Privatisation
No change to agreements in force
New tax regime
Oppositions to sale
The Parliamentary Committee on Economy has approved, in principle, the privatisation of 100% of the shares of Albpetrol, an Albanian state-owned oil company which values its assets at $497 million. Currently, Albpetrol owns 1,264 active wells producing 135,000 tons of oil per year. On December 15 2011 Parliament passed Law 10490 on the determination of the form and structure of the Albpetrol privatisation. On December 23 2011 President Bamir Topi declared the law in force.
The Ministry of Economy, Trade and Energy has stated that the 100% privatisation of Albpetrol will permit the exploitation of the fields for only a 25-year period. According to the law, the purchaser of Albpetrol will be given a licence valid for 25 years; after such period, the exploitation licence shall be re-evaluated. The government hopes to sell Albpetrol during 2012 to fill a hole in its budget, but no indicative price has yet been established by its foreign auditors.
After the privatisation, Albpetrol will be stripped of the tax privileges that derive from its position as a state-owned company. Instead of being in a privileged tax position, based on the level of production, it will move to a common position of a 50% tax on profits – the same regime as followed by other private companies operating in the hydrocarbons research and production sector. In addition, the new owner will be required to recognise the existing onshore and offshore oil drilling agreements in force between Albpetrol and third parties exploring for oil and gas in Albania. "This requirement helps us to achieve two things," said Deputy Minister of Economy, Energy and Trade Enno Bozdo. "We do not touch the existing contracts, but add new value (to the company and) ahead of the privatisation process."
No change to agreements in force
Albpetrol used to have the monopoly on the extraction and production of hydrocarbons in Albania. There are seven agreements in force with three foreign companies. According to the agreements, after covering all costs, foreign companies under a concession agreement with Albpetrol for the extraction of oil shall share the production equally with the Albanian state. After the privatisation of Albpetrol, these agreements will remain in force without modification and the share of hydrocarbons which was previously given to the state will go to the private company owning Albpetrol. Bozdo has declared that the privatisation of Albpetrol shall result in various benefits:
- The state will benefit from the money raised by the sale;
- No damage will be done to existing agreements; and
- Albpetrol's work shall improve through the privatisation.
Albpetrol benefits from a preferential tax regime as it belongs to the state. Other companies undertaking hydrocarbons research and production activities in Albania are subject to a tax rate of 50% of their profit. In contrast, Albpetrol's tax rate depends on production and varies from 30% for 20,000 barrels a day up to 50% for 50,000 to 60,000 barrels a day.
After privatisation, this preferential fiscal package will no longer apply to Albpetrol and it will be subject to the same rate of taxation as other oil research and production companies (ie, 50% of profit).
The political opposition in Albania, led by the Socialist Party, has expressed concern as to whether the sale of Albpetrol is in the best interests of Albania. From the beginning of the process the opposition was against the draft, claiming it to be in favour of giving Albpetrol a concession rather than privatising it entirely. Although it voted against the law, the parliamentary majority voted in favour of full privatisation and the law was passed.
Pajtim Bello, former deputy minister of energy, denounced the plan to privatise Albpetrol fully, arguing that Albpetrol is a strategic and national asset and that its sale would not be in citizens' interests, as it would cause financial damage to the public budget. Bello declared that it is in the interests of the state to keep Albpetrol and receive 100% of the hydrocarbons it produces. By selling Albpetrol, the state will receive an initial amount as a sale price, but in the long term only the new owner will benefit and the state will receive income from Albpetrol only in the form of taxes, which is a much lower revenue. "The selling of the state-owned oil company of Albania, Albpetrol, is not being made through an adequate formula," Bello has stated. He told the Albanian media that: "There are physical losses with the hydrocarbons production, which today is received 100% by the state, as a dividend. After privatisation, the state will receive only 20% to 30% as taxes. The loss is extraordinary."
In addition, Bello underlined the fact that since Albpetrol is already the obect of seven concession agreements for exploitation, at a certain level it has already been privatised.
Other parties which oppose the Albpetrol privatisation argue that the government is likely to sell Albpetrol to a favoured investor and that it aims to sell not only the company's wells, but also all of its other assets (ie, the concessionary agreements that it currently holds with other private companies).
For further information on this topic please contact Ajola Xoxa at Tonucci & Partners by telephone (+355 4 2250711), fax (+355 4 2250713) or email ([email protected]).