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. Last Updated: 07/27/2016

U.S. Agency Freezes $868,000 Itera Grant

A U.S. government grant of $868,000 to the Itera Group has been put on hold amid vitriolic criticism from Russia's investment community.

The grant, from an agency whose purpose is to advance U.S. business interests abroad, was earmarked to finance a feasibility study for developing gas condensate fields in Western Siberia for Achimneftegaz, a joint venture between Itera and the gas monopoly Gazprom.

"Questions have been raised about ownership and the rights to explore the gas field," said Leocadia Zak, the general counsel for the U.S. Trade and Development Agency, which signed off on the grant in February at Itera's request. "We have indicated that we want to gather more information."

During the 1990s, Gazprom gave away assets worth millions of dollars, and Itera -- which began as a gas trader working in the Commonwealth of Independent States -- was one of the lucky recipients. It is widely believed that former Gazprom managers have ties or ownership in Itera. With the blessing of President Vladimir Putin, Gazprom CEO Alexei Miller has been fighting to reclaim those assets since his appointment last year.

The Achimovsk field is estimated to hold 350 billion cubic meters of gas and 117 million tons of gas condensate. Even on a global scale, these reserves are huge, surpassing those of Brazil's Petrobras and U.S.-based Chevron, according to Troika Dialog. The problem, however, is that the Florida-registered Itera got its 49 percent of the field for $265,270, while its share was valued at about $500 million.

With the grant, the U.S. government was undermining Miller's efforts to bring valuable fields back into Gazprom's fold and instill a sense of corporate governance within the company, said William Browder, CEO of Hermitage Capital Management, a minority shareholder in Gazprom.

"It's the financial equivalent of giving U.S. visas to terrorists after they have already bombed the World Trade Center," Browder said, alluding to the Sept. 11 attacks. "The person who made this decision is probably going to be in trouble."

Last week, Browder visited with officials from the Treasury Department, State Department and National Security Council in Washington and lobbied for the grant's cancellation. Phone calls from those officials were made to the U.S. Trade and Development Agency.

The grant is on hold while the agency looks into Browder's complaints, Zak said. "I can't say how long this additional due diligence will last," Zak said. "Additional information usually raises additional questions."

Both Itera and BSI Industries, the U.S. company to receive the grant, have been notified, Zak said.

BSI Industries president Vladimir Gokun said he was confident that the deal would eventually go through.

"These rumors about Gazprom and Itera have been checked out numerous times in numerous audits," said Gokun, a Russian immigrant who earlier worked at the Soviet Oil and Gas Construction Ministry. "Very qualified people work for Itera. I know that these kind of people wouldn't work for a company that engaged in theft."

Some critics claim that this grant is a last-gasp attempt for Itera, which has experienced financial troubles since Miller cut it off from Gazprom's largesse.

In response, Gokun said that such criticism exhibited an "amateur's approach" to the issue. Itera doesn't need the money; all it wants is the sign of acceptance such a grant confers, he said.

Gokun believes that the scandal is an effort on the part of German and Italian gas service companies to keep U.S. companies out of Russia's gas industry.

Although U.S. companies are not as active as their European counterparts, that reason is no excuse for the United States to finance a company with an unclear ownership structure, said James Fenkner, Troika Dialog's chief equity strategist.

"Itera has been consistently trying to get credibility in the West," Fenkner said. "What Itera refuses to do is disclose its beneficial owners. While it has already shown us a scheme of offshore companies, it hasn't told us who stands behind them."