Business
Mandelson and Deripaska
By Jon Ungoed-Thomas and Nicola Smith, Times 12/10/08
Oct 12, 2008 - 7:20:26 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 on bureaucracy.

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 department.

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”

Source: Ocnus.net 2008