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Dirty oil
Who contaminated the petroleum supply in the Druzhba pipeline and caused Russian exports to be unusable for weeks? ‘Meduza’ investigates.
On May 7, a court in the Russian city of Samara ordered four suspects in the contamination of the Druzhba oil pipeline to be jailed for two months. The transport of petroleum through Druzhba for export out of Russia was practically brought to a halt on April 20 due to a large batch that was contaminated with organic chloride compounds. Russia’s losses are estimated at half a billion dollars, and energy companies have been asked to decrease their petroleum production by 10 percent until May 7. The head of Transneft, the state-owned monopoly in charge of the Russian portion of the pipeline, told Vladimir Putin that the contamination was a result of “diversion”: in other words, that a private company in Samara Oblast intentionally transferred contaminated petroleum into the pipeline. Meduza learned that Transneft itself evidently allowed a situation to take shape in which unknown manufacturers have been able to add petroleum to Druzhba by the cistern. Since the end of 2018, one junction in the pipeline system has been entirely uncontrolled because its previous owner was largely bought out by Absolut Bank, which divided the property among multiple nominal owners. Those owners were ultimately the ones who landed in a pretrial detention center in the contamination case.
On April 19, an equipment failure took place at the Mozyr Oil Refinery in Belarus. The refinery’s leadership hypothesized that it was triggered by petroleum containing high levels of dichloroethane. The concentration of dichloroethane in the refinery’s petroleum turned out to be dozens of times higher than industry norms, and it was enough to cause corrosion and equipment breakdowns. Until 2001, dichloroethane was used in Russia during certain oil extraction processes, but it was later banned because of an equipment failure similar to the one at Mozyr. In May of 2012, however, Russian Energy Minister Sergey Shmatko canceled the ban on using organochlorides in oil mining before he was released from his duties that same month.
At certain small extraction points in the Volga region where oil is relatively viscous, dichloroethane is used to wash the barrels of oil wells and increase mining yields. This method requires the wells themselves to be washed with water in order to avoid contaminating the next batch of oil with leftover dichloroethane. There are also procedures that can remove dichloroethane from oil immediately before the oil is fed into a pipeline. Violations of these procedures are meant to be uncovered wherever the petroleum in question is received after mining.
Much of the oil that is mined in Russia ends up in a system controlled by Transneft, the state-owned pipeline operator, after passing through Linear Producer-Dispatcher Stations (LPDSs). In Russian, these structures are also sometimes called petroleum drainage nodes or reception and shipment points. This translation will refer to them primarily as “nodes.” Oil mining companies own pipelines of their own that petroleum passes through directly from wells. After a quality check, the petroleum is sent to a small station or reception point owned by a state company. In Samara Oblast, these points not only receive but also mix (or compound) oil: locally mined petroleum has high sulfur concentrations, and it is added to low-sulfur oil until those levels match established standards for the “Ural” mix that the Druzhba pipeline carries out for export.
Transneft has argued that dichloroethane was added to Russian oil streams at the petroleum draining and compounding node (abbreviated USiKN in Russian) located in the Samara Oblast village of Nikolayevka. The node was already highly unusual. Mikhail Krutikhin, a partner in the consulting company RusEnergy, told Meduza that practically no one in the industry suspected that there were private oil reception points in existence: “Tank farms were privatized, but reception points and drainage points — that definitely didn’t happen. That’s exactly what Transneft is for — it receives oil. How can that be handed over to private groups?” The Nikolayevka node also received oil from multiple small sources rather than a single pipeline from a single mining company. Petroleum was transported to the node in cisterns.
Who built the Nikolayevka node?
The village of Nikolayevka, located in the Volga District of Samara Oblast, joined the map of Russia’s oil infrastructure quite recently. It was built largely thanks to a single individual: Roman Trushev, a Moscow businessman and citizen of Malta. In 2010, Trushev, who had previously owned several small oil trading firms, registered a corporate group called Petroneft in Moscow and listed its primary business activity as “oil extraction.” In 2012, he announced that the village of Nikolayevka would soon become an extremely important infrastructural junction: the entrepreneur intended to build an oil refinery, a railroad station, and an oil reception point in the Transneft system there while getting into oil mining himself and launching his own chain of gas stations.
How a small-time oil trader decided to pursue such grand ambitions remains a mystery, but ther are some clues behind it. For example, a LiveJournal blog listed under the username “compr” includes a letter FSB colonel and former CSKA soccer club owner Mikhail Baryshev supposedly sent Trushev in 2015. In the letter, Baryshev allegedly asks Trushev to pay for one of his vacations. The anonymous blog includes only nine posts, and it is impossible to verify the authenticity of the letter to Trushev. However, Trushev, whom Meduza contacted via WhatsApp, does not deny having a close acquaintanceship with the colonel: “The correspondence isn’t mine, but I knew Baryshev because Petroneft was a sponsor for Yunarmia.” Yunarmia is Russia’s nationwide patriotic youth movement. The organization, which was created on the Russian Defense Minister’s initiative in 2016, has substantial cultural influence. Baryshev curated the movement when he was in charge of CSKA and later on, when he took the lead of the Defense Ministry’s educational arm.
While Yunarmia was being developed in 2016, CSKA’s leadership awarded a medal “for strengthening military fraternity” to Roman Trushev in a special ceremony in the resort city of Sochi. Trushev was lauded “for his excellent results in public service and his investment in developing physical fitness and sports.”
In November of 2018, Baryshev was arrested on suspicion of embezzling multiple millions of rubles. A month later, Trushev lost his petroleum assets in Samara.
What did Trushev build in Samara Oblast?
Roman Trushev did not choose the location for his oil refinery and its pipeline drainage point by chance. Two branches of the Druzhba arterial pipeline intersect nearby, and the Transnefteprodukta pipeline, which is part of the Transneft system, also runs through the area.
In record time — just two years — Samaratransneft-terminal, a daughter company of Petroneft, built three large industrial facilities near that intersection. The first was the oil refinery itself: local news outlets wrote that one line in the refinery would be able to process 250,000 tons of oil, a second would handle two million, and a third would take four million. After the refinery came the Nikolayevka railroad station, which appeared on the Kinel-Bezenchuk line with a transport capacity of 1.5 million tons of petroleum per year.
Third and finally, Trushev built the Samara-Unecha drainage and refinery node across the railroad from the refinery. That node is the transfer point where Transneft said April’s contamination occurred. There are three petroleum storage tanks on the refinery’s territory with trestles for trucks attached, and several pipelines lead from them to a range of facilities, including the Lopatino LPDS 1.86 miles away from Nikolayevka and the Krotovka LPDS about 45 miles away. Both stations are owned by Transneft. Trushev also purchased the land located underneath the pipelines leading away from the node.
A node of confusion
Transneft declined to explain how a private petroleum drainage node feeding into an arterial pipeline could have ended up connected to a state-owned, monopolized system. Nonetheless, Transneft head Nikolai Tokarev did have to give Vladimir Putin a detailed response on that count in April 2019, soon after the equipment failure in Belarus brought the transport of Russian petroleum there to a stop. He explained, “The thing is that these [private] reception points — there are about 150 of them in the country… Most of them belong to major oil companies, and they deal with preparing petroleum for the market and introducing it into the arterial pipeline system themselves. But a substantial portion [of the reception points] are private enterprises that work like this one as aggregators in a whole territory (that is, they gather oil from various sources — Meduza) and, in agreement with Transneft, they control the reception of that oil, certification, quality control, and transfer into the arterial pipeline system.” Tokarev did not specify exactly how many facilities in Russia receive oil in trucks from a range of extraction sources, mix them under their own discretion, and add them to the national Transneft system.
The private reception node at Nikolayevka was built at the same time that Transneft-Privolga, Transneft’s Samara-based daughter company, created a broad technical retooling plan for existing arterial pipelines. Under the framework of that program, new oil compounding stations were built, and the Lopatino and Krotovka stations were reconstructed. Transneft-Privolga declined to comment on those changes.
The node Trushev built received oil that multiple companies transported in trucks from Samara Oblast, as well as northern Ulyanovsk Oblast and southern Orenburg Oblast. That’s according to a press release on the contract for building the node; it was posted on the website of a company called Prospektstroy. The release lists two major energy companies among the Nikolayevka refinery’s suppliers: Gazprom-neft and Tatneft. That list also includes NNK, a small oil company that belongs to former Rosneft head Edward Khudainatov, and a company called Oil Group that is owned by Trushev himself.
Oil Group is currently undergoing bankruptcy procedures. Where the company obtained oil and in what quantities is unclear. Its revenue, according to the business information service Kartoteka.ru, was 6.3 billion rubles (currently $97 million) in 2017. Trushev assured Meduza that Oil Group did not work in oil extraction and only made money by trading in petroleum. Trushev did not specify whether Oil Group bought petroleum from companies within his own holding group or whether it did business on the open market.
How the node lost its owners
Trushev’s business began to collapse in late 2017 when its request to connect its facilities to Transneft’s pipeline system was denied. In 2015, the state-owned monopoly gave the Nikolayevka enterprise permission to transfer a million tons into the pipeline; at that time, the node’s construction was complete, but it was not yet active, and the oil refinery was projected to process four million tons of oil annually. Two years later, Transneft stopped being a reliable partner to Trushev and, for unknown reasons, began acting more like an opponent. It gave various reasons for refusing to allow Samaratransneft-terminal to process three million more tons of oil per year.
At the same time, Absolut Bank began showing interest in the refinery. The bank has ties to the widely used state-owned transport system Russian Railways and its pension fund, Blagosostoyanie. The bank had underwritten Trushev’s company and purchased a substantial portion of its bonds — Samaratransneft-terminal released a total of 14 billion rubles ($215 million) in bonds in six waves. In the summer of 2018, Trushev’s company became unable to make the payments it owed on those bonds, and in November, Absolut Bank filed for bankruptcy proceedings. Samaratransneft-terminal’s stocks had already been transferred to the bank on credit, and after the bankruptcy announcement, Absolut Bank received permission from its board of directors to transfer the stocks to three low-profile entrepreneurs: Andrey Rabkov, Sergey Suslov, and Alexander Solovyov.
The drainage node itself also came into the ownership of companies with ties to Absolut around the same time. In December of 2017, Samaratransneft-terminal sold the node’s property for half a billion rubles (almost $8 million) to the St. Petersburg-based City Innovation and Leasing Company (GILK). That enterprise did nothing to hide its ties to Absolut and Blagosostoyanie: both companies’ logos are included on the “About” page of GILK’s website. The logos were removed after Meduza’s request for comment. As part of the same deal, GILK transferred the node’s property to a company called Nefteperevalka, whose only owner, according to Russia’s registry of legal entities, is named Svetlana Balabai. This Svetlana Balabai does not own any other companies apart from a small partner firm of the Sernovodsky Elevator in the village of Sukhodol, which is located about 100 miles from Nikolayevka. The elevator, like many other similar facilities, was privatized through a distribution of shares among area residents.
The lease by which GILK transferred the property that included Trushev’s drainage node to itself was meant to last until November 2024, but GILK has argued that it was cut off early: the company insisted that Nefteperevalka came to own the node in 2018. To confirm that claim, GILK sent Meduza a form from Absolut Bank, saying it would indicate that the credit underlying the agreement was exhausted on May 15, 2018. However, the document does not prove that fact; it only demonstrates that the bank made credit available to GILK.
A source close to Absolut’s side of the negotiations told Meduza that the property including the problematic node was transferred through a reflexive leasing agreement, meaning that the property was transferred away from the company but was later returned. Only Nefteperevalka participated in the deal because, the source insisted, the company de facto belongs to Roman Trushev (the source emphasized that Absolut has no connection to any of the companies involved). In actuality, according to Fedresurs, the property was purchased from Samaratransneft-terminal and returned to Nefteperevalka.
Yet another Trushev-owned company, Petroneft Aktiv, still has an active agreement with Nefteperevalka. Among other things, the two companies have a property rental agreement Meduza discovered through MSP Bank records. However, in November of 2018, the same month that Nefteperevalka came to own the Nikolayevka node, Petroneft Aktiv got a new owner: it was a limited-responsibility collective called Metapron GmbH that is registered in the German city of Michelstadt. According to that country’s registry of legal entities, the owner of Metapron GmbH is Ilse Rosin, and its CEO is her husband, Eduard Rosin. The latter is also the CEO of a Michelstadt bottling equipment production factory called AllFill. In short, a node draining oil into the Russian state-owned pipeline system ended up not just under private ownership, but under the ownership of foreign citizens.
What happened to Roman Trushev, and who was arrested in his place?
Roman Trushev denies that he is a beneficiary of the company that owns and rents out the property that includes the Nikolayevka node. “Since the end of 2018, I haven’t had any relationship with the Samara assets. I have never been the owner of Nefteperevalka. It has another beneficiary. Metapron GmbH also isn’t my company. I understand these attempts to find the most extreme explanations, and there have always been and will always be rumors. But there’s no trace of me in Samara!”
Trushev told Meduza that he has only left Russia for the May holidays and is not planning to move out of the country. He also suggested “looking into Transneft’s activity.” “For example,” he explained, “you should find out why Transneft didn’t check the oil for organochlorides when it was transferred to the [arterial] pipeline. Even though the regulations say you should check every 10 days. The petroleum doesn’t go straight from the node to the pipeline. First, it goes through a storage tank in Transneft’s oil pumping station, and then it’s compounded, tested for quality, and then Transneft itself puts it in the pipeline — into Druzhba, in this case.”
When asked whether the owners of drainage nodes should perform quality control checks, Trushev wrote, “Of course, all the petroleum deliveries in any node should be mixed and checked for quality. But the responsibility for the oil that goes into arterial pipelines is on Transneft.”
Meduza was unable to examine Transneft’s internal regulations regarding who must perform quality checks for organochlorides and how often they must do so. The identify of the party that controlled the Nikolayevka node after Trushev disappeared is also unknown. “We know Trushev, he put down the cathedral here, even the metropolitan came in,” said a Nikolayevka resident named Grigory, whose contact information was available in a phone book. “We don’t know anyone else from out there. They [the oil refinery and the drainage node] are two kilometers away from Nikolayevka, and they’re closed off, they don’t let people in there.”
On May 7, Russia’s Investigative Committee announced that it was investigating a case related to oil contamination in the Druzhba line. The case is based on three criminal statutes: one on making an arterial oil pipeline unfit for use for self-serving purposes through preplanned collusion (Article 215.3), another on organizing and participating in a criminal group (Article 210), and a third on theft (Article 158). The Investigative Committee suspects that a criminal group stole a quantity of oil worth at least a million rubles ($15,380) and poured organochloride-contaminated oil into the Nikolayevka node to cover up the theft.
On the day of the Investigative Committee’s announcement, a district court in Samara ordered four suspects in the Druzhba contamination case to be jailed for two months while they await trial. The four suspects do not include a single one of the central figures mentioned in this report, but they do include individuals the actual dealmakers call “nominal figures.” They are Nefteperevalka CEO Svetlana Balabai and her deputy, Petroneft Aktiv head manager Vladimir Zhogolev, and Sergey Balandin, the deputy leader of the Samara-based transport company Magistral. Two other suspects are currently wanted; their names have not been released.
Translation by Hilah Kohen