Tories demand answers over Lord Mandy's links with super-rich Russian oligarch

By David Williams

Peter Mandelson leaves his home in Camden with his despatch box. Questions are now being asked about his links with Russian tycoon Oleg Deripaska

Questions are now being asked about Peter Mandelson's links with Russian tycoon Oleg Deripaska

Peter Mandelson was at the centre of disturbing new questions last night over his relationship with one of the world's richest men.

The controversial Business Secretary faces calls to make a statement to the House of Lords to explain more about his friendship with Russian Oleg Deripaska.

Concerns over a 'potential conflict of interest' have arisen after two companies asked for Lord Mandelson's help following claims that one of Mr Deripaska's firms had cheated them over a $1billion (£575million) deal in Moscow.

The then European Trade Commissioner took up their case only for it to emerge that he had enjoyed hospitality aboard the 238ft yacht Queen K, owned by the very man who was the subject of the complaint.

The magnificent Queen K, with a crew of 21 including a cordon bleu chef, has cabins for 16 guests and has undergone an extensive refurbishment since the Russian bought it two years ago.

With six decks, of which the topmost is entirely reserved for Mr Deripaska, the vessel has a pool, a jacuzzi, sauna and gym.

The bathroom adjoining the master suite is clad in onyx, while the taps and fittings are gold. The spacious guest staterooms have marble bathrooms.

A link between the newly ennobled Baron Mandelson of Foy in the County of Herefordshire and Hartlepool in the County of Durham and 40-year-old Mr Deripaska is believed first to have been made by his friend Nat Rothschild, a financier who advises the Russian tycoon, and his father Lord Rothschild.


Floating palace: The Queen K super-yacht comes complete with gold-adorned bathrooms and luxury guest rooms, below

Interior of Queen K yacht, formerly the Queen 'M'

The Queen K is said to have been moored off the north-eastern coast of Corfu, where the Rothschilds have a home, when the then-commissioner was seen aboard.

When his presence on board was first reported, Lord Mandelson said he was merely attending a drinks party given by Mr Deripaska. He then said he had last seen Mr Deripaska at a dinner hosted by media tycoon Rupert Murdoch in Corfu.

It subsequently emerged he and other guests had been 'billeted' aboard the £80million yacht because Nat Rothschild had run out of room at his house in August.

Last night politicians in both London and Brussels were planning to table questions demanding that Lord Mandelson make a statement to clarify why he failed to explain the potential conflict of interest.

Russian aluminum magnate Oleg Deripaska

Peter Mandelson is being probed over 'conflicts of interest' with Oleg Deripaska, a Russian aluminum magnate

Syed Kamall, Conservative MEP for London, said: 'He should come clean as soon as possible because as long as these allegations are swirling around they are a distraction from the very serious matters in which he and the Government are involved.'

In addition, during his spell at the EU, Lord Mandelson twice acted to cut European import duties on aluminium from which Mr Deripaska's companies benefited by up to £50million a year, though there has been no suggestion he acted improperly.

The issue will raise fresh questions over Lord Mandelson's judgment after he twice previously resigned from Cabinet posts over problems caused by his relationships with the rich and famous.

He was forced to resign in 1998 after receiving a £373,000 interest-free loan from then Paymaster General Geoffrey Robinson, and again in 2001 after allegations that he helped to obtain a British passport for Indian businessman Srichand Hinduja, although he was cleared of any wrongdoing.

The deal in which Lord Mandelson was asked for help by businessmen in Italy and the Czech Republic has its roots in 2006 when a Russian tycoon made it known he was keen to sell 38.46 per cent of Ingosstrakh, Russia's second biggest insurance company, which is majority-owned by Mr Deripaska's company, Basic Element.

According to reports, the deal was worth $1billion and PPF Investments, a Czech company-went in with Generali, an Italian corporation, to purchase the minority shareholding. Approved by the Russian authorities, the deal was completed in December 2006.

Recent honours: Peter Mandelson is introduced to the House of Lords as Lord Mandelson,of Foy in Our of Herefordshire and of Hartlepool in Our County of Durham

Recent honours: Peter Mandelson is introduced to the House of Lords as Lord Mandelson, of Foy in Our of Herefordshire and of Hartlepool in Our County of Durham

However, it is claimed, Mr Deripaska was unhappy. In October last year Ingosstrakh held a special meeting at which majority shareholders voted to reduce the stake held by the European companies to less than 10 per cent.

The furious Czechs and Italians allege that it was what they called a classic share dilution scam. They said they knew nothing of the meeting at which the shares had been reduced in value and insisted that they had been defrauded. Significantly, they point out, their claim was later upheld by a Moscow court.

But while they celebrated their victory, Mr Deripaska, a close ally of Russian's Prime Minister Vladimir Putin, appealed to a Russian court, which has never been identified. It found in the billionaire's favour.

Crucially, the decision of this unidentified court cancelled the voting rights of the Europeans, thus in effect reversing the decision that they had been cheated in the share dilution.

Both PPF Investments, which is headed by self-made Czech billionaire Petr Kellner, and Generali decided to fight on and took their case to Lord Mandelson.

They were supported by a number of MEPs who claimed it was a clear case of discrimination against European investors.

It was against this charged background that executives from the European companies learned that Lord Mandelson had been a guest of Mr Deripaska aboard the Queen K.

And they have watched 'aghast' as more details of the Russian's hospitality towards the former commissioner have emerged. They believe, too, that Lord Mandelson has so far failed to give a full account of his contacts with Mr Deripaska.

Peter Mandelson with Foreign Secretary David Miliband outside Downing Street

Peter Mandelson with Foreign Secretary David Miliband outside Downing Street

A spokesman for Prague-based PPF Investments, Jan Piskacek, said last night : 'Naturally, we are surprised by this private meeting, and do not understand the circumstances under which it would have taken place - our previous communications with Mr Mandelson on this case have always been very useful and fair.'

According to a report in the Evening Standard, a 'close source' claimed that Lord Mandelson had previously spent a week aboard the Queen K and had stayed on another occasion. His partner Reinaldo Avila da Silva had also been a guest, the source suggested.

Last night Lord Mandelson's aides issued a statement which said: 'He was in Corfu to attend a birthday party for Rupert Murdoch's daughter. He does not see why more importance should be attached to Mr Deripaska than any other guest.

'He is entirely satisfied he has separated his private and public lives and will continue to do so.' His spokesman in Brussels said yesterday that the then European Trade Commissioner had raised the Ingosstrakh issue with the Russian trade minister and, on leaving his post, had left instructions that it was to be followed up. 'There is no conflict of interest,' he stressed.

However, questions over Lord Mandelson's judgment and friendship with Mr Deripaska, who is currently facing problems of his own, are certain to remain.

Known in Russia as the 'king of aluminium', he is said to have a ruthless business ethic and a knack for cultivating political contacts - he married into the family of Boris Yeltsin, the former Russian president.

For some years he has struggled to distance himself from stories linked to his early business career. A friend of Chelsea owner Roman Abramovich, he built his £28billion empire in Russia in the 1990s when disputes could end in contract killings.

Russia's wealthiest oligarch is currently denied entry to the United States after the FBI asked the U.S. State Department to cancel his American visa in 2006.

Mr Deripaska is said to blame 'bureaucracy' but the Wall Street Journal reported the visa was revoked in July 2006 'after officials from the Department of Justice concluded that Mr Deripaska wasn't being candid with them about his past business dealings'.

Separately, the paper has also reported that he is being investigated by the British and American authorities over a £33million wire transfer last year amid suspicions that it involved money laundering or another crime.