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Oleg Deripaska (Anthony Jenkins/The Globe and Mail)
Oleg Deripaska (Anthony Jenkins/The Globe and Mail)

The Lunch

At home with Russian oligarch Oleg Deripaska Add to ...

Oleg Deripaska, the Russian billionaire who is said to be Prime Minister Vladimir Putin's favourite industrialist, has gone unshaven for at least three days. He is in grey training pants, a white T-shirt and a dark blue fleece. His nine-year-old son Peter and the family's Labrador retriever, Leo, scurry about. It is 10:30 at night and Mr. Deripaska is relaxed, that is, as relaxed as anyone with 240,000 employees, a empire that nearly collapsed two years ago and a frisky dog trying to drag the table cloth (and all the plates with it) onto the floor can be.

More lunches

We are in the Deripaska family chalet about 20 kilometres outside of Moscow. A small ski hill next to the chalet is floodlit, exposing a few of the security guards who are an eternal presence in his life. Mr. Deripaska flops onto one of the cushy, low-slung chairs, orders tea from the kitchen staff and invites me to call him Oleg.

The bookshelves are laden with classic Russian novels and books on modern Japanese design - Mr. Deripaska loves Tokyo. Peter, who speaks English with a British accent (he and his sister share a British nanny) is showing us how Leo can dance on his hind legs. His father laughs. "Very intelligent dogs, Labradors," he says.

The modern chalet is big but not ostentatious. "I am not in Aspen, I live in Moscow," he says in an English that has improved markedly since I last interviewed him in his Moscow office in early 2008. Less than a year later, he was fighting for survival as the financial crisis shredded the value of his holdings.

Exactly how Mr. Deripaska managed to save Rusal - the aluminum company that was the main source of his wealth - and other investments, is still a matter of debate. Certainly he won a standoff with foreign creditors, but some think he would be dead and buried without a little help from his Kremlin friends, who evidently had no desire to see his investments seized by non-Russians. When his fortunes turned desperate in the bleakest months of the crisis, Mr. Deripaska's long-standing record of plowing his fortunes back into Russia, no doubt helped his cause; some of his fellow oligarchs chose instead to acquire overseas trophy assets like American and British sports teams.

Because he knows I am Canadian, he tells me how Peter has developed a passion for Canadian maple syrup. I wonder where he gets the stuff and before I can ask, he explains that his son was given a load of syrup by Barrick Gold chairman Peter Munk. The booty formed part of the cargo of Mr. Munk's yacht and was transferred to the Deripaskas' in Montenegro, where the two billionaires are developing a superyacht marina. As it turns out, maple syrup is not the only bit of Canadiana on Mr. Deripaska's mind. Two others are the Vancouver Olympics and Hydro-Québec.

Mr. Deripaska visited Vancouver (and attended the Russia-Canada hockey playoff) to get ideas for his developments at Sochi, the southern Russian town that will host the 2014 winter Olympics. Hydro-Québec might hold the key to his global hydroelectric ambitions. He told me he leaves Sunday for Montreal to discuss a possible partnership. "They have knowledge and expertise," he says. "We're looking for a partner to build new hydro plants."

Winning the aluminum crown

The dining table is covered with cakes and fresh fruit that are rare treats in frozen Russia: Pomegranates, strawberries, blueberries, grapes, oranges and small, sweet apples that were grown on Mr. Deripaska's farm. I wolf down a pork chop and fried potatoes and sip on Scotch. He sticks with tea, ignores the fruit and half-heartedly tackles a piece of cake.

Mr. Deripaska is 43, tall, slim and in good shape, thanks, apparently, to a careful diet and sporadic, though vigorous, bouts of cross-country skiing. With his stubble beard and close-cropped hair, he looks more like one of his security guards than the owner of Russia's most diversified industrial group, Basic Element, whose holdings range from uranium mines to Gaz, the car and truck maker that recently struck a deal with General Motors to produce small Chevrolets in Russia. There are more than 100 other companies in the empire, almost all of them private, in a bewildering array of industries. They include hotels, airports, defence and banks. Mr. Deripaska has a business that makes log cabins and another that publishes the Russian edition of Hello! magazine. Last year, the group's total revenues (unaudited) were $24.2-billion (U.S.).

In spite of his wealth - Forbes magazine last put it at about $11-billion, down from a pre-crisis peak of $28-billion - Mr. Deripaska is not conspicuously flashy like many of the oligarchs. Roman Abramovich collects superyachts like so many bathtub toys, owns Britain's Chelsea football club and just forked out £50-million ($79-million) for Spanish striker Fernando Torres. Suleiman Kerimov has a penchant for Ferraris, one of which he crashed in 2006, nearly burning him alive. Mikhail Prokhorov, the gold baron who loves to play basketball, owns the New Jersey Nets.

That is not to say that Mr. Deripaska deprives himself. His 73-metre, six-deck yacht, the Queen K, is a regular visitor to the Mediterranean's most glamorous resorts. He shuns hotels wherever he can. Instead, he buys properties in the places he frequents: Tokyo, London, Montenegro, among others. Mr. Deripaska is shy and strives to avoid publicity, to the point he doesn't publicize his numerous charities, which have doled out $250-million (U.S.) over the last decade, largely to education projects.

He is lucky he can play his own version of global Monopoly, for he came close to losing it all in the 2008 financial crisis.

Mr. Deripaska was born in Krasnodar, in Cossack country's tea-growing region in the far south of Russia. He was drafted into the Soviet army, became an accomplished physics and math student and went on to study nuclear physics at Moscow State University. Graduating just as the old Soviet Union was giving away to the new, raw capitalist Russia, he like many of his contemporaries went into business instead of state research.

He became a metals broker and emerged as the big winner of the so-called aluminum wars of the 1990s. The details are murky. What is known is that there were nasty bouts of violence. Mr. Deripaska often slept in his Siberian smelters so he could monitor their production during those turbulent years. Today Rusal is the biggest single source of his wealth. The company, floated on the Hong Kong exchange last year, is 47.4-per-cent owned by Mr. Deripaska, has a market value of about $25-billion and owns 25 per cent of Norilsk, the world's biggest nickel maker.

In 2007 he was on top of the world, only to learn that leverage cuts both ways. The crisis crippled his real estate, manufacturing and auto businesses. Gaz alone blew out 50,000 workers (though has since rehired 15,000). A margin call deprived him of his $1.5-billion stake in Canadian auto parts company Magna International and he had to unload his stake in Strabag, the Austrian construction giant that is building infrastructure for the Sochi Olympics (he has since bought back into Strabag).

When aluminum prices collapsed in the autumn of 2008, Rusal breached its covenants and seemed certain to become a ward of the international cadre of banks that had stuffed Rusal with $7.4-billion in loans.

Mr. Deripaska used a combination of tough negotiations and clever gamesmanship to keep control of Rusal. He bet correctly that the banks would have no interest in owning and managing a massively complicated company, whose supply chain extends from alumina operations in Jamaica to Siberian hydropower plants. "The deal was very simple," he says. "We never tried to screw the banks. I said 'You keep the debt and I will manage the company and deliver for you.'"

Another interpretation is that he owes Rusal's salvation to his impeccable government connections (he is married to the daughter of the chief-of-staff to former president Boris Yeltsin). Kremlin-controlled VEB bank gave Rusal a $4.5-billion bailout loan at the height of the financial crisis, allowing the company to restructure its foreign debt. The Kremlin would not have liked the alternative. The foreign banks might have seized Rusal, only to sell it to a rival such as Aloca or Rio Tinto. Big resources like aluminum are considered national strategic assets in Russia.

The crisis appeared to damage Mr. Deripaska's relationship with Mr. Putin, however. In a televised broadcast in mid-2009 in a hard-hit Russian industrial town called Pikalyovo, Mr. Putin compared industrial barons who left workers' wages unpaid to cockroaches. He then forced Mr. Deripaska to sign a document safeguarding the future of a local factory, snapping "And give me back my pen," the moment the crestfallen oligarch did so.

The event played well in recession-racked Russia, but may have been staged political theatre. There no longer appears to be any friction between the two men. "I believe Russia recognizes Oleg's major role in building a renewed economic base in a broad range of domestic businesses and rejuvenating ailing companies and infrastructure," says Tye Burt, the Kinross Gold chief executive officer in Toronto who knows Mr. Deripaska.

Back from the brink

After a tumultuous two years, Basic Element seems more or less stable in its somewhat diminished form. After a disastrous start on the stock market, Rusal shares are up about 50 per cent in the last six months. Norilsk is worth about $50-billion, putting the value of Rusal's stake at more than $12-billion. Gaz, whose production lines came to a virtual halt during the crisis, is pumping out cars again. "Gaz is producing five times more vehicles than we used to produce during the Soviet Union [era]" Mr. Deripaska says..

The one looming threat, other than double-dip recession, is a nasty legal dispute with Michael Cherney, also known as Mikhail Chernoy, the Uzbekistan-born Israeli businessman and veteran of the aluminum wars who claims Mr. Deripaska cheated him out of a 20-per-cent stake in Rusal.

Mr. Deripaska denies he owes Mr. Cherney anything. He claims he was forced to work with Mr. Cherney and that Mr. Cherney extorted money from him. In 2008, a British judge ruled that Mr. Cherney's claims could be heard in British court. The case is to begin in April, 2012. In the meantime, Interpol is seeking the arrest of Mr. Cherney for alleged money laundering in Spain.

Mr. Deripaska is back in expansion mode and the one area that seems to excite him most, other than preparing Basic Element's Sochi airport and the Olympic village for the 2014 games, is hydroelectric power. EuroSibEnergo, Russia's biggest privately-owned hydro company, which is headed to the Hong Kong stock market next month, is emerging as Basic Element's potential growth champion. "I believe that this company will double its capacity in next 20 to 25 years," he says.

He believes that only hydro and nuclear power can save the planet from a carbon-dioxide fuelled inferno. "Hydro causes a lot less environmental damage that coal," he says. "Look at China; 3.2 billion tonnes of coal burned a year. Massive emissions into the atmosphere, massive ash on the ground."

But what about solar and wind power, and biofuels? Wind and solar are power, he says, will never been more than niche power sources while turning food like corn into fuel like ethanol is "definitely a mistake" because it puts upward pressure on food prices.

Which leaves nuclear and hydro power. The problem with nuclear is the exceedingly long time, sometimes decades, between concept and production. Building hydro plants takes fewer years and, if properly constructed and maintained, can last for centuries.

Enter Hydro-Québec. Basic Element and Hydro-Québec have been holding exploratory talks for several months about forming a technology and construction partnership to develop international power projects, possibly in Latin America. Mr. Deripaska is meeting Hydro-Québec's top executives in Montreal Monday to see if a formal partnership can be launched.

China is his other obsession. Mr. Deripaska doesn't buy the argument that China might be a bubble economy. "They have real demand for everything, for cars, for apartments and kitchen appliances," he says. "I just can't see anything that can stop them from growth. They just need it. It's not like the real estate market in Tokyo. That was artificial."

Russia in general and Basic Element in particular are poised to feed the Chinese tiger with everything from aluminum and hydro-power grids to uranium and rail cars. The potential is vast, he says, and will shift Basic Element's focus to the east, overhauling Russia's economy in the same way that Australia is thriving from its role as China's offshore storehouse of resources wealth. "China's reflection in Australian GDP is 20 per cent," he says. "In Russia, it's still less than 2 per cent."

Rusal, he says, is in a particularly good position to supply China because soaring Chinese energy costs will push down domestic aluminum production (making aluminum requires vast amounts of electricity). Imports will fill the gap. "Over time, I am very optimistic that China will import aluminum and steel," he says. "This will create opportunity for Rusal. Rusal will build another 1.5 million tonnes of capacity and become a six-million-tonne a year company."

The stay-at-home oligarch

Late in the evening, when the lights on the ski hill have been turned off and only the faint outline of trees against the snow is visible, I try to steer the conversation away from business and markets and statistics.

Iask what motivates him and I get elliptical responses. As far as I can make out, he considers himself a Russian patriot who wants to combine the best of the old Soviet Union - superb science and engineering training, infrastructure development, pride of country - with modern capitalism to drag Russia into a new industrial age.

"We are not investors," he says. "We run businesses. I am living here, of course and I care. I know we have a unique opportunity for my [country]to be developed."

The implication is that he doesn't want to be like the oligarchs who invest in portfolios of companies, as if they were buying mutual funds, or taking their fortunes overseas to load up on trophy assets. He will even criticize the men who made huge profits from the "loans-for-shares" scheme in the 1990s, when the cash-strapped government traded equity in state-owned enterprises, from telecommunications to energy, for loans. A small group of Russians got exceedingly rich by taking control of valuable - though epically mismanaged - companies on the cheap (Mr. Deripaska was not involved in the loans-for-shares).

The problem is that some of the industrialists, he says, "did not fulfill their promises" to reinvest back into Russia. Mr. Deripaska, the stay-at-home industrialist (minus the occasional yacht tour) considers Russia an obligatory market, as well as one that can earn him billions as he fixes up the decrepit economy.

At one in the morning, Mr. Deripaska has work to do and escorts me to the door. He says goodbye. I expect him to reach for his BlackBerry or phone. Instead Leo comes thundering into the foyer and I watch through the window as the unshaven billionaire laughs as he plays with his pet.

Editor's note: An earlier version of this story that appeared online and in Saturday's newspaper incorrectly stated that Britain's Chelsea football club paid £50-billion ($79-billion) for Spanish striker Fernando Torres. The correct figure is £50-million ($79-million).

______

CURRICULUM VITAE

Beginnings

- born Jan. 2, 1968, in Dzerzhinsk, and grew up in Krasnodar, a Cossack village in southern Russia

- raised by grandparents after his widowed mother had to move away to find a job

- told the Financial Times his mother, an engineer, helped him get his first job when he was 12, doing "electrical work" at her factory during the summer

- once drafted into Soviet army, spends two years in the Strategic Missile Forces

- graduates from Moscow State University with degree in physics in 1993. In 1996, a master's degree from Plekhanov Academy of Economics.

Career highlights

- becomes metals trader and in 1994 purchases a 20-per-cent stake in Sayanagorsk Aluminium Smelter in Siberia; later the smelter's director general

- establishes Sibirsky Aluminum Group and serves as its president in 1997.

- company renamed Basic Element in 2001; serves as chairman of supervisory board until 2009, when he becomes chief executive officer.

- serves as director general of Russian Aluminium (Rusal) 2000 to 2003

- Rusal, the Sual Group and alumina assets of Glencore International AG merge and become United Company Rusal in 2007; appointed CEO in 2009.

- Forbes magazine names him Russia's richest citizen in 2008

Business commitments

- Basic Element is a Russian investment company with holdings in sectors spanning energy, manufacturing, financial services, construction and aviation, among others.

- its more than 100 companies include such notable names as Rusal, Gaz Group, Transstroy and Ingosstrakh.

- Basic Element has assets in Europe, Asia, Africa, Australia, South America and the Caribbean.

Family life

- marries Polina Yumashev in 2001; they have two children.

- wife is daughter of a chief of staff to former Russian president Boris Yeltsin.

- is also Yeltsin's grandson by marriage as his father-in-law is to married Mr. Yeltsin's daughter.

Political connections

- wins the Order of Friendship from the Russian Federation in 1999.

- former Russian president Vladimir Putin appoints him to represent the Russian Federation in the Asia-Pacific Economic Cooperation Business Advisory Council in 2004

Recent setbacks

- global financial crisis hurts his business interests; forced to give up his $1.5-billion (U.S.) stake in Canadian auto parts maker Magna International after a margin call by a group of banks led by Paris-based BNP Paribas.

- also gave up a $500-million stake in Hochtief, Germany's biggest construction company and another stake in Austrian construction company Strabag. (He has since repurchased an interest in Strabag.)

- crisis also put a serious dent in his personal fortune. His net worth fell to an estimated $11-billion from about $28-billion prior to the crisis, according to Forbes.

Rita Trichur

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