By DESMOND BUTLER and MICHAEL BIESECKER
In a back corner of the swank H Bar in Houston, near a huge photo of Brigitte Bardot with a dangling cigarette and a deck of cards, two Russian-speaking men offered a Ukrainian gas executive what seemed like an outrageous business proposal.
Andrew Favorov, the No. 2 at Ukraine’s state-run gas company Naftogaz, says he sat on a red leather bench seat and listened wide-eyed as the men boasted of their connections to President Donald Trump and proposed a deal to sell large quantities of liquified natural gas from Texas to Ukraine.
But first, Favorov says, they told him they would have to remove two obstacles: Favorov’s boss and the U.S. ambassador in Kyiv, the Ukrainian capital.
Favorov says he hardly took the proposal at the early March meeting seriously. The men, who sported open shirts showing off thick gold chains at a conference where most wore business attire, had zero experience in the gas business. And it wasn’t plausible to Favorov that they would be able to oust his boss, never mind remove a U.S. ambassador.
What he didn’t know as he sipped whiskey that evening was that high-ranking officials in the Ukrainian government were already taking steps to topple his boss, Naftogaz CEO Andriy Kobolyev. And two months later, Trump recalled U.S. Ambassador Marie Yovanovitch, a career diplomat with a reputation as an anti-corruption crusader.
The gas deal sought by Lev Parnas and Igor Fruman never came to pass. But their efforts to profit from contacts with GOP luminaries is now part of a broad federal criminal investigation into the two men and their close associate, Rudy Giuliani, Trump’s personal attorney.
The Associated Press reported some details in October of the brash pitch that Parnas and Fruman made to Favorov in Houston. But in a recent series of interviews with the AP in Kyiv, Favorov painted a more complete picture of his dealings with Giuliani’s associates.
His tale, corroborated by interviews with other key witnesses, reveals that the pair continued to pursue a deal for months. The campaign culminated in May, at a meeting at the Trump International Hotel in Washington that included a lobbyist with deep ties to U.S. Energy Secretary Rick Perry and a Republican fundraiser from Texas close to Donald Trump Jr. Three people with direct knowledge of that meeting described it to the AP on condition of anonymity because some of the players are under federal investigation.
The maneuvering over Naftogaz came at the same time that Giuliani, with the help of Parnas and Fruman, were trying to get Yovanovitch out of the way and persuade Ukraine’s leaders to launch an investigation of former Vice President Joe Biden and his son Hunter’s work with Burisma, a rival Ukrainian gas company.
To achieve those ends, they sought to eliminate the safeguards put in place over the last decade at the urging of American and European diplomats to help insulate Naftogaz from the corruption rife in the former Soviet bloc.
The story illustrates an essential backdrop of both the impeachment drama roiling U.S. politics and the criminal investigation of Giuliani and his associates: the decades-long tug of war between Russia and the West over Ukraine, in which geopolitical influence, natural resources and corruption are major themes.
Yovanovitch is now a key witness in the impeachment inquiry, and federal prosecutors investigating Giuliani have interviewed both Favorov and Kobolyev. Parnas and Fruman were arrested Oct. 9 at an airport outside Washington carrying one-way tickets to Europe and are charged with conspiracy, making false statements and falsification of records in a case centered on alleged campaign finance violations.
It was about seven years ago that Favorov says he first crossed paths with Fruman, who owned the luxurious Otrada Hotel in Odessa, a Ukranian city famous for its opulent Black Sea resorts. Favorov, who ran a gas trading company, was there for a retreat and became friendly with the hotel owner, and the two men have kept in sporadic touch ever since.
After Naftogaz announced early this year that Favorov had been appointed its No. 2, he says Fruman, who had emigrated to the United States years earlier, called to chat about the U.S. natural gas business and tout his connections to the Trump administration. Favorov, a dual U.S.-Russian citizen based in Kyiv, had heard that his acquaintance was involved in Republican politics in Florida. Favorov recalls suggesting they meet up at an energy industry conference he was attending in Houston.
“Good,” he says Fruman told him. “I want to introduce you to someone.”
Favorov flew to Houston in March to attend the CERAWeek conference, the most important annual gathering for the U.S. energy industry, ready to pitch Ukraine as a destination for the glut of cheap U.S. liquified natural gas unleashed by the fracking boom. He was particularly eager for a meeting Fruman had arranged with Harry Sargeant III, a billionaire who had made his fortune in oil and shipping, including transporting jet fuel for the U.S. military in Iraq.
For decades, natural gas has been the essential commodity in Ukraine’s struggle for independence from its former Soviet-era masters in Moscow. Russia controls one of the world’s largest supplies of natural gas, which Ukraine and much of Europe rely upon.
With Western help, Ukraine has been working to wean itself from Russian dependence, something that became more important in 2014, when Russian troops invaded and annexed the Ukrainian peninsula of Crimea. For the last five years, war has raged between the Ukranian government and Russian-backed separatists in the country’s eastern region.
As part of the efforts to improve Kyiv’s leverage with Moscow, Naftogaz built enormous capacity to store natural gas, just as the gas boom in the United States has left Texas producers with so little storage capacity that they’re burning off their excess. In response, the industry has been frantically expanding its infrastructure along the Gulf Coast to compress natural gas into its super-chilled, liquified form for export overseas in specially built supertankers.
U.S. Energy Secretary Rick Perry, in a keynote address at the CERAWeek 2019 conference, predicted that U.S. capacity to export natural gas would expand 150% this year. Perry had traveled to Kyiv a few months earlier and met with key Ukranian officials and business leaders, including Favorov.
So as Favorov sat with Parnas, Fruman and Sargeant at the Houston hotel talking about the potential money to be made exporting liquefied natural gas from the U.S. to Ukraine, he says he presumed Sargeant was brought in because he could move the product. Ukraine had an annual deficit of gas supplies equivalent to about 100 shiploads and, as Ukraine’s state-owned gas distributor, Naftogaz would be the country’s biggest potential buyer.
Favorov says he came away from the meeting with the impression that Sargeant was evaluating opportunities, but he says Sargeant did not propose any specific business deals at the meeting.
Chris Kise, Sargeant’s lawyer, said in an email to AP that the billionaire had no specific business in mind when he attended the dinner and doesn’t currently own ships that can move liquified natural gas.
“At the dinner, Mr. Sargeant simply provided broad industry guidance and his expert view on the challenges presented by operating in foreign markets,” Kise said. “Mr. Sargeant has no business with Mr. Parnas or Fruman, and no business in Ukraine.”
It didn’t take long, Favorov says, for Parnas and Fruman to follow up.
SHIPLOADS OF GAS
After the dinner with Sargeant, Favorov walked to H Bar, the watering hole off the lobby of the posh Post Oak Hotel. The room was teeming with oil and gas executives smoking cigars.
Parnas and Fruman were fixated on Ukraine’s need for the 100 shiploads of gas raised at the earlier meeting and told Favorov they could broker a deal to provide that massive amount. They claimed to have the full backing of the Trump administration and repeatedly dropped Giuliani’s name, Favorov recalls.
But they would need a more compliant CEO at the top of Naftogaz to get the deal done, he says Parnas and Fruman told him. They alleged Favorov’s boss was a puppet of George Soros, wielding a common trope against the billionaire hedge-funder and Democratic Party mega-donor who has backed pro-democracy and anti-corruption initiatives in Eastern Europe. Soros, who is Jewish, emigrated to the U.S. from Hungary after surviving the Holocaust.
“You’re a Republican, right?” Parnas asked. Favorov says he nodded and told Parnas he considers himself a moderate Republican “of which there are about 15 to 20 left in the world.”
“Then you’re our man,” Parnas replied.
Favorov recalls the two men also casually informed him that Trump would soon be removing Yovanovitch, who was a key backer of the anti-corruption efforts at Naftogaz.
The AP previously reported that Sargeant was involved in this conversation, based on accounts of two people who were briefed on the meeting by Favorov shortly afterwards. But Favorov and Sargeant both say the Florida billionaire did not participate in conversations related to replacing the Naftogaz board or the ambassador, though he was at the H Bar at the time.
“Mr. Sargeant was neither part of nor aware of any plan involving any board members of Naftogaz or the U.S. Ambassador,” Sargeant’s lawyer said in the email.
For his part, Favorov says he was stunned by the proposals and told Parnas and Fruman that he was on Kobolyev’s team and wanted no part of unseating him. He left the bar, but not abruptly.
“The strategy was to smile and move along,” he said.
But he had not heard the last of them.
In the subsequent weeks, Fruman bombarded Favorov with texts on WhatsApp, an encrypted messaging app. Favorov says he had reason to play along, as their boasts of connections in high places began to match events around him.
The two men had established a company, Global Energy Producers, which prosecutors later said was a shell through which they made illegal political contributions to groups that support Trump. And Parnas’ Instagram account was peppered with photos of him with powerful people, including at a private dinner at the White House.
They had introduced Favorov to Sargeant, which gave them even more credibility, and they were name-dropping Giuliani just as the former New York mayor was popping up in Kyiv, making corruption allegations against Hunter Biden. And Kobolyev’s leadership of Naftogaz was indeed in a precarious position at the very moment that the two men were plotting to replace him.
At the beginning of the year, then-Ukrainian President Petro Poroshenko, an oligarch who had come into power after his Moscow-friendly predecessor was toppled in 2014, was putting the squeeze on Kobolyev. Poroshenko was in a tough reelection campaign and his commitment to reform was fading. He began taking steps to roll back the independence of Naftogaz.
The U.S. State Department and other Western allies had pressed for reforms at the state-owned company to increase transparency and accountability. A key step was the establishment of an independent supervisory board with members appointed by Western institutions, including the U.S. government, which appointed executives to help serve as a bulwark against corruption.
But under Ukrainian law, state-run companies are required to pay any dividends demanded by the government under penalty of incarceration of the CEO. Early in the year, Poroshenko demanded that Naftogaz pay a crippling dividend that drained it of cash, straining the company’s ability to pay its bills.
In January, Poroshenko’s government took steps to remove the authority of Naftogaz’s supervisory board to appoint key executives, including the CEO. In the same period, Prime Minister Volodymyr Groysman repeatedly pressured Kobolyev to forgive hundreds of millions of dollars of debt owed to the company by oligarch Dmitry Firtash, according to two people familiar with Groysman’s demands.
Firtash, a Ukrainian who made a fortune in the fertilizer and titanium industries, is closely aligned with Russian President Vladimir Putin and served as a middleman for the Russian natural gas giant Gazprom. He now lives in Vienna, Austria, where he has for years been fighting extradition to the United States on federal bribery and racketeering charges.
Yovanovitch, the U.S. ambassador, immediately moved to defend the independence of the Naftogaz leadership. In a letter to Groysman, she warned that limiting the authority of the supervisory board would sap Western confidence in Ukraine and put aid at risk.
“Such a conflict would serve Russia’s interests at a time when the international community has resolutely supported Ukraine in the face of Russian aggression,” she wrote.
Soon after, Giuliani began throwing his weight around in Kyiv. He was “almost unmissable” in mid-March during a “campaign of slander” against Yovanovitch, according to testimony by George Kent, the senior U.S. State Department official in charge of Ukraine, in a deposition for the House Intelligence Committee.
Favorov says he began to see his Houston dinner partners in a new light.
“We had this dynamic in Ukraine where Andriy (Kobolyev) was barely hanging on and Maria Yovanovitch was protecting him and I am receiving offers from private citizens to become the CEO of the company,” he says.
“The guy says he’s going to remove Yovanovitch in March and then she’s removed in May? It certainly gets your attention,” he says.
Giuliani has publicly acknowledged pushing to get Yovanovitch replaced. In a text exchange with THE AP on Sunday, however, Giuliani said he had no interest in efforts by Parnas and Fruman to land a gas deal.
“I had no involvement in a deal. Not a partner, not an advisor,” Giuliani wrote.
The dynamic in Ukraine changed on April 21. Poroshenko lost his reelection bid to Volodymyr Zelenskiy, a Ukrainian television personality who pledged to root out corruption in Kyiv.
Some of the pressure on Kobolyev was lifted, but Naftogaz was still having serious cash flow problems so Kobolyev and Favorov flew to Washington to ask for help with funding and discuss the possibility of importing more American natural gas to Ukraine.
At the White House, they told the National Security Council’s top Russia hand, Fiona Hill, about the pressure that Kobolyev was coming under from Parnas and Fruman, according to Hill’s testimony to the House Intelligence Committee.
Hill told the committee she presumed the two men wielded influence because they said they were working on behalf of Giuliani and, by extension, Trump. And she noted that the former New York City mayor was pushing for a package of issues in Ukraine, “including what seemed to be the business interests of his own associates.
Despite their concerns, Favorov met twice with Parnas and Fruman during the trip to Washington and Kobolyev joined him for one of the meetings, according to multiple people with direct knowledge of the meetings.
The first meeting was on April 30 at the Capital Grille, a steak house on Pennsylvania Avenue frequented by lobbyists. It included a representative of Sargeant’s company and an independent businessman. At the meeting, Favorov pitched his ideas for importing American LNG to Ukraine.
Kise, Sargeant’s lawyer, characterized the meeting as a “social lunch.”
“The employee and the businessman almost entirely listened to the others in attendance discuss macro issues of energy supply to Ukraine, and also numerous meetings that the others in attendance had with officials in Washington,” he said.
The second was the following evening at the Trump International Hotel, according to three people with direct knowledge of the meeting. After Favorov and Kobolyev arrived, their hosts introduced them to Jeff Miller, a former top political adviser to Energy Secretary Perry, and Tommy Hicks Jr., co-chairman of the Republican National Committee and a friend of Donald Trump Jr. Neither Sargeant nor his employee attended this meeting.
Miller, who had been campaign manager and chief strategist for Perry’s failed 2012 presidential campaign, is now vice finance chair for the 2020 Republican National Convention. He is a prominent energy lobbyist, representing a range of companies in oil and gas extraction, refining and transport. He was a frequent VIP visitor to the Energy Department while Perry was secretary, according to entry logs.
Hicks, whom Parnas introduced as “the money guy,” is a private equity investor from Dallas whose portfolio includes companies that provide hydraulic fracturing equipment for oil and gas extraction.
The men sipped cocktails and smoked cigars at an outside area of the Trump hotel, while talk of the potential gas deal got more specific. They discussed gas quantities and pricing, according to the individuals with knowledge of the meeting. But the Naftogaz officials noted a major logistical hurdle: The gas would have to be shipped to Poland and then moved by pipeline to Ukraine. To sell the quantities that were being discussed, the existing pipelines would need to be expanded.
Parnas and Fruman, the people said, claimed to have a connection to the CEO of the company that manages the pipeline between Poland and Ukraine, and could take care of the bottleneck.
Hicks did not respond to repeated requests for comment for this story. But Parnas posted a photo on Facebook of himself and Fruman having breakfast at the Beverly Hills Polo Lounge with Hicks and Donald Trump Jr. in May 2018.
A person with direct knowledge of Miller’s account says he came to the meeting only because Parnas said he would be introduced to potential new clients. But, that person said, Miller doesn’t represent foreign companies and excused himself when he learned Kobolyev and Favorov were from Ukraine. The person spoke on condition of anonymity due to the sensitivity of the matter.
Some of the attendees left the meeting at the Trump hotel dubious that Parnas and Fruman would be able to deliver on the pipeline, according to the people with knowledge.
PERRY GOES TO POLAND
Just as before, Parnas and Fruman’s predictions began to come true.
Later in May, soon after Yovanovitch was recalled from Kyiv, Rick Perry led the U.S. delegation to the inauguration of Ukraine’s new president. After the ceremony, the U.S. energy secretary handed Zelenskiy a list of names of possible energy advisers to the new government.
According to a source with direct knowledge of the exchange, Perry also suggested replacing members of the Naftogaz supervisory board with people from his list, which included Michael Bleyzer, one of the secretary’s longtime political donors from Texas. Bleyzer and his partner Alex Cranberg later won a huge gas contract in Ukraine.
In statements provided to the AP through an Energy Department spokeswoman, Perry confirmed he gave Zelenskiy a list of proposed advisers that included Bleyzer, but denied discussing any management changes at Naftogaz.
After Perry’s visit, there was a sudden spike in interest in the gas pipeline bottleneck through Eastern Europe. In late August, a U.S. delegation led by Vice President Mike Pence arrived in Warsaw to commemorate the 80th anniversary of the start of World War II. But a top diplomatic priority of the trip was expediting natural gas exports to Eastern Europe.
During the trip, Perry signed a memorandum of cooperation with his Polish and Ukranian counterparts pledging to build the infrastructure needed to accommodate the shipment of huge amounts of natural gas. And Pence, in a meeting with Polish President Andrej Duda, “commended Poland’s efforts to increase its energy supply through partnerships with U.S. companies producing liquefied natural gas.”
An Energy Department spokeswoman said the agreement signed in Warsaw was a continuation of U.S. policy dating back to prior administrations to engage with Ukraine on regional security matters.
“Secretary Perry advocated for the diversity of supply, suppliers and supply routes across the world as it is in the best interest of the United States and our allies to do so,” Hynes said.
It was another piece of Parnas and Fruman’s puzzle that appeared to fall into place.
But during the time, an anonymous whistleblower complaint about Trump’s pressure on Ukraine to investigate Biden was making its way around Washington and scrutiny turned to Giuliani, Parnas and Fruman.
The dream of their gas deal died when they were arrested in October on campaign finance charges.
Prosecutors allege that Parnas and Fruman ran money from Russia through their company, Global Energy Producers, and used it to make huge political donations to groups supporting Trump’s 2020 reelection bid. In a court hearing on Tuesday, federal prosecutors accused Parnas of attempting to hide a $1 million wire transfer that they said came from Firtash, the indicted Ukranian oligarch with close ties to the Kremlin. When Parnas and Fruman were arrested boarding a plane in October, prosecutors say their ultimate destination was Vienna, where Firtash lives.
Reflecting on it all from Kyiv, Favorov says the increased U.S. government focus on expanding Polish pipeline capacity and boosting LNG imports to Ukraine serves the longtime foreign policy goals of both Ukraine and the United States to diversify gas distribution in the region and undermine Russian monopolies.
“But I’m thinking, did Lev Parnas and Igor Fruman really play a role in advancing and shaping U.S. policy?” he asked.
Biesecker reported from Washington.