Negotiations between the Albanian government and Albanian-U.S Vetro Energy consortium on the sale of Albpetrol oil firm for a record unexpected Euro 850 million reached a stalemate and could have probably failed after the legal deadline for the signing of the contract expired.
By Ervin Lisaku
TIRANA, Dec. 11 – The privatization of Albpetrol oil firm by Vetro Energy is back on track after the Albanian-US consortium confirmed the payment of the 20 percent contract guarantee in a last-minute decision when everything seemed to have failed. On December 13, Vetro Energy confirmed it has paid the Euro 170 million 20 percent contract guarantee on Albpetrol’s purchase and that it would accelerate the payment of then total Euro 850 million amount. The payment paves the way to the signing of the contract and its ratification by Parliament.
Negotiations between the Albanian government and Albanian-U.S Vetro Energy consortium on the sale of Albpetrol oil firm for a record unexpected Euro 850 million reached a stalemate and could have probably failed after the legal deadline for the signing of the contract expired in early December 2012. The Albanian government threatened it was seeking the execution of the 10 percent bid guarantee from a U.S bank after Vetro Energy failed to either sign the contract or deposit the 20 percent contract guarantee by December 3 as envisaged under Albpetrol’s privatization law. Speaking at a press conference on Monday, deputy Energy Minister Sokol Dervishaj said “after the expiry of the legal deadline the Ministry of Economy, Trade and Energy has the legal right to demand the execution of the 10 percent bid guarantee.” Vetro Energy had deposited its 10 percent guarantee, Euro 85 million, with Chicago-based American Chartered Bank which is not one of world’s leading 50 banks as foreseen in Albpetrol privatization procedures.
Dervishaj, who also headed Albpetrol’s bids evaluation committee, said the ministry would show flexibility in resuming negotiations with Vetro Energy if the consortium deposits the 20 percent guarantee, Euro 170 million, in the next few days.
“There was a 30-day deadline. On November 1, the company asked for the postponement of the deadline and on November 2 the ministry positively responded by delaying the deadline for another 30 days. The final deadline was on December 3 and there was no successful conclusion. The company has not deposited the 20 percent contract guarantee and the ministry has started the procedure of withdrawing 10 percent of the bid from the bank which guaranteed it,” said Dervishaj.
Vetro’s reaction
Reacting to the Albania’s government’s warning, Vetro Energy said it will deposit the 20 percent guarantee in the next few days only after a formal contract is signed, describing contract negotiations as complex. “Vetro Energy has confirmed that it has been asked to submit a performance guarantee in connection with its negotiations for the acquisition of Albania’s state oil and gas company, Albpetrol. The requested guarantee is for 20 percent of the consideration. Vetro Energy further confirms that, although there is still significant work ahead and a guarantee of this nature is customarily submitted only after a formal contract is signed, it is prepared to provide such a performance guarantee,” the company said in a statement.
Rezart Taci, the Albanian majority shareholder of Vetro Energy, said he was confident negotiations will end up successfully: “We have requested a number of additional documents from the government, which we require. In response, the Government has asked for a performance guarantee, which Vetro Energy is pleased to provide, and will be in place within the next few days. These are complex discussions and there is a great deal of detail involved. The delay is not entirely surprising in such circumstances, and I am very confident that we will finalize negotiations and reach a successful conclusion.”
Hopes for the Chinese, Canadians vanish
If negotiations with Vetro Energy failed, the Albanian government could have started negotiations with China’s Win Business which bid Euro 297 million on Albpetrol’s purchase. “The winning bidder must sign the contract with the Ministry and deposit the contract guarantee within 30 days after being announced a winner. Otherwise, negotiations will resume with the candidate ranked second and the next candidates in compliance with this procedure. The deadline can be postponed under an agreement between the parties for 30 days but not more than once,” says Albpetrol’s privatization law.
Prime Minister Sali Berisha has often welcome Chinese investments in Albania and also proposed the introduction of Chinese as a second foreign language in the school curricula. Few days ago, speaking in an education conference, Berisha called on education minister to adopt the fastest methods on the learning of Chinese. “I insist on the extension and taking of measures on the Chinese language, whose impact on science and technology is becoming bigger,” said Berisha. Although one of the country’s main trade partners, the presence of Chinese investors in Albania is currently too small. Until the late 1970s, China was one of the key allies of the Albanian communist regime, and contributed to several investments including the construction of hydropower plants.
Canada’s Bankers Petroleum, which already successfully operates the Patos-Marinza heavy oilfield and has deals with Albpetrol, also stood a chance after ranking third with a Euro 100 million bid on Albpetrol. Already present and successfully operating in the oil and mining industry, Canadian-based companies are showing increased interest in boosting their investments in Albania. Canada is one of the top four foreign direct investors in Albania with 280 million euros of investments until 2010, ranking after neighbouring Greece and Italy as well as Austria, according to Bank of Albania data.
Experts doubtful
At a staggering Euro 850 million, more than double the Albanian government had been advised by its U.S-based Patton Boggs consultant, Vetro Energy’s bid in last September’s international tender surprised both government and energy experts. Government, which is facing rising difficulty from the crisis impacts and is in desperate need of money, hailed it as a big success, while the opposition which had voted against Albpetrol’s privatization cast doubts on the transparency of the tender. Former Energy Minister Dritan Prifti, who was in office when Albpetrol’s privatization process started a couple of years ago, hailed the big bid as fantastic but cast serious doubts in an interview last November just after the contract negotiations has started. “Recognizing the process, I have strong doubts that it’s not going well and that it is being ruined. Government has put up for sale unregistered assets, which are not under its ownership. The company is being told you will get this number of oil wells and none of them are under Albpetrol’s ownership. When the company pays, it wants to put its name under these assets. There are huge problems in negotiations and I don’t believe they will succeed,” said Prifti, a former MP of the Socialist Movement for Integration who was Economy and Energy Minister from 2009 to 2010.
Kastriot Bejtaj, an energy expert, says he is not surprised by the current situation considering the huge and unbelievable contrast between Albpetrol’s real value and the submitted bid.
Albpetrol’s privatization
Last October, Albanian oil tycoon Rezart Taci emerged as the owner of the majority 51 percent stake in the U.S based Vetro Silk Road Equity consortium which had been announced as the winner of an international tender to buy Albpetrol’s above-ground assets and the right to explore and exploit oil and gas in Albanian territory for 25 years.
Taci, 41, is already the owner of Armo oil refiner which he acquired back in 2008 for Euro 128 million, the biggest chain of retail petrol stations (Taci Oil), and most recently Albanian Screen TV. In a news conference on the consortium’s investment plans, Rezart Taci introduced himself as the owner of Singapore-based YPO Holdings which will have the majority 51 percent stake in Albpetrol oil firm. U.S based Silkroad Equity will have a 49 percent stake.
“In this project our group completes its cycle of business or is vertically integrated which means it extracts, refines and sells to the final consumer,” said Rezart Taci. Representatives of the consortium said they planned to invest USD 220 million in the next five years when they expect the domestic market to meet all oil demand.
In a tender held on Sept.7 U.S-based Vetro Silk Road Equity consortium outbid Canadian, Russian and Chinese potential buyers by offering 850 million euros, more than double the amount the Albanian government had been advised by its U.S based consultant Patton Boggs.
Only six bids were submitted in the Sept. 7 tender from an estimated 19 companies who had expressed interest to take over Albpetrol. Russian giant Gasprom which had been roumored as a favourite potential buyer submitted the lowest bid of Euro 40 million, but without a bid guarantee, automatically being disqualified.
Albpetrol currently runs only 5 percent of the oil wells, some 1,200, while the remaining overwhelming majority is managed by foreign companies on concession contracts. Ahead of its privatization, Albania’s Energy Regulatory Entity (ERE) had granted oil producer Albpetrol licences to transmit and distribute natural gas in an effort to increase interest from potential bidders and raise the company’s market value. ERE had also equipped Albpetrol as a qualified wholesale supplier of energy. The state owned giant has also been granted several exclusive oil exploration rights.
Although not included in the 2013 budget, the failure of Albpetrol’s privatization means government will not be able to increase public investments and lower the public debt, whose 60 percent of the GDP ceiling has been lifted.
At 850 million euros, Albpetrol’s privatization would be the most successful Albania has made in the past 20 years.
