UNDERCOVER DEAL

The Spy Who Loved Power

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Warsaw seeing some Cold War-style tactics.
  • Why it matters

    Why it matters

    The German utility already faced resistance in taking over a well-regarded Polish firm. Some critics called it a new capitulation to Germans, six decades after World War II.

  • Facts

    Facts

    • Stoen, the former state-run utility based in Warsaw, supplied electricity to private households and companies in the Polish capital.
    • In obtaining a majority stake in Stoen, RWE triumphed in 2002 against well-known competitors like Electricité de France and Electrabel of Belgium.
    • The purchase price is said to have been around €400 million, or about $428 million.
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    Audio

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The man that RWE hired a decade ago had a controversial background. In the 1970s and 1980s Gromoslaw Czempinski spied for the Polish secret service in the West. And then in the 1990s he was head of his country’s intelligence services.

In 2002, after switching to the private sector, Mr. Czempinski and his consulting firm went to work for Essen-based RWE. His mission was to help secure one of the crown jewels in the privatization of Poland’s state-run power industry.

The former top spy’s efforts paid off:  RWE beat competitors and took control of Stoen, the utility based in the Polish capital, Warsaw.

Now, 13 years later, RWE’s bizarre relationship with the former spy and consultant could become a major problem for the German utility. Mr. Czempinski and four others are the target of an investigation by Polish prosecutors into alleged corruption and money-laundering when RWE bought Stoen.

According to accusations made in “The Incorruptibles,” RWE succeeded in part because at least €1.4 million in bribes was sent to Poland, to be distributed by the former master spy’s consulting firm, The Quest Group.

In response to questions from Handelsblatt, officials with the prosecutor’s office in Kattovitz say they have pursued the case for several years and hope to close their investigation in the second half of 2015.

Prosecutors accuse the defendants of “giving and receiving financial advantages” in connection with privatization of the former state-run utility. Among those accused is a former adviser to the finance minister  at the time, Vieslav Kaczmarek.

Mr. Czempinski declined to comment on the accusations. RWE has confirmed a business relationship with the former spy and his company, but stresses that neither RWE nor its employees have been accused of wrongdoing.

According to sources familiar with the investigation, Polish authorities plan to pass case files on to Germany when their investigation is complete. They hope German authorities will then investigate.

Whether that happens or not, the case in Poland is a big problem for RWE. After taking over Stoen, the utility encountered resistance in Poland. But the German parent company was able to overcome that and establish itself in Warsaw as RWE Polska, a modern utility with 900,000 customers.

The Polish subsidiary is not the biggest in RWE’s empire, but one that the troubled energy company can rely on. With revenues of about €600 million, it generated profits of €80 million in the last business year.

Polish investigative journalist, Piotr Nisztor, and former investigator, Vojciech Dudzinski, have detailed the current case in a recent book. “The Incorruptibles” (or “Nie Tykalnie”) describes the tricks, fraud and bribery involved in privatizing state-run Polish industries, according to the authors. One chapter is devoted to Stoen.

It is undisputed that privatization of the utility, which began in October 2001, took a surprising turn by the time it was completed one year later. Initially, only 25 percent of shares were supposed to be sold, but RWE ended up with 85 percent. The finance minister, Mr. Kaczmarek, changed the rules retroactively in April 2002 – when the process was far advanced and some bidders had already backed out.

That is just one of several irregularities scathingly criticized by Poland‘s supreme audit office. Handelsblatt obtained a copy of the auditors’ report, which concluded that the privatization was “not fit for purpose” and the sale of stock “invalid.”

But the report had no consequences for RWE.  The transaction was not reversed, and the German utility was able to hang on to its subsidiary.

The Germans had triumphed against well-known competitors like Electricité de France and Electrabel from Belgium who, like RWE, had been attracted by the outstanding growth potential. After all, the company supplies not only private households in the Polish capital, but also the headquarters of many companies. The purchase price is said to have been around €400 million, or about $428 million.

At the center of the investigation is an awkward question: What conditions led to the German company being allocated a majority stake?

 

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According to accusations made in “The Incorruptibles,” RWE succeeded in part because at least €1.4 million in bribes was sent to Poland, to be distributed by the former master spy’s consulting firm, The Quest Group.

The book’s authors, Mr. Nisztor and Mr. Dudzinski, write that RWE paid half of the total in an advance into The Quest Group’s account, and that the other half was paid by an investment bank working for RWE.

According to the two authors, a slush fund was also created and that RWE employees received money from it.

The authors say money for the fund came from trickery in connection with the selling price, which they say was reduced at short notice – a difference equivalent to about €9 million today.

RWE then went ahead and took out a bank loan for the full amount and declared the difference as financing for consulting services, according to the book.

RWE officials denied any knowledge of such a fund, but said they will look into the accusation.  The company declined to comment on other charges in the book.  A spokesman said RWE was conducting an “external legal audit and  evaluation,” but it could not be completed until the company was given access to files in Poland.

The public prosecutor’s office in Kattovitz also declined to comment on accusations in the book.

RWE sees no problem in having hired Mr. Czempinski and The Quest Group. In the course of transactions it was both “usual and necessary to engage external consultants,” said the company.

Mr. Czempinski is well-known in Poland and a colorful personality. The general was influential in the Polish Socialist People’s Republic, and the United States was one of the countries where he worked as an agent for the Polish secret service.

After the Eastern bloc fell in 1989, Mr. Czempinski was rehabilitated in Poland in agreement with the United States. He showed his gratitude a year later when he helped smuggle six U.S. spies out of Iraq, using Polish passports and important documents.

From 1993 to 1996 the general headed up Poland’s intelligence service, then he started to market his talents as a consultant on the free market.

Mr. Czempinski and the four other defendants face prison terms of up to 15 years, according to prosecutors in Kattovitz. The offenses are not subject to a statute of limitations in Poland. Should investigators pass the case on to Germany, however, the statute of limitations usually applies to corruption charges after five years.

Polish prosecutors say they have already enlisted “legal assistance” from  Germany.  Prosecutors in Essen confirmed they received a request for assistance from Poland last year.

RWE officials also say the utility is assisting the case “constructively.” They said the  company had passed on “relevant documents” to authorities and that former and current employees had been summoned as witnesses.

On Thursday this week, RWE chief Peter Terium can expect uncomfortable questions regarding the Stoen case at the company’s annual general meeting in Essen. A group of shareholders has announced it will ask critical questions about the Polish market – and will gratefully seize on the latest developments.

Any public trial in Poland would stoke up old resentments.

When RWE took over Stoen at the end of 2002, there were emotional reactions. Nearly six decades after the end of World War II, a German utility was taking over the most lucrative gem in Poland’s energy industry.

In the Polish parliament, nationalists and populists raged that this was “the second capitulation to the Germans.” One member was so beside himself that he took possession of the speaker’s desk – and it took 20 hours before security staff could remove him.

Now, a decade later, a trial about corruption and money-laundering would be tantamount to image catastrophe for RWE in Poland.

 

Handelsblatt’s Jürgen Flauger writes about energy. To contact the author: flauger@handelsblatt.com

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