Despite harsh EU sanctions, Belarussian oil exports to Estonia reached record levels in 2021. An investigation by Delfi Estonia, Re:Baltica and the Belarusian Investigative Center shines a light on how the trade, initiated by an oligarch nicknamed "Lukashenko's energy wallet", has been set up.
This article has been republished with permission from Re:Baltica.
When the Baltic countries asked the European Union (EU) to introduce harsh sanctions against the circle surrounding self-declared Belarussian president Alexander Lukashenko after a brutal crackdown on people protesting against rigged elections, local transit and port businesses were awash with concerns about how badly they would be hit.
A year later, trade with the Baltics is booming at record levels and Estonia is the main beneficiary. Imports of oil products were up three-fold compared to 2020. In addition, about a third of the Belarussian oil which was previously destined to Latvian ports was now going to Estonia (the value of Latvian imports from Belarus have also risen significantly, but this is down to timber, not oil).
A joint investigation by Re:Baltica, Delfi Estonia and the Belarusian Investigative Center investigation has found two reasons for this. One is the fact that the trade is going through the cluster of companies that appear to be connected to sanctioned Belarussian oligarch Mikalai Varabei (Nikolay Vorobey). The second is a little trick with customs codes which allow the trade to continue uninterrupted.
This has left the Estonian government in a dire situation. On paper, everything looks correct. But the government that has taken a leading role in pushing for strict sanctions, is also allowing the state-owned railway carrier to carry huge amounts of Belarussian oil products.
Deals with sanctioned NNK
The trains that deliver mazut run regularly from Novopolotsk in Belarus to Daugavpils in southeastern Latvia. From there they continue to Riga and northwards to Lugaži next to the twin border towns of Valga-Valka. This is where the trains enter Estonia and dozens of barrels of oil products, carried by the state-owned company Operail, travel onwards to the Port of Muuga close to Tallinn.
Two Belarussian companies have exclusive rights to export oil products from Novopolock. One is state-owned, another, Novaya Neftennaja Kompanija (NNK), is private. Its main shareholder is Mikalai Varabei. The EU describes him as a leading Belarussian businessman with interests in petroleum, coal, banking and other sectors. He is one of the main supporters of the Lukashenko regime in return of tax exemptions and other lucrative privileges. The U.S. calls him "Lukashenko's energy wallet".
NNK was placed under EU sanctions in June 2021 as the block believed the sole purpose of its creation was to bypass earlier sanctions. Its exclusive rights are "an indication of close links to the authorities and the highest level of state privileges. NNK is owned by Interservice, a company belonging to Mikalai Varabei who is one of the leading businessmen benefitting from and supporting the Lukashenko regime. NNK is also reported to be connected to Aliaksei Aleksin, another prominent Belarusian businessman who benefits from the Lukashenko regime," the EU said.
But deals concluded before the EU sanctions decision remain legal and so mazut could keep flowing to Baltics ports until the end of 2021. NNK held two tenders in October 2020 and January 2021 which required the use of these ports as delivery points.
An industry source confirmed mazut produced by Belarusian refineries was exported through the Port of Muuga in Estonia last year. "Buyers of this product under a long-term contract with the NNK are trading companies Tintrade and Coral Energy," the source said.
Tricks with codes
And here the story gets a bit tricky and technical, but bare with us.
The EU banned the trade of oil products with specific commodity codes, but some other – very similar ones – were left out (see more in the Sidebox). Whether to classify a certain type of oil product as code 2710 (sanctioned) or 2707 (unsanctioned) leaves room for creativity.
"The line between diesel fuel, mazut and other mixtures is thin, and the coding of goods is always at the discretion of the person filing the declaration, so there is room for abuse," Vladimir Salnikov from the Center for Macroeconomic Analysis and Short-term Forecasting in Russia said. "It is theoretically possible that mazut (code 2710) is supplied under the guise of aromatic hydrocarbons (code 2707)."
This trick could be one of the reasons why Estonian imports of Belarussian oil products skyrocketed while the volumes in Latvia fell.
The official data indicates the amount of cargo with code 2707 coming from Belarus to Estonia grew from close to zero in November 2020, to around 150,000 tons a month. It has remained at similar levels ever since. With oil prices at record levels, the value of such cargo exceeded half a billion euros in 2021.
Moreover, Estonia is virtually the only EU country to import such fuel oils from Belarus. In some months, Estonia's share of all EU-wide imports reached more than 99 percent.
The Estonian Tax and Customs Board (ETCB) says it implements a 100 percent control on sanctioned commodity codes and goods "with no exceptions".
"All oil products coming from Belarus are under our heightened attention. This means that also products that don't have the sanctioned commodity code are checked," said Piret Tinkus, representative of the ETCB. According to her, customs also takes samples from such shipments and analyzes them in labs. So far no cheating has been found.
The Estonian Ministry of Foreign affairs was surprised to learn from Re:Baltica and Delfi about the country's 95 percent share of EU imports under the 2707 code. Considering that other EU member states wouldn't be affected if the EU were to also sanction this trade, it leaves the door open for Estonia to suggest new restrictions on the EU level or to impose additional national sanctions.
Jüri Seilenthal, director general of the ministry's external economic department, said so far no such suggestions had been thought about.
Enigmatic Baltic duo and Varabei
Alexey Tshulets (62) and his business partner Sergey Pasters have been in the Baltic transit and ports business for almost three decades, but both remain enigmas.
One of the few times that Tshulets appeared in the Estonian press was not because of a business deal, but the fact that he had decided to build a private residence the size of a small concert hall. Even less is known about Pasters. There is no media trace or social media profiles. His old passport in the Latvian business registry identifies him as a citizen of Russia. Data from Malta indicates that he acquired a Maltese passport in the golden visa scheme in 2016.
Tshulets and Pasters control the cluster of companies in Latvia and Estonia which are among the main beneficiaries of the now sanctioned oil trade with Belarus. Moreover, the personalities and companies involved in their business deals which took place exactly in the time the EU and US placed sanctions on Belarus indicate that Tshulets and Pasters were fronting the interests of Varabei.
Restaurateur with a penchant for oil
One of the pieces in the Tshulets – Pasters holding was a terminal in the port of Riga, called B.L.B Baltijas termināls. Oil products are the main cargo coming from Belarus to Riga, although the volume after the introduction of sanctions was halved in 2021. This terminal was a leader in the trade. It was no secret that the Belarussian state (or its rulers) would like to buy it to cut out the middleman and increase their own profit.
When Latvia and Belarus were still on speaking terms and planning to host the world ice hockey championship together, diplomats were planning Alexander Lukashenko's visit to Latvia in the spring of 2020. B.L.B Baltijas termināls was on the list of places he could possibly visit.
In April 2021, the Tshulets – Pasters holding company sold the terminal to the private Belarussian firm Belkaztrans which until December 2020 was owned by Varabei. However, in the Latvian business registry, a Belarussian woman named Lidziya Ushakova appeared as the true beneficiary. She took Belkaztrans over from Varabei exactly a week before the EU included him in the sanctions list and the U.S. included the company in its sanctions list.
Little is known about her, except that she has worked in Varabei's companies before, partnered with another sanctioned oligarch Aleksin in one of his and Varabei's businesses (Neonafta) and co-owns restaurant Brooklyn in Minsk. She did not respond to a request for comment.
Her ownership of the terminal did not last long. In September 2021, it was sold to a Cyprus-registered company owned by an Azerbaijani citizen.
Mysterious Russian (with a lot of money)
In Estonia, the Tshulets – Pasters holding is involved in a cluster of companies that engage in trading or expediting Belarussian oil products.
First, the transit. Company Tintrade, which continued to ship Belarussian oil through the Port of Muuga in 2021, is connected to Tshulets. The proof is in the annual report of another of his companies, NT Marine, which has issued a €3 million loan to "Tintrade". It is listed as dealing with companies that are under the control or the management board or shareholders with notable shares.
Second, the expeditors. One of the big transporters of Belarussian oil products in Estonia is Merktrans AS which expedited 1.8 millions tons in 2021. Aleksandr Kovaljov, the sole board member of Merktrans AS, refused to reveal who was the client owning the cargo, but insisted the product was not under EU sanctions. "It has been coordinated and verified with the customs every time before the transport," he said.
However, it appears that with EU and U.S. sanctions in place, Tshulets is getting rid of the ownership of some of the companies which are trading with Belarus – at least on paper.
On the day the EU introduced another round of sanctions in June 2021, Tshulets' shares in the holding's central enterprise, Baltic Sea Bunkering OU (BSB), were transferred to a Russian citizen Elena Skvortsova (another half is still owned by Pasters). Merktrans is one of the companies BSB owns and Tshulets is still on its advisory board.
Skvortsova got more than just the company's shares. A month later she became the official owner of Tshulets's 1800 square meter seafront mansion in a picturesque suburb of the Estonian capital. Two things stand out about the deal. She did not need a bank loan to buy an estate which is worth millions of euros. On top of that, Tshulets was given a lifelong permit to reside there. This suggests the deal was made in an effort to shield possible claims against Tshulets (he didn't respond to a request for comment).
She is as enigmatic as Tshulets and Pasters are. Her name appeared on the boards of the holding's subsidiaries before. Some ties with Estonia could be presumed from an old court case about a speeding ticket which she was issued in 2009 while driving a Porsche.
Tshulets main cash cow is a company called NT Marine AS which he acquired from BSB as sole owner in 2019.
And almost as if by magic, it went from barely a million-euro annual revenue up to €118 million in a space of the year. Almost all of it came from sales to Belarus. 2020 was even better. Revenue was up to €155 million (of which €29 million came from Ukraine and €125.8 million from "outside the EU".)
The nature of the magic success soon became clear. According to Russian media outlet RBC, in 2019 NT Marine had received a permit to start supplying Russian oil and coal to Ukraine. As there was an embargo to deliver coal straight from Russia to Ukraine, it was traded through Belarus. According to RBC, the company was "in the sphere of interests of the Belarusian oligarch Mikalai Varabei".
Another link between the companies, which are otherwise formally unrelated, is the €10 million loan that NT Marine gave to Belkaztrans (which belonged to Varabei). It is shown in the company's annual report.
NT Marine's 2020 financial statement was so insufficient that the auditors declined to approve it. Among other things, the auditors were startled by the close to €100 million that NT Marine used to buy a Cyprus company Gemenel Investments which is supposedly involved in real estate development in Ukraine. In three projects, in which it has been part by the end of 2020, the investment value has been barely €20 million.
Tshulets acquired the company from a Ukrainian Rada member Vadym Stolar from the Opposition Platform – For Life. The party is a successor to former President Victor Yanukovych's "Party of Regions" and is known for its pro-Russian and eurosceptic attitudes. The current chairman of the party is the oligarch and Leonid Kuchma's former chief of staff Victor Medvechuk. Medvechuk and Varabei, in turn, have close business interests.
"I will not give any comments on this topic," Tshulets said when contacted by Delfi over the phone. Later he confirmed through a text message that he and Varabei know each other, but after the latter was sanctioned they haven't had mutual business deals
SIDEBOX: Digging deeper into customs codes raises even more questions
While the EU sanctions from June 2021, prohibited the import of several categories of oil products from Belarus, a particular group of petrochemical products was left out. The sanctions are applied to products by EU customs codes.
While the import of petroleum and bituminous products falling under customs codes 2710 to 2715 (except 2714) were banned by the EU, a category of products falling under category 2707 was not included in the sanctions list. The latter is identified by a long headline: oils and other products of the distillation of high-temperature coal tar; similar products in which the weight of the aromatic constituents exceeds that of the non-aromatic constituents.
At first sight, there might be legitimate reasons for not including petrochemical products in the 2707 family in the sanctions list. This headline code marks some very specific products that could be presumed for example necessary for industry etc. Products like benzol (benzene); toluol (toluene), xylol (xylenes) or naphthalene and creosote oils and other specific compounds fall under this headline code.
However, as one expert who studied the import volumes of 2707 products from Belarus to Estonia pointed out with amazement – if this substance were for example tolulol, the volume crossing the Estonian border would represent 80 percent of the whole Russian annual market for that particular product.
The only way to find out what exactly was carried to Estonia under the customs code 2707 was to look at the longer codes. The Estonian Statistics Office was able to supply us with eight-digit sub-codes of 2707 import category and the data proved to be revealing.
Longer customs codes could reveal what particular product flows to Estonia. Could it be toluene? Then it would be marked as 2707 30. Could it be benzene? Code 2707 10. Or phenols, 2707 9980?
Official statistics revealed that it was none of the above. The eight-digit code that represents the whole imports from Belarus to Estonia in this customs code category is marked 2707 9999, which is labeled pure and simple as "other" product in this class.
After EU sanctions took effect, the imports of oil products in the banned categories dried up quickly. Only imports of a compound under code 2707 remained and increased substantially in 2021 compared to previous years. As the customs codes reveal the product imported is not a specific compound listed in the category of products under the code of 2707, but simply declared as "other", it represents clearly the anomalous flow of oil products from Belarus and points to the that the information about deliveries is in fact hidden.
Lukashenko's regime in Minsk has ample reasons to do this as EU sanctions have essentially cut off its refining industry's access to world markets in legitimate categories of oil products. Using the unambiguously ambiguous loophole to pass its oil exports through Estonia in the "other" category of a different custom code family could only be described as smuggling in plain sight of Estonian authorities.
Editor: Helen Wright