Friday, June 8th, 2012
At a time of budget cuts and financial belt-tightening, the government remains cagey about where the money for Skopje’s grand makeover is coming from.
By Sinisa Jakov Marusic
Macedonia’s plans to shave 5 per cent of the state budget for 2012 will not stop work on the grand revamp of the capital, known as “Skopje 2014”, the authorities have made clear.
Finance Minister Zoran Stavreski recently explained that construction will not be affected by the budget cut of 120 million euro, although the “dynamics” of construction might be “readjusted”.
But the Finance Ministry has not revealed further details about the financing of the project, or about how it is raising funds for it at a time of dire crisis across Europe that is hitting the domestic economy as well.
Economists doubt that tax money alone is enough to keep the project up and running, and some believe the government is spending recently borrowed funds from foreign banks and financial institutions to pay for the city revamp.
“No matter how the financing [of the project] is done, in the long run the burden will fall on tax payers,” Abdulmenaf Bexheti, economics professor at the South Eastern Europe University in Tetovo, says.
He told Balkan Insight that in the short term the government can finance the project by raising new loans or even by selling state bonds.
“But after two or three years tax payers will have to repay the debt, and since Skopje 2014 is already a few years in the making, the bills will soon start to arrive,” he said.
Money for the project, which the centre-right government of Nikola Gruevski launched in 2010, is supposed to come directly from the state budget from the sum envisaged for capital investments that this year amounts to some 350 million euro.
This money is then mainly distributed through three institutions, the Ministry of Culture, the Government Service for Commissioning and General Affairs and the Skopje municipality of Centar, on whose territory the revamp is taking place.
The city of Skopje has also received comparatively smaller funds as part of the project.
Ivana Bilbilovska, spokesperson for the Finance Ministry, told Balkan Insight that “all payments for Skopje 2014 are met properly and on time in accordance with deals made with the contractors”.
But the ministry did not explain how it is managing to provide the money at a time of crisis and declined to divulge whether some of it came from recent loans.
Amid falling exports and industrial output, caused largely by the European crisis, and with forecasted economic growth of only 1 per cent for 2012, the country in only one year took out or agreed to take out almost 700 million euro in fresh loans from foreign banks and financial institutions.
This May the World Bank offered Macedonia $100 million [some 75 million euro] to pursue economic reforms and address health, education and social welfare issues.
Earlier that month the country also took a loan of 250 million euro from Deutsche Bank to fill the budget gap.
In November 2011, Macedonia borrowed 130 million euro from Deutsche Bank and Citibank with a guarantee from the World Bank.
Last March, Macedonia drew 220 million euro from its IMF precautionary credit line.
“The latest loans reflect the government’s logic that it needs to spend much more to increase GDP growth in a time of crisis,” economics professor at Skopje University, Vanco Uzunov says.
Like Bexheti, Uzunov suspects that some of this borrowed money is destined for Skopje 2014 and that the hard part will come after a few years when the debts will have to be repaid and the country will have to raise taxes or make more cuts in public spending.
“Methods are available [to repay the money] but they might be painful for tax payers,” he predicted.
Drawing inspiration from the architectural styles of Classical Antiquity, the Skopje 2014 project envisages the construction of some 20 buildings, including, museums, theatres, concert halls, hotels and administrative offices.
Over 40 bronze and marble statues are also being erected to adorn the surroundings, including a triumphal arch and an obelisk.
While the government defends the project as a necessary makeover for the shabby-looking city, opposition parties have criticized its cost.
They say that at a time of economic uncertainty, building sculptures and mock-Classical facades cannot be seen as a worthwhile capital investment.
Faced with a lack of official data on the cost of the project, they have calculated that the revamp may cost up to 500 million euro.
Available but incomplete data from the Bureau for Public Procurement show that the four buildings managed by the Ministry of Culture alone have so far cost some 55 million euro.
The most expensive has been the National Theatre. The initial contract from 2009 with Beton Stip for the building was for only 4.5 million euro.
But in the past few years the ministry signed seven additional contracts with firms for illumination, carpentry, stage equipment, sculpture decoration and other. These then lifted the sum to 30 million.
“These additional contracts that are repeated with almost every building – plus the fact that the government talks only of ‘capital investments’, without saying how much of that goes on ‘Skopje 2014’ – makes it difficult to track the funds,” Bexheti says.
Some experts say the government has one other method to keep the construction going amid financial problems.
In July 2010 parliament adopted changes to the Public Procurements Law, allowing state institutions to postpone payment to companies for commissioned work.
The provision reads that in case of budget cuts, “budget beneficiaries can make changes to the dynamics of realization and payment of commissioned work stemming from one-year contracts by signing annex treaties that can prolong the deadlines for one or more years”.
The change stipulates that the firms in question as well as the government have to give consent for such annexes.
“One imagines that most firms would accept delayed payment from the state in a situation where they have no alternative and face shrinking demand from the private sector,” Bexheti explains.
One senior manager in a large construction company engaged in the project told Balkan Insight that firms are grateful for commissions connected to Skopje 2014.
“It is good that the state has jumped in with projects just as the world financial crisis took over, cutting demand for our work abroad,” he said.
“We have unpaid bills from the state that come to millions [of euro]”, he added, expressing confidence, however, that the money will come in at some point.
“In this time of crisis it is better to expect payment later than never,” the same source continued.
There appears to be no doubt that companies stand to make healthy profits from Skopje 2014.
Unlike many segments of the economy, statistics suggest that big construction companies working on the project, including Granit, Beton Skopje and Beton Stip, made significant profits last year.
In the first quarter of 2011 Beton Skopje increased its profits by 250 per cent, compared with same period in 2010, while Beton Stip recorded an outstanding jump of 1,700 per cent on 2010.
“However, this is not a real indicator of how much the companies in fact cashed in, because that figure includes every invoice for payment, whether it has been received or not,” Bexheti warns.
Meanwhile, the exact size of the sums that the state owes to companies in general has been a matter of heated discussion over the past few years.
The opposition Social Democrats maintain that the government owes big sums to companies, damaging their liquidity. Some companies have been saying the same but only off the record.
The government on the other hand remains cagey about figures, but it insists it has things under control.