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.
Saipem “has certainly been an asset in terms of providing stable and growing earnings in recent years, and it does give them access to all the services it covers,” said Iain Pyle, an analyst at Bernstein Research in London.
“In terms of winning access, it is more likely it is a reason why they are involved in projects like South Stream, as Saipem will most likely lay the pipe for that,” Mr. Pyle said.
Eni is scrambling to limit the damage from the Saipem investigation. The company, based in Milan, held an emergency board meeting Wednesday evening. In a statement, Eni said that in recent days it had urged Saipem “to take immediate remedial actions in managing the situation.”
On Wednesday evening, Saipem’s board named the chief operating officer of Eni’s gas and power division, Umberto Vergine, to replace Mr. Tali as Saipem’s chief.
The company also suspended Pietro Varone, chief operating officer of Saipem’s engineering and construction unit, following a notice of inquiry from the prosecutor related to the same investigation. Saipem’s board also ordered an internal audit using external consultants. The person close to the investigation said that so far it was limited to Mr. Varone and another unnamed executive but could spread to other persons.
“Saipem believes that its business activities have been conducted in compliance with applicable, internal procedures” and its code of ethics, the company said, and has offered its full cooperation to the prosecutor’s office. It also stated that its board “does not believe that the investigation will have a material effect on the company’s economic results.”
Although Eni has emphasized that Saipem is independently managed, the two companies are intertwined. During an interview on Nov. 19, Mr. Scaroni said that while the company was divesting other noncore assets, he considered Saipem “a major asset.”
He said that Saipem was “managed at arm’s length” because Eni was only “one of the customers” of the engineering company. He said Saipem was the top candidate to build the portion of the proposed South Stream natural gas pipeline from Russia to Eastern and Western Europe, under the Black Sea.
Eni, along with Gazprom, is a crucial backer of the project.
Stanley Reed reported from London and Gaia Pianigiani from Rome.
Source: New York Times
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