The Financial Times, By Catherine Belton, 14 May 2008

In a prime lakefront office on the edge of Geneva’s banking district, about 40 men and women are quietly selling Russian crude for one of the world’s fastest-growing – and most secretive – oil traders.

“I think we’ve been a bit visionary,” says Torbjorn Tornqvist, the Swedish chairman and co-founder of privately-held Gunvor Group, a niche player in 2003 that has risen to become the world’s third largest oil trader, with forecast revenues this year of $70bn (¸36bn, €45bn). Only Vitol and Glencore now surpass it in sales. “In 2003, we decided to go for it,” he says in the first in-depth interview granted by the company. “We saw the market was opening up.”

But many wonder whether Gunvor’s rapid expansion over the past five years – just as the Kremlin has moved in on private oil production – is due to more than just vision. The company has “one very good friend,” a former partner says. “He is at the very top level,” says another.

Some have speculated whether there are ties that bind Gunvor’s other co-founder, Gennady Timchenko, and Vladimir Putin, Russia’s president from 2000 until last week. As the company emerges from obscurity, some details of the connections between the two are finally becoming clear. The company claims that it has not benefited from any political favours.

The company’s rise provides a glimpse into a secretive clique of businessmen close to Mr Putin who have made immense fortunes under his presidency but have so far stayed far away from public scrutiny. Even as Mr Putin completes a stage-managed transfer to the role of prime minister, installing his hand-picked successor, Dmitry Medvedev, as president, they are finding it increasingly hard to escape the spotlight. This year, Mr Timchenko for the first time made it on to the Forbes rich list with an estimated fortune of $2.5bn.

In a scanty paper trail, corporate records from St Petersburg show Mr Timchenko and a committee headed by Mr Putin participated in one business in the early 1990s. Bankers say the company, Golden Gates, was established to build an oil terminal at St Petersburg’s port but foundered in a clash with organised crime.

Mr Timchenko’s trading company, meanwhile, was a beneficiary of a large export quota under a scandal-tainted oil-for-food scheme set up by Mr Putin when he worked as head of the city administration’s foreign economic relations committee in 1991, local parliament records show. The trader also built close ties with Surgutneftegaz, a Kremlin-loyal oil company, inviting speculation he may have built a significant stake there.

The two men became so close that they founded a judo club together along with two other businessmen, according to the sporting director of the Yavara Neva judo club. Mr Putin has been a keen judo player since his childhood. “Putin brought with him all the big business people he was close with,” says the director, Valery Natalenko. Mr Tornqvist denies Mr Putin and Mr Timchenko meet regularly, but Mr Natalenko says the two have frequently appeared together at the club and have travelled with its players as it competed in Europe. Mr Timchenko’s sponsorship is valued as a secret of the club’s success. “Nothing just appears out of thin air,” says Mr Natalenko.

The same might be said for the rise of Gunvor. It paralleled an enormous shift in the Russian oil industry that began with the arrest of Mikhail Khodorkovsky, the Yukos owner, in what was widely seen as a politically-motivated case in 2003. As Yukos was hit with $33bn in back-tax claims, dismantled and taken over by the state, Gunvor’s share of the Russian oil trade started to grow sharply. “They took over all our barrels,” says one former trader at Yukos’s Swiss trading arm Petroval, which was based just around the corner from Gunvor on Geneva’s Rue du Rhone until it closed down, bereft of oil.

From “much less” than 10 per cent of Russia’s seaborne oil export market in 2003, Gunvor now has about 30 per cent and expects to sell more than 90m tonnes of oil this year as it moves into markets in the Middle East and west Africa, Mr Tornqvist says. Revenues surged from just $5bn in 2004 to $43bn in 2007. All Russian oil companies, apart from Lukoil, have signed contracts with the trader, Mr Tornqvist says.

“They could not have done this without very powerful political connections,” says Chris Weafer, chief strategist at Uralsib investment bank in Moscow.

Questions have loomed large over exactly who has benefited from Gunvor’s takeover of the oil trade, and indeed how big its profits are. Following allegations by Stanislav Belkovsky, a political analyst, it has been speculated that Mr Putin is an ultimate beneficiary of the company. Mr Tornqvist swats aside that assertion as “baseless and nonsense”, even as he confirms the company has a third shareholder whose name he cannot reveal. “This is a private businessman who has nothing to do with politics. He is not very well known at all,” he says.

“Why this speculation about Putin?” Mr Tornqvist adds. “We don’t need it. We don’t have it. It’s a liability to us. We have 10 or 12 of the biggest banks in the world financing our business, controlling where we pay money. Every dollar we send goes through such scrutiny.

Mr Putin reserves special scorn for such suggestions. When asked directly this February about allegations that he had amassed a vast personal fortune through ties with businessmen, he told reporters that the reports were “just rubbish, picked out of someone’s nose and smeared on bits of paper”.

The company’s layered ownership structure reveals little. It is owned by a holding company in the Netherlands, Gunvor International BV, which is in turn owned by one in Cyprus, Gunvor Cyprus Holding Ltd. The ownership of the Cyprus entity ends at another postbox holding structure in the British Virgin Islands called EIS Clearwater Advisors Corp, which took ownership in April last year, according to the Cyprus company register. “It’s an absolutely closed box,” says Paul Millar, director for companies and ports at Lloyd’s MIU, the maritime research company.

Mr Tornqvist, a former BP trader, says he and and Mr Timchenko hold equal shares in Gunvor, which he says they founded together in 1997 after meeting while working in alliance at an Estonian oil terminal. The third shareholder, the private investor, took a small minority stake in the company in 2005 in return for financial support, he says. Mr Timchenko declined to comment for this article.

Gunvor does not disclose its profits. Mr Tornqvist says only that it will earn “in the hundreds of millions” on revenues of $70bn this year. Other oil traders say that sounds low: one estimated that Glencore – which also does not disclose its profits – made about $6bn on revenues of $140bn last year.

Alexander Temerko, a former Yukos vice-president who, until he was targeted by Russian prosecutors over his role in Yukos, used to own a house next door to Mr Timchenko in the salubrious Geneva suburb of Cologny, says the relationship between Mr Putin and Mr Timchenko is much more complicated than any ownership links. “If Putin needs help, Gena is always going to help him,” he said.

“Of course they are friends,” agrees one banker familiar with both men, speaking on condition of anonymity. “They both like judo and speak German. They are both very competent technocratic people. They are a natural fit.”

As for Mr Putin owning any stake in Gunvor, the banker considers this unnecessary. “These people don’t need money,” he says. “They go to the airport and the Gulf jet is already there...He doesn’t need to own anything.”

Gunvor, however, says even “suggestions that they are friends are not quite right”. The company says: “It is simply on occasion they have attended common events or come into contact.”

Indeed, Mr Tornqvist says the company has not benefited from any political favours but owes its rise to good business connections. “I could give you 10 people I know who have met Putin because he was working in trade, he was from St Petersburg and he was part of the establishment there,” he says. “But to jump from that and say they are somehow in business together is pure speculation.”
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Copyright The Financial Times Limited 2008