Romanian tax case threatens Lukoil shutdown in EU

A Lukoil filling station in Uccle, Belgium. [Georgi Gotev]

Russia’s biggest private oil producer, Lukoil, has turned to Commission Vice-President Maroš Šef?ovi?, to help solve a court case that threatens its operations in Europe, officials from the company told a small group of Brussels journalists on Wednesday (15 July).

Thomas Mueller, Vice President for Oil Refining of Lukoil, said that his company wants an open and transparent investigation in a court case for which he said the prosecution has “zero basis” to press charges.

In 2014, a court in the Romanian city of Ploie?ti launched a probe into suspected tax evasion and money laundering. The investigation against the Lukoil Petrotel refinery began in 2014, with a claim of €230 million in damages.

The company put up collateral and continued to operate. Mueller said that all data requested by the prosecution has been provided. He added that Lukoil thought that the case was about to be resolved, when last Thursday (9 July) the prosecution tried to seize 2 billion dollars worth of assets held by Lukoil Group Holding, which is the owner of all of Lukoil’s assets in the EU, and is based in the Netherlands, and also requested freezing its bank accounts in the UK.

Compared to the $2 billion claim, Lukoil operations in the Benelux – a refinery in the Netherlands and over 100 filling stations in Belgium, the Netherlands and Luxembourg – are worth approximately $1 billion.

The Romanian prosecution addressed its claim to the Netherlands and the UK. A British court will now decide whether to accept the prosecution’s claim and seize Lukoil’s assets.

“That is a big deal, of course, and very provocative,” Mueller said. 2 billion dollars is about 100 times the prosecution’s claim, Mueller claimed. According to the executive, Romanian prosecutors had already seized more assets in Petrotel than the amount of the claim, “probably around $500-600 million”.

Mueller said that the prosecution was damaging the company’s reputation and was risking damaging its business.

“If our accounts are arrested, it shuts us down,” he said.

Mueller stated that he and his colleagues were shocked and frustrated. Their account manager has been prevented from leaving the two counties under the jurisdiction of the Ploie?ti court for nine months.

“That’s crazy, it just blows my mind,” Mueller commented.

“We believe in Europe, we’ve invested in Europe, we continue to invest in Europe,” said Mueller, who explained that in Romania, the company has been operating for 17 years, has invested $540 million, and performed substantial environmental cleanup.

“If we shut down 4,000 Romanians will lose their jobs” he added.

Asked to explain what the accusations of the Romanian prosecutors were, the Lukoil official stated that the claim was that the company had hidden a $300 million in equity, which was in fact converted into premium reserves.

Last May, Lukoil was attached by Bulgaria, where Ivan Kostov, a former prime minister, accused Lukoil Bulgaria of robbing the country of tax income by manipulating invoices showing the price at which crude was bought. Kostov later acknowledged he had got his information wrong.

Asked if he thought Lukoil was paying the price of the confrontation between Russia and the West over the Ukraine crisis, Mueller said that the journalists’ judgement was as good as his.

“I hope, though, that if you are a reputable public company that lives in the spirit and letter of every law, that should be enough. […] But maybe it’s not. I wish the relations were better, because there’s more common interest between the West and Russia than uncommon interest,” he said.

Lukoil is not on the EU sanctions list, but it is embargoed by the US.

>> Read: Western sanctions to hamper Russia’s big oil projects

Last January, Ukraine accused Lukoil of financing separatists in the breakaway regions of Donestk and Lugansk. Lukoil and Ukrainian oil services company VETEK smuggled oil products worth $2 billion into Ukraine between 2013 and 2014, the Ukrainian Security Service said in a statement published on its website.

Lukoil denied the allegations in a statement on its website. “All deliveries to Ukraine were and are carried out in strict accordance with international and Ukrainian law,” it said.

EURACTIV asked the Commission to comment on the case. Spokesperson Anna-Kaisa Itkonen said Vice-President Šef?ovi? had received the letter by the Lukoil CEO and was looking into it, but made no further comments. It is unclear what the Commission can do in a court case, as the independence of courts is a principle above all others.

In the past, Lukoil received proposals to sell its business in Romania. Asked to name those interested in buying Petrotel, Mueller said that they were “Several, all Romanian. All appear to be private.”

Subscribe to our newsletters