economy and Privatization is in charge for implementation of this law.

Article 7

The Council of Ministers is responsible for preparing the necessary decisions.

Article 8

This law becomes effective 15 days after publishing in the Official Newspaper.

Promulgate by Mr. Rexhep Meidani, President of Republic of Albania, with the decree no.2082 date 8.5.1998.              

REPUBLIC OF ALBANIA

PEOPLE’S ASSEMBLY

LAW

No.8515, Dated 21.7. 1999

FOR

THE PRIVATIZATION OF THE JOINT STOCK COMPANY

“ALBANIAN MOBILE COMMUNICATIONS (AMC)”

Based on articles 78 and 83, item 1 of the Constitution, upon the proposal of the Council of Ministers,

THE PEOPLE’S ASSEMBLY OF THE REPUBLIC OF ALBANIA

D E C I D E D:

 

Article 1

Based upon Article 4 of Law no.8306, dated 14.03.1998 “For the privatization strategy of the sectors with a special importance”, the joint stock company “Albanian Mobile Communications (AMC)”, is subject to the privatization.

Article 2

The privatization of “AMC” Sh.a, is made by transferring all the capitals shares owned by the state.

Article 3

The privatization formula of the “AMC” Sh.a’s capital shares is as follow:

1.      Not less than 51 up to 85 per cent of the capital shares is offered to strategic sectors, which are specialized companies in the telecommunication field.

The packet of the capital shares decided in the above-mentioned paragraph will be transferred through selling by the means of the international open tender.

2.      Up to 15 % of the capital shares is offered to the following subjects:

•         The former owners of the building site, according to the value of the buildings site as determined in the Decision of the Council of Ministers no. 312 dated 30.06.1994 and pursuant to the legal and sub-legal acts into the force.

•         The employees of “AMC” Sh.a., by exchange of the shares wit the privatization vouchers owned by them.

3.      The remaining capital shares after the procedure described above will be sold with public offer or / and with public auction pursuant to the legal acts into force.

In the meaning of this paragraph will not apply the articles 206 and 207 of the law no.7638, dated 19.11.1992 “For the Commercial Companies”

Article 4

The method of using the income of “AMC” Sh.a privatization is determined with a decision of the Council of Ministers implementing the budget law.

Article 5

Criteria and procedures for selecting of the strategic investors, as well as the methods of the evaluation of 2AMC” Sh.a are approved by the Council of Ministers.

Article 6

The Ministry of Public Economy and Privatization, with the assistance of the foreign advising company, is the body in charge to carry on the procedures of the international tender for the strategic investors.

Article 7

This law enters into force 15 days after the publication in the Official Newspaper.

CHAIRMAN

Skender Gjinushi

REPUBLIC OF ALBANIA

Council of Ministers

 D E C I S I O N

No.373, dated 12.8.1999

FORTHE CRITERIA FOR THE SELECTION OF THE STRATEGIC INVESTORS INTERESTED IN PURCHASING THE SHARES OF AMC SH.A.

 Based on article 100 of the Constitution, law no.8306, dated 14.03.1998 “For the privatization strategy of the sectors with a special importance”, on Law no. 8515, dated 21.7.1999 “For the privatization of the joint stock company Albanian Mobile Communications (AMC)” and on the decision of the Council of Ministers no.329, dated 12.07.1999 “For tendering procedures for the selection of the strategic investors and transfer of shares owned by the State in commercial companies of sectors with a special importance”, upon the proposal of the Ministers of Public Economy and Privatization, the Council of Ministers

DECIDED:

1.      The form of the tender for the selection of the strategic investors interested in purchasing the shares of the joint stock company AMC shall be open tender in one step.

2.      Among the investors who will have sent expression of interest fulfilling the requirements indicated in the public announcement published according to the decision of the Council of Ministers no. 329, dated 12.07.1999 “For tendering procedures for the selection of the strategic investors and transfer of shares owned by the State in commercial companies of sectors with a special importance”, the invitation to tender shall be delivered, only to bidders complying with the requirements set forth in chapter III of the said decision, pursuant to the terms described in it.

3.      The interested strategic investors that will be invited to submit their detailed binding offers shall have to preliminary comply only with the following requirements: 

3.1.1        be joint stock companies or comparable legal entities under the legislation of their country of incorporation; be duly incorporated and registered with the competent  authorities of the country where the registered office is located.

3.1.2        there will be accepted even consortia made by joint stock companies, or comparable legal entities;

3.1.3        there are also admitted the pools of investors acting in concern together for the purposes of such acquisition or intending to implement transaction through a company to be incorporated (NewCo);

3.2  have a fully paid-in capital not lower than US$ 50.000.000 (fifty million) or the equivalent amount in the currency in which the capital is denominated; the net worth and, if applicable, the consolidated net worth, shall be at least US$ 100.000.000 (one hundred  million);

3.3  be network operators in the telecommunications industry; with a track record of having supplied mobile telecommunication services during the past two years; in case of consortia or pools of investors, the leading member shall comply with said requirement.

3.4  In the case of the combination of the strategic investors with financial investors, the strategic investors must have the control of the shares.

All such requirements shall be certified by mean of official certificates issued by the relevant authorities or by other written official documents.

Parties, which are in liquidation or the subject to insolvency, administration, receivership or other similar proceeding, or any proceeding that imply a situation of insolvency or the interruption of business activities, will not be admitted to the tender procedure. 

4.Upon the analysis of the expressions of interest and the verification of the fulfillment of the above-mentioned requirements by interested investors, the Advisory Company will submit to the Advisory and Transparency Committee, for its approval, the list of the investors to whom the invitation to tender will be sent as well as the list of disqualified investors.

5.               According to chapter II of the decision of the Council of Ministers no. 329, dated 12.07.1999 “For tendering procedures for the selection of the strategic investors and transfer of shares owned by the State in commercial companies of sectors with a special importance” and of the criteria defined in this decision the Ministers of Public Economy and Privatization shall issue the respective order.

6.               The Ministry of Public Economy and Privatization upon motivated decision and based on the legislation into force, reserves at any time the right to;

a)                     withdraw from the sale procedure, or to interrupt it,

b)                    to exclude any interested party from the sale procedure without giving rise to any claim for compensation or damages whatsoever by the interested parties against the Ministry of Public Economy and Privatization  of the Republic of Albania.

This decision enters into force immediately. 

     P R I M E    M I N I S T E R

               Pandeli MAJKO

REPUBLIC OF ALBANIA

COUNCIL OF MINISTERS

DECISION

No. 529 Date 21.8.1998

ON TENDERING PROCEDURES OF STATE-OWNED PACKAGE OF SHARES

OF COMMERCIAL COMPANIES

 

Based on Law No.7512, dated August 10, 1991, "On the protection of private property, free initiative, private independent activities and privatization" (amended by other legal acts), 2nd paragraph of Article 3 and of the Law No. 8334, dated April 23, 1998, "On privatization of commercial companies that act in non strategic sectors", after the proposal of the Ministry of Public Economy and Privatization, the Council of Ministers.

D E C I D E D:

I. General

1. Privatization by tender of the share package of commercial companies acting in non-strategic sectors is done through a Decision of the Council of Ministers.

2. The Decision of the Council of Ministers for privatization by tender of the packages of shares defines:

·        the tender method (open or closed). In case of a closed tender the decision defines even the bidders' names, invited to participate.

·        the tender deposit guaranty for participation in the tender, which is defined according to the tender requirements and the activity of the company to be privatized. The tender deposit guaranty is up to 15 percent of the nominal value of the package of shares offered for sale, but not less than 30,000 (thirty thousand) USD treatment of the tender documentation confidentially or not.

3. In case of an open tender, all interested bidders are invited to present their bids, while in a closed tender only the bidders, who are directly invited by National Agency of Privatization, may present their bids. Bidders, who participate in tender, should be judicial persons, local or foreign.

4. National Agency of Privatization is responsible to implement tender procedures.

5. The packages of shares of commercial companies approved for privatization by tender will not be submitted to the tender procedures in the following cases:

In the case of selling the shares to the public,

In the case of transfer of the shares to the land ex-owners

In the case of exchanging the shares with the employees

of the company.

The Minister of Public Economy and Privatization, when there are full data, has the right to define the package of shares, offered to the buyer, and issues the order for privatization through tender according to this decision.

The procedures of exact calculation of the size and sale of the package of shares for: public, ex-owners, company's employees will be implemented according to the chapter I, articles "b", "c", "d", of the Decision of Council of Ministers nr. 119, dated March 18, 2000 "For the procedures of privatization through auction of the state-owned package of shares, operating in non-strategic sectors".

II. Procedures

1. According to the Decision of Council of Ministers, for privatization by tender of shares package, the Minister of Public Economy and Privatization issues the order for preparing the documentation of the company for privatization by tender.

2. Privatization documentation is prepared by the company and the line ministry and is then sent to Ministry of Public Economy and Privatization. The latter reviews the documentation and sends it to National Agency of Privatization, within 30 days from receiving it.

3. National Agency of Privatization will guarantee equal information for all the interested bidders and will provide the necessary information to them.

4.Delivery and opening of bids is done from Bid Evaluation Commission.

II.1. The invitation for tender and tender announcement

1. The invitation for tender is published in three national newspapers, not less than three times in each, within a period of 30 days. During these period the National Agency of Privatization puts posters at the company.

2. In the case of an invitation for a closed tender, the invitation for tender and the detailed requirements for tender will be sent to no less than 3 bidders.

3. The detailed tender invitation will be send to the participants at least 30 days before the bids submission day.

4. The invitation for tender will include:

a. The name of the company and its location;

b. The package of shares of the commercial company to be privatized;

c. The type of tender;

d. The full privatization formula, or the announcement of special share package of the commercial company;

e. The place and the time for receiving the documentation of tender;

f. The payment for receiving the tender information at the National Agency of Privatization, in exchange for a written declaration for treating the documentation, confidential or not, according to the decision of the Council of Ministers;

g. The place, the way, and the exact day for the submission and opening of bids;

h. Specifications of the tender guaranty and the definition of the deadline of the bid's validity;

i. draft share purchase agreement for the sale of the package of shares through tender.

5.Ministry of Public Economy and Privatization presents at National Agency of Privatization in original and according to the format required by law, the following documentation:

a. The Decision of the Council of Ministers and the Order of the Minister of Public Economy and Privatization for the tender privatization of the package of shares of the company;

b.The Court decision recognizing the registration of the commercial company in the commercial register;

c. The foundation act of the commercial company;

d. The statute of the company;

e. The balance sheets of the last three years of the activity of the company;

f. The value of the package of the shares of the commercial company, offered in tender;

g. The structure of the ownership of the commercial company;

h. The site plan, the layout, and the valuation documentation of the land of the commercial company;

i. The information memorandum or the informative summary with the principal data of the commercial company that will be privatized;

j. The description of the commercial company

                  the name of the company;

                  the foundation date;

                   the range of activities;

                   the period of activity;

                  the contribute in capitals and equity;

                  the debit and the credit of the company;

                  data for the quality of the medium level staff;

                  a list of the real estate in use by the company;

            main personnel and professional data for the company's management staff;

k. A description of the activity of the company as well as an analysis and a comparable evaluation with an information particularly focused on production, sales, research, evolution, and investments;

l. The report of licensed auditor of the last year-end figures of the company (balance sheet, income statement etc.);

m. The presentation of the tax liabilities by competent authorities.

6.Within the time period defined in the invitation for the tender, the interested bidders may buy, the following documentation:

a. The layout and the site plan of the real estate of the advertised commercial company for sale;

b. The deadlines and the sale conditions, including the application of the payment methods and a possible system of requirements in regard to the business policy, employment and development policy, environment protection etc., and all the required guaranties and sanctions concerning the obligations;

c. The place to address the questions about the tender and the possibilities to provide additional information;

d. Specifications for the tender guaranty and determination of the deadline of the bid's validity;

e. The balance sheets for the last three years of the activity of the company;

f. The value of the share package of the commercial company that will be privatized;

g. The structure of ownership of the commercial company;

h. The Information Memorandum with the main data for the commercial company that will be privatized;

i. Data for the sale:

the size of the share package for sale

the value of the share capital of the company

j. The procedures for the evaluation of the documentation and the respective criteria, particularly considering the following:

the time and the place of opening the bids;

the deadline for valuing the bids;

the way and the place for proclaiming the results of tender;

k. The list of documents of tender invitation and its appendixes.

     III. Tender's Guaranty

1. The bidder for its participation in the tender should present:

a. the bank statement proving the blocking, up to the end of tender, of the   prepayment in cash or a bank guaranty of 30 percent of the nominal value of the package of shares of the company offered in tender, in the date and the way specified in the invitation for tender. This amount is blocked in the name of National Agency of Privatization

b. the document of registration in the commercial register or another public act proving its registration in the country where the seat is situated;

        c. references from bank and financial institutions.

2. The tender guaranty deposit will be refunded in the following cases:

           the invitation for tender is cancelled;

           the documents presented in the bid are not valid;

           the bidder is not the winner of the tender;

           the contract is not signed, for reasons, which the National Agency of      Privatization is responsible.

3. The tender guaranty deposit will not be refunded in the following cases:

a. according to the invitation for tender it is transformed in a supplementary security for guaranteeing the signing of the contract;

        b. the bidder cancel its bid during the bid evaluation period;

        c. the bidder is found responsible for the failure of signing of the contract;

        d. the contract is not singed for any reason that is against the interests of the other bidders participating in the tender.

4. By the request of the National Agency of Privatization, the bidder is obliged to show the respective documentation to verify its qualities defined in the bid.

IV. Presentation and validity of the bids

1. In the day and place defined in the invitation for tender, the bidders will submit their bids (in 5 copies) in a closed and sealed envelope, without stating the name of the bidder. Every page of the 5 copies should have the original sign of the bidder (or of the person authorized by him).

The documentation submitted with the bid will be in Albanian, while for the foreign bidder in both in Albanian and English.

2. The bidder will submit only one bid.

3. The bids submitted as an answer to the invitation for tender will include the Bidder's Statement by which the bidder commits itself to:

        a. accept the conditions defined in the invitation for tender;

        b. assume the obligations and services that derive from this acceptance;

        c. pay the price shown in the bid, according to a contract with the National Agency of Privatization.

4. Submission and opening of the bids will be done in conformity with the requirements of this decision. On this basis it will be decided on the bids valid to proceed.

5. Despite the validity of the bids, and the success or failure of the tender, the expenses for the preparation of the bids and the participation of the bidder in the tender will be borne by the bidder itself.

V. Confidentiality

1. Until the signing of the contract, the bidder must consider confidential the content of the bid, as well as all the other facts, information and data provided to him by the National Agency of Privatization in the information memorandum or through any other confidential channel.

     The bidder will not provide any information to a third party.

     This is not applicable on the facts communicated to the banks and in the case of a joint bid, for the members of the consortium.

2. National Agency of Privatization has the right to declare the bid not valid and cancel it, if the bidder, or any other representative of it, violates the confidentiality of the tender.

3. National Agency of Privatization should keep confidential the content of the bids till the end of the tender and should not provide any information related to their content.

4. National Agency of Privatization will use the submitted bids only for evaluation. If they will be needed for another purpose, both parties should prepare a special contract.

VI. Submission and opening of the bids

1. Bids are submitted and opened in the place and at the time defined in the invitation for tender, in presence of Commission for Bid Evaluation.

VII. Duties of the commission for the evaluation of the bids

1. The commission for bid evaluations is created 24 hours before the day of bid submission and opening.

2. The commission for the evaluation of the bids consists of the following members:

        a. the representative of the National Agency for Privatization;

        b. two representatives of the Ministry of Public Economy and Privatization;

        c. two representatives of the Administrative Institutions (Ministries);

        d. the lawyer of the National Agency for Privatization;

        e. secretary (employee of the National Agency for Privatization).

The Head of the Commission for the Evaluation of the Bids is the representative of the National Agency for Privatization.

3. Bid evaluation commission is remunerated 1 to 2 monthly wages, according to the decision of director of the National Agency of Privatization.

     The expert, required by the Commission of Bids Evaluation, is remunerated with a decision of the director of the National Agency of Privatization, according to the given tasks.

4. The following persons are not allowed to be members of the Commission for the Evaluation of the Bids:

a. a person representing an institution or organization bidding in this tender;

b. an employer or a contracted employee of the company to be privatized;

c. an owner (full or partial) or a member of a company or legal business bidding in this tender.

5. Every member of the Commission for the Evaluation of the Bids must issue a declaration to testify that has no relationship, either by family relation or interests with the bidders.

6. The members of the Commission for the Evaluation of the Bids must keep the confidentiality. The members must use the required information exclusively for the purpose of the evaluation of the bids.

7. National Agency of Privatization, two days before the bids submission-and-opening day, requires from the Ministry of Public Economy and Privatization and from the authority (Ministry) of administrative dependence the names of the members of Commission of the Evaluation of the Bids.

VIII The evaluation of the bids

1. At the same time with the submission and opening of the bids, the Commission for the Evaluation of the Bids might require information from the bidders, in order to make the evaluation and the comparison process easier. The questions and the related answers provided by the bidders, must be in writing. This will not have any impact in changing the bid submitted for tender, but only for its interpretation.

2. The Commission for the Evaluation of the Bids evaluates the bids according to the definitions in the decision of the Council of Ministers. The evaluation procedure is as follows:

     The bidder, who for a certain criteria, gives the highest figure will get the maximum points, while the others the points will be calculated proportionally. 

     After the calculation of points for each bidder, they are ranked in a descending order defining the best bidder (i.e. the bidder who gets the maximum points).

3. The Commission for the Evaluation of the Bids has these responsibilities:

3.1 To compare the bids based on the criteria and importance specified in the invitation for tender taking into consideration the dispositions of this decision. The Evaluation Commission may require the participation of an expert in order to come up with specific evaluation conclusions.

3.2 After the evaluation of each bid, the Commission for the Evaluation of the bids designs a document that backs up the evaluation of the bids made.

     This document contains:

        a. Tender subject and shares package for sale;

        b. Short description of the procedure and number of submitted bids;

        c. A summary of the submitted bids;

  d. Main criterion of the evaluation of the bids and the opinion given for each bid;

        e. Criteria determining the purchase price;

              f. An evaluation summary of the results of the tender procedures, including the bidders ranking according to the evaluation of their bids.

IX. Declaration of the bids' invalidity and of the tender success

   1. A bid can be declared invalid, if:

        a. the bidder has not complied with the necessary guaranty;

              b. the bidder has broken the confidentiality rule, when it is required in the                                                respective decision of the Council of Ministers;

  c. the bidder has failed in making a detailed statement of its bid, which is   consistent with the submitted bid;

        d. the bidder has not fulfilled the requirements of the invitation for the tender.

   2. The tender is declared unsuccessful, if:

a. none of the submitted bids comply with the requirements of the invitation of the tender;

b. there is no bid submitted in the time and place defined in the invitation for tender;

c. the Council of Ministers does not approve the privatization of the package of shares.

X. Decision making and publication of the tender results

1. The Commission of Evaluation of the Bids has the authority to evaluate the bids and to declare the results of the tender.

2. If not otherwise defined in the invitation for tender, the bid must be evaluated within 10 days from the bids submission-and-opening day. In special cases, the Commission can extend the deadline for 5 more days. The bidders will be informed of this.

3. In the decision of the tender results it is written the bidders descending ranking.

4. Within 7 (seven) days from the day of bids evaluation and tender results, the National Agency of Privatization must prepare the draft decision and the related documents, and submits them for approval to the Council of Ministers, together with the full tender documentation.

5. After the decision of Council of Ministers announcing the winner, the National Agency of Privatization gives the authorization to the other bidders to withdraw their tender deposit guaranty.

XI. Closing of the contract

1. Only after the Council of Ministers accepts the tender procedures and decides for the privatization of the package of shares, the National Agency of Privatization concludes a contract with the winner bidder.

2. The articles of the contract for selling the package of shares will contain all the requirements of the invitation for tender and the respective penalties.

3.The contract must be concluded within 60 days from the day when the decision of the Council of Ministers enters into force.

   4. If the contract:

        a. is not signed because the parties do not agree;

  b. after assignment of the contract the winner fails to comply with its conditions and for these reasons, the National Agency of Privatization cancels the contract;

c. if the parties agree to cancel the contract; then the National Agency of Privatization negotiates the contract with the next winning bidder, approved by the Council of Ministers.

5. Ministry of Public Economy and Privatization and National Agency of Privatization are in charge to prepare the respective instructions for implementation of the tender procedures.

This decision becomes valid after publication in the Official Newspaper.
 

1st Workshop

"Contemporary Constitutional and Institutional Developments
in the countries of South Eastern Europe;
Democratic Institutions and Fundamental Rights".

Athens 19th-30th March, 2001
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2nd Workshop

"Protection of the Environment in the countries of South Eastern Europe"

Athens 7th-18th May, 2001