An Oil Fortune Bound in Red Tape
Tuesday, August 16, 2005
G. Philip Stephenson does not cut the figure of an Eastern European oil baron, clashing with formerly communist security officials over the legality of his budding empire.
Stephenson is a talkative, Texas-bred lawyer and former U.S. Treasury official who in the past four years has tried, with some success, to create a personal fortune from the privatization of Romania's oil industry. But his success has drawn the attention of Romanian prosecutors and demonstrated the potential and pitfalls of private investment in developing economies in Eastern Europe.
Last year, he and Dinu Patriciu, his Romanian partner in Rompetrol Group NV, that country's second-largest oil company, became the targets of a criminal investigation in Bucharest. Patriciu has spent a day in jail, and Stephenson has been publicly identified as a target of the investigation.
The story of how Stephenson became a target of Romanian anti-corruption officials began in Washington 13 years ago. The mixing of politics and money in the 1990s gave rise to a number of private investment partnerships here -- Carlyle Group being the most prominent -- that helped change Washington careers and fortunes.
Stephenson, a native of Houston and a Harvard law graduate, moved to Washington in the late 1980s to work as a corporate lawyer for the Republican-connected law firm Baker Botts LLP. When George H.W. Bush was elected president, he spent 18 months at the Treasury Department's Office of International Affairs. That job gave Stephenson a close look at the rapidly evolving economies of Eastern Europe. When Bush was voted out of office, Stephenson did what many political appointees in Washington did in the 1990s: He used his Washington contacts and experience to launch a private equity fund.
He raised money from friends and associates -- including Carlyle Group's Edward J. Mathias; Ed Rogers, a White House official in the senior Bush's administration; former U.S. ambassador to Germany Richard R. Burt; and several large institutional investors. Rogers's and Burt's Republican lobbying firm, Barbour Griffith & Rogers LLC, is working for Rompetrol.
The result was International Equity Partners LP, a private equity fund to buy private companies in India and Romania. By 1998, he had raised $20 million to invest in Romania and Moldova. In 1997, Burt introduced Stephenson to Patriciu, a former member of the Romanian parliament who had begun investing in Romanian privatization efforts. Patriciu became a partner in the fund. After the collapse of the communist regime in Romania in 1989, the economy and government began a fitful and sometimes chaotic process of privatization of state-owned industries.
"It was blood-in-the-streets time," Stephenson said of the mid-1990s. "But there was opportunity everywhere if you could stomach it."
Mathias, who has no business relationship with Stephenson now, remembers him as "very smart, very enterprising and very willing to take on risk."
Prosecutors in Romania allege Stephenson and Patriciu evaded taxes and illegally profited from the privatization of Rompetrol. No charges have been filed. Patriciu and Stephenson say the investigation is a sham, triggered by their refusal to buy refineries owned by well-connected Romanian businessmen. The controversy has drawn the attention of officials considering whether to admit Romania into the European Union pact and has drawn statements of concern from the U.S. State Department.
Last month, Stephenson, deputy chief executive and 20 percent owner of Rompetrol, was in Washington visiting old friends in government and out. In those conversations and in meetings with reporters, he is trying to draw international attention to his situation, thereby persuading Romanian prosecutors to, as he puts it, "do the right thing and finish up this trumped-up investigation."
"We want a fair, open, transparent and expeditious process," said Rompetrol's attorney, Obie L. Moore, a Bucharest-based lawyer for the international firm Salans. "Otherwise, if we don't, Romanian reality could drastically change."