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. Last Updated: 07/27/2016

Ustinov Widens Gazprom Probe

Prosecutor General Vladimir Ustinov said Thursday that his office intends to interrogate more Gazprom executives, widening an investigation into the sale of the gas monopoly's assets by the management of rogue subsidiary Sibur.

"We have plans to interrogate a group of former and current Gazprom managers," Ustinov said.

Gazprom first deputy CEO Vyacheslav Sheremet, who is also Sibur's board chairman, Sibur CEO Yakov Goldovsky and vice president Yevgeny Kozhit were detained for questioning Wednesday. As of Thursday evening, they were still being held by Moscow police, a prosecutor's office spokesman said. Prosecutors have three days from the time of detention to either charge or release the three businessmen.

Ustinov said that should his office choose to indict, "The [evidence] should be weighty enough so that even the court does not have reason to annul our conclusions."

Moscow newspapers reported that the suspects were being held in an isolation chamber at police headquarters on Ulitsa Petrovka, although the prosecutor's office would not confirm the reports. Prosecutors on Monday opened a criminal case based on incriminating documents sent to them by Gazprom's security service. A search of Sibur's offices followed Tuesday.

While the investigation centers on the sale of assets worth 2.6 billion rubles ($86 million) -- identified as a Surgut natural gas-refining plant sold to oil major Surgutneftegaz in late December -- a bigger story is unraveling, one of dazzling corporate complexity and a slew of missing assets. This complexity is rivaled, perhaps, only by Gazprom, which gave Sibur management tacit approval for the Surgut sale in the first place.

When President Vladimir Putin anointed St. Petersburg ally Alexei Miller as Gazprom chief last year, he made it clear that he wanted to stop the hemorrhaging of assets at the gas monopoly -- 38 percent of which is owned by the state. Sibur has long been seen as the final outpost for the cronies of former CEO Rem Vyakhirev, and analysts regarded the petrochemical giant as a backdoor through which management could funnel Gazprom's stakes in valuable enterprises.

Sibur was created by order of the presidential administration March 7, 1995, to brake the decline of Russia's petrochemical industry. "Sibur was organized along the lines of all the other vertically integrated oil companies," said one executive at an oil major. "At first, it was an entirely normal company. Then came new owners, new money, a new structure. The circumstances surrounding the company became very shadowy."

After years of contemplation, Gazprom agreed to buy into Sibur in 2000, which spurred a massive reorganization of assets and brought career Gazpromshchiki into management positions and the board of directors.

During this reorganization, some of Sibur's assets -- mainly a group of refineries in the Tyumen and Perm regions -- disappeared from Sibur's balance sheet. Or, to be more precise, were listed in a footnote. These valuable assets belonged not to Sibur but affiliated structures not necessarily owned by Sibur.

Prosecutors' allegations concerning the Surgut refinery illustrate the lack of ties that bind Sibur to the brick-and-mortar facilities that it purports to own. They also show that much of the asset-reshuffling at Sibur received approval from Gazprom managers. "These charges haven't been thought out very well," said Steven Dashevsky, oil analyst at Aton.

Officials at Surgutneftegaz say that negotiations for the sale of the Surgut refinery were completed late last month, although it remains unclear whether the 2.6 billion rubles have been paid.

Although Sibur and Gazprom officials made public statements hinting otherwise, Sibur, in fact, doesn't own any shares in Sibur-Tyumen, the firm that -- on paper -- owns the Surgut refinery. In fact, the Sibur holding company, of which Gazprom owns 51 percent, owns zero percent of Sibur-Tyumen and zero percent of Sibur-Khimprom, said Sibur spokeswoman Irina Gan.

Asked why the two companies used the word "Sibur" in their names, Gan replied: "Lots of companies do that." Asked if Sibur-Tyumen and Sibur-Khimprom were ever subsidiaries of Sibur, Gan said: "Call them yourself."

No contact information for either company could be found by The Moscow Times on Thursday.

Oddly, Sibur often includes the revenues of both companies -- which analysts estimate to be millions of dollars -- in its own financial statements. "Sibur has no equity in Sibur-Tyumen, but maintains full operational control," Dashevsky said. "It thus had no legal claim to the sales proceeds, but in reality was free to use the funds at its discretion."

Although Gazprom tipped off prosecutors about the sale of the Surgut refinery, Miller's new management team was well aware of it as it was happening.

"We are ready to sell these gas-refining plants," Miller's deputy Alexander Ryazanov said in December. Miller brought Ryazanov to Gazprom that same month, and, coincidentally, Ryazanov was general director of the Surgut plant from 1988 to 1994.

Ryazanov also said that Gazprom was willing to put up two other plants -- in Langepas and Nizhnevartovsk -- owned by Sibur-Tyumen on the block. The money from the sale would go toward paying off Sibur's $827 million debt to Gazprom. However, it is unclear how Gazprom could force the sale if it had no control of Sibur-Tyumen through the Sibur holding company.

"This scandal has nothing to do with the Surgut plant," tired-sounding Sibur vice president Anatoly Lukashov said.

Gazprom officials are angry that other Sibur shareholders, which include investment vehicles run for management's benefit, are buying stock as part of a controversial share emission registered with the Federal Securities Commission on Aug. 31, Lukashov said.

After months of wrangling over whether to participate in the share issue, Gazprom's board decided to take shares in exchange for writing off some of Sibur's debt. No action would have meant that Gazprom's share would have shrunk from 51 percent to 4 percent.

Sibur -- badly in need of investment for its ambitious expansion plans -- expected the gas giant to pay in cash and assets. In exchange, Sibur managers would buy their allotted shares of the new emission with assets that had been shifted from Sibur's balance sheet, reuniting the firm's disparate elements.

Dashevsky suspects that Sibur's top managers hesitated to accept Gazprom's compromise plan -- participation in the share issue, but using debt forgiveness as a method of payment. Frustrated by Sibur's intransigence, Gazprom went to the prosecutor general. Miller also failed to send a representative to Sibur's extraordinary shareholders meeting scheduled for Wednesday. A quorum couldn't be made without Gazprom, and a new board of directors wasn't elected.

Lukashov, who joined Sibur in 1996 at Goldovsky's invitation, said the prosecutors are not being fair. "We built this company because we wanted Russia to show that it could make something," Lukashov said. "Then, who gets hauled in? Not the thieves who smuggle diamonds out of this country. Someone who cobbled together a production chain from the garbage dump gets hauled in."

Sibur's shareholders have until July 25 to buy their shares from the emission. If Gazprom doesn't buy its allotted 51 percent of the new shares, Sibur will circulate an announcement offering the stock to the other shareholders.

But it remains unclear what Gazprom will end up with even if Sibur is pieced back together.

"At most, Sibur is worth $800 million to $1 billion, and that includes the assets with unclear ownership," Dashevsky said. "With a debt of just as much, this company's equity is worthless."