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WSJ: Secretive Associate Of Putin Emerges As Czar Of Russian Oil Tra

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  • WSJ: Secretive Associate Of Putin Emerges As Czar Of Russian Oil Tra

    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.

    http://online.wsj.com/article/SB12131421 0826662571.html?mod=googlenews_wsj

    --Boundary_(ID _yAUjZ4hePtNzXagTg2YDdw)--
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