ROMANIA - ENERGY SCANDAL UNFURLING, AMCIT HELD ON

C O N F I D E N T I A L SECTION 01 OF 03 BUCHAREST 001797

SIPDIS

NOFORN
SIPDIS

STATE FOR EUR/NCE - MPEKALA; L/EUR - POLSON; CA/OCS/ACS/EUR
- SSCHMIERER
STATE PASS TREASURY FOR LUKAS KOHLER

E.O. 12958: DECL: 11/29/2016
TAGS: ENRG PGOV KCOR CACS ECON PREL RO
SUBJECT: ROMANIA - ENERGY SCANDAL UNFURLING, AMCIT HELD ON
"ECONOMIC ESPIONAGE" CHARGES

REF: A. BUCHAREST 1747

B. BUCHAREST 1694

C. BUCHAREST 1653

Classified By: Deputy Chief of Mission Mark Taplin for reasons 1.5 (b)
and (d).


1. (U) SUMMARY. An unfolding energy-related scandal is
causing turmoil among Romania's political and economic
elites, with allegations of corruption and influence peddling
hitting two government ministers, among others. The
accusations come with the approach of winter and amid
political attacks on Romania's largest energy company,
Petrom, majority-owned by Austria's OMV. One American
citizen is among those embroiled in investigations, and has
been taken into custody (at least temporarily) and barred
from leaving the country. END SUMMARY.

Approach of Winter Prompts Energy Angst
--------------

2. (C) Energy independence and Romania's perceived
vulnerability vis-a-vis Russian oil and gas interests have
been constant topics in Romania in the past months, and are a
central component to the GOR's National Security Strategy.
As winter approaches, along with the need to provide natural
gas for heating to millions of low income Romanians,
President Basescu and the GOR are seeking solutions and
applying pressure to counter the looming prospect of higher
energy prices in the coming months.


3. (C) In the most dramatic gesture to date, Romanian
President Traian Basescu convened a meeting of the Supreme
Defense Council (CSAT),Romania's equivalent of the National
Security Council, on November 22 to address energy security,
including the question of the legality of recent energy
privatizations. The most important privatization under
scrutiny is the OMV (Austrian petroleum and gas company)
acquisition of a 51% stake in Petrom in 2003. Petrom and OMV
have been the main target of Basescu's frustration as energy
prices continue to mount in Romania, with Basescu asserting
that the state was disadvantaged in the sale. Among other
decisions, the CSAT concluded that energy privatization
contracts, currently considered state proprietary
information, should be unclassified. The press reported on
November 29 that all major foreign companies, including OMV,
had assented to this demand. Basescu, a vocal critic of
Gazprom and Russian energy policy, commented that he would
like more information about OMV's ownership structure. He
stated publicly that he fears OMV's 51 percent stock float is
vulnerable to purchase by Russian energy firms. OMV
dismissed these concerns, stating that any stockholder that
accumulated more than five percent of shares would have to be
notified to the Vienna Stock Exchange.

Charges Fly in Privatization Scandals
--------------

4. (U) Shortly after the CSAT met and announced its
decisions, accusations emerged against current Minister of
Economy and Commerce Ian-Codrut Seres and current Minister of
Communications and Information Technology Zsolt Nagy alleging
both illegally rendered insider information on state
privatizations to outside parties. Both Seres and Nagy were
linked to Bulgarian Stamen STANCEV, described in the Romanian
media as a Bucharest-based consultant who has advised several
international firms involved in the privatization process.
Press reports have linked Stancev to controversial business
ventures Alro Slatina (owned by the Russian-controlled Marco
Group) and Rosia Montana and to Glencore Ltd., controlled by
Marc Rich.


5. (U) A press release from prosecutors in the Office for
Criminality and Terrorism Investigation (DIICOT) accused
Stancev of leading a criminal ring that received state
secrets regarding privatizations concluded under both the

SIPDIS
current and previous governments. This included a
consultancy contract for Petrom's privatization, in which
Credit Suisse First Boston (CSFB) bested Bank of America in

2002. Other individuals named in the DIICOT press release
include: Mihai Dorinel MUCEA, deputy director of the Office
of State Ownership and Privatization in Industry (OPSPI)
under Minister Seres; Mihai Radu DONCIU, counselor to

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Minister Nagy responsible for privatizations; Mircea Calin
FLORE, CSFB local representative; Robert Marius NEAGOE, OPSPI
legal director; Oral MUSTAFA, international consultant,
Turkish citizen; Michal SUSAK, executive director of PPF
Investments; and Vadim Don BENYATOV, CSFB Europe banker,
American citizen. Mucea, who survived the 2004 government
transition, was the primary author of Petrom's privatization,
and sat on OMV/Petrom's Board of Directors until suspended in
the wake of last week's accusations.


6. (U) Authorities announced that Stancev's apartment
contained documents related to the recent privatization of
Bucharest's electrical utility, Electrica Muntenia Sud, the
privatization strategy for Romania's thermal-energy
complexes, the recent sale of state-owned Transgaz's shares
in Romexterra Bank to Czech private equity firm PPF, and the
privatization of Radiocomunicatii (communications company).
Documents related to the Credit Suisse consulting contract
allegedly included correspondence between the U.S. Embassy
and the MEC.


7. (U) Both Seres and Nagy, representatives from the two
smaller parties within the ruling coalition, have denied
wrongdoing, though they both admitted to having met with
Stancev. Seres and Nagy have fought back, saying the
accusations are politically motivated. Prime Minister
Tariceanu, who has just returned from knee surgery in Paris,
has not commented publicly on the charges so far.

Economy Minister on the Hot Seat
--------------

8. (C)The energy sector has been in turmoil, particularly
with the rise in global energy costs and increased pressure
on the GOR to allow for full market pricing of its indigenous
natural gas. While the GOR regulates the captive consumer
market (individual households and small businesses),
OMV/Petrom has exercised its right to sell natural gas on the
open market despite government objections. Under EU and IMF
pressure, the GOR has reluctantly agreed to liberalize the
market for large consumers, which represent 75 percent. In
October, a relatively low demand month, OMV/Petrom forced the
issue by withholding production from regional distributors,
compelling them to agree to higher prices than the GOR had
sought to impose.


9. (C) According to industry sources, after extensive
negotiations between Petrom and the Ministry of Economy and
Commerce (MEC),the MEC agreed to back off its demand that
Petrom adhere to the regulated price for all sales, on
condition that Petrom would offer a fixed amount of gas at
concessionary prices to low-income consumers. However, ten
minutes before the scheduled announcement, Seres received a
call from government regulators stating that the deal was
illegal. According to industry sources, Seres was caught
completely by surprise and alleged that domestic industry
interests were behind the action.


10. (C) In his own counterattack, Minister Seres held a
surprise Sunday press conference on November 19, to air
allegations that his family was being followed and that he
was under constant pressure from all elements of the
government, including from his own party (Conservative Party
) PC),to cut special deals for vested interests. Seres
also announced at the press conference that he had suspended
the directors of the national gas distribution company
(Romgaz) and the national electricity distribution company
(Transelectrica) because of ongoing criminal investigations
into their actions. Seres announced that several contracts
with energy trading firms would be revoked and state-owned
firms would be required to sell energy on the newly-created
electricity trading boards. Several of the affected firms,
including Grivco, are controlled or connected to the PC's
oligarchic party president, Dan Voiculescu.


11. (C) According to a well-placed government source, Seres
no longer has political support, either from within the
government or his own party. Accusations surfacing the week
of November 27 corroborate this assertion, as information
contained in prosecutorial documents appeared in the top
Romanian daily Jurnalul National, owned by Voiculescu.
Despite owing his position to the Voiculescu machine, some

BUCHAREST 00001797 003 OF 003


analysts believe that Seres, who is 37 and a past manager at
Grivco, has attempted to carve out a more independent stance
within the PC along with other young party members. Seres
also has cultivated closer ties with President Basescu, and
accompanied him on state visits to Washington and Baku to
discuss energy issues. Basescu and Voiculescu have a
well-established mutual dislike, with Basescu accusing
Voiculescu, a former Securitate officer, of being a
fifth-column within the ruling coalition.

Amcit is Targeted in Investigation
--------------

12. (C) In connection with the case centered around the
Bulgarian consultant Stancev, an Amcit bank official named
Vadim Benyatov from Credit Suisse First Boston's European
division is also facing charges. According to Romanian
prosecutors and contacts from the domestic intelligence
service, Benyatov and others have been under investigation
(including through phone surveillance) since April. Law
enforcement officials claim that Benyatov definitely knew
about the unauthorized passing of the terms of reference for
privatization tenders. The lead prosecutor candidly
acknowledged to Legatt that he has gone to Basescu to seek
permission to charge the Minister of Economy himself.
Romanian prosecutors placed Benyatov in preventive detention
for 24 hours on November 29, and the Consul General is
currently attending a hearing on Benyatov's case.


13. (C) The core of the case is the allegation that Stancev,
who prosecutors characterize as a direct employee of Benyatov
and Credit Suisse, conspired with officials of the two
Ministries to pass confidential information on the terms of
reference for privatization tenders. This type of
information under Romanian law is considered in the same
category as state secrets, hence the "economic espionage"
charge. Romanian prosecutors also informally suggested that
Benyatov and his alleged associates may have violated U.S.
law as well, including the Foreign Corrupt Practices Act.


14. (C) COMMENT. It is difficult for Embassy at this
juncture to make a judgment about the accuracy or
sustainability of the charges against the prosecution
targets, including CSFB's Benyatov. We note, however, that
the energy sector has traditionally been one of the most
highly manipulated and corruption-prone sectors in the
Romanian economy. Vested Romanian business interests have
long sought to control the local energy resources in a manner
that would benefit the many dinosaur industries (including
chemical and fertilizer plants) that are only competitive due
to cheap energy.


15. (C) What seems clear is that President Basescu has jumped
on another populist bandwagon that will resonate among the
Romanian voters. Rumors, replayed by Basescu himself, have
circulated that the two largest Romanian energy firms,
OMV/Petrom and Rompetrol, are considering selling significant
assets to Russian energy firms. Both Basescu and Tariceanu
have indicated in private meetings with U.S. officials that
they are concerned about this possibility. Post will closely
monitor the case in the days and weeks ahead, both to make
sure that a criminal investigation involving at least one
Amcit is handled in a legal and transparent fashion, and in
order to gauge whether the motives behind the case are driven
more by law enforcement or political considerations. END
COMMENT.
TAUBMAN