Embezzlement Allegations Cast Shadow Over Aquind Energy Project

Embezzlement Allegations Cast Shadow Over Aquind Energy Project

As Business Secretary Kwasi Kwarteng is due to make his decision on the controversial subsea power interconnector, Patrick Elliot looks at the possible roads ahead

Leaked documents from the Pandora Papers show that Viktor Fedotov, the 74-year-old oligarch who owns 99% of Aquind, previously co-owned a company that was accused of embezzling money from the Russian state.

Aquind is awaiting the Business Secretary’s verdict on whether to grant development consent for its proposed interconnector project, which is expected to cost £1.2 billion to deliver. The subsea cable would connect the British and French electricity grids, with the capacity to meet up to 5% and 3% of the demand in each. Opposition to the project, by locals who would be affected by its development, has been near-unanimous on both sides of the Channel.

Writing for The Bureau of Investigative Journalism (TBIJ), this reporter first broke the story of Fedotov’s chairmanship of two companies during the time in which they were alleged to have embezzled funds, via contracts awarded to them by Russia’s state-owned oil pipeline monopoly, Transneft.

According to the Guardian, leaked documents show that one of the companies, VNIIST, was “secretly owned” by three Russian men: the then President of Transneft, Semyon Vainshtok; a second Transneft executive, who is not named; and Viktor Fedotov.

TBIJ first revealed the decades-long collaboration between Fedotov and Vainshtok, dating back to the 1990s when they were both senior executives at Russia’s largest private company, Lukoil. For a brief spell in July 2008, the two joined forces again on the board of directors of SLP Engineering, a now-bankrupt former sister company to Aquind.

This was at the same time Transneft was compiling evidence at the request of the Russian Accounts Chamber, for its investigation that led to the allegations of embezzlement. Vainshtok had left the pipeline company the previous year, and the investigation was instigated by his successor as president of Transneft, Nikolai Tokarev.

VNIIST was awarded numerous contracts by Transneft during Vainshtock’s presidency, so his secret co-ownership of the contractor is a massive revelation: it suggests he may have used his control of a state company to enrich himself and others.

Vainshtock denies all allegations, with the Guardian reporting his lawyers also deny he had “any involvement in awarding the ESPO pipeline contracts”. Similarly, Fedotov reportedly “denies any allegation of wrongdoing”.

Shortly after Fedotov’s appointment as chairman of VNIIST, according to the Guardian, in June 2003: “Fedotov, Vainshtok and the other Transneft executive each established New Zealand trusts, naming themselves and their family members as beneficiaries.”

Just two months later, the company they owned was awarded a contract worth £219 million by Transneft, for design and survey work on the construction of the Eastern Siberia–Pacific Ocean (ESPO) oil pipeline system.

The report, which was submitted to Russia’s equivalent to our Audit Office, was compiled in 2008 by working groups of senior management from Transneft and its subsidiaries. It was informed by the primary evidence they had at their disposal, including contracts, bank statements and correspondence. 

Alexei Navalny, the anti-corruption activist who was poisoned with Novichok in August 2020, leaked the report in 2010. It states that VNIIST subcontracted the work back to a subsidiary of Transneft, at a cost of £175 million, making £44 million in pure profit for its negligible intermediary role.

The working group found there was “no reasonable economic sense” in awarding the contract to VNIIST; since “100% of the design and survey work was performed by [the subcontractor]”, Transneft could have saved £44 million by awarding the contract directly to its own subsidiary.

VNIIST was awarded further contracts by Transneft during this time, but the contractor’s refusal to supply requested evidence – citing “confidentiality and commercial secrets” – prevented the state company establishing how much more money may have been siphoned off.

However, according to the Guardian, financial records in the Pandora Papers suggest that Fedotov’s trust in New Zealand, The Greenwich Trust, received at least £72 million between 2003 and 2006, some of which was reportedly used to buy a private jet. The BBC adds that “evidence suggests some of the money” was used to pay for Fedotov’s £7 million Hampshire mansion, Aragon Hall.

It is unclear whether any of the money originating from the Russian state-owned Transneft ended up funding Fedotov’s ownership of Aquind. Given the company and its owners have donated more than £1.5 million to the Conservative party over the last decade, it’s a matter that needs urgent clarification.

A spokesperson for Aquind said: “All political donations made by AQUIND have complied with the relevant legislations and can be viewed on the Electoral Commission website.”

Nevertheless, Byline Times understands these new revelations are unlikely to have any bearing on the planning decision since the relevant legislation concerns itself only with the availability of funding, rather than its origin. Instead, Aquind looks set for a collision course with new National Security legislation, which comes into force next January. In the meantime, there’s the small matter of Kwasi Kwarteng’s verdict on whether to grant development consent…

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Further Delay Possible, Judicial Review Likely

Byline Times spoke to Angus Walker, Partner at BDB Pitmans law firm, who runs a highly-respected blog tracking developments of every application for a Development Consent Order (DCO). He explained that, for private companies like Aquind, one of the biggest attractions to the DCO planning route is that it grants powers to acquire land compulsorily.

“In other cases, they would have to rely on another party such as a local authority to do this for them, or have to negotiate with all the landowners individually—and they will often charge a premium if they detect that their land is needed for the project. That may well have been one of the main reasons in this case.”

The original deadline for Kwasi Kwarteng to make his decision was 8 September, but six days prior it was extended to 21 October. The first thing that could happen next is the announcement of a further delay.

“I would not be surprised if it were delayed further,” said Walker. “A delay of only a month would be the shortest of the recent batch.”

Of the seven projects whose original decision deadline has fallen so far in 2021, four – including Aquind’s – have been delayed, with one of those delayed twice already. The average length of delay is longer than six months.

Whether or not Kwarteng delays his decision further, when he announces that the DCO has either been granted or refused, a six-week window for judicial review will commence.

Of the 102 decisions made so far in the DCO regime, 96 have been approved in the first instance. Only 17 of those decisions have been subject to judicial review and, prior to 2021, the only successful legal challenge was in one of the two that have been brought (by developers) against refusals.

However, this year four DCOs that were initially granted have been quashed in the high court, with the relevant Secretary of State in each instance now redetermining those decisions. 

Portsmouth City Council has already declared it will contest the Secretary of State’s decision if he grants approval, so the odds of judicial review are unusually high. However the success rate of challenges to approved DCOs remains low, at under 27%.

The proposed subsea electricity interconnector faces a lot of uncertainty over the remaining months in 2021, but one thing is certain: the new year will bring with it another obstacle that Aquind may yet have to overcome.

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New Policy: New Hurdle

On 4 January 2022, the National Security and Investment Act (NSIA) will come into force. The legislation will massively increase the government’s powers to investigate and intervene in mergers, acquisitions and other deals deemed a threat to the UK’s national security.

The powers in the NSIA are contingent on ‘trigger events’: whenever a person or group acquires a pivotal stake in any British company or company that does business in the UK. 

When a trigger event occurs, the government will have a right to ‘call-in’ the acquisition, reserving the right to block (or even reverse) the acquisition if – pending a thorough assessment – they believe it poses a national security threat.

Once the legislation takes effect next January, any qualifying trigger events that occurred after 12 November 2020 will be subject to the government’s call-in powers. Aquind has already been involved in two such events.

In January this year, Alexander Temerko acquired 50% of Aquind’s voting shares via his Luxembourg-registered holding company: Energy Stream Investments SàRL. As Byline Times previously reported, Temerko is the vice-president of the Cities of London and Westminster Conservative Association, and he has personally donated more than £730,000 to the party.

In May, Viktor Fedotov increased his overall stake in Aquind to 99%, when £17 million worth of non-voting preference shares were issued to him via another holding company registered in Luxembourg: Project Finance Group Sà.

Byline Times previously reported the details of a second Russian company chaired by Fedotov, IP Net SPb, which was also accused of embezzling a further £44 million in state funds, via a contract awarded to it by Transneft during construction of the ESPO pipeline project. Mr Fedotov declined the opportunity to respond to our revelations at the time.

Shadow Energy Minister Alan Whitehead said: “As further information has come to light on the dodgy dealings of Aquind and their owners in recent months, the national security implications of allowing them a role in an important piece of national infrastructure must be considered.

“This whole process has lacked transparency and clearly been subject  to undue influence.”

A BEIS spokesperson said: “All applications for development consent are dealt with by the Department in line with Government Propriety Guidance, and are assessed on a case-by-case basis.”