ROMANIA: An oil fortune bound in red
tape
by Terence O'Hara, Washington Post
August 16th, 2005
G. Philip Stephenson does not cut the figure of an
Eastern European oil baron, clashing with formerly communist security officials
over the legality of his budding empire.
Stephenson is a talkative, Texas-bred lawyer and
former U.S. Treasury official who in the past four years has tried, with some
success, to create a personal fortune from the privatization of Romania's oil
industry. But his success has drawn the attention of Romanian prosecutors and
demonstrated the potential and pitfalls of private investment in developing
economies in Eastern Europe.
Last year, he and Dinu Patriciu, his Romanian
partner in Rompetrol Group NV, that country's second-largest oil company, became
the targets of a criminal investigation in Bucharest. Patriciu has spent a day
in jail, and Stephenson has been publicly identified as a target of the
investigation.
The story of how Stephenson became a target of
Romanian anti-corruption officials began in Washington 13 years ago. The mixing
of politics and money in the 1990s gave rise to a number of private investment
partnerships here -- Carlyle Group being the most prominent -- that helped
change Washington careers and fortunes.
Stephenson, a native of Houston and a Harvard law
graduate, moved to Washington in the late 1980s to work as a corporate lawyer
for the Republican-connected law firm Baker Botts LLP. When George H.W. Bush was
elected president, he spent 18 months at the Treasury Department's Office of
International Affairs. That job gave Stephenson a close look at the rapidly
evolving economies of Eastern Europe. When Bush was voted out of office,
Stephenson did what many political appointees in Washington did in the 1990s: He
used his Washington contacts and experience to launch a private equity
fund.
He raised money from friends and associates --
including Carlyle Group's Edward J. Mathias; Ed Rogers, a White House official
in the senior Bush's administration; former U.S. ambassador to Germany Richard
R. Burt; and several large institutional investors. Rogers's and Burt's
Republican lobbying firm, Barbour Griffith & Rogers LLC, is working for
Rompetrol.
The result was International Equity Partners LP, a
private equity fund to buy private companies in India and Romania. By 1998, he
had raised $20 million to invest in Romania and Moldova. In 1997, Burt
introduced Stephenson to Patriciu, a former member of the Romanian parliament
who had begun investing in Romanian privatization efforts. Patriciu became a
partner in the fund. After the collapse of the communist regime in Romania in
1989, the economy and government began a fitful and sometimes chaotic process of
privatization of state-owned industries.
"It was blood-in-the-streets time," Stephenson said
of the mid-1990s. "But there was opportunity everywhere if you could stomach
it."
Mathias, who has no business relationship with
Stephenson now, remembers him as "very smart, very enterprising and very willing
to take on risk."
Prosecutors in Romania allege Stephenson and
Patriciu evaded taxes and illegally profited from the privatization of
Rompetrol. No charges have been filed. Patriciu and Stephenson say the
investigation is a sham, triggered by their refusal to buy refineries owned by
well-connected Romanian businessmen. The controversy has drawn the attention of
officials considering whether to admit Romania into the European Union pact and
has drawn statements of concern from the U.S. State Department.
Last month, Stephenson, deputy chief executive and
20 percent owner of Rompetrol, was in Washington visiting old friends in
government and out. In those conversations and in meetings with reporters, he is
trying to draw international attention to his situation, thereby persuading
Romanian prosecutors to, as he puts it, "do the right thing and finish up this
trumped-up investigation."
"We want a fair, open, transparent and expeditious
process," said Rompetrol's attorney, Obie L. Moore, a Bucharest-based lawyer for
the international firm Salans. "Otherwise, if we don't, Romanian reality could
drastically change."
Disturbing turn
For Stephenson, the case took a disturbing turn in
May when his partner, Rompetrol chief executive and 80 percent owner Patriciu,
was arrested and taken into custody for 24 hours before a court denied a
prosecutor's request to detain him for 30 days. News of the arrest hammered the
stock of Rompetrol's main publicly traded subsidiary. It has since
recovered.
"Virtually all of my personal wealth is tied up in
this company," Stephenson said. He estimated his stake in Rompetrol at about
$100 million on paper. "The stakes for me in this are just about
everything."
Rompetrol was privatized in 1993, and Patriciu
bought control of it in 1998. Stephenson's Romania fund bought a minority stake
for $3 million in 2000, the last of three investments made by the fund.
Stephenson left his private equity fund in 2001 to join Rompetrol full time. He
moved to Romania in December of that year.
In 2002, International Equity Partners sold its
stake in Rompetrol to a European investor -- for a profit, Stephenson said.
Patriciu and Stephenson bought 100 percent control of Rompetrol's holding
company late last year.
Rompetrol in 1999 began buying Romania's
state-owned oil-mining and -refining assets, using cash from its existing
business, foreign equity investments and borrowing. In 2001, it bought the
government's stake in Romania's largest oil refinery, Petromidia, for about $50
million. Petromidia drove much of the company's subsequent financial success:
The company revamped operations at the refinery and invested significantly in
its expansion. By last year, Rompetrol had $1.1 billion in revenue and was
profitable. It began trading publicly in April 2004 with a market value of about
$500 million. By the end of this year, it will have 300 filling stations in
Romania.
But the Petromidia deal's success drew the
attention of the government. Government officials say Rompetrol did not live up
to its commitments when it bought the Petromidia refinery and did not pay all
the taxes it owed, in effect ripping off the Romanian government.
In a recent interview, Stephenson chalked up the
criminal investigation to private competitors -- "the Romanian oil mafia," in
his words -- who wanted Rompetrol to buy their companies at inflated prices.
"They threatened to ruin us by releasing damaging information to the
government," he said. One of his competitors also owns a Bucharest newspaper
that has kept up a steady stream of stories accusing Rompetrol of illegality, he
said.
He cited an official finding by Romania's ministry
of privatization that Rompetrol is in compliance with its privatization
agreement for Petromidia. Stephenson said that by accusing the company of
failing to pay taxes, prosecutors are seeking to criminalize a contract dispute
that has largely been resolved. "It's as if they are saying, 'Thanks for fixing
our broken refinery and putting in all that money and technology and sweat for
four years, but now that it is a moneymaker, we would like it back,' " he
said.
Rompetrol is also getting support from other
foreign investors in Romania. And in June the U.S. State Department asked the
Romanian government "to observe due process, to be open and objective" in its
handling of the Rompetrol case. Rompetrol last month filed a grievance against
the government, claiming that its conduct violated a treaty between Romania and
the Netherlands, where Rompetrol is incorporated. If a settlement can't be
reached in 90 days, Rompetrol has the right to demand World Bank
arbitration.
Romanian Embassy officials in Washington and the
Ministry of Justice in Bucharest did not respond to phone calls and
e-mails.
In June, Romanian President Traian Basescu, who
campaigned on a strong anti-corruption platform, criticized foreign pressure to
hold back on the anti-corruption work there, saying such efforts are essential
for Romania to enter the European Union by 2007. "If political parties, business
lobby groups and the media rise against state institutions trying to deal with
major corruption, thus hindering lawful actions of these institutions, then E.U.
integration will certainly remain just a dream," he said, according to press
reports.
Stephenson said Rompetrol's case has some
similarities to that of Yukos, the private Russian oil company that oil
executive Mikhail Khodorkovsky bought on the cheap in the 1990s, only to be
sentenced to nine years in a Russian prison earlier this year. But, he added,
Romania is not like Russia.
"In five years here, I've never been personally
threatened," Stephenson said. "Your opponents may write bad things about you and
convince the government to investigate you, but there's no business killings
there."
He also expressed confidence that he and Rompetrol
will be cleared of any wrongdoing. The company has publicly responded in detail
to all of the government's charges.
"Transparency is our ally," Stephenson
said.
Vali
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