ENGLISH EDITION

Breach of Procurement for Oilfields Tender Could Cost Albania $300 million

According to a verdict of the Vlora Administrative Court, the selection of the Swiss company ‘Terraoil Swiss’ as the winner in the concession of the three oil fields in southern Albania was done in breach of procurement rules by former Energy Minister Damian Gjiknuri and stateowned oil company Albpetrol, with a damage to the state in the tune of $250-300 million.

BESAR LIKMETA | BIRN | TIRANA

In March 2018, the state-owned oil company Albpetrol opened a tender for the Cakran-Mollaj, Gorisht-Kocul and Amonica oilfields.

On May 9, 2018, former Minister of Energy and Infrastructure Damian Gjiknuri ordered the creation of a negotiating group for the signing of the petroleum agreements with the company Terraoil Swiss (then Transoil Group) and a month later asked Albpetrol to file a request to the National Agency for Natural Resources for licensing agreement.

Not all bidders in the tender agreed with the decision of the Ministry of Energy and Infrastructure and one of them - the Canadian company Letho Resources Corp. filed a lawsuit in the Vlora Administrative Court.

The decision of the Vlora Administrative Court, obtained by BIRN, shows that Terraoil did not meet the requirements to qualify for the tender for the three oil fields and to be declared the winner.

According to the court, the company Terraoil Swiss sh.a., represented by the Albanian lawyer ShefqetDizdari, in its tender application did not submit the required documents for the fulfilment of the technical criteria.

The court also notes that the tender was held in lack of transparency by Albpetrol and the Ministry of Energy and Infrastructure, while Terraoil Swiss was declared the winner, although it had a “less favourable” financial offer than the plaintiff for one of the oil fields, Cakran- Mollaj.

“In monetary terms, Letho’s bid for the Albanian state is about $10 million better than the Terraoil Swiss bid (formerly Transoil Group sh.a),” the Vlora Administrative Court said.

“Given the duration of 25 + 5 years of petroleum agreements, it turns out that the offer of Letho Resources Corp. would bring a benefit to the Albanian state of $ 250-300 million more than that of Tran

The map of the oil fields in southern Albania.

soil Group AG, ”the ruling adds.

In its objections to the court, the Swiss company said that the complaint brought by the plaintiff was unsubstantiated in law and evidence because “the plaintiff did not exhaust the administrative complaint” mechanism. According to Terraoil the lawsuit was also filed “beyond the 45-day time limit.”

Terraoil Swiss and former Minister of Energy and Infrastructure Damian Gjiknuri did not respond to a request for comment from BIRN. Albpetrol, meanwhile, denied having illegally favored Transoil Group, now Terraoil Swiss.

“The Administrative Court of First Instance in Vlora, in its decision, has not stated that Albpetrol has illegally favored

Transoil Group,” the state-owned oil company said in a written response.

The decision of the Vlora Administrative Court was appealed on September 30 th 2019 to the Administrative Court of Appeals.

Lack of transparency On March 8, 2018, Albpetrol announced an invitation for expressions of interest for companies interested in concluding petroleum agreements for three free oilfields, Cakran-Mollaj, Gorisht-Kocul and Amonica.

According to the announcement made by Albpetrol, companies interested in these oilfields were to formally submit the application form and all relevant docu

mentation by March 31 st 2018. This application was to consist of authentic documents, which would be submitted separately for each oilfield.

Each interested party, in order to fill out the application form, had to obtain from Albpetrol the data for each oilfield, for which it had to make a payment of $6500 for each data package.

Nine oil companies participated in the tender, including Bankers Petroleum, Transoil Group AG (later Terraoil Swiss), Shandong Kerui Petroleum Equipment, Letho, Verssa Versatile, Pennine, Alcan, Fluid Oil and Zennith Energy.

According to the “Regulation on the Signing of Petroleum Agreements”, within 10 days of the deadline for submission of applications, Albpetrol sends all documentation to the Ministry of Infrastructure and Energy.

In the meantime, the Ministry of Infrastructure and Energy, within 7 days of receiving the documentation of the bidding companies, gives the approval for the winning bid.

However, according to the Court, in the tender for the three oilfields in southern Albania the regulatory framework was not respected.

Not only did Albpetrol not open the negotiations according to legal deadlines, but did not make any public announcement on the tender during this period following the initial notice of expression of interests. After Alcan filed a lawsuit against Albpetrol, the bidding operators learned that the state-owned oil company had declared without any transparency Terraoil Swiss as the winner and had begun negotiations for the contract of the petroleum agree

Albanian Former Minister of Energy, Damian Gjiknuri. Photo: LSA

ment, based on an order issued by Minister Damian Gjiknuri, dated May 9, 2019. A previous BIRN investigation shed light on Terraoil’s links to Russian oil giant Gazprom and conflict of interest allegations.

After being notified informally that Albpetrol had announced the winner and was negotiating a petroleum agreement contract, the company ‘Letho Resources’ filed an appeal in the Administrative Court, which ruled with an injunction to suspend the negotiation procedures for the Cakran-Mollaj oilfield.

Although the bidding procedure for the three oilfields was held in a lack of transparency, from the case in the Vlora Administrative Court it emerges that on April 11, 2018, the working group created in Albpetrol reviewed 7 out of 9 bids and for each of them submitted with the Ministry the documentation and an evaluation if they fulfilled the technical and financial criteria set in the call for expression of interests.

After the review the evaluation of the bids was submitted to the Ministry of Energy and Infrastructure, the latter decided to continue negotiations with Terraoil Swiss without giving any reason why it had selected this company to be declare as a winner.

According to the Court, Albpetrol’s “Call for Expression of Interest” and the regulation “On Approval of Procedures for Petroleum Agreements and License Agreements” stipulated that the evaluation of bids and the award of bids would be done according to a scoring system based on the technical and financial capacities and conditions proposed by each bidder. It does not appear that the Ministry of Energy and Infrastructure or Albpetrol has evaluated and compared the bids and provided reasons for announcing the winning company.

“This makes the entire bidding procedure and award procedure questionable,” Letho Resources claimed in the lawsuit filed in the Vlora Administrative Court.

Their claim was also support by the court, which found in the decision that the evaluation of the bids and the announcement of the winner by Albpetrol and was done in the absence of transparency.

Terraoil shortlisted Of the nine companies that participated in the tender, Albpetrol did not evaluate Zenith Energy and Penine Petroleum Coporation’s bids, as they failed to pay the $6500 for each oilfield data package.

In the minutes held by the working group on April 11, 2018, Albpetrol qualified 3 companies - Bankers Pertroleum, Terraoil and Letho Resources and submitted to the ministry the technical and financial evaluation as well as the documentation submitted by each company.

Referring to these documents, the Vlora Administrative Court notes that Terra Oil Swiss applied for all three oilfields but submitted only a portion of the documents required by the call for proposals. The documentation presented by Terraoil Swiss for each oilfield was the application form, the balance of the last three years, the quarterly reports of the last two years and the list of engineering and technical staff - a total of 4 documents. In the meantime, the call for proposals required 6 additional documents, which the Swiss

A transcript of the verdict from Vlora Administrative court.

company did not submit.

“The company (formerly Transoil Group sha,) currently Terraoil Swiss has not submitted any documentation to prove its technical capacity and those for financial capacities are not complete,” the court said.

“This is one of the reasons why this company could not be shortlisted over the claimant and in the absence of fulfilling this condition, it should have been disqualified,” the Vlora Administrative Court added in its ruling.

During the court case the plaintiff contended that the application of TerraoilSwiss should not have been taken into consideration by Albpetrol, as it had ‘failed to timely pay the $6500 data fee’.

The court notes that the payment for the data package should have been made by March 31 st 2018, but the plaintiff has alleged that Terraoil made the payment on April 4 th , 2018. Albpetrol argued in court that the payment was made, but did not provide concrete evidence when it was made. Terraoil also claimed in court that it had made the payment for the data package on time. The court concluded that “this claim of the plaintiff remains unsubstantiated.”

$300 million in damages In addition to qualifying no in breach of the legal framework, the Vlora Administrative Court states that the Terraoil Swiss should have not been declared a winner because its bid for the Cakran-Mollaj oilfield was not the most economically advantageous bid.

According to the court’s ruling, the economic viability criterion was not followed by Albpetrol and the Ministry of Infrastructure and Energy.

“Normally, the company that submitted the most favorable terms would be selected the winner,” the court said.

“Referring to the acts submitted by the parties for the benefit of this case, it was found that no such procedure has been followed for the selection of the winner and more specifically of the Cakran-Mollaj oilfield,” it added.

Referring to the conditions that each of the companies has proposed in section D of the application form, the court finds that the bid of LethoResources was better than that of the Terraoil Swiss.

Of the 11 sections of the bid filed with Albpetrol for the Cakran-Mollajoilfield ,Letho Resources Corparation’s bid is better at 8 items and the equal in 3 items when compared with Terraoil, for a total value estimated at $10 million per year and from $250 million to $300 million over the entire duration of the contract.

“So the offer of the company (formerly Transoil Group) currently Terraoil Swiss is in no way superior to the offer of Letho Resources Corp,” the court said.

“The Ministry of Energy and Infrastructure should not have selected Terraoil Swiss (formerly Transoil Group) as the winning bid but Letho Resources Corp.,” the court added.

The court ruled to annul the negotiating procedure for the petroleum agreement between AlbapetrolandTerraoil for the Cakran-Mollaj oilfield and the recognition of ‘Letho Resources’ bid as the winner of the tender for the oilfield and its right to negotiate a petroleum agreement. “In conclusion, the selection of the company (formerly Transoil Group Sh.a) currentlyTerraoil Swiss sh.a without any criteria on how the bids were evaluated and compared, while evident that its bid was less favorable than that of the plaintiff Letho Resources Corp., plus the lack of transparency, information, and the breach of the equal treatment of bidders, clearly shows that the company (formerly Transoil Group) currently “Terraoil Swiss sh.a. was favored against the plaintiff,” concludes the Court in its decision.