Extractive Industries Transparency Initiative in Albania Report for the Year 2016 February 2018
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Extractive Industries Transparency Initiative in Albania Report for the year 2016 February 2018 00 Extractive Industries Transparency Initiative in Albania | 01 Deloitte Audit Albania sh.p.k Rr. Elbasanit. Pallati poshte Fakulteti Gjeologji- Miniera Tirana, Albania Tel: +355 4 45 17 920 Fax: +355 4 45 17 990 www.deloitte.al The Albanian Working Group c/o Ministry of Infrastructure and Energy “Deshmoret e Kombit” Blvd. Tirana, Albania Report of factual findings - assembly and reconciliation of cash flows We were engaged to perform the procedures agreed with you with regard to the reconciliation of cash flows from the petroleum, mining and hydro-energy activities and compilation of the contextual information as part of the implementation of the Extractive Industries Transparency Initiative (EITI) in Albania for the year 2016. In performing our work we referred to the International Standard on Related Services (“ISRS“) 4400 “Engagements to perform agreed upon procedures regarding Financial Information” published by the International Federation of Accountants (‘IFAC”). Our procedures are listed in Chapter 9 of the report. Our findings are presented in Chapter 10 and in the appendices as indicated in Chapter 9. Because the agreed-upon procedures do not constitute either an audit or a review made in accordance with International Standards on Auditing or International Standards on Review Engagements, we do not express any assurance on the financial information provided in this report including payments reported by the companies and government institutions. The information presented in our report, or information provided by licensees or government institutions, has not been subject to control or verification procedures unless otherwise stated in the report. Had we performed additional procedures, or had we performed an audit or review in accordance with International Standards on Auditing or International Standards on Review Engagements, other matters might have come to our attention that would have been reported. The enclosed EITI report for 2016 consists of eleven chapters covering among other things contextual information on the industry, description of the compilation, and reconciliation processes and related findings as well as lessons learned during this year’s reconciliation and summarized recommendations. Information presented in Chapters 1 to 6 and other information in addition to payment streams that were subject to the reconciliation process and our procedures, is provided mainly by EITI Albania in collaboration with the Ministry of Infrastructure and Energy, National Agency of Natural Resources in Albania, Albpetrol, and the Albanian Geological Survey. We did not carry audit or other testing procedures to validate the completeness and accuracy of such information. The objective of this report is to enhance transparency within the petroleum, mining, and hydro-energy industry. Our procedures are not designed to identify fraud or misstatements made by licensees and government bodies. February 15, 2018 Tirana, Albania Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see http://www.deloitte.com/al/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. ©2016 Deloitte Audit Albania Content Content 4 List of tables, charts and figures 5 Executive summary 7 1. Introduction 8 2. Overview of the extractive sector and hydro-energy sector in Albania 10 3. Oil and gas 20 4. Mining sector 53 5. Hydro-energy sector 74 6. Revenue allocation 91 7. Data quality, assurance and disclosure 94 8. Overview of flows reported and reporting entities 106 9. Approach, methodology and work done 110 10. Results of the reconciliation 115 11. Lessons learned and recommendations 123 Glossary and abbreviations 139 Appendix 1 – Disaggregated reconciliation from the oil and gas sector 141 Appendix 2 – Disaggregated reconciliation from the mining sector 145 Appendix 3 – Disaggregated reconciliation from the hydro- energy sector 166 Appendix 4 – Summary of exploration activity in Albania 170 Appendix 5 – PSA awarded and transfers in oil and gas exploration and production over the last decade 171 Appendix 6 – Financial statements, audit reports and EITI assurance report 180 Contacts 186 04 List of tables, charts and figures List of tables Table 30 -Summary of cash flows collected by Albpetrol in 123 2016 Table 1 – Statement of Governments revenue from the 13 Table 31 - Payments per company – oil & gas 142 extractive sector Table 32 -Share of oil payments 142 Table 2 - Geological and recoverable oil reserves based on 21 studies dating 1985-1990 & cumulative oil production to 2016 Table 33 - Royalty on internal sales 143 Table 3 – Oil companies engaged in exploration activities over 23 Table 34 - Royalty on exports 143 the past decade Table 35 - Signature bonuses 143 Table 4 - Key facts about oil output and exports in 2016 24 Table 36 - Tax penalties 143 Table 5 – Oil companies engaged in oil and gas production 26 over the past decade Table 37 – VAT 144 Table 6 – Albpetrol’s key financial data 38 Table 38 – Tax on profit 144 Table 39 – Payments for social and health insurance and Table 7 – Summary of Auctions organized 2013 – 2016 42 144 personal income tax Table 8 - Summary of sales of Albpetrol’s oil 2013-2016 42 Table 40 – Other payments - State 145 Table 9 - Comparison of sales of oil disclosed by Albpetrol with 43 the audited financial statements Table 41 – Other payments – Local Government 145 Table 10 – Main revenue from the oil sector 46 Table 42 – List of oil companies 145 Table 11 – Involvement of the Government of Albania in the Table 43 - Payments per company - mining 146 53 mining sector Table 44 - Royalty – internal sales 149 Table 12 – Mining activity 55 Table 45 - Royalty – external sales 151 Table 13 – Maximum license terms and surface 63 Table 46 – Tax on profit 153 Table 14 – Main revenue from the mining sector 70 Table 47 – Payments for social and health insurance and 155 Table 15 – Royalty applied for main minerals 71 personal income tax Table 16 - Key financials of the SoEs in the sector 80 Table 48 – VAT 155 Table 17 – Value created collectively by the activities of power Table 49 – Tax on dividend 159 88 generation, supply, transmission and distribution in Albania Table 50 – Tax penalties 160 Table 18 - Main revenue streams contributed by the 89 Table 51 – Other payments made to the State 162 hydropower sector Table 52 - Other payments made to the LGU 163 Table 19 – Royalty collected and transferred 2016 91 Table 53 – List of companies in the mining sector 164 Table 20 – Reconciliation of subnational transfers of royalty 92 Table 54 – Payments per company – hydro-energy 167 Table 21 – Listing of subnational transfers of royalty made in 93 2016 Table 55 – Concession fee 167 Table 22 – Results of reconciliation for the year 2016 116 Table 56 – Regulatory tariffs 168 Table 23 - Aggregated payments from the oil and gas sector in 117 Table 57 – Tax on profit 168 2016 Table 58 – Tax penalties 168 Table 24 - Aggregated payments from the oil and gas sector– 117 Table 59 – Payments for social and health insurance and by revenue stream 169 personal income tax Table 25 - Aggregated payments from the mining sector in 119 2016 Table 60 – VAT 169 Table 26 - Aggregated payments from the mining sector– by Table 61 – Other payments made to the State 170 119 revenue stream Table 62 - Other payments made to the LGU 170 Table 27 - Aggregated payments from the hydro-energy 121 Table 63 – List of companies in the hydro-energy sector 170 sector in 2016 Table 64 - Summary of exploration activity in Albania 171 Table 28 - Aggregated payments from the hydro-energy 121 sector– by revenue stream Table 65 – Listing of PSA awarded and transfers in oil and gas 172 Table 29 - Summary of cash flows contributed by Albpetrol in 123 Table 66 – Information on reporting entities disclosures and 181 2016 provision of assurance on EITI numbers 05 Extractive Industries Transparency Initiative in Albania | List of tables, charts and figures List of charts List of figures Chart 1 – Production in USD million in 2016 7 Figure 1- Key public institutions and reporting lines as 14 applicable in 2016 Chart 2 - Cash-flows reconciled in ALL billion 7 Figure 2 – Oilfields in Albania 20 Chart 3 – Contribution of Energy & resources to GDP in % 10 Figure 3 – Exploration blocks 22 Chart 4 – Exports from extractive sector vs. total exports 10 Figure 4 – Allocation of revenue from the oil and gas sector 45 Chart 5 – Exports from extractive industry by minerals 10 Figure 5 - Chromium deposits 57 Chart 6 – Historical oil production 1993-2016 24 Figure 6 - Copper ore deposits 59 Chart 7 – Output by oilfields 24 Figure 7 –Nickel deposits 61 Chart 8 - Production of Crude oil in 2016 24 Figure 8 – Deposits of limestone and other construction 62 Chart 9 - Exports of crude oil 2011-2016 31 minerals Chart 10 - Employment vs. oil production 2011 – 2016 34 Figure 9 – Main Rivers crossing Albania 74 Chart 11 - Employment in the upstream oil sector 2011 – Figure 10 – Energy flows between the power market 34 76 2016 participants Chart 12 - Share of oil allocated to Albpetrol 2011 - 2016 48 Figure 11 – Granting and monitoring process of concessions 82 (ton'000) Figure 12 - Allocation of revenue from the hydro-energy Chart 13 - Bonuses collected by Albpetrol 2011-2016 (in 89 48 sector USD'000) Figure 13 – Flow of the reconciliation process 114 Chart 14 – Allocation of revenue from the oil sector 48 Chart 15 - Bonuses collected by AKBN 2011-2016 (in 49 USD'000) Chart 16 - Licenses by district 53 Chart 17 - Licenses by minerals 54 Chart 18 - Mining output 2011-2016 (M$) 54 Chart 19 - Employment in the mining sector 2011-2016 55 Chart 20 – Exports from the mining sector in Million USD 56 Chart 21 - Chromium output 2011-2016 57 Chart 22 - Exports of chromium ore 2011-2016 57 Chart 23 - Exports of ferrochrome 2011-2016 58 Chart 24 - Employment vs.