Azeri gas suppliers accused of ‘opaque trading practices’

Azerbaijan's state-owned oil and gas company SOCAR, which forms part of the ElectroGas consortium that will supply Malta with natural gas for the next 18 years, has been accused of opacity in its dealings with private individuals, at the expense of Azeri citizens.

SOCAR has threatened to sue Global Witness, the NGO known for its crusade against blood diamonds, with the oil company reiterating its commitment at ensuring maximum transparency of its activity.

The report, 'Azerbaijan Anonymous', reveals that SOCAR Trading SA's parent company Supra Holdings, the company accused of netting enormous profits in the alleged dealings documented in the report, has long been based in Malta.

Global Witness has campaigned against corruption and associated environmental and human rights abuses for the past two decades, and in 2003 was co-nominated for the Nobel Peace Prize.

In its report, Global Witness reveals the shadowy figure of little-known businessman Anar Aliyev, as having gained ownership stakes, some highly profitable, in at least 48 deals with SOCAR, "though it is not clear why he is involved and how his involvement is of benefit to the country".

Global Witness says it was unable to find out anything about Aliyev's history except that he was born in 1978 in Nachchivan, and all attempts to contact the reclusive figure failed.

Its research raises the concern that private individuals, including Aliyev and others he may be fronting for, could be benefiting at the expense of the citizens of Azerbaijan. Companies he owns have announced profits of US$375 million in deals involving the handling of Azerbaijani oil, though in most cases, Global Witness could find no evidence that these companies were selected through proper bidding processes or public tenders.

In just one example, Aliyev made US$118 million in profit in exchange for an investment of just US$5 million in SOCAR's Swiss-based oil trading arm SOCAR Trading. The reasons for his company's involvement have not been adequately explained.

The ownership of many other companies that have partnered with SOCAR has not been made public, so it is unclear who is benefiting from some of Azerbaijan's oil deals.  

Malta-based Supra Holdings, the parent company of SOCAR Trading, was only 50% owned by state-owned SOCAR with the other 50% owned by two offshore companies: Heritage General Trading owned by Anar Aliyev, and Renfrel Holding which is registered in the British Virgin islands.

It was only in 2012 that that SOCAR Trading was fully taken over by the state of Azerbaijan, after it bought shares from the private shareholders.

But subsequently, a new partly privately-owned middleman was inserted between SOCAR Trading and SOCAR: namely, SOCAR International DMCC, based in Dubai. Hidden private shareholders own 50% of DMCC.

Company annual reports shows that nearly all of DMCC sales in its first two years of operation were not to outside parties, but parent company Supra Holding.

The oil sold by DMCC to Supra was worth US$5.77 billion in 2012, and DMCC made profits of US$66 million "purely by selling oil from state-owned SOCAR to state-owned Supra Holdings."

While SOCAR and its partners may well have acted within the law, the report claims that the lack of transparency about how these companies came to be involved in the Azerbaijani oil industry raises serious questions over potential conflicts of interest and preferential treatment

"Our report raises serious concerns that the Azerbaijani people are not seeing the full benefit of their country's oil boom," said Simon Taylor, Global Witness Director.

SOCAR accuses Global Witness of envy

SOCAR's reaction to Global Witness's findings is to dub the report as an attempt at portraying it in a negative way "and with envy the increasing influence of SOCAR", accusing the organisation of relying on "inaccurate sources of information while some of the information used in the report is false or outdated."

SOCAR justified its engagements with private individuals involved in its business model.

"Being one of the largest oil and gas companies in the region and in the world in the course of carrying out its projects in Azerbaijan and abroad SOCAR attracts partners with extensive business experience."

The company claims it is necessary to establish different specialized firms in order to hedge trade, production and other risks in the course of conducting business.

SOCAR Trading was established as a trading vehicle (joint venture) of SOCAR through the initiative by Anar Aliyev. "The trading company delivered Azeri oil for the first time to the world's stock markets under its own brand name," SOCAR said, saying that SOCAR Trading also deals in oil from other countries.

While the Global Witness report claims that SOCAR uses its shell companies to  effectively sell its oil to itself, SOCAR claims its marketing and economic operations department is selling the oil to 100% owned subsidiary, SOCAR Overseas LLC (DIFC) - of the United Arab Emirates - to pass on the oil to SOCAR Trading. The reason is so that SOCAR can exert price control over oils sales, using a UAE company to minimum costs on letters of credits with banks.

SOCAR has accused Global Witness of being part of an international conspiracy to discredit it.

The Malta connection

The report by Global Witness reveals that SOCAR Trading SA's parent company is a Malta-based registered company called Supra Holding, which was based in Old Bakery Street in Valletta.

The report includes a copy of an extraordinary resolution adopted by the shareholders of Supra, signed in Malta in 2008 by Anar Aliyev on behalf of Heritage General Trading, Rovnag Abdullayev on behalf of the State Oil Company, and Valery Goluvushkin on behalf of Renfred Holdings.

In Malta, SOCAR Trading Limited is registered under the same company number previously used by Supra Holdings.

In total, five companies are registered in Malta under the SOCAR brand name, three based in Ta' Xbiex and two in the address previously used by Supra Holdings in Valletta.

1. SOCAR Oil and Gas International Holdings was registered in August 2013 and is entirely owned by the state of Azerbaijan.

2. Also registered in the same Valletta office is SOCAR Oil and Gas International, which is entirely owned by the SOCAR Oil and Gas International Holdings.

3. The Ta' Xbiex office hosts SOCAR Investments and Finance, registered in 2012, which is in turn owned by SOCAR Trading Holdings Ltd and privately-owned SOCAR International DMCC.

4. Also based in Ta' Xbiex is SOCAR Trading Holding, registered in 2010 as a company belonging to SOCAR and to Nicosia-based Hoijare Investments.

5. The third company registered in the same address is SOCAR Vetting Company Limited, owned by Istanbul based Aykac Alaatin.

ElectroGas Malta, the winning consortium that will supply gas for the new Delimara power station, includes German multinational Seimens, SOCAR Trading SA and West African company Gasol. It also includes GEM Holdings - a company owned by Gasan Group, Tumas Group, and a pharmaceutical company owned by Paul Apap Bologna, a member on the MEPA board.

SOCAR will provide a floating gas terminal on a charter basis for 18 years, exclusively supplying liquefied natural gas for the project.

In an interview with London-based International Oil Daily, Gasol CEO Alex Buxton had credited the success of the ElectroGas project with the landslide victory of the Labour Party. But the company also participated in an expression of interest and public tender for the supply of the power-purchase and sale agreement.

READ THE FULL REPORT

www.globalwitness.org/library/azerbaijan-anonymous

Since the publication of the report Socar and Anar Aliyev have published statements in response. These statements are available at:

http://new.socar.az/socar/en/news-and-media/news-archives/news-archives/2013/12/13

and

http://www.ugepte.com/index.php?page=page&MasterPageID=1&ID=54