Category: Albania

The Tirana office of Wolf Theiss has advised the European Investment Fund on its EUR 25 million loan to Albania’s Alpha Bank.

According to WT, the financing, which is part of the EU’s COSME Loan Guarantee Facility program supporting the access of SMEs to financing, is designed to assist Albanian SMEs. It is the first COSME program agreement in Albania.

According to the firm, under the terms of the agreement, “Alpha Bank Albania will grant loans to Albanian SMEs having limited available collateral, with the support of EIF’s funds under the EU’s COSME program for guarantees.”

It is expected that approximately 200 businesses will benefit from new financing, with reduced collateral requirements at more favorable conditions. WT reports that Albania is now the 32nd country where small- and medium-sized companies can access debt finance guaranteed by the EU. 

The WT team consisted of Tirana-based Partner Sokol Nako and Associate Kristaq Profkola.

“The political situation in Albania is currently overcharged,” says Wolf Theiss Partner Sokol Nako, commenting on the opposition’s decision to leave the parliament earlier this year, which led to widespread protests.

Nevertheless, Nako says that he hopes the disputing political parties will find a “breakthrough to work together, to diffuse tension, and make everything possible to speed up the process of the EU integration.” He adds, “hopefully, this situation will not distract any investors from seeing us as a lucrative market and going forward with some major investment plans.”

In the meantime, the country’s economy is not stagnant, Nako reports. In fact, he says, lawyers are busy closing transactions. He points to consolidation in the banking sector tied to the exit of Greek banks such as Piraeus Bank and NBG, which he says is connected to developments in their home country. “We have seen Albanian investors taking on these opportunities,” he says, speaking specifically about the Balkan Finance Investment Group’s acquisition of Piraeus Bank’s local subsidiary. He pointed to developments in the telecommunication sector as well.

In addition, Nako says, the Albanian government has recently launched a number of new private-public partnerships to follow on the ones from last year to further improve Albania’s infrastructure and boost capital spending in the economy. 

Yet the change that is most likely to affect the markets, Nako says, is in the energy sector. At the beginning of May, 2019, the Albanian government decided to establish an electric power exchange. The effort is supported by the International Finance Corporation and the Energy Community Secretariat and is designed to increase efficiency, transparency, and financial responsibility among all participants and stakeholders in the country’s energy sector, and potentially improve circumstances in Albania’s neighbors as well, says Nako. According to him, subsequent steps will involve the enactment of relevant legislation that will make it possible to establish the power exchange and make it operational. “This will allow suppliers and customers to get the best prices, as well as keeping the market liquid,” he says, adding that if the process is successful it is likely to lead to regional electric power exchange.

Tonucci & Partners advised Union Bank on the acquisition of the International Commercial Bank in Albania, and Wolf Theiss provided legal advice to Union Bank during the regulatory approval phase.

The price of the deal was not disclosed. In January, the transaction was approved by Albania’s competition authority.

International Commercial Bank is a subsidiary of Swiss-based ICB Financial Group Holdings. The transaction involves 100% of the bank’s voting shares.

The Wolf Theiss team consisted of Partner Sokol Nako and Associates Kristaq Profkola and Denis Selimi.

Kalo & Associates has advised the YURA Corporation, a South Korean auto-supplier, on launching the first stage of the operation of its plant on a 4.9 hectare site near Fier, in southwest Albania.

The YURA Corporation will produce electric, electronic, and ignition components for the automotive industry. The initial investment is estimated at EUR 6.5 million. 

Kalo & Associates is a member of the SEE Legal law firm alliance, and according to a SEE Legal press release, “the YURA Corporation was granted the status of strategic investor by the Albanian Government following a thorough examination of the project by the Albanian Investment Development Agency.”

SEE Legal reports, “such a special status is associated with significant incentives, including the right to use state land against a rather low rental and facilitation in permitting and licensing procedures. This decision of the Albanian Government contributes to the increase of interest of new investors, who have ambitious projects with mutual benefits.”

The Kalo & Associates team was led by Partner Jola Gjuzi. 

Kalo & Associates and Freshfields Bruckhaus Deringer, both acting on behalf of the Republic of Albania, have persuaded an ICSID arbitral panel to dismiss a case brought by the Anglo-Adriatic Investment Fund, which was claiming about EUR 220 million for foreign investment expropriation.

Austria’s Kerres & Partners advised Anglo-Adriatic.

The claim, which was registered on February 17, 2017, was heard by a tribunal consisting of President Juan Fernandez-Armesto and arbitrators Georg von Segesser and Brigitte Stern. The tribunal rendered its award on February 7, 2019.

Boyanov & Co., Kalo & Associates, and Hugh Owen of Go2Law have advised Albania Telecom Invest, a joint venture of entrepreneurs Spas Roussev and Elvin Guri, on its EUR 50 million acquisition of Telekom Albania from OTE (Deutsche Telekom). White & Case and Wolf Theiss advised the sellers on the deal, which remains subject to closing conditions, including the approval by the competent local authorities and financing, and is expected to be completed within the first half of 2019.

According to Wolf Theiss, “Telekom Albania, whose majority shareholder is OTE, operated as Albanian Mobile Communications until July 2015. The company was acquired by OTE Group back in 2000.”

According to Boyanov & Co., the firm “advised ATI on the entire deal – participation in an auction organized by OTE, submission of a bid, legal due diligence (in cooperation with Kalo & Associates), negotiation of the sale and purchase agreement, escrow agreement, and set of other transaction documents, and negotiation of the financing of the deal by the First Investment Bank. Kalo & Associates advised ATI on the legal due diligence of Telekom Albania, on security for the financing and the following Albanian merger control process, and [on] other closing formalities.”

The core Boyanov & Co. team on the deal consisted of Partner Damian Simeonov and Senior Associate Ralitsa Nedkova.

The Wolf Theiss team advising OTE on Albanian law matters included Partner Sokol Nako and Associate Kristaq Profkola.

The London-based White & Case team consisted of Partner Allan Taylor and Associates Edwina Daws and Erika Games.

“Nothing really big is happening at the moment,” says Anisa Rrumbullaku, Partner at CR Partners in Tirana. “Not much has happened recently — it’s been pretty stable for the past three months.”

In fact, she says, “there’s certainly no shortage in terms of investments, but no major new investments either.” Perhaps not completely coincidently, she reports that “the legal market is pretty stable as well. The law firms are more or less consolidated, and there are no real spin-offs or new firms being created.”

Still, Rrumbullaku confirms that overall business is good. “Work has been better this year than last year, which was an election year.” And she insists that, while some of her peers expressed relatively bleak outlooks on the past, recent developments justify a cautious optimism. “Negative observations about Albania are quite true — we see them a lot — but there is hope,” she says, “because of the judicial reform in Albania. The government’s commitment to change — in part because of the pressure exerted by foreign actors like the US and the EU — is good.” She explains that reconstitution of two major institutions — the High Prosecutorial Council and the High Judicial Council —marks a crucial step forward of the judicial reform. “Just this month, in December, that process was finished,” she reports. “So we think there will be more progress and as a result, more hope and increased confidence in foreign investors.” 

That business, Rrumbullaku reports, is coming from a variety of sectors, though she points in particular to increased interest by foreign investors in the Albanian tourism sector, with investors — “four and five star brand name hotels” — looking both in Tirana and along the Albanian coastline for business opportunities. “There is a good incentive packages for the tourism industry in place,” she says, and though she notes that at the moment most investors are only expressing interest, she says that commitments are expected soon. Already, in fact, Hilton Garden Inn and Hyatt Regency have recently entered the Albanian market, in Tirana.

She also points to the major contract awarded by Albania’s Ministry of Energy and Industry this past August to Indian energy company India Power Corporation Limited to build a 100 MW solar park on the Akerni salt flats on the south-eastern Adriatic, with a 50 MW section awarded a 15-year tariff of EUR 59.9 per MWh, and the remaining 50 MW to be sold to the local retail electricity market. She describes this deal as “the highlight in the energy sector in recent months.” 

In general, Rrumbullaku says, “the current government is pretty stable so far.” There have been protests recently, she says, but mainly by university students objecting to the costs of university educations — “and they don’t affect the investment climate.” And there is a particularly business-friendly development in the country’s tax regime, which will see the tax rate on dividends drop from 15% to 8% in 2019, “with retroactive effect for the past three years.” She says that “many companies had chosen not to proceed with dividends pay-outs in the past, but this is positive news for investors; a lower dividend tax rate is always good.”

Ultimately, Rrumbullaku says, the country is heading in a positive direction. “We see growth from last year, and I hope that’s a positive trend that will continue into 2019.”

“As part of Albania’s new judicial reform, in the beginning of 2018 a vetting law entered into force, which stipulates that about 800 judges and prosecutors will undergo a professional and ethical re-evaluation,” reports Alban Caushi, Managing Partner at CR Partners. “As a result, there is an impasse in the judiciary system: The Constitutional Court does not have a quorum to take over cases and the Supreme Court is paralyzed.”

To give context, Caushi explains that, due to pressure from the European community emanating from the common perception that Albania has a high level of corruption in both judges and prosecutors, in 2016 the Albanian parliament enacted a set of laws aiming to reform the justice system and established a special commission to vet judges and prosecutors. 

“The Independent Qualification Commission is looking at three main aspects: professional integrity, moral integrity, and their personal assets,” Caushi says. “They started with the Constitutional Court, then the Supreme Court, then other judges and prosecutors. When the procedures started, there were nine constitutional judges, and now we have only two.” In addition, he notes that the vetting procedure is going much slower than had been expected, with less than 10% of the country’s judges and prosecutors having been vetted since the beginning of 2018.

“I think it’s slow because of the high amount of work,” Caushi says, “and there are only a few people serving in the commission. There was an effort from the majority party which runs the government to speed things up, but they don’t have the numbers to pass legislation, thus filling the vacancies within the justice system will take some time.” He describes the selection process for the commission as a difficult one. “There was no political involvement in the selection, and the law is being implemented under the scrutiny of international observers,” he reports. “There are two levels of administrative process review: the first degree is for the assessment itself, while the second one is for appealing the first-level decisions.”

Finally, Caushi notes that even though the reform is an important step forward, it is negatively impacting the day-to-day work of lawyers, for cases are stuck at the Supreme Court, and cases which require urgent adjudication are being delayed, and can last for years. “The situation is quite critical,” he says, “for soon we may end up even without a court of appeals.”

Turning to the Albanian business market, Caushi mentions that recently a number of foreign banks – mainly Greek and French – are withdrawing from the country. “Recently we saw Piraeus Bank selling its subsidiary, Tirana Bank, and three months ago the National Bank of Greece did the same. Societe General was another bank which left this year.” He believes the trend is not tied directly to the Albanian economy. “In my opinion, at least for the Greek banks, the reason the Greek banks are leaving the country is the regulatory measures imposed by the Central Bank of Greece forcing them to reduce their recapitalization costs. It’s not only happening in Albania, but in the entire region. According to my information, Piraeus and NBG also cut operations in Serbia, Romania and Bulgaria, so it has nothing to do with the economy itself.”

Indeed, Caushi insists, things seem good at the moment. “Compared to previous years I see improvement when it comes to foreign investments,” he says. “There is an increasing demand from domestic and foreign investors to enter into the tourism and infrastructure sectors.” In addition, the Albanian government seems to be making appropriate moves to generate more FDI. “The government is also enacting an incentivizing legislative package to further motivate foreign investors. For example, those who are willing to invest in four and five star-branded hotels will be awarded certain benefits, like a VAT reduction to 6%, which is quite low compared to the general 20% rate in Albania. In addition, a ten year profit tax break will be applied, no infrastructure impact tax will be applied, and so on.  

Finally, Caushi mentions that lately the Albanian government has started to assume an active role in the construction of photovoltaic plant, aiming to reduce carbon emissions. “They have just opened a tender for the construction of a big photovoltaic plant, with an investment value roughly up to EUR 70 million and with an installing capacity of 50 MW,” he says. “Its deadline ends in the mid of September.” 

“In Albania we have a hospitable climate for foreign investors, not just from a legal perspective, but from a business perspective as well, and we are trying to do the best to implement the laws as they are written,” reports Jonida Skendaj, Partner at Boga and Associates.

According to Skendaj, Albania is in a state of “constant development,” in areas such as agriculture, energy and mining, transport, telecommunication, and urban waste. And while she reports that domestic investors are getting more and more active, primarily in public infrastructure projects, she says that “foreign investors, on the other hand, are becoming interested in the agriculture sector.”

According to Skendaj, “we also hope to see some more movement in tourism, as it is being incentivized quite strongly by the government. We have no restrictions on repatriation of funds, no tax on net profit of a branch, many tax conventions in place which provide for a low rate of tax on dividend repatriation, and equal treatment for foreign and domestic investors, meaning that we do not have discrimination from a taxation point of view; foreigners don’t pay more than locals.” According to her, this equal treatment — combined with attractive tax rates — is key. “When you are a foreign investor and come into a country that you don’t know, at first glance you want to see what protection the country can offer to you, but also how the tax treatment will be. We have friendly tax rates — 15% rate for profit tax — and then with the double tax treaties, the income that is generated in Albania may be taxed at reduced rates depending on its nature.”

Also important, Skendaj says, is that foreign investors don’t need prior governmental approval to invest. In addition, the investment can be 100% foreign, including management. “The law on tourism has been changed recently, and it now provides for incentives to state-owned immovable properties that are located in areas that are priorities in the development of tourism, so they can be made available for investors for a duration up to 99 years. The right to use state-owned property can be also obtained for a symbolic price of 1 euro,” she reports, adding that when someone has the status of a “special strategic investor,” Albania’s Council of Ministers may also change the ownership of the state-owned territory in its favor. “In this case, the contract will contain a condition that the investment should be fully realized as undertaken in the original contract,” she says. “The agreement would be ratified by the parliament.”

“The investment value in these cases is very high,” she reports, “and for someone to qualify as a ‘strategic special investor,’ they need to ensure that some jobs will be in place, the project will be finished in time, and so on. In exchange, the state gives you special protection: you’ll have a contract ratified by the Parliament, which gives you more security, or if you need some immovable property that is privately owned, the state undertakes the expropriation.”

“The law is there to protect,” Skendaj concludes, adding that Albania also has special bodies like the Albanian Agency for Foreign Investments and the Strategic Investment Committee that have been designed to help investors. “If they need assistance, these agencies can put them in contact with relevant ministries, and if they need expropriation, they prepare the field. Foreign investors are literally accompanied by the state (in its bodies) on every step.”