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Lebanon and the Adulterated Fuel: How did Sonatrach Impose a Third Partner?

Lyas Hallas
Algerian Journalist
May 14, 2020
The case has escalated and echoed back in Algeria, as the Algerian president Abdelmadjid Tebboune orders the opening of a judicial investigation about the adulterated fuel case between Algeria and Lebanon.

The grounds of disagreement between the branch of the Algerian Petroleum Corporation “Sonatrach” in London and the Lebanese company “BB Energy”, which is responsible for implementing its contract with the Ministry of Energy and Water in Lebanon regarding supplying the Power Stations with fuel, provides us with the insights to identify those responsible in respect of the contract with the “ZR Energy” company, the supplier of the adulterated fuel deliveries and the subject of the judicial investigation initiated by the Public Prosecution in the Mt. Lebanon area.

The case has escalated and echoed back in Algeria; as the Algerian president Abdelmadjid Tebboune ordered to open a judicial investigation about it, and thus we return here to one of the important stations in developing the commercial relation between the “Sonatrach” branch in London and the “BB Energy” company. It also highlights the disagreement between them due to the latter’s insistence on complying with the terms of the contract after the chairman and managing director of “Sonatrach” at the time, maneuvered to impose another contractor that eliminates BB Energy’s exclusivity in implementing the “Sonatrach” contract with the Lebanese state.

Having the dispute settled without resorting to international arbitration as indicated by “BB Energy”, the Algerian party represented at that time by Mohamed Rafiq Damak, director of the Sonatrach branch in London and Abdelmoumen Ould Kaddour, Chairman and Managing Director of Sonatrach, was able to grant another contractor a share within the framework of supplying the Lebanese market with fuel and fuel oil (Mazut).

In fact, Ould Kaddour has intentionally changed the officials in most of the company’s senior positions. In that regard, Mohamed Rafiq Damak, who was serving as the Vice Chairman and Managing Director in charge of Marketing, was appointed to be the head of London branch in October 2017 i.e. 6 months after taking over “Sonatrach”. Once Damak was appointed, he dissolved the commercial relationship linking the London branch called the Sonatrach Petroleum Corporation (SPC) with the Lebanese company, BB Energy, owned by Baha Bassatne. The reason behind that dissolution was the Lebanese company’s refusal to accept the presence of another contractor to implement the contract of supplying the Lebanese market with fuel and fuel oil (Mazut). After back and forth negotiations, the Lebanese company gave in to the fait accompli. Accordingly, another Lebanese company, ZR Energy, owned by Teddy and Raymond Rahme, received a share despite the exclusivity of BB Energy in implementing Sonatrach contract with the Lebanese state that dates back to 2005 and renewed every three years.

We have become aware of two letters, indicating the presence of the dispute that occurred between “Sonatrach” branch in London and “BB Energy”, because of the latter’s insistence on complying with the terms of the contract between them after Ould Kaddour maneuvered to impose “ZR Energy”, as a second supplier and eliminate the exclusivity of the first company in implementing “Sonatrach” contract with the Lebanese state.

“Business as usual”

It should be noted in this context that Muhammad Rafiq Damak asked the British authorities for a work visa that enables him to obtain a permanent residence in the United Kingdom after one year. This is something that does not correspond with his position as a worker in the mother company, who has been seconded to another subsidiary branch. This would allow him to be exempted from registering with the relevant authorities since Sonatrach, the mother company, is not located in the United Kingdom.

As for the Chairman and Managing Director of “Sonatrach”, Abdelmoumen Ould Kaddour, who was appointed in that position in March 2017, he has judicial records, as he has been imprisoned in the BRC case, for 30 months on charges of revealing information considered as state secrets. However, no appeal had been lodged and he was released after 20 months of being imprisoned.

In an email sent by Damak to his Chairman, Ould Kaddour, on November 21, 2017, he wrote: “Pursuant to your instructions to be informed with the ongoing talks with BB Energy, I am notifying you that a meeting was held in our offices, attended by Muhammad Al-Basatany and Tony Shibly from BB Energy and Ravy Ramanatan, Mansour Ayaty and I from the SPC. The meeting went badly due to BB Energy’s intransigence and its insistence to maintain its position concerning implementing the contract with Lebanon completely and exclusively, adding that Sonatrach is obligated to do so. BB Energy representatives showed an arrogant behavior towards us from the beginning of the meeting, which drove me to adjourn the meeting.”

In the same letter, Damak notes that the relations between “BB Energy” and the marketing directorate of the parent company “Sonatrach” were normal: “Mr. Chairman, I would like to direct your attention to the fact that business is still flowing normally between BB Energy and the business marketing directorate (business as usual) and that the latter will provide a shipment of (naphta) in December. Besides, the letters of credit BB Energy opened were confirmed in Gulf Bank Algeria (AGB) instead of the usual External Bank of Algeria (BEA). BB Energy justified doing so by saying that “the mentioned service is so expensive when delivered by the External Bank of Algeria”.

On the other hand, the letter reveals a gap between the structures of Sonatrach. It seems like the marketing directorate of the parent company was unaware of the dispute between the London branch and the Lebanese contractor or that it didn’t agree on the actions of the chairman and managing director who is in charge of the London branch as shown in the last part of the letter: “a meeting will be held including representatives of the marketing directorate (a delegation led by Murad Munawar accompanied by Riyad Bin Smaya and Reda Balamari) and BB Energy within this week in London, not in our offices but in a hotel, as far as we know. Mr. Chairman, I am taking the liberty of keeping you updated”.

“Daraj” contacted BB Energy in London and Beirut, but the latter preferred not to comment on this information for now.

Damak Ignores the Board of Directors and the General Assembly of the company

The London branch is managed by a board of five including the manager Mohammed Rafiq Damak and the vice chairman and managing director of the parent company “Sonatrach” who is in charge of marketing and another two managers from the parent company. As well as the General Assembly led by the manager of the holding company “Sonatrach International Corporation” (SIHC), which is one of the seven holding companies that manage 154 branches and shares owned by Sonatrach. The Board of Directors and the General Assembly represent the guardian authority over the London branch, and the branch manager shall refer to them regarding matters of management and shall bring to them any disputes with the company’s clients and mediators. Mohammed Rafiq Damak did not do so, instead, he directly contacted the chairman and managing director of the company who is supposed to decide on strategic matters, major projects arbitration, and the investment budget. The chairman and managing director’s interference in such minor issues seemed suspicious.

The letter reveals a gap between the structures of Sonatrach, it seems like the marketing directorate of the parent company was unaware of the dispute between the London branch and the Lebanese contractor.

For the record, the verdict announced regarding Ould Kaddour in the Brown & Root Condor (BRC) company case, which connects Sonatrach to KBR, the British subsidiary of the giant American oil company “Halliburton” that was managed by Ould Kaddour, overshadowed the violations recorded by the General Inspectorate of Finance (IGF) in 2007. The name of Naseem, “Kaddour’s son” was mentioned in the Panama Papers which was tackled in a feature article published by “Daraj” about the suspicious movements of his money through Lebanese banks (https://daraj.com/6561/).

Lebanon is not an important market for “Sonatrach”, nor for its London branch, which owns 6 ships dedicated to the transportation of fuels and markets for what’s worth billions of dollars annually. The annual profits generated from the contract with Lebanon, which range between 5 to 7 million dollars a year, still represent a minor part of the total profits, even after the decline in the branch activity over the past few years. It is with noting that the London branch achieved a turnover of two billion dollars in 2018 as well as profits of 32 million dollars, which is half of what the branch achieved in 2014 when it marketed for what’s worth 5 billion dollars and received interest of 80 million dollars.

According to a source from “Sonatrach”, who refused to be named, the company had previously prepared itself by requesting the services of the Parisian law firm owned by “Benoit Le Bars” in case the Lebanese company “BB Energy” sought international arbitrage. The dispute lasted 6 months because Ould Kaddour wanted to grant shares for the Lebanese company “ZR Energy” and another company named “Euronova Energy”.

“BB Energy” Bend to Ould Kaddour’s Management

That was before reaching an agreement between “Sonatrach” and “BB Energy,” on continuing their work together, after Ould Kaddour added its name to the blacklist which includes the companies that the Algerian company does not deal with. In other words, “Sonatrach” suspended dealing with “BB Energy,” to force it to relinquish its exclusivity in supplying the Lebanese market and accept dealing with different contractors, which leaves it with only two choices; either resorting to international arbitration and losing the business relationship with “Sonatrach” along with all of its profits, or waiving shares to another contractor and continuing their work. Eventually, they acquiesced to the latter choice.

Mohammed Rafiq Damak sent another e-mail, on April 11, 2018, to his manager, Ould Kaddour, this time adding in the Carbon Copy (CC) Omar Maaliu―the marketing director of the parent company―asking to remove “BB Energy” from the blacklist: “Mr. Chairman,  after the previous email, and according to the settlement agreement we signed,  I would like to request your approval, via this e-mail, to get “BB Energy” off the blacklist and to restore the business relations with it immediately, unless you have another opinion.”

The contract that binds “Sonatrach” to the Ministry of Energy and Water in Lebanon since 2005, requires providing the Electricity Of Lebanon (the Lebanese electric power company) with 1.2 million tons of fuel yearly, in addition to providing the Lebanese market with 600,000 tons of mazut annually. To execute this contract, “Sonatrach” approved “BB Energy” as an intermediary, according to a contract that required branding its shipments―acquired in the international market―in the name of the Algerian company for $3.5 per metric ton, while it benefits from a profit margin of $25. In other words, Sonatrach was a front for the activity of this intermediary―in Lebanon―which benefited from this exclusive contract, for years, before Ould Kaddour imposed ZR Energy Company.

It is worth noting that Ould Kaddour didn’t impose ZR Energy only as an intermediary contractor to deal with, through the company’s branch in London which initiated new business relationships with several intermediaries, as per his suggestion, including one with the Turkish company “Bayegan.”

  The contract with the Lebanese state was renewed in December 2018, thus, the London branch of “Sonatrach” kept dealing with “BB Energy,” and began to work with “ZR Energy,” until the issue of adulterated fuel erupted, after examining a shipment supplied by this new contractor last March, following which the Public Prosecutor’s Office―in Mount Lebanon―opened a judicial investigation that is still underway. Moreover, the Algerian President―Abdelmadjid Tebboune―ordered the Minister of Justice, Belkacem Zeghmati, to open a judicial investigation. The official spokesman of the Presidency of the Algerian Republic, Mohand Oussaïd Belaïd (Belaïd Mohand Oussaïd), said―in a press conference held yesterday―that the case primarily affects Lebanon and that “Algeria, as a country, is not involved. However, some individuals may be involved, and justice will take its course and reveal the truth.”

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