ALBANIA: Corruption Leads to Albpetrol Privatization Annulment

Bottom Line: The sale of Albania's state-owned oil company Albpetrol to a consortium led by Albanian tycoon Rezart Taci has been invalidated after the consortium failed to come up with the down payment. A new tender is expected shortly after June elections. The sale of Albpetrol to Taci would not have been advantageous to the junior foreign companies who have built up the country's oil industry over the past years. A new tender could set the stage for earlier bidders, like Canadian-run Bankers Petroleum, to try again.

Analysis: On 8 February, the Albanian government invalidated the winning bid by Vetro Energy for Albpetrol after waiting two months for the consortium to come up with the down payment of €170 million (20% of its bid). The Chicago-based Vetro Energy bid €850 million through the Singapore-registered Vetro Silk Road Equity consortium. This was more than twice the next-highest bid from Chinese consortium Win Business Petroleum (€297 million), and three times the third-placed offer from Bankers Petroleum of Canada.

Initially, the government was considering the second highest bidder, but this was abandoned due to the fact that under the tender rules the bids had expired.

This deal has been an embarrassment for the Albanian government, which will face new elections on 23 June. The country is hoping to convince the European Union that it has made significant progress in fighting corruption. To that end, the Albpetrol privatization has been less than transparent, with oil tycoon Taci's involvement only revealed after the winning bid was announced. Our private intelligence briefings at the time had turned up indications of Taci's involvement, but both this and direct communications with the government by an assortment of investigators were roundly ignored.

Taci has close ties to Albanian Prime Minister Sali Berisha, and the public will take notice. The stakes were high here, because Albanian Deputy Energy Minister Sokol Dervishaj told reporters in December 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. American Chartered issued no such bank guarantee for the 10% of Vetro's bid.

Recommendations: Watch for a new tender process after the dust settles following June elections. However, the high level of corruption in Albania will be a spoiler in the tender process for junior companies like Bankers Petroleum. The tender process is already being used to score political points by the opposition, which was pushing for the annulment of the deal for the past two months.