Posted on 06/25/2008 1:13:47 PM PDT by Tailgunner Joe
Even in his early days, Mikhail Fridman, a Russian oligarch now worth more than £10bn, displayed the ruthless streak that, 20 years on, is causing BP's senior management at its London HQ in St James's Square alarm and fury in equal measure.
Fridman, who has accused BP's respected chairman Peter Sutherland of behaving like a Nazi in a battle over control of Russian oil and gas fields worth billions, first entered the business world cleaning windows in his native Ukraine with help from his university friend German Khan. If legend is to be believed, Fridman, all smiles and charm, would knock on a prospective customer's door and ask if they would like their windows cleaned. If they declined, Khan would come round later that day and dirty the windows. Again Fridman would knock on the door. 'Your windows really do need cleaning,' he would say. If the offer was again rejected, Khan would turn up and smash the windows, so the story goes. Once more Fridman would knock, certain of securing the cleaning contract.
True or not, oil experts insist that dealing with Fridman today - despite his vast wealth, which includes not just oil but banking, telecoms and retail interests - is not much different. Khan, who according to the Forbes rich list is worth £7bn, remains the enforcer while Fridman, 44, with his 'cherubic smile' and outward charm - he has in the past hosted at least one gala at the Royal Opera House at Covent Garden - is the puppet master who pulls the strings.
Alongside two other oligarchs, Leonard Blavatnik, who recently bought a £41m home in Kensington Palace Gardens, and Viktor Vekselberg, they are threatening to derail BP's joint business venture with them across dozens of Russian oilfields. BP's stake is reckoned to be worth anywhere from £8bn to £13bn, giving the company access to close to 4bn barrels of oil - which accounts for about a fifth of BP's global reserve of 18bn barrels.
When BP, then headed by Lord Browne, struck its deal with the Russians, the rest of the world oil industry was agog. It was a brilliant, audacious coup - to go into the heart of Russia, still an unknown giant awaking from the travails of the Communist era and to secure entry to its vast oil fields. Under Browne, BP had gone west, making spectacular takeovers in the US. This was BP heading east and it projected the old British Petroleum into a global player.
Now, in the worst-case scenario, BP could be forced out of Russia altogether with little or no compensation but the suspicion is that a new deal will be done with state-owned energy company Gazprom. The Russian president Dmitry Medvedev was formerly chairman of Gazprom.
Meanwhile, the four oligarchs, with apparent Kremlin backing, could easily emerge among the world's top 10 wealthiest. And it's not just the staggering sums that are at stake. This battle also pits British interests against Russia's newfound determination to take charge of its natural resources.
The odds are stacked against British success with claims and counter-claims of a dirty tricks campaign that has seen BP's offices in Moscow raided, two Oxford-educated brothers arrested for spying and even the head of BP's operations held on tax evasion charges.
The Evening Standard has learned that BP has upped security for its employees in Russia while a dossier has been prepared detailing what it believes is 'harassment' by the authorities. One source said that employees and their families in Moscow and elsewhere were currently feeling 'very paranoid'.
Now the company is braced for the suspension of TNK-BP's chief executive Robert Dudley over alleged minor infringements of health and safety practices in the company's offices.
Industry sources indicate that Dudley could be prevented from working for as long as three months - just as the oligarchs had been agitating for him to be removed. One source said that with 66,000 TNK-BP employees, it would not be difficult for the Russian authorities to find one prepared to make a complaint.
One oil industry insider said: 'How these oligarchs stand with the Kremlin is the $64,000 question. The intelligence suggests they have clout at a certain level within the Kremlin to shove BP around but not destroy them in Russia completely. They have been told they can give BP a good walloping but not so big that international investors run a mile.'
Fridman continued his charm offensive today with a rare broadcast interview for the BBCWorld Service. He reiterated the oligarchs' demand for Robert Dudley to step down and denied they were acting on behalf of the Kremlin.
Demonstrating his excellent command of English, he declared: 'This is not personal with Robert Dudley. I like him but you cannot have somebody in charge taking orders from BP. The CEO has to be independent. I fully expect that once Dudley goes BP will remain in the joint venture. It is, was and will be an extremely profitable venture for them.'
How the oligarchs came to take on BP is a story of the rebirth of Russia itself following the break-up of the Soviet Union. BP first got involved in Russian oil fields in 1997, investing around £200m for a 10% stake in a company called Sidanco, owned at that stage by another Russian oligarch, Vladimir Potanin, and a number of Western backers including the financier George Soros.
Almost overnight, Siberian outposts such as Nizhnevartovsk were transformed from frontier towns into booming cities, despite winters where temperatures can drop to minus 50C. Samotlor, the largest of Russia's oil fields, is close to Nizhnevartovsk and is owned by TNK-BP.
Potanin, however, was soon at war with Fridman over disputed ownership of some of the oil fields. Soros and other investors sold out as the battle raged. Between 1998 and 1999 BP lost close to 100 law suits filed by Fridman. The effect was to paralyse Sidanco. At the time oil was worth just a fraction of the $136 a barrel at which it is now being sold.
BP was not to be deterred. It went to the Americans for help and secured the support of President Bill Clinton. Madeleine Albright, the Secretary of State, directed that Fridman should not be given a huge loan he was then seeking from the US. Effectively, Fridman was to be blackballed from international business. The oligarch capitulated immediately. It was a brilliant coup for Lord Browne. BP then upped its stake in Sidanco to 25% after Potanin sold his interest.
Then, in 2003, it signed a deal amid much fanfare and in the presence of Tony Blair and Vladimir Putin. TNK-BP was founded with 50% owned by BP and 25% owned by Fridman's Alfa Group. Blavatnik's Access and Vekselberg's Renova took a 12.5% stake each.
For the past five years it has been a model of Anglo-Russian business relations. What could go wrong? The answer, of course, was everything.
Relations between Russia and the UK, friendly in 2003, grew colder than a Siberian winter following the assassination in 2006 of Alexander Litvinenko, the Russian dissident and former KGB agent poisoned by polonium 210 in a London hotel.
The first skirmishes with BP occurred in March this year when Ilya Zaslavsky, 28, who works for TNK-BP, and his brother Alexander, 32, both educated at Oxford, were arrested for spying, accused of stealing documents from Gazprom.
The next day police raided BP and TNKBP's headquarters in Moscow. Such raids can be terrifying. In previous forays, witnesses have described balaclava-clad armed militia marching into BP offices and removing computers and paperwork.
On the same day, a Russian environmental agency announced it would inspect Samotlor oil field - the same agency that two years earlier had threatened Royal Dutch Shell with the multi-billion dollar fines that led to Shell selling a controlling stake in its Sakhalin Island oil and gas development to Gazprom.
Then earlier this month, Robert Dudley, TNK-BP's chief executive, was interrogated for five hours at a Moscow police station over alleged tax irregularities pre-dating the 2003 formation of TNK-BP.
Only days before, the oligarchs had demanded Dudley's resignation.
The hostilities became public last week when BP's Irish chairman Peter Sutherland likened his oligarch partners to Russia's corporate raiders of the 1990s when state assets were hived off to friends of then president, Boris Yeltsin.
'This is just a return to the corporate raiding activities,' he said. 'Putin has referred to these tactics as relics, but unfortunately our partners continue to use them. The leaders of the country seem unwilling or unable to stop them. This is bad for us, bad for the company and, of course, very bad for Russia.'
He has since refused to be drawn on the subject even after an outburst by Fridman last week. At an extraordinary press conference, hastily convened in Moscow, he said of Sutherland's comments: 'That's in the best tradition of Goebbels's propaganda,' insisting he was not a 'typical cash-grabbing oligarch'. He added: 'There is a word in English for how BP has behaved - it's arrogance.'
Fridman has the ability to confuse or bamboozle opponents. Certainly it seems BP was sucked in by his charm. 'Mikhail comes across as witty and charming,' says a former business partner. 'He doesn't look ruthless or threatening. But don't be fooled. He would throw a grenade into a room just to see what opportunities would arise from the chaos.'
Divorced with two daughters, Fridman is based in Moscow but has two homes in France. His company Alfa Group's headquarters are described as having the 'look and feel of an old-time Hollywood mogul's lair'. The ceiling vaults rise 20ft while 'colossal' paintings hang on the walls. It is said he once bought a painting by Damien Hirst but in reality he has little interest in art, preferring to race Jeeps.
He grew up in Lvov in the Ukraine and studied metallurgy at the Moscow Institute of Steel and Alloys. There he met German Khan. They are the perfect fit. Where Fridman is charming, Khan, 46, a keen amateur boxer and gun collector, is described as quiet and 'vaguely psychotic'. He has top-level contacts within the Kremlin. While Fridman is 20th on the Forbes rich list, Khan comes in at 54th.
Vekselberg, 50, is, like the others, a Ukrainian Jew. His family on his father's side were wiped out in the Holocaust. Unlike many oligarchs he has remained married to his first wife, Marina, with whom he has two children. He studied at Moscow State University of Railway Transport where he met the fourth oligarch in TNK-BP consortium, Leonard Blavatnik. Blavatnik left the Soviet Union penniless at the age of 20 but stayed in touch with his friend Vekselberg.
Blavatnik, 49, holds an MBA from Harvard, took US citizenship, and has an American wife and family. He is said to have 'dabbled' in property in New York but the collapse of the Soviet Union offered opportunities in his homeland. It is suggested his acquisition of the Kensington house enables him to move more easily between New York and Moscow.
What next? The likelihood is that Fridman and his fellow oligarchs - whose only wish is to monetise their investment and add to their already enormous bank accounts - will sell out to Gazprom. BP is expected to sell a small share of its investment to Gazprom with whom it will then run the operation there. It will be peace in our time.
... He would throw a grenade into a room just to see what opportunities would arise from the chaos.'
Certainly describes the country's influence in the oil markets.
When you do business with the mafia, you take your chances. Which is what the Kremlin is. A bunch of gangsters who spew communist crap to the masses while through their business dealings and seizing of private businesses have become multi-millionaires.
BP took their chances going into these deals when you’re your dealing with a country whose concept of contractual law is meaningless.
NEWSFLASH! Oligarchs Ruthless!
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