||Last Updated: Oct 12, 2008 - 7:21:40 AM
Peter Mandelson gave trade concessions worth up to £50m a year to
Russia’s richest man who has entertained him on his superyacht.
The encounter on the 238ft yacht, Queen K, in Corfu this summer was the
latest in a series of social meetings between Mandelson and Oleg
Deripaska — known as the “king of aluminium” — during the politician’s
term as European Union trade commissioner.
In the past three years Mandelson twice acted to cut European aluminium
import duties. Deripaska’s company Rusal, the world’s largest producer
of aluminium, was one of the main beneficiaries.
At the time of Mandelson’s Corfu holiday his trade department was a few
weeks into a fresh investigation into aluminium foil tariffs, which
could have hit one of the Russian’s companies.
A European commission spokesman for Mandelson said last week that he
went only to a drinks party on the yacht. But after The Sunday Times
was told by an authoritative source that he had been an overnight guest
on the boat, the spokesman said: “He exercised his role as commissioner
despite his friendship with Mr Deripaska.” He refused to say whether
Mandelson had stayed on board.
Mandelson, who was appointed business secretary in the government
reshuffle, now faces calls to disclose the exact hospitality he
received. He denies a conflict of interest and says the changes in
duties were routine commission matters.
Norman Baker, the Liberal Democrat MP, said: “He should not have been
accepting hospitality from a billionaire who is a clear beneficiary of
his policy decisions as European commissioner. It has long been one of
Mandelson’s trademarks that he is fascinated by the very wealthy, but
as trade commissioner — and now business secretary — he needs to be
extremely careful about any potential conflicts of interests.”
For a few weeks a year, a small stretch of northeast Corfu becomes an
exclusive enclave for some of the super-rich. Last August Mandelson was
also holding court.
In recent days the Westminster chatter about Mandelson’s Greek getaway
has been about his chance encounter with George Osborne, the shadow
chancellor. Mandelson, as The Sunday Times reported last week, is said
to have “dripped pure poison” about Brown to a senior Tory.
However, the trip also revealed Mandelson’s intriguing social
acquaintance with Deripaska, who was earlier this year said to be
Russia’s richest man. Mandelson was spotted at a party aboard the
tycoon’s superyacht, the Queen K.
The yacht was bought by Deripaska in 2006 and has undergone extensive
refurbishment. It has six guest suites — one with a private terrace and
pool — and accommodates 20 crew.
Deripaska’s business was undoubtedly already familiar to Mandelson. He
has twice cut import duties on aluminium — with the Russian tycoon’s
giant aluminium company a main beneficiary.
In a document signed off by Mandelson in December 2005, it was agreed
the European commission would scrap measures against Deripaska’s
company, Rusal Sayanal, controlled by Rusal, to prevent it “dumping”
cheap aluminium foil in Europe. A year-long investigation had cleared
the company of this practice.
The document meant the import duty for Rusal Sayanal was officially set
at zero. All other Russian companies exporting the same product were
charged at 14.9%.
In 2007, there was another fillip for Rusal, when Mandelson’s trade
department drew up a proposal halving the duty on raw aluminium from 6%
to 3%. After the final decision was approved by EU ministers, a
spokesman for Rusal said the new duties would enable it to “strengthen”
its position in Europe. The cut in tariffs represented an estimated
saving to Deripaska’s company of up to £50m a year.
The month before Mandelson’s trip to Corfu, another inquiry into
aluminium tariffs began. Mandelson’s officials were investigating
whether to impose duties on aluminium foil imports from Armenia, Brazil
and China. An EC spokesman said that one of the companies under
investigation was owned by Deripaska.
While Mandelson says he has never discussed tariffs with Deripaska, the
tycoon is a consummate lobbyist on behalf of his own industry,
networking each year with politicians at the World Economic Summit in
Davos. In 2006 a lobbyist helped arrange a meeting between him and
Senator John McCain, now the Republican candidate for president.
Deripaska, 40, studied quantum physics at university. He was the
manager of a Siberian aluminium plant at only 25 and rose into the
ranks of the super-rich from this highly lucrative post-Soviet
industry. During the dangerous 1990s, there was gang warfare for
control of aluminium smelters in Siberia, and one of Deripaska’s
associates was badly injured.
A ruthless business ethic combined with a knack for cultivating
political contacts — he married into the family of Boris Yeltsin, the
former Russian president — saw him emerge victorious from the aluminium
wars. Roman Abramovich, the owner of Chelsea football club, was one of
his partners and is still a friend. But his most powerful ally is the
prime minister, Vladimir Putin, although this relationship is likely to
be tested if Rusal, as has been reported, requires state funds to get
it through the credit crisis. The tycoon has been badly hit by the
credit crunch, liquidating assets for cash.
Deripaska has worked vigorously to protect his reputation, robustly
denying reports in the American press of suspicions of illegal
activities in his early business career. His entry visa to America was
revoked last year for unspecified reasons. He has blamed the decision
One of Deripaska’s key financial advisers is Nat Rothschild, who is
co-chairman of a New York hedge fund and a friend of Mandelson’s. Nat
Rothschild’s father, the financier Lord Rothschild, owns a villa in
Corfu where Mandelson has stayed as a guest. The Queen K is understood
to have been moored just offshore from the villa.
As Mandelson starts his new job as business secretary, his links with
the super-rich, including Deripaska, face greater scrutiny. He will be
required to register any potential conflicts of interest with his
MEPs are also demanding closer scrutiny of any hospitality Mandelson
has accepted from Deripaska. Syed Kamall, a Conservative MEP and member
of the European parliament’s trade committee, said: “Mr Mandelson must
demonstrate that he came to his decisions independently, and that by
accepting hospitality on the yacht there was no conflict of interest.”
When asked what hospitality Mandelson had received from Deripaska last
week, his EC spokesman said: “The only information I have is that he
went on board for drinks.” When told that a source said Mandelson had
in fact been staying on the yacht, rather than just visiting for
drinks, the spokesman said he could not comment further.
The spokesman said the changes in tariffs had not been initiated by
Mandelson and he had not discussed them with Deripaska or Rothschild,
so “the issue of conflict of interest simply does not arise”
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