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Slavneft, a $6M Loan And a CEO Scapegoat

In May 1998, someone at Slavneft -- an oil major jointly owned by the governments of Russia...

In May 1998, someone at Slavneft -- an oil major jointly owned by the governments of Russia and Belarus -- signed a letter that guaranteed part of a $6 million loan to a Finnish oil trading company.

Back then, when businesses were running months behind on payments to suppliers and workers, companies signed off on such guarantees to ensure that they would get paid. Perhaps the trading company -- Uni-Baltic Oy -- owed Slavneft money, and Slavneft smoothed the way by offering a guarantee to a bank that was willing to lend.

That is one theory. In any case, the loan came due and Uni-Baltic defaulted. Earlier this year, lender Ost-West Handelsbank sued Slavneft for payment in Frankfurt. Slavneft brought a countersuit, and thus began an odyssey involving managers new and old, where truth and signatures became blurred by ambiguity.

Anatoly Fomin, former president and board chairman of Slavneft, said he has ended up in the center of this scandal by accident.

"People who say that I am involved are only trying to confuse the situation because I have never signed any letters of guarantee to benefit Uni-Baltic in my life," Fomin said in a recent interview, sitting stoically at the head of a table in his office.

Against the pattering of rain on his windows, Fomin's voice suddenly rose.

"Let those who have been saying all this come forward with my signature," he said.

In a statement issued Aug. 8, Slavneft said Fomin's signature was on the guarantee.

Fomin has reason to be angry. The latest allegations -- which he says he didn't learn of until recently -- wouldn't be the first time he has been made a scapegoat for Slavneft's troubles. He was relieved of his duties at Slavneft during the August 1998 financial crisis. He was notified of an extraordinary shareholders meeting convened to oust him while on vacation and told a criminal case had been opened against him.

At the time, the official reason was the company's poor financial performance, even though Slavneft posted results better than the industry average that year.

Fomin spent months afterward searching for documents that proved his guilt or at least stated what the charges were. He never found them, and he never had his day in court.

"[Belarus President Alexander] Lukashenko told me that I should just ignore it all and go on vacation," said Fomin, who was deputy fuel and energy minister in the mid-1990s.

No documents have surfaced this time around, either. Slavneft issued its statement blaming Fomin during its court battle with Ost-West Handelsbank, a subsidiary of Russia's Vneshtorgbank, which in turn is 99 percent controlled by the Central Bank. Since then, the Slavneft press office has refused to release copies of documents relevant to the case.

Sources at Slavneft acknowledged that Fomin's signature wasn't on any letter, but no one can explain why Fomin would be chosen as a fall guy. Contrary to Slavneft's official version, industry sources say that Uni-Baltic was bought out in 1997 by Slavneft-Holding, the company's international division. Upon receipt, the $6 million loan was funneled to Slavneft's Yaroslavl refinery as prepayment for fuel that was never delivered.

Contrary to an earlier statement by Slavneft, Slavneft vice president Andrei Shtorkh said Thursday that Slavneft-Holding acquired Uni-Baltic in 1997 and sold it two years later. Thus, Uni-Baltic was already part of the Slavneft group when it applied for the loan.

Sporting a rumpled haircut and wrinkled maroon shirt, Fomin showed little resemblance to the dark-suited bureaucrat with bags under the eyes as pictured earlier on the pages of the Kommersant newspaper. Even though he declines to call himself a banker, he is now board chairman of Jugra Bank, based in the Khanty-Mansiisk Autonomous Region.

Slavneft, Russia's eighth-largest oil company, has been plagued with controversy since its inception. Four months after the company was registered, in August 1994, its president -- Anatoly Kuzmin -- was gunned down while walking to his Mercedes.

Axel Breitbach, lawyer for Ost-West Handelsbank, said he didn't understand why Slavneft was going to such trouble to avoid the debt payment.

"It's a strange case," Breitbach said by telephone from Frankfurt. "The German courts do not often come across a situation where a company won't pay a guarantee because a different person holds the post of president."

A Frankfurt court froze $2.6 million -- the amount Slavneft guaranteed -- in credits owed to Slavneft by companies in Germany. Slavneft has hired a German lawyer and is appealing the ruling, Breitbach said. The appeals hearing has not yet been scheduled.

Breitbach refused to release the letter's contents and reiterated that its signature belonged to a Slavneft president. When asked which one, he said he didn't recall the name.

In making its case, Slavneft said it shouldn't have to pay for the loan because the process of approving the guarantee was plagued by "crude violations" of the company charter. The board of directors didn't approve the guarantee. The Central Bank did not give permission for any foreign-currency payments to be made. Slavneft's former management was also supposed to deliver supporting documents with the letter. However, only the letter was received.

Ost-West Handelsbank turned to Slavneft in early 2000 after several unsuccessful attempts to get its money back from Uni-Baltic. In response, Slavneft president Mikhail Gutseriyev wrote a letter to the Fuel and Energy Ministry explaining that prompt payment of the debt would violate even more currency restrictions.

Shtorkh said it wasn't a matter of money but of principle.

"There is no legal mechanism that will let us pay this loan, and why should we if the guarantee was signed under illegal and suspicious circumstances?" Shtorkh said. "Why should our shareholders give up the right to an extra $2.6 million in dividends?"

Shtorkh said he found it odd that Fomin had not heard of the scandal -- and his role in it -- until recently.

"I don't know whether he's lying or not," he said. "How could he not know when you know and I know and it's been in all the newspapers?"

Back at his office, Fomin looked up and let out a slow sigh. An antique clock in the corner had stopped at five minutes past 12. New Age music wafted in from the secretary's office. He has seen it all, from the assassination of Slavneft's first president to his own forced resignation.

"The incomprehensibility of this doesn't surprise me," Fomin said. "Nothing does anymore. What it boils down to is stupidity."