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By John Helmer, Moscow

When it comes to Trojan horses, who better than the Government of Greece to judge.

The Trojan Horse that’s meant is Leonid Lebedev (lead image), the three-term, 12-year Federation Council senator representing the Republic of Chuvashia. Lebedev claims to be a billionaire with control of a conglomerate called Sintez. Its cash generation is reported to come from oil production in Khantiy-Mansiisk; oil trading; the TGK-2 electricity-generating utility; and proceeds from the sale of a number of smaller businesses. According to investigations last year by the Government of Greece, Lebedev’s claims to represent Gazprom and powerful figures in President Vladimir Putin’s circle lacked credibility, and more importantly, money. Sintez was disallowed the right to bid for the privatization of Greece’s state-owned gas purchase and distribution companies, DEPA and DESFA.

At home, Lebedev has the distinction of being publicly named and criticized by both Putin, when he was prime minister in February 2010; and the current prime minister, Dmitry Medvedev, in December 2013. Both official attacks called into question Lebedev’s promises to invest money in TGK-2, which Lebedev took over in a privatization sale in 2008, using borrowed funds. Failure to pay his debts was also mentioned by Medvedev. Lebedev’s “nonpayment of hundreds of millions of dollars” has also been attacked as “legal subversion” by an international shareholder in TGK-2, along with “blatant corporate governance abuses”.

More recently, Lebedev came under attack from an anti-corruption publication in his home constituency in Chuvashia. Three publications in Vzyatka alleged that Lebedev’s business loyalties are to the US; that he holds a passport from a Caribbean island; and worst of all, he has been demonstrably disloyal to Putin’s policies towards Crimea and eastern Ukraine. Lebedev’s spokesman Konstantin Schwarzkopf has denied the published claims, calling them “absolute nonsense”. Regarding Vzyatka, Schwarzkopf said that the reports have been fabricated to order, and the newspaper is an “underground political sheet”. A spokesman for the Federation Council’s International Affairs Committee has announced that no senator has dual nationality, or holds a foreign passport.

On March 1, the Federation Council voted 90 to zero to approve a request from the Kremlin to authorize the deployment of Russian troops. Three weeks later, on March 21, the Federation Council vote for ratification of the accession of Crimea to the Russia was 155 to zero.

Since the Council counts 170 seats, there were 80 absentees on the Ukraine troop vote; 15 on the Crimea vote. Lebedev isn’t recorded as voting in favour. His Federation Council secretary says she is not authorized to respond to questions about how he voted, and refers to Schwarzkopf, who is employed at the office of the Sintez holding.

Schwartzkopf will not say if Lebedev voted at all, abstained, or was absent on the Ukraine force and Crimea treaty rollcalls. According to Vzyatka, “many senators have publicly stated their support for the country’s leadership, and the Chuvashia representative in the Federation Council, the billionaire Leonid Lebedev, [has been] modestly silent. About Crimea why has our senator been as closed as clams?”

Schwartzkopf said it is Lebedev’s “official position not to comment on the questions.”

To date, eight senators of the Federation Council – Speaker Valentina Matviyenko, Andrei Klishas, Viktor Ozerov, Vladimir Dzhabarov, Evgeni Bushmin, Nikolai Ryzhkov, Aleksandr Totoonov Oleg Panteleyev – have been listed by the US Government for sanctions. The White House notice claims Matviyenko and Klishas are being sanctioned for their “official status”. The US Treasury notice said the remaining six are being punished for their particuipation in the Federation Council debate and for having “publicly supported the deployment of Russian forces in Ukraine.”

Two Russian senators are known to have real estate or business assets in the US – Mikhail Margelov, chairman of the International Affairs Committee, has publicly backed the Kremlin on Crimea and the Ukraine, but he hasn’t been sanctioned. He has apartments in California and Florida. Lebedev, who is a member of the Council’s Economic Policy Committee, has told interviewers he was a US migrant for a time in the 1980s; attempted businesses in California and Florida in the 1990s; and at present runs a film production company called Red Code Productions with a daughter in California. Daughter Julie Lebedev’s version of their business is a little different.

Lebedev’s official Federation Council disclosure of the income and assets of himself and his family members for 2013 counts five plots of residential land, two houses, eight apartments, one dacha, two BMWs, two Mercedes, one Ferrari, and one GAZ vehicle. All are in Russia, and all in his name. No foreign asset has been reported. Lebedev says his income for the year was Rb13.9 million ($350,000).

Do Lebedev’s Senate votes, and the connections to Gazprom he claimed in Greece last year, make him a potential target for US sanctions? Or do his abstentions from voting, and his business in the US, shield him from the sanctions; or even, as his Chuvashia critics allege, make him a Trojan Horse for US influence in the Federation Council?

In a filing in a New York state court in February of this year, Lebedev laid claims against Len Blavatnik and Victor Vekselberg on the grounds that Blavatnik is a US citizen and resident of New York city; that Vekselberg “is domiciled in New York”; and that the business about which Lebedev makes his allegations, was conducted a decade ago in New York, including “a walk around Central Park”. Lebedev describes himself in the court papers as “a Russian citizen and a resident of Moscow. As an independent businessman, he set up one of the first private oil companies in post-Soviet Russia. Lebedev has also been involved in various successful private business ventures apart from the Parties’ joint venture, in oil and gas and other sectors.”

Lebedev has initiated multimillion dollar court claims in Russian, British, German and other international courts before; he has been the target of many more, including payment default and bankruptcy actions. The outcomes of the court cases have not substantiated Lebedev’s credibility. He has been publicly accused of using the courts to exaggerate the value of his assets, and to shield his companies from meeting their obligations.

Lebedev’s claim to have been in business with Blavatnik and Vekselberg was unreported and unknown publicly until he alleged it in the US court. But Lebedev has been publicly reported to be close personally, and in business, with Boris (below right) and Arkady (left) Rotenberg, and through them with Gazprom.

rotenbergs

The two brothers are the target of the US “scalpel” sanctions. The US Treasury notice of March 20 said they were listed for having “provided support to Putin’s pet projects by receiving and executing high price contracts for the Sochi Olympic Games and state-controlled Gazprom. They have made billions of dollars in contracts for Gazprom and the Sochi Winter Olympics awarded to them by Putin.”

Greek sources say that when Lebedev was bidding through his Sintez holding for the privatization of the DEFA and DESFA gas transit and distribution companies, he wasn’t shy in letting Athens think that behind his bid stood Gazprom to guarantee gas volumes, deliveries, and prices. The conclusion of the Greek Government, though, was that as Trojan Horses go, Lebedev was lame. He exaggerated his influence; he could not substantiate his financial means; he could not deliver on his undertakings, the Greeks concluded. They cancelled the privatization tender for DEPA, and several months later, in December 2013, they awarded a control stake in DESFA to the Azerbaijan state gas company, SOCAR.

schwartzkopfLebedev’s holding Sintez refuses to clarify what its assets are, and estimate its revenues, earnings, debts, or profits. “It’s a private company”, says Moscow spokesman Schwarzkopf (right), a former Gazprom PR agent. In 2012 Forbes Russia claims Sintez generated $ 1billion in revenue, but omitted to say how. “Lebedev has had his share of wins and losses over the years,” Forbes claimed. “Not all stock investments proved successful…The rule changes in the Russian business landscape got in the way of his oil exploration activities. Lebedev said that after years of research, his company found substantial oil reserves in the Barents Sea, Russia’s Arctic waters, but before he had a chance to exploit it (he had signed a preliminary deal with Chevron in 2006), the government declared them “strategic reserves” for the Russian state and brushed aside unauthorized oil explorers, Lebedev among them.”

The principal, apparently the only significant oil production asset of the Sintez group, is Negusneft, whose licence is for the Varyngskoe field in Khanty-Mansiisk.

negusneft
Source: Negusneft

The Negusneft website says that in 2010 it produced 583.6 million tonnes of oil and 186.6 million cubic metres of gas. Since then the production numbers have been dropping – in 2011, 507.5 million tonnes of oil, 149.2 million cubic metres of gas; in 2012, 437.2 million tonnes of oil, 128 million cubic metres of gas.

The company website has not been updated since 2012. In April of that year, Negusneft claimed that Kores Invest, another of Lebedev’s holdings, had paid Rb22.8 billion ($76 million) for an equity stake in the oil company. Since Negusneft omitted to disclose what size stake had been transferred — except to say it was larger than 10% — it is impossible to value Negusneft, or count the dividend stream Lebedev earns from it, if any.

An unaudited report of Negusneft finances put revenues for nine months of 2011 at Rb2.9 billion ($91 million), down from Rb4.2 billion ($137 million) in the same period of 2010. Bottom-line profit for the same period has dropped from about $31 million to $4 million: Sintez’s initial acquisition of the Varyngskoe asset appears to have cost little because it was believed to be of marginal value to the majors in the area. The transfer of Negusneft’s “loan contract rights/obligations” to Kores Invest, appears to be a liability dumping exercise at creditors’ expense.

An international banker, who has done business with Lebedev in the past, describes him as “a bright individual with spells of unpredictability”. The source said that he preferred Lebedev’s past business partners Mark Garber and Alexander Zhukov to deal with. Other sources report that Garber and Zhukov no longer work with Lebedev. The bank source estimates that while the Sintez companies may have annual turnover of $1 billion, their profit is $75 million or less. The source said Lebedev’s company debts may be substantial.

Lebedev’s venture in the pursuit of offshore oil and gas in west Africa has turned out unfortunately. In March 2006 Sintez signed an agreement with the Namibian government for the Block 1711 project; that was a search of the seabed for gas in the northernmost part of the Namibian continental shelf, abutting Angola. It was claimed in the Namibian press at the time that the agreement required an initial investment of $84 million in offshore drilling on a licence area given up by Vanco Energy of the US. An additional $37 million was to come from Sintezneftegas Namibia Ltd to secure its 70% shareholding in the project. Other partners were PetroSA, the South African state oil company (10%); the Houston, Texas, and Vancouver, Canada, junior, Energulf Resources (10%); and the National Petroleum Company of Namibia (Namcor, 7%).

sintez_platformBy mid-2008, just one well had been spudded. By 2010, a report by the National Petroleum Corporation of Namibia charged Sintez with failing to meet the agreed drilling programme. That resulted in a bankruptcy filing for the Sintez subsidiary in Namibia, and its replacement by a related party, Nakor Investments. Sintez lost its standing as project operator to EnerGulf. EnerGulf is currently listed on the Toronto Stock Exchange, with a market value of just C$26.9 million. By 2012 the Namibian authorities had given up on both Sintez and EnerGulf; their well is not mentioned again in the Namibian annual reports.

korolevPublished claims by Andrei Korolev (right), chief executive of the Sintez group, to have spent, or to be planning to spend $150 million on the Block 1711 project between 2006 and 2010 turned out to be inaccurate, as were promises to spend another $70 million in proving the field.

By the start of 2013, Korolev was promising to invest almost twenty times as much in Greece. “As far as we are aware,” Korolev announced, “DEPA’s current investment programme envisions spend of approximately 1 billion euros over a period of about 5 years. We think that this is not sufficient and, in the case that we are successful in our bid for both assets, would aim to make around 3 billion euros of direct investments, part of which would be used to modernize infrastructure and build new pipelines to connect Greece with neighbouring countries, such as the Former Yugoslavian Republic of Macedonia, Italy and Albania, for tighter integration into the southeast European energy markets.”

Sources close to the Greek government say this was not believable.

Lebedev has described a variety of business operations in the US. He told Forbes, and it reported verbatim, that with “various partners, [he] set up several American-Soviet joint ventures, including an entertainment center – Perestroika Palace – in Orlando, Florida, as well as a publishing company”. In Lebedev’s version, the Orlando scheme failed to “gain traction”. In Orlando, the project appears to have been not much more than a drawing, and a pitch for the locals to finance. According to the Orlando Sentinel newspaper in 1991, the idea wasn’t Lebedev’s but Mark Garber’s. The American promoter was the aptly named Bob Flounders. “We’re talking about a $30 million project. The Russian attraction is a 70 percent certainty, according to Bill Curphy, lawyer for the Russian side, “but the business center is a sure thing. A location has not been selected.” The sure thing wasn’t.

On home turf in Chuvashia, Lebedev claims to have established the first mining company in the region. This was the Poretsky gypsum plant (GiPor). Originally, Lebedev and Sintez owned the entire asset. By 2008, Sintez said it owned just 52.28% of the plant, while a company called Zirot owned 6.99%. Zirot appears to have belonged to the Rotenberg brothers. By 2009 the mining company had stopped paying its employees; as a result a local court ordered seizure of GiPor assets. The latest press clip from April 2014 reports workers at GiPor were owed Rb3.1 million in back wages, and fines were issued against the mine management by the local authorities. A review of Russia’s gypsum mining industry a few weeks ago omitted to mention GiPor.

Ahead of oil and gas, electricity may be Lebedev’s most valuable business. But it is impossible to tell whether his debt-funded takeover of the control stake at TGK-2 remains an asset or a liability. The funds for Lebedev’s original privatization bid in 2008 were to have been borrowed from the German partner RWE, which was supposed to hold 51% in a joint venture with Lebedev’s Kores Invest. At the time, the privatization price was $380 million; the valuation of TGK was $1.14 billion.

Before finalization, RWE withdrew from the deal, in part because of what London market media reported as problems in the due diligence on TGK-2 and “difficulties with RWE’s partner, Russian conglomerate Sintez” German reporting of the affair described RWE as having been deceived by “Russian tricks”. German sources close to the deal say RWE’s conduct was neither innocent nor blameless.

The Russian press then reported that Lebedev and Kores Invest borrowed Rb18.6 billion (then about $600 million) from Sberbank for the TGK-2 acquisition ahead of the 2008 crash. It is not clear whether these funds were spent on the TGK-2 acquisition, or spent elsewhere by Lebedev. Lebedev currently controls TGK-2 through Korolev, the general director, and three seats on the board of directors.

In November 2008 Sintez announced it was taking RWE to the London Court for International Arbitration with a claim for $1.41 billion against RWE. The claim figure far exceeded the terms of asset acquisition at TGK-2, or its asset value, before the market discounted TGK-2 shares. Nothing has been heard of the LCIA proceeding since the Sintez announcement; annual reports from RWE don’t mention it. Another lawsuit Sintez attempted to bring against RWE in Essen in May of 2012 claimed €675 million ($857 million), substantially less than the LCIA claim, but still well above the TGK-2 deal numbers. That court claim has also disappeared without trace. Asked what had become of Lebedev’s court claim, Tatyana Kashirskaya, a spokesman for TGK-2 replied: “Since TGK-2 is not a party to the proceedings, I can’t advise you of anything.”

There are more business records to open for Lebedev. Whether the connections and the fortunes in each of them prove to be exaggerated, there is no dispute that Sintez is vulnerable to the continuing credit Lebedev counts on from the Russian state banks. Lebedev has already crossed Putin and Medvedev, so he is vulnerable to the political changes which follow in Moscow from the US sanctions campaign.

Sources close to Lebedev don’t want to talk about his politics or his business because they say they won’t be believed if they do. A Trojan Horse in the wrong place at the wrong time isn’t a horse – he’s a sitting duck.

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