COMMENT: The Czech nuclear industry's Ukrainian connection

By bne IntelliNews March 5, 2014

James de Candole of Candole Partners -

Bohuslav Sobotka is urging his fellow government ministers not to allow events in Crimea to push them into hasty decisions that might harm Czech commercial interests in Russia.

Sobotka was reacting to comments made by Jiri Dienstbier and Martin Stropnicky, who have suggested that allowing Rosatom to invest in two new nuclear reactors at Temelin might now be considered an unacceptable security risk. Sobotka emphasised that the Temelin tender is transparent and that it is CEZ, not the government that is in charge. The prime minister points out that there are no political criteria that would allow the government to step in.

I doubt that the tender is transparent, or that Daniel Benes is in charge. But I do agree with the prime minister that it is hardly in the Czech national interest to declare Rosatom a national security risk at this late stage. Much wiser would be to cancel the tender, on the uncontroversial grounds that it makes no economic sense.

Nevertheless, it is very much in the Czech national interest that the true identity of all investors in its nuclear industry be known, at least to the Czech government. And yet, unlike Rosatom and Skoda JS, both of which are known to be controlled by the Kremlin, the majority shareholder in CEZ is still unable to reveal who controls the company that built Temelin's spent fuel dump.

Could it be an oligarch from Ukraine? This is not a rhetorical question. In researching the hidden owners of CEEI, the shell company based in a lawyer's office in Liechtenstein awarded the contract to build Temelin's spent fuel dump five years ago, I stumbled upon a connection between CEEI and one Ukrainian oligarch in particular.

I share it with you today in the hope that the split within the Czech government over the wisdom of working with Rosatom might encourage it to look more closely at who actually owns companies investing in the Czech nuclear industry.

I am reminded of what Vaclav Bartuska, the former special envoy for the Temelin project, said in connection with CEEI: "Unfortunately in the Czech Republic it is simply not possible to force the real owners to declare themselves. This is likely a foretaste of what we can expect in the Temelin tender." How very true, Mr Bartuska!

The paperwork behind CEEI was done, not by its local Czech representative, the golfing ODS lawyer Jiri Kovar, but by the former prime minister of Liechtenstein, Markus Buechel. Buechel's core business is setting up shell companies for wealthy Ukrainian and Russian businessmen. He has been Russia's honorary consul to Liechtenstein for years.

Until a couple of years ago, a firm called UBIE, based in Liechtenstein and directed by Buechel, was the legal owner of CEEI. But it merely held the shares on behalf of the real owners, according to Buechel.

There is evidence linking CEEI to Ukraine. In 2012, the Czech media cited documents from Swiss investigators which apparently show that in 2006/7, an Appian company (think Martin Roman) transferred CZK12 million to UBIE. In 2011, the Czech media carried the information that Swiss detectives had learnt that, soon after its acquisition from the state of Skoda Plzen in 2003, Appian sent CZK150 million to a firm registered in the Virgin Islands -which in turn sent on CZK100 million to Marila Invest, a business controlled by Tomas Pitr. This money was then sent on through a series of other shell companies, ending up in a Cypriot-registered company called Dillard Enterprises, owned by Liechtenstein-based Financial and Investment Energy Holding (FIEH), whose director is Markus Buechel.

Ukraine at last! In addition to Dillard Enterprises, FIEH owns large stakes in Ukrainian companies that form the Universalna Investment Group, which is led by the Ukrainian oligarch, Vitaliy Antonov. At this point, I shall let bne take up the story:

Antonov claimed in interviews given in 2008 that he made Buechel's acquaintance in 1994 through a common acquaintance in an alpine sport in Switzerland, after Buechel was forced out as prime minister of Liechtenstein in 1993. But proximity to the Carpathians for Antonov meant not just alpine sports, but cross-border trade: according to a proverb, "all West Ukrainian fortunes were made on the border".

Antonov's home town of Stryi was a transport node up for railway lines through Hungary. According to Antonov, by the mid-1990s he was involved in a transnational barter scheme that saw local industrial goods from his home region sent to Russia, and in return Russian oil, mostly from Yukos, sent to Lithuania to be refined, and the resulting motor fuel sent by rail to Ukraine to be sold on the retail market by Antonov's Galnaftogaz.

In a 2008 interview in Kontrakty, Antonov says he was only one link in the barter chain, and not the originator. Logically, the link with most clout in the chain would have been the Russian provider of oil for processing, ie. Yukos. Markus Buechel's FIEH oversaw the business, according to Antonov, and also owned Antonov's various fuel retail companies, consolidated into Galnaftogaz in 2001. According to Antonov in a September 2008 interview in Vlast Deneg, Buechel originally was a co-owner of FIEH, but Buechel's share was diluted with his consent. Whether Buechel was originally fronting for another owner, perhaps from Russia, is unknown.

Despite having the mysterious Liechtenstein company as majority shareholder, Antonov early on realised the benefits of corporate transparency and started working with the European Bank of Reconstruction and Development (EBRD) and the private sector wing of the World Bank, the International Financial Corporation (IFC), as early as 2001. In 2004, Galnaftogaz was named Ukraine's best company for corporate governance; in 2005, the EBRD and IFC together lent the company $50m each.

In 2007, the ownership of almost 80% of Galnaftogaz shares changed from FIEH to a Cyprus company called GNG Retail PLC as part of a corporate restructuring and the EBRD's Ukraine director replaced Buechel on the board of Galnaftogaz. Antonov said in an interview that as early as 2004 the EBRD had sought to take an equity stake in the company.

Was it the share switch from Buechel's mysterious FIEH to the Cyprus company that allowed the deal to finally go ahead? In 2009, following the switch, the EBRD took a 10.26% stake in the Ukrainian company, which it boosted to around 19% in 2011. Likewise, the EBRD took a 23% stake in Antonov's insurance company Universalna after he had installed a Cyprus company as ownership vehicle instead of Buechel's FIEH." (See here for full article.)

Thank you bne. So much for the former prime minister of the Principality of Liechtenstein. In the legal black hole of shell companies, it is hardly possible to say with any degree of certainty that a Ukrainian oligarch is an investor in the Czech nuclear industry through CEEI.

But we can safely assume that at least three individuals know who is. Here are their names:

Daniel Benes, chairman of the board of CEZ. Benes negotiated and signed the contract with CEEI in 2008. Georg Buth, managing director of GNS, the German firm that manufactures the casks in which Temelin's spent fuel is stored. GNS is the owner of WTI, the company that designs nuclear fuel dumps and which awarded CEEI a licence to use its know-how in the Czech Republic. Buth has been the legal representative of GNS in the Czech Republic since February 2008. And Juraj Surovic, chairman of the board of PSG, the Zlin-based construction company appointed by CEEI to build the nuclear fuel dump at Temelin. As a successful investor in Russia and as a member of the Rosatom MIR 1200 consortium, PSG is one of those companies that would be harmed if events in the Crimea were to be allowed to harm commercial relations between Russia and this country.

Benes, Buth and Surovic each has much to lose if their relationship with CEZ goes bad. Each has much to lose as well if it were ever to be proven that the contract between CEZ and CEEI was a transaction, not between CEZ and a Ukrainian oligarch with an electric blue Rolls Royce, which is hardly illegal, but between CEZ and its own management, which is.

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