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Russia's Mysterious, Faceless New Oil Plutocrat
By Robert Amsterdam, I Putin 11/6/08
Jun 12, 2008 - 1:18:41 PM

Today we finally have the very first interview with him in the Wall Street Journal, which attempts to get a better look at arguably one of the most important individuals in the oil sector. He is believed to be worth at least $20 billion, helped certain Kremlin bureaucrats devour the assets of Yukos, and is said to be Vladimir Putin's principal oligarch operator. Timchenko vigorously denies these allegations, as well as any former role in the KGB or any privileged relationship with Putin. For the WSJ interview, he made two conditions: no photograph could be published, and the location of Gunvor's operations in Geneva must not be revealed. Enjoy the story - it's a wild one..

Secretive Associate of Putin Emerges As Czar of Russian Oil Trading

In First Interview, Timchenko Denies Ties; Rivals Face Hurdle

  ANDREW HIGGINS, GUY CHAZAN and ALAN CULLISON, WSJ 11/6/08

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 €4.9 million (less than $5 million at the time) and paid €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."