Private interests

Introduction

Iosif Dan, a top advisor to Romanian President Ion Iliescu, explained in a recent interview with the Center for Public Integrity why he had accepted money from a petroleum company vying for a piece of the country’s oil-privatization action.

“I have taken some money from these boys, as a loan, and this seems perfectly okay to me,” Dan said. “Should I have gone to a bank that would give me money with … interest instead of going to these people? They are my friends.”

The frank and surprising interview took place in the Cotroceni Palace, the headquarters of the Romanian Presidency. Dan is just one of several top Romanian officials who have connections to the oil industry.

With proven crude oil reserves of about 950 million barrels and with the largest refining capacity in Central and Eastern Europe, Romania, a nation of 22.6 million people, plays an important role in the European oil economy.

From the end of the Second World War until December 1989, when Romanian communist dictator Nicolae Ceausescu was executed, the Romanian oil industry was entirely State-run. Since then, it has been gradually privatized and restructured and its refining capacity downsized.

Romania is scheduled to join the European Union in 2007. Privatizing the country’s main oil company, the National Petroleum Society, Petrom, is considered a vital part of that process.

Petrom is the biggest national oil company in central and eastern Europe. It is the main crude oil producer in Romania and accounts for roughly a third of Romania’s natural gas needs. It also has 700 retail stations and 146 depots, part of a national network that accounts for more than half of the total number of gas stations in Romania.

In 2003, Petrom’s annual revenue was more than $2.7 billion. The company also does oil-field exploration in Kazakhstan, Iran and India and has a chain of gas stations in Hungary and the Republic of Moldova.

“Whoever owns Petrom has an important word to say in the economy, and whoever has an important word to say in the economy also has an important word to say in politics,” Adrian Nastase, Romania’s prime-minister, told the Mediafax news agency.

Not surprisingly, the privatization process, along with the country’s standing as one of the biggest markets in Central and Eastern Europe, and its on-shore and off-shore oil and natural gas potential reserves, made it an attractive target for a slew of companies, including Gazprom, Shell, Halliburton, Lukoil, Total and Amoco, along with a handful of other smaller companies set up abroad by Romanian citizens.

Romania’s government announced plans in the summer of 2003 to privatize the company; the country received 15 bids. In the end, the Austrian oil giant OMV won the bid.

Running Petrom means navigating in one of the most corrupt business environments in Europe. In 2004, the international watchdog group Transparency International called Romania a country with “rampant corruption” and ranked it on the same level as the Dominican Republic and Iran, slightly ahead of Russia, Albania and Sierra Leone.

The report cites oil as one of the country’s main corrupting factors. In fact, hundreds of investigations into financial fraud and political corruption have exposed the involvement of the post-communist government in the oil business and the direct involvement of Romania’s various intelligence-gathering services in the oil industry.

Petrol is Political Power

The privatization process in Romania was a tangled tale all its own, complete with plots and subplots that illustrate the intrigue of the country’s oil politics. It involved the shadowy participation of a NATO officer ultimately convicted of forgery after other charges were dropped. In addition, one of the major bidders had apparent ties to the Romanian intelligence community, while a Romanian Foreign Intelligence Service officer seemed to be associated with the possible formation of privatization bidders. The cast of characters involved-sometimes with one another, sometimes acting on their own-clearly saw many opportunities for side deals in the privatization process.

Nothing particularly unusual occurred in the bidding process until the early spring of 2003, when a well-connected businessman, Ovidiu Tender-who controls a few major Romanian companies active in the oil services business and often accompanied the previous Romanian president in his official visits abroad-announced in an interview with the Romanian weekly, Capital, that his group of companies, Tender SA, would participate in Petrom’s privatization. Tender also mentioned the two partners he would bring to the table: the U.S.-based company Halliburton and Willem Matser, a Dutch officer working in NATO’s Office of the Special Adviser for Central and Eastern Europe and an author of studies on NATO-Russia relationships.

The announcement of Matser’s involvement came as a surprise.

At the time, Willem Matser was known in Romania simply as a high-ranking NATO official who had chaired a meeting in September 2002 between intelligence officers from the defense alliance’s member nations and from candidate-countries. As a NATO official, one would not normally consider Matser a potential investor in the country’s economy.

In fact, however, the intelligence meeting, although announced as a NATO conference, was sponsored by private Romanian companies and businessmen. The meeting had been held in Snagov, near Bucharest, the Romanian capital. Among those sponsors two names stood out: Ovidiu Tender and his partner, Vasile Frank Timis, a businessman connected to companies active in the oil and gold mining industries in Romania.

Timis told the Center for Public Integrity that Tender had introduced him to Matser. He also mentioned he had contributed $50,000 towards the meeting, for which he got a receipt.

But what made Matser’s involvement strange was not just that he was a NATO official. Days after Ovidiu Tender announced his interest in Petrom and his partners in this venture, Willem Matser was arrested in Brussels on suspicion of criminal conspiracy and money laundering, as well as forgery and fraud. Matser was subsequently charged with laundering $200 million of drug-trafficking money, alleged to be kept in a Colombian bank, along with the related fraud and forgery offenses.

Ultimately, the prosecution dropped the money laundering charge and failed to prove criminal conspiracy charges. The judge sentenced Matser in January 2004 to more than a year in jail for forgery. He was then released because the judge took into consideration that he had already spent roughly two-thirds of the sentence in pretrial detention.

The investigation of Matser led Dutch prosecutors to Romania, where prosecutors interviewed Ovidiu Tender about his business dealings with Matser. The inquiry revealed that Matser possessed forged bank documents related to Tender SA and had misused the name of the company in the transactions under investigation.

The Dutch investigation also revealed that Tender had strong ties to the Romanian intelligence community.

In written testimony to Romanian prosecutors obtained by the Center for Public Integrity, Tender described his connections to Matser:

“In April 2002, I was contacted by the head of the Presidential Administration, General Ioan Talpes, who is also the counselor on national security of the President of Romania and he told me that there is a high NATO official in the country who is willing to meet powerful Romanian businessmen…I agreed to meet Mr. Matser and Mr. Talpes arranged a meeting for me and Matser. We had dinner at the Hilton Hotel. This meeting was attended by myself, a general from the Romanian Intelligence Service and one general from the Romanian Foreign Intelligence Service.”

General Ioan Talpes was, between 1994 and 1997, the head of the Romanian Foreign Intelligence Service. After that, he became State Minister for the Coordination of National Defense, European Integration and Justice.

According to Tender’s testimony, Matser expressed interest in becoming a shareholder in Tender SA at the Hilton Hotel meeting. Following this meeting, Tender testified, he drafted a contract for Matser’s review by which Matser would purchase an interest in the Tender SA companies. However, the Matser-Tender deal was never concluded.

Though the Tender SA transaction fell through, Matser still did business with the Romanian intelligence services. The Dutch company Tranwood NL, of which Matser is a shareholder, acquired 80 percent of the shares of a newly established Romanian company called Delta Holding SA. One of General Ioan Talpes’s main advisors, Larry Watts, a historian and security issues analyst, also became a minority shareholder in the company.

According to Romanian officials, Delta Holding was set up after Matser vowed he would bring significant amounts of money to the Romanian economy.

“The secret services and high level politicians thought Matser was a blessing for Romania. They were so blind they didn’t even check him. The fact he was working for NATO was a more than enough guarantee,” an intelligence officer who asked for anonymity told the Center for Public Integrity.

A Triple Alliance

After Matser’s arrest, the Tender SA-Halliburton joint venture continued its efforts to play a role in privatizing Petrom, without Matser. (In an e-mail sent to the Center for Public Integrity, Halliburton says that it has “no familiarity with Willem Matser, even by name.”)

By the summer of 2003, a joint venture among Tender SA, Halliburton and the British company Regal Petroleum was set up to pursue participation in the privatization of the Romanian oil company.

Regal, a company listed on the London Stock Exchange’s alternative market, was established by Vasile Frank Timis, the company’s executive chairman. As mentioned earlier, Timis was one of the sponsors of the intelligence officers’ meeting held in Snagov and chaired by Willem Matser.

Earlier in the year, in March 2003, Guenter Nolte, the managing director of Halliburton Europe, left the company to serve as chief executive in Regal Petroleum. Halliburton told the Center for Public Integrity that this move was not part of Halliburton’s strategy for Petrom.

Regal and Tender were equity partners in the joint venture. According to Halliburton, it would have provided only technical, management and operational assistance, as well as organizational experience and assistance. The Halliburton-Tender-Regal offer was one of four bids rejected by the Romanian government in the first round.

Regal Chairman Vasile Frank Timis is a key person in Romania’s mining and oil industries. He was born in Romania, but fled the country during the Ceausescu regime and established himself in Perth, Australia, where he was twice convicted in the 1990s for possession of heroin with the presumption of intent to supply. In the mid 1990s he set up a few companies in off-shore havens including Jersey, the Channel Islands and Barbados, and came back to Romania to invest in the gold-mining industry.

The Regal company name appears in another chapter in Romania’s privatization saga, albeit only tangentially. A company that was once a Regal subsidiary, Central Europe Petroleum, became involved in the privatization of a refinery-a process that highlighted the connections between Romanian politics and control of the Romanian oil industry.

Privatized company, public debt

In March 2004, a former member of the Romanian Parliament and of the ruling party PSD (Social Democratic Party), Gabriel Bivolaru, was sentenced to five years in jail for embezzling about $70 million from Banca Romana pentru Dezvoltare (Romanian Bank for Development), a Romanian state-owned bank, now owned by French company Groupe Société Générale.

One month after his arrest, in May 2004, a Romanian group of oil companies, VGB, publicly acknowledged that the former MP was working for the group but “never was a shareholder in the group’s companies.” However, one of Bivolaru’s close relatives and a former associate of his were shareholders in the group. The VGB group also stated, in the same public announcement, that, if Bivolaru could resolve his personal difficulties, he was welcome to join the group again.

The VGB group is associated with Ovidiu Tender’s company, as well as with the daughter of Iosif Dan and with Dan’s assistant (each of these two holds a ten percent interest in one of the VGB group companies).

The VGB group’s name emerged in the autumn of 2003 when the company became, through a British company Balkan Petroleum, the largest shareholder of one of the biggest Romanian oil refineries, Rafo Onesti.

The refinery, previously owned by the state, went private in 2001 and currently owes more than $500 million to Romania, to Petrom and to other private companies.

Rafo’s privatization is regarded as one of the biggest failures in Romania’s post-communist privatization record. The refinery was bought from the state by a group of companies led by a member of the ruling party.

Eventually, Balkan Petroleum (BkP) became the refinery’s main shareholder and vowed to resuscitate it. The company notes that Rafo’s debts were inherited from previous owners of the refinery.

According to BkP, the plan is to reorganize the refinery by transforming its debt to shares that would be handed over to the creditors. If the plan is approved, the Romanian State would again become the majority shareholder in the refinery that it privatized just a few years ago.

Company records obtained by the Center for Public Integrity show that BkP’s shareholders are as follows: the Romanian VGB Invest SA, part of the VGB group with 50 percent of the shares, Central Europe Petroleum, an off-shore company from the Channel Islands, with 25 percent, and the London-based Acornline with the remaining. Central Europe Petroleum’s previous name was Regal Petroleum Services, a company that was part of the Regal group of companies established by Vasile Frank Timis.

Timis, however, no longer owns Central Europe Petroleum. “It was a company that I established in the past and I have no connection with BkP,” Timis told the Center for Public Integrity. “Mr. Tender asked me to help the representatives of Balkan, some banks and two to three businessmen from Romania, to incorporate the company. I sold them the company. I put them in touch with David Grannell.” David Grannell, a British accountant, afterwards became a director of the BkP, a position he left after a few months.

Company records show that David Grannell is a chief financial officer of European Goldfields, a company Timis established, and is also associated in a British company, Inktrend PLC, with a former business partner of Timis. BkP representatives denied having any business relationships with Timis and said in a letter sent to the Center for Public Integrity that “we have some business relationships with Mr. Tender.”

Meanwhile, in the spring of 2004, the VGB group and Ovidiu Tender emerged in yet another chapter in Romanian privatization.

A National Security Issue

Early in 2004, the Romanian National Security Department issued a report “on the privatization and the present situation of the S.C. Petromidia S.A.”

Petromidia is another leading Romanian refinery that was bought in 2000 from the state by the Rompetrol Group N.V., a company based in the Netherlands whose chief executive officer, Dinu Patriciu, is a leading member of the Romanian National Liberal Party (PNL). This is one of the main opposition political parties that challenged the ruling party, the PSD, in the November 2004 general elections.

The very lengthy report, of which a copy was obtained by the Center for Public Integrity, is signed by General Ioan Talpes, then head of the National Security Department.

The report followed an October 2003 emergency ordinance of the Romanian government stipulating that the more than $600 million-debt that Rompetrol, the biggest private company in the oil business in Romania, owed to the state budget be converted to bonds.

Representatives of the Rompetrol group said the $600 million represented “historical debt” that was inherited from the previous owner of the refinery-the State-and to which penalties were added.

The NSD memorandum stated that “Romania’s government illegally converted the amount of over 600 million US dollars in bonds. … Through the Government Emergency Ordinance 118/2003 the government accepts as legal an absolutely abusive and illegal privatization contract which has huge financial implications … the government consents to selling a jewel of the Romanian industry at a very cheap price.”

The NSD report calls on the Ministry of Finance, Ministry of Justice, Ministry of Economy and the Public Prosecution to analyze the Petromidia case and, eventually, to discuss the report on the Supreme Council for the Country’s Defense, an organization that only gathers when Romania’s security is at risk.

Shortly after the NSD report was issued the National Anti-Corruption Prosecution Office started an investigation in the Petromidia case.

Company records show that 25 percent of the Rompetrol group is owned by OMV, which is the Austrian company announced in May 2004 as the majority purchaser of Petrom, the national oil company. OMV in October announced plans to divest itself of its stake in Rompetrol.

The NSD report ignited a scandal, widely published in Evenimentul Zilei and other leading Romanian newspapers, when Rompetrol’s CEO, Dinu Patriciu, said, at a press conference that Ovidiu Tender and the representatives of the VGB group had proposed to him that his company merge with the Rafo refinery in order to save Rafo from bankruptcy. He also claimed that he was also told that, if he didn’t agree to the merger, there would be investigations of his companies that would lead to the Rompetrol group’s destruction.

In a letter responding to questions asked by the Center for Public Integrity, Ovidiu Tender and the VGB group denied Patriciu’s claim. They filed a lawsuit against Patriciu for suggesting that they had blackmailed him. That case is still pending.

In the President’s Backyard

Iosif Dan, until recently a State Counselor and aide to former Romanian President Ion Iliescu, closely monitors the twists and turns in the Romanian oil industry.

“The day will come when these tensions will disappear and the parties that fight now will sit down and talk,” Dan said in an interview with the Center for Public Integrity. “There’s plenty of room for everyone under the sun and for us in the shadow with a steak and a cold beer.”

He spoke openly about his political ties to the VGB group and to the oil business.

“These boys have gained a good position on Romania’s oil business and this is very disturbing to others,” he said.

He also added that he has never used his position in order to favor the VGB group, but said he went once with VGB representatives to an international bank. “I went once to Monte Carlo, and we talked with the president of the bank, not to get some money but to get a letter from them to prove our good behavior on the financial markets.” He also said he had mediated a meeting between VGB and the representatives of the Ministry of Industry.

Iosif Dan’s regard for the VGB group goes even further.

“The VGB group helped many, many poor families,” he said. “There were desperate people who had serious illnesses or couldn’t pay their rent. … Considerable amounts of money were donated. This is not an excuse for the VGB group. It is, maybe, just the human side of this group.”

“They are asked by me to help because, see, here come many requests for social help,” he added. “There were very many cases when the Presidential Administration made investigations and concluded that people couldn’t solve their social problems. These are people that went to various banks to save their situation and were denied and the Presidential Administration, through the president, doesn’t have unlimited funds for social assistance. There is this mentality of people who say we will go to the president because he solves everything. They don’t know that the president doesn’t have these abilities, these rights. … The VGB group were not the only ones to help. Many of my businessmen friends helped.”

The previous Romanian President, Iliescu, didn’t answer a Freedom of Information request, under the Romanian 544/2001 law, about the matter.

“We consider that this aid offered to people in need is not a subject to be used for propaganda,” the BkP VGB Group said when asked by the Center for Public Integrity about their involvement in assisting the presidency in this matter.

Iosif Dan was voted in as a senator on the Social Democratic Party’s slate for the November 2004 Parliamentary elections.