Knights of the Table

13. jūnijs, 2010


Vjačeslavs Dombrovskis

Normally, I don't like it when people say that "the facts speak for themselves". However, this is one of those extremely rare instances when they do. Here is a collection of copy&paste passages from the judgment from the British Commercial Court, a case between Antonio Gramsci et al and Recoletos Limited and Others (the identities will become apparent soon).

“…this evidence must, unavoidably, be set out at some length; it provides a fascinating glimpse of corporate and, perhaps to some extent, political rivalry in Latvia in recent years.” [VD: the judge himself seems to be thrilled by this case] I start with the evidence of Mr. Martins Kveps (“Mr. Kveps”), a Latvian lawyer and Chairman of the Supervisory Board of AS Latvijas Naftas Tranzits (“LNT”) and Deputy Chairman of the Supervisory Board of AS Ventbunkers (“Ventbunkers”). Mr. Kveps says that Ventbunkers was, until 2006, the central company in the Ventspils Group. Mr. Kveps acts for four of the five beneficial owners of the Ventspils Group…”

“Mr. Kveps went on to describe the “background and political history” of the Ventspils Group. Geographically and for purposes of trade, Latvia’s location places it between “East” and “West”. Ventspils is the largest ice-free port city of Latvia, after Riga itself. Following independence from the USSR in 1991, the Ventspils port with its developed infrastructure quickly became the most important transit terminal for the transhipment of Russian oil and oil products, potash, coal and other cargoes. But in 1991, the Ventspils port infrastructure was owned by state-controlled companies. Senior managers of these companies, led by Mr. Lembergs, the Mayor of Ventspils since 1988, gradually privatised these “strategic assets”, so forming the Ventspils Group. That Group became not only economically and financially strong but was also, as Mr. Kveps put it, “politically very well connected”.”

“Turning specifically to LSC [Latvian Shipping Company – VD], the announcement that it was to be privatised came in 2002. A confidential agreement was entered into between the Ventspils Group, then led by Mr. Lembergs and the so-called Riga Group, led by a Mr. Andris Skele (” Mr. Skele”), said by Mr. Kveps to be one of the wealthiest individuals in Latvia; he has served two terms as Prime Minister. The agreement provided for joint ownership of the LSC by the Ventspils Group and the Riga Group. For this purpose, two Guernsey companies, Ojay Limited (“Ojay”) and Eastgate Properties Limited (“Eastgate”) were incorporated. They were each 50% owned by Regina Development Limited (“Regina”), owned by members of the Ventspils Group and by Lake Street Investments Limited (“Lake Street”), owned by the Riga Group. The intention was that these two companies would become the controlling shareholders of the LSC after privatisation.”

“However, … the Ventspils Group and/or Mr. Lembergs reneged on this understanding. Instead and as is apparent from the structure chart, Ventspils Nafta acquired a controlling stake in the LSC (a 49.9% shareholding), leaving Ojay and Eastgate with a 27.55% shareholding. As Mr. Kveps does put it, Mr. Skele was “not surprisingly, furious”. Thereafter, the Ventspils Group and the Riga Group made unhappy bedfellows, so to speak, as shareholders in the LSC.

“Against this background, the Ventspils Group wished to buy out the Riga Group’s interest in Ojay and Eastgate, the vehicles through which the Riga Group held its shareholding in the LSC. But, as Mr. Kveps expressed it in his first affidavit, it was necessary to find a purchaser appearing to be independent of the Ventspils Group; otherwise, the combination of the 27.5% and the 49.9% shareholdings would have required the Ventspils Group to bid for the whole of the LSC. …as Mr. Kveps later put it: ” ….the purpose of the Charters was to raise money for the purchase of Ojay….and Eastgate….and it was for the benefit of the Ventspils Group and the LSC to resolve uncertainty within the LSC as to its ownership.” “

“Mr. Kveps went on to say this. …all the relevant companies, including LSC, were controlled “not by the official institutions, such as their respective Management Boards or Supervisory Boards” but by “an informal gathering” of the individuals behind Ventbunkers and LNT called “the Table”. The informal group, or gathering, was comprised of about 12 individuals and included Mr. Lembergs and the other four beneficial owners of the Ventspils Group, whom Mr. Kveps represents. Mr. Lembergs chaired the meetings of the Table, which took decisions on all important matters affecting the Ventspils Group, including LSC. The formal governing bodies of the companies in question would then “merely implement the decisions taken during the Table meetings.”

“Until 2004, Mr. Lembergs was a very powerful man, with effective control of the Table…”

“In or around 2004, tensions developed between Lembergs and the other four beneficial owners of the Ventspils Group, who, as the structure chart reveals, enjoyed majority control (4/7 to 3/7) of their interests in Ventbunkers, LNT, Ventspils Nafta and LSC. A power struggle ensued… there has been what Mr. Kveps calls a “major falling out” between his clients and Mr. Lembergs.”

Here is the link to the whole court judgment.

To conclude, let me provide some more quotes – this time from a confidential agreement between “V” and “S”, that was found by KNAB (anti-corruption agency) in 2007. It was widely understood that “V” represented “Ventspils Group”, and “S” – social-democratic party. My unofficial translation from Latvian.

“2.3. V commits to provide project financing to S of ??? 000 LVL a year…” [ precise amount purged by KNAB – VD]

“3.3.3 [S obliges to] act againts privatization of large enterprises (Latvian Shipping Company, Latvian Railroads, Latvijas Gaze, Latvenergo, Lattelecom) that would involve a strategic investor [i.e. a foreign company – VD]; in these questions S must consult and harmonize its opinion with V” [emphasis added]

“3.3.4 In the privatization process widely use privatization certificates as means of payment”.

Yes, that’s precisely how it works.

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