Identifier
Created
Classification
Origin
10BRATISLAVA43
2010-01-29 16:39:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Bratislava
Cable title:  

U.S. COMPANY BUYS TROUBLED SHARES IN SLOVAK OIL PIPELINE

Tags:  EINV ENRG PGOV LO 
pdf how-to read a cable
VZCZCXRO1678
PP RUEHSL
DE RUEHSL #0043/01 0291639
ZNR UUUUU ZZH
P R 291639Z JAN 10
FM AMEMBASSY BRATISLAVA
TO RUEHC/SECSTATE WASHDC PRIORITY 0385
INFO RUCPDOC/USDOC WASHDC 0001
RUEHSL/AMEMBASSY BRATISLAVA 0447
UNCLAS SECTION 01 OF 02 BRATISLAVA 000043 

SENSITIVE
SIPDIS

STATE FOR EUR/CE J. MOORE

E.O. 12958: N/A
TAGS: EINV ENRG PGOV LO
SUBJECT: U.S. COMPANY BUYS TROUBLED SHARES IN SLOVAK OIL PIPELINE

REF: 2009 BRATISLAVA 149

Summary and Action Request
--------------------------

UNCLAS SECTION 01 OF 02 BRATISLAVA 000043

SENSITIVE
SIPDIS

STATE FOR EUR/CE J. MOORE

E.O. 12958: N/A
TAGS: EINV ENRG PGOV LO
SUBJECT: U.S. COMPANY BUYS TROUBLED SHARES IN SLOVAK OIL PIPELINE

REF: 2009 BRATISLAVA 149

Summary and Action Request
--------------


1. (SBU) Capitol Project Partners, a small U.S. consulting and
investment company, has notified us that it has acquired stock
in Transpetrol, the state-owned oil pipeline in Slovakia. The
company acquired the stock from a Czech company which had
recently bought the shares from a Slovak investor who is in
prison for fraud in connection with his acquisition of these
same shares. The validity of the shares are the subject of a
long series of court battles running back 12 years and involving
some 150 open cases at this time. The American company intends
to assert its ownership rights. Given the complex legal history
of the shares in question, we request guidance from Washington
on how to handle requests for advocacy in this case. Our
proposed approach would be to ask that the GoS give a fair
hearing to the U.S. company and to clarify any legal ambiguity
in the status of the assets claimed. End summary.

A New Wrinkle in an Old Story
--------------


2. (SBU) In early January 2010 the U.S. firm Capitol Project
Partners, LLC, notified us that the company, through its
investment fund CAPPA III, LLC, had acquired stock representing
a 34% stake in Transpetrol, a crude oil pipeline operator
recently re-acquired by the Slovak government. Embassy staff
talked with several partners in the firm, at their request, on
January 12, where we learned that the company anticipates asking
the USG for advocacy in asserting its ownership rights in
Transpetrol. The ownership of these shares is the subject of a
decade-long legal battle between the GoS and the former owner,
Slovak businessman and convicted felon Ignac Ilcisin, who is
currently in prison for fraud connected to his Transpetrol
claim. Ilcisin had sold the disputed shares in mid-2009 to a
Czech company, Quick Power Plant, which in turn sold them on to
CAPPA III at the end of 2009. The GoS has not recognized the
legitimacy of Ilcisin's shares since shortly after they were
issued over ten years ago.


3. (SBU) Our interlocutors at Capitol said that they had done
careful research on the legal status of the shares and were
convinced that the shares are legitimate, and that the GoS had

dealt in bad faith with Ilcisin. They anticipated asking the
Embassy, as well as DoS and DoC in Washington, to intervene with
the GoS to back their claim.


4. (SBU) The legality of Ilcisin's claim is at best troubled,
and it has pitted two rival "highest courts" against each other.
In view of this fact, and of the distinct possibility that
Ilcisin's original claim to the shares was fraudulent, we intend
to approach advocacy on behalf of Capitol very carefully. We
would appreciate Washington's guidance on how to handle requests
for intervention at the highest levels of the Slovak government.



5. (SBU) One question to consider is what the U.S. company's
intentions are. From the company's website (www.cappa.us),it
appears to be a small consulting firm of seven partners and
associates, some of whom have served as U.S. Government
appointees in the recent past. Capitol has three private equity
funds, only the first of which appears to have any SEC filings
on record. The first two CAPPA funds are described as "real
estate bridge lending and distressed asset investments." The
CAPPA III Fund is described as focusing on "energy
infrastructure development projects in emerging markets
utilizing support from multilateral and U.S. based development
and export credit agencies." Given this background, it appears
possible that Capitol will aim for a settlement from the GoS
than that it will seek an active role in operating Transpetrol.


Background on the Claim
--------------


6. (U) Ilcisin acquired the shares as a settlement for a case
that his company, Tradeunion, won against the local tax
authority in 1998 over his use of a state-owned building. The
value of the award was SKK 43 million (roughly $1.2 million at
the time). The state did not have cash for the award, so
Tradeunion was allowed to participate in a transfer of
Transpetrol shares in lieu of cash from the state.


7. (U) The legitimacy of that Transpetrol stock sale was
subsequently challenged, and the transaction was voided a month
after it closed. Criminal charges were filed against Ilcisin
and the six other entrepreneurs, but these charges were
subsequently voided. In 2001, the Supreme Court decided that
the "execution," as the award of the shares is technically

BRATISLAVA 00000043 002 OF 002


termed, was legal. A subsequent Supreme Court decision in 2004,
triggered by Ilcisin's attempt to call a meeting of Transpetrol
shareholders, reversed the 2001 decision. The Constitutional
Court in 2007 overturned that decision, arguing that the
principle of legal certainty prevented the Supreme Court from
reversing its first decision. In 2008, the Supreme Court ruled
against the Constitutional Court on the principle of "ius ex
iniuria non orfitur," i.e., that no legal right can result from
an unlawful act. The Constitutional Court asserted its
supremacy again in 2009, saying that the issue of ownership had
been decided (in Ilcisin's favor) in 2001, and that it enjoys
the status of final arbiter. A lower court then allowed Ilcisin
to claim his status as a shareholder (while not ruling on the
actual ownership of the disputed shares). This ruling was
overturned by a May 2009 Supreme Court decision.


8. (U) In the brief window before the lower court was
overturned, Ilcisin attempted to call a shareholders' meeting on
April 29, 2009. These latest developments, together with the
completion of a complex buy-back of a 49% stake in Transpetrol
from foreign investors (reftel),prompted Slovak prosecutors to
act against Ilcisin. According to prosecutors, Ilcisin used his
claimed status as head of Transpetrol to attempt in 1996 to
transfer EUR 12 million to a certain Czech company in payment of
what the prosecutors term a non-existent debt. Accordingly, on
June 30, 2009, Ilcisin was convicted of fraud by the Zilina
District Court and sentenced to 9 years in prison; Ilcisin is in
prison pending appeal. (Note: Even without this conviction
Ilcisin is still a felon, based on an earlier conviction of
illegal currency trading. End note.)


9. (SBU) Incredible though this may seem, our recap of the
history of Ilcisin and his claim to 34% of Transpetrol is a vast
simplification: there are still some 150 open legal cases
pertaining to various aspects of the dispute. Roughly speaking,
these cases fall into three groups of concerns: 1) the legality
of the execution itself, 2) the registration of the shares in
the Central Repository (essentially a central registry of all
stock transactions),and 3) the right to call for a
shareholders' meeting, which in turn depends on one's status as
a shareholder. According to our contacts in the legal community
here, a clear preponderance of legal experts in Slovakia views
Ilcisin's claim as fraudulent, though the behavior of the GoS,
including the Slovak courts, is hardly a model of judicial
probity, clarity, or principled behavior.

Proposed Approach
--------------


10. (SBU) If Capitol pursues a formal request for advocacy in
this case, we would propose simply asking the GoS to hear out
the American company's assertion of ownership rights and respond
to it fairly. Where there is lack of legal clarity in these
rights, the GoS should seek to clarify them.
EDDINS