The gatekeepers "could do all the things I couldn't do or didn't want to do," a former Glencore trader, speaking on condition of anonymity, told me.
In Russia, Glencore's chief sponsor has been oilman Mikhail Gutseriev, who in 1995 was elected to the Duma as a member of right-wing nationalist Vladimir Zhirinovsky's party, which he also lavishly financed. Gutseriev also owned a bank and casino, and he was running a newly created tax-free business zone in Ingushetia, a small, violence-ridden republic bordering soon-to-be-war-torn Chechnya. In her book Sale of the Century, Chrystia Freeland describes his Moscow offices as decorated in gold, crystal, and floral designs that "an eight-year-old girl with a princess fantasy and a gold credit card might concoct" and the casino's décor as "oil paintings of naked women wrapped in furs" and private bedrooms with mirrored ceilings and Jacuzzis. "Sometimes we have special guests and they like to be entertained," Gutseriev explained to her. Later, Gutseriev went into the energy business -- he was understatedly described in a U.S. diplomatic cable released by WikiLeaks as "not known for his transparent corporate governance." He did well. Today he regularly appears on Forbes's list of the richest Russians, with a fortune estimated at around $6.7 billion.
A decade ago, though, Gutseriev was down and seemingly out. In 2002, the Kremlin fired him as the head of state-owned oil firm Slavneft for resisting the company's privatization, according to the WikiLeaked cable. That same year, however, he sought to regain his position at Slavneft by arranging for three busloads of armed guards to take over its Moscow offices. They withdrew after occupying the building for several days, according to an account in the Russian press.
But Gutseriev soon staged a comeback. Within a few years, he had bought a number of small energy firms and had patched them together into RussNeft, which by 2006 had become one of Russia's biggest oil companies. But Gutseriev's meteoric rise to full-fledged oligarch status was only possible due to massive assistance from Glencore's hidden hand, according to my sources. Business contracts I obtained show the company financed RussNeft's "spectacular growth" and "aggressive acquisition strategy" -- as one confidential 2005 Glencore document put it -- at every step. Total funding was around $2 billion, much of it funneled to offshore companies owned by Gutseriev through a Cypriot-registered company of Glencore's called Interseal.
The 2005 document said that thanks to Glencore's financial backing, RussNeft's assets had increased 14 times over the previous three years. Glencore had "been working closely with M. Gutseriyev since his time at Slavneft," the document said, and "appreciates his acquisitive nature and ability to identify good assets in a short space of time." A well-placed source familiar with the deals echoed that assessment, though in blunter terms: "Glencore associated with him because he could buy physical assets in Russia and it couldn't. The deal was sheer balls, but that's the type of thing Glencore does."
In return for its funding, Glencore got an exclusive deal to market RussNeft's oil, won the right to appoint senior personnel, and ended up with about half the equity in four oil production subsidiaries. But even financial analysts have trouble figuring out RussNeft's "opaque" accounting, making it difficult to calculate Glencore's current stake in the company and its subsidiaries.
KEEPING OLIGARCHS HAPPY has been a Glencore specialty fully on display in Kazakhstan, another of those "challenging political jurisdictions" with vast energy and mineral resources.
In April 2011, President Nursultan Nazarbayev, who has ruled for more than 20 years, won 95.5 percent of the vote in an election widely seen as rigged. Under Nazarbayev, the country's economy has boomed over the past decade with the discovery of minerals and vast natural gas fields, but the new gains haven't trickled down; meanwhile, a money-soaked new elite has joined the ranks of the planet's biggest spenders. A WikiLeaked U.S. diplomatic cable noted that the country's leaders "are able to indulge in their hobbies on a grand scale, whether flying Elton John to Kazakhstan for a concert or trading domestic property for a palace in the United Arab Emirates."
Glencore's prospects are also booming in Kazakhstan, where it owns slightly more than half of Kazzinc, a huge gold, lead, and zinc producer worth up to $7.6 billion to Glencore at the time of its IPO. Glencore owns several other assets in Kazakhstan, and its gold production in the country is expected to double by 2015, according to Deutsche Bank. In a sign of Glencore's ambitions there, CEO Glasenberg traveled to Kazakhstan last year to attend an investment meeting with top government officials and businessmen.
Still, Kazakhstan can be treacherous terrain for foreign investors. A U.S. Commerce Department report warns of "burdensome regulations that often reflect a way of doing business that is reminiscent of the Soviet Union." The Heritage Foundation think tank notes similar problems in Kazakhstan: "[C]orruption remains endemic, eroding the rule of law."
SUBJECTS:
