Petroleum Economist: Albpetrol sell-off scrapped as accusations fly

Albania’s attempt to privatise the state oil and gas firm has stumbled, writes NJ Watson.
IF THE EU required evidence of Albania’s inability to improve transparency and accountability in government and business, then it need look no further than the fiasco surrounding the recent attempt to privatise the country’s most valuable asset, state oil and gas firm Albpetrol.
In February, the Albanian government was forced to scrap the tender for 100% of Albpetrol after it first had to invalidate the winning bid from a consortium headed by local businessman Rezart Taci because it failed to come up with a down payment, then had to abandon talks with the second-placed bidder, China’s Win Business Petroleum Group, because, under the tender rules, the bids had expired.
Minister of Economy, Trade and Energy Edmond Haxhinasto told local television station Top Channel on 20 February that a re-run of the tender would probably be held after the 23 June general election.
Haxhinasto also denied any responsibilityon the part of the Albanian authorities for the tender’s failure, though observers say serious questions remain to be answered.
No guarantee
On 8 February, the Albanian government broke a two-month silence on the deal by announcing that Vetro had failed to come up with a down payment of €170 million ($221 million), equal to 20% of its winning bid, and so its bid was deemed invalid.
Vetro, bidding through the Singapore-registered Vetro Silk Road Equity consortium, was announced as the winner of the tender in October 2012 after it offered €850 million for Albpetrol, which produces around 1,200 barrels a day of oil in Albania but has licences for a variety of unexplored regions in the Balkan country. Vetro’s bid was more than twice the €298 million offered by Win Business Petroleum, and three-times the third-placed offer from Bankers Petroleum of Canada.
“Vetro Energy’s €850 million winning offer for Albpetrol – more than double the estimated value of the Albanian oil firm – appeared to be too good to be true at the time it was announced in October last year, and the inability to make the cash deposit to continue the bid seems to confirm that this was indeed the case,” noted IHS Global Insight.
If it was only a question of failure to raise the necessary finance in a difficult economic environment, then the affair might have ended there. Unfortunately, the decision only added to concerns about what had already been a very controversial process.  
The last public statement on the deal from Vetro was back in December 2012, when the little known company confirmed it had been asked by the Albanian government to submit a “performance guarantee” of €170 million. If Vetro was to be believed, coming up with that guarantee should not have been a problem, because Taci, Vetro’s majority shareholder who enjoys close ties with Albanian Prime Minister Sali Berisha, said in a statement on 22 November 2012 that his group had “finalised financing and investment of capital” to complete the €850-million transaction. The stakes were high, because Deputy Energy Minister Sokol Dervishaj told reporters on 10 December 2012 that if Vetro failed to come up with the down payment, the government would claim the 10% of its tender offer, €85 million, that under the rules Vetro had lodged with and had guaranteed by a reputable financial institution, in this case Chicago-based American Chartered Bank. However, inquiries reveal that American Chartered issued no such bank guarantee for 10% 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 13 December 2012. Doubts about the existence of the bank guarantee are also backed by Gary Kokalari, founder of Albanians for a Democratic Albania, which is involved in fighting corrupt practices in the Balkan country.
Kokalari says he contacted an official with the Chicago office of the supervisory division of the Federal Deposit Insurance Corporation (FDIC), a US federal body that guarantees the safety of depositors’ accounts in member banks. The FDIC then conducted an audit of American Chartered and found no evidence that the bank had provided any such a guarantee for Vetro to buy Albpetrol. Indeed, American Chartered is a local Illinois bank, with total assets at the end of 2011 amounting to just $2.3 billion – a guarantee of €85 million would represent 5% of its total assets.
“It’s about 50% of the bank’s core capital, and that American Chartered, a suburban Chicago regional bank with virtually no international exposure, would risk half of its equity in, of all places, Albania, is simply not believable. To say nothing of the fact that it would be a violation of the bank’s regulatory tier capital requirement,” says Kokalari.
Vetro’s claim of an €85-million bank guarantee from American Chartered certainly appears improbable, yet its existence was unequivocally backed by statements from the Albanian government commission in charge of running the tender, as well as the adviser to the tender Patton Boggs, a Washington-based law firm which also does advocacy work on behalf of the Albanian government in the US. The 12 October 2012 official bulletin of the Republic of Albania states that Vetro submitted a bank guarantee, issued by American Chartered, on 23 August 2012 in the amount of €85 million. The bulletin goes on to say that the commission in charge of the tender carried out its own checks and also asked Patton Boggs to verify this at American Chartered.
“In a letter dated 25 September 2012, a representative of Patton Boggs, David Farber, has confirmed carrying out checks at this bank and informed the committee that the guarantee is valid and covered by adequate collateral,” the bulletin states. “Under these conditions, we estimate that the bid guarantee is valid and meets its goal of financial reliability of the bid submitted by the consortium.”
Patton Boggs has so far refused to comment on the issue, saying only through a spokesman: “Patton Boggs categorically denies that there was any misrepresentation of any matter to our client, the Ministry of Economy and Energy, and any suggestion to the contrary is simply not supportable. We must defer all other inquiries to the ministry.”
Yet Albania’s energy ministry is so far refusing to comment specifically on the matter despite repeated request to do so. And the controversy over the bank guarantee is only one of a number of dubious aspects surrounding the ministry’s handling of the whole privatisation process.
Bankers Petroleum, which offered just €106 million in the tender, explained in November that the large discrepancy in the size of the bids was down to the Albanian government extending Albpetrol’s gas transmission rights from five years to 30 years just days before the deadline to submit bids on 7 September. His company, he claimed, had no time to redraft its bid. Further, when Prime Minister Berisha announced the winner of the tender on 3 October 2012, it was presented as an international company that had won – the Chicago-based Vetro bidding through the Singapore-registered Vetro Silk Road Equity consortium. It was only two days later it emerged that the winning consortium was actually 51% owned by Taci, who told a press conference he had kept his involvement in the bid secret from the public because he did not want it to have any influence on the bidding process. The energy ministry has so far refused to say whether it too was kept in the dark about Taci’s involvement.
The Albanian government clearly hoped that by immediately starting talks with Win Business Petroleum after invalidating Vetro’s bid, the tender could be rescued. But a few days after this decision, the government learned that the process was illegal because the bids had expired a month earlier.
“The Ministry of Economy verified that the deadline for the bids expired 120 days after the offer. The offers were opened on 7 September, and as result the validity of the offers ended on 7 January,” Haxhinasto told parliament, reported Top Channel.
Unfortunately for the government, questions are being raised not only in the Albanian parliament, but also in Brussels and Washington.
The European Commission is currently considering whether to formally open talks with Albania about it joining the EU, and has made reforming the judicial system, increasing transparency and fighting corruption key planks of any decision to do so. So far the Commission has refrained form making any public statement on the matter, with sources saying talks on any specific matter of concern are always done behind closed doors. Nonetheless, the failed privatisation of Albpetrol will have done nothing to help Albania in its quest.

Petroleum-Economist.com, 06.03.2013