The main state-controlled insurer in Italy is guaranteeing a petrochemical project in Uzbekistan that could be backed by Russias Gazprombank, an investigation showed, raising doubts about a potential indirect collaboration between Italian institutions and a lender under U.S. and U.K. sanctions.

The investigation by Re:Common, an Italian environment and corruption watchdog, drew a link between SACE, the state-owned Italian insurer, and an engineering company owned by Bakhtiyor Fazilov, a businessman from Samarkand, and allegedly bankrolled by Gazprombank.

Uzbekistans Ministry of Energy signed a memorandum of understanding in 2021 with Vnesheconombank (VBE), a Russian state-owned foreign investment bank, and Gazprombank, among others for the development of a new gas-to-chemical complex in Karakul, a special economic zone in the Bukhara region.

Shortly after the project was kickstarted, Versalis, the petrochemicals subsidiary of Italys ENI (which in turn is 30 percent owned by the Italian government), won a tender with the complexs main contractor, the Singapore-based Enter Engineering Pte. Ltd. Other Italian companies also won tenders for specific supplies.

With a $3 billion commitment, Singapore-based Enter Engineering Pte. Ltd. is the main contractor of the project and has unequivocal links to Russia through Fazilov, who also owns Eriell, an oilfield service group.

According to industry data seen by Re:Common, SACE is guaranteeing the financing of at least two deals worth 51.4 million euro. The first is an 11.4 million euro Front-End Engineering and Design (FEED) service that Enter Engineering subcontracted to the Italian branch of Wood, a Scotland-based engineering company. Italys Unicredit, one of the countrys largest lenders, is the financial link of the operation, figuring in the contract as the facility agent. The second is a 40 million euro deal to supply industrial machinery, the financing of which was set up by Unicredit as the mandated lead arranger. An Italian company is poised to supply the machinery to a plastic bags factory in Uzbekistan.

Essentially, should Enter Engineering fail to meet its contractual obligations and pay the Italian suppliers, SACE would step in and compensate the companies, while attempting to collect the debt via other legal means. In case of default, according to Re:Common, Enter Engineering could be subjected to a previous put and call agreement that the company seems to have with Gazprombank.

Through a complex web of relations with Cyprus-based companies related to both Fazilov and Gazprombank, the worst-case scenario for Enter Engineering could mean that its shares could be transferred to the sanctioned Russian bank.

A worst-case scenario, though potentially unlikely, should be taken into account by the insurer, which manages 300 billion euro in savings of Italian taxpayers.

Investigations from 2023 support the findings by Re:Common, especially regarding the links between companies owned by Fazilov and sanctioned Russian entities and individuals.

Radio Ozodlik, RFE/RLs Uzbek Service, found that the granting of development and extraction rights [and contracts] to obscure offshore firms located in Cyprus, Singapore, China, and Great Britain, among other jurisdictions, are grounded primarily on decrees issued by [Uzbekistans President Shavkat] Mirziyoyev himself.

Within this context, the principal beneficiary has been Russias gas giant Gazprom, specifically via ties to Fazilov.

A detailed report of the investigation was published by Kristian Lasslett, a professor at the University of Ulster focusing on corruption.

The report indicates that companies tied to Uzbekistans and Russias governments formed an international consortium, or as the dossier puts it an octopus. Given that Russian stakeholders exercise significant control and that the consortium has secured a sizable share in Uzbekistans gas and oil fields, gas storage and oil/gas refining capability, the report concludes that the Kremlin [holds] potential leverage over Uzbekistan through one of its key industries.

Given the right of reply, Fazilov answered sharply: We hereby confirm you that your information is grossly incorrect, inaccurate and incomplete. The businessman, however, did not specify which part of the report contained factual mistakes.

While the agreements between SACE and the main contractors and backers of the petrochemical complex pre-date the start of Russias war of aggression in Ukraine, the contracts might have to be reconsidered in light of the current risks associated with the Russian role in the Uzbek project. As Re:Commons report concludes, over the long term SACE could now end up helping one of Russias most important banks.

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Italian Insurer Buttresses Russian Gas Investment in Uzbekistan - The Diplomat