SECRETIVE ASSOCIATE OF PUTIN EMERGES AS CZAR OF RUSSIAN OIL TRADING
By Andrew Higgins, Guy Chazan And Alan Cullison
Wall Street Journal
June 11 2008
The Middleman
GENEVA — Gennady Timchenko, the world’s most powerful independent
trader of Russian oil, says he’s too busy to see his old acquaintance
Vladimir Putin, Russia’s most powerful man.
"I don’t have time to meet with him," the elusive Geneva-based
businessman said in his first media interview, held early last
month. "And he doesn’t have time to meet with me, probably."
Five days later, Mr. Timchenko was in St. Petersburg for a private
banquet attended by Mr. Putin, now Russia’s prime minister after
serving eight years as president. Both were guests at a party for
the Yavara-Neva Judo Club, which counts Mr. Timchenko as co-founder
and Mr. Putin as honorary chairman.
Unknown when Mr. Putin came to power in 2000, Mr. Timchenko’s company,
Gunvor Group, is now one of the top players in the business of selling
and transporting Russian oil. In February this year, it shipped 16
times as much crude from Russian ports as in February 2002, according
to data compiled by Nefte Compass, a journal that tracks the oil
trade. Gunvor is on pace to move $70 billion of oil this year, making
it the world’s No. 4 independent trader behind Glencore International
AG, Vitol SA and Trafigura Beheer BV.
Gunvor generates an aura of mystery rare even in the secretive world of
oil trading. Those who’ve done business for years with Mr. Timchenko
say they know little about him other than that he loves to play
tennis and trades a lot of oil. There are persistent whispers in
Russian business and foreign intelligence circles that Mr. Timchenko,
like Mr. Putin, served in the KGB. Before agreeing to an interview,
he made two conditions: The Wall Street Journal could not publish
his photograph or divulge his operation’s Geneva location.
In a two-hour conversation in his office — austere but for a Russian
icon leaning on a wall — the 55-year-old tycoon spoke expansively
about his business in accented English. He bristled only when asked
about his alleged KGB ties (a "fairy tale," he said) and relationship
with Mr. Putin. Mr. Timchenko says he has known Mr. Putin since the
early 1990s but says they aren’t friends. He denies receiving favors
from him.
"I’m a businessman, not a politician," he said, attributing Gunvor’s
success to its ability to transport oil on time and on budget. "Our
advantage is clearly logistics."
Mr. Timchenko represents a new class of Russian plutocrat. In the
1990s under President Boris Yeltsin, a band of tycoons bought state
assets at rigged privatization sales, flaunting their wealth and
Kremlin ties. Under Mr. Putin, who values the results of the free
market but shuns its openness, positions of key influence over
the nation’s economy have tended to be held by longtime allies and
former KGB colleagues. Mr. Timchenko embodies the traits prized under
capitalism Putin-style: competence, political deference, longstanding
links to those in power and, above all, discretion.
"Everyone knows whose friend he is," says Alexander Temerko, a
former executive with Yukos, a private Russian oil company that was
effectively nationalized. "People like working with people who will
never be messed with."
Aligning Interests
Mr. Timchenko was successful before Mr. Putin came to power. But his
business interests align with the political priorities of Mr. Putin,
who has used Russia’s oil and gas wealth to revive the country’s
international clout.
After the Kremlin reasserted state control over some Russian oil
companies, Mr. Timchenko’s company took over some of their lucrative
oil-trading contracts. The trader has also pitched in on various
Kremlin-backed projects: He is investing in an oil terminal near
St. Petersburg, a centerpiece in Mr. Putin’s effort to give Russia
control over the export of its own oil. Gunvor has also skirted
some of Russia’s bureaucratic snarls. When the state-owned railway
announced track repairs along an important export route to Estonia
last year, deliveries to rivals’ terminals slowed to a trickle but
those controlled by Mr. Timchenko mostly continued apace.
A government spokesman said Mr. Putin hasn’t granted Mr. Timchenko
privileges or influenced any commercial activity on his behalf.
The gauze of rumor that envelops Mr. Timchenko’s empire — which also
includes shipping, railway and port interests as well as two luxury
French hotels — is in some ways a strength. Perceptions of hidden
influence can create their own reality for partners and a touch of
paranoia for competitors. Rival traders interviewed for this article
declined to be identified. One insisted on meeting outside his own
office for fear that Mr. Timchenko might have it under surveillance. A
Gunvor spokesman called such a suggestion "totally unfounded."
Power Elite
Born in 1952 to a Soviet military family in Armenia, Mr. Timchenko
was raised in East Germany and Ukraine. Like many members of Russia’s
current power-elite, he got his start in Leningrad, as St. Petersburg
was known in 1970, when he enrolled at its Mechanical Institute to
study electro-mechanical engineering. The school turned out several
members of Mr. Putin’s inner circle.
Mr. Timchenko says he graduated after seven years and went to work at
the Izhorsk Factory, a Soviet industrial behemoth. In 1984, he got a
job at the Leningrad office of the Soviet Ministry of Foreign Trade,
a prestigious position for citizens of a country that maintained
rigid controls on contact with foreigners and hard currency.
He shared an office with Andrei Katkov, who recalls that the two
swapped trading ideas during cigarette breaks. When Mikhail Gorbachev
came to power in 1985 and began relaxing the government’s monopoly
on trade, Mr. Katkov says he and Mr. Timchenko hatched a plan with
Yevgeny Malov, who worked in a state trading agency in the same office
block. The three lobbied a state-owned refinery in nearby Kirishi to
set up an in-house operation to trade oil, Mr. Katkov says.
In 1987, several refineries, including Kirishi, were given the right
to set up trading branches to export a limited range of products. The
refinery set up a trading arm and hired the trio. "My luck started
there," Mr. Timchenko said.
In the Soviet Union’s final years, foreign trade was awash with spies
and former spies. Mr. Timchenko’s team hooked up with Andrei Pannikov,
a Soviet trade counselor in Stockholm who was expelled for espionage in
1988 after he tried to recruit an oil-industry contact. Mr. Pannikov
was "always asking questions about oil," recalls Tore Forsberg,
the head of Swedish counterintelligence at the time.
In 1990, Mr. Pannikov set up SP Urals, a petroleum-trade joint
venture with a Swedish company and several Russian partners
including Mr. Timchenko’s state-owned refinery trading outfit,
Kirishineftekhimexport. The refinery team supplied refined products
to SP Urals, which then sold them abroad.
Mr. Pannikov says he was still on the KGB payroll at the time but
quit soon afterward. He says Mr. Timchenko wasn’t a spy.
Mr. Putin, meanwhile, returned from his own KGB stint in East Germany
to his hometown of St. Petersburg. There, as head of the city’s
external-relations committee, he handed an early piece of business
to Mr. Timchenko and his colleagues.
The 1991 collapse of the Soviet Union and its command economy had left
St. Petersburg dangerously short of food. To help the city raise money,
Moscow granted oil-export quotas to local authorities. Mr. Putin’s
committee passed these to Mr. Timchenko and his crew at the refinery
trading company, which used the proceeds from foreign sales to buy
herring from Iceland and other foodstuffs.
Some of the barter deals supervised by Mr. Putin drew an investigation
by St. Petersburg’s city council. Councilors complained that the
proceeds for 100,000 tons of diesel exported by the Kirishi refinery
never made it to local authorities. The contract for that deal, viewed
by the Journal, names only an intermediary called Nevsky Dom. Its
backers, and any role played by Mr. Timchenko’s team, are unclear. "It
never happened that we didn’t pay money," Mr. Timchenko said.
‘Real Businessmen’
An American banker who met Mr. Timchenko in St. Petersburg in the early
1990s — at Mr. Putin’s urging, he says — recalls the oil trader was
well-dressed and competent. His office in a ramshackle central quarter
was tastefully renovated. "Wow! There really are some real businessmen
in this country," the banker recalls thinking. In contrast with other
would-be entrepreneurs, he says, Mr. Timchenko "didn’t want my money."
With phone lines and other basic tools sorely lacking in
St. Petersburg, Mr. Timchenko moved to Finland, long Russia’s gateway
to the West, to represent the refinery’s trading company.
Around 1994, as a wave of state companies went private, the Kirishi
refinery trading company was privatized and renamed KiNex. Urals,
the oil-trading joint venture set up by ex-spy Mr. Pannikov, became
International Petroleum Products, or IPP. The companies’ records shed
little light on their ultimate ownership.
At the same time, Mr. Timchenko became head of IPP’s Scandinavian
operations. He worked both sides of transactions — selling oil
products from the Kirishi refinery through KiNex, then buying them
through IPP. He prospered. He sent his two daughters to be educated
in Britain.
Kirishi Refinery, meanwhile, was going broke and got swallowed up by
Surgutneftegaz, a privatized Siberian oil company. Surgut’s ownership
was a mystery then and remains so, as the company keeps its share
registry secret.
Eager to take advantage of an oil-export terminal that opened in
nearby Estonia in the early 1990s, Mr. Timchenko helped set up Link
Oil, a rail shuttle service to deliver first oil products, and then
crude, from Kirishi. Amid the post-Soviet chaos and corruption, the
shuttle "ran like a clock," says Anti Oidsalu, who was in charge of
the Estonian terminal.
Mr. Timchenko began doing deals with Torbjorn Tornqvist, a Swedish
trader and superb tennis player then working in Estonia. Mr. Tornqvist
is now co-owner of Gunvor.
The Russian also nurtured his St. Petersburg ties. In 1998,
Mr. Timchenko provided money to help set up Yavara-Neva, a sport club
managed by Mr. Putin’s boyhood judo partner. Mr. Putin, a black-belt,
later became the club’s honorary chairman. The venture was "a good
idea," Mr. Timchenko said. "Patriotic."
In 1999, as Russia spasmed in near-constant economic and political
crisis, Mr. Timchenko renounced his Russian citizenship. He became
a Finnish national, according to naturalization documents.
Finnish court documents reveal a minor dispute there. Complaining of
shoddy work, Mr. Timchenko refused to pay roughly $4,000 for window
repairs on his Helsinki home.
Leo Tham, who worked for the window company, says the previously
cordial Mr. Timchenko got very angry and, boasting of powerful
friends in Russia, warned it "was better not to struggle with him." A
magistrate’s tribunal ordered Mr. Timchenko to pay the window bill
plus legal fees, according to the written verdict.
"Nonsense," Mr. Timchenko said. "I’ve never had any cases in
Finland." Later, a Gunvor spokesman clarified that there had been a
dispute and that the bill was paid "after a delay."
Soaring Fortunes
On the eve of the new millennium, Mr. Yeltsin stepped down, replaced
by his recently appointed prime minister, Mr. Putin. Oil prices began
to rise. Russia’s economy picked up.
Mr. Timchenko’s fortunes soared. His combined salary and investment
income declared in Finland rose more than tenfold between 1999 and
2001, when he reported earnings of â~B¬4.9 million (less than $5
million at the time) and paid â~B¬1.9 million in tax, according to
Finnish tax records.
His ties to Surgutneftegaz, which now owned the Kirishi refinery,
helped provide a lift. By 2002, Surgut was pumping the lion’s share of
its oil-product exports through KiNex. Hermitage Capital, an investment
fund active in Russia, says its review of customs and other data
suggests that KiNex got a discount on the international market price.
Mr. Timchenko says Hermitage doesn’t take into account transport and
other costs, adding that Surgut’s boss, Vladimir Bogdanov, "will bite
you" over "one single cent" gone astray. In an April interview with
a Russian newspaper, Mr. Bogdanov said his company exports crude and
oil products through a variety of traders with terms set by the market.
Fed up with Finnish taxes, Mr. Timchenko moved in 2002 to Switzerland
with his wife and their young son. He says he cut a deal with tax
authorities to pay a lump sum each year, irrespective of earnings,
a deal the country commonly strikes with wealthy expats.
In 2003, Mr. Timchenko bought a mansion overlooking Lake Geneva
for 18.4 million Swiss francs, now over $17 million. He received
planning permission to build a subterranean tennis court and
pool. Mr. Tornqvist, his partner, bought a property across the road.
Mr. Timchenko also split from Messrs. Katkov and Malov, saying
his longtime Russian partners didn’t appreciate his international
perspectives. He offered a "friendly deal" to buy the pair out,
he said, but they declined.
"Let him say what he wants," Mr. Katkov said. Mr. Malov could not be
reached for comment.
The rupture left Messrs. Katkov and Malov with Link Oil and KiNex. But
new companies associated with Mr. Timchenko took over much of the
transport of petroleum via Estonia and the trade of Surgutneftegaz’s
oil products. Part of IPP, another link in the chain, morphed into
Gunvor, which became Mr. Timchenko’s flagship.
Mr. Timchenko said he and Mr. Tornqvist own over 80% of Gunvor
Group. The rest, he said, is held by a business associate in
St. Petersburg whom he declined to name.
After cutting his trading teeth with products such as fuel oils,
Mr. Timchenko had by now moved into the lucrative crude business. The
global oil trade is dominated by major oil companies — the likes
of Exxon Mobil Corp. and Saudi Aramco have arms that sell and ship
their oil — and a handful of independent traders such as Gunvor
that not only buy and sell oil but invest in terminals, refineries
and shipping lines.
Mr. Timchenko’s retooling coincided with a bigger shift in Russian
oil. In 2003, Mr. Putin began reasserting state control over the
energy sector. After the high-profile imprisonment of the head of
private oil company Yukos, state-owned Rosneft took control of Yukos’s
Siberian fields. Gazprom, the state gas company, bought out another
big private producer, Sibneft. Rosneft and Gazprom didn’t use the
in-house trading arms of Yukos and Sibneft, instead selling a big
chunk of their exports through Gunvor.
Mr. Timchenko’s group took everything "virtually overnight," said a
former executive of Yukos’s now-defunct trading arm.
Gunvor expanded, opening offices in Singapore, Nigeria and
Amsterdam. It bought a Finnish shipping company and poached traders
from top-tier rivals in a drive to diversify into Africa and Latin
America.
Gunvor doesn’t release detailed earnings but says they are now in
"hundreds of millions" of dollars. The last available detailed figures,
contained in a Gunvor Group report for 2006 that the company circulated
to its bankers and partners, showed a profit of $220 million.
Avoiding Pitfalls
Rival traders say Gunvor is good at moving oil. But it also has an
uncanny ability, they say, to avoid pitfalls that curse business
in Russia.
When Russia and Estonia feuded last year over the removal of a
Soviet war memorial, Moscow abruptly announced that track repairs
would block the railway line to Estonia. Deliveries to an Estonian
oil terminal owned by Mercuria, a Gunvor rival, slowed to a trickle,
as did those to a terminal partly owned by Trafigura, according to
official Estonian figures. Traffic to a terminal that works closely
with Gunvor — and that has co-sponsored tennis tournaments with it —
continued to flow much as before.
"The only one allowed to export through Estonia now is Gunvor,"
said Mr. Katkov, who owns a stake in one of the ports clobbered by
the rail slowdown.
Mr. Timchenko says he controls 60% of the oil and petroleum-product
transit volumes through Estonia.
Mr. Timchenko was recently hailed as a "real patriot of
Russia" by Nikolai Tokarev, the head of Russian pipeline monopoly
Transneft. Referring to foreign traders Glencore and Vitol, Mr. Tokarev
said: "Their time is coming to an end."
Mr. Timchenko’s plans for the future dovetail with those of Russia’s
prime minister. Mr. Putin champions Russian-controlled ports, pipelines
and other infrastructure. Last month, Mr. Putin visited the site of a
massive port development near St. Petersburg, where he trumpeted the
importance of exporting Russian oil from Russian ports. The project’s
centerpiece is an oil terminal partly financed by Mr. Timchenko.
A Gunvor spokesman said its port investment is currently "very small"
but may become "very substantial."
After the port visit, Mr. Putin rushed back to St. Petersburg to
join Mr. Timchenko and others for the judo club’s 10th anniversary
festivities at the czarist-era Sheremetev Palace. A Gunvor spokesman
confirmed both men attended but had "no specific contact."
THE TRADER
â~@¢ The Man: The secretive Gennady Timchenko has built Gunvor Group
into the world’s most powerful independent trader of Russian oil.
â~@¢ The Mystery: His interests align with those of his old
acquaintance, Prime Minister Vladimir Putin, who has used Russia’s
oil wealth to revive the country’s international clout. The two deny
there are close ties or favoritism.
â~@¢ The Meaning: Mr. Putin’s old allies are often in a position to
wield influence over key areas of Russia’s economy.
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