London Calling - July 8 2003Published by MAC on 2003-07-08
London Calling! July 8 2003
Roman, friends and countrymen
Penetrating Russia (and Britain) steppe by steppe: part two
"Reputations are in danger, If an oligarch is embarrassed by revelations about his financial origins, so might the western companies and institutions that have taken oligarchs money "
Thus opined the Financial Times last week, as Roman Abramovich, with the assistance of that bastion of banking rectitude, Citigroup, baled out of one of London's most venerable institutions, the Chelsea football club. Abramovich is expected to proffer up to two hundred million quid in order to acquire "the blues" team. Many fans have ecstatically wreathed their scarves around the Russian oligarch's slim shoulders. But others are asking what lies behind this retiring 36-year old's spectacular British debut. Who really stands to benefit? Is there perhaps a whiff of dirty rouble-laundering in the summer city air? And was it sheer coincidence that the Chelsea deal was brokered, just when fellow countryman President Putin happened to be in town, trying to stitch up some lucrative oil and gas deals, as well as approving the marriage between British Petroleum (BP) and Russia's TNK?
Actually, Roman is far from a stranger to the English capital. If a "Friends of Abramovich" were established tomorrow, London would be its natural home. Not a sword's thrust away from the resurrected Globe theatre lie some of Mr Abramovich's established partners and putative business cronies. These already include Rio Tinto/CRA and Citigate, and might soon involve BP, Fleming partners and Peter Hambro among others.
Measure for Measure
Of course this doesn't mean that, when the "oligarchs" (though "conglomerarchs" might be a better term) started their global outreach back in the 1990s, they set foot only on English shores. Lukoil moved on Getty Petroleum's US service stations some years ago. Norilsk, the world's biggest platinum group metals producer and second biggest hewer of nickel, took over America's historic Stillwater mining company just last month.
However, Russian comprador capitalists have a special affinity for the sceptred isle, not to mention what they see as relatively astringent British financial oversight. Russia's premier oil company, Yukos, bought up Anglo-Norwegian Kvaerner's British service businesses in 2002, while the company's key shareholder, Mikhail Khodorkovsky, is funding the extension of the historic Heritage site. (Ironic considering that Khodorkovsky in the nineties was vigorous in trying to keep foreign companies from taking over Russian natural resource assets). It's not only old city buildings that get a makeover. Several London PR companies have readily assisted the oligarchs in airbrushing their tarnished "mafia" images. Slapping greasepaint and powder on Roman Abramovich himself is the London firm of Citigate.
As he likes it
Roman Arkadyevitch Aramovich is officially governor of Chukotka, land of the indigenous Chukchi (although in these days of the Kremlin war on autonomy, you'd hardly know it.) The territory is loaded with natural gas, gold and fish. Abramovich is also a key shareholder in Russia's national airline, Aeroflot; holds 92% of Sibneft Oil, owns 49% of the Ort TV station, and has sequestered half of Rusal, the country's number one aluminium conglomerate. Not surprisingly these gains - dependent on the "privatisation" ploys of the appalling Boris Yeltsin - have made Roman the second richest man in Russia.
In 1995 Abramovich forged an alliance with the archetypal patriach Boris Berezovsky (aka Berezovskii) whom the Financial Times dubs "the grey cardinal" behind Yeltsin, as the president plotted and ploughed his way through former state-controlled assets (murdering thousands of Chechens along the way.) But, in 2000, Berezovsky fell foul of Vladimir Putin after accusing Yeltsin's successor of "autocratic tendencies". He sold his Russians business interests, going into self imposed exile in France. Later, Berezovsky crossed to England where he currently resides. But once again he's under threat, though not from the British tax authorities: Putin is demanding Boris' extradition over a series of alleged frauds.
Berezovsky is linked to Abramovich through their former joint ownership of Sibneft, from which Roman rakes in US$480 million of dividends alone each year. This comes partly thanks to the support which Citigroup (the US's biggest financial services firm) has provided Roman since 1997. The Financial Times estimates that the US bank - itself accused of financial irregularities - has arranged more than US$1.6 billion of loans for Sibneft since 1977.
In turn the oil firm is being poached by Yukos (for which Citigroup arranged a US$1 billion bond last week - surely a potential conflict of interest?). If the merger comes off, Abramovich personally stands to make US$3 billion. Except that, last week Platon Lebedev, the second biggest shareholder in Yukos, was arrested in Moscow. He's being questioned about the purloining of a government stake in a fertiliser company, thus casting doubt on whether the deal will proceed in the near future. (Meanwhile Yukos itself is under fire from environmental NGOs and those supporting Russia's far north indigenous communities: its proposed 2400 kilometre pipeline from Irkutsk to China threatens the integrity Tunkinsky National Park and sites sacred to the Buryati people, according to the Republic Law Centre of Buryatya.)
Much ado about something
Earlier this year London Calling began sketching a rough road map through the tangled and tortuous terrain of Russian mineral resource ownership and its links to British players. Many a piece is still missing but, wherever you follow the track, you're likely to come up against the Flemings. We've introduced readers to Highland Gold, the AIM-listed enterprise "assisted" by Fleming partners, which claims its biggest asset to be Russia's Mnogovershinnoye gold mine in Khabarovsk. However, as Mineweb has pointed out: "[H]ow the asset was acquired, and from whom, remain a mystery, particularly in the Khabarovsk region. Not much new money was raised in London, but the price at which it was managed by Fleming was a boon to the founding stakeholders."
In February, Roddie Fleming launched what Mineweb's John Helmer called "an audacious Russia gambit" when he strongly hinted he would make a major investment in Siberian Ural Aluminium Ltd (SUAL), the country's second biggest aluminium company. If the move were to come off, said Helmer, Fleming's eponymous partnership could become a "rival to Anglo-American, BHP Billiton, and Rio Tinto". SUAL has just got a US$90 million lift from the World Bank's IFC and the European Bank for Reconstruction and Development (EBRD) for an integrated bauxite/alumina/primary aluminium complex in Russian the republic of Komi.
But Roddie has his eyes on other targets too. He claims to have a mandate from Alrosa, Russia's largest diamond miner, to raise finance for new mining investment. "Until now", commented Helmer "Alrosa has been considered such an uncertain quantity that noone outside Russia has been willing to lend to it, except on terms that assure [that] the security against default is safely offshore. In each case, Fleming's strategy has been to package a risky Russian asset, about which little is known, for sale to western mining investors who are persuaded the package is solid enough, no matter how volatile the contents. In the recent short history of gambling by the stock exchanges of the world on Russian mining resources, it has always been said that the quality of the venture depended on the reliability of the Russian partner... Fleming has come up with a new twist, suggesting that his own reliability is the guarantee, plus the discreet disclosure that Fleming's Russian partners are well-known oligarchs like Roman Abramovich or Mikhail Fridman".
Abramovich is already linked to the notorious Russian conflict diamond exploiter, Lev Leviev. In November last year, Le Monde accused Abramovich of helping Leviev market Angola's ill gotten sparklers overseas. (Coincdentally, last week, the bankrupt Namibian mining company (Namco) - in which Leviev was the main shareholder - announced a London-led rescue package to prevent its operations being taken over by the Namibian government: among Namco's assets are the British registered Namco Services Ltd).
Mikhail Fridman heads the Alfa banking and industrial group, along with his colleague Peter Aven. Together with the Access and Renova groups, they are the key shareholders in TNK, BP's new partner across the Urals.
And TNK is itself now the subject of a tax fraud investigation in New York.
It's all beginning to read like a plot by the Bard, dusted down by Dostoevesky, sexed up by a prime minister's press secretary and relocated to the Hogwarts Academy of fraudulent business alchemy.
The overlapping links, and mercantile machinations of the conglomerarchs defy easy plotting, let alone instant comprehension. And of course that's part of the aim. You throw dust in the eyes of your pursuers while dashing across the tundra, donning numerous corporate veils on the way.
Last week Tony Blair (he of the much-vaunted Extractive Industries Transparency Initiative or EITI), and BP (they of the much-vaunted "Publish what you pay" campaign), shook Putin heartily by the hand, while Chelsea warmly welcomed Abramovich into their midst. Did they care a damn about where the money was coming from, the exploitation of poor Russian' labour and the wholesale appropriation of indigenous territory required to get it?
Commenting on Abramovich's football coup, the Guardian's James Meek concluded that the tycoon " cannot be pinned down as ever having done anything illegal he has been able to take millions of dollars out of Russia in full public view with the blessing of the president".
And, we might add, with the apparent endorsement of the British prime minister.Next week: London Calling examines the Deripaska-Abramovich aluminium alliance, its former involvement with London-based Transworld and its current links to Rio Tinto
[Sources: Financial Times editorial comment and London connections with the oligarchs, July 4 2003 ; Citigate's role, Evening Standard (London) July 2 2003; Abramovich's oil acquisitions: Guardian July 3 2003; Yukos' threats to Buryatia, Taiga News, issue 42, Taiga Rescue Network, Jokkmokk, Spring 2003; Fleming and Sual, Mineweb 20/2/2003; Sual and the IFC/EBRD, Mining Journal luly 4 2003; Khodorkovsky and keeping foreigners out of Russia, (ed) Archie Brown "Contemporary Russian Politics: a reader", Oxford University Press, 2001, page 562; Abramovich-Leviev connection, Le Monde November 27 2003; Namco deal Mining, Mining Journal, July 4 2003; TNK tax fraud, Guardian July 4 2003, Berezosky, Lebedev and Yukos, FT July 4 2003; Abramovich's Sibneft stake, FT 2/7/2003; Citigroup -Sibneft connection, FT July 3 2003; James Meek on Abramovich in the Guardian July 3 2002]
[London Calling is published by Nostromo Research, London. The opinions expressed do not necessarily reflect those of any other individual, organisation or editors of the MAC web site. Reproduction is encouraged with full acknowledgment]