Extractive Industries Transparency Initiative in Albania Report for the year 2015 December 2016 00 Extractive Industries Transparency Initiative in Albania | A country’s natural resources, such as oil, gas, metals and minerals, belong to its citizens. Extraction of these resources can lead to economic growth and social development. More openness and public scrutiny of how wealth from a country’s extractive sector is used and managed is necessary to ensure that natural resources benefit all. 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 Energy and Industry “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 2015. 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 2015 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 7 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 Energy and Industry, 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. December 28, 2016 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 0 Executive Summary 5 1. Introduction 6 2. Overview of the extractive sector and hydro-energy sector in Albania 10 3. Oil and gas 20 4. Mining sector 40 5. Hydro-energy sector 56 6. Subnational transfers 75 7. Audit and disclosure requirements in Albania 77 8. Overview of flows reported and reporting entities 79 9. Approach, methodology and work done 83 10. Results of the reconciliation 88 11. Lessons learned and recommendations 96 Glossary and abbreviations 106 Appendix 1 – Disaggregated reconciliation from the oil and gas sector 108 Appendix 2 – Disaggregated reconciliation from the mining sector 111 Appendix 3 – Disaggregated reconciliation from the hydro-energy sector 130 Appendix 4 - Albpetrol’s operations and governance 135 Appendix 5 – List of Petroleum Agreements held by Albpetrol at 31 December 2015 139 Appendix 6– List of Petroleum Agreements held by AKBN at 31 December 2015 140 Appendix 7 – Current licensing situation and free exploration blocks 141 Appendix 8 – Mining licenses awarded in 2015 142 Appendix 9 – Register of concessions in the hydro-energy sector in December 2015 145 Appendix 10 – Content list providing link per each of the EITI standard clauses to the EITI report 161 Contacts 165 Executive Summary Promoting public awareness about how the country manages oil, gas and mineral resources Albania stands among 51 countries adhering to the Extractive Industry Transparency Initiative (“EITI”), a global initiative which seeks to improve the governance of the extractives sector globally. As part of the ongoing implementation of EITI, the Albanian Government publishes this informative report on the extraction of oil, gas and other minerals and their contribution to the State budget and Albanian Economy. The report provides an overview of activities in the upstream oil and gas sector, mining sector and hydro-energy, and the reconciliation of main flows paid by licensees and collected from the government agencies in these sectors. Oil deposits, Bankers Petroleum Patos Based on data reported by Government agencies, production value generated during 2015 by these sectors is estimated at USD 953 million. Chart 1 - Production in USD million in 2015 The sectors’ collective known contribution was about 4.1% of the revenue recorded in National Budget for 2015, however employee collectively less 500 than 1% of total employee workforce registered in the country in 2015, 398 400 based on AKBN statistics. 325 300 230 Crude oil comprised about 59% of the total output from the extractive sector. About 89% of crude oil was extracted from Bankers Petroleum 200 operating the Patos-Marineza oilfields. Chapters 2 to 5 provide an overview 100 of regulatory and fiscal regime and exploration and production activities in the three sectors. - Reconciliation of the cash flows The reconciliation and reporting according to the EITI standard covered all companies operating an exploration license and production license in oil and gas, 106 mining companies and 19 hydro-energy companies. Chart 2 - Chash-flows By the date of this Report cash flows were reconciled to 98% of total cash reconciled in Lek billion flows reported from the licensees and the Government. Chapter 10 presents Licensees State the reconciliation on an aggregated level. Company-by-company 35 reconciliation is presented in the appendices to the report. 30 25 20 Chart 2 on the right presents the trend of the cash flow reconciliation from 15 year 2011 to 2015. 10 5 0 2011 2012 2013 2014 2015 Source: EITI reports 2011 - 2015 05 Extractive Industries Transparency Initiative in Albania | 1. Introduction Koman Lake, Koman 1. Introduction This Report is the 6th Albanian Extractive Industry Transparency Initiative Report and covers the year ended 31 December 2015. 1.1 What is EITI? The Extractive Industries Transparency Initiative (“EITI”) is a voluntary international coalition of governments, extractive industry companies and civil society organizations engaged in management and use of natural resources, such as oil, gas and minerals (see also: www.eiti.org). EITI’s final aims, is to promote transparency in order to prevent corruption as well as provide citizens with a basis for demanding fair use of revenue. 06 Extractive Industries Transparency Initiative in Albania | 1. Introduction The transparency initiative is regulated through an international standard that ensures more transparency around countries’ oil, gas and mineral resources, the “EITI Standard”, which replaced the “EITI rules” on July 2013. Since then, the EITI standard was further amended in January 2015 and February 2016. The EITI standard is developed and overseen by a coalition of governments, companies and civil society. It is based on the belief that prudent use of natural resources contributes to economic growth, sustainable development and reduction of poverty in resource-rich countries. Under this standard, companies declare what they pay and governments declare what they receive. These payments are disclosed in an annual EITI Report which shall be comprehensive and actively promoted to allow citizens to see for themselves how much their government is receiving from their country’s natural resources and demand for fair use of the revenue. 1.2 EITI in Albania The Extractive Industries Transparency Initiative in Albania (ALBEITI, www.albeiti.org) was established in 2009 by the Government of Albania. Albania joined EITI as a candidate in May 2009 and obtained the EITI The EITI Standard 2016 compliant status in May 2013. Since the initial candidature Albania has published annual reports summarizing the activities and cash flows year on year from 2009 to 2014. This report covers year 2015. EITI implementation in Albania is overseen by the Albanian Multi- stakeholder Group (“MSG”