Phil Cain in Graz, Austria -
The Albanian government said November 9 it is on track to complete the high-priced sale of a state oil company to a consortium controlled by a businessman considered part of the inner circle of Prime Minister Sali Berisha by the December 3 deadline. If the winner of the tender raised eyebrows, there are even more questions being asked about why such a well-connected player should have offered quite so much for Albpetrol - after all, as Andrew Neff of IHS Energy notes: "Normally you would expect someone connected with the government to be underpaying."
On October 3, the prime minister announced that a US-run consortium had pledged €850m to buy Albpetrol, more than twice the next-highest bid and three-times the third-placed offer. This deal should be signed off before the deadline of early in December, according to local media reports.
The windfall, which equates to around 8% of Albania's annual GDP, and the half-share of oil revenue from the revived Albpetrol will be spent in a way which benefit all Albanians, proclaimed Berisha. He promised that the new funds would be pumped into improvements in schools, hospitals, infrastructure, salaries, pensions, the canalisation of rivers, irrigation and road-building.
Economic pundits were also pleased at the prospect of the funds being used to chip away at the country's growing public debt. This currently stands not far shy of its legal ceiling of 60% of GDP, a level that is causing concern among international lenders such as the International Monetary Fund. "Albania's high public debt carries macroeconomic and fiscal risks," the IMF said after a visit to Tirana in October. "Receipts from privatisation of natural resource wealth should be utilized primarily to lower debt, but also to clear unpaid government bills."
Privatisation is also being pushed by the European Commission, which a week after the conclusion of the tender recommended Albania receive conditional EU candidate status. This was, however, subject to "judicial and public administration reform measures being completed and the parliamentary rules of procedures being revised," according to EU Enlargement Commissioner Stefan Fule.
Problems of endemic corruption, cronyism and weak institutions have held the EU back from giving such candidate status to Albania two times in the past. Yet the news about who actually owns the company that won the tender will have done little to improve the mood in Brussels.
Friends in high places
Two days after Berisha's announcement, it emerged that the Singapore-registered winning consortium, called Vetro Energy, is actually 51% owned by Albanian oil magnate Rezart Taci, considered part of PM Berisha's inner circle. One of Taci's companies, Taci Oil, organises costly charity football matches and donates the proceeds to a children's charity run by Liri Berisha, the wife of the PM.
The remaining 49% of Vetro is owned by Chicago-based SilkRoad Equity, a little-known private equity firm. 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.
Home Creek's expertise lies in rejuvenating oil wells that have fallen into disuse, Maye tells bne. Around 1,800 of Albpetrol's 3,000 oil wells are out of operation. Huddleston's expertise is more in 3D seismology, but it preferred not to comment on its involvement in Albania.
Taci's Vetro stake is held through YPO Holdings, a Singapore-based company. Taci said 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 Ministry of Economy, Trade and Energy was unavailable to answer whether if it was also kept in the dark about Taci's involvement.
This would not be the first time that Taci has been revealed as the winner of a privatisation auction only after the deal was done. In 2008 it was announced that a US-Swiss consortium bought state oil refining business ARMO for €128m. Now, however, ARMO is completely under Taci's control. Together, Taci's businesses, which include a bank and television station, are reckoned to have had a turnover of €250m in 2011.
Taci has had a difficult relationship with the Albanian media. He and his two bodyguards were accused of beating publisher and political commentator Mero Baze unconscious in an upscale Tirana bar on in November 2009. The attack happened soon after Baze made a series of reports accusing Taci of tax evasion. A year later, Taci was acquitted of all charges, but his bodyguards were found guilty of assault and fined. "I totally deny the allegations that I participated in the brutalities that caused severe injuries to Mr Baze. I not only deny my involvement, but I also condemn violence that so often mars our modern society," he said in a statement at the time.
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 explains Vetro's large overbid by noting that the Albanian government extended Albpetrol's gas transmission rights from five years to 30 years within days of the deadline to submit bids. His company had no time to redraft its bid and do due diligence on a new offer, he complains. The extended transmission license could add significantly to Albpetrol's profitability, Badwi reckons, should 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, Andrew Neff, a senior analyst at the IHS Energy group, 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. "Not many people in the oil industry give TAP much chance."
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. As such, the Albpetrol story may fit into a broader pattern. "It is generally seen as a positive move, but history has shown us that the privatisation of assets in former communist countries is not always a positive development," says Neff.
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