Albania pays €2.2 mln to law firms for key arbitration disputes

Tirana Times
By Tirana Times June 13, 2018 12:23

Albania pays €2.2 mln to law firms for key arbitration disputes

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  • The most pressing arbitration trial that the Albanian government faces is that against Italian businessman Francesco Becchetti over cancelled waste management and renewable energy projects in Albania whose construction dates back two decades ago

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TIRANA, June 13 – Arbitration disputes dating back to investment contracts signed two decades ago soon after the collapse of the country’s communist regime could pose a severe threat to Albania’s struggling public finances.

The Albanian government approved this week a total of €2.2 million in payments to foreign law firms hired to defend Albania at U.S. and France arbitration courts in separate trials against Italian and Irish businessmen.

The most pressing arbitration trial that the Albanian government faces is that against Italian businessman Francesco Becchetti over cancelled waste management and renewable energy projects in Albania whose construction dates back two decades ago.

Last January, the Albanian government won its first legal battle against the Italian businessman whose Albania assets, including a local TV station, were seized in mid-2015 on suspicion of money laundering and fraud-related offences.

The conflict with Becchetti dates back to 1997 when the Albania government awarded him a concession contract to build the country’s first private run HPP. The contract was signed only five years after the collapse of the communist regime and its planned economy when Albania was facing turmoil triggered by the collapse of some pyramid investment schemes.

The Becchetti contract was cancelled in 2017 after two decades of almost no work at all and the Albanian government called a new tender, announcing an Albanian-Turkish consortium as the winner of the Kalivac HPP, a €120 million with a capacity of 120 MW along the Vjosa River, southern Albania, that Becchetti was supposed to build.

Becchetti is also seeking compensation for a cancelled 2004 contract to build a waste incinerator in Tirana, that also allowing him to import waste apparently from neighboring Italy.

In late 2015, Albania issued an international arrest warrant against Becchetti over alleged fraud in Albania but a UK court ruled against the extradition in July 2016. Bechetti owned the Leyton Orient football club at that time before selling it in mid-2017.

The 52-year-old Italian businessman is estimated to have obtained about $213 million in an arbitration dispute with Deutsche Bank, Germany’s largest bank, for the delayed financing in the failed Albania hydropower plant where the German giant was a partner and 45 shareholder from 2008 to 2010, according to a media investigation.

The Italian businessman is seeking hundreds of millions of euros in compensation over unfinished waste management and renewable energy production projects in Albania in an arbitration trial at the

Paris-based International Chamber of Commerce and the Washington-based International Centre for Settlement of Investment Disputes (ICSID), part of the World Bank.

The Albanian government has hired Canada and UK-based Gowling WLG to defend the country in the case.

The government had earlier paid about €4 million to international law firms for the Bechetti arbitration dispute.

 

Privatization voucher dispute

The latest arbitration threat that the Albanian government is facing is that against Anglo-Adriatic Group Limited, an investment fund that launched its operations in 1996 to collect privatization vouchers issued by the Albanian government allowing citizens to obtain stakes in the privatization of the then-overwhelmingly state-run enterprises.

Vienna-based Kerres Partners defending the Anglo-Adriatic Investment Fund run by Irish investor Declan Ganle, says Albania failed to honor its promise that these privatization vouchers can be used in the Albanian privatization process.

Local Albania media report the investment fund collected about 12 percent of the privatization vouchers worth about $120 million but left the country in 1999 following the 1997 turmoil triggered by the collapse of some pyramid investment schemes and privatization vouchers losing much of their face value not allowed in the privatization process later.

Last May, the Albanian postponed the validity of privatization vouchers until the end of 2020, in the seventh postponement since 2006, allowing holders to use them for the legalization of informal buildings and participating in the privatization of the few remaining state-run enterprise. The decision was apparently also influenced by the arbitration dispute with the Anglo-Adriatic Investment Fund which is claiming losses from the expiry of the privatization vouchers.

The face value of privatization bonds is estimated to have dropped to a mere 7 percent from about 18 percent in 1998 when the investment fund operated.

 

Arbitration threat

In early 2018, the Albanian government lost €80 million in arbitration disputes against Bankers Petroleum, the country’s largest oil producer and the illegal demolition and unfair compensation of owners of a seaside apartment block.

Paris-based International Chamber of Commerce ruled last February the Albanian government will have to pay back Bankers Petroleum $57 million (€46.5 mln) over a tax dispute dating back to 2011.

Earlier in January, Strasbourg-based European Court of Human Rights decided the Albanian government will have to compensate owners of a seaside apartment block in southern Albania a total of about €17 million ($21 mln) for illegally demolishing it in late 2013 to pave the way for a coastal promenade.

The rulings also unveil the Albanian government’s arbitrariness when enforcing contracts and respecting property rights, two of the main concerns facing foreign investors in the country in addition to highly perceived corruption and an inefficient judiciary that Albania is trying to reform.

A late 2017 leaked confidential document by the country’s justice ministry showed that Albania faces the threat of being punished with a staggering €2 billion from a handful of arbitration cases with foreign companies, raising concern over the devastating effects it would have on the country’s public finances and one of Europe’s poorest economies.

In case such a scenario is materialized, Albania risks losing almost a fifth of its GDP and half of the annual budget, not to mention public debt costs and economic and social effects from sharp cuts in government spending. Even losing a portion of that amount could cost Albania dearly as the country is trying to bring down public debt, currently at 70 percent of the GDP, a high level for Albania’s stage of development and holding back much-needed investment in road, health and education sectors due to its high servicing costs.

Albania is estimated to have lost about 8.5 billion lek (€63 million) in arbitration cases until the end of 2016, the majority of which in one case dating back to 2010 in the so-called electric train project with U.S. giant General Electric over the unilateral cancellation of a 2005 contract.

Tirana Times
By Tirana Times June 13, 2018 12:23