North Macedonia: Transport and Infrastructure – Sector of Expansion

North Macedonia: Transport and Infrastructure – Sector of Expansion

North Macedonia
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The year of 2020 was marked, in North Macedonia as elsewhere, by the COVID-19-induced economic crisis, which will obviously extend well into 2021. Despite the high hopes that the pandemic would be brought under control with mass vaccination programs, the North Macedonian economy’s return to pre-Covid status within the current year is highly unlikely.

COVID-19 imposed a unique reality on both the public and private sector, which hardly any government or company in the world, including those in North Macedonia, was prepared to embrace. Struggling to harness unemployment and maintain social stability, the North Macedonian Government deployed various state aid measures and incentives, while at the same time keeping a steady level of capital expenditure in the state budget in order to boost the Macedonian economy in the post-Covid period, with more than EUR 350 million in the state budget for 2021 allocated in capital investments. Under these conditions, the already stagnating Macedonian economy showed some movement in the Transport and Infrastructure sector (as well as in the Energy sector in the context of replacing old carbon-based with renewable energy sources).

According to official statistical data, the portfolio of ongoing infrastructure projects in North Macedonia includes the construction of 400 kilometers of country-wide infrastructure, including more than 50 kilometers of highway, 100 kilometers of express roads, and 20 kilometers of local roads. The construction of the Kicevo-Ohrid highway in the southwest part of the country, valued at over EUR 350 million, which started in 2014, is approaching its final phase. Construction is also ongoing on Corridor 8, which connects countries from the Adriatic Sea to the Black Sea and passes through North Macedonia. Along with the Corridor 8, the first part of the construction of a railway connection between North Macedonia and Bulgaria, which is projected for 2023, is already almost complete.

In Skopje, the capital of North Macedonia, citizens are waiting for the implementation of the bus rapid transit system. This project, which is expected to resolve transportation issues in the capital, was selected following a feasibility study in which various transport models were evaluated, including the possibility of a Skopje metro.

The main infrastructure project in the country is the gasification of North Macedonia – a project valued at EUR 350 million. The public announcement of the initiation of a public-private partnership for the financing, design, construction, management, maintenance, and development of the gas distribution network in North Macedonia was made in 2020. This project is designed to ensure an additional energy source for North Macedonia and reduce the cost of energy for Macedonian citizens, companies, and institutions, while at the same time increasing the competitiveness of the local economy and preserving a clean and healthy environment.

The gasification project in North Macedonia will be implemented in three phases, starting in the industrial area of Skopje and neighboring municipalities where the initial gas infrastructure is in place, and developing the gas network towards cross-border connections. The contract duration is set at 35 years. The subject of the contract includes the construction of a gas distribution network, investment in connections to the network for the final consumers, the development and maintenance of the gas distribution system, and investment in heating energy facilities and the adaptation of existing facilities for production of heating energy. This project is also expected to prompt other energy efficient projects along the gas network, such as gas turbines, cogeneration turbines that produce heating and electrical energy, and other energy production plants.

As far as the regulatory framework in North Macedonia for implementing transport and infrastructure projects is concerned, the Law on Concessions and Public-Private Partnerships of 2012 sets the grounds for concessions and public-private partnership contracts. While the model of concession is well established and has been implemented in a number of concession projects to date, the practice of public-private partnerships in the country is limited and yet to be developed.

We expect expansion in the Transport and Infrastructure sector in North Macedonia to continue in 2021 with the connection and integration of the Western Balkans into the EU, which is on the EU Accession Agenda for North Macedonia as well as for Albania. This trend of course depends on the normalization of the economy in the upcoming period and recovery in all types of transport and communications.

By Svetlin Adrianov, Associate Partner, and Jana Nikodinovska, Law Manager, EY Law North Macedonia

This Article was originally published in Issue 8.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.