Romanian prosecutors charge Lukoil with €1.76bn fraud

By bne IntelliNews August 4, 2015

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Romanian prosecutors have completed its investigations into the alleged fraud committed at a local Lukoil refinery and on August 4 indicted the Russian-owned Petrotel refinery, its Russian director-general and five other officials. Prosecutors estimate the losses to the state at RON 7.6bn (€1.76bn), and have seized shares and bank accounts of companies belonging to the Lukoil Group in the amount of €2bn.

Romanian prosecutors first seized Lukoil assets last October, when it started investigations related to money laundering and tax evasion at its Romanian refinery. Prosecutors eventually lifted the asset freeze on the Petrotel refinery

On July 15, the Russian oil company asked for the intervention of the European Commission in what it considers to be excessive measures taken by Romanian judges based on unjustified money laundering and tax evasion accusations expressed by Romanian prosecutors.

The president of Lukoil, Vagit Alekperov, has also reportedly asked Romanian President Klaus Iohannis to meet him in order to discuss “sensitive problems of current activity” related to the group's local Romanian refinery. Lukoil’s requests have not been answered by either the European Commission or President Iohannis as yet.

Prosecutors accuse the Romanian refinery Petrotel Lukoil Ploiesti (Petrotel), six members of the refinery’s management and the main owner of the refinery, Dutch-registered Lukoil Europe Holdings Bvatrium (Lukoil Europe) of money laundering and fraudulent use of the company’s capital and loans.

Part of the accusations consist of transfer pricing practices between 2011-2014, when the refinery’s managers closed contracts for the purchase of crude oil and for the sale of petroleum products at prices that were not favourable to the company, prosecutors concluded.

Separately, there are allegations related to the use of financial contracts with firms within the group. The contracts of Petrotel with its shareholder Lukoil Europe were in favour of the later. Petrotel has returned loans that were never extended by its parent company, and it has furthermore returned money resulting from financial fraud – money laundering, the prosecutors explained. Petrotel has also re-financed a loan from its parent company under terms less favourable than the initial financing contract, prosecutors said.

Lukoil's Petrotel refinery is the smallest of three refineries still in operation in Romania. Over the last five years (2010-2014) it has reported cumulated losses of RON2.2bn (€500mn). A report by the investigative organisation Rise Project, based on prosecutors' reports, however, claims that Lukoil has been transferring its profit from its Romanian operations to tax havens.

Lukoil’s Romanian refinery, Petrotel, is small, with a capacity of below 3mn tonnes per year. It employs less than 500, while the distribution network employs another 2,000-3,000. The refinery’s overall importance to the Russian company is relatively low, particularly after Lukoil upgraded its Bulgarian refinery in Bourgas in 2014.

Lukoil also operates a 300-station distribution network in Romania, which has a 20% market share, and is drilling for oil and gas in Romanian offshore areas.


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