1 marzo, 2018

“Castor Case” citizen lawsuit

On Tuesday February 27th 2018, we publicly presented a CRIMINAL LAWSUIT before the National High Court in Spain, against:

  • Former Minister of Industry, Trade and Tourism JOAN CLOS MATHEU – PSOE (September 8, 2006 – April 13, 2008)
  • Former Minister of Industry, Trade and Tourism MIGUEL SEBASTIÁN GASCÓN – PSOE (April 14, 2008 – December 22, 2011)
  • Former Minister of Industry, Energy and Tourism JOSÉ MANUEL SORIA LÓPEZ – PP (December 22, 2011 – April 15, 2016)
  • President of the ACS construction company and majority shareholder of the ESCAL UGS SL, FLORENTINO PÉREZ RODRÍGUEZ
  • Former Minister of Development MAGDALENA ÁLVAREZ ARZA – PSOE (April 18, 2004 – April 7, 2009) and former Vice President of the European Investment Bank
  • Former Minister of Environment and Agriculture ELENA ESPINOSA MANGAN – PSOE (April 14, 2008 – October 20, 2010)
  • President of the company ESCAL UGS SL RECAREDO DEL POTRO GÓMEZ
  • Former Energy Secretary General of the Ministry of Industry, Commerce and Tourism IGNASI NIETO MAGALDI (September 15, 2006 – April 17, 2008)
  • Former Minister of the Environment, Water, Town Planning and Housing of the Generalitat Valenciana JUAN GABRIEL COTINO FERRER (August 31, 2009 – June 22, 2011)

for their responsibilities in the Castor project, with allegations of PREVARICATION, FRAUD IN PUBLIC ADMINISTRATION AND EMBEZZLEMENT OF PUBLIC FUNDS.

The lawsuit is filed with the Central Magistrate’s Court of the National High Court due to its competence in cases of fraud that has produced, or that may have produced, a serious impact on the safety of commercial transactions, the national economy or financial damage for the majority of people in the territory.

Citizens are facing the possibility of having to assume the cost of 1,350,730,000 euros (which, with interest, amounts to 2,419,940,000 euros) either through their gas bills, as has happened to date, or through the state budget.

We are completely opposed to this situation.

||||| This is why we are carrying out this coordinated citizen action with the following OBJECTIVES:

NON-PAYMENT
– Non-payment of the compensation scheme, whatever the mechanism used, and the “return” of previous payments.
– The dismantling of the Castor Platform and that the cost of this is imputed to the companies responsible for its failure.
– To show that Castor’s costs, together with other costs included in bills for basic services, are illegitimate, and generate and aggravate energy poverty in the State, affecting 11% of the population.

CORRUPTION
– To denounce once again the connivance of governments with operations which are destructive to the welfare of the population in a context of systemic and systematic corruption.
– To shine light on the shared responsibilities of the PSOE and the PP governments, which justify and even congratulate themselves for having submitted an appeal to the Constitutional Court (PSOE) and an appeal of ‘harm to the public interest’ of Article 14 to the Supreme Court (PP), but who have been facilitators of this scam-project.

ENERGY POLITICS
– To highlight the “gas bubble” that has left the gas system in deficit due to the construction of infrastructures that have fallen into disuse or are being used much less than expected.
– Criticism of the promotion of gas through a geopolitical discourse of dependence on Russia, which works as an excuse to promote a fossil fuel which requires large and expensive infrastructure, especially in a country like Spain, which enjoys excellent conditions for renewable energy generation.
– Criticism of the model of large infrastructures, large investments and large corporations, which imposes itself above the needs of the population, causing social and environmental impacts and generating illegitimate debt.

CITIZEN COLLABORATION AGAINST THE DEFAULT FUNCTIONS OF THE INSTITUTIONS
– We ask for citizen collaboration to gather sensitive information that until now has not come to light. For this we have enabled an anonymous and safe e-Mailbox to receive such information with all guarantees for the sources.
– We work at Spanish and international level to coordinate action in the following areas: new energy models; anti-corruption; new governance of energy resources.

||||| We have detected the following ANOMALIES:
– The construction company is also the concession holder and has hardly any competitors
– The contract includes a clause that admits fraud or negligence
– Rapid increase in project costs
– Ad hoc modification of sea boundaries
– Several anomalies in environmental and seismic impact reports
– Extension of the concession’s withdrawal period to prevent its expiry
– No distribution of damages or moratorium has been proposed

Let’s see:

WHAT IS CASTOR
The Castor project is a geological gas warehouse in an old oil field 22 km offshore; once the oil extraction stage was completed, the oil field was proposed to be used as a gas deposit. It consisted of three elements: 1) a maritime platform comprising a platform of thirteen wells, eight of which were used reversibly for the injection and extraction of gas, four for observation and one for injecting liquids of the extracted gas, and a processing plant; 2) a ground operation plant with compression equipment and 3) a pipeline 30.3 km long and 30 inches in diameter, running underwater for 21.6 km and overland for 8.7km, to transport natural gas between the processing plan (at sea) and the operations plant (on land) and vice versa. The infrastructure is located in waters and lands of the provinces of Castelló and Tarragona.

It is a complex infrastructure that was proposed to store gas in an old oil field (the existing ones in Spain use old depleted gas reservoirs ‑ not oil fields) and arose from the supposed extraordinary need for storage due to energy security concerns and gas consumption, according to the forecast reports made by the General Secretariat of Energy Planning for the years 2002-2011, with revision in the year 2005-2011, which were subsequently found to be manifestly excessive, as acknowledged by the 2012 Spanish National Energy Commission report criticising gas planning of previous years.

“The current remuneration models of the transport, regasification and underground storage facilities (…) generate incentives for developers to build these facilities when the remuneration is attractive enough even though they are not necessary due to planning errors and, on the other hand, they transfer to the Administration -and therefore to the final consumer- the risks derived from the uncertainty in the evolution of the gas demand and therefore the revenues” and the report of the RDL13/2014 that justifies the current hibernation of the Castor project since 2014: “The current situation of gas demand does not require the incorporation of such infrastructure into the gas system, at least in the medium term.”

WHO IS WHO
The research phase of the project began in the 1990s at the request of Spain Canada Resources Inc. branch in Spain with the corresponding permit (and its wide-ranging powers) obtained on September 27, 1996; a permit that was ceded to the company ESCAL UGS SL in January 13, 2004. The company ACTIVIDADES DE CONSTRUCCIÓN Y SERVICIOS SA (ACS) of Mr. FLORENTINO PÉREZ RODRÍGUEZ acquired 5% of the shares of ESCAL UGS SL in December 2006 and one year later, in December 2007, ACS went on to hold two thirds of its holdings and therefore the control of all decisions to be taken by the company.
His personal involvement in the project is shown also by the fact that Castor’s terrestrial plant is named after his brother Ignacio PÉREZ, who died in 2007 and was also a head figure in ACS.

Given the social composition, size and almost total lack of workforce of ESCAL UGS SL and the interest of ACS in the Castor project, ESCAL UGS SL is an instrument directed and controlled by ACS and its business and economic interests’ network. The president of the board of directors of ESCAL UGS SL as of February 2008, Mr. RECAREDO DEL POTRO GÓMEZ, was a trusted person of ACS in the energy field as evidenced by the fact that he also held the vice presidency of the INVEXTA ENERGY SL, a subsidiary of ACS with fracking projects in the Murcia and Albacete area and was involved in the promotion of the Hydrocarbons warehouse in El Pinós (Alacant).

At an undetermined date between 2007 and 2008, anomalies started to be detected that could be indications of the intention to continue collecting very high business benefits derived from the construction of the infrastructure, its exploitation and the generation of its funding with no risk for the company and through contractual mechanisms that allowed it not to actually carry out the project. Due to the necessary intervention of the State, since gas storage is a regulated activity within the gas system, and in turn a partly regulated market ; the conditions that allowed this objective to be attained could imply the collusion of public powers. To achieve this plan it was necessary to coordinate main decision-makers responsible for the energy and infrastructure policies of the Government of Spain, of at least from that date to the present, who were necessarily aware of the criminal objectives to be achieved and facilitated each and every administrative action necessary to reach these objectives. These are public authorities’ decisions that we consider to have been extralegal, arbitrary, unfair, with a risk to public safety and public health, and contrary to the public interest.

The concession was prepared by JOAN CLOS i MATHEU and his collaborators as Minister of Industry, Trade and Tourism and was realised by MIGUEL SEBASTIÁN GASCÓN who had just been appointed Minister of the same area at the time when the Council of Ministers approved the Royal Decree (RD). Among these collaborators was Mr. IGNASI NIETO MAGALDI, General Secretary of Energy until April 17, 2008 and later a partner of Mr. RECAREDO DEL POTRO.

RE-DESIGNING THE SEA
Due to the fact that the administration of the Generalitat de Catalunya was against the project going ahead without adopting greater precautions, as expressed by the allegations presented in 2008 by the General Directorate of Environmental Policies and Sustainability of this regional administration in the framework of the previously described scheme, it was decided to modify the boundaries between the Autonomous Community of Catalonia and the province of Castellón, which was carried out based on the decision of MAGDALENA ÁLVAREZ ARZA, at that time Minister of Development, and currently on trial in the Provincial Court of Seville accused by the anti-corruption prosecutor’s office of embezzlement of public funds and prevarication in relation to the so-called ERE case.

In fact, a “Correction of errors of Royal Decree 638/2007 of May 18 of the Maritime Captaincies and Maritime Districts” was published through the ‘Official Bulletin of the State’ (BOE in Spanish) by which the maritime limits of the province of Castelló are modified by replacing the number 135 with the number 123; the immediate consequence was that the Castor project remains entirely in the waters of the province of Castelló and therefore exposed to a single possible autonomic intervention, that of the Generalitat Valenciana, at that time chaired by FRANCISCO CAMPS. This maritime districts modification was done 1) exclusively to modify this limit, 2) as an error correction, but inexplicably almost a year after the publication of the original Royal Decree and 3) without any formalities or administrative proceedings, constituting an act that seems absolutely arbitrary and contrary to law.

PROFITING FROM NEGLIGENCE
In the Castor project concession, a controversial article 14 was established with a final clause which contemplated the possibility of compensation even in case of wilful misconduct or negligence on the part of the company: “In case of expiration or extinction of the concession, the facilities will revert to the state. In such case, and to ensure the recovery of the investment made by the holders, consistent with the provisions of art. 92.1.a of Law 34/1998 of October 7 of the Hydrocarbons Sector, the concessionaire will be compensated for the net book value of the underground storage facilities affected, provided that these continue operating. The foregoing shall not apply in case of intent or negligence attributable to the concessionary company, in which case the compensation shall be limited to the residual value of the facilities, without prejudice to other responsibilities of the concessionaire company “.

It is necessary to point out that in gas storage infrastructure contracts, such as the Gaviota, a gas warehouse in the coast of Bizkaia with characteristics similar to the Castor, it is usual for there to be a compensation clause for the concession companies in case of termination of the concession. But in the case of the exploitation contract in the Castor project, the singular and anomalous specification is expressly added to guarantee the collection of compensation even in cases of intent and negligence attributable to the concessionaire company.

In any case, this paragraph seems to seek to guarantee, as actually happened, the investment made by ACS at the expense of public assets or consumers themselves, as subsequent events have shown; and to accept a level of risk  to safety and public health that was allowed in a context of wilful misconduct and negligence of the company responsible.

MINISTRIES OF DENYING EVIDENCE
In the last quarter of 2009, Mrs. ELENA ESPINOSA MANGÁN, at that time Minister of Environment and Agriculture, together with her collaborators, made the following decisions:

1) Approve the environmental impact statement to the Castor project, of October 23, 2009 (BOE 272 of November 11, 2009) with lack of attention to seismic risk.

2) On November 23, 2009, it was decided not to subject the project to connect the gas system with the Castor warehouse to an environmental impact assessment. This resolution was declared void by a decree of April 15, 2013 from the Administrative Litigation Chamber of the National Court, which was ratified by the Supreme Court by judgment of June 10, 2015.

Both resolutions, one now criminally investigated and the other annulled in the administrative litigation jurisdiction, have in common that their purpose was not to subject the activity of Escal UGS SL to the necessary and planned controls. One only has to read the body of the referred resolution to see the volume of allegations made by municipalities and by the Catalan Government and even the Valencian Government on environmental grounds that were not resolved or addressed.

In addition, as can be read in the report prepared by the Ministry of Industry, Energy and Tourism of 2014, the construction work is riddled with illegal and inexplicable irregularities that were not detected during the execution phase and that always result in an increase in costs and in the allocation of most of the work to ACS or to companies linked to its group. In the report, several items are broken down to value the investment:

1. Investment in exploration and research: 28,077,000 euros
2. Investments in facilities (EPCI contract): 1,179,194,000 euros
3. Insurance, projects and other concepts: 83,928,000 euros
4. Activated financial expenses: 165,387,000 euros
5. Pre-concessional surveys: 8.483.000 euros

    

The most important part, the EPCI contract, was specifically supervised by the National Energy Commission (CNE) in the Supervisory report on the type of contracting of the main investment items in the Castor underground storage facility during the first half of 2009. In the report about the contracting procedure, the CNE makes, among others, the following observations:

“Since there was no more than one pre-qualified company, an effective competitive process did not take place. (…)
– “From an economic point of view, given that there were not enough bids, it is not possible to assess the economic adequacy of the cost of the services contracted with ACS. (…)”
– “The percentages-based invoicing method does not encourage ACS to reduce project costs, since the higher the cost of the project, the greater its profit.

An audit also referenced in the documentation of RDL 13/2014 precisely calculated that the direct benefit of ACS exclusively in the execution of the EPCI contract was 202,818,481 euros, 17.2% of the total.

The presence of ACS stands out at all times and throughout the project. In the phase prior to the EPCI contract, for example, the FEED (Front End Engineering and Design) was assigned to ACS SCE without being subject to tender in 2006 for an initial amount of 1,500,000 euros. That contract increased its scope and cost during the following years to reach 18,018,000 euros.

On an indefinite date during April 2011, the European Investment Bank granted a first loan to ESCAL UGS for an approximate value of 100 million euros.
The participation of the EIB, with the participation of Ms ÁLVAREZ now on the steering committee, was key to the realization of the project because it generated payment security for investors and made the bonds attractive in the market due to their good rating after the EIB bought some of them. For the issuance of these bonds, the directors of ESCAL UGS and ACS created a company called Watercraft Capital SA with its registered office in Luxembourg for the sole purpose of obtaining tax benefits, whose legality should also be subject to investigation.

AND IT NEVER WORKED
In 2013, cushion gas injections were initiated, which eventually should have enabled the validation and commissioning of the installation.
These injections caused, as is well known, more than 1000 earthquakes on the coast of the Valencian Community and Murcia, seismic events that caused significant social alarm and caused the suspension of the gas injections.

On July 18, 2014, ESCAL UGS SL submitted a letter to the Ministry of Industry, Energy and Tourism communicating its decision to exercise the right to renounce the concession and requesting the compensation established in art. 14 of RD 855/2008 of May 16.

The approval of Order IET / 2805/2012 by the Minister Mr. SORIA, who allowed the period during which the concessionaires could give up the concession to be extended from 5 to 25 years, is indicative of the will to “shield” the illicit profit-making of ACS. Although this extension affected the rest of the state’s gas storage facilities, it was especially convenient for ESCAL. Without this arbitrary extension, the resignation of ESCAL in July 2014 could not have occurred because it would have been submitted outside the allowed period.

Despite the large room for manoeuvre that the Supreme High Court interpreted in relation to art. 14 of the concession and despite the information contained in the report itself regarding the supervision report of the CNE or of the auditors, the Minister of Industry, Energy and Tourism, the Minister Mr. JOSE MANUEL SORIA LÓPEZ, prepared together with his collaborators a Royal Law-Decree (RDL) in which it is agreed to compensate the investment of ESCAL UGS-SL for a value of 1,461,420,000 euros, an amount towards which the provisional payment of 111,691,360 euros has already been paid which needs to be discounted, therefore resulting in an amount in favour of ESCAL UGS SL of 1,350,729,000 euros. In spite of the fact that in these facilities gas is neither extracted nor injected for storage, it is maintained as a public asset and so is its allocation of the costs and revenues through the gas system.

FURTHER INDICATIONS
The prospectus for issuing bonds of the company “Watercraft Capital S.A.” recognized several risks for the concessionaire of the Castor project and for the bondholders, risks that never occurred due to the unjustified favourable treatment of the institutions.

Firstly, the prospectus recalled that the resignation of the concessionaire (referred to in the document as “Borrower”) could not be accepted by the Spanish Government, for reasons of public interest or even be subject to certain conditions, such as the requirement to carry out certain tasks by the concessionaire before delivering the facilities.

Secondly, the prospectus also recalls that the right to compensation set forth in clause 14 of the concession would be given only in the case that the facilities remained operational.

Thirdly, the prospectus also emphasizes that, with respect to the right to compensation if the concession ended, the amount of the compensation could vary according to the circumstances in which the concession ended, and that in no case was it guaranteed that the compensation to the bondholders could be covered in in its entirety.

None of these risk scenarios for the concessionaire and the bondholders, contemplated as plausible in the prospectus, materialized in the decisions taken by the minister Mr. SORIA in the RSL 13/2014. Not in vain this same RDL hastened the payment to the concessionaire, since one of the conditions for the issuance of the bonds (to be fulfilled by the concessionaire) was meeting a deadline for the start of the operation: November 30 of 2014. Otherwise, the concessionaire had to advance the payment of all the agreed debt tranches.

Being aware of this circumstance, the minister, acting against the public interest and presumably exclusively to defend the ACS operation, allowed ACS to collect the multi-million euro payment even before the deadline established in the bond prospectus.

As is known by all, a few weeks ago the Constitutional Court has annulled the compensation.

We consider that the concatenation of the described events cannot respond to coincidence or to chance. The issuance of so many arbitrary administrative resolutions with the corollary of the multi-million euro compensation by the RDL of 2014 always against the general interest and for the sole benefit of a business group, can only be understood as a scheme between public officials of the energy sector and the companies denounced in the terms described in in above in one of the biggest frauds ever imagined in the Spanish energy sector.

THE CRIMES

a) EMBEZZLEMENT

“(432.1 CP, according to LO 15/2003) The authority (…) consents that a third party, for profit, subtracts the funds or public effects that it has under its responsibility due to its position by reason of its functions, will incur the penalty of prison for three to six years and absolute disqualification for a period of six to ten years.

“(432.2 CP, according to LO 15/2003) The penalty of imprisonment from four to eight years and the absolute disqualification for a term of ten to twenty years will be imposed if the embezzlement would be especially serious considering the value of the amounts stolen and the damage or obstruction produced to the public service.”

Whether the compensation will be executed through state budgets or by “toll” as has happened so far, we believe that as the direct impact of the maintenance costs of the Castor platform is on the regulated costs of the gas system that gas supply companies end up passing onto the final consumer, it must be considered public funds. This is our interpretation of what was stipulated by the non-jurisdictional plenary of the Criminal Chamber of the Supreme High Court of May 25, 2017.

b) PREVARICATION

“(Art. 404 CP, according to LO 10/1995) An authority or public official who, knowing of its injustice, dictates an arbitrary resolution inan administrative matter, will be punished with a special disqualification for employment or public office for a term of seven to ten years.”

c) FRAUD TO THE ADMINISTRATION

“(Art. 436 CP according to LO 5/2010), An authority or public official who, intervening by reason of his / her position in any of the acts of the modalities of public contracting or in liquidation of effects or public assets, in agreement with other interested parties or using any other device to defraud any public entity, will incur a prison term of one to three years and special disqualification for employment or public office for a period of six to ten years. An individual who has agreed with the authority or public official will be imposed the same penalty as these as well as the disqualification to obtain subsidies and public aid, to contract with entities, agencies or entities that are part of the public sector and to enjoy benefits or fiscal incentives and Social Security for a period of two to five years.”

d) REGARDING THE IMPUTATION OF INDIVIDUALS IN CRIMES OF PREVARICATION AND FRAUD TO THE ADMINISTRATION

Leaving aside the crime of misappropriation of public funds imputed, which has the status of improper special offence by assimilation to the offence of unfair administration of Article 252 PC and would not pose any problem of imputation as author to any of the defendants when finally his responsibility is made concrete, it should be noted from this moment that the condition of “individuals” of some of the defendants mentioned here would not in any way prevent them from responding criminally also in relation to the crimes of PREVARICATION and fraud against the administration that imputed and whose configuration is a crime of special character. Thus, the Supreme High Court has reiterated (SSTS 501/2000, of March 21, 76/2002, of January 25, 627/2006, of June 8, 222/2010, of March 4, 303/2013, of March 26, and 773/2014, October 28, among others) that the subject who does not hold the status of public official in special crimes –intraneus– can nevertheless can be punished as a participant –extraneus-, either as the necessary inductor or cooperator, since Article 65.3 CP stipulates that “When in the inductor or in the necessary cooperator conditions, qualities or personal relationships that substantiate the culpability of the author do not occur, the judges or courts may not impose a penalty lower in degree than indicated by law for the offence in question.”

 

PROMOTERS of the initiative:

Debt Observatory in Globalisation (ODG)
Multidisciplinary team of researchers that elaborates critical analysis of complex and/or structural processes of the economic and political system.
Xnet
Activist project that works in different fields related to digital rights and network democracy.
IDHC
Association for the defence of human rights.
+ Castor Case Legal team

Campaign collaborators:

Network for energy sovereignty (Xse)
Platform that proposes a change in the energy model to be democratic, sustainable, decentralized and under citizen control.
Alliance against Energy Poverty (APE)
Association of people affected by energy poverty.
@15MpaRato – Bankia Case Citizen Lawsuit
Promotors of the Bankia case, Black and Preferential Cards at the National High Court.
New Energy Model
Initiative that promotes a change in the energy model.
DESC Observatory
Platform for the defense of economic, social and cultural rights.
Citizen Platform in Defense of Terres del Senia
Local group affected by the earthquakes and the effects on the Castor Project territory.
Aplaca – @CastorAfectados
Association of those affected by the Castor Platform that claims compensation for the risk assumed as a result of the activation of this platform.

Castor Case citizen lawsuit, available for download:

 

info[at]casocastor.com