Albania cancels murky privatisation of Albpetrol to local tycoon

By bne IntelliNews February 11, 2013

Nicholas Watson in Prague -

The Albanian government said February 8 that it has invalidated the winning bid from a consortium headed by a local businessman in the tender for state oil firm Albpetrol after it failed for two months to come up with a down payment.

The decision to annul the result of a clearly flawed tender brings to an end what was rapidly becoming a national embarrassment for the Albanian government, which is trying to convince the EU it is clamping down on corruption and cronyism in one of the poorest corners of Europe that desperately needs foreign investment. Nevertheless, serious questions remain about the conduct of the winner of the tender, local tycoon Rezart Taci's Vetro Energy, as well as that of the Albanian government and the adviser on the tender, US law firm Patton Boggs.

Energy Minister Edmond Haxhinasto broke a two-month silence over the fate of the October 2012 tender for Albpetrol when he said on national television that the government had decided to, "consider the first offer invalid" after Vetro failed to pay €170m, equal to 20% of its winning bid.

The Chicago-based Vetro, bidding through the Singapore-registered Vetro Silk Road Equity consortium, offered a huge €850m for Albpetrol, which was more than twice the next-highest bid from the Chinese consortium Win Business Petroleum and three times the third-placed offer from Bankers Petroleum of Canada. "This decision has authorized the group of negotiators to continue evaluating the other offers," Haxhinasto said on Top Channel.

The last public statement from Vetro was back in December, when it confirmed that it had been asked by the Albanian government to submit this "performance guarantee" of €170m. If Vetro was to be believed, coming up with that "performance guarantee" should not have been a problem, because Taci, Vetro's majority shareholder who enjoys close ties with Prime Minister Sali Berisha, said in a statement on November 22 that his group had, "finalised financing and investment of capital" for the €850m deal.

The stakes were high, because Albanian Deputy Energy Minister Sokol Dervishaj told reporters on December 10 that if Vetro failed to come up with the cash, the government would claim the 10% of its tender offer that under the rules was guaranteed by a reputable financial institution, in this case Chicago-based American Chartered Bank.

Except bne can reveal that American Chartered issued no such bank guarantee for the 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 December 13, 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 Albania, who tells bne that 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 a depositor's 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 $2.3bn - a guarantee of €85m would represent 5% of its total assets.

The posting of such guarantees is crucial to any major privatisation, a failure of which to provide should lead to instant disqualification. However, not only was Vetro not disqualified, its claim of a bank guarantee from American Chartered was unequivocally backed by statements from the government commission in charge of running the tender and 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 October 12, 2012 official bulletin of the Republic of Albania (see below), states that Vetro submitted a bank guarantee, issued by American Chartered Bank, on August 23, 2012 in the amount of €85m. 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 Amercian Chartered Bank. "In a letter dated September 25, 2012, a representative of Patton Boggs, Mr. 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."

Vetro had not replied to a request to comment on these issues by the time bne went to press, nor did it issue a statement on the government's decision to invalidate its bid. However, a source close to Taci was quoted by Reuters as saying Vetro was "surprised by the decision because we were working to finalise the deal."

Patton Boggs replied 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."

See, hear, speak no evil

In fact, the questionable nature of the bank guarantee was only one of a number of dubious aspects surrounding the privatisation of Albpetrol, which is the country's most valuable asset.

Bankers Petroleum, which offered just €106m in the tender, explained to bne 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 September 7. His company, he complained, had no time to redraft its bid.

Further, when Prime Minister Berisha announced the winner of the tender on October 3, it was presented as an international company that had won - the Chicago-based Vetro Energy 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 October 5 press conference that 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.

Nobody at Albania's Ministry of Economy, Trade and Energy was available to answer to bne whether it was also kept in the dark about Taci's involvement. Further enquiries to the prime minister's office regarding the latest questions over the financial arrangements contained in Vetro's bid likewise have gone unanswered.

Analysts speculate that the delay between asking Vetro for €170m and the February 8 announcement to invalidate the bid was down to the government giving Taci time to raise the financing. However, in the current economic climate and given the controversial nature of the tender and Taci himself, raising €850m was always going to be a hard act to pull off. So as pressure behind the scenes mounted from the EU and the US, amid increasing questions from the media, the government finally pulled the plug.

Some question why it took so long. "It's been willful blindness by the US and EU. If you do even a cursory examination of Vetro's website about their supposed abilities, and consider their apparent inability to finance the deal, you can tell that they were way out of their depth. And all this stuff was brought to the attention of the American embassy, the Albanian government and their consultants Patton Boggs, yet they decided to proceed with Vetro for reasons that I believe were not based on merit," says Kokalari.

"Another part of this story is the damage that the Berisha government is doing by way of inhibiting foreign investment from looking at Albania - this might explain why Albpetrol attracted a rag tag group of bidders," he adds.

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