Battle of the oligarchs returns to court
August 8th, 2017. \\ World.

A classic oligarch v oligarch battle returns to court in Moscow on Tuesday (8 August), as attorneys for the telecoms-to-oil conglomerate Sistema seek again to postpone proceedings initiated by state-controlled oil giant Rosneft.

The Rosneft claim concerns a mid-sized oil company called Bashneft. The company had been the subject of headline-grabbing controversy in 2014 when Russian law enforcement alleged that it had been privatized and transferred illegally to Sistema. They held Sistema boss Vladimir Yevtushenkov under house arrest until ultimately he turned the asset over to the state. Bashneft was then put up for auction and Rosneft acquired it late last year.

But Rosneft soon discovered that, under Sistema’s brief ownership, Bashneft had been reorganised. Assets had been transferred out of Bashneft into other Sistema subsidiaries. Moreover, Sistema had caused Bashneft to buy out its own minority shareholders, leading to further losses.

Rosneft took its claims to court in Bashkortostan, seeking 171 billion roubles (£2 billion) in damages. The court ordered the arrest of shares in Sistema-owned MTS, a leading mobile phone operator in Russia and elsewhere in Eastern Europe, along with those of other subsidiaries. In mid-July, Sistema announced “technical default” on debts worth 3.9 billion roubles.

The case has even drawn claims, strongly denied by Sistema, that someone with ties to the company might have been responsible for a malware attack which, while crippling banks and utilities in Ukraine and elsewhere, was actually targeting Rosneft files with the intention of deleting key evidence in the case.

The situation has caused a sensation in the Russian media. Sistema insiders hint darkly that it is a reminder of what happened a decade ago when the same Rosneft took possession of assets confiscated from the oil giant Yukos, which had been controlled by the imprisoned oligarch Mikhail Khodorkovsky.

Sistema’s fight back is being led by its PR chief Evgeny Chuikov, a British-educated public relations veteran once employed at top UK consultancy Bell Pottinger. The counter attack is sophisticated and appears to be resonating with international investors. The company even mobilised several of its independent directors, including former EU Trade Commissioner Lord Peter Mandelson, to appeal to President Vladimir Putin to intercede.

But the headlines overlook Sistema chief Yevtushenkov’s own biography. Yevtushenkov was one of the few 1990s era titans who managed to accommodate the Putin era restoration of order after the “Wild East” years under Boris Yeltsin.

In many ways he is the last survivor, after the sensational dismissal of Yuri Luzhkov as Moscow mayor in 2010. Luzhkov, Yevtushenkov’s long-standing patron, was removed from office by presidential decree after years of corruption allegations. Yevtushenkov is married to the sister of Luzhkov’s wife, Yelena Baturina, once Russia’s richest woman and now living in the UK.

Yevtushenkov began his rise to business prominence as a mid-level Moscow city bureaucrat, chairman of Moscow Science and Technology Committee. Then, starting in 1993, he acquired a grabbag of diverse assets, from the tourist agency Intourist, to a famous children’s department store, an oil refinery and the city’s network of petrol stations.

In 1995, a private trust partnership bought a major stake in the Moscow City Telephone Network. The largest partner in the partnership was the privately-held Moscow Science and Technology Committee, owned by Yevtushenkov. Within a year, all other private investors had been sidelined or replaced by organisations which were part of what became Sistema. The Moscow municipality’s own share in the enterprise was reduced to 3.6 per cent from 22 per cent. And at this point, the limited partnership was converted into an open joint stock company, 94% owned by Sistema.

Rosneft lawyers plan to argue that Yevtushenkov followed a remarkably similar pattern in acquiring Bashneft, and that this was followed by a round of asset-stripping, transferring much of its value to other Sistema holdings.

But Sistema is delaying the case, seeking a Moscow court’s permission to bring in third party testimony and raising other issues, including what they claim is damage being done to MTS by the arrest of its shares.

Rosneft lawyers will argue that if there is any damage to MTS it arises from the case postponements being sought by Sistema. Having been joined in their claims by the Republic of Bashkortostan, formerly the major owner of Bashneft, they say the case needs to proceed urgently for justice to be seen to be done.

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Martin Banks is a highly experienced accredited journalist with many years experience of working with the EU institutions. He is an occasional contributor to EU today, writing on a wide variety of issues.

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