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By John Helmer, Moscow

Mikhail Abyzov (centre) is the man in charge of keeping the Russian government transparent, accountable and so far as the name of his ministerial commission can be stretched through 235 government press releases since his appointment in May 2012, open. But the Minister for Open Government has a secret he keeps closed.

Abyzov is now fighting for political survival, as President Vladimir Putin is being urged by his advisors to replace the prime minister, Dmitry Medvedev, and purge Medvedev’s allies, especially those with substantial or hidden links to the United States. Abyzov is a target, the sources claim, because he is alleged to be one of the fund-raisers for Medvedev’s political campaigning; and because he keeps a large part of his wealth in the US. For Putin partisans, Abyzov’s personal ties to the US make his Russian loyalties vulnerable.

Allegations against Russian senators, members of the Federation Council, with concealed US assets and businesses have already targeted Leonid Lebedev and Mikhail Margelov. Margelov lost his seat in July.

A month after taking charge of the open government commission and ministry, Abyzov announced that he had placed all of his assets in a trust – without saying what the assets were, or where.

In 2013 and 2014 Abyzov reported his income and assets for the previous years. Abyzov’s official asset disclosure, required for state ministers and including wives and other family members, reported that as of April 2012, he owned a garage and an apartment in the UK, with a Mercedes car, and maybe one of several motorbikes he declared was also parked there. His helicopter and snowmobile appear to have been parked at one of eight Russian property locations Abyzov also reported owning.

Ownership of a holiday house in Italy was divided, according to the small print, between Abyzov himself, his wife (below left), a son (right), and a daughter, each of whom claimed a room. The same division of the UK property was reported as apartments occupied by himself, wife, son, and daughter. Much the same division of the British and Italian houses appears in his ministerial disclosure for 2013.

abyzov_family
Source: http://bez-makiyazha.ru/

Mrs Abyzova’s income was Rb341,400 (about $10,000), unchanged from one year to the next. But Abyzov reported his income went from Rb60.3 million ($1.9 million) in 2012 to Rb282.9 million ($8.6 million). Explaining how a minister of state prohibited from engaging in private business could earn such a windfall, Abyzov claimed: “This is due to compliance with the requirements enacted in the 2013 law banning civil servants from owning foreign assets, the requirements of which I have done by implementing [the sale of] foreign stocks.”

The difference, according to Abyzov, implies that the entire stock of his foreign asset holdings had been sold off, realizing a value of $6.7 million. The number is too small to reflect the asset value of the Cyprus and Caribbean units through which the bulk of Abyzov’s assets has been held, according to evidence gathered in the UK.

According to London sources, more than one investigation conducted by well-known due diligence firms reveal that Abyzov controls “forty to fifty” companies or trusts in Cyprus, British Virgin Islands, and Cayman Islands; through these and other registries he is the beneficial owner of millions of dollars’ worth of assets in both the UK and US. Forbes calculates that the gross value of Abyzov’s disclosed assets inside Russia is currently $1 billion.

A confidential paper drafted by Abyzov’s office in Moscow, and circulated to London finance houses, has identified his beneficial ownership of the offshore entities through which his assets were held. The company names to have surfaced in the public record in Russia and London include Cyprus registrations Tecalson Investments, Kalielson Investments, Blackville Investments, Gardenvale Investments, Kevalda Holdings, Eforg Asset Management, Sibeco Asset Management, and Obymen Lake Holdings. From British Virgin Islands and Cayman Islands, there are Batios Holdings Ltd., Fortiza Ltd., Arinya United Company S.A., and Kolora Management Inc. These names can also be found in the records of litigation in the Russian Arbitrazh Court system. They are front companies, it is alleged by Russian and British investigators, through which Abyzov has taken control of electricity generating, distributing, wholesale and retail power networks in many Russian regions. Altogether, the identifiable assets are worth billions of dollars. The Forbes calculation of Abyzov’s share in them counts only his interest in the E-4 power engineering group, and the RU-COM holding.

rotenbergThe public record of Abyzov’s stake in the road, bridge and infrastructure company Mostotrest, held through a Cyprus-registered front called Marc O’Polo Investments, was sold in October 2010, ahead of Mostotrest’s initial public offering (IPO) on the Moscow Stock Exchange. Arkady Rotenberg (right) bought Abyzov out, but the value of the deal to Abyzov has not been disclosed. The stake which Abyzov held amounted to 25% of Mostotrest, and at a pre-IPO discount this ought to have fetched between $150 million and $190 million.

Promoting his financial acumen to a group of American investors in May 2011, Abyzov claimed he had invested $200 million in Mostotrest between 2007 and 2010. At the start, he said, the company was value-less, with Soviet-style “bad management”. By November 2010, when the company was floated on the Moscow Stock Exchange, Abyzov claimed its market valuation was $1.65 billion. Three months later, the market cap was up to $2.2 billion. Here is Abyzov’s presentation. Abyzov didn’t disclose to the Americans that he was a minority investor in Mostotrest, that his investment in Mostotrest was a fraction of $200 million; and that he had sold out before the IPO.

By now the Americans will have learned that the financial success of Mostotrest peaked weeks before Abyzov’s presentation. Since then the share price has collapsed by 67%. It is currently worth just $660 million – little more than Mosototrest when Abyzov sold to Rotenberg. The share decline was well under way before Rotenberg was sanctioned in March of this year by the US Treasury’s Office for Foreign Assets Control.

What Abyzov did with his cash has not been disclosed publicly. But the evidence Abyzov has provided to investors in the UK suggests it was moved offshore. According to one of the London investigators to report on his financial condition, Abyzov “has a house in Mayfair which he has used as a home office”. “We spent,” the investigator added, “tens of thousands of pounds on him.” According to another investigator, speaking of an investigation of Abyzov conducted a year ago, “he had significant assets on the West Coast of the US. His family lives there. The investments are mostly in Silicon Valley software technologies.”

Russian press reporting indicates that not long after Abyzov sold out of Mostotrest, he created an investment fund of $300 million. He called this fund Digital October.

Published investigations in Russian have alleged that Abyzov started making his fortune when he worked under Anatoly Chubais, when the latter headed Unified Energy System (RAO UES), the state electricity utility.

rao_ues_board
Source: http://www.rao-ees.ru/ (January 2004) — Abyzov is third from left; Chubais, centre.

Officially, UES said Abyzov’s job was “policy making and implementation in the sphere of power generation and supply; fuel supply to power plants; implementation of measures to reform the subsidiaries and dependent companies of RAO UES of Russia’.” In practice, Abyzov is alleged to have operated as Chubais’s debt collector, converting debts owed the state company into shareholdings controlled by cutout companies, off the UES books, and under the control of Abyzov and his associates. A lengthy study by Moisei Gelman, editor in chief of Promyshlennye Vedomosti, was published in April 2012, detailing evidence to substantiate the allegations. Gelman’s indictment of Abyzov stops at 2005. Gelman says he hasn’t investigated Abyzov’s activity since then.

The privatization of electricity debt, Gelman alleges, involved bankruptcy and other asset raiding techniques. When UES was privatized itself, starting in 2006, Abyzov left. But he continues to work indirectly, if not openly, with Chubais.

“He made his money through Chubais,” says a London investment banker after reading a due diligence report on Abyzov who had sought London financing for a proposed coal-fired electricity generation venture. “There were [allegations of] some quite unpleasant things he had done. Asset raiding was [alleged] in the report.” According to the source, “it was quite an exercise to trace [Abyzov’s assets].” After Abyzov’s Moscow office reported “a chart of the [offshore] organizations to verify [what] he owned, we got comfortable.”

British press reporting, financiers, and due diligence investigators identify Abyzov’s role in a UK venture called Powerfuel. Between 2007 and 2010 Powerfuel was intended to operate an old, struggling Yorkshire coalmine called the Hatfield Colliery; revive its sales of coal; and on the borrowing capacity and credit record of the coal trade, raise financing to build a new electricity generating plant, using carbon capture and storage (CCS) technology. The technology for conversion of coal to gas to drive the turbines of the proposed electricity plant is called Integrated Gasification Combined Cycle (IGCC). The estimated cost of the plant was between £700 million and £800 million. Powerfuel’s scheme was to raise a about £200 million by selling shares at a London IPO, and apply for the rest of the money in the form of UK Government and European Union grants in aid of “clean energy” technologies.

Ed Miliband, currently the leader of the Labor Party opposition in the House of Commons, was Energy Minister at the time, and a promoter of the scheme. “The Hatfield colliery was marginally profitable”, says one of Powerfuel’s advisors. “So the power station depended on getting [British] Government and EU funding.”

Abyzov’s British partner in Powerfuel was Richard Budge. Budge, who had fallen out with his brother, public investors, and creditors over earlier coalmining schemes in Yorkshire, had tried a smaller, cheaper version of the IGCC scheme under the name of a company he called Coalpower. That went bankrupt in April of 2004, and the Hatfield mine stopped producing coal for the next three years. By then Powerfuel was Budge’s new name for the old scheme – at double the capital cost.

But first Budge tried to sell shares in a stock market listing for the Hatfield colliery aka Powerfuel Plc. Here is the IPO notice of February 23, 2006. Sources involved claim Abyzov offered to buy the stock from Budge, taking all 51% on offer. Budge accepted. The two of them then called in investment advisors to raise the rest of the money for the power station. Proving that he was the majority shareholder produced the organogram of Abyzov’s offshore cutouts to satisfy the advisors.

makhmudovAbyzov reportedly paid £35 million for his stake, but he was mistakenly identified in the UK media to be part of Iskander Makhmudov’s (right) Russian coalminer, Kuzbassrazrezugol (KRU). Abyzov may not have paid himself for the stake. A London source claims the Powerfuel control shareholding was originally acquired by KRU, then “transferred” to Abyzov. The subsequent verification that Abyzov owned the Powerfuel stake stopped short of establishing whether Abyzov owed Makhmudov for it; or whether they had agreed on a coal-trading and profit-sharing scheme, once the Hatfield mine started producing again.

Abyzov was able to finance the mine by arranging at least £80 million in loans from VTB and ING banks. Sources, private and public, claim that once Hatfield reopened, substantial revenues were earned. According to Budge, “we’ve already sold the first five years of sales so we’re already locked in until the company will be debt free.” Exactly how Abyzov and Budge arranged for the trading of the coal is obscure. Clearer are reports that coal sales may have amounted to around £70 million per annum. If Abyzov was using the type of coal trading scheme, for which Makhmudov and KRU are well-known, he may have been drawing 51% of that £70 million annual revenue from the beginning of the venture. Over the five years from 2006 to 2010, Abyzov’s share in that estimate of Powerfuel’s coal sales could have come to as much as £179 million.

These are hypothetical numbers; they lack an accounting for costs. Even if the calculations indicate exceptional profitability for the stakeholders, if not for the coalmine, they do not indicate unlawful conduct. Since the sources say they can’t verify that Abyzov paid £35 million for his stake, and they believe VTB and ING paid for the restart of mine operations, it is possible the profit share Abyzov took from the coal sales was at least double the initial investment. “I can’t confirm that is what happened,” says a London source. “It’s plausible. But we never investigated.”

By 2011, however, the venture wasn’t so profitable for Powerfuel or its mine. The bottom-line for the mine operation was loss-making, and it defaulted on the VTB and ING loans. Neither the British Government nor the EU approved Powerfuel’s grant applications, so the fund-raising attempt for the electricity station failed. The two banks were left with loan defaults of between £80 million and £90 million. Powerfuel went into bankruptcy administration in December 2010.

Did Abyzov get safely away with a coal-trading profit when Powerfuel’s IGCC electricity project hit the rocks?

A Moscow press report in April of this year claimed that criticism has been levelled at Abyzov’s involvement in Powerfuel by a State Duma deputy and by President Putin’s All-Russia People’s Front (ONF). A complaint by the Front to the Kremlin on Abyzov, reported by the newspaper, has not materialized, at least not in public.

Andreas Zapf, now a partner in Rhone Energy Advisors in London, has been identified as an advisor on the power station fund-raising; he knew both Abyzov and Budge before Powerfuel’s collapse. He was not involved in the coal side of the business. Because the fund-raising was a confidential transaction, and Zapf’s role has been reported by other sources, he says he “can’t comment on anything.”

Reports on Powerfuel’s bankruptcy by the Financial Times and Telegraph claim that the audited accounts of the company showed lower turnover figures than Budge had reported and poorer profits. Another source says “there was very little dividend to be taken out of the company”. He suspects that Abyzov “would have lost something in the colliery.”

London and Moscow sources identify a protégé of Abyzov’s as the “point man” for the Powerfuel project. His name is Boris Ryabov.

According to the company Ryabov now runs at Menlo Park, California, he is “a Managing Partner and a co-founder at Bright Capital venture firm, bringing extensive experience in Private Equity investments, Business and Strategy development in Russia and abroad.” Ryabov says that before he founded Bright Capital in 2010, he “served as Deputy Director General at RU-COM, before that – from 2008 he held a position of Director for Investments and Assessment at RU-COM. He was in charge of development of the Company’s Strategies and managed assets, major reorganization projects, the Company’s business development activities.”

Although Ryabov doesn’t mention that Abyzov owned RU-COM, and that he worked for Abyzov, London sources identify Ryabov as Abyzov’s employee in the UK. He was “sponsored” by Abyzov, one of the sources says, to complete a business administration degree at the University of Warwick, which Ryabov says he took in 2009. At the time of the Powerfuel project, Ryabov “ran projects for Abyzov”. There is no reference to Powerfuel in Ryabov’s curriculum vitae, nor of the bankruptcy of 2010.

That year, according to the Moscow Stock Exchange listing prospectus for Mostotrest, Ryabov was Abyzov’s nominee director on the Mostotrest board. After Abyzov sold his shares, both he and Ryabov left the board. In the Mostotrest prospectus, Abyzov and Ryabov declared they had not “held an executive function as a senior manager or a member of the administrative, management or supervisory bodies, of any company at the time of or preceding any bankruptcy, receivership or liquidation”. That was dated November 3, 2010. A month later, Powerfuel went into bankruptcy.

In April of 2011, when Abyzov announced in Moscow that he was setting up a $300 million venture fund called Digital October, Ryabov did much of the talking to the press. He claimed the plan was to assemble the $300 million “within two years. Ryabov said that the main purpose of Digital October [is] to raise funds and manage investment. Privately Technopark Digital October will create conditions for the development of technologies in the field of IT, digital media. The company plans to create projects in biology, materials science, energy efficiency. Ryabov said that [Digital October] will fund projects at all stages of their development. On Monday, Digital October signed an agreement of intent with the venture fund Google chairman Eric Schmidt’s Tomorrow Ventures. According Ryabov, Tomorrow Ventures enters into the capital of Digital October, and will invest only in a few startups, thereby creating a partnership. The Deputy Director General of Ru-Com also announced that Digital October has signed another agreement with a foreign investment fund (whose name is not identified.)”

Ryabov (below left) also doesn’t say who the co-founders of Bright Capital were. One of them is identified on the company website as Mikhail Chuchkevich (right).

ryabov_chuchkevich

Before he arrived at Bright Capital, Chuchkevich says he worked for Chubais at Rusnano. He was, he says, Managing Director, Project Office Director and Executive Advisor to CEO [Chubais].”

Andrey Malafeev is the spokesman for Bright Capital. He is based in Moscow. He says that Ryabov is also based in Moscow. Asked to clarify how Bright Capital came into being, Malafeev explains that Ryabov and Chuchkevich created the vehicle, and Abyzov provided the money. “Abyzov was the first limited partner. His investment is roughly half the fund.” According to Malafeev, Bright Capital currently comprises three funds: the first holds $200 million; the second, $15 million; and the third started with a target of $70 million, and currently has $25 million. Of the total $240 million, he said he cannot provide a precise figure for Abyzov’s assets, but they exceed $100 million. They are held, according to Malafeev, by “entities controlled by Mr Abyzov.”

US assets controlled by Abyzov through Bright Capital are listed in this portfolio.

As for Abyzov’s compliance with the statutory ban on holding foreign assets, Malafeev said that in 2011, when Abyzov created Digital October and invested in Bright Capital, he was free to do so. Since his appointment to the government in 2012, “there is no involvement in the Fund. I mean he was not involved in the operation of the Fund. [Investments in] the Fund mature not earlier than in 2019.”

Bright Capital identifies its office as Suite 180, Building 2, 3000 Sand Hill Road, Menlo Park, California (below). On the floor above Bright Capital, Chubais’s Rusnano operates its US subsidiary. The head of that office is Dmitry Akhanov, but a spokesman says he is travelling at the moment and unable to answer questions about Ryabov or Abyzov.

bright_capital_office

According to Malafeev, Bright Capital shares some investments with Rusnano. He is emphatic, however, that “we are not affiliated with Rusnano.”

Akhanov has been associated with Abyzov’s dealmaking in the energy sector in the past. According to internet postings by Akhanov, he worked for Chubais at UES, and after Chubais moved on to Rusnano, Akhanov was appointed to run the US subsidiary of Rusnano in December 2010.

akhanovBefore that, Akhanov (right) says he was “the Head of the Russian Federal Energy Agency, implementing government policy and managing Russian state assets in oil & gas, coal and electricity sectors. As the head of the Strategy Department of RAO UES, Dmitry Akhanov was actively involved in developing and implementing strategy for the restructuring of the electricity sector of Russia, and forming a new industry structure and electricity market model. In conjunction with this, Dmitry Akhanov also implemented more than a 100 M&A deals in the Russian power sector.”

Akhanov and Abyzov know each other well. Here they are sitting on a panel in May 2011 promoting to US investors investments in their common businesses, Abyzov’s RU-Com and Akhanov’s Rusnano.

A California press story in April reported that Akhanov is busy promoting his business with the US. Akhanov even hinted that Russian diplomats might be as much to blame as US officials for getting in the way: “Political turmoil can happen, but business ties are much more sustainable because those are people-to-people, and those build trust. The diplomats need to calm down and think about the immediate consequences of their decisions. It’s very easy to hurt an economy and much harder to rebuild.”

At the Open Government ministry’s office in Moscow, Abyzov’s spokesman, Alyona Zhukova, was asked to clarify what foreign assets Abyzov says he sold to comply with the 2013 statute. Abyzov was also asked what direct or indirect interest he continues to hold in Bright Capital, and in companies or trusts registered in Cyprus, British Virgin Islands, or Cayman Islands. Zhukova asked for an email request. There has been no further response.

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