Category: Albania

On January 20, 2023, Wolf Theiss announced that the merger of ALBtelecom and ONE Telecommunications (reported by CEE Legal Matters on May 17, 2022) has now closed.

According to Wolf Theiss, “the new integrated company ONE Albania SHA is set to become one of the most important players in the Albanian market.” 

As previously reported, Wolf Theiss and Yavuz & Uyanik & Akalin advised on 4iG’s acquisition of an 80.27% stake in AlbTelecom from a subsidiary of Turkey’s Calik Holding, which was followed by AlbTelecom’s merger with ONE Telecommunications. Tashko Pustina reportedly advised the sellers.

The deal was cleared by the Albanian Competition Authority on March 4, 2022.

4iG Nyrt is a Hungarian stock exchange-listed IT and Technology group.

AlbTelecom is a landline voice, internet, and TV provider in Albania. One Telecommunications is an Albanian mobile telecom operator.

Calik Holding is a Turkish privately held industrial group.

Wolf Theiss’ team included Managing Partner Sokol Nako and Associate Kristaq Profkola.

Kalo & Associates has advised OTP Bank Albania on the merger of its local operation with Alpha Bank Albania, with the resulting outfit to continue as OTP Bank Albania.

According to OTP Bank, “the result of this merger reduces the total number of banks in the country to 11 from 12. This positions OTP Bank Albania as the fifth largest bank in the country in terms of assets and the third in terms of credit portfolio. Processions and integration of OTP Bank Albania and Alpha Bank Albania are expected to last until the end of 2023.”

Additionally, according to the bank, “as a result of the legal merger, in total assets, the market share of the OTP Group in Albania has reached 11%, and the portfolio of credit clients has increased by a factor of two. Based on the latter, OTP Bank Albania has become the third largest player in the market with 16.3% of the market.”

The merger took place following OTP’s acquisition of Alpha Bank in Albania from its Greek parent company for EUR 55 million back in July (as reported by CEE Legal Matters on July 27, 2022). Kalo & Associates advised the sellers in that transaction. 

The Kalo & Associates team was led by Partner Aigest Milo.

The Albanian energy market is experiencing several developments reflective of regional and global events. Local and foreign investors’ interest in renewable energy projects is surging. However, some questions remain open as to whether the government will be able to fully satisfy their expectations.

The parliament and the government are following their normal course of legal initiatives aimed at implementing the commitments under the Energy Community Treaty. This includes the legal and institutional reform for the establishment and functioning of the Albanian Power Exchange (expected to be functional by the end of 2022) as well as putting in place the balancing rules for all market participants. Yet, the continuous changes in rules and regulations remain a concern in terms of legal security.

Meanwhile, the government has taken concrete steps in promoting and awarding renewable energy projects (solar and wind) to interested investors through at least two schemes.

Under the first one, the Ministry of Energy and Infrastructure is launching tenders for awarding projects for the development, financing, operation, and transfer of solar or wind power plants. Winning bidders are offered free access to state-owned land, subject to selling part of the electricity produced to the public offtaker (currently Furnizuesi i Tregut te Lire SHA) for a maximum period of 15 years and against a competitive price resulting from the tender. For the rest of the capacity, the project developer is free to sell the electricity on the market. So far, two solar power projects have been organized and successfully awarded: the Karavasta Solar Project (140 megawatts) and the Spitalla Solar Project (100 megawatts). A previous one, the Akerni Solar Project (100 megawatts), has not received a green light due to controversies between the state and the winning bidder ending in arbitration. Currently, a tender for several onshore wind projects is in the pipeline, to be awarded to different developers in different locations in Albania. Each project may have a capacity between 10 and 75 megawatts, up to a total capacity per project of 100 megawatts. The prequalification deadline was set for June 13, 2022.

Under the second scheme, private investors, at their own initiative, may propose to the Ministry of Energy and Infrastructure the development and operation of solar or wind projects, whereby land rights are secured privately, and electricity is fully sold on the free market. A royalty fee is applicable. Within a few years, hundreds of applications have been filed with the Ministry of Energy and Infrastructure, but only some of them have been successfully processed. The rest are still pending evaluation. Questions have arisen as to whether they will ever be accepted, even if meeting the feasibility requirements. The limited grid and storage capacities are also worth mentioning. Still, interest has not decreased – on the contrary, it seems to be the better option of the two, given the high electricity prices over the last months.

At a quicker speed, the Albanian government has purported to mitigate the negative effects resulting from the global energy crisis and the Ukraine conflict. Emergent measures have been taken in response to the increased prices for energy, oil, and food. Following the government’s announcement of an emergency in the electricity supply in Albania on October 8, 2021, investment projects by state-owned companies in the electricity market were suspended. Moreover, as of March 12, 2022, the government announced a “special situation” due to the accelerated reduction of oil and gas supply in the country and established a board – composed of governmental high officials and food trading industry players – to temporarily control and set up ceiling prices for oil, gas, and by-products. On May 18, 2022, the government also announced a “special situation” due to the accelerated price increase of raw materials, affecting the implementation of public works contracts awarded by means of public procurement procedures and entitling them to compensation for the price difference. It is uncertain whether the government will apply mechanisms to also address the concerns of investors in the energy sector having concessions or similar public contracts that are suffering changes in circumstances due to the increased prices of raw materials.

The Albanian market offers good opportunities, particularly for private investments on the free market, as electricity prices have risen to their highest levels. Beyond that, investors need to keep track of the continuous changes in legislation, as well as institutional actions to accommodate local and global developments affecting the sector.

By Jola Gjuzi, Partner, Kalo & Associates

This Article was originally published in Issue 9.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Founding Partner Perparim Kalo has returned to his eponymous firm Kalo & Associates after serving for two years as a Justice of the Constitutional Court of Albania.

Kalo established the firm in 1994 and served as its Managing Partner until December 2020 when he was appointed to the court. “His appointment makes history as only now the Constitutional Court is functional, after two years and a half of dysfunction due to the missed quorum required by law,” stated a Kalo & Associates press release announcing his appointment on December 28, 2020, adding that his “appointment does also mark the satisfaction of the sole precondition imposed on Albania for opening the integration negotiations with EU. This high-level appointment is an appreciation for his contribution, not simply as a lawyer, but also as a man with additional values, including involvement in social affairs like Corporate Social Responsibility, support for art and culture, civil society causes, etc. Many lawyers who have been working in the firm see this appreciation as appreciation for them, too.”

When he moved to the Constitutional Court, Kalo passed on the reigns to Co-Managing Partners Aigest Milo and Eni Kalo.

In 2017, Kalo received the CEE Legal Matters Market Makers award, being identified by peers as being most influential, most important, most uniquely responsible for having created Albania’s modern commercial legal market.

While the economy appears to have been doing better, on the back of infrastructural development, the internal judicial reorganization is leaving Albania in a bit of a bind, according to CMS Partner Besnik Duraj.

“The Albanian economy, much like in other Balkan countries, is not impervious to global macroeconomic problems,” Duraj begins. While initially hopeful for a full pre-pandemic recovery at the beginning of the year, he reports that the Albanian economy has hit a stall, “following the global slowdown and rising inflation.” 

However, Duraj expresses notes of optimism. “I believe this is a temporary phase and the numbers indicate so – the Albanian economy has had a significant 18% GDP growth in the second quarter of 2022,” he says. “This improvement is a certain indicator of the recovery from the pandemic GDP drop, which was 10%.” Furthermore, the FDI numbers have improved by 17%, compared to 2021, although Duraj reports that “according to the data from the Bank of Albania, this mainly represents the reinvestments of profits of existing investors, rather than the injection of fresh capital.”

Turning to major projects in development, Duraj reports that the government is focusing heavily on infrastructure. “Apart from major ongoing projects, like the Skavica HHP and the Durres and Vlora harbors, the government is emphasizing infrastructural developments across the board,” he says. “The main project, the “blue corridor,” part of the Adriatic-Ionian Corridor connecting countries between Italy and Greece, is set to include the construction of new highways and reconstruction of existing roads, totaling 110 kilometers, and will require more than EUR 1 billion in investment,” he explains. “Still, the economists fear that the ultimate cost born of this project might get passed down to the citizens themselves, via four different concession projects implementing a toll payment-based financing scheme,” Duraj reports.

Tackling the most important changes to the legal market, Duraj points to an ongoing judicial overhaul process. The High Judicial Council adopted a new judicial map related to the reorganization of the entire judicial branch on a national level – which Duraj explains “means that the number of courts of first instance of general jurisdiction has been reduced from 22 to 13, while the number of courts of appeals went down from six to just one, seated in Tirana.” Whatsmore, the administrative courts also reduced in numbers, coming down from six to two.

“The Albanian Bar Association has provided arguments against this reform, as it considers that this limits the rights of citizens to access justice and that this means a direct breach of human rights,” Duraj continues. “The judicial body didn’t take this into account, and so the National Bar Association decided to boycott the courts, at a national level, for four days.” Duraj further reports that the Council of Ministers is currently in the process of reviewing and approving the change, and the Bar is hoping to influence and change the final outcome. 

“The rationale behind the reform has been efficiency and a cost reduction, but if you take out 200-250 judges and prosecutors from the system, a lot of courts will be empty,” he says. With the current efficiency rates of Albanian courts “leaving a lot to be desired, these shrinkages could only lead to further efficiency diminishment,” Duraj explains.

Finally, Duraj reports a potential tax system update. “There is a new draft law that seeks to impose a 15% income tax on self-employed citizens, who currently have a rate of zero,” he says. The rate will be applied “following a deduction of certain operating expenses, which will be different for each industry.”

Political uncertainties, surging inflation and energy prices, and, despite it all, a vibrant and diversified economy are the key points of current events in Albania, according to Frost & Fire Consulting Partner Reshard Kellici.

“The political climate in Albania continues to be one of uncertainty,” Kellici begins. “Although the governing socialist majority received its third mandate in April last year, the main focus has been on the opposition and the developments within its organization.” Kellici reports that the former chairman of the opposition Democratic Party was removed from his position, following a vote, after the “public was made aware of his actions that had a direct and indirect impact in the destabilization of the opposition and in enabling the governing socialists to maintain power.”

Turning away from politics, Kellici reports that the main legislative focus, of late, has been on the emergent measures “that have been taken in response to the conflict in Ukraine and its domino effect on energy, oil, and food prices.” Kellici says that legislation was passed to halt all government energy agencies’ investments for a period of time. “That normative act has expired but a new one is expected,” he notes.

Additionally, Kellici reports that a “Transparency Board has been created, which is tasked with setting prices for oil and other commodities on a weekly basis. Furthermore, legislation is currently being considered to mandate all hydropower project owners to sell their energy at a particular price, assuming that such projects are not already under concessionary obligations,” he continues. Finally, “a fiscal amnesty proposal has come to the table again, after a two-year hiatus, which the government is supporting as a mechanism for immigrants to bring their money back to Albania without being subject to taxation,” Kellici says. He also reports that both the IMF and the US Embassy in Albania have “opposed this proposal due to concerns with facilitating money laundering.”

When it comes to the economy, Kellici reports that the hottest topics are the “Durres Harbor development, the Vlora Harbor development, the potential development of Skavica hydro project, and the Vlora LNG terminal and the development associated with it.” He explains that both harbor development projects have entered a negotiation stage with potential investors, while the Skavica hydro project is still some way off from being realized, “because the feasibility studies and the associated relocation of more than a thousand families are exposing the project to both economical and political opposition.”

Tackling developments in the business sector, Kellici says “banks continue to be very rigid and not offer the levels of liquidity that businesses need to support their operations.” Also, he reports that the construction industry continues to increase “at an exponential pace, and no other industry is currently matching or on track to match it. Allegations have been made by international publications and investigations that this is the result of dirty money being used to fuel the investments,” he adds. However, this has not stopped the sector from booming.

Further, Kellici shares that the energy sector has been active as well, with “a number of solar energy projects being implemented or projected to start relatively soon.” On the other hand, the commodities sector has shrunk due to inflation and declining citizen revenues. Finally, Kellici reports that the “financial institution industry saw another consolidation step, through OTP bank acquiring Alpha Bank,” and that the “telecommunication industry has officially become a duopoly, through the acquisition of One Telecommunications and Albtelecom by 4iG.”

Karanovic & Partners has announced it entered into a full cooperation with CR Partners to enter Albania.

“We are looking forward to our joint forces and being able to meet the needs of our clients, no matter how complex they are,” a press statement of the regional firm informed.  

The CR Partners team is headed by Managing Partner Alban Caushi and includes Partners Anisa Rrumbullaku and Fatos Lazimi.

With a population of approximately 2.8 million inhabitants, Albania’s economy is mostly composed of SMEs. To a large extent the financial sector is driven by commercial banks, however, in recent years, thanks also to extensive regulation by the central bank (Bank of Albania – BoA), non-bank financial institutions (NBFIs) have picked up a significant portion of the market.

Nevertheless, the lending activity in the country has been on a descending curb since the 2008 financial meltdown. Signs of a slight recovery are spotted here and there in the BoA quarterly reports, but indicators still show that commercial banks are in the defensive mood.

Concerning the credit crisis, experts have often pointed the finger at the supply-demand mismatch. As per Guven and Miagkyi in Albania’s Credit Market (2016), “… Poor financial intermediation is the main problem on the supply side. Despite excess liquidity in the financial sector, banks are excessively risk-averse, bank practices and products are unsophisticated, and non-bank financial market is underdeveloped…”.

Aside from the risk appetite of commercial banks in Albania, NBFIs have proved to be at the forefront of such a market despite the many difficulties to secure relevant funds.

NBFIs are licensed and regulated by the BoA and include entities licensed to conduct financial services (including lending and e-money activities) as well as the so-called microcredit finance institutions (MFIs). The panorama is completed by the saving and credit associations and their unions. These entities are legal persons, organized voluntarily, allowed to take deposits from their members which are to be exclusively used for members’ financing, but for this article should be considered out of scope.

NBFIs are by law tout court excluded from taking deposits from the public. This legislative ban has proven to be an obstacle, especially for MFIs, as it has held back the sector from developing innovative products and serving its clientele.

According to the Albanian Microfinance Association, the matter can no longer be ignored, especially in the face of the numbers, – 180.000 clients served and a loan portfolio of approximately EUR 235 million in 2020,– impressive in terms of portfolio size and numbers of inhabitants in the country.

Lifting the deposit ban should be addressed structurally, however, the foundations are already laid down. As mentioned, MFIs are regulated entities. However, there is no specific law regulating the microfinance sector (except for the Law on Saving and Credit Associations and their Unions). This legislative void is a long-time concern of the sector, which demands a proper space in the legislative panorama.

On the other hand, and despite a specific law that regulates the microfinance institutions, the BoA has been proactive in setting licensing and supervision requirements that, at present, seem too stringent.

BoA’s Regulation no. 1, January 17, 2013, On licensing and exercising of activity from the non-bank financial institutions, contains the relevant license requirements applicable also the MFIs. BoA’s Regulation no. 2, January 17, 2013, On risk management in the activity of the non-bank financial institutions, establishes the procedures and rules applicable to such entities, including MFIs, for administering risks during daily operations.

If one takes a close look at both regulations, it seems the regulator has taken a stringent approach in devising the rules and requirements applicable to MFIs despite the fact these entities are not allowed to take deposits from the public. The regulations with few exceptions, provide for minimum capital requirements, fit and proper requirements for directors and officers of the entities, reporting and supervision requirements, risks standards, etc. These resemble the features of prudential regulation for depository institutions but NBFIs are not allowed to take deposits.

Thus, the regulator and the microfinance sector should join forces to overcome the deposit ban obstacle and allow microfinance institutions to at least accept micro-deposits from the public. The regulator via the said or improved regulations is capable to exert effective supervision over the institutions. From the perspective of the microfinance sector, the lift of the deposits ban would be very positive as it will increase both the lending capacity and pool of clientele. Under these circumstances, a specific law combined with proper regulations seems to be the way forward to achieve this goal.

By Sabina Lalaj, Local Legal Partner, and Ened Topi, Senior Managing Associate, Deloitte Legal Albania & Kosovo

This Article was originally published in Issue 8.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

“The genesis of Albania’s EU accession talks dates back to June 2003, when Albania, alongside other Western Balkan countries, was identified as a potential candidate for EU membership,” explains Deloitte Legal Local Legal Partner Sabina Lalaj. While Hoxha, Memi & Hoxha Partner Eris Hoxha points out that Albania was a candidate country since 2014, official membership negotiations were opened only on March 25, 2020. According to Kalo & Associates Co-Managing Partner Aigest Milo, “the next step is for the first Inter-Governmental Conference to be held (presumably during the first semester of 2022),” but Hoxha says “no specific date has been determined yet.”

“Albania’s progress has been undeniable,” says Lalaj, echoed by Hoxha: “In its report on Albania’s progress, the European Commission noted that the country has continued to meet the criteria for starting the accession talks. It stresses that Albania has achieved ‘tangible’ and ‘sustainable’ results by continuing its commitment to EU-oriented reforms.” However, according to Lalaj, “a significant amount of work is still necessary for aligning the country with European standards.”

“While there is political agreement at the highest levels of the EU for accession talks to formally commence,” Lalaj says that “Albania is currently awaiting the unanimous decision by the European Council of Ministers for the accession talks to officially begin. While such unanimity for Albania has been reached in the last European Council summit, Bulgaria has exercised its veto right in relation to the accession talks of North Macedonia, thus entailing that the beginning of the official accession talks was also postponed for Albania.” Hoxha explains that “the start date for Albania’s accession remains deadlocked, due to the Bulgarian blockade of North Macedonia, as most EU countries prefer to see Tirana and Skopje progress towards the EU as a package.”

In terms of a timeline, Lalaj says that “expecting the process to last up to 10 years, after accession talks have been officially begun, is not unreasonable.” As a result, “if negotiations start during 2022, it is realistic that Albania joins the EU somewhere between 2030 and 2035,” according to Hoxha. Milo seems to be the least optimistic: “realistically, also considering the experience of other neighboring countries, I do not believe Albania will be granted full membership before 2035.”

Harmonization Progress

“In light of Albania’s accession process with the EU, the Stabilization and Association Agreement (SAA) between the Republic of Albania and the European Community was entered into in 2006,” according to Lalaj, who explains that “Albania’s obligation to harmonize and enact legislation in line with the acquis is enshrined in Article 70 of the SAA.”

Milo says that “in general, harmonization of internal legislation with the acquis communautaire is progressing quite well. EU Directives are being transposed regularly in all areas of law.” Examples of already harmonized legislation, according to Hoxha, include Law no. 55/2020 On Payment Services, Law no. 62/2020 On Capital Markets, Law no. 25/2018 On Accounting and Financial Statements, Law no. 30/2019 On Some Additions and Amendments in Law no. 9723 On Business Registration, Law no. 112/2020 On the Registry of Beneficiary Owners, and Law no. 17/2017 On Some Amendments and Changes to law no. 9947 On Industrial Property. Lalaj also points to Law no. 9901 On Entrepreneurs and Commercial Companies, Law no. 11/2012 On Cross-Border Mergers of Commercial Companies and its corresponding sub-legal acts, Law no. 133/2016 On the Recovery and Extraordinary Intervention in Credit Institutions and Investment Firms, Law no. 56/2020 On Collective Investment Vehicles, Law no. 92/2014 On Value Added Taxation in the Republic of Albania, and Law no. 87/2019 On Invoices and the Circulation Monitoring System.

“As per the Commission Progress Report for Albania in 2020, the country is moderately prepared regarding harmonization of Chapter 6 (Company Law) and Chapter 9 (Financial Services) of the acquis,” Lalaj sums up. Despite the progress made, “there is still significant legislation which needs to be harmonized with the EU legislation, and even some harmonized laws need to be fully approximated” according to Milo.

One example of a pending update “worth mentioning,” according to Lalaj, is the one regarding Private Pension Funds, “regulating the licensing procedure and scope of activities of companies engaged in the administration of private pension funds in the Republic of Albania and the creation and rules of operation for private pension funds with either open or closed participation.”

Hoxha also points to a need to approve the National Strategy on the Free Trade of Goods, to align with the Treaty on the Functioning of the European Union. Non-banking financial entities-related regulations also need to be amended, according to him, along with a transposition into Albanian legislation of the EU measures to encourage improvements in the safety and health of workers at work. Criminal, waste management, consumer protection, intellectual property protection, and customs legislation are other areas he highlights as in need of harmonization.

Lalaj also highlights Law no. 8438 On Income Taxation, which “is continuously subjected to amendments and additions, in an effort to, among other things, bring the regulatory framework in line with certain harmonized provisions of the acquis.” In fact, Milo states: “if I had to point out an area of law where more efforts are needed, tax legislation would be the one. Indeed, tax laws remain largely not harmonized with EU legislation.”

The Vibe on the Ground

“The overall sentiment of the public is pro joining the EU” says Hoxha. Lalaj argues that “euro-skepticism is a very rare occurrence in the Albanian public perception regarding EU accession,” pointing to the fact that “every major political party in the country builds their political agenda based on a common, undisputed goal – EU accession.” Indeed, Milo adds that “recent polls and studies show that 90% of Albanians want Albania to join the EU.” However, he also reports that “only 51% of them trust EU institutions (compared to 64% in 2019).”

While Milo points out that only “24% of Albanians believe that Albania will never become a member of the EU,” and Lalaj believes that “there is realistically still a long road ahead,” she argues that this road should be seen “as a desirable challenge, which Albania will undoubtedly eventually surpass.” And, ultimately, the country will be better off for it, with Milo adding: “Personally, I believe that the accession process has allowed Albania to significantly progress in its reforms towards building a functional and democratic state.” The challenge, according to him, is to “pass into the next phase, which is critical, [and move away] from a formalistic approach to actually embracing EU principles and values.”

This Article was originally published in Issue 8.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Infrastructure, the Open Balkan initiative, and the ongoing judicial reform are the major topics in Albania, according to Tashko Pustina Partner Florian Hasko. 

Infrastructure is the key sector the Government of Albania has been focusing on, Hasko says, “with the Trans-Adriatic Pipeline being the biggest project in the country.” The works in Albania have been almost completed and the entire pipeline might become operational in 2022, he explains. “It is a showcase of foreign direct investment in Albania, on a significant scale, bringing in jobs and resources as well as sector-specific know-how.” 

Another interesting development to keep an eye on in 2022, according to Hasko, is the project for the construction of a new hydropower plant in Skavica, on the Drin River: “It is a key engineering project, expected to increase domestic green energy production by 20%. Valued at around USD 600 million, the Skavica HPP will be constructed by Bechtel and financed entirely by the government.” 

“The third project – this time impacting tourism in the south of the country – is the PPP development of the Vlora International Airport, to be the gateway to the Albanian Riviera for foreign tourists,” Hasko says. “It will be linked to the seaside through a publicly-funded tunnel in Mount Llogora, some 20 kilometers south of Vlora, the construction of which will start soon,” he adds. 

Also in the spotlight is the recent Open Balkan political initiative, a regional cooperation project between countries in the Western Balkans – three at the moment: Albania, North Macedonia, and Serbia – “aiming to create a common market for goods, services, capital, and people,” according to Hasko. “The process picked up speed recently,” he says, “so we’re expecting more news, with quite a few meetings on specific measures scheduled for 2022.” 

On the legal side, Hasko says the ongoing digitalization of public services is worth a mention, “with the Immovable Properties Registry a key component. Progress was made on that front, with a couple of services already available online, but the idea is to have full access to the whole thing through an electronic platform.” 

Finally, he turns to the ongoing judicial reform, “still the biggest issue for the law community, a major concern for investors, and a headache for the government.” The Tashko Pustina Partner says that more than half of judges and prosecutors have been removed from office since 2016 “on grounds related to either corruption, professionalism, or capabilities. The challenge of vacant positions still exists, but in the first half of 2021 the Supreme and Constitutional courts have finally resumed work.” 

“It’s still slow, as appointments still need to be made,” he says. “However, there is public support for the reform and people are optimistic about its outcome. While previously magistrate positions were frowned upon, as a career choice, a good number of my law school colleagues have now applied for and started a career as magistrates,” he explains. Hasko is hopeful: “the fact that some of the lawyers who have suffered through the system have decided to make the switch – and dedicate their time and efforts to improving the judiciary – is, I feel, a sign of good things to come.”