The Russian Octopus Report – Download Here.
Uzbekistan enjoys a significant endowment of natural-gas, alongside a smaller reserve of crude oil. It also has a growing petro-chemical industry. Because of the significant revenues at play, the sector has been a key target for elite capture over the past two decades. Elite capture in Uzbekistan involves politically exposed families with significant reach inside the state, using the authoritarian government apparatus to curate promising sectors, such as oil and gas, for the benefit of their own companies, companies of close affiliates, and/or companies of client foreign investors.
Under the previous regime of Islam Karimov (who passed away in office on 2 September 2016), natural resource capture triggered controversy after family members were accused of improperly reaping significant financial benefits from Uzbekistan’s energy industry. As part of a wider reform process, Uzbekistan’s current President Shavkat Mirziyoyev has pushed an energy policy that aims to expand the production of hydrocarbons and value added products, drawing on market mechanisms and foreign investment.
One principal beneficiary of this energy policy is an international business consortium made up of affiliated companies that intertwine across over ten jurisdictions. Together they have acquired hundreds of gas and oil fields in Uzbekistan, won billions of dollars in construction and drilling contracts, and have been awarded lucrative hydrocarbon export rights. Their corporate head masts include, the Eriell Group based out of the UK Crown Dependency, Jersey, and Enter Engineering Pte Ltd incorporated in Singapore.
The public face for this consortium of affiliated companies is Bakhtiyor Fazilov, a businessman from Samarkand. Its principal financier is Gazprombank. Gazprombank has been described by a former Russian deputy energy minister as a ‘pocket bank’ for the elite circle loyal to the Russian President, an allegation the bank denies. It has been designated by the United States government as an entity ‘critical to Russia’s ability to wage war against Ukraine’.
Given the energy sector’s historical vulnerability to elite capture, and the consortium’s rapid ascendancy, compelling grounds existed to investigate this corporate network to determine the integrity of its structures and agreements with the state. Drawing from a large cache of leaked documentation, and hundreds of corporate filings obtained from different offshore jurisdictions, this report presents arguably the most detailed account to date of a major business group exerting significant control over hydrocarbons in Uzbekistan.
The investigation has been conducted in collaboration with Radio Ozodlik.
The use of trusteeships, put and call options, and complex internal financing structures, effectively serve to conceal individuals with a beneficial or financial interest in the international consortium. Nevertheless, a cross-analysis of corporate filings has identified a number of politically exposed persons and sanctioned individuals who are affiliated with this international business group.
They include:
• Sharif Inoyatov, the son of Colonel- General Rustam Inoyatov head of state security in Uzbekistan from 1995-2018. • Ravshan and Erkin Ubaydullaev, the sons of former National Security Service Colonel Umar Ubaydullaev.
• Sanctioned Russian businessman Gennady Timchenko.
• Sanctioned Gazprombank official Alexey Matveev, and his son Kirill Matveev.
Evidence presented in this investigative report points towards a range of governance and business practices associated with this international consortium that are of concern.
They include:
• The establishment of hydrocarbon joint-ventures between the consortium and Uzbekistan’s state gas and oil operator, Uzbekneftegaz, an organisation that has a notable number of senior executives who formerly worked for the consortium. The joint-ventures generally operate under opaque financing, product sharing and tax/benefit arrangements.
• The award of significant gas and oil rights to these joint-ventures, in some cases without tender or through opaque tenders, where the benefits appear to be skewed in favour of the private investors, at the cost of state parties and ultimately the Uzbekistani public.
• The award of major construction and drilling contracts by the joint ventures to other companies from the consortium, with contract values ranging from several hundred million dollars US, to amounts measured in the billions, either through opaque tenders or by direct purchase.
• Suspected profiteering, where the price of construction and drilling contracts is reported to be significantly higher than competitor rates, with information available suggesting substandard delivery in some cases.
• The financing of joint-ventures, and the expensive drilling and construction contracts they have awarded, through loans provided by consortium companies or their shareholders, including notably Gazprombank in Russia, and Eriell Oilfield Middle East DMCC in the UAE.
• Repayment of finance through gas export arrangements that place the burden of debt repayment primarily on state parties.
• Drilling and construction contracts are awarded to consortium companies by public-private jointventures in which the consortium is the private partner, using credit provided by consortium shareholders. This credit is then paid off in part through the discounted sale of domestic gas by the state owned Uzbekneftegaz to the jointventures for the export abroad, which is reported to have placed strains on domestic gas supply.
• Risks to Uzbekistan’s energy security. The international consortium, over which significant control is exercised by Russian stakeholders, has secured a sizable share in Uzbekistan’s gas and oil fields, gas storage and oil/gas refining capability. This provides the Kremlin with potential leverage through which to geopolitically pressure Uzbekistan as it attempts to consolidate allies in its war of aggression in Ukraine.