Essar's Controversial Loan Transfer to Mauritius
Days after Russia's invasion of Ukraine in March 2022, dockworkers at Ellesmere Port in Cheshire refused to unload Russian oil destined for the Stanlow refinery, owned by Indian conglomerate Essar. Essar swiftly halted Russian fuel imports, but an investigation by the Guardian and SourceMaterial reveals that the company may have continued financial dealings with a sanctioned Russian bank through complex offshore arrangements.
Essar shifted billions of dollars in loans from VTB, a Kremlin-controlled lender, from Cyprus to Mauritius, where sanctions did not apply. The transfer involved subsidiaries of Essar's UK arm, Essar Energy. While Essar claims compliance with sanctions law, experts say the restructuring raises red flags for potential circumvention.
The loans, originally housed in Cypriot companies with Essar Energy as guarantor, were moved after the UK and EU imposed sanctions on VTB. Instead of seeking a UK license to repay the debt, Essar obtained approval from Cyprus to transfer the loans to Mauritius. The loan termination agreement was signed by subsidiaries of Essar Energy Limited, acting as obligors' agents.
Michael Ruck, a sanctions expert at K&L Gates, called the arrangement unusual and a potential red flag for circumvention. Another sanctions lawyer noted that Essar Energy's subsidiaries signing the agreement could expose it to liability. Liam Byrne, chair of the business select committee, urged UK authorities to investigate, stating that VTB is financing Russia's war in Ukraine.
Essar's lawyers maintain that the company acted responsibly and complied with all applicable sanctions, with the transfer expressly approved by Cypriot authorities. They dismissed suggestions of red flags as without foundation.
Following the move, Essar appears to have enhanced its VTB borrowing by $1.2 billion, though lawyers say this reflects accrued interest, not new borrowing. Forensic accountants, however, identified new rouble exposure of at least $1 billion that cannot be explained by interest alone.
Meanwhile, Essar set up a Moscow subsidiary in 2023, ostensibly to manage the VTB loans as the group winds down. However, an employee interview suggested the role included identifying investment opportunities, raising further questions.
Cypriot authorities are now examining whether Essar's transactions with VTB violate EU sanctions. Essar says it is unaware of any inquiry and has confirmed no breach. In Mauritius, Essar sought to delink its business from the UK, but the process took three years due to Essar's failure to provide evidence about its ties to Russia.
MP Lloyd Hatton called the relationship very alarming and urged UK authorities to investigate Essar's potential dealings with VTB.
