Five months after Albpetrol’s international tender, an unexpected staggering Euro 850 million bid by Vetro-Energy has turned out to be fake, while China’s Win Business consortium, the second highest bidder with around Euro 300 million, seem uninterested in Albania’s biggest oil firm.
Government also risks collecting the 10 percent bid guarantee, worth Euro 85 million, over an alleged fake bank document.
TIRANA, Feb. 12 – What would have been Albania’s biggest ever strategic privatization and a boost to the country’s ailing economy in these times of crisis has turned out to be only a beautiful dream. The Albanian government says it has invalidated a record staggering bid worth Euro 850 million on the privatization of Albpetrol oil firm after the winning bidder, Albanian-led Vetro Energy consortium, failed to pay the financial guarantee leading to the finalization of the contract. Government now says it will start negotiations with the second highest bidder, a Chinese consortium which offered around 300 million euros, but with only four months to go before the general elections are held, the process on the privatization of Albania’s biggest remaining public asset seems to be heading to spectacular failure.
Five months after an international tender was held, an unexpected Euro 850 million bid by Vetro-Energy has turned out to be fake and China’s Win Business consortium which bid Euro 297 million seem to have lost interest in Albpetrol.
After failing to meet the legal deadlines on the payment of the 20 percent financial guarantee twice, the Albanian government left Vetro Energy an undetermined date to deposit Euro 170 million as a precondition to finalize the contract but finally decided to cancel Vetro’s bid as invalid after the consortium failed to pay off the guarantee. The Albanian government is now seeking in damages the 10 percent bid guarantee from Vetro Energy, worth Euro 85 million, but there are strong allegations that Vetro Energy, a newly founded consortium, has not deposited its 10 percent bid guarantee, and the Albanian government won’t be able to withdraw it. Experts say if the company had truly deposited the 10 percent guarantee, it would not withdraw from the process and risk losing Euro 85 million.
Signs that the process was heading toward failure emerged since early December 2012 when the Vetro Energy failed to meet the legal deadline of paying Euro 170 million in a contract guarantee and the Energy Ministry threatened to withdraw the 10 percent bid guarantee from an American bank where Vetro Energy said it had made the deposit guarantee.
The stalemate seemed to have been overcome when Rezart Taci, the Albanian majority shareholder of Vetro Energy, said he was confident negotiations would end up successfully, reconfirming the payment of the 20 percent guarantee and the finalization of the contract.
However, for unknown reasons Vetro failed to make the payment for two more months, putting an end to government hopes to collect a record Euro 850 million, from an asset which U.S based Patton Boggs, the consultant in Albpetrol’s sale, had valued at around Euro 320 million. The company was supposed to charge a 2.5 percent fee or around Euro 22 million for the successful privatization of Albpetrol.
A source close to Vetro’s majority shareholder, Albanian oil businessman Rezart Taci, told Reuters the Group was “surprised by the decision because we were working to finalise the deal”.
Based in the town of Patos, southwestern Albania, Albpetrol had valued its assets – six oil fields, four gas fields, 3,000 oil wells out of which around 1,200 are in operation – at about Euro 320 million ($430 million).
Official failure
Speaking in a televised interview, Energy Minister Edmond Haxhinasto recently confirmed the failure of negotiations with Vetro Energy and announced fresh talks with China’s Win Business Energy Group.
“The Council of Ministers has decided to consider the first offer invalid. This decision has authorized the group of negotiators to continue with the evaluation, as the law stipulates, with the second offer,” Haxhinasto told Top Channel TV.
Taking for granted that Vetro had the financial capital to buy Albpetrol for Euro 850 million, the failure of negotiations could have also been a result of the many unregistered assets of the Albanian oil firm. A report by Albania’s High State Audit shows that out of 649 registered assets (buildings, electric cabins and tanks), Albpetrol possessed ownership documents on only 229 of them. The situation with oil wells appears the same with Albpetrol possessing ownership documents on only around 20 percent of the 5,480 wells.
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 have been the biggest Albania has made in the past 20 years.
10 percent bid guarantee at risk
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 were on the brink of failure 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. 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 said it 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.
In an interview for VoA in the local Albanian service, Economy Minister Edmond Haxhinasto said the Albanian government had been assured by its consultant the deposit guarantee with American Chartered Bank was valid and warned in case it proves fake there will be legal action for the one which has issued it.
In a recent article the Business New Europe describes the cancellation of Albpetrol’s sale as murky, saying that “it emerged that American Chartered had apparently issued no such bank guarantee for the 10 per cent of Vetro’s bid. “American Chartered cannot discuss or disclose the specifics of its relationships with its customers, but I can confirm that American Chartered Bank was not involved in the transaction in question,” American Chartered’s legal counsel wrote in an email dated December 13, 2012 to Geri Kokalari, founder of Albanians for a Democratic Albania.
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
Rezart Taci, the Albanian majority shareholder of Vetro Energy, said last December he was confident negotiations would 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.”
Possible negotiations with the Chinese, Canadians
After negotiations with Vetro Energy failed, the Albanian government says it will start negotiations with China’s Win Business which bid Euro 297 million on Albpetrol’s purchase, but preliminary signs show the Chinese consortium has lost interest in the Albanian oil asset and that with few months to go before general elections are held finalizing the deal would be very difficult. “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. 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 major hydropower plants.
Canada’s Bankers Petroleum, which already successfully operates the Patos-Marinza heavy oilfield and has deals with Albpetrol, also stands 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.
