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By John Helmer, Moscow

What can have motivated Vladimir Yevtushenkov (image right) of the Sistema conglomerate of Moscow to hire for his board of directors last week a man who is a magnet for negative British press coverage, and who was judged last year by the UK High Court for an action brought, and lost, by his friend, Nathaniel Rothschild?

The announcement of Lord Peter Mandelson’s (top left) appointment to the Sistema board, replacing Yevgeny Novitsky, was issued last Thursday. The announcement doesn’t explain what was wrong or obsolete with Novitsky’s talents or connexions, about which the Russian press have printed many allegations. Mandelson, on the other hand, is the owner of a small public relations company tied to WPP, an international conglomerate of PR firms controlled by Philip Lader, who sits on Oleg Deripaska’s Rusal board. Lader’s relationship with Mandelson has been described in a WPP press release as “provid[ing] seed capital along with additional benefits in kind including office accommodation”.

If Mandelson does for Sistema’s market capitalization what Lader has done for Rusal’s, Yevtushenkov may have to recalculate the value of PR men.

But Mandelson is also a banker of sorts — chairman of Lazard International, a branch of the Lazard investment banking business. Money usually talks louder than talk, and Yevtushenkov’s purpose for Mandelson signals that he probably needs more of the former than the latter. For one thing, the price of Sistema on the London Stock Exchange has been unusually volatile this year, as this chart shows:


Source: http://www.bloomberg.com/quote/SSA:LI/chart

Between top and bottom of the seesaw Yevtushenkov has been losing $2 billion. With his debt at almost $16 billion, and market capitalization of just $9.2 billion, the volatility intensifies the pressure on Yevtushenkov of Sistema’s banks and creditors.

Lacking source, evidence, and irony, the Financial Times reports that “Sistema is thought to have nominated Lord Mandelson…in an attempt to tap the British peer’s public relations skills and contact list.” But an attempt by the London Guardian to do better than that has resulted in this – a signal the newspaper received a litigation threat from the libel specialists Schillings. Schillings, however, is focusing on allegations the Guardian published about Yevtushenkov’s wife, and about Novitsky’s connexions. If Yevtushenkov is after stability for his share price and market capitalization, he may be planning to convert Sistema from global depositary receipts (GDRs) to a main board listing of shares on the London Stock Exchange: for that purpose can Mandelson’s reputation be more or less of a liability than Novitsky’s with the UK Listing Authority? Has Yevtushenkov counted that the cost of London lawyers to deter investigations around Mandelson may exceed the value of Mandelson’s appointment?

Whatever liability Yevtushenkov may be calculating he’s disposed of by substituting Mandelson for Novitsky, it has been evident that Yevtushenkov’s political clout in Russia was seriously diminished when Yury Luzhkov was dismissed as Mayor of Moscow in September 2010, and moved to London with his family. Since then the test of Yevtushenkov’s influence is how much the Kremlin has done to protect his billion-dollar telephone concession in Uzbekistan from the revocation it suffered last year? Answer: not much. Apart from a telephone call to Tashkent by Foreign Minister Sergei Lavrov, make that nothing at all.

In its latest financial report, Sistema reports a writedown of $546 million for the loss of its Uzbek assets, and it continues to face tax and other liabilities there. Yevtushenkov is in court in the Isle of Man this week trying to remedy a similar concession revocation in Kyrgyzstan in 2005 and 2006, masterminded in a fraudulent conspiracy, so Yevtushenko alleges, by his Moscow rival Mikhail Fridman. If Yevtushenkov were as close to President Vladimir Putin as the media releases suggest, how come the Kremlin hasn’t intervened during the seven years that affair has been spilling Russian business secrets into the public record?

Sistema’s telephone business accounts for just over one-third of the group’s revenues, but nearly two-thirds of its earnings. Oil production and refining generate 50% of revenues, but one-third of earnings. The remainder of revenues and earnings comes from a disparate collection of assets – farming, medical clinics, the Moscow children’s department store Detsky Mir, electricity distribution, Intourist, pharmaceuticals, mass media, and a bank Yevtushenkov’s wife keeps watch at. Last year Yevtushenkov decided to expand into a new line of railway transportation business. Mandelson’s skills don’t include railways, and his influence has yet to be tested with Gulnara Karimova, bête noire for Yevtushenkov in Uzbekistan. He may, however, do better at drawing the Chinese into contributing capital to Bashneft’s new oilfields, or alternatively promote a Chinese purchase of the 25% shareholding Yevtushenkov’s agents have been trying to sell in that oil business. So far, negotiations for such a deal with Sinopec have been as unrewarding as an earlier round with India’s Oil and Natural Gas Corporation (ONGC).

If Yevtushenkov intends to divest Sistema of non-core assets – many of them picked up in Moscow at the urging of Mayor Luzhkov – the dealmaking is likely to be concentrated among domestic buyers, and unlikely Mandelson will be of any help.

It is possible that Yevtushenkov has a kind heart and feels charitable towards retired British politicians having trouble making ends meet. Perhaps he is trying to repair the damage to Mandelson’s reputation which was done by the judgement of Justice Sir Richard Tugendhat in the case of The Honourable Nathaniel Philip Victor James Rothschild v Associated Newspapers Limited, followed by the Appeals Court ruling of Justices Sir John Laws, Sir Richard McCombe and Sir David Eady. The full story can be read here.

The court case flowed out of a January 2005 trip Rothschild invited Mandelson to take on his aeroplane, first to Moscow, and then to Abakan. Included in the meetings or along for the ride were Oleg Deripaska of Rusal, Peter Munk of Barrick Gold, Alain Belda of Alcoa, and Alexei Kudrin, then Russia’s Finance Minister.

Tugendhat ruled against Rothschild, dismissing his claims against the publisher of the Daily Mail; his judgement was subsequently endorsed on appeal. Since Mandelson didn’t testify, and wasn’t a party to Rothschild’s libel claims, the four judges stopped short of condemning Mandelson’s conduct as they did Rothschild’s– but not altogether. Read Tugendhat’s judgment in its entirety.

According to Tugendhat, “there is at the very least reasonable grounds to believe that Mr Deripaska’s interest in providing to Lord Mandelson such luxurious and generous hospitality was as Mr Caldecott [advocate for Associated Newspapers] suggested. And I cannot accept that Mr Rothschild was unable to foresee this at the time he invited Lord Mandelson on the trip. In my judgment Mr Rothschild did appreciate this at the time. A holder of public office such as a Commissioner is required to make a clear distinction between his public life and his private life…

“By facilitating the development of a relationship between Mr Deripaska and Lord Mandelson, Mr Rothschild was, in my judgment, conferring a benefit on, and seeking to please, both Mr Deripaska and Lord Mandelson. So far as Lord Mandelson was concerned the benefit was the trip and the hospitality itself. So far as Mr Deripaska was concerned it was a relationship with the EU Trade Commissioner. A businessman with such extensive and global interests as Mr Deripaska would be likely to welcome an opportunity to get know a person in Lord Mandelson’s position…

“Mr Caldecott submits that on his own version of events, or on the facts that I have found, Mr Rothschild’s conduct was inappropriate in a number of respects. I accept that submission. In my judgment that conduct foreseeably brought Lord Mandelson’s public office and personal integrity into disrepute and exposed him to accusations of conflict of interest, and it gave rise to the reasonable grounds to suspect that Lord Mandelson had engaged in improper discussions with Mr Deripaska about aluminium.”

The Court of Appeal was also negative towards Mandelson. Sir John Laws wrote, quoting Tugendhat, “ ‘nothing in this judgment should be taken as a criticism by me of anyone who is not a party to the action. That would not be fair…” the judge was plainly right to say so. But the narrative of the case, founded on the evidence accepted by the judge, must inevitably throw light on the conduct and character of participants in the relevant events…I [Laws] should note also, if only for completeness and because Lord Mandelson is not a party to these proceedings, that the judge did not accept the submission that the article alleged there were grounds to suspect Lord Mandelson of corruption; only error of judgment (see paragraph 31).”

According to Lord Justice Laws, “their sting [of the original newspaper report] is in the context; and the context reveals a web of relationships.” Web of relationships – isn’t that what the Financial Times reports Mandelson as selling to Yevtushenkov? The four judges suggest that anyone hiring Mandelson for “relationships” may be running the risk the London market shares with the courts – the cost of “error of judgement”.

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