Nicholas Watson in Prague -

The already controversial sale of state-owned oil company Albpetrol to local tycoon Rezart Taci's Vetro Energy has become murkier still as both sides were forced to admit the deal was not been completed by the December 3 deadline because a "guarantee" hadn't been paid by Vetro.

Albanian Deputy Energy Minister Sokol Dervishaj told reporters on December 10 that the government had not completed by last week's deadline the sale of Albpetrol, won in an October tender by Vetro with a bid of €850m, because the company had failed to make a "guarantee" to back the sale. "If the company will deposit the guarantee worth 20% of the contract, we shall have all the necessary flexibility to take it into consideration and give the company the necessary chance to continue the negotiations," Dervishaj was quoted by Reuters as saying.

However, without that 20%, the ministry said it has started seeking the 10% of the company's tender offer that was deposited by Vetro at Chicago-based American Chartered Bank, which means that should the sale talks collapse Albania will claim that cash.

On it website, Vetro confirmed that it has been asked by the government to submit a "performance guarantee" of €170m as part of its negotiations to acquire Albpetrol. The company said while "a guarantee of this nature is customarily submitted only after a formal contract is signed, it is prepared to provide such a performance guarantee."

"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," Taci said in a statement.

Dervishaj said any decisions on the future of the deal would be taken by the government along with its advisers, US consulting firm Patton Boggs, but it too continues to hope that a deal can be completed. Unsurprisingly so, say analysts, because the €850m pledged by Vetro to buy Albpetrol was more than twice the next-highest bid and three-times the third-placed offer, and if completed would be one of the largest ever corporate transactions in Balkan history, equivalent to just under 10% of Albania's annual GDP. This money is essential to Albania's hopes of keeping the crisis at bay and its public debt from rising to troubling levels above 60% of GDP.

Unclear

Although failed tenders in this part of the world due to winning bidders not having the money are not unusual, this news about Vetro comes as a surprise because only on November 22 the group was saying it had finalized the financing for the €850m deal to buy 100% of Albeptrol. "I am confident that the share purchase agreement with the Albanian government for the purchase of Albpetrol will be complete and successful in the very near future, as we are keen to move forward with this project and invest in Albania's future," Taci said in a statement on November 22. "Great progress between both parties has been made, but there is still a great deal of work ahead for both sides."

Yet this is only one of several murky aspects to the whole deal. The initial announcement on October 3 by Prime Minister Sali Berisha said that Albpetrol was to be sold to a "US-run consortium". It was only days later that it emerged that the winning consortium Vetro Energy was actually 51% owned by Taci. The remaining 49% is owned by Chicago-based SilkRoad Equity. Two US companies are also involved - Huddleston Energy Advisors and Home Creek Energy - which the company argues justifies the initial description emphasising Vetro's US credentials. Taci bought Home Creek Energy this summer, according to its president and CEO, Anthony Maye.

The sale of Albpetrol to a consortium controlled by a businessman considered part of Prime Minister Sali Berisha's inner circle raised eyebrows, as Albania is desperate to court the EU in its bid to join the bloc. Selling big state assets in high-profile tenders to insiders is not generally regarded as a sign of transparency.

There have also been questions asked about why such a well-connected player as Taci should have offered quite so high a price for Albpetrol. After all, as Andrew Neff of IHS Energy suggests, "normally you would expect someone connected with the government to be underpaying."

The runners-up in the sale of Albpetrol were China's Win Business, which offered €297m, and the next highest bid of €106m from Canada's Bankers Petroleum, which already operates the country's Patos-Marinza oilfield. Albpetrol had valued its own assets at about €320m.

Bankers Petroleum CEO Abdel Badwi explained in a phone interview with bne that the size of Vetro's bid was so much higher because the Albanian government within days of the deadline to submit bids amended legislation governing Albpetrol granting the new owner licenses to build a refinery and extended Albpetrol's gas transmission rights from five years to 30 years. This addition to the Albpetrol dossier is worth an estimated €20m in revenues annually, estimate analysts.

Badwi says his company had no time to redraft its bid and do due diligence on a new offer. He says the extended transmission license could add significantly to Albpetrol's profitability if anything come of plans to build the Trans-Adriatic Pipeline (TAP), which is designed to carry Azerbaijani gas to Italy through Greece and Albania.

However, IHS Energy's Neff questions whether the extra money that was paid can be attributed to any expected revenue from the TAP, which he reckons is unlikely to be built. A more likely explanation for the high price paid for Albpetrol, Neff argues, is that Taci - a chess enthusiast - may see ownership of Albpetrol as a platform from which to take over Bankers' oilfields.

Is Bankers worried? Mark Hodgson, VP of Business Development for Bankers, told the website Stockhouse that the high price tag placed on Albpetrol raises the estimated value of Bankers' own assets. And while "excited to be working with a new party with similar motivations, to expand Albanian oil production and increase revenues," Hodgson said that Bankers had a "long history" of dealing with the Albanian tycoon, and that history was not without its problems, particularly concerning the timing of payments for crude deliveries.