CLEAR HORIZONS? FAL OIL Majid Abdalla Juma Al Sari, whose family owns UAE-based FAL Oil, says the firm is “just a skeleton now.” REUTERS/STRINGER

Allegations of missing cargoes. Disappearing ships. Clandestine trips to Iran. The extraordinary rise and fall of FAL Oil A Gulf family’s oil troubles By Steve Stecklow and Humeyra Pamuk DUBAI, March 25, 2013

t their peak around five years ago, the Al Sari family owned the largest independent oil trader in the Gulf region, with branches in London and A Singapore, and a fleet of dozens of ships. These days, their FAL Oil Co trades more in controversy than oil. It owes a consortium of lenders nearly $900 million, including about $200 mil- lion to Standard Chartered PLC. It is contesting a worldwide asset freeze granted

SPECIAL REPORT 1 FAL OIL A Gulf family’s oil troubles

OLD MODEL: Little has changed inside the offices of FAL, even if the Al Sari family has begun trading through a new company, Horizon Energy.REUTERS/STRINGER

by a London court to the Royal Bank of allegedly selling petroleum products to Iran oil-trading business, Reuters has learned. Scotland. And it is suing its home govern- in 2010, something the firm denies but has The family is now operating a similar, pri- ment of Sharjah - one of seven emirates not challenged legally. vate oil-trading company that one of the that make up the United Arab Emirates - The remarkable fall of FAL Oil sheds Al Sari sons said they acquired about six in a rare public fight over a disputed $750 light on the sometimes murky world of months ago from a public UAE firm the million fuel-oil bill. The company even oil trading. It also shows how the distinc- family controls and whose shares trade on hired a British debt collector to chase the tion between family and business is often the Dubai Financial Market. But as of last emirate for payment. blurred in the Gulf. week, there was no public disclosure of These are just some of the many bitter The clan behind FAL Oil may have the transaction on the exchange’s website, courtroom battles being waged by FAL crafted an escape hatch for their troubled which lists company filings. Oil, once a pillar of business here in the In an interview, Majid Abdalla Juma Al UAE. Many of the details have not been Sari, whose family owns FAL Oil and who made public until now; the colourful claims serves as its managing director, said the and counterclaims include allegations of $900 million clan’s net worth has fallen in recent years missing oil, disappearing ships and clan- from about $3 billion to “north of $300 Approximate amount FAL destine trips to Iran. Last year, the U.S. million.” Paying back FAL Oil’s mounting State Department sanctioned FAL Oil for owes lenders debts remains “our aspiration,” though the

SPECIAL REPORT 2 FAL OIL A Gulf family’s oil troubles

likelihood of doing so is unclear because of AL SARI FAMILY MAJOR HOLDINGS the Sharjah litigation, he suggested. FAL Oil is “just a skeleton now,” he said, PUBLIC COMPANIES PRIVATE COMPANIES and is in the process of “winding down.” Gulf General Investment Co (GGICO) Horizon Energy Group: He added: “We are no longer actively in the Al Sagr National Insurance Co PSC oil-trading business.” Horizon Energy Co LLC Al Buhaira National Insurance Co PSC But his family hasn’t stopped trading Union Insurance Co PSC oil. Calls to FAL Oil’s office in Sharjah FAL GROUP: Ajman Bank PJSC are now answered by another Al Sari- FAL Oil Co Ltd Al Sagr Cooperative Insurance Co controlled firm, Horizon Energy Co LLC. FAL Energy Co Ltd Jordan Emirates Insurance PSC It’s engaged in essentially the same business Fal Shipping Co Ltd as FAL Oil, and shares some of the same employees and trading partners. Horizon TOTAL VALUE OF EQUITY HOLDINGS ON OVERSEAS COMPANIES: Energy recently signed deals with oil com- 22 MARCH 2013: $371 million FAL Energy UK Ltd in London panies in Pakistan, Bahrain and Yemen, which have all done business with FAL Oil. Source: Company financial disclosures Source: Company websites, Majid Abdalla Al Sari said FAL Oil and Horizon compiled by Thomson Reuters Eikon Juma Al Sari Energy are separate companies, and that “no assets have been shifted” between them. He also said his family controls both busi- nesses. A London-based spokesman for businesses initially specialised in bunkering – East. There, hundreds of workers went to FAL Oil said that “Horizon Energy Co selling marine fuel to ships. They purchased work reassembling the pieces. LLC has no structural relation with FAL oil from Saudi Arabia, Bahrain and Iran, and Technical issues and cost overruns led to Oil, but is a company under the broader resold it to India and Sudan, he said. repeated delays. “They had problems, prob- umbrella of the Al Sari family.” In 1990, the Al Saris bought out a part- lems, problems,” said Dermot James Walsh, Al Sari and the spokesman gave sev- ner and created FAL Oil – an acronym for a Toronto real estate consultant who helped eral conflicting accounts about Horizon Fuels and Lubricants. The firm acquired a FAL buy the old refineries. Energy’s link to the publicly traded com- fleet of tankers and built oil-storage facili- Says Majid Al Sari: “We miscalculated pany, raising questions about how the fam- ties at the mouth of the Strait of Hormuz, that to relocate a refinery can cost you as ily acquired it. a strategic shipping lane, enabling it to re- much as building a brand-new refinery.” Some oil industry traders and ex- spond to demand quickly. It soon became a The project was scrapped. Majid Al ecutives also question whether Horizon key oil supplier to Pakistan. Sari called it “a total disaster,” and said Energy has been dealing in Iranian oil – By 1995, FAL Oil had a fleet of 15 losses ranged between $100 million and which Al Sari denies. barges and tankers and was looking to buy $150 million. “It’s absolutely baseless,” he said. more. “We don’t take profits and distribute, Despite the setback, FAL Oil kept we just take it and put it back in the com- growing. By the early 2000s, it was a regular “PROBLEMS, PROBLEMS, PROBLEMS” pany,” Abdalla Juma Al Sari, who served as supplier of fuel oil and diesel to Pakistan, FAL Oil is part of a labyrinth of private com- chairman, told Reuters at the time. India and Sri Lanka, and was a major seller panies, known as the FAL Group, controlled That same year, FAL Oil announced an of marine fuel. By 2007, it was trading more by the Al Sari family. Its patriarch, Abdalla unusual plan to open Sharjah’s first oil re- than 18 million tons of oil products annu- Juma Al Sari, served as Sharjah’s police chief finery. The idea was to purchase a used re- ally, Al Sari said. from the late 1960s to the late 1980s. finery in Canada, dismantle it and ship the Among FAL’s customers was a state- In 1969, he launched an oil-delivery parts to Sharjah. owned utility, the Sharjah Electricity & trucking business in Sharjah. Eventually, he The Al Sari family ultimately bought Water Authority, or SEWA. In 2009, FAL and his two sons expanded into trading oil. three mothballed Canadian refineries. In Oil stopped making deliveries following a Mohamed Osman, who began work- one case, the massive equipment was hauled dispute over the supply of SEWA’s fuel. ing for Al Sari in 1978 and managed the by rail more than 600 miles to a Vancouver That summer, with temperatures aver- oil-trading operation, said the family’s dock before being shipped to the Middle aging over 40 Celsius (104 Fahrenheit),

SPECIAL REPORT 3 FAL OIL A Gulf family’s oil troubles

Sharjah suffered power outages that last- Sharjah could be deemed technically in- Majid Al Sari denies the allegations, but ed from hours to several days. The utility solvent” and lose their insurance coverage said FAL Oil did not contest the action scrambled to find other suppliers. if they didn’t pay the debt. Hatton argued because its U.S. lawyer advised the firm it The dispute coincided with the crash that Atradius had an obligation to disclose likely would lose. of the Dubai real estate market, which hit the situation to various parties, including Meanwhile, a London court recently other Al Sari holdings. The family controls major reinsurers. heard allegations that a ship that Al Sari says Gulf General Investments Co, or GGICO, In another letter three weeks later, his family still has title to – but no longer a publicly traded firm with properties in Hatton compared the dispute to a “similar controls - made secret trips to Iran last year. some of Dubai’s major residential develop- situation” involving Saudi Arabia’s health The case involves the Royal Bank of ments. That company posted large losses, ministry. In that case, he wrote, “leaked” Scotland, which had financed two oil tank- and its stock plunged. information to the news media led to inac- ers for the family. In January 2012, two Al After unsuccessful talks with SEWA, curate reports that the entire country had Sari-controlled companies stopped making FAL Oil filed court claims against the util- lost its insurance coverage. “As you might loan payments on the vessels, according to ity in Sharjah. It was a highly unusual move imagine this had an immediate impact,” a judgment last November by the High in a region where disputes with govern- Hatton wrote. Court of Justice in London. The bank made ments normally are avoided or settled pri- In an emailed response to Hatton, the efforts to collect its money – about $12 mil- vately. The case involved not only the fuel SEWA acting director asked that “your lion - and began looking for the ships. bill, but also discounted land that Sharjah company refrain from any action that may According to the judgment, RBS discov- had given to Al Sari companies in partial constitute ‘defamation of character’ of a ered last June that one of the tankers, the payment for oil, according to officials with Sharjah Pride, had apparently switched off FAL Oil and SEWA. SEWA filed counter- its tracking equipment and since June 26 claims against FAL Oil. “had been reported as calling at (the port of ) A SEWA official told Reuters, “Our $150 million Bandar Imam Khomeini, Iran, eight times.” disagreement is with prices, which were in- For safety reasons, large ships are re- Estimated maximum losses on flated, manipulation on the deliveries and quired to operate electronic equipment on the quality of some of the shipments.” purchase of Canadian refineries known as an Automatic Identification Majid Al Sari disputes those allegations. System, or AIS, which broadcasts its lo- With no settlement in sight, FAL Oil government entity” and warned of possible cation, destination and other data. The began falling behind in its payments to legal action. United Nation’s International Maritime banks that had financed its ships and trad- Hatton declined to comment to Reuters, Organisation says a ship’s tracking tran- ing business. In late 2011, Pakistan State saying “that would put me in a rather diffi- sponder “should always be in operation” un- Oil Co. blacklisted FAL Oil from partici- cult position.” A spokeswoman for Atradius less it would jeopardise a vessel’s safety, such pating in tenders after FAL failed to deliver and a spokesman for FAL Oil also declined as in waters frequented by pirates. an oil shipment, according to both parties. to comment, citing confidentiality agree- The bank questioned the ship’s where- The spokesman for FAL Oil said the ments. The dispute between the two firms abouts, but FAL Oil “consistently failed Pakistan case “is currently in an arbitration remains unresolved. to provide any adequate explanation,” the stage. There are claims made by FAL upon judgment states. AN IRAN CONNECTION PSO as well.” In August, following “complaints” by the To persuade SEWA to settle, FAL Oil The SEWA dispute wasn’t the family’s bank’s law firm “about apparent sailings to hired Atradius, a British company that pro- only headache. In January 2012, the State and from Iran,” FAL Oil told RBS that it vides credit insurance and collects debt, accord- Department punished FAL Oil for allegedly no longer had “operational control” of the ing to Al Sari and documents seen by Reuters. providing more than $70 million in refined Sharjah Pride, the judgment states. Majid In a letter to SEWA’s acting director petroleum to Iran in 2010. Those sales, the Al Sari told the bank the ship was now general dated Oct. 4, 2011, Colin Hatton, United States alleged, violated Washington controlled by a UAE firm, Golden Crown, Atradius’ head of special risk management, sanctions aimed at curbing Iran’s nuclear- which had agreed to buy the vessel but wrote that the matter was “potentially sig- development programme. FAL was barred hadn’t paid for it. “Mr. Majid Al Sari also nificantly serious.” He claimed that “SEWA from receiving U.S. export licenses and loans claimed that Golden Crown had stolen oil and by implication the Government of of more than $10 million from U.S. banks. from FAL Oil,” the judgment states.

SPECIAL REPORT 4 FAL OIL A Gulf family’s oil troubles

The High Court granted the bank’s GGICO, the Dubai conglomerate that request for a worldwide freeze on the as- owns real estate. The Al Sari family has a sets of FAL Oil and three other Al Sari controlling stake of just over 50 percent in family entities. GGICO, but the company is publicly trad- Ali Marashi, Golden Crown’s managing ed on the Dubai Financial Market. director, told Reuters that Golden Crown In interviews with Reuters, Majid Al bought the Sharjah Pride in November Sari and a spokesman for FAL Oil gave a 2011, and “the full amount toward pur- series of different accounts of whether or chase ... was totally settled with FAL Oil.” not the GGICO subsidiary and the iden- He said his company had sold the ves- tically named Sharjah oil-trading firm are sel five months later to a third party he de- one and the same. clined to identify. He said he had “no idea” On Feb. 12, Al Sari said the oil-trad- about any subsequent trips by the ship, and ing Horizon Energy was a separate entity also denied his firm had stolen any oil from from the GGICO unit. “This is a different FAL Oil. Horizon,” he said. He added that the oil- In interviews with Reuters, FAL Oil’s trading firm was called Horizon Energy Majid Al Sari said he still held the title to LLC, which he said was unrelated to the Sharjah Pride but didn’t know whether GGICO’s Horizon Energy Co LLC. the ships had gone to Iran last year. “The The FAL Oil spokesman in London documents are still in my name, and we still told Reuters on Feb. 25, “They are differ- own the vessel,” he said. TROUBLED TIES: FAL faces legal and financial ent, unrelated companies.” He said the Reuters obtained a copy of a bill of sale, disputes with a series of big name companies. GGICO unit “is now dormant due to the dated Nov. 22, 2011 and signed by Al Sari, REUTERS/LUKE MACGREGOR, DENIS BALIBOUSE, recent unfavourable economic landscape.” in which one of his family’s companies BOBBY YIP The spokesman also produced a copy of transferred ownership of the Sharjah Pride the oil-trading Horizon Energy’s trading to Golden Crown for $14.25 million. “The licence, dated last November, showing it receipt whereof is hereby acknowledged,” because I hold the title.” was owned by two Al Sari family entities. the document states. FAL Oil has accused Osman, their But a copy of the same firm’s trading Shown a copy, Al Sari said, “This was long-serving general manager, of being licence dated two months earlier, obtained signed by me, but as of today this is null and complicit in the alleged oil theft. The accu- by Reuters, shows that it was then owned void because no funds have changed hands.” sation resulted in his week-long detention by “GGICO Investments LLC” and a In a separate case, FAL Oil has accused a last year by Sharjah authorities, Al Sari and GGICO subsidiary called Emirates Lube UAE-based storage facility of failing to pay Osman say. Oil Co Ltd. Those two companies were re- for two cargoes of oil worth a total of $119.5 Osman, who left FAL Oil last summer, placed by two Al Sari family-owned com- million that were delivered last spring, ac- said he has not been charged and denies panies in the November trading licence. cording to Al Sari. The storage firm, VTTI any wrongdoing. He said he is challenging Shown a copy of the September li- Fujairah Terminals Ltd, is partly owned by the accusation. cence, the spokesman confirmed that Swiss-based trading giant Vitol. Horizon Energy had indeed been owned A DIFFERENT HORIZON? Vitol says it is the true owner of the car- by GGICO. goes, and it has commenced proceedings in As the litigation swirls, the Al Saris have In another interview on March 11, Al the English High Court to confirm its title resumed oil trading through a Sharjah- Sari said GGICO’s board last September to the oil. A Vitol spokesman said: “The licensed company called Horizon Energy or October approved giving his family full matter is subject to proceedings in Fujairah Co LLC. Majid Al Sari said the family control of Horizon Energy’s trading busi- and London. FAL’s claims are unfounded owns 100 percent of the firm. ness, and GGICO had been compensated. and we are confident they will be dismissed.” An entity by the name of Horizon He also said GGICO had notified the Al Sari said Vitol has “failed so far Energy Co LLC was listed as a wholly Dubai Financial Market of the ownership to provide any title to that oil,” adding: owned subsidiary in the 2008 consolidated change in a regulatory filing. “Which they will not be able to show you financial statements of another company: “All of this was done transparently and

SPECIAL REPORT 5 FAL OIL A Gulf family’s oil troubles

very openly,” he said. He promised to provide the related documentation to Reuters, but didn’t. The spokesman later said the records were “highly private and confidential” and couldn’t be made public. The stock ex- change last week couldn’t locate a copy of the regulatory filing, according to people familiar with the matter. These days FAL Oil, which once had about 120 employees and another 200 support personnel, is a shell of its former self. Al Sari said it now has about 20 to 30 employees. Over the past two years, its shipping fleet has shrunk from some 45 vessels to a handful, he said. One ship was seized last summer by Singapore authorities because of a delinquent bank loan and sold at auc- tion to another Al Sari family company. The movement of some FAL ships also has raised suspicions among some oil in- dustry traders and executives about the ori- gin of the oil onboard. According to a Reuters analysis of AIS STOP SIGN: A metro station in Dubai named after the Al Sari-controlled GGICO. REUTERS/STRINGER ship-tracking data from the past year, on several occasions FAL vessels appear to have switched off their tracking devices were operating in restricted areas. Sharjah business with Horizon Energy. as they sailed toward the narrow Strait took even stronger action, banning several Added the spokesman: “Horizon of Hormuz, which separates the Arabian tankers owned by Al Sari companies and Energy has a successful business model in Peninsula from Iran. Many FAL ships have “any vessels” owned by the Al Saris or their place and a strong future ahead.” spent days or weeks lingering around a agents, for “unauthorised anchoring” in re- FAL storage tanker anchored miles off the stricted areas, according to a Feb. 26 notice Edited by Simon Robinson UAE coast. signed by Sharjah’s harbour master. Al Sari said the ships have operated far A Sharjah port official said the action offshore to save on insurance and denied was prompted by environmental concerns, FOR MORE INFORMATION they have done any business with Iran or such as potential oil spills. Said Al Sari: Steve Stecklow, Senior Correspondent made any trips to Iranian ports. He said “This is major harassment.” [email protected] some ships had turned off their tracking Nevertheless, the family’s Horizon Humeyra Pamuk, Gulf Energy devices “as a precautionary measure for the Energy is currently doing just fine, accord- Correspondent piracy issues.” ing to the FAL Oil spokesman. The compa- [email protected] The family’s fleet may have little choice ny “is rapidly expanding its client base” and Simon Robinson, Enterprise Editor, but to remain offshore. In January, the has recently signed several new contracts, he Europe, Middle East and Africa emirate of Fujairah said it was banning a said. Officials with Yemen’s Aden Refinery [email protected] number of vessels owned by Al Sari com- Co, the Bahrain Petroleum Co and Pakistan Michael Williams, Global Enterprise Editor panies from using its port because they State Oil all confirmed they are now doing [email protected]

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