A story about intermediaries in the Moldovan energy sector
TRANSLATION FROM ROMANIAN (see the original here)
The critical situation in the Moldovan energy sector and namely the perspective of a substantial increase of tariffs are worrisome and even raised questions on how Moldova has provided itself with electricity.
One piece of news these days is the fact that Moldova officially admitted it was not actually buying electricity from the Cuciurgan Thermoelectric Power Plant [controlled by Russia via Transnistria] but from a mysterious firm which set up in Tiraspol at the end of last year.
There should be no surprise of seeing intermediaries [in this business]. There are and they will be present in any economy. The sad thing is that their activity is non-transparent and their owners are unknown persons who hide in tax paradises.
Mold-Street has made a documentation of intermediaries active in the domestic energy sector in the past two decades.
The first schemes with intermediaries who delivered electricity to Moldovan consumers appeared at the dawn of country’s independent.
The Neftegazgroup scheme
At that time there was a habit to service governmental guarantees on barter conditions. The case that produced the biggest headline fonts was related to Neftegazgroup Company. On November 4, 1994, the Moldovan Government lent 26.88 million USD to Moldenergy, a state-owned enterprise, under the Finance Ministry’s guarantees in order to buy energy resources for the cold season 1994-1995, an investigation at investigații.md shows.
In December 1994, Moldenergo signs an agreement with Malta-registered Neftegazgroup, which engaged into delivering energy worth 50 million USD to Moldova. On December 14, 1994, by a governmental decision numbered 906 the Finance Ministry is obliged to transfer 50 million USD to Neftegazgroup account in Union Bank of Switzerland Lugano. This document was issued on a paper with a different header, uncommon for governmental decisions; it was never registered with the State Chancellery and never published in Monitorul Oficial, the official gazette.
On December 22, 1994, the Finance Ministry transfers 11.88 million USD to Neftegazgroup. The money arrives onto the company’s account on December 27 and on the same day Neftegazgroup transfers 10 million to three firms in Moldova, which were founded in late 1994, by affiliated persons. This way, TransWorldInvest received 4.5 million USD, M-Credit received 3 million USD, and CompassInter, an insurer, got 2.5 million. The very next day, these firms purchase the third and fourth emissions of Petrolbank shares worth 42 million lei – an amount equivalent to 10 million USD at that moment. Until the beginning of 1995 Neftegazgroup controlled 99.2% of Petrolbank, via its three daughter firms. In one month and a half, on February 10, 1995, the Finance Ministry transfers to the same company another 15 million USD – in spite of the fact that no energy resources had been supplied to Moldova.
Moldenergo officials said this sum was used to purchase fuel oil and coal to produce electricity and heating. The proof of this however disappeared in a mysterious fire at Moldenergo. The Office of Prosecutor-General filed an investigation only in 1997 and Moldova was “compensated” with a 22% share in Petrolbank, which today is called Eurocreditbank. At the end of last year, this bank was sold for little more than one million US dollars.
In this case former Finance Minister Valeriu Chițan was charged with embezzlement of 10 million USD but after a lengthy legal battle he was cleared of charges. According to Mr. Chițan, the credit was repaid full on November 1, 1997 and the government gained 4.4 million USD in dividents.
During 1995-2001 the schemes in the energy sector have spread out and developed; there were times when the power bought from Ukraine was sold in Romania, and from there it arrived in Moldova, which did not pay anyway; at the end of 2001 Moldova owed more than 30 million USD for power consumption.
A Bin Laden company, intermediary for Russian power
In 2002 the Russian gas giant RAO-EES started delivery of electricity to Moldova based on a Moldova-Russian agreement, at a price 40% lower than Moldovan local power station asked and over 30% cheaper that the energy imported from Ukraine or bought from the Cuciurgan plant.
The two state-owned power distribution grids of Moldova, the Metallurgic Plant of Ribnitsa, and the Transnistrian consumers were the solely beneficiaries of that deal. The rest of consumers and namely those served by RED Union Fenosa continued to pay more for electricity.
However no direct deliveries existed and there were intermediaries. An investigation conducted by the Moldovan Center for Journalist Investigations (CIJ) says that the largest intermediary was Falkon Kapital din Cehia from the Czech Republic – a firm owned by the influential and rich Saudi family of Mr. Bin Laden, a member of which the world’s number 1 terrorist Osama Bin Laden was.
Falkon Kapital was a permanent partner of RAO EES in electricity export operations since 2000, first in Belarus and later in Moldova and other ex-Soviet states. In 2001 it emerged that Falkon Kapital redeemed a Russian debt of 2.5 billion USD towards the Czech Republic, for just 400 million USD.
From Falkon the Russian electricity was sold in Moldova via two intermediary firms, Enteh and Energoexport, which the Moldovan energy regulator ANRE allowed to supply electricity at unregulated prices. Enteh also exported power to Transnistria.
Energoexport in turn became the main exporter and importer of electricity. It purchased power from Ukraine and Cuciurgan plant, and sold it to [Moldova and] Romania, too. In 2004 it used to control about 80% of the power trade in Moldova.
In this Ukraine import scheme, there is a firm called Anex International Trading LLC, and in the Romania export scheme there is a firm called RWE Trading. In late 2004 Energoexport, which was founded by three state-owned Moldovan companies and commercial bank Mobiasbancă, was shut down. An international conflict with the Transnistrian administration in Tiraspol and international pressure was cited as a reason to close this company. Since 2005 Energocom, which is 100% controlled by the Moldovan government, has been the solely exporter and importer of electricity. Until 2008 it was run by Alexandr Gusev, who currently serves as CEO in the [Russian-Moldovan venture] Moldovagaz.
The scheme of power export from Transnistria to Romania
In 2005, Moldova practically stopped buying electricity from the Cuciurgan plant, which used only one of its 12 power blocks. The new owner, Inter RAO EES tried to enter the Romanian market and other Balkan markets since that year but with no luck. Only in mid-2007 it succeeded to achieve that goal.
On July 15, 2007, the Cuciurgan plant in Transnistria began deliveries of electric power to Romania, based on an agreement with Romania’s Electrica company. Moldova supported this operation by providing a 400 kV power line Cuciurgan - Vulcănești - Isaccea. Russian media announced with joy that Russia exported electricity to Romania for the first time in 20 years. Romanian media, too, said the Russians were supplying cheaper electricity.
Under the agreement the price of electric current produced in Cuciurgan was 45 USD per one MW/h or 4.5 US cents for one kW/h, at the entry end of the transportation line. At the Romanian-Moldovan border the price was set to increase up to 4.8-5.0 US cents for one kW/h (meaning the transportation costs). In reality, the price was 6.5 cents, which is a rise by 1.5 cents for each kilowatt or by 30%, according to CIJ accounts.
There was a simple explanation to this growth. An intermediary firm was hidden between the Cuciurgan plant and Electrica: Eastern Europe Energy Ltd – a UK off-shore founded on June 11, 2007 namely for this deal. Eastern Europe Energy Ltd was controlled by Starwell International Ltd, a postbox in the West Indies. Documents from London showed that Eastern Europe Energy was run by Fynel Limited, from Cyprus, and Juri Vitman, a Latvian citizen who appears in many other firms involved in similar schemes.
This scheme was functional until 2010 when the export of electricity to Romania became non-profitable as a result of price plummeting.
The deal „Price increase in Ukraine”
Year 2008 brought about a new scheme. This time it’s about the importation of electric current from Ukraine. On June 1 Moldova started buying electricity from Ukraine for 4.4 cents per one kW/h, a price that is 10% higher than in the previous month. Then prime minister Igor Dodon said negotiation on the new price was “a remarkable success” given that the Ukrainian side had demanded a 50% increase.
After negotiations in Kiev a private intermediary was included in the process of importation of power from Ukraine, which was carried out by Ukrinterenergo. It was Energo-Partner Kft from Hungary, which was controlled by a Ukrainian millionaire with Slovak origins. On the Moldovan side the scheme included Energocom. In compliance with the old arrangements, Energocom was buying electricity from Ukrinternergo, then it was delivered to the Moldovan power distribution grids RED Nord, RED Nord-Vestm and RED Union Fenosa – which sold it to the final consumers. The inclusion of an intermediary in the power import scheme wouldn’t be a problem if the price remained unchanged. However, it increased rapidly from 3.8 US cents for one kW/h in the first quarter of 2008 up to 5.5 cents in the fourth quarter of that year.
While for Ukrinterenergo-supplied power Moldova paid 4.1 cents per one kW/h in June 2008, for the power supplied by Energo-Partner Kft it paid 5.3 cents, which is 1.2 cents more or 29% above the earlier price. In October 2008 Energo-Partner Kft charged 5.8 cents while Ukrinterenergo charged 4.5-4.6 cents. The Moldova-Ukraine agreement, which was signed by Igor Dodon on behalf of the Moldovan side, Energocom was buying 70% of necessary energy from the Ukrainian supplier and the other 30% from the Hungarian firm. By time, this proportion changed to 50-50 and the cost of electricity for Moldovans increased.
Then Ukraine raised the electricity price and Moldova turns to the Cuciurgan power plant in December 2008, thus reducing abruptly the imports from Ukraine. The price increase in Ukraine was just a formal pretext. In reality the Ukrainians were prepared to sell for 5.2 cents but the Chisinau Government accepted to pay a price that was 10% higher – 5.8 cents – from the Transnistria-controlled station in Cuciurgan, starting January 2009.
The Moldovan authorities claimed that Ukraine in general submitted no offers but there are clear signs of an understanding with Moscow, which was reached during [President] Vladimir Putin’s visit to Chisinau in November 2008.
The four mysterious intermediaries
During the 2009 election campaign, and also in 2010, there were rumors that intermediaries were present behind the Cuciurgan sales deal. No evidence or names appeared in public. However, in March 2010 the Economy Ministry announces a breakthrough in negotiations and a consequent reduction of price by 0.3 cents, down to 5.5 cents for one kW/h.
The merit for fact was largely used by the Moldovan Democratic Party (PDM) leadership to increase its voter support. On May 24, 2010 it issued a press release saying that „[Democratic Party chairman] Marian Lupu thanked the PDM ministers for their efforts to eliminate the intermediaries between Cuciurgan and the Government.” And even more! It run that “until now there were about four intermediary firms that collected one billion euros a month, an amount which was included in the tariff and was contributed by consumers.”
However, in order to count such money every month the electricity consumption in Moldova must increase about 1,000 times. In another press release, on May 27, which again mentions the elimination of four intermediaries in the Cuciurgan power deal, the monthly income was lowered 500 times, down to 2 million euros. Then there was a third press release saying that “during negotiations over a new electricity deal with the Cuciurgan plant it emerged that a few intermediaries were acting in the sector and each earned more than one million US dollars a month.”
If there were four firms, and they collected 4 million USD a month, overall they earned 48 million USD a year. In this case the price of one kilowatt from Cuciurgan had to decrease by 1.5 cents, down to 4.2 cents, not 0.3 cents as announced. The Economy Ministry led by Valeriu Lazăr, a Democrat, later denied the reports on intermediaries.
The allegations on intermediaries in the energy supply schemes continued for years but no one produced any evidence.
An intermediary in Tiraspol, with a license from Chișinău
At the end of 2014 the topic on intermediaries popped up again once the Cuciurgan electricity acquisition deal included the firm Energokapital, based in Tiraspol, which was founded on October 16, 2014 by people closed to [Transnistrian leader] Yevgeny Shevchuk. The next day, on October 17, it was registered in Chisinau and on October 20 it obtains a license from [the Moldovan energy regulating agency] ANRE for “Furnishing electric energy at non-regulated tariffs.”
The speed of this process shows that there was an understanding between certain members of the Tiraspol administration and Chisinau Government. Why hurry with the license application if the law allows [ANRE] to examine the application for 5 days. In conclusion, Energokapital was the biggest power supplier in Moldova in the first half of 2015.
A report on the blog openpmr.info claims that Energokapital was founded by two firms. One is Bas Market in Tiraspol, which was founded by Yuri Dzetsul and Intercom Management Ltd from Belize. We found this firm, too, in Panama. The second founder is Ornamental Art Limited from Hong Kong. Who are the real owners of these companies, we don’t know, but all the roads lead to Tiraspol and Moscow. Energokapital is also an intermediary for deals with natural gases which are delivered from Gazprom to the Cuciurgan plant.
Moldovan Deputy Economy Minister Valeriu Triboi said in the Parliament that it was the Transnistrian administration which had insisted to keep Energokapital in the scheme. He claimed that the price paid under this scheme is lower than a price that would be paid directly to the Cuciurgan station. “What’s wrong in the fact that the price is lower?” Mr. Triboi replied to a curious lawmaker.
Indeed, it’s not bad, but look at the price decrease under this scheme: 6.795 cents compared to initial 6.8 cents, or less than one per cent. Market observers wonder why Moldova was unable to negotiate a lower price directly with the Cuciurgan power plant? The answer is obvious: Moscow’s agreement is necessary for this.
So, we are going to pay in continuation an intermediary for the electricity produced by the Cuciurgan plant on the gas delivered by Gazprom. The money however is not used to pay for that gas. This money goes into offshore accounts and is used to strengthen the separatist authorities in Transnistria and to corrupt the Moldovan leadership.
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This material was produced as part of the project "Investigative business journalism for transparency and European integration,” which Business News Service (Mold-Street.com) is implementing with the support of the National Endowment for Democracy (NED). The opinions expressed therein belong to their authors and do not reflect necessarily the stance of NED or the U.S. Government.