A Central Eastern European story of oil, gas, money and some Russians

Belize-registered Normeston Trading Limited earned 41.3 million euros, partly thanks to a government-assisted gas trade scheme by 2012 in Hungary. Normeston was known to be of Russian background by then. New evidence tie the company to people associated with Russia’s Lukoil at the time.

This article is an edited and translated version of our three former stories on the topic, originally in Hungarian, see:

Ki az a Normeston, és miért érdekes ez egyáltalán?

Mi köze a Mollal mozgó belize-i cégnek az orosz olaj prágai helytartójához?

Így került egy belize-i cég az orosz-magyar energiakereskedelem középpontjába

In this investigation, Hazug Senki looks at the background of a Belize company that became involved in the Russo-Hungarian energy trade to the extent that it became mired up in the MET case, a particularly shady event in recent Hungarian governmental affairs. What we find seems to be a historical oil trading scheme of regional significance run by people with connections to ex-KGB circles, and with consequences in several countries in Central Eastern Europe.

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The dealings in the gas trade business of Mol Energy Trade, or MET Zrt., have been called respectively “one of the most controversial state-related deals in the last 8 years” and “the easiest way to make money in Hungary right now” by various local media in the former years

The scheme, which wouldn’t have been possible without the aid of several arms of the Hungarian state, helped MET to pay immense dividends to its shareholders during the years between 2010-2015. The most attention MET received was accorded to the year 2012, when the dividends paid out to the owners reached upwards of 55 billion Hungarian forints, or about 170 million euros.

After a change in its ownership structure, MET’s shareholders by then included national energy champion Mol, a certain Russian individual, and two businessmen generally considered close to respectively Viktor Orbán, the prime minister of Hungary, and Sándor Csányi, president of OTP bank (which itself is a close business ally of Mol).

The Kremlin’s shadow

MET’s scheme was concocted with the aid of several arms of the Hungarian state, and basically was built upon state-guaranteed access to an abundance of natural gas cheaper than its then-current market price. Even though the access to the cheap gas was not provided by Russians but by decisions of Hungarian state actors, many are convinced in local energy industry and political circles about some sort of “Russian involvement” in the scheme.

Direkt36, a Hungarian investigative site formerly quoted “sources familiar with the oil and gas market” saying that it is practically impossible that MET’s Russian shareholders transacted without the Kremlin’s consent, and a governmental source, who said it was obvious that the Kremlin had a role in the MET deal.

A Russian in Belize

In later analysis, the dividend wonder year of 2012 and the Russian individual amongst the shareholders received the most public attention. Less scrutiny was allotted to Normeston Trading Limited, a former partner of Mol in the MET venture, even though Normeston, in total, have earned more in dividends from MET between 2010-2015 than this Russian individual, Ilya Trubnikov

Belize-registered Normeston became a partner in MET, which was the sole domain of Mol before, during the year 2009. The European Commission, which reviewed Normeston’s involvement under EU merger regulations, has then said in a press release that Normeston was “a private company owned by a Russian individual. Normeston is active in the trading of crude oil and refined oil products”. Later, the CEO of MET also confirmed that “the company had a Russian background”.

Since then, there have been no reliable information whatsoever about who this Russian individual (or possibly, as bearer shares are a staple of Belize company law, individuals) might have been.

Normeston stayed a partner in MET until the year 2012 when it sold its 50 percent ownership stake for an unknown price, initiating the somewhat more complicated ownership structure that was in place by the massive dividend payment for that year later.

Resolution on payment of dividends; excerpt from the minutes of a MET shareholder’s assembly in 2012

However, for the years 2010 and 2011, Normeston has already received or was set to receive a total amount of 11.4 billion forints, or about 38.6 million euros in dividends from MET. The CEO of MET Benjámin Lakatos, in an interview, explained that the point of involving Normeston was that they were hoping, “that through [Normeston], MET could profitably obtain gas”, but in Normeston they “did not get a gas source as a result, and [they] did not have a solid financial backer either”.

Normeston’s stated lack of involvement in MET’s cheap gas access notwithstanding, at least part of the dividends the Belize-registered company earned were made with the help of MET’s government-aided scheme, which was already in place by 2011. 

Normeston, being an indirect owner of the building housing MET’s (and Lukoil’s) headquarters in Budapest until the present day, also point to an amicable parting ways between the former partners. 

Hence, the unknown Russian owner of Normeston profited threefold from MET: it earned tens of millions of euros out of its partnership of Mol, at least a part of which was made with the help of the government-aided gas trading scheme, received an unknown amount of money for its MET stake from Mol’s new partners, and, as a landlord, kept a relationship of trust and a source of revenue stream in MET’s operations.

It can be hardly be in doubt that the exact identities of whatever structures hid behind Normeston warranted the generous opportunities that had gone in its direction — especially, since according to Lakatos, the Belize firm otherwise seems to have been a most useless business partner in the MET venture.

Money troubles in the ‘little Moscow’ in Prague

New information out of the Czech Republic seems to shed some light on the Russian background of Normeston, and also its usage of the funds from the profits of the MET venture.

The Romanenko mansion in Prague. Source: Reporter magazine

In 2018, Czech magazine Reporter published an investigation into a luxury mansion in Prague, that used to be occupied by Dmitry Romanenko — Lukoil’s main man over there — and his wife Yulia (according to Reporter, the documents regarding the property sport the wife’s name, but their sources, who were involved in business dealings connected to the property, usually dealt instead with Dmitry)

The Romanenko mansion, located in Prague’s “little Moscow”, a favored dwelling area of Russian diplomats and businessmen living in the Czech capital, became a lodestone of several legal disputes in the last decade – seemingly stemming from an apparent and sudden lack of funds the married couple had access to.

A source at Reporter, who worked on the story and received information originally dug up by the Czech police who were investigating one of the disputes in connection with the estate, told Hazug Senki that based on this information, during the years 2008-10 some of the expenses related to the Romanenko mansion were paid by a certain Normeston Trading Limited, and also the details of a Cyprus address that came up in relation with this company.

The Cyprus address of the law firm shown on an excerpt from a document filed with the Hungarian company court

The location itself is home to a legal consultancy firm Christodoulos G. Vassiliades & Co. LLC, whose managing director also runs a honorary consulate of Belize under the same address. A review of the records that the Belize-registered Normeston filed at the Hungarian company court also turned up a document mentioning this location, as the business address of a Cyprus advocate attesting to the validity of some other company documents originally issued by Belize authorities.

This chain of evidence makes it most likely that the partner in MET and the company turning up in Prague are the one and the same Normeston, and it also hints at the role of Christodoulos G. Vassiliades & Co., a company seemingly notorious for its dealings with Russia-related clients, in Normeston’s original creation.

Russian oil + Eastern EU politics = national security issues

The probability that Normeston showed up in Prague, spending its cash – which was partly made in Hungary – around Dmitry Romanenko, is highly disturbing given Romanenko’s role as Lukoil’s main man in political events in the Czech Republic. Imre Fazakas, a well-known middlemen in Russo-Hungarian energy deals and the current owner of Normeston has hinted at a regional Lukoil power centre in the Czech Republic in a 2014 interview, stating “Lukoil in Hungary and Slovakia has operated without local leadership for years, managed partly from Prague and partly from Moscow”.

Excerpt from the founding articles of Lukoil Aviation in the Czech Republic

Romanenko, indeed, was involved in some strange dealings in Prague. He was, alongside Czech businessman Martin Nejedly, the head of Lukoil Aviation Czech. s.r.o., a fulcrum of Lukoil’s activities in the country, and a 60-40 partnership between Netherlands-registered Lukoil Aviation B.V., and ENE Investment a.s., a Czech entity of unknown ownership background and run by Nejedly.

Nejedly is known in the Czech Republic as the right-hand man of current president Milos Zeman. Zeman himself has built his popularity on a peculiarly Eastern European brand of pro-Putin, anti-migrant politics that easily lend themselves to comparisons with the public image of Hungary’s Orbán (the two politicians are actually on quite cordial terms).

However, Zeman’s close relationship with his advisor Nejedly, who started his businesss career in the nineties under fairly unknown circumstances in Russia, raise red flags at some. According to a news article by decorated Czech investigative reporter Jaroslav Spurny the US and UK intelligence services consider the attack vector through Nejedly the greatest risk factor of a Russian background posed to the Czech. Karel Randak, former head of the the Czech foreign intelligence service, hinted at the same when speaking to the New York Times, stating “unfortunately in the Czech Republic, some advisers to the president or the prime minister are willing to cooperate with the Russians”.

The history of the now-defunct Czech Lukoil-subsidiary shows that such reservations might not be unfounded. Lukoil Aviation, established in 2007 and co-headed by Romanenko and Nejedly, in only a few years managed to deeply infiltrate Czech aviation infrastructure, as it supplied the Czech ministry for defense and the Czech Airlines in addition to the Prague and Ostrava airports.

The oil company tanks

After a big-money deal with the Czech state had gone sour around 2010, however, Romanenko’s position became less tenable — which can possibly account for his loss access to the Normeston funds around the time. After a highly publicized legal dispute, Lukoil’s Netherlands-based subsidiary had to wire money in the value of some 6.5 million euros to its Czech daughter, ostensibly to protect the well-placed Nejedly.

An excerpt from Lukoil Aviation Czech s.r.o.’s company documents, listing a number of extraordinary monetary contributions by Lukoil’s daughter in the Netherlands

The president’s advisor had formerly promised that in case of a court ruling on the matter Lukoil Aviation was going to pay their tab in full. But there’s no indication that Lukoil’s Nejedly-run partner in the Czech venture, Ene Investment has paid even a penny to help fulfil the claims against Lukoil Aviation s.r.o. after the court ruled in favour of the Czech government.

Though by all appearances, Lukoil — and Normeston — have pulled out of the Czech Republic by at last 2016, the evidence tying Normeston to the dealings over there remains an important piece of the puzzle around the Belize-registered company. In fact, Lukoil’s name seems to pop up in many other places besides Normeston’s: for one, the Russian oil giant’s Budapest offices share a building with MET, with the property owned indirectly by Normeston. Normeston itself — under a new ownership regime — has also acquired the former chain of Lukoil petrol stations in Hungary in latter years

A word from Russia

The new revelations from the Czech Republic and the ever-present name of Lukoil seem to corroborate a story about Normeston’s background that originally appeared in the Russian press years ago, but went unreported on at that time. The possible reason for the story flying below the radar so far might be the unreliability of the original source, news agency Regnum, that (according to Hungarian reports) is considered to be a medium run by elements of a network of old intelligence pals in Russia. However, at least some elements of it can be backed up from independent sources.

Regnum’s story revolves around two key players high up on the Russian energy ladder: Valery Subbotin, then of Lukoil and Mikhail Arustamov, then of Transneft. 

Subbotin, an old Lukoil executive, has been responsible for oil sales at Lukoil, the biggest vertically integrated (basically, having a finger in everything from the wells to the petrol stations) oil firm of Russia.

The KGB connection

Arustamov arrived as part of a new regime at Transneft when a certain Nikolay Tokarev took over the reins at the state-run company. Tokarev reportedly used to be an officer of the KGB earlier (he even worked together with current Russian president Vladimir Putin in East Germany). Before Transneft he was running a small, state-owned oil firm, Zarubezhneft, which was said to be “a peaceful harbour for ex-KGBs” for a long while back then.

Ex-KGB oil executive Nikolay Tokarev, the former boss of Mikhail Arustamov. Source: transneft.ru via OCCRP

When Tokarev took over at Transneft, which is the company responsible for managing Russia’s extensive oil pipeline infrastructure, Arustamov was part of the team he brought over from Zarubezhneft and was named vice president responsible for coordination of oil exports.

The Normeston scheme

According to Regnum, Subbotin and Tokarev concocted a scheme to make some money off smaller Russian oil producers by abusing their positions in the oil export system.

The scheme supposedly worked like this: Lukoil, a huge exporter in its own right and, as of 2015, the biggest source of crude oil for Hungary’s Mol, reserved the full capacities of the Druzhba pipeline system at Transneft for every quarter year starting sometime in 2009.

On this map, showing oil pipeline tracks in Europe, the Druzhba pipeline can be observed in green, originating in Russia and splitting into two branches in Belarus, with the Southern branch, or Druzhba II., servicing Hungary, Slovakia and the Czech Republic

Druzhba, or Friendship, an old, Soviet-era pipeline supplies crude oil from Russia to EU member states Hungary, Slovakia and the Czech Republic reliant on oil imports from the East.

The producers who wanted access to these markets then had to convince the pair to leave some place for their product in the pipeline, the mechanics of which, according to Regnum, happened through Normeston, that supposedly was run by Tokarev and Subbotin. The gist of the story is that these smaller producers sold oil at a discount to Normeston, which could then freely sell the product at market prices along the Druzhba in the EU.

Bashneft, Russian oil and Normeston
Some independent sources seem to corroborate at least some parts of the story. Bashneft, a Russian oil producer without its own refining capacities, has said in its yearly report for 2014 that it has a commitment with Normeston for crude oil sales in the value of up to 4.13 billion US dollars.

 

 

 
 

 
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Részlet a Bashneft 2014-es beszámolójából.

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Excerpt from Bashneft’s yearly report for 2014

Reuters, quoting information from an unnamed source familiar with the matter, reported in 2013 that “[Russian oil producer] Tatneft is shipping to Hungary via (traders) Efremov Kautschuk and Normeston, and Bashneft ships directly to Normeston”. Another source of Reuters has said that Bashneft had signed an agreement with Normeston for deliveries to Slovakia and Hungary at the time.

The latter piece of information is particularly interesting, because Mol, a national champion of Hungary in the energy sector, with significant presence in neighboring countries as well, owns refineries in Hungary and Slovakia both, which hints at a possible contact between Mol and Normeston at the time.

Imre Fazakas, the current owner of Normeston actually confirmed a Mol connection in a former interview in Hungarian weekly Figyelő, stating “Normeston is basically a trader and an important source of crude oil for Mol”. 

Normeston’s role can also be confirmed from a 2016 report by Polish state-run foreign policy research institute OSW, which states that “Tatneft, Bashneft (for deliveries to the MOL refineries in Slovakia and Hungary) and other smaller producers use Normeston”. 

Media in Poland also reported on Normeston’s trading role, adding that sometimes even huge, partly Western players like TNK-BP needed to deal with them.

Driven out from Poland, welcomed in Hungary

Another historical detail can be gleaned from the yearly reports of Bashneft  (which seems to be a major player in the scheme). According to these, up until 2011 the main target countries for Bashnet’s exports were Poland and the Czech Republic, but in the course of a few years the target was switched to Hungary and Slovakia.


 

 

 
 

 
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Részlet a Bashneft 2013-as beszámolójából.

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Excerpt from Bashneft’s yearly report for 2013, detailing then-current target markets.

In Poland, Normeston already found breathing space hard to come by at that time, partly thanks to the formerly quoted reports that shed some light on its operations. In 2012, ex-KGB Transneft head Tokarev had to publicly comment on allegations linking his subordinate Arustamov to several murky intermediaries involved in supplying oil to “Europe”.

Tokarev answered the questions in a peculiarly Russian style. “As soon as I received the inquiry, I immediately summoned Arustamov in the presence of several witnesses; he stated that it was the first time he’d heard of such a thing. In general, I can say with complete authority that it’s all nonsense and attempts to throw mud at Mikhail Arustamov” — he said.

The change in the receiving countries of Bashneft’s oil (at least some of which obviously went through Normeston) around 2011-12 historically also corresponds with the time when Dmitry Romanenko tanked Lukoil Aviation’s business in the Czech Republic, and Normeston earned a massive windfall from its company co-owned with Hungary’s Mol, the only major player in oil refining in Hungary and Slovakia both — which became the new target markets of Bashneft

Epilogue

At this moment, in Hungary, there are several companies with business interests bearing the moniker Normeston. Currently they are, at least on paper, owned by longtime Hungarian energy middleman Imre Fazakas.

Hazug Senki’s questions on the matter were emailed to Normbenz Magyarország Kft., a company belonging to the Fazakas-Normeston group of companies. The answer, signed ‘Normbenz’, was the following: “the quoted article [by the Regnum news agency] signals internal conflicts of interest and has no truth value whatsoever. The extent of the business interests of Mr Fazakas can be accessed through public databases. Normeston Trading Limited functions up to this moment as an organisation registered over to Cyprus.”

According to Reuters, by 2017 at last, Normeston has lost the Bashneft oil.

The key players in Regnum’s story moved away from the positions they held before.

In 2016, former Lukoil vice president Valery Subbotin left for a position at Lukoil’s own trader firm.

Mikhail Arustamov, formerly vice president of Transneft had to leave that position due to a number of public scandals, but at the time he still managed to land an advisory role with his former ex-KGB boss Nikolay Tokarev. According to Regnum, when Arustamov lost his vice presidency at Transneft, Lukoil’s Subbotin came under significant heat to push Arustamov out of the Normeston scheme. This hints at the power structure between the two key players in the story — and also the possibility of even more powerful structures hidden behind the pair.

Still, Mikhail Arustamov seems to have managed to make a soft landing. According to a 2016 piece by the Organized Crime and Corruption Reporting Project, the former Transneft executive had interests in at least two EU countries featuring in this story: companies in the Czech Republic, and an address, suggestive of some title to real estate, on Cyprus.

Márton Sarkadi Nagy

The top picture is a photograph of an attendance sheet of a shareholders’ meeting of the owners of MET in 2009.