84715 11/7/2006 15:37 06BUCHAREST1694 Embassy Bucharest SECRET 06BUCHAREST1644|06BUCHAREST1691 VZCZCXRO2185 PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV DE RUEHBM #1694/01 3111537 ZNY SSSSS ZZH P 071537Z NOV 06 FM AMEMBASSY BUCHAREST TO RUEHC/SECSTATE WASHDC PRIORITY 5507 INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE RUEHTV/AMEMBASSY TEL AVIV 2210 RUCPDOC/DEPT OF COMMERCE WASHDC RUEATRS/DEPT OF TREASURY WASHDC RHMCSUU/FBI WASHINGTON DC S E C R E T SECTION 01 OF 02 BUCHAREST 001694
STATE FOR EUR/NCE - MPEKALA USDOC FOR ITA/EUR/OEERIS/CEED/JBURGESS/JKIMBALL/KNAJDI
E.O. 12958: DECL: 11/03/2016 TAGS: ENRG, ECON, PREL, RO SUBJECT: RAFO REFINERY - A TROJAN HORSE FOR RUSSIAN MAFIA
REF: A. BUCHAREST 1691 B. BUCHAREST 1644
Classified By: Acting Deputy Chief of Mission Jennifer Bonner for reaso ns 1.5 (b) and (d).
1. (C) SUMMARY: The RAFO oil refinery is embroiled in a web of corruption, money laundering, fraud and criminal charges involving shady entities in Romania, Russia, Ukraine and Bulgaria. Russian-Israeli organized crime figures Mikhail Cernoy and Iakov Goldovskiy are believed to be behind the purchase attempt by the Dutch-registered company Calder-A. In an attempt to counter the transaction, the Romanian state has inserted itself through the vehicle of the refinery's historical tax arrears. The GOR is the subject of a heavy lobby effort, including from the Austrian government, to approve the Russian takeover of RAFO. END SUMMARY.
RAFO PRIVATIZATION PROBLEMATIC FROM THE GET GO
--------------------------------------------- - 2. (C) The RAFO refinery, one of Romania's five principal petroleum refineries, is based in the Northeast Romania town of Onesti. Its 2001 privatization is regarded as one of the biggest failures in Romania's post-communist privatization history. To date, RAFO has posted net losses of $448 million and owes $500 million in tax arrears to the state and private companies. (N.B. OMV/Petrom has sold its $44 million in receivables to Calder-A, giving it a seat at the creditors table.) In October 2001, the then PSD government privatized RAFO in a notorious deal with a consortium including controversial Romanian businessman Corneliu Iacubov and a Portugal-based company named Canyon Sericos. Iacubov, who is currently under investigation for organized crime, tax evasion, embezzlement and money laundering, has been connected to past fraudulent schemes involving bond sales and investment funds. His takeover of RAFO was assisted by his close relationship with senior PSD leaders, including former President Ion Iliescu.
3. (SBU) In 2004, Iacubov transferred partial ownership of RAFO to VGB Oil, Faber Invest, and Tender SA, the latter owned by businessman Ovidiu Tender, who is currently in custody pending trial on charges of international money laundering. Iacubov himself later divested additional equity in the refinery after stripping it of assets and leaving it heavily in debt, transferring half of RAFO's shares to Balkan Petroleum Ltd., a shell company in London. Although registered in the United Kingdom, Balkan Petroleum's true ownership and actual location remain opaque. On paper, Balkan Petroleum's ownership includes VGB Invest (reportedly controlled by corrupt Romanian businessman, Marian Iancu), Central Europe Petroleum and Acornline, an offshore company in the Channel Islands.
4. (SBU) In April 2004, the insolvent refinery was put under judicial reorganization by court decision. At the time, the Finance Ministry submitted a demand for bankruptcy, but a local court decided in favor of Balkan Petroleum's request, enabling RAFO owners to buy time and continue to lobby for state aid and debt forgiveness.
5. (SBU) On November 16, 2004, the Romanian Parliament approved an emergency ordinance mandating AVAS, the principal enforcer of privatization contracts, to do a debt-for-equity swap for RAFO's arrears. The law further extended state protection from accrued arrears until October 31, 2004, writing off penalties and interest. After the swap, the state was to become a majority shareholder in RAFO. The change of governing parties after the 2004 elections resulted in dropping the rescue package.
RUSSIANS ENTER THE PICTURE
6. (C) In 2005, Calder-A entered into an agreement with Balkan Petroleum to take over RAFO and all of its assets and liabilities. However, as part of the original privatization contract, an ownership transfer had to be approved by AVAS. AVAS and the Ministry of Finance objected to the transfer due to Calder-A's failure to provide requested documents on its ownership structure and creditworthiness. While AVAS has maintained that, in the absence of its approval, Balkan Petroleum remains the main shareholder in RAFO, company managers say that Calder-A is the de facto owner already.
MOB CAPITAL WITH AN AUSTRIAN FACE
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7. (C) Calder-A is 100% owned by Austrian-based Vienna Capital Partners, which in turn is owned directly or indirectly by foundations and NGOs, some of which claim to be non-profit. Calder-A is managed by Bulgarian businessman Todor Batkov, whose connections with organized crime are well known in Sofia. Current RAFO manager Marin Anton has stated that Russian businessmen and organized crime figures Mikhail Cernoy and Iakov Goldovskiy are behind Austrian-based Petrochemical Holding, which controls Calder-A. Cernoy and Goldovskiy have allegedly pressured RAFO's suppliers to limit its access to oil during the dispute to apply pressure on the domestic oil market.
NEW AVAS HEAD HAS AMBIGUOUS AGENDA
8. (C) Following the dismissal of Razvan Orasanu from the helm of AVAS, newly-appointed head and recently dismissed Defense Minister Teodor Atanasiu announced that his main priorities for the remaining months of 2006 include solving RAFO ownership. He has not further elaborated his intentions.
PRIME MINISTER: HELP ME DO THE RIGHT THING
9. (S) In a November 2 meeting with the Ambassador, Prime Minister Tariceanu indicated that he is keenly aware of the nefarious elements circling RAFO. The operation "looks like a (money) laundering machine," he said. However, the GOR is under pressure from numerous fronts to ensure continued operations and protect the jobs of RAFO's 3000 employees. According to Tariceanu's principal economic advisor, Atanasiu "knows what he is supposed to do" in holding off criminal interest. However, the PM asked the Ambassador for U.S. assistance in thwarting the sale, particularly any information we may have on Cernoy and Goldovskiy's criminal activities.
MAKE OR BREAK DEADLINE?
10. (C) The GOR has until the end of the year to agree to a reorganization plan for RAFO's creditors, including AVAS and the Ministry of Finance. One option is, of course, bankruptcy proceedings. Meanwhile, RAFO labor unions, company representatives and politicians are lobbying on behalf of the Russians. Recently-resigned Presidential Advisor and former Prime Minister Teodor Stolojan, a Tariceanu rival, has also weighed in on behalf of Calder-A, a fact Tariceanu's people were sure to point out.
11. (S) RAFO's convoluted story of corruption, fraud and non-transparent deals continues. The court and creditors have yet to reach a decision on the refinery's fate. Meanwhile, labor union pressure, press campaigns and even high-level lobbying from Austrian Vice-Chancellor Hubert Gorbach seem to be pushing the GOR toward the Russians. Former AVAS head Oresanu had spearheaded an aggressive approach against Calder-A's takeover attempt. Atanasiu and the PM may be keen to use RAFO as a tool in their simmering conflict with President Basescu. Atanasiu's own position as Minister of Defense was a recent casualty of this clash when President Basescu suspended him from office amid accusations of abuse of position and corruption (see reftel).
12. (S) By making public our unease with RAFO's potential owners, the USG would be providing Tariceanu with the necessary cover to do the right thing. However, President Basescu's apparent lack of interest in the RAFO case is worrying from a man who has positioned himself as champion of anti-corruption. One consideration against Embassy involvement is the likelihood that RAFO would be used as yet another bludgeon in the ongoing political rivalry between the President and PM. Pointing fingers at Mr. Stolojan by the Prime Minister's aides indicates this is a strong possibility. Taubman