Analysis by Dr Lorenc Gordani
Head of the Department of Professional Masters
Tirana Business University (TBU)
After the transformation of ‘90, Albania has no specific law on arbitration, and the rules governing domestic arbitration were incorporated in the Civil Procedures Code, enacted in 1996. The chapter was based on the UNCITRAL Model Law in International Commercial Arbitration (1985).
Unfortunately, despite the ongoing Albanian legislator’s endeavours to implement disputes towards arbitration, very few disputes have been settled during the years.
The Albanian government decided to undertake reform to increase local business awareness and trust to use arbitration instead of litigation. To this end, back in 2013, during the two amendments of the Civil Procedures Code, the applicable provisions on domestic arbitration were repealed, provided first that such repeal would take effect with the enactment of a new law on arbitration, and later no indication at all.
Notwithstanding the above, only today there is a ready revised draft of the arbitration law filed in the Parliament. The proposal of this initiative comes as a need to fulfil the obligations that Albania has undertaken through the ratification of international conventions.
In light of the above and the ongoing vetting process of the Albanian judicial system, it seems that lawmakers have considered the adoption of the new arbitration law as a top priority to follow.
Albanian Constitution states that every international agreement ratified constitutes part of the internal juridical system after it is published in the official journal.
In this regard, the country has:
– Second, the country has been a signatory of the New York Arbitration Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, 10 June 1958, from 27 Jun 2001.
– Further, with its accession to the United Nations Convention on Contracts for the International Sale of Goods (CISG), Albania became the 74th State Party to the Convention. The Convention has entered into force for Albania on 1 June 2010.
– The country is also part of the Energy Charter Treaty, Energy Community Treaty, and over 40 bilateral investment treaties (BIT).
Seen that the international agreements stand at the same level as the constitution, its prevision most prevail in case of disagreement with ordinary legislation.
Usually, the attention is attracted by States disputes. Some of the most “spicy” clashes in arbitrage are presented by order here below:
“Pantechniki” against Albania started in 1994. The Greek company “Pantechniki” won an international tender for the construction of roads and bridges. The contract was breached in March 1997, and arbitration decided that both parties pay court costs and court fees and tumble down claims for financial benefits.
“Petroleum Products Mamidoil Societe Greek Jetoil s.a” against Albania started in 1995 when there was a proposal to construct oil deposits in the port of Durres. In the end, the applicant was considered responsible for 495 thousand euros and the government was responsible for 349 thousand euros.
Leaf Tobacco A. Michaelides S.A. and Greek-Albanian Leaf Tobacco & Co. S.A. v. Republic of Albania registered on April 27, 1995. Case concluded following a settlement agreed by the parties; the proceeding discontinued at the request of the claimants.
General Electric “GE” petitioned the case in the International Court of Arbitration in Rome in 2006. GE that would build the first line Tirana-Durres train under the contract, although it did not start at all, the GE managed to get 20 million euro.
“Petrolifera” against Albania, on 2007. Government “Nano” companies approved the agreement with the “La Petrolifera Italo-Albanese”, but in fact, a decision of the Commission on Property will return the land to the owners resulting in bringing the issue to arbitration. Although there were delays in the government relented contract giving the company some relief in liabilities. The second problem concerned the company refund of VAT. Next, the government made the issue again, giving “Petrolifera” 70 hectares of land worth EUR 3 million.
“Sky Petroleum” against Albania, in March 2012. The American company and the Albanian government concluded a production-sharing contract to explore and develop hydrocarbons in Block 4, 5 and Dumre. “Sky Petroleum” asked the Court of Arbitration 1 billion. However, after all, the Court ruled in favour of the government and determined that the contract’s termination was made under fair rules.
“Source srl” and “Eagle Games sha” against Albania, on 29th May 2013, claim to be paid at least 1.03 billion relating to revocation of the license. However, the Court ruled in favour of Albania, forcing the company to pay for the court and local costs.
“Rhode Nielsen” in 2011, the Danish company, had a relationship with the government “worthy of a movie script”, but fled taking 2.5 million.
CEZ v. The Republic of Albania, UNCITRAL 2013. The company “CEZ” managed to take 95 million euros behind mediation offered by ECS. This was at a time when the data show that the company had caused damage of 700 million euros mismanagement and abuse.
Albania against “Bankers Petroleum” 2014. National Agency of Natural Resources claimed that the company 299 million dollars has declared unjustified expenses hiding so $ 57 million in taxes. The issue will end in arbitration, and Canadians start paying with some tranche the tax value while an independent international audit carried out the situation. In the end, an international audit gave the right to the latter. This left the government two-way or return the money or go to arbitration, and the GoA chose the second.
“Phoenix Petroleum JSC” has seen the closing and return to Albpetrol the hydrocarbons agreement with the private company regarding the oil oilfield Amonicë, for non-compliance of its duty and stop the work even after the six months given to the company. The same was made in previous on January 2017 for the “TransAtlantik Albania”.
Anglo-Adriatic Group Limited v. Republic of Albania. The Anglo Adriatic Investment Fund SA (AAIF) was the first foreign-managed investment fund in Albania. AAIF was bankrupt due to the market value of the vouchers dropped during the collapse of the Albanian economy from 25.6% of their nominal value in January 1996 to 1.7% in October 1998. The Secretary-General ICSID registers a request for the institution of arbitration proceedings on February 17, 2017. Status of Proceeding: Pending (Tribunal not yet constituted).
Making a summary of all above, it can be said that many have resulted in a positive outcome for Albania seeing the court ruling in favour of goverment, or concluded with a settlement agreement among parties or the proceeding discontinued at the request of the claimants.
Today, the total installed capacity is estimated roughly at 2400 MW, where the installed capacity of private generation hydropower plants reached above the 1058 MW. Then, in the following, we will concentrate on the hydropower sector as the most relevant ones based on their numbers and the cases opened in continue.
In 2013, with the come in the power of the socialist party, the Albanian government has announced the intention to cancel contracts for the construction of over 30 HPP awarded mostly in the transition period.
The concession of Kalivac HPP initiated in late ‘97 has been pushed for many reasons and cancelled only in 2014. Meanwhile, in April 2021, even not connected with the breach of this contract itself, the ICSID ruled that Albania must pay 111 million euros (non directly relate to this but somewhat with other judiciary issues).
Another relevant case has to do with the breach of the concession contract for the Shala HPP. In the last days of October 2016, the Government announced the contract interrupted in the most tourist area of the north and given the green light only for 2 SHPP (from 14) in Valbona River.
Due to the long-term process taken from 2002 and many HPP projects awarded but not built, Albania took a scanning process in 2019. This process lasted some months, which identified severe contractual violations on 27 contracts for 80 HPP.
Different typologies of litigations are brought into the picture: to each, we do not have time to stop over here.
Then, following the above presentation, the analysis demonstrates heterogeneous practices. A situation that makes it necessary to explain the main feature to which must be based, in my view, any arbitration on Albanian HPPs.
First, based on the concessionary agreement, we have a (hyper)“regulated” long-term partnership among the private and the public authorities (Albania).
Notwithstanding, some changes occur with the ongoing long-term partnership, but the return of the investment must be guaranteed. To fulfil each, in hydropower field in Albania, the remuneration is not made with a fixed tariff but determines every year due to the production (based on rainfalls).
Then, based on the above, it is necessary to identify the sharing of the risks. The ones can be grouped on the inability to complete the project, changes during the operation, changes in public policies and regulatory regimes, differently shared among parties.
Therefore, in case of dispute, the private partner economic reference has to be based on the technical studies that schedule the return of the investment that the government has approved with the sign of the contract.
The changes can occur and expedient sanctioned even in BIT is the fair treatment. Specifically, like the rest of WBs, Albania’s energy sector has entered a profound transformation striving to comply with the Pan-European Energy Market’s targets.
Based on the above, the ministry of energy has drafted a new Strategy of moving from the existing schemes “Feed-in-Tariff” (FiT) to “Feed-in-Premium” (FiP) that consist of the transformation of FiT in Contract for Difference, which will be implemented based on the scheme below:
- Free Market Supplier (FTL) remains responsible for all the FiT contracts. It bundles all of them into one item.
- FTL is legally obliged to sell all this generation into ALPEX.
- FTL signed a CfD contract for this item with a renewable operator (REO) (or multiple CfD since there would be multiple strike prices potentially).
- Balancing costs and trading costs are covered by FTL.
In conclusion, of my presentation, the one billion euro question remains “what will be the level of the strike price/or prices”? Although, considering that this may be the core of all the issues, it will take long debates.
This article was presented on the “Albanian context in arbitration and the energy disputes and trends”, kept at the first edition of the Balkan Arbitration Conference 2021, 5-7 July 2021. It took place on Day 2 of the Conference, Tuesday 6 July 2021, at 3 pm CET. Presentation kept in addition to a panel of leading experts to discuss increasing relevance to the Balkans, with panellists Richard Slark, Tai-Heng Cheng, Lorenc Gordani, Dirk Buschle, and moderation of Sabine Konrad.
Author: Dr Lorenc Gordani, is an Energy Lawyer and Pedagogue and Director of the Department of Masters at Tirana Business University (TBU), in addition to being a guest lecturer at many universities, including the Metropolitan University of Tirana (UMT) and Barleti University (UB), University of Shkodra Luigj Gurakuqi, as well as involved in many projects, including AFD/Gas Suez, IRENA, European Delegation, etc.
Disclaimer: All opinions expressed pertain to the author. While all efforts are made to ensure this publication’s accuracy, it is not intended to provide legal advice as individual situations may differ and should be discussed with an expert. For any specific technical or legal advice on the information provided and its related topics, you can contact us through “firstname.lastname@example.org”.
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