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Mr Boyko’s rig

By Oleksa Shalaiskiy and Yuriy Nikolov,

Dzerkalo Tyzhnya, Ukraine

# 19 May 27, 2011, 21:45

When a month ago the parliament’s talking heads spared no efforts to convince journalists of the necessity of amending the law on state procurements, the main reason was claimed to be the deplorable state of the state-owned companies.

The lawmakers asserted that it was the necessity to conduct tenders that deprived the officials of initiative and made the competition with their private colleagues unfair. The only thing missing was examples. The parliament, however, amended the law anyway thus giving the government business minds the go ahead. ZN.UA has decided to use the March tender of Chornomornaftohas to illustrate what kind of financial operations will from now on be beyond public control. Chornomornaftohas is a Crimean branch of Naftohas, a state-run company under the Ministry of Fuel and Energy of Ukraine, involved in extraction, transportation, and refinement of natural gas and crude oil. According to the Rada’s majority lawmakers, Chornomornaftohas was exactly one of the companies “being engaged in market competition with its rivals”.

The choice of the deal was purely unintentional. What stirred our interest was the size of the deal – it’s not an everyday occasion that Ukraine buys something worth USD 400 mn. In addition, the object of purchase commanded respect, too: an offshore oil drilling rig! Neither did the winner of the tender looked suspicious – Highway Investment Processing LLP (Cardiff, UK).

The situation took a rapid turn, however, when we googled the company’s name up – just a standard procedure. First of all it turned out that there were surprisingly few links to the enterprise that sells drilling rigs worth millions of dollars. Second of all, the British company had quite a strange website. On http://invest-pro-llp.com [1] one could only read a couple of lines about the achievements of the seller and see two photos of the rigs, which could be bought from the Cardiff-based company. In addition, as we downloaded these images, they acquired pretty weird non-English names – Tovar 1 and Tovar 2 (Ukrainian for Goods 1 and Goods 2). The “who-is-who” internet resource only made us even more suspicious. The owner of the website turned out to be a Delta-X, a Kyiv-based company (Lepse St, Kyiv, Ukraine). The hosting was also Ukrainian. The site was created on 15 February, 2011, i.e. two weeks before the announcement of the winner in the tender.

Such surprising facts inspired further research. In many civilized countries one can learn about the owner of a corporate entity right on the Internet. ZN.UA spent a few quid and got an extract from the UK Registrar of Companies. It immediately became obvious that the notion of offshore schemes was not foreign here. Ireland & Overseas Acquisitions Limited and Milltown Corporate Services Ltd (the Virginia Islands) acted as the founding fathers of the Highway Investment Processing LLP. The Highway company was headed by some Stas Gorin. Usually, offshore company is a cul-de-sac of any investigation, but in this case ZN.UA got an unexpected assistant – an American law company called Trout Cacheris. Exactly the law firm that on the money of Ukrainian taxpayer conducted a year ago an audit of the Tymoshenko’s cabinet.

The audit failed to unearth anything spectacular back then, because the report od Trout Cacheris’ repeated the findings of the Ukrainian Controlling and Auditing Service. At the same time, some passages were truly remarkable, for example: “The founders of Bonita were two Irish “interim” companies – Ireland & Overseas Acquisitions and Milltown corporate Services that were liquidated respectively in 2003 [123] and 2005 [124]. The directors of these Irish enterprises were two trustees from Latvia – Stas Gorin and Erik Vanagels”. Remember? The same old Stas Gorin, who is also the chief of Highway Investment, the Chornomorneftehaz tender winner. And let’s leave Erik Vanagels for dessert.

The numbers 123 and 124 in the Trout Cacheris’ report stand for the document’s encoded footnotes, so what exactly was the information that the American firm referred to remained unknown. Indeed, even Tymoshenko’s backer MP Serhiy Vlasenko couldn’t get hold of the information from the footnotes. The Cabinet had responded to his official request that the additional materials were the Americans’ intellectual property and were not to be disclosed.

And still, the efforts of foreign lawyers weren’t completely in vain. To know the concrete names of the scheme’s participants is always more pleasant than dealing with the impersonal offshore companies’ names. He had to turn to the State Procurement Herald once again. The documents that we managed to dig up contained the following: the tender on the purchase of the drilling rig, which started on 13 December 2010, was finished on the 1 March. The participants of the contest with such a desirable prize were only two companies.  Besides the abovementioned Highway Investment, there also was a New Zealand company named Falcona Systems Limited, which had offered a price only 10 millions higher. In New Zealand it’s even easier to learn about company ownership, plus it’s absolutely free. The CEO of this company turned out to be just another person from Latvia – Inta Bilder, a Riga resident. The Falcona originated from Interhold Limited, which in turn originated from Inhold Limited (all New Zealand companies). The vicious circle closed up – first of all because the owner of Inhold is Inhold itself, and second of all – because the CEO of this thing-in-itself is the above mentioned Erik Vanagels. So no matter which participant of the contest you pick, you still have this one and the same person at the end. Let us just remind you that the participation of connected individuals and entities is legally punishable. It’s understood that the tender coordinators are not obliged to peruse New Zealand websites in their free time. But there’s another petty detail. When purchasing such a one of a kind and expensive rigs any government in the world usually either announces a “price offer request”, or invites manufacturers to the bid. The practice is meant to enhance the number of contestants and decrease the price respectively, if only anybody shows interest. The strange choice of the contest procedure and the participants list, which was also quite peculiar, hence begs the question: what the masterminds behind this scheme could possibly gain aside from an intellectual satisfaction?

Strange as it may seem, our quest started with the photos on the British-Ukrainian website invest-pro-llp.com again. A web service searching for similar images showed that the photo titled Tovar also has other tags on the Internet, identifying the rig on the photo as a product of a large Singapore company named Keppel.

The Fuel and Energy Minister Yuriy Boyko confirmed the Singapore origin of this article. On April 1 he blurted out during an appearance on the TV-show Big-Time Politics on the Inter channel: “We have just bought a state-of-the-art drilling rig in Singapore today. I mean Naftohas Ukrainy. And in autumn we’re going to transport it to the Black Sea, to the Subotyno Deposit”.

The websites of foreign companies are just as nice as their government-run fellows. The Keppel company was no exception to this rule. From the corporate news we learned that drilling installations are one-off objects that take quite a long time to manufacture, therefore are not produced that often. However, not so long ago – on December 3 a new drilling rig was manufactured. Keppel proudly announced that an order by Seadrill (KFELS B class rig, West Juno) was performed “on time, within budget and with a perfect safety record”. It was particularly stressed in this release that the two companies have been cooperating for 17 years, and this was already the 16th such drilling unit supplied to Seadrill.

The Seadrill Corporation’s website was just as transparent for a curious eye, so tracking the path this rig had gone proved to be even easier that we thought. On April 13 the company’s media people announced the following: “Seadrill has entered into an agreement to sell the newly built jack-up drilling rig West Juno to an undisclosed buyer incorporated in UK for a total consideration of US$248.5 million. Seadrill expects to record a gain on sale of approximately US$18 million on closing.”

Now, let’s keep in mind that just a month before these events a “UK buyer” had won the Chornomornaftohas tender worth USD 400 mn. USD 150 mn yield on one deal! On this backdrop, Seadrill’s projected USD 18 mn gain is nothing to write home about and sounds like a sheer ineptitude.

As for Chornomornaftohas, which – let’s remind you – is a state-run company, i.e. a player on the market and spends so to speak its own hard-earned cash rather than the money from the budget (which is a state enterprise’s usual official stance), it is not to blame.

Were the tender’s participants too few? No one else showed up. Was it too expensive? The other bidder had offered even a greater price. Connected entities? We had no idea. Didn’t invite the manufacturers to the tender? Just didn’t give it a thought. Is there an article in Ukraine’s criminal code about “didn’t give it a thought?” Nope.

There’s no such an article, but there’s this one little thing. Sometimes law enforcers revisit the criminal code, and they come up with something like “didn’t give it a thought in a criminal collusion.” What follows are extended and strenuous interrogations of involved parties, official inquiries sent to the UK, New Zealand, Trout Cacheris, and – just in case – to Interpol. All of this can happen in good time, or whenever there’s time and inspiration. And this inspiration may transpire like a thief in the night: friends may feel the urge if you don’t chip in for the folks on the top, opponents – when the power’s colors change.

By the way, when is the next election?