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The secret scheme to skim millions off central Asia’s pipeline megaproject



A Gazprom director profited from a secret scheme linked to the construction of a multibillion-dollar gas pipeline between central Asia and China, according to documents seen by the Financial Times.

The documents indicate that staff and consultants working for Timur Kulibayev designed a scheme for the Kazakh billionaire to receive at least tens of millions of dollars from contracts related to the vast project. 

Mr Kulibayev, a billionaire who has served on the Russian energy giant’s board since 2011, is the son-in-law of the former Kazakh president and has wide-ranging business interests, from banking to mining and real estate. As one of the most powerful officials in the country, he oversaw the state companies that awarded contracts to build the pipelines across Kazakhstan.

Emails sent between 2008 and 2014 and leaked by a whistleblower contain detailed descriptions of a set-up that it appears would allow Mr Kulibayev to receive a share of the profits from pipeline contracts granted to ETK, a company owned by Russian businessman Alexander Karmanov.

Under the scheme, ETK would buy pipes from plants in Ukraine and Russia. But first it would sell those same plants the steel to make the pipes — at a huge mark-up from the price it had paid for the metal.

Contracts seen by the FT show that an ETK company in Singapore agreed to buy steel produced by Jiangsu Shagang group of China at $935 a tonne and to sell steel to the Russian pipeline manufacturer TMK for $1,500 a tonne. TMK’s contract envisages a total outlay of “approximately $200m”, which equates to a gross profit of $75m for ETK.

However, the documents seen by the FT suggest that most of that money was not destined for Mr Karmanov’s company but for Mr Kulibayev.

They reveal details of a corporate structure designed to channel the profits from the steel mark-up through companies in Singapore and the United Arab Emirates and ultimately to Mr Kulibayev himself. Emails and a PowerPoint presentation indicate Mr Kulibayev was to receive 70 per cent of the profits, a cut that would have made him $53m from this one transaction alone.

In one email, a consultant sent bills to Mr Kulibayev’s company for completing the work to set up the scheme.

The emails appear to show that, to make sure that this arrangement could not be changed without his agreement, Mr Kulibayev’s staff proposed that a nominee of his be granted a stake in ETK that would confer control over company decisions.

In October 2012, an employee at ETK emailed Mr Kulibayev’s representatives to say that Mr Karmanov had personally agreed to the proposal. Emails among Mr Kulibayev’s advisers reveal the name of the nominee as Murat Balapanov, a Kazakh businessman.

Russian corporate records show that on December 21 2012, Mr Balapanov’s name was recorded in public filings as a new shareholder in ETK. His share was 0.00001 per cent of ETK’s equity. He was also named president of the company. Mr Balapanov could not be reached for comment. 

Mr Kulibayev’s lawyers said that he “has never had any interest or stake in any ETK entity, directly, indirectly or via any kind of nominee arrangement or similar scheme”. They added that Mr Balapanov had not acted as Mr Kulibayev’s nominee and claimed that Mr Balapanov had never held a stake in ETK, despite public records showing that he has.

In response to questions from the FT about the apparent scheme to divert contract profits described in the leaked emails, Mr Kulibayev’s lawyers said he “has never been involved in any of the activities described”. They said the suggestion that “70 per cent of various profits were funnelled back to an entity of our client’s based in Singapore is false”. 

In correspondence with the FT, his lawyers also claimed he was the target of a disinformation campaign. However, the emails that outline the pipeline scheme come from a substantial cache leaked by a whistleblower. They contain multiple documents that corroborate one another and are further supported by corporate records from Russia, Singapore and the UK. The FT is publishing a selection of the documents.

A pipeline of opportunities

President Nursultan Nazarbayev of Kazakhstan, right, and Hu Jintao, his Chinese counterpart, in Astana in 2007, when the pipelines project was announced © AFP

The Asia Gas Pipeline project was part of a grand undertaking that accelerated a shift of economic power from west to east. 

In August 2007, President Nursultan Nazarbayev of Kazakhstan was joined by his Chinese counterpart, Hu Jintao, in the Kazakh capital Astana to announce new pipelines that would carry gas from central Asia, long mostly sold to Europe, to China. 

Built jointly by Kazakhstan and China, these pipelines, all since completed, would stretch more than 3,000km and be funded with Chinese state loans. The first two lines would cost $7.5bn, with a third to follow for some $3bn and a fourth after that.

Among the biggest winners in the bonanza of contracts related to the pipeline was a Russian called Alexander Karmanov. Back in the 1990s, he was the proprietor of the Daydreams strip club, popular with post-communist Moscow’s new rich. Accounts of his career since then provide few clues to how he has progressed to be listed by Forbes as one of Russia’s “king contractors”, those who have benefited most handsomely from government contracts. 

A person who knew Mr Karmanov when they both worked on contracts for Transneft, Russia’s state oil transport group, described him as a “self-made man” but one who “knows a huge number of people in the power structures”. Little information on these connections has emerged, though he has talked about his friendship with Arkady Rotenberg, a fellow “king contractor” who has been targeted for US sanctions on the Kremlin’s inner circle. Mr Karmanov sponsored the St Petersburg judo club founded by Mr Rotenberg, a former sparring partner of Vladimir Putin, who was the club’s honorary president.

President Vladimir Putin with Arkady Rotenberg, right, at the 2013 funeral of a judo trainer in St Petersburg © Getty Images

Despite never having constructed a single factory, Mr Karmanov established himself as one of the dominant figures in a highly lucrative market: supplying the steel pipes for the pipelines that were in high demand during Russia’s energy boom of the 2000s. 

The Asia Gas Pipeline project was a chance for Mr Karmanov to conquer new markets, and conquer he did. Emails seen by the FT contain commercial agreements indicating that between 2008 and 2012 his companies won steel pipe contracts for the project worth at least $370m and perhaps three times that amount. They also won contracts worth at least $1.5bn to trade the oil and gas that Kazakhstan’s pipelines carry. 

The Kazakh power play

A worker alongside a section of the Asia Gas Pipeline near Almaty: the multibillion-dollar energy project carries central Asia supplies to China © Reuters

One man towered over the Kazakh energy industry in which Mr Karmanov prospered. Timur Kulibayev had risen through Kazakhstan’s state energy company, then became first deputy chairman and, in 2011, chairman of the $80bn sovereign wealth fund that oversaw all the state’s business interests, including the Asia Gas Pipeline project. By that time he was already a billionaire in his own right. So was his wife Dinara — daughter of the Kazakh dictator, Mr Nazarbayev.

Mr Kulibayev’s influence expanded beyond Kazakhstan. In addition to his role at Gazprom, the Russian state gas company at the centre of Mr Putin’s power network, his father-in-law was a key ally of the Russian leader. Mr Kulibayev came to western attention when he was revealed as the mystery buyer who in 2007 paid £3m over the list price to buy Sunninghill Park, the royal estate the Queen had given Prince Andrew as a wedding present. He has also faced money-laundering allegations in a Swiss case that was ultimately dropped.

Mr Kulibayev left the Kazakh sovereign wealth fund following an outcry over the massacre of striking oil workers by security forces in December 2011. By then, Mr Karmanov’s ETK group had already won contracts to supply the first two phases of the Asia Gas Pipeline, an ETK planning document attached to one of the leaked emails indicates. Contracts relating to the subsequent phases came ETK’s way in 2012, while Mr Kulibayev was still in his other government post as adviser to his father-in-law. 

ETK and Mr Karmanov did not respond to requests for comment. 

The document trail

Investigative reporter Tom Burgis goes through the cache of documents that describe a secret scheme to divert pipeline contract profits

Separately, emails from another cache, leaked online in 2014, indicate that one of Mr Kulibayev’s private companies may have benefited directly from the pipeline project. A company he owned called Petroleum LLP won a contract to transport 300,000 tonnes of steel for use in making the pipelines, according to a 2011 email from the company’s boss. Petroleum LLP was valued at about $220m shortly afterwards, another email shows.

Mr Kulibayev’s lawyers responded to questions on Petroleum LLP by saying that the company “never received profits, directly or indirectly, from any business” related to the Asia Gas Pipeline. 

Additional reporting by Max Seddon in Moscow 

Family affairs

The details of the secret pipeline scheme have emerged in part because of attempts by one member of Kazakhstan’s most powerful family to reveal corruption that he suspected his relatives of orchestrating.

Aisultan Nazarbayev © Instagram

Aisultan Nazarbayev was the grandson of Nursultan Nazarbayev, Kazakhstan’s ruler since Soviet days who in 2019 passed the presidency to an ally while retaining the title of Leader of the Nation and the chairmanship of the powerful security council. 

Aisultan, who lived between Kazakhstan and London, was a graduate of the British military academy at Sandhurst. He was a promising footballer in his youth, playing a season at the English club Portsmouth. 

His father, Rakhat Aliyev, was found dead in 2015 in an Austrian prison. He was awaiting an extradition decision following an ugly split with his father-in-law, the Kazakh ruler, during which they traded allegations of corruption and ordering the deaths of opponents. Aliyev’s lawyers questioned the official explanation of his death as suicide, as did Aisultan.

Following his father’s death Aisultan turned to drugs and alcohol, for which he was treated in a Russian facility. After an incident in London in 2019 when he fled what he believed to be pursuers sent by his family and assaulted a police officer, he was given a fine and a suspended 12-month jail sentence. He was admitted to The Priory private hospital near London for treatment for addiction, depression and anxiety in January 2020. 

The following month he wrote lengthy accounts on Facebook detailing what he said was corruption from which members of his family profited. He also said that he had sought asylum in the UK, claiming that his family wanted him killed. 

Around this time, Aisultan had an initial discussion with the FT about revealing what he knew. He also had a series of conversations with a Kazakh opposition figure where he described corruption schemes in the oil and gas industry, naming certain members of his own family and Kremlin figures. Some of the details match those in the documents the FT has seen. 

On August 15 2020, he was found dead in Green Park in central London. An autopsy gave the cause of death as cocaine toxicity. A London coroner is preparing to hold an inquest in the new year.

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Emerging Markets

The hat and the pencil: who is Peru’s president in waiting?




With his huge straw hat and giant yellow pencil, Pedro Castillo has emerged from nowhere to become one of the most recognisable figures in Latin American politics in recent weeks, and appears poised to become Peru’s next president.

But beyond the eye-catching photographs of him ploughing fields in the Andes with oxen, stoking the wood fire in his modest mountain dwelling and riding to his local polling station on horseback, Castillo remains a largely unknown quantity.

He gives few interviews, and has declined to speak to the Financial Times. He has never worked in government and until now was best known for leading a teachers’ strike in 2017.

Pedro Castillo guides a plough pulled by cattle on his property in Chugur © Martin Mejia/AP

And yet, results from this month’s presidential election suggest he has secured an epic victory. With just a handful of disputed votes left to count, he leads his rival Keiko Fujimori by 50,000 votes — 50.1 per cent to 49.9. If her claims of electoral fraud are dismissed and the result is confirmed, he will be sworn in on July 28 as one of the most unlikely leaders in Peru’s rich history.

Much of the confusion surrounding Castillo stems from his flip-flopping on policy during the campaign. One minute he was a radical tub-thumper, determined to nationalise companies and rip up Peru’s 1993 constitution; the next he was trying to assuage the country’s terrified elite they had nothing to fear from him. No one knows what to expect.

On the stump, he knows how to fire up a crowd. His simple message — “no more poor people in a rich country” — resonated with millions of downtrodden voters in impoverished villages in the Andes and Amazon basin.

“He’s one of us,” said Edith Vega as she shopped for food in the town of Chota, close to where Castillo was born. “He knows what our problems are, and they’re not only the problems of Chota — they’re the problems that most Peruvians face.”

In the presidential debates, Castillo was calm and polite but offered little in the way of policy. In his few local media interviews he was sometimes hopelessly out of his depth, particularly when discussing the economy.

Pedro Castillo, right, and rightwing candidate Keiko Fujimori, left, greet before the start of their last debate ahead of the run-off election, in Arequipa © Martin Mejia/AFP via Getty Images

“Pedro Castillo is a disaster when he has to explain his ideas but he’s sensational when he reduces his message to a single phrase: rich against poor, the wealth of those on the coast versus the poverty of those in the Andes, the dispossessed against those who have everything,” said Rodolfo Rojas, a political analyst at Sequoia, a consultancy in Lima.

“He’s a teacher who had a poor education himself and it shows. To give one example, he’s had problems explaining the difference between the national budget and gross domestic product.”

Castillo was born in 1969 in the tiny hamlet of Puña in the northern Andean region of Cajamarca, by some measures the poorest in the country.

“I’m from a neighbouring area and I know something of the hardships there,” said Modesto Montoya, a Peruvian scientist and part of Castillo’s team of advisers. “In my town I knew children like Pedro who walked for hours to get to school. When they came into contact with the cities it made them aware of the injustices and inequality of opportunities that still exist in Peru. That’s what led Pedro to want to change the country.”

The third of nine children, Castillo went to a local school, helped his parents tend their crops, trained as a teacher and married his childhood sweetheart, with whom he has two children. He taught in a rural primary school.

Pedro Castillo waves to supporters after casting his vote on June 6 in his home region © Ernesto Benavides/AFP via Getty Images

He became a rondero — the peasant nightwatchmen who, in the absence of the state during the dark days of the 1970s and 1980s, formed their own communal protection groups, patrolling the Andes and meting out sometimes brutal justice to those they deemed criminals, including leftist guerrillas from the Maoist Shining Path organisation.

People who know him say that like many mountain villagers he is a social conservative. “It’s deeply ingrained in the Andean culture,” one said, adding that Castillo is unlikely to champion gay rights, women’s liberation or a relaxation of the abortion laws.

His first venture into politics came in 2002 when he stood unsuccessfully for a mayoral post with Perú Posible (Possible Peru), the party of then-president Alejandro Toledo.

Fifteen years later he reappeared, this time at the head of a striking teachers’ union.

Castillo’s poor Andean roots have led some to compare him to Bolivia’s former president Evo Morales, but Montoya says the analogy is misguided. “I see him more as a Pepe Mujica,” he said, referring to Uruguay’s plain-speaking leftist president from a decade ago. “He’s a simple, honest man.”

The problem is knowing what this simple, honest man would do in government. Who would serve in his cabinet and who would advise him? While he flatly denies he is a communist, his party, Free Peru, is headed by a Cuban-trained Marxist ideologue, Vladimir Cerrón. It is unclear who would hold the reins of power.

In March, Castillo gave a local television interview in which he said he wanted “to revive the economy, renegotiate contracts, nationalise Camisea [a gas project], eliminate private pension funds and return money to Peruvian workers”.

He confirmed that as president he would sit down with foreign mining companies to squeeze more money from them, even to the point of driving them from the country.

“I imagine that at the end of the conversation multinationals are going to pack their bags and say ‘you know what? I’m out of here’ and the [Peruvian] people will say ‘that’s fine, you can go because we want companies that come and invest and negotiate with the state’,” Castillo said.

As UK-based consultancy Teneo noted, Castillo would come to power “with a shaky mandate . . . a lack of experience and a tendency to improvise, an uncosted policy programme . . . a weak position in congress and a radical rival to his leadership within his party”.

Like Castillo’s own journey to the polling station in the first round of the election in April, when he paraded through the streets of Cajamarca on a skittish, bucking horse, it promises to be a rough ride.

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Coronavirus latest: Boris Johnson extends lockdown restrictions in England to July 19




New York state has the lowest seven-day average Covid-19 positivity rate at 0.44 per cent, governor Andrew Cuomo said, citing Johns Hopkins University data.

On Sunday, the state health department said 383 new positive cases were identified from 110,437 tests – a rate of just 0.35 per cent.

“We’re beating back Covid-19 across the state and New York has the nation’s lowest seven-day average positivity rate, but it’s going to take more vaccinations to get us across the finish line,” Cuomo said.

The state plans to offer “exciting incentives” for vaccinations, he added.

Cuomo said more than two-thirds of New York adults – 67.2 per cent – now had at least one vaccine dose, and 60 per cent were fully vaccinated.

“I encourage everyone eligible who hasn’t yet been vaccinated to take advantage of a free $20 lottery ticket.”

Scholarships in the State University of New York system and City University of New York were also being offered.

The number of new coronavirus cases tallied in the US has remained near levels not seen since the early days of the pandemic, an encouraging decline that has prompted some states to scale back their daily reporting of Covid-19 trends.

Infections, hospitalisations and deaths related to Covid-19 have dropped sharply since a winter surge, brought down by a vaccination rollout that kicked off in December. 

Overall about 64 per cent of American adults have now received at least one shot, according to the Centers for Disease Control and Prevention.

The US has reported 15,928 infections per day in the week ending June 10, which is down about half in the span of one month and 94 per cent from a January peak of nearly 251,085, based on a Financial Times analysis of figures from Johns Hopkins University.

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Hong Kong-Taiwan spat threatens cross-Strait business




Official representation between Hong Kong and Taiwan is set to end this year as mounting political tensions threaten one of the region’s most important trade and investment relationships.

The number of staff in Taiwan’s representative office in Hong Kong has dwindled over the past two years as the territory has stopped issuing visas, with the documents of those who remain due to expire by the end of November.

Hong Kong also abruptly suspended operations of its representative office in Taipei two weeks ago, ending its official presence there. The stand-off has grown so severe that Taipei has begun making contingency plans for a situation without on-the-ground representation in Hong Kong, two senior Taiwanese government officials said.

The breakdown in relations follows rising military tensions between Taiwan and China and a crackdown by Beijing on pro-democracy groups in Hong Kong that has led some activists in the territory to seek refuge in Taipei.

China claims Taiwan as part of its territory and has threatened to annex it if the island fails to submit to its control indefinitely.

Analysts said that cutting official channels would undermine Hong Kong’s traditional role as a conduit for business and financial exchanges between Taiwan and China. Despite the dispute with Beijing over sovereignty, Taiwanese companies are among the largest foreign investors, employers and exporters in mainland China.

Taiwan air force personnel during the visit by President Tsai Ing-Wen
Military tensions between China and Taiwan have escalated, but investment and trade across the Taiwan Strait remains important to both countries © Ritchie B Tongo/EPA-EFE/Shutterstock

A significant part of trade across the Taiwan Strait trade goes through Hong Kong, and many Taiwanese investors in China also use Hong Kong for financial, taxation and legal purposes. Last year, Taiwan was Hong Kong’s second-largest trading partner, while Hong Kong was Taiwan’s fifth-largest, with HK$504bn (US$65bn) in total bilateral trade. Taiwanese companies invested US$912m in Hong Kong in 2020, while Hong Kong-registered companies invested US$555m in Taiwan.

“Hong Kong has been a springboard for Taiwanese companies into mainland China and it has also been a springboard for Chinese [companies] into Taiwan,” said Liu Meng-chun, a research section director at the Chung-Hua Institution for Economic Research, a Taiwanese government-backed think-tank.

Tensions between Hong Kong and Taipei have escalated over the past two years after the territory started demanding Taiwanese diplomats sign documents declaring their country part of China as a precondition for being issued a visa.

After Taipei refused, the number of staff at its office in Hong Kong began to dwindle, from 20 to eight today, according to the Mainland Affairs Council, Taiwan’s cabinet level China policy body.

Hong Kong, meanwhile, said it was temporarily closing its Taipei office because “Taiwan’s series of actions in recent years has severely damaged Hong Kong-Taiwan relations”.

A Hong Kong government official suggested the suspension came on instructions from Beijing.

“I think Beijing is of the opinion that [Taiwan’s representative office] affects national security,” said Sung Yun-wing, an economics professor at the Chinese University of Hong Kong, who is also a member of a semi-official think-tank, the Chinese Association of Hong Kong and Macao Studies, in Beijing.

“There have been reports that Taiwan has been encouraging the protest movement in Hong Kong, which has turned violent, so the protest movement is not only against the Hong Kong government but also Beijing,” said Sung. He added China was also concerned Taiwan was “sheltering” Hong Kong protesters.

While Taipei has been careful to avoid being seen as making it too easy for Hong Kong dissidents to flee to Taiwan, civil society groups in the country have supported the protest movement with advice, money and logistics. “This is something we cannot interfere with as they have done nothing illegal,” said a senior Taiwanese China policy official.

Historically, Hong Kong’s most important economic role in the Taiwan-China trade has been as a sea and air trans-shipment hub for Taiwanese companies to supply their factories in southern China with components.

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While analysts suggested that much of this commerce could continue even if official ties between Taiwan and Hong Kong were severed, they foresaw a sizeable impact on financial services, tourism and education.

“Hong Kong plays a very important role for Taiwanese private wealth management,” said Patrick Chen, head of Taiwan research at CLSA, the brokerage.

He said many Taiwanese individuals had accounts in Hong Kong, where the local units of Taiwan’s banks offered them offshore investment products not accessible under the island’s stricter regulations.

Liu of the Chung-Hua Institution for Economic Research said many Taiwanese enterprises kept profits from their China operations with their Hong Kong affiliates for tax purposes.

“These things would become a lot more cumbersome without official representation because you would have to start sending documents back and forth for notarisation,” Liu said.

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