Corruption Inquiry Focuses on Algerian Pipeline
From New York Times
By Stanley Reed and Gaia Piangiani
Italian prosecutors are investigating possible corruption involving a natural gas pipeline project in Algeria by the energy services company Saipem, which is controlled by the Italian oil company Eni.
As the inquiry has heated up, Saipem’s chief executive resigned Wednesday evening, two other Saipem executives were suspended and the chief financial officer of Eni stepped down. None of the executives have been charged with crimes, according to the companies. Eni alluded to the investigation in statements late Wednesday, but provided no details.
But a person close to the investigation said Thursday that prosecutors were focusing on a suspicious payment of $180 million to $200 million in connection with the pipeline project. The person insisted on anonymity because the inquiry is under way.
Saipem, the largest European drilling and engineering contractor for the oil industry, won a $580 million contract to build a 350-kilometer, or 210-mile, pipeline by the state oil company, Sonatrach, in June 2009. The pipeline is known as GK3. It is not yet clear who paid or received the payment at issue, but the person close to the inquiry said the investigation of the inappropriate payment began in 2009 in Algeria and was taken up the following year by Italian prosecutors.
A Saipem spokesman declined to comment.
In statements late Wednesday, Eni said that Saipem’s chief executive, Pietro Franco Tali, was stepping down.
Eni’s chief financial officer, Alessandro Bernini, who held the same position at Saipem until 2008, also resigned Wednesday, although he “considers that his actions were right and proper,” according to an Eni release.
Eni, which holds nearly 43 percent of Saipem’s shares, wrote in its 2011 annual report that it was asked by the Milan Public Prosecutor in February 2011 to supply documentation “in relation to the crime of alleged international corruption” on the GK3 contract, as well as another gas pipeline project called Galsi. The company said it turned over the documents.
An Eni spokeswoman said Thursday that the company had not been aware “of any further development” in the investigation until being notified on Nov. 22 that Saipem had received “a notice of inquiry” from prosecutors. Eni itself is not a subject of the investigation, she said.
Algeria is known as a difficult place to do business. In 2010 most of the top management at Sonatrach, including the chief executive, Mohamed Meziane, departed amid a corruption investigation by the Algerian government.
Algeria, in the 1960s, was the first Middle Eastern country to develop a gas export industry and continues to supply about 10 percent of Europe’s natural gas imports, according to Leila Benali, an analyst at IHS Cera in Paris. Italy is Algeria’s largest customer, mostly through Eni.
Saipem has been key to helping Sonatrach develop the country’s oil and gas infrastructure, over the years working on Algerian oil and gas projects worth billions of dollars. It had about 2,600 employees in the country in 2010.
Rob Mundy, an analyst at Liberum Capital in London, said in a research note that because of the Algeria situation, Saipem’s “ability to competitively bid on future contracts may be affected.”
Trading in Saipem’s shares was suspended in Milan midday Wednesday before Eni publicly disclosed the problems, after being down 4 percent. They resumed trading on Thursday, ending the day down an additional 6.7 percent in heavy volume.
The investigation is a blow to Eni, which under its chief executive, Paolo Scaroni, is working to establish itself as a premier exploration and production company. Earlier on Wednesday, Eni announced a new natural gas discovery off the coast of Mozambique, where the company has become an early leader in staking a position in that country’s promising gas reserves.
Eni’s stake in Saipem has provided the oil company with a steady source of earnings. On Sept. 30, Saipem reported net profits of €722 million for the first nine months of the year, an increase of nearly 9 percent from the comparable period a year earlier.
Saipem also provides Eni with an in-house source of drilling and engineering services, bolstering bidding efforts on oil and gas projects like the proposed South Stream pipeline that will bring gas from Russia to Southern and Central Europe.
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